2013-VIL-982-ITAT-HYD

Income Tax Appellate Tribunal HYDERABAD

ITA No. 472 to 475/Hyd/2009 & ITA No. 1906/Hyd/2011, & ITA No. 1668/Hyd/2011

Date: 17.07.2013

RAMKY INFRASTRUCTURE LTD.,

Vs

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-3 (1) HYDERABAD & OTHERS

For the Appellant: Sri Samuel Nagadesi
For the Respondent:  Sri D. Sudhakar Rao

BENCH

SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER

JUDGMENT

2. The only issue arising out of these appeals is with regard to denial of deduction by lower authorities u/s. 80IA(4)(i) of Income-tax Act, 1961 on the profit derived from business of developing new infrastructure facilities.

3. Facts in all these appeals are common in nature. For convenience, we consider the facts as narrated in ITA No. 472/Hyd/2009 for A.Y. 2003-04.  

3.1 Brief facts of the case are that the assessee is a company engaged in the business of civil works and turnkey execution of effluent treatment plants and sewerage treatment plants. It is a civil contractor. During the year under consideration, it has carried out certain contract works allotted by some of the State Governments with regard to construction of housing projects, sanitary systems, etc. It claimed that it had developed infrastructure facilities like water supply system, sanitation, sewerage system and solid waste management etc., and accordingly claimed deduction u/s. 80IA of Rs. 3,43,37,519. 3.2 The Assessing Officer required the assessee to furnish details of projects with respect to the deduction claimed as above. After going through the details relating to contracts in executing the projects as mentioned in page-2 of the assessment order, the Assessing Officer proceeded to examine the claim of deduction u/s. 80IA. The Assessing Officer observed that deduction u/s. 80IA is available to an assessee whose gross total income includes any profits and gains derived by an enterprise, from any business referred to in subsection (4) of section 80IA of the Income-tax Act. According to sec. 80IA(4)(i), 100% deduction has been provided in respect of profits and gains derived by any enterprise carrying on the business of:

a) Developing or

b) Maintaining and operating or

c) Developing, maintaining and operating, an infrastructure facility.

3.3 He also noted that in order to qualify such deduction the following conditions are to be satisfied:

a) The enterprise carrying on infrastructure business is owned by a company registered in India or by a consortium of companies registered in India.  

b) The enterprise has entered into an agreement with the Central Government or State Government or a Local Authority or any other Statutory Body for (i) developing or (ii) operating and maintaining or and (iii) developing, operating an infrastructural facility.

c) The enterprise should start operating and maintaining the facility on or after 1st April, 1995.

3.4 Referring to Circular No. 14/2001, he noted that the required condition for availing the said benefit is that transfer under BOT (build, own, transfer) and BOOT (build, own, operate and transfer) schemes have to be met. He noted that the amendments envisaged were to take effect from 1.4.2002 i.e., in relation to assessment years 2002-03 onwards. Accordingly, he noted that as per the provisions of sec. 80IA and the said circular, to qualify for deduction u/s. 80IA for an infrastructure facility, the enterprise of the assessee has to satisfy the following conditions:

a) It has to enter an agreement with Central Government or State Government or local authority or any other statutory body for (a) developing, (b) operating and maintaining and (c) developing, operating and maintaining a new infrastructure facility; and

b) The infrastructure facility should be a new one and that the specified infrastructure facilities are road, highway project, water supply project, water treatment system, irrigation project, sanitation and sewerage system, solid waste management system, port including an airport.

3.5 Accordingly, the Assessing Officer examined the eligibility of the contracts executed by the assessee for deduction u/s. 80IA of the Act. In respect of the following projects, the Assessing Officer held that the entities names against them were developing the projects whereas the assessee was merely a contractor and, therefore, was not entitled to deduction u/s. 80IA of the Act:

Sl.No.	Description of infrastructure facility	Contractee/Developer
1.	Providing water facilities and sewerage facilities to newly added areas of Bangalore Maha Palika Municipality.	Bangalore Water Supply and Sewerage Board, Bangalore.
2.	Providing third stage water supply scheme to Tarikera Town.	Karnataka Urban Water Supply and Drainage Board.
3.	Providing third stage water supply scheme to Channarayapatna..	Karnataka Urban Water Supply and Drainage Board, Channarayapatna
4.	Design, construction and commissioning of 8 million gallon per day capacity water treatment plant with rapid filteration process.	Vijayawada Municipal Corporation, Vijayawada.
5.	Construction, development and maintaining of Mumbai Waste Management.	Mumbai Waste Management Ltd., Mumbai.
6.	Expansion of capacity of Kasimedu Pumping Station and Pumping Main	Chennai Metropolitan Water Supply Sewerage Board, Chennai.
7.	For providing, laying, jointing, testing and commissioning of lateral, interceptor sewers in remaining areas of walled city including construction of manholes, appurtenances along with restoration of roads in Bikaner, Rajasthan.	Infrastructure Development Project, Jaipur.
8.	Construction of service reservoirs, supply delivery and erection of pump sets, supply, delivery and laying and testing of TSC pipes, PVC pipes.	Engineering Projects India Ltd., New Delhi.
9.	Providing and laying internal sewerage system and construction of manholes in Zone No. II and Zone No. III of Hassan City.	Karnataka Urban Water Supply and Drainage Board, Hassan.
10.	Earth work excavation, lining of canal and construction of structures of Nitchenametla and Chennampalli major, minor and sub minors in Block No. 12 of SRBC.	CAD (PW) Dept., Nandyal, A.P.
11.	Providing and constructing 6 MLD capacity sewerage treatment plant (STP)	Maharashtra Jeevan Pradhikaran Works Division No. 2, Nanded, Maharashtra.
12.	Improvement to Sangareddy, Narsapur, Toopran road from km 0/0 to 7/0 in Medak Dist.	S.E. (R&B), Nizamabad Circle, Nizamabad.
13.	Upgradation of six roads in Warangal District.	Panchayatiraj Engineering Dept., Hyderabad.
14.	Upgradation of rural roads in Karimnagar Dist.	Panchayatiraj Department, Karimnagar.
15.	Upgradation of 7 rural roads in Warangal Dist.	Panchayatiraj Department, Warangal.
16.	Integrated lake conservation project for Langer House lake	HUDA, Hyderabad.
17.	Integrated lake conservation project for Saroornagar lake.	HUDA, Hyderabad.

3.6 Considering that the assessee-company was only a contractor who executed the works allotted by the respective State Government, the Assessing Officer concluded that the assessee did not come within the provisions of any subsection of section 80IA. Accordingly, the deduction claimed u/s. 80IA was disallowed.  

3.7 On appeal, the CIT(A) observed that the contract works allotted to the company happened to be specific types of works as mentioned u/s. 80IA, the assessee does not get entitled to deduction. He held that the assessee-company is not a developer of the projects mentioned u/s. 80IA and is not entitled to deduction under the said section. Accordingly, the Assessing Officer disallowed the claim of Rs. 3,43,37,510 u/s. 80IA of the Act. The CIT(A) confirmed action of the Assessing Officer.

Similar is the position in other assessment years and there is only change in figures. Against the denial of deduction u/s. 80IA(4) of the Act, the assessee is in appeal before us. Against this, the assessee is in appeal before us.

4. The learned AR before us reiterated the same submissions as made before the lower authorities. The crux of the arguments of the assessee's counsel before us is that the assessee is engaged in development of infrastructure facilities.

Being so it is entitled for deduction u/s. 80IA of the Act. He also relied on various judgements as mentioned below:

a) M/s. GVPR Engineers Ltd. vs. ACIT, in ITA No. 347/Hyd/2008 dated 29.2.2012.

b) M/s. Koya and Company Construction Pvt. Ltd. vs. ACIT in ITA No. 180/Hyd/2006 & Ors.

c) M/s. KMC Constructions Ltd. vs. ACIT in ITA No. 996/Hyd/2003 & Ors. dated 16.3.2012.

d) M/s. Nagarjuna Construction Company Ltd. vs. ACIT, ITA No. 141/Hyd/2007 & Ors. dated 27.8.2012.

e) M/s. Maytas NCC (JV) vs. ACIT, ITA No. 1292/Hyd/2010 dated 27.8.2012.

f) Lakshmi Civil Engineering Works vs. Addl. CIT, ITA No. 766/PN/09 & Ors., dated 8.6.2011.

g) ABG Heavy Industries Ltd. 322 ITR 323 (Bom)

h) Katira Construction Ltd. vs. Union of India SCA No. 11781 of 2009 & Ors. dated 28.2.2013 (Gujarat).

i) Sushee Hi-tech Constructions Pvt. Ltd. vs. ITO, ITA No. 414/Hyd/2012 dated 17.6.2013  

5. The learned DR filed detailed written submissions and also he relied on the orders of the lower authorities. According to the DR to be eligible for deduction under section 80IA(4) of the Act, all the three conditions mentioned in the sub-section should be cumulatively fulfilled. According to him, the assessee should have been engaged in development and maintenance of infrastructure facility. A mere developer is not eligible for deduction under section 80IA (4) of the Act. In this regard, he referred to sub-section (2) of Sec. 80IA (4) and also sub clause (c) of the section 80IA(4) (i). The words used in sub-clause (c) “started” or “starts” operating and maintaining infrastructure facility on or after first of April, 1995 would apply only to the second type of enterprise who undertakes the work of “maintaining and operation”. It would not apply to a person who is engaged in developing infrastructure facility as the word “developed” is not used in the said sub clause. Further, this is analysed by various courts. It is held clearly that such a provision i.e. clause (c) would apply only to such enterprises engaged in maintaining and operating the infrastructure. The Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd. [322 ITR 323] observed that the requirement that the operation and maintenance of the infrastructure facility came after first of April, 1995 has to be harmoniously considered with the main provision under which deduction is available to the assessee which develops or operates, maintains and develops or operates and maintains infrastructure facility. There is significance for clause-(c) in so far as the enterprises carrying on business of developing and maintaining and operating infrastructure facility are concerned. To be eligible for deduction under sub-section (4A), any enterprise has to commence its operation on or after 01-04-1995. This clarified that any enterprise commencing its operations prior to the said date, but continuing to do the said activity for the assessment years 1996-97 and onwards would not be eligible. As submitted that sub section (4A) was removed with effect from the assessment year 2000-01 by the Finance Act, 1999. A new sub section (4) was introduced by the said Finance Act. Sub section (4) extended deduction to such enterprises which develop infrastructure or which maintain and operate infrastructure facility or which develops, maintains and operates an infrastructure facility. It is clarified by the Board that sub section (4A) was deleted and the deduction earlier available continues in lieu of sub section (4) of Section 80IA. Therefore, the condition mentioned in sub section (4A) that an enterprise commencing its activity of operating, maintaining the infrastructure facility on or after the first day of April, 1995 would only be eligible for deduction. Therefore, it applies to those enterprises which were earlier eligible for deduction under sub section (4A) and which will be continued to be eligible for deduction under sub-section (4). Such provision has no application to the case of the assessee, which became eligible for deduction under sub-section (4) of Sec. 80IA of the Act.

Therefore, sub-clause (c) came into play only in respect of those concerns which claimed deduction for maintaining and developing the infrastructure facility and not for the assessee who only develops. The meaning of the word “developer” and the eligibility of the business to claim deduction meant for ‘development of infrastructural facilities’ within the meaning of section 80IA has to be seen in the context of the genesis and legislative history of the section as held by the Supreme Court in the case of CIT vs. N.C. Buddhiraja (204 ITR 412,433) the provision as introduced by the Finance Act, 1991 as amended by Finance Act, 1996, Finance Act, 1999, Finance Act, 2001, up to Finance Act 2007 and Finance Act, 2009 and as explained by Circular 794 dated 9-8-2000 Circular 779 dated 14-9-1999 (240 ITR st. 32), Circular 794 dated 9-8-2000, Circular 779 dated 14- 98-1999 (240 ITR st. 32), Circular 794 dated 19-8-2000, Circular 14/2001 (252 ITR st. 98) and Circular 3/2008 dated 12-03-2008 (168 Taxman St. 12,54) brings out the objectives of the statute and expectations of the law-makers in bringing the enactment. The statutory provisions as would be apparent from the Circulars and Explanatory Notes referred to herein-above seek to incorporate a quid pro quo between introduction of investment and entrepreneurial resources from the private sector and a tax deduction from the government to enable recoupment of expenditure incurred. The BOT/BOOT models seek to augment infrastructural assets in addition to governmental spending and not simply feed on government expenditure. The deduction under section 80IA is, therefore, available to the former, and not to the latter forms of business.

The deduction claimed under section 80IA of the Act as prescribed in sub-section (1) is “in accordance with and subject to the provisions of this section....” in sub section (2), it is stated that the deduction is available for the specified number of years “brining from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication services or...” it is clear therefore that the deduction is inextricably connected to the commencement of operations of the infrastructure facility. It is apparent that the facility has to be conceived of in its totality because part of the infrastructure facility has not existence independent of the whole. A certain number of kilometres of a highway or irrigation canal has no existence by itself, and is incapable of becoming operational without reference to the rest of the project, of which it is only a part. It is evident from the agreements filed by the assessee that the assessee undertook to execute the work on NHAI’s specifications, at rates agreed upon, subject to measurement, within a period of 36 months of commencement.

6. He submitted that agreement filed by the assessee in the paper book wherein the details of rate analysis, Bill of quantities etc., make it clear that the assessee had no autonomy in matters of design and specification which completely vested with the employer. The only lawful entitlement of the assessee was to be paid for the measurement of work completed at rates agreed upon. The partial and sectional nature of the proposed work is immediately clear from this notice and it is also apparent from this that the section of the road proposed for improvement has no independent existence capable of satisfying the requirement of section 80 IA (2). Therefore, this project is incapable of commencement of operations by itself, or to quality the larger infrastructure facility of which it is a part. The assessee also gets mobilisation advance as well as interest-free advance for machinery purchase and there is no element of entrepreneurial initiative or financial participation of the contractor in this kind of a project. The successful bidder merely executes a Government contract and gets paid for it at mutually agreed rates and the nature of responsibilities assumed under the other contracts as per agreements. It is further stated that during the hearing, the authorised representative of the assessee was at pains to emphasise that the assessee undertook maintenance work and was hence in the same league as a developer. However, it is clear from the document as furnished in the paper book that the maintenance function was actually remedying of defects for a prescribed period. No separate charges have been collected and this cannot be seen as a maintenance function.  

7. The ld. DR submitted that on these facts, having regard to the responsibilities assumed under the agreement, the assessee cannot be seen as a developer; instead it plays the role of an executor/contractor. The contracts in question are in the nature of works contracts, the explanation inserted below section 80IA (13) of the Act with retrospective effect from 1-4-2000 has overriding influence and debars the assessee’s claim. The law on the subject of application of a retrospective amendment is clear from the special Bench decision of the Tribunal in the case of Aquarius Travels P Ltd. Vs. ITO (111 ITD 53). Such provisions should be applied in pending proceedings, even when they have not been involved earlier. As matters stand, therefore, the most important question for examination on facts is whether the business agreement in question can be termed a works contract or not. If the answer is in affirmative, nothing else matters because the Explanation takes over. If not, the other factors such a development/operation etc., and other specified conditions become relevant. Reliance was placed in this regard on the decision of the Mumbai High Court in the case of Glenmark Pharma (324 ITR 199) which digests the case law for ascertainment of whether facts of the agreement would amount to a contract for work or for sale.

8. He placed reliance on the decision of jurisdictional High Court in the case of Dr. Mrs. Renuka Datla vs. CIT (240 ITR 463) (AP), the provisions granting exemptions have to be strictly construed. It was held by the Supreme Court in the case of IPCA Laboratory Limited vs. DCIT (SC) 266 ITR 521 that when there is no ambiguity, provisions cannot be interpreted to confer a benefit upon the assessee. The provision is incapable of application to the facts of the assessee’s case because the assessee is only an executor of a contract, which is in turn, part of a larger project undertaken by the Government, or its agency.  

By referring to the two decisions relied upon by the learned counsel for the assessee, Mumbai High Court in the case of CIT vs. ABG Heavy industries Limited reported in 322 ITR 323 and ITAT Pune Bench in the case of Laxmi Civil Engineering Pvt. Ltd., vs. Addl. CIT Kolhapur (unreported/ITA No.766/Pn/09 dated 8-6-2011), it is submitted that these decisions supported the proposition that (i) the ITAT’s decision in the case of B.T. Patil & Sons, Larger Bench (Mumbai) reported in 126 TTJ 577 is no longer good law, and (ii) the distinction between developer and contractor is no longer relevant in the context of changed law explained by the Mumbai High Court in the case of ABG Heavy Industries (supra) and followed within its jurisdiction by the Pune Bench of the ITAT in the case of Laxmi Civil Engg. (supra). It is submitted that such reliance is neither correct nor relevant in deciding the issues on hand. This position is elaborated in the following paras. In the case of Laxmi Civil Engg. Pvt. Ltd., the argument of the assessee that was accepted by the ITAT, Pune Bench is broadly- the assessee is a contractor, every contractor is a developer as per the Mumbai High Court decision in the case of ABG Heavy Industries and a developer need not operate and maintain the infrastructure facility, as held by the Mumbai High Court in the case of ABG Heavy Industries. It is submitted that the decision of the Pune Bench of the ITAT in the case of Laxmi Civil Engg. (supra) is of no help in deciding the issues in the impugned appeals for the reason that the terms and conditions of the contracts and the nature of obligations assumed there-under, by the business are not discussed in the said order. This is the factual fulcrum on which the decision of the ITAT (larger Bench) in the case of B.T. Patil as well as the Mumbai High Court in ABG case was decided. Without such detail, there is no point of comparability between the Pune Bench decision and the other cases. The unanswered questions emerging there-from are –

i) Can we assume that there was a BOLT contract or was it a works contract?

ii) Can we assume that the assessee took ownership control of the asset created?

iii) The circumstances under which the enterprise in ABG Heavy Industries became akin to a developer, and do they obtain in the case of LCE? Such as 10 year ownership; retransfer; assumption of assured responsibility regarding operational readiness, etc., noticed in ABG Heavy Industries are not noticed in the facts of the case as digested by the afore mentioned decision of the Pune Bench of the ITAT in the case of LCE.

iv) The unbundling of conditions of development, operation & maintenance, and development operation and maintenance, in the sense of making them non cumulative by amendment of law effective from 1-4- 2002 is not the only relevant issue. The larger issue is whether the assessee is a developer in the first place.

v) In the case of B.T. Patil, the cumulative or non cumulative satisfaction of conditions in section 80IA(4)(i) was never a material fact. This was so not only because the impugned appeals related to pre 1-4- 2002 period, but also because the matter was decided on the preliminary issue of whether the assessee was a developer or not in the first place.

vi) Some of the attributes of a developer were discussed in the case of B.T. Patil, none of whom were absent in the case of ABG Heavy Industries.

9. The decision of the Mumbai High Court, though later in time was different in facts that there was no occasion even to refer to the ITAT’s decision in the case of B.T. Patil. Therefore, it can be said that the decision of the Mumbai High Court in the case of ABG Heavy Industries will be binding in its jurisdiction for infrastructure contract cases, only in so far as the facts of the case are compatible. For the same reason, there can be no adverse implication for the precedent value of the B.T. Patil case. As submitted hereinabove, on immediate and necessary consequence of the retrospective amendment introduced by the Finance Act, 2009 inserting Explanation below section 80 IA(13), is that any business transacted in terms of a works contract stands disqualified from seeking deduction under section 80I(A(4). The decision of the Mumbai High Court in the case of ABG would have no application from this point of view also. Since the agreement in ABG was a BOLT agreement and not a works contract their Lordships had no occasion to consider the Explanation introduced in Finance Act, 2009 with effect from 1-4-2001. Even if it is assumed, hypothetically, that the agreement in ABG was in the nature of a works contract, or that every contractor was a developer, the decision of the Mumbai High Court without considering the Explanation cannot operate to overrule the ITAT’s decision in the case of B.T. Patil where the Bench of the Tribunal considered the effect of the explanation and it was explained by the Hyderabad Bench of the Tribunal in the case of Hyderabad Chemicals Supplies Limited (ITA No.352/Hyd/2005 and 6 others appeals dated 21-1-2011, in the context of an apparent conflict between a Special Bench (Ahmedabad) decision of the ITAT and Madras High Court at para-15 on page-8 as follows:-

“Further, judgment of High Court though not of the jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench of the Tribunal, however, where the judgment of the non jurisdictional High Court, though the only judgment on the point, has been rendered without having been informed about certain statutory provisions that are directly relevant, it is not to be followed.”

10. Without prejudice to the argument that the Mumbai High Court’s order in ABG runs on completely different facts, it is respectfully pointed out that this decision cannot be a binding precedent, in any case, for the above-cited reason also and this issue can be seen in another perspective. There is nothing in the case of ABG Heavy Industries that supports the view that the ‘developer’ has to be seen de hors the contract and its stipulations. In the case of ABG Heavy Industries the Revenue took the stand that the assessee was not a developer because it was only a supplier of the equipment. This did not find favour because it was held that the nature of the business had to be seen in terms of the obligations assumed under the contract which included not only supply and installation of the cranes but also testing, commitment of operational readiness for a period of ten years on the pain of liquidated damages and eventual re-transfer after such period. In the case of ABG Heavy Industries, the creation of certain standalone parts of the part complex qualified for being termed on infrastructure project because the Board Circular 793 dated 23-6-2000 clarified that part of the project would qualify if so certified by the Port Authorities. The container handling cranes assembly was certified to be an integral part of the Port Complex by the Port Authority. This is contextually very different from parts of the running length of a highway or irrigation canal being executed on a rate contract. The Department’s argument that the assessee did not actually operate or maintain the facility in question was not upheld because the benefits of the section were held to be available to BOT/BOLT contracts by CBDT Circulars, which were any way binding on the IT authorities. In the case of the present case, it is not even claimed by the assessee that the work was carried out under a BOT/BOLT contract, or that it was not a works contract. It is further submitted that the distinction between business of development operation/maintenance and development / operation/ maintenance was removed with the change in law effective from 1-4- 2002, and that this was explained by the decision of the Mumbai High Court in the case of ABG Heavy Industries is fallacious for the following reasons:

“The Mumbai High Court decision was rendered in the context of a BOLT contract, which was in any case clarified by the Board Circular to qualify for the deduction under section 80IA. It was noticed by their Lordships that the subsequent changes in the law effective from 1-4-2002 merely mirrored this liberalised outlook. That is not the same thing as saying that a business in the nature of a works contract qualified for the deduction in spite of not operating/maintaining the facility. The decision of the larger Bench in the case of B.T. Patil was not unaware of the change in law effective from 1-4- 2002 as would be evident from para 36 of the order.

The change making the conditions of development/ operation/maintenance non cumulative was not relevant since the case related to pre 1-4-2002 period. In the case of B.T. Patil, the larger Bench enunciated certain tests to determine whether the business was one of a ‘developer’ or a mere ‘contractor’. The briefly stated facts are as follows:

The distinction between creation of product vs. Rendering of service (para -40), owner vs. Executor of owner’s plan with reference to project specification (para-42), vesting of property, subject to re-transfer if need be (para 46) and need for interpretation to avoid absurd results (para 50).”

11. In view of the terms of the relevant contract, it was possible to give a finding that the business was not one of ‘development’ per se. Therefore, the changes in law after 1-4- 2002 were not even called into play in the case of B.T. Patil. It is further submitted that the Mumbai High Court’s decision in the case of ABG Heavy Industries not only runs on different facts, it does not even refer to the case of B T Patil. Furthermore, the Mumbai High Court’s stand that the nature of the business should be seen in the context of the obligations assumed under the contract only complements, not contradicts the larger Bench’s distinction between a developer and contractor simpliciter, as noted hereinabove. It would be wrong and therefore to suggest that the case of B.T. Patil has been impliedly over-ruled by the High Court’s decision. The departmental representative also placed reliance on another decision of the Mumbai Bench of the Tribunal in the case of Indian Hume Pipe Co. Ltd., vs. DCIT ITA No.5172/Mum/2008, dated 29-7-2011 for assessment year 2004-05. This decision pronounced after the Pune Bench decision in the case of Laxmi Civil Engg. considers the Tribunal decision of B.T. Patil as well as its jurisdictional High Court decision in the case of ABG and goes on to hold that the assessee is not entitled to the deduction under section 80IA (4) in view of the Explanation introduced with retrospective effect.

12. The learned Departmental Representative relied upon subsection (2) of Sec. 80IA of the Act and submitted that the deduction under sub-section (1) would be available for a period of 10 consecutive assessment years out of 15 years beginning from the year in which an undertaking or enterprise develops, begins to operate any infrastructure facility or starts providing telecommunication system. Therefore, he is of the view that unless operation of the infrastructure facility is also undertaken; the assessee would not be eligible for deduction. It is submitted that this section provides for an option to the assessee to choose to claim deduction for any 10 years out of 15 years commencing from the date of commencement of the maintenance and operation. For that limited purpose of facilitating an assessee who becomes eligible for deduction under section 80IA(4) in choosing the period of 10 years, the said provision was introduced. This cannot be considered as applicable to every enterprise eligible for deduction under section 80IA. This would apply to an enterprise which requires choosing the period of 10 years during which deduction is to be claimed. Only when the assessee has to exercise the choice, this section comes to operation. Other-wise this section would not operate.

13. The learned Departmental Representative referred to the Finance Bill, 1995 and the Circular No.717 dated 14.8.1995 reported in 215 ITR 70 (statutes). The said circular explained that an enterprise which is engaged in the business of develops, operate and maintain infrastructure facility alone was eligible for deduction. An enterprise which only develops infrastructure facility was not eligible for deduction up to the assessment year 2000-01. The provisions of Sec.80IA (4A) were made applicable only to the enterprise which develop, maintain and operates infrastructure facility. The assessee did not claim deduction under section 80IA (4A) of the Act. Therefore, neither the circulars issued up to that date nor the provisions of the law as were existed up to the assessment year 1999-2000 can be applied for the purpose of determining the allowability of deduction u/s 80IA(4) claimed by the assessee herein. The learned DR referred to the Circular reported in 240 ITR 32 (statutes). In the said circular it is clarified by the CBDT that the benefit in the amended provisions of Sec. 80IA (4) would extend to those undertakings which develop, operate and build, operate and transfer. It is only a clarificatory circular. As submitted earlier, Section 80IA (4) and Section 80IA (4A) were in statute. Sub-section (4A) dealing with the deduction in respect of business of development, operation, maintenance was deleted. Sub-section (4) which was applicable to Hotels was substituted by another provision which allow deduction to an enterprise which develops or operates and maintains or develops, operates and maintains. At that stage, an explanation was needed to be provided to mention that earlier sub section (4A) is re-introduced as a part in sub section (4) in a different shape. Therefore, a clarification was necessary and the said clarification was issued. It is also submitted that the development and risk are not undertaken by the assessee. The learned DR relied on the orders of the lower authorities and finally on the judgement of Gujarat High Court in the case of Katira Construction Ltd. v. Union of India & Ors., 352 ITR 513.

14. We have heard both the parties and perused the material on record. Similar issue came for consideration before this Tribunal in the case of NCC-ECCI (JV) vs. ITO in ITA Nos. 124 & 125/Hyd/2009. The Tribunal vide order dated 17.6.2013 held as follows:

"9. We have heard rival submissions and perused the material available on record. We have also carefully applied our mind to the decisions cited before us. Before we delve into the issue in dispute it would be appropriate to look into the relevant provisions at this stage. Deduction for development of infrastructure facility as per old section 80IA was contained in sub-section (4A) which read as under :

(4A) This section applies to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely :-

(i) the enterprise is owned by a company registered in India or by a consortium of such companies.

(ii) the enterprise has entered into an agreement with the Central Government or a State Government or a Local Authority or any other Statutory Body for developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the central Government, state Government, Local Authority or such other statutory body, as the case may be, within the period stipulated in the agreement.

(iii) the enterprise starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995.

10. The aforesaid provision was amended by Finance Act, 1999 w.e.f. 1.4.2000. After the amendment the old provision were deleted from the Act and deduction available to any enterprise for developing infrastructure facility under section 80IA(4A) are also made available under section 80IA(4). The new provision under section 80IA(4) reads as under :

“(4) This section applies to-

(i) any enterprise carrying on the business [ (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating ] any infrastructure facility which fulfils all the following conditions, namely :-

(a) it is owned by a company registered in India or by a consortium of such companies.

(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing (ii) maintaining and operating or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, Local Authority or such other statutory body, as the case may be, within the period stipulated in the agreement.  

(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995”:

11. Again an amendment was made to sub-section 4 by Finance Act, 2001 w.e.f. 1.4.2002 by substituting the words (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating with the words (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining ]- -

12. Therefore, the intention of the legislature from the above said amendment would make it clear that any enterprise which carried on any one of these three activities would become eligible for deduction. It would be evident from the Orders passed by the Assessing Officer as well as CIT(A), claim of deduction under section 80IA was disallowed firstly on the ground that assessee is not the owner of the infrastructure facilities, secondly it has not undertaken all the three activities and thirdly it has executed the work merely as contractor. In case of CIT vs. ABG Heavy Industries Ltd. 322 ITR 323 the Hon’ble Bombay High Court held that amendment effected to sec. 80IA(4) by Finance Act, 2001 being clarificatory in nature will be applicable retrospectively from A.Y. 2000-2001. In the case of KMC Constructions Ltd. (supra), the Coordinate Bench of this Tribunal in clear terms held that the amended provisions of section 80IA(4) would apply from A.Y. 2000-01. The Tribunal further held that where an assessee incurs expenditure on its own for purchase of materials and towards labour charges and itself executes the development work, it will be eligible for deduction under section 80IA of the Act. It was further held that the word ‘owned’ in sub-clause (a) on clause (1) of sub-section (4) of section 80IA of the Act referred to the enterprise. In other words, the enterprise carrying on development of the infrastructure facilities should be owned by a company or consortium of companies. The infrastructure facilities need not be owned by a company. It was held that the word ‘ownership’ is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA(4) and not any other person like new HUF Firm etc., The Coordinate Bench further held that for arriving at a conclusion as to whether the work done is to develop the infrastructure or it involves construction of a particular item. The agreement is to be read as a whole. If the assessee utilised its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facilities, it cannot be considered as a mere works contract but has to be considered as a development of infrastructure facilities. The Coordinate Bench further interpreting the word “contractor” held that every agreement entered into between the parties is a contract and for the purpose of the agreement a person may be called as a contractor as he enters into a contract. But the word “contractor” is used only to denote a person entering into an agreement or contract. A person undertaking the development of infrastructure facilities under a contract is also a contractor.

Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer, but every developer developing infrastructure facilities on behalf of the Government is a contractor. The same view has also been expressed by the Coordinate Bench of this Tribunal in the case of M/s. Sushee Hightech Construction Pvt. Ltd. vs. DCIT. As can be seen from the assessment order, the Assessing Officer has not at all examined the agreement entered into between the parties as a whole and by merely referring to a few terms in the contract, has come to a conclusion that the assessee has executed the work as a contractor by relying upon the provision contained under section 80IA(13). It is the contention of the assessee before us, that the assessee has not acted merely as a contractor but was involved in planning, designing, financing and coordinating and all other ancillary and incidental activities of developing the infrastructure facilities as per the contract. In the case of M/s. Sushee Hitech Construction Pvt. Ltd. (supra), the Coordinate Bench of this Tribunal after considering several other decisions of various Benches of the Tribunal held as under :

“Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act as the contracts involves development, operating, maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which contain above features to be segregated and on this deduction u/s. 80-IA has to be granted and the other agreements which are pure works contracts hit by the Explanation section 80IA(13), those work are not entitle for deduction u/s. 80IA of the Act. The profit from such contracts which involves development, operating, maintenance, financial involvement and defect correction and liability period is to be computed by Assessing Officer on pro-rata basis of turnover. The Assessing Officer is directed to examine and grant deduction on eligible turnover as directed above.”

13. In the case of M/s. KMC Construction Ltd. also the Coordinate Bench of this tribunal allowed the claim of deduction under section 80IA of the Act as the assessee had clearly demonstrated that it had undertaken huge risk in terms of development of technical personnel, plant and machinery, technical knowhow expertise and financial resources. Thus, the principle that would emerge from the above said decisions of the Coordinate Bench is that assessee would be entitled for deduction under section 80IA(4) of the Act, if he develops the infrastructure facilities.

However, the assessee has to demonstrate that it has actually carried on development of infrastructure facilities cumulatively undertaking with all the activities of design, development, engineering, construction, maintenance, financial involvement, defect correction and such other ancillary and incidental work connected with the development of the project. The assessee has to establish this fact by producing clinching evidence that it has in fact, developed the project and has not executed the work merely as a contractor. The revenue authorities have neither examined the contracts in its entirety nor looked into all these aspects. Only by referring to some of the clauses of the contract an inference has been drawn that the assessee has executed the work as a contractor. At the same time, apart from the contract, the assessee has also not submitted before us any other documentary evidence which could conclusively demonstrate that the assessee in fact, has undertaken cumulatively the activities of developing the infrastructure facility such as design, development, engineering, construction, maintenance etc., so as to make it eligible for deduction under section 80IA(4) of the Act. In the aforesaid view of the matter, we are inclined to remit the mater back to the file of Assessing Officer who shall examine the issue afresh after considering the contract document as a whole and all other evidence that may be submitted by the assessee to demonstrate the fact that the assessee has actually developed the infrastructure facilities by undertaking the activities of design, development, engineering, construction, maintenance, financial involvement, defect correction of the contract during the warranty period. If the assessee will be able to establish such facts by supporting evidence, then, the assessee would be entitled to the deduction under section 80IA(4) of the Act. With the aforesaid observations, we set aside the Order of the CIT(A) and direct the Assessing Officer to decide the issue afresh by keeping in view of our observations made hereinabove. Needless to mention that the Assessing Officer shall afford a reasonable opportunity of being heard to the assessee. Accordingly, ground No. 3 is allowed for statistical purposes.

15. Recently there was a judgement from Hon’ble Gujarat High Court in the case of Katira Construction Ltd. v. Union of India & Ors., 352 ITR 513 wherein it was held as follows:

"The Explanation inserted below sub-section (13) of section BO-IA of the Income-tax Act, 1961, by the Finance (No. 2) Act, 2009, with retrospective effect from April 1, 2000, which provides that nothing contained in the section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person and executed by an undertaking or enterprise, is valid.

Parliament has power not only to legislate with respect to the subject-matter on hand, but also with retrospective effect, if so found necessary. In the field of taxation, Parliament enjoys considerable latitude in framing and implementing policies. The wisdom of Parliament in enacting a statute cannot be questioned in a court of law.

Ordinarily, an Explanation is introduced by the Legislature for clarifying some doubts or removing confusion which may be possible from the existing provisions. Normally, therefore, an Explanation would not expand the scope of the main provision and the purpose of the Explanation would be to fill a gap left in the statute, to suppress a mischief to clear a doubt or as is often said to make explicit what was implicit.

SUNDARAM PILLAI (S.) v. V. R. PATTABIRAMAN [1985] AIR 1985 sC 582, KESHAVJI RAVJI AND CO. v..CIT [1990] 183 ITR 1 (SC), CIT v.. GOLD COIN HEALTH FOOD (P.) LTD. [2008] 304 ITR 308 (SC) and HIRA LAL RATTAN LAL v. STO [1973] 31 STC 178 (SC) relied on.

There is an intrinsic difference between developing an infrastructure facility and executing a works contract. What the Explanation aims to achieve is to clarify that deduction under section BO-IA( 4) of the Act would not be available in case of execution of works contract. Even 'Without the aid of the Explanation, it was possible to contend that such expression did not include an enterprise executing a works contract. There would certainly be a demarcation between developing the facility and execution of works contract awarded by an agency engaged in developing such facility.

CIT v. RADHE DEVELOPERS [2012] 341 ITR 403 (Guj) relied on.

From the inception in the year 1996, deduction under sub-section (4A) of section 80-IA of the Act was available to an enterprise engaged in developing, maintaining and operating any infrastructure facility.

At the very first stage, the deduction was made available to draw additional resources for fulfilling the requirements of the country of rapid improvement in infrastructure such as, expressways, highways, airports, ports, in which areas development was found to be deficient. The principal idea behind granting deduction was to achieve rapid growth in infrastructure development with private participation.

Even after bifurcation of section 80-IA into section 80- IA and section 80-IB, with effect from April 1, 2000, this fundamental concept was not discarded. Subsection (4) which formed part of the recast section BO-IA did not carry any material changes from the earlier provisions of sub-section (4A) of section 80-IA which existed prior to April 1, 2000.

With effect from April 1, 2002, some significant changes were made in the provisions. Such changes were:-

(i) that sub-section (4) of section 80-IA now required the enterprise to carry on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility in contrast to the previous requirement of all three conditions being cumulatively satisfied;

(ii) that the Explanation of the term infrastructure facility was changed to besides others, a road including toll road instead of the hitherto existing expression road; and

(iii) that the requirement of transferring the infrastructural facilities developed by the enterprise to the Central or the State Government or the local authority within the time stipulated in the agreement was done away 'With. These changes, however, would not alter the situation vis-a-vis the Explanation. The basic requirement of the enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility was not done away with. Even as amended with effect from April 1, 2002, section 80-IA(4) could be construed as not including execution of works contract as one of the eligible activities for claiming deduction.

In 2007, the Explanation below sub-section (13) of section 80-IA came to be added which clarified that nothing contained in the section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be. However, this was not found to be sufficient.

With a view to preventing such misuse of the tax holiday under section 80-IA, it was proposed to amend the Explanation to clarify that nothing contained in the section shall apply in relation to a business which is in the nature of a works contract executed by an undertaking. What the Explanation, did was to clarify a statutory provision which was at best possible of a confusion. If that be so, the Explanation must be seen as one being in the nature of plain and simple Explanation and not either adding or subtracting anything to the existing statutory provision. If the Explanation was purely explanatory in nature and did not mend the existing statutory provisions, the question of levying any tax with retrospective effect would not arise. The Explanation only supplied clarity where confusion was possible in the un amended provision. In that view of the matter, this cannot be seen as a retrospective levy."

16. Being so, in our opinion, it is appropriate to remit the entire issue back to the file of the Assessing Officer to examine the issue afresh after considering the contract document as a whole and all other evidence that may be submitted by the assessee to demonstrate the fact that the assessee has actually developed the infrastructure facilities by undertaking the activities of design, development, engineering, construction, maintenance, financial involvement, defect correction of the contract during the warranty period. If the assessee will be able to establish such facts by supporting evidence, then, the assessee would be entitled to the deduction under section 80IA(4) of the Act. With the aforesaid observations, we set aside the Order of the CIT(A) and direct the Assessing Officer to decide the issue afresh by keeping in view of our observations made hereinabove. Needless to mention, that the Assessing Officer shall afford a reasonable opportunity of being heard to the assessee.

17. In the result, all the appeals of the assessee are allowed for statistical purposes.

Order pronounced in the open court on 17th July, 2013.

 

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