SC Dismisses Tax Appeal as Developer Status Under Section 80IA Already Settled

PCIT Vs Montecarlo Limited (Supreme Court of India)

The Revenue filed a Special Leave Petition (SLP) before the Supreme Court challenging the judgment of the Gujarat High Court, which had dismissed a tax appeal arising from an order of the Income Tax Appellate Tribunal for Assessment Year 2017–18. The Tribunal had deleted a disallowance of ₹86.52 crore made under Section 80IA(4) of the Income-tax Act, 1961, holding that the assessee was a developer of infrastructure facilities and not merely a contractor, and therefore eligible for deduction.

Read Gujarat HC Judgment: Gujarat HC Allowed Section 80IA Deduction as Assessee Held to Be Infrastructure Developer

The Supreme Court noted that there was an unexplained delay of 358 days in filing the SLP. It further observed that the judgment relied upon by the High Court, on the basis of which the impugned order had been passed, had not been challenged earlier and had attained finality. On these grounds, the Supreme Court dismissed the SLP both on the ground of delay and on merits, thereby affirming the High Court’s decision.

Before the High Court, the Revenue had proposed the question of law as to whether the Tribunal erred in allowing deduction under Section 80IA(4) by treating the assessee as a developer rather than a contractor. The High Court recorded that the issue was no longer res integra, as it had already been decided by the same Court in Tax Appeal No. 786 of 2023 for Assessment Year 2008–09, involving the same assessee and based on the same Tribunal order. In that earlier decision, the High Court had dismissed the Revenue’s appeal on identical grounds.

The High Court examined Section 80IA(4), which grants a deduction of 100% of profits for specified years to enterprises engaged in developing, operating and maintaining, or developing and operating infrastructure facilities, subject to prescribed conditions. The Court also considered the Explanation inserted below Section 80IA(13) by the Finance Act, 2007 and amended by the Finance (No.2) Act, 2009 with retrospective effect from 1 April 2000. The Explanation clarifies that deduction under Section 80IA(4) is not available to an enterprise executing a project in the nature of a works contract awarded by any person, including the Government.

The Tribunal and the Commissioner (Appeals) had concurrently found, on detailed examination of facts, that the assessee had undertaken development of infrastructure facilities and was not merely executing works contracts. The appellate authorities analysed agreements and tender documents relating to road and canal projects, including rehabilitation, widening, upgradation, and strengthening of roads. They noted factors such as the assessee bearing investment risk, furnishing security deposits, facing penalties for delay, procuring materials independently, employing qualified engineers, assuming defect liability, and bearing responsibility for workmen compensation and insurance. On these facts, it was held that the assessee acted as a developer of infrastructure facilities.

Relying on these concurrent factual findings, the High Court held that the Explanation to Section 80IA(13) barred deduction only in cases of works contracts and did not apply where the assessee functioned as a developer. Since the same issue had already been settled in the assessee’s favour in an earlier year, the High Court concluded that no substantial question of law arose from the Tribunal’s order and dismissed the Revenue’s appeal.

The Supreme Court’s dismissal of the SLP, both on delay and on merits, resulted in final affirmation of the High Court’s view that the assessee was entitled to deduction under Section 80IA(4) as a developer of infrastructure facilities, and that the Revenue’s challenge did not warrant further consideration.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1. There is a delay of 358 days in filing the Special Leave Petition which has not been explained satisfactorily.

2. Moreover, the relied upon judgment on the basis of which the impugned order has been passed, has not been appealed against and has attained finality.

3. In view of the above, the Special Leave Petition is dismissed both on the ground of delay as well as on merits.

4. Pending application(s), if any, shall stand disposed of.