[aaykarbhavan] Judgements,

 

 

 

 

IT : For purpose of section 80-IA(4) enterprises carrying on development of infrastructure development should be owned by company and not that infrastructure facility should be owned by a company

IT : Deduction under section 80-IA is allowable to assessee in respect of contracts which involve development, operating, maintenance, financial involvement and defect correction and liability period

IT : Assessee having failed to explain what business advantages it derived from interest-free advances given to sister concern, interest attributable to such advances was liable to be disallowed

IT : Property tax paid on property not owned by assessee could not be allowed as deduction

IT : Expenditure on increasing share capital are capital expenditure

■■■

[2013] 33 taxmann.com 236 (Hyderabad - Trib.)

IN THE ITAT HYDERABAD BENCH 'B'

Sushee Hi Tech Constructions (P.) Ltd.

v.

Deputy Commissioner of Income-tax, Circle-3(2), Hyderabad*

CHANDRA POOJARI, ACCOUNTANT MEMBER 
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER

IT APPEAL NOS. 269 & 1165 (HYD.) OF 2009 AND 1171 (HYD.) OF 2010
[ASSESSMENT YEARS 2005-06 TO 2007-08]

MARCH  16, 2012 

I. Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings [Eligibility] - Assessment years 2005-06 to 2007-08 - Whether for purpose of section 80-IA(4) enterprises carrying on development of infrastructure development should be owned by company and not that infrastructure facility should be owned by a company - Held, yes - Whether only companies are eligible for deduction under section 80-IA(4) and not any other person like individual, HUF, firm, etc. - Held, yes - Whether where contracts involve development, operating, maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract so as to deny deduction under section 80-IA(4) to assessee - Held, yes - Whether such contracts are eligible for deduction under section 80-IA and same is applicable in case of work allotted by Government corporation/Government bodies also - Held, yes [Paras 31 and 37] [In favour of assessee]

Words and phrases : Words 'owned', 'it' and 'contractor' as occurring in section 80-IA (4)(1)(a) of the Income-tax Act, 1961

Circulars and Notifications : CBDT Circular No. 3 of 2008, dated 12-3-2008

II. Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - [Interest-free advances] - Assessment years 2005-06 to 2007-08 - Assessee had debited interest liability on borrowed funds but it had not admitted any interest income on loans advanced to sister concerns contending that those were interest-free - However, assessee was not able to explain what were business advantages it derived from said interest-free advances and whether amount so advanced was actually used for business purposes or not - Whether interest attributable to such advances was liable to be disallowed - Held, yes [Para 42] [In favour of revenue]

III. Section 40A(3), of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payments exceeding prescribed limit [Rule 6DD] - Assessment years 2005-06 to 2007-08 - Whether where assessee could not show any reasonable cause for making cash payment exceeding Rs. 20,000 and had also not brought on record any exceptions to make cash payments as provided in rule 6DD, Assessing Officer was justified in disallowing 20 per cent of said payments - Held, yes [Para 44] [In favour of revenue]

IV. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Property tax] - Assessment years 2005-06 to 2007-08 - Assessee claimed deduction of property tax paid on property which was provided as a collateral security to State Bank of India for obtaining loan - Admittedly, said property was not owned by assessee - Whether liability of payment of property tax on property is on owner of property and not on any other person and, therefore, assessee's claim was not allowable - Held, yes [Para 46] [In favour of revenue]

V. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Share issue expenses] - Assessment year 2005-06 - Whether expenditure incurred on increasing share capital are capital expenditure - Held, yes [Para 48] [In favour of revenue]

FACTS-I

 

■		The assessee had undertaken the development of irrigation canals and railway tracks including conversion of gauge. The project premises was handed over by the Government to the assessee for developing into an infrastructure and the scope of work involved taking over of the site and developing the site, re-handing over of the site after due development. Thereafter, the assessee would have to maintain the developed infrastructure facility for a certain period as provided in the agreement. The risk involved during the period from the date of taking over till the date of handing over of the infrastructure would be that of the assessee. Any loss suffered in the process of development would be that of the assessee. Assessee claimed that activities undertaken by it were development of infrastructure facility and, therefore, it was entitled to deduction under section 80-IA(4).
■		The lower revenue authorities disallowed the deduction on the ground that assessee was a mere works contractor and not a developer. The authorities took the view that unless operation of the infrastructure facility was also undertaken, the assessee would not be eligible for deduction.

On appeal:

HELD-I

 

Ownership of infrastructure facility not required for deduction under section 80-IA

■		The provisions of section 80-IA(4) when introduced afresh by the Finance Act, 1999, the provisions under section 80-IA(4A) were deleted from the Act. The deductions available for any enterprise earlier under section 80-IA(4A) are also made available under section 80-IA(4) itself. Further, the very fact that the Legislature mentioned the words (i) 'developing' or (ii) 'operating and maintaining' or (iii) 'developing, operating and maintaining' clearly indicated that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-tax Act. Where an assessee incurres expenditure for purchase of materials himself and executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80-IA. In contrast to this, an assessee, who enters into a contract with another person including the Government or an undertaking or enterprise referred to in section 80-IA for executing works contract, will not be eligible for the tax benefit under section 80-IA. The word 'owned' in sub-clause (a) of clause (1) of sub-section (4) of section 80-IA refers to the enterprise. By reading of the section, it is clear that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. That the provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, 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 80-IA(4) and not any other person like individual, HUF, firm, etc. [Para 31]
■		According to sub-clause (a), clause (i) of sub-section (4) of section 80-IA, the word 'it' denotes the enterprise carrying on the business. The word 'it' cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. [Para 32]

Assessee is a developer and not a works contractor

■		Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government.
■		In the instant case, the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and, thereafter, developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work; it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred, it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80-IA (4). This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility.
■		Therefore, the assessee is a developer and not a works contractor as presumed by the revenue. The circular issued by the Board clearly indicates that the assessee is eligible for deduction under section 80-IA (4). The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. [Para 33]

Assessee is entitled to deduction under section 80-IA

■		As per the provisions of the section 80-IA, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word 'contractor' is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word 'contractor' is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. [Para 34]
■		Section 80-IA intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intends to grant the incentives to such entities.
■		The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80-IA, which ultimately culminated into amendment under section 80-IA in the Finance Act, 2001, to give effect to the circulars issued by the CBDT. To avoid misuse of the aforesaid amendment, an Explanation was inserted in section 80-IA in the Finance Act 2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80-IA. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the Parliament would have simply reversed the amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who do mere works contact or sub-contract as distinct from the developer. This is clear from the express intension of the Parliament while introducing the Explanation. The explanatory memorandum to Finance Act, 2007, states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80-IA is available to developers who undertake entrepreneurial and investment risk and not for the contractors, who undertake only business risk. Without any doubt, the assessee clearly demonstrated that it has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources.
■		Further, after the amendment the section 80-IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility. Prior to amendment the 'or' between three activities was not there, after the amendment 'or' has been inserted with effect from 1-4-2002 by Finance Act, 2001.
■		Therefore, the assessee should not be denied the deduction under section 80-IA, as if the contracts involve development, operating, maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract. The contracts which contain above features are to be segregated and on this deduction under section 80-IA has to be granted and the other agreements, which are pure works contracts hit by the Explanation to section 80-IA(13), are not entitled for deduction under section 80-IA. The profit from such contracts which involve 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. [Para 35]
■		Further, where the assessee has carried out the development of infrastructure work in consortium and not as a sub-contractor, then also the assessee is entitled to deduction under section 80-IA. The same is also applicable in case of work allotted by Government corporation/Government bodies. [Para 37]

CASE REVIEW

 

Brook Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26 (SC)(para 48) followed.

CASES REFERRED TO

 

CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323/189 Taxman 54 (Mum.)(para 13), Asstt. CIT v. Bharat Udyog Ltd. [2009] 118 ITD 336 (Mum.) (para 13), Patel Engg. Ltd. v. Dy. CIT [2005] 94 ITD 411 (Mum.) (para 13), Laxmi Civil Engg. (P.) Ltd., v. Addl CIT [IT Appeal No. 766 (Pune) of 2009, dated 8-6-2011] (para 12), Asstt. CIT v. Bharat Udyog Ltd. [2008] 24 SOT 412 (Mum.) (para 17), Metal Infra Projects Ltd., v. CIT 26 DTR 359 (para 17), Om Metal Infra projects Ltd .v. CIT 26 DTR 359 (para 17), Patwa Kinariwala Electronics v. IAC [1994] 77 Taxman 319 (Ahd.) (Mag.) (para 20), Shoghi Communications Ltd. v. Dy. CIT [2006] 9 SOT 489 (Chd.) (para 20), Asstt. CIT v. Cavinkare (P) Ltd. [2009] 120 ITD 126 (Chennai ) (para 20), CIT v. N.C. Buddhiraja & Co. [1993] 204 ITR 412,433/70 Taxman 312 (SC) (para 21),Aquarius Travels (P )Ltd. v. ITO [2008] 111 ITD 53 (Delhi) (para 23), Dr. Mrs. Renuka Datla v. CIT [1999] 240 ITR 463/107 Taxman 143 (AP) (para 24), IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521/135 Taxman 594 (SC) (para 24), B.T. Patil & Sons, Belgaum Construction (P.) Ltd. v. Asstt. CIT [2010] 35 SOT 171 (Mum.) (LB) (para 24), Hyderabad Chemicals Supplies Ltd. v. Asstt. CIT [2012] 20 taxmann.com 289 (Hyd.) (para 25), Indian Hume Pipe Co. Ltd. v. Dy. CIT [ITA No.5172(Mum.) of 2008, dated 29-7-2011] (para 27), CIT v.Clive Insurance Co. Ltd. [1978] 113 ITR 636 (para 30), CIT v. Ms.Vasavi Pratap Chand [2002] 255 ITR 517/122 Taxman 792 (Delhi) (para 30), CIT v. Eastern Chemicals & Minerals (P.) Ltd. [1991] 192 ITR 423/58 Taxman 201 (Mad.) (para 30), Central Board of Direct Taxes v.Aditya V. Birla [1988] 170 ITR 137/36 Taxman 9 (SC) (para 30), CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) (para 30), CIT v.Straw Board Mfg. Co. Ltd. [1989] 177 ITR 431/44 Taxman 189 (SC) (para 30), Broach Distt. Co-operative Cotton Sales Ginning & Pressing Society Ltd. [1989] 177 ITR 418/44 Taxman 439 (SC) (para 30), Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 (SC) (para 30),J.K. Abdul Jabbar v. CIT [1999] 237 ITR 389/[1998] 101 Taxman 21 (Mad.) (para 30), CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989]176 ITR 117/43 Taxman 328 (SC) (para 30), CIT v. U.P. Co-operative Federation Ltd. [1989]176 ITR 43/43 Taxman 20 (SC) (para 30), CIT v. Orissa State Warehousing Corpn. [1993] 201 ITR 729 (Ori.) (para 30), CIT v. Bansal Credits Ltd. [2003] 259 ITR 69/126 Taxman 149 (Delhi) (para 30), Federation of Andhra Pradesh Chambers of Commerce & Industry [2001] 247 ITR 36/115 Taxman 143 (SC) (para 30), CIT v. Jhabarmal Agarwalla [1992] 195 ITR 351/65 Taxman 176 (Gau.) (para 30), CED v. Sileshkumar R. Mehta [1990] 181 ITR 10 (Mad.) (FB) (para 30), CIT v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) (para 30), Tarulata Shyam Smt. v. CIT [1977] 108 ITR 345 (SC) (para 30), Novopan India Limited, 1994 INDLAW SC 1028 (para 30), CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 149/62 Taxman 471 (SC) (para 30), Gokuldas Exports v. CIT [1993] 200 ITR 401/67 Taxman 219 (Kar.) (para 30), CIT v. G.B. Transports [1985] 155 ITR 548/[1986] 27 Taxman 40 (Ker.) (para 30), Chettinad Lignite Transport Services (P) Ltd. [IT Appeal No. 2287(Mad.) of 2006, dated 27-7-2007] (para 35), GVPR Engineers Ltd. v. Asstt. CIT [2012] 51 SOT 207 (URO)/21 taxmann.com 25 (Hyd.) (para 36), CIT v.. V.I. Baby & Co.[2002] 254 ITR 248/123 Taxman 894 (Ker.) (para 41), CIT v. H.R. Sugar Factory (P.) Ltd. [1991] 187 ITR 363)/[1990] 53 Taxman 63 (All.)(para 41), SA Builders Ltd. v. CIT [2007] 288 ITR 1/158 Taxman 74 (SC) (para 42) and Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26 (SC) (para 48).

S. Rama Rao for the Appellant. D.D. Goyal for the Respondent.

ORDER

 

Chandra Poojari, Accountant Member - All the above three appeals by the assessee are directed against the different orders of the CIT(A)-IV, Hyderabad for assessment years 2005-06 to 2007-08. Since common issues are involved, all the above three appeals are clubbed together, heard together and are being disposed of by this order for the sake of convenience.

2. The first common issue in all these three appeals is with regard to allowability of deduction u/s. 80-IA(4) of the Income-tax Act, 1961. According to the assessee, it has undertaken the development of irrigation canals and railway tracks including conversion of gauge and it is entitled for deduction u/s. 80-IA(4) of the Act.

Submissions by Authorised Representative of the assessee:

3. The counsel for the assessee submitted that insofar as the irrigation canals are concerned, they are the infrastructure facilities within the meaning of the Explanation. According to the Explanation the water supply project, water treatment system, irrigation project, sanitation and storage system, solid waste management system etc., form part of the infrastructure facility. The assessee also undertook the development of rail systems. Both the activities are development of infrastructure facility. The assessee claimed deduction u/s 80-IA(4)(i) of the I.T. Act, in respect of the infrastructure facilities developed by it. All the activities are entrusted to the assessee by Government direct. He drew our attention to the Copies of the agreements entered into by the assessee which are placed on record. They show that the Government entrusted the development to the assessee.

4. The counsel for the assessee submitted that the projects undertaken during the years under consideration executed between the assessee and the Superintending Engineer, HNSS Circle, Anantapur on 25-02-2005 and copies of certain portions of the agreements entered into with other Government Organizations including the Railways are placed on record. Insofar as the irrigation canals are concerned, he submitted that it is a turnkey agreement entered into with the Government of Andhra Pradesh. The project work included investigation, preparation of hydraulic particulars, designs, drawings and excavation of HNSS Main canal including CM and CD works and distributory system to feed an ayacut of 2300 acres in kharif. The detailed works involved as per the agreement entered into are as follows:

a.		Detailed investigation and preparation of HPs (wherever necessary) of Main Canal and its approval.
b.		Fixing of B.M. stones for main canal and distributaries.
c.		Preparation of site surveys for CM & CD works.
d.		Sub soil exploration
e.		Preparation of designs and drawing and approval of main canal and all its CM and CD works.
f.		Preparation of estimates and approvals for main canal and all its CM & CD works.
g.		Excavation and construction of all its CM & CD works for main canal
h.		Plantation of trees at 10 m intervals on either side of the canal system with two years maintenance after completion of work.
i.		Service roads for 5 m wide (inspection paths) on left side of bank along the main canal
j.		Steps on main at nearby villages/village limits wherever necessary
k.		Providing ramps outside canal profile in deep cut reaches for maintenance purpose.
l.		Fixing of Hectometers at KM. stones on main canal.
m.		Execution of Model sections (Templates) at every 25 m interval in straight portion and 12.5 m. in curved portion for canal profile.
n.		Maintaining the canal system for 2 years after issue of completion certificate by the Engineer-in-Charge.
o.		Fixing of Hydraulic particulars, sign boards, gauges etc. at structures location wherever necessary as directed by Engineer-in-Chief.

5. For the purpose of development, the assessee is involved in:

a.		Carrying out surveys and detailed investigation required for the whole canal system as per the Codes, CWC manuals etc. This is to be done without claiming for any additional cost.
b.		Detailed engineering designs of the canals, structures and the distributory system are to be provided to the Government by the assess.
c.		The Government hands over the land where development has to be taken place.
d.		The land acquisition is made by the Government with the help of the contractor.
e.		The area required for conducting operation and development also is acquired by the assessee with the assistance of the Government.
f.		The work of development of the project is undertaken by the assessee.
g.		All the required men, material and machinery is acquired by the assessee and the development of the project is undertaken with the help of the technical experts arranged by the assessee.
h.		The scope of work is already Explained in the above paragraphs.
i.		The assessee shall be responsible for all the risks in the process of the development of the project.

6. On completion of the work, the developed infrastructure facility it is handed over to the Government. Thereafter, the assessee has to maintain the facility for either 24 months or for a minimum of two kharif seasons. The above would clearly indicate that the assessee is converting the land into a useful infrastructure facility i.e. the irrigation canal. Therefore, it is developing the infrastructure after taking over the possession of the premises.

7. The assessee counsel submitted that insofar as the rail projects are concerned, the works involved are (a) taking over of the site from the Government, (b) developing the infrastructure facility by raising/widening of existing formation in layers including earthwork, (c) the work includes strengthening/extension/rebuilding of minor bridges including construction of side drains and other protection works. The works include gauge conversion from meter gauge to broad gauge. The premises is handed over by the Government to the assessee for developing into an infrastructure and the scope of work involves taking over of the site, developing the site, re-handing over of the site after due development. The assessee shall have to maintain the developed infrastructure facility for a certain period as provided in the agreement. The details are submitted in the annexure.

8. The risks involved during the period from the date of taking over till the date of handing over of the infrastructure shall be that of the assessee. Any loss suffered in the process of development shall be that of the assessee. The loss of material a life in the process of work, shall be compensated by the assessee. Further, during the course of development, the existing infrastructure has to be maintained by the assessee.

9. The assessee possessed its own funds and borrowed funds as follows:

Paid up share capital	- Rs. 5,00,00,000
Reserves	- Rs. 30,64,64,529
Secured loans	- Rs. 26,75,32,532
	- Rs. 62,39,97,061

10. According to AR the assessee invested the entire capital in the activity of development of infrastructure. As the assessee is engaged in development of the infrastructure facility, it claimed deduction u/s 80-IA.

11. The Ld. Authorised Representative for the assessee has submitted that the assessee made the claim of deduction under the said section, as according to the assessee, it is eligible for such deduction. In this regard, the AR submitted that one has see the purpose of introduction and changes made by the Legislature to section 80-IA(4) of the Act. The said section is meant for allowing deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development. The assessee claimed deduction as it is engaged in development of infrastructure and as it satisfied all the conditions mentioned therein. The provisions of Sec. 80-IA(4)(i) as introduced by the Finance Act, 1999 and as amended from time to time are applicable to the case of the assessee.

12. He drew our attention to the Legislative history of the said provision as follows:

(i)		Up to the assessment year 1995-96, sec.80-IA(4) was applicable to the business of any hotel for which the provisions of the said section were made applicable. The Finance Act, 1995 introduced another sub-section 80-IA(4A). According to the said sub-section any enterprise carrying on the business of development, maintaining and operating any infrastructure facility was made eligible for deduction. In the said section, the words used are "business" of developing, maintaining and operating any infrastructure facility. Sub-section (4) continues to exempt the income derived from the business of a hotel. The deduction for an infrastructure development was for the first time made available by the Finance Act, 1995 w.e.f. the assessment year 1996-97.
(ii)		The Finance Act, 1996 did not amend sub-section (4) and continue the exemption available to infrastructure facility which develops, maintains and operates u/s 80-IA(4) of the I.T. Act. Both the sub-sections (4) and (4A) existed for the assessment year 1996-97.
(iii)		The Finance Act, 1997 also did not modify the sub-section (4) of sec.80-IA(4). The sub-section (4) continues to apply to the business of a hotel or the business of a hotel located in a hill area or urban area or a pilgrimage centre. Sub-section (4A) continued to apply to the business of infrastructure facilities which develops, maintains and operates a new infrastructure facility.
(iv)		The Finance Act, 1998 continued to provide exemption to the business of a hotel by virtue of the provisions of sec.80-IA (4) of the Act. Sub-section (4A) allows deduction in respect of an enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Till the financial year 1998-99 i.e. up to the assessment year 1999-2000, the intention of the Legislature was to exempt the income of a hotel by virtue of the provisions of sec.80-IA(4) of the I.T. Act for the incomes derived from maintenance of hotels at particular places and to grant deduction in respect of income derived from the business of development, maintenance and operation of infrastructure project u/s 80-IA(4A) of the I.T. Act. The deduction u/s 80-IA(4A) was available only to such enterprises who develop, maintain and operate any infrastructure facility. The wording of the statutory provision is clear that it was made applicable to enterprises engaged in all the three activities cumulatively.
(v)		In the Finance Act, 1999, an amendment was introduced by the Legislature. The said section was no longer applicable to the enterprises carrying on the business of hotel. Such exemption is made available by introducing sec.80-IB of the I.T. Act. A completely new section 80-IA(4) was introduced to allow deduction to any enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. This provision is relevant to the claim of the assessee.
(vi)		The said amended section 80-IA(4)(i) reads as under:
		"(4) This section applies to:

(i)

any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining 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 or (ii) operating and maintaining or (iii) developing, operating and maintaining a mew infrastructure facility; )
(c)		It has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995.Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereinafter referred to in this section as the transferor enterprise) to another enterprise (hereinafter in this section referred to as the transferee enterprise) for the purpose of operating an maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.

(Explanation - For the purpose of this clause, "infrastructure facility" means -

(a)		a road including toll road, a bridge or a rail system;
(b)		a highway project including housing or other activities being an integral part of the highway project;
(c)		a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system;
(d)		a port, airport, inland waterway or inland port)

(vii)

From a reading of the section it is clear that the deduction is allowable to:

(a)		any company incorporated;
(b)		which entered into agreement with Government; or any Government body; and undertakes development of infrastructure facility."

13. The AR further submitted that the purpose of introduction of sec.80-IA(4) for the assessment year 2000-2001 and onwards is as follows:

(i)		The purpose for which the said section was amended with effect from the assessment year 2000-01, can be traced to a brochure issued by the Government of India, Ministry of Roads, Transport and High Ways in August, 2001, a copy of which is submitted. In the said brochure, the Government of India extracted some of the decisions taken by it to bring in the development of infrastructure facility in the country. Certain of the points mentioned therein are relevant for the purpose and they are extracted hereunder:
(ii)		The said infrastructure Development programme was initially initiated in January, 1999 and the amendments to section 80-IA(4) were introduced by the Finance Act, 1999, i.e., immediately thereafter. In this context, the other observations made in the said brochure are also relevant.
(iii)		"While launching of National Highways Development Project (NHDP) on 02-01-2000 at Devanhalli, Karnataka, the Prime Minister of India expressed that" -
		"The project envisages a six-lane Golden Quadrilateral linking the Delhi-Kolkata-Chennai-Mumbai-Delhi circuit, a North-South Corridor connecting Kashmir to Kanyakumari and a similar East-West Corridor connecting Silchar to Saurashtra. It is indeed the largest and the most ambitious infrastructure project undertaken in Independent India - a highway to prosperity; to India's integrated development".
(iv)		The Minister of State, Ministry of Road Transport and Highways in August, 2001 mentioned that certain incentives were provided to the Indian concerns participating in such development in the development of infrastructure facility.
		"In order to encourage entrepreneurs within the country, the Central Government offered them certain incentives some of which are as follows:

(i)		Total Custom Duty exemption on road building equipment not being produced in the country. 21 such items have been identified.
(ii)		Income-tax exemption for 10 years from NHDP earnings has been given.
(iii)		In the Build-Operate-Transfer (BOT) Schemes, grant up to 40% can be given.
(iv)		The NHAI Bonds have been exempted from Capital Gains".
(v)		It is also Explained by him that certain sections of the society have created an impression that the work of NHDP was being awarded to only foreigners and multi national firms. To dispel such impression, he mentioned the following:

"Similarly, there are also some misgivings regarding the size of contracts. The details, as regards the number of ongoing contracts on March 1, 2002, are as follows:

	• Above Rs.500 crores	4
	• Above Rs.400-500 crores	5
	• Above Rs.300-400 crores	8
	• Above Rs.200-300 crores	25
	• Above Rs.100-200 crores	43
	• Above Rs.50-100 crores	38
	• Below Rs.50 crores	23
	TOTAL	146

		Thus, it can be seen that the contract packages also, are being organized to ensure maximum participation of Indian entrepreneurs, while maintaining the quality of work."
(vi)		He submitted that the Government clearly mentioned that they provided the benefits as mentioned above to the Indian entrepreneurs by providing contract packages to the private enterprises. While providing benefits, the Government specifically specified certain grants only to BOT Schemes. For the other schemes all the other benefits are made available. The classification provided clearly indicates that the scheme of packages are meant for all the enterprises whether engaged in the development of infrastructure or under BOT.
(vii)		The observations made above clearly indicate that the Government of India with a view to develop the infrastructure facility provided various incentives to the Indian concerns for development of such infrastructure facility. With a view to provide the exemptions to the entrepreneurs carrying on such activity, the Legislature introduced the amendment to sec. 80-IA(4) in the Finance Bill, 1999, to be effective for and from the assessment year 2000-01 and onwards to fulfil the objective of the Prime Minister. The provisions of sec.80-IA(4) are made applicable to "any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or(iii) developing, maintaining and operating or development, maintenance and operating any infrastructure facility………".
		Because of the amendment, the enterprises which are engaged in any of the three activities became eligible for deduction compared to the earlier provision, which was made applicable only to such enterprises engaged in all the three activities cumulatively. The provisions of sub-section (4A) which were earlier applicable to the entrepreneurs engaged in developing, maintaining and operating was deleted w.e.f. 01-04-2000; but is incorporated in sec. 80-IA(4) of the Act. It is clear that the enterprises which were developing, operating and maintaining and developing, operating and maintaining were only eligible for such deduction up to the assessment year 1999-2000 by virtue of the provisions of sec.80-IA(4A). With the introduction of the new sec.80-IA(4) amending the sub-section (4) of sec.80-IA and deleting the sub-section (4A), the Legislature provided deduction for any enterprise carrying on the business either developing or operating and maintaining or development, operating and maintaining instead allowing deduction only to the enterprises engaged in activity covering all the three activities together. The provision extended to an enterprise carrying on any one of the three activities. It makes the matters more clear that the sub-section (4) is amended again by the Finance Act, 2001 w.e.f. 01-04-2002. The earlier provision which was reading as -
		"(i) any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely-
		was amended by the Finance Act, 2001 and the said provision reads as:
		"(i) any enterprise carrying on the business (of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining) any infrastructure facility which fulfils all he following conditions, namely".
(viii)		The Legislature specifically added the conjunction 'OR' between the words (developing), (operating and maintaining) (developing, operating and maintaining). It makes it clear that the provision would apply to any enterprise carrying on the business of developing or carrying on the business of operating and maintaining or carrying on the business of development, operating and maintaining the infrastructure facility. Therefore, there is no requirement that all the three activities should have been carried on by a single enterprise so as to enable it to claim deduction u/s 80-IA(4) of the I.T. Act. This view is also supported by the decision of the Bombay High Court in the case of CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323/189 Taxman 54. It mentioned clearly that the three conditions development, operation and maintenance were not intended to be cumulative in nature. Therefore, any assessee who has undertaken any one of the activity is eligible for deduction u/s 80-IA (4) of the I.T. Act.
(ix)		The Mumbai Bench of the ITAT in the case of Asstt. CIT v. Bharat Udyog Ltd. [2009] 118 ITD 336 also held that after the amendment of sec.80-IA(4) it is applicable to enterprises who are engaged in developing infrastructural facility. Earlier, the Mumbai Bench in the case of Patel Engg. Ltd. v. Dy. CIT [2005] 94 ITD 411 also observed that the civil contractors who are developing the infrastructure facility is eligible for deduction u/s 80-IA(4). It is mentioned that the statutory provisions as contained in 80-IA (4) provides for development of infrastructure facility.
(x)		Therefore, it is clear that to be eligible for deduction u/s 80-IA (4), an enterprise need not necessarily be engaged in all the three activities of developing, maintaining and operating the infrastructure. It is enough if it is carrying on the business of either developing or maintaining and operating or developing, maintaining and operating the infrastructure facility.
		(5) Application of the provision to development of roads& water projects:

(i)		It can also be seen that the provisions of sec.80-IA(4) when introduced afresh by the Finance Act, 1999, the provisions u/s 80-IA(4A) were deleted from the Act. The deduction available for any enterprise earlier u/s 80-IA (4A) are also made available under Sec. 80-IA (4) itself. Further, the very fact that the Legislature mentioned the words (i) "developing" or (ii) "operating and maintaining" or (iii) "developing, operating and maintaining" clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-tax Act. Therefore, the appellant humbly submits that an enterprise which develops the infrastructure facility is eligible for deduction u/s 80-IA(4) of the I.T. Act.
(ii)		There is no dispute with regard to the meaning of the infrastructure facility used u/s 80-IA of the I.T. Act. An Explanation is introduced below sub-section (4) of sec.80-IA which reads as under;
		Explanation - For the purpose of this clause, "infrastructure facility" means -

(a)		a road including toll road, a bridge or a rail system;
(b)		a highway project including housing or other activities being an integral part of the highway project;
(c)		a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system;
(d)		a port, airport, inland waterway or inland port;

(iii)

Development of a road is development of infrastructure facility. Similarly, the water supply project or irrigation project are also called as infrastructure facility. Therefore, there cannot be any dispute with regard to the fact that the assessee herein is engaged in the activity of developing infrastructure facility.

(6) Meaning of the word "Develop"

(i)		The next question is whether the assessee is developing the infrastructure facility or not. The word "develop" is not defined by the Income-tax Act. It is necessary to depend upon the meaning assigned to it by various dictionaries.
(ii)		As per the Accurate & Reliable Dictionary, the meaning of the word "develop" includes - the Act of making some area of land or water more profitable or produce or useful
(iii)		The meaning given to the word "develop" as per The Random House Dictionary of the English Language - The Unabridged Edition includes to cause to grow, to elaborate or expand in detail.
(iv)		The meaning given to the word "develop" as per The Random House Dictionary of the English Language - The Unabridged Edition includes to cause to grow, to elaborate or expand in detail.
(v)		Synonyms of the word "develop" are given to be strengthening, widening, expanding, elaborating, growing etc.
(vi)		The CBDT, in its Circular No. 3 of 2008 dated 12-3-2008 (168 Taxman (statute) 12,54) clarified the nature of the word developer. At para 34.3. it is mentioned that:

"Thus, in a case where a person makes the investment and himself executes the development work i.e., carries out the civil construction work, he will be eligible for tax benefit under sec. 80-IA. In contrast to this, a person, who enters into a contract with another person (including Government or an undertaking or enterprise referred to in sec. 80-IA for executing works contract, will not be eligible for the tax benefit under sec. 80-IA"

The clarification issued by the Board makes it clear that an assessee who executes the development work and carries out the civil construction work is a developer. The Board is also of the view that those persons working for others are the works contractors and not developers. In the case of the assessee, the assessee itself undertook the work of development and therefore, it is a developer, even according to the Circular issued by the Board.

(7) The activities undertaken by the assessee:

Particulars of works claimed deduction u/s. 80-IA of the Income-tax Act, for the assessment years 2005-06, 2006-07 and 2007-08

Sl. No.	Name of the work	By whom awarded	Nature of work	Taking over of the site from Department.	Completion	Maintenance period	Handing over to Department.	Material supplies by the Govt.	Risk factors
	1	2	3	4	5	6	7	8	9
1.	AMRP-Nalgonda-Earth work Excavation and formation of embankment from km. 135.125 to km. 136.150 leading channel to Musi Reservoir including excavation of Transitition & Diversion channel in km. 134.000 to km. 135.000 of AMRP.	Govt. of AP, Irrigation & CAD Deptt.	Musi Reservoir Development	10.09.2004 Cl. At page 49.	18.03.2005	24 months Cl. at Page No.	28.03.2007 Cl. at page No.	Nil	All losses during the course of development including men and material are to the account of the assessee
2.	SRSP-FFC-Earth work Excavation & forming embankment of Kakatiya Main Canal km. 336.00 to 337.00	I&CADD Govt. of AP	Kakatiya Main Canal formation	01.4.2004	20.1.2005	24 months Cl. 9.1 at page No. 512	20.1.2007 Cl. at page No. 515	Nil	-do-
3.	SRSP-FFC-Earth work Excavation of flood flow canal from km. 6.000 to km. 7.000 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	5.8.2004 Cl. at page No. 480	4.8.2005	24 months Cl. 3.2 at page No. 476	4.8.2007 Cl. 21.1 at page No. 479	Nil	-do-
4.	SRSP-FFC-Earth work Excavation of flood flow canal from km. 7.000 to km. 8.000 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	31.5.2004 Cl. at page No. 486	20.10.2004	24 months Cl. 3.2 at page No. 482	20.10.2006 Cl. 21.1 at page No. 485	Nil	-do-
5.	SRSP-FFC-Earth work Excavation of flood flow canal from km. 8.000 to km. 9.000 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	31.5.2004 Cl. at page No. 492	14.10.2004	24 months Cl. 3.2 at page No. 488	14.10.2006 Cl. 21.1 at page No. 491	Nil	-do-
6.	SRSP-FFC-Earth work Excavation of flood flow canal from km. 9.000 to km. 10.000 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	3.3.2004 .	20.10.2004	24 months Cl. 9.1 at page No. 470	20.10.2006	Nil	-do-
7.	Earth work Excavation of flood flow canal from km. 10.000 to km. 11.000 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	3.3.2004 Cl. at page No. 468	20.10.2004	24 months Cl. 9.1 at page No. 464	20.10.2006 Cl. at page No. 468	Nil	-do-
8.	SRSP-FFC-Earth work Excavation of flood flow canal from km. 12.600 to km. 14.000 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	9.1.2004 Cl. at page No. 462	20.11.2004	24 months Cl. 9.1 at page No. 458	20.11/2006 Cl. at page No. 462	Nil	-do-
9.	SRSP-FFC-Earth work Excavation of flood flow canal from km. 17.000 to km. 18.000 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	3.11.2004 Cl. at page No. 498	31.12.2004	24 months Cl. 3.2 at page No. 494	31.12.2006 Cl. 21.1 at page No. 497	Nil	-do-
10.	SRSP-FFC-Earth work Excavation of flood flow canal from km. 19.000 to km. 20.000 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	30.7.2004 Cl. at page No. 504	16.12.2004	24 months Cl. 9.1 at page No. 500	16.12.2006 Cl. 21.1 at page No. 503	Nil	-do-
11.	SRSP-FFC-Earth work Excavation of flood flow canal from km. 27.000 to km. 28.400 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	21.5.2004 Cl. at page No. 510	12.7.2004	24 months Cl. No. 3.2 at page No. 506	12.7.2006 Cl. 21.1 at page No. 509	Nil	-do-
12.	SRSP-FFC-Earth work Excavation of flood flow canal from km. 14.000 to km. 15.000 of flood flow canal project from SRSP.	-do-	Flood flow canal Project from SRSP	9.3.2004	20.11.2004	24 months	20.11.2006	Nil	-do-
13.	Construction of New Pushkar Ghat near Lingalagattu on the Right Bank of Krishna River (LOA is there with 96 lacs)	-do-	Construction of Ghat	4.6.2004	31.10.2004	24 months	31.10.2006	Nil	-do-
14.	Construction of New Pushkar Ghat near Lower end Ropeway at Patalaganga and Renovation of existing Pushkar Ghat at Sri Sailam (Sivagiri)	-do-	Construction of Ghat	4.6.2004	31.10.2004	24 months	31.10.2006	Nil	-do-
15.	Construction of Ghat Road at EI+ 402 to 270M at leading to Patalaganga Pushkar Ghat at Sri Sailam (Sivagiri) on upstream of NSRS Project, in Kurnool (Distt.) Vide. Agt. No. 21SE/2004-05/07.07.04.	-do-	Construction of Ghat Road	7.7.2004	31.10.2004	24 months Cl. No. 13.1 at page No. 517	31.10.2006 Cl. 21.1 at page No. 519	Nil	-do-
16.	Earthwork in formation for raising/widening of existing formation in layers including earthwork in cutting to make profile as per BG standard including strengthening/extension/rebuilding of minor bridges including construction of side drain and other protection works from km. 93.615 to km. 94.500 between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding-Silchar (WO No. CA No. 804)	NF Railway, Maligaon	Gauge conversion for NF Railway	19.3.2004 Cl. at page No. 2081	10.7.2007	6 months Cl. 7 at page No. 205	10.1.2008	Nil	-do-
17.	Earthwork in formation for raising/widening of existing formation in layers including earthwork in cutting to make profile as per BG standard including strengthening/extension/rebuilding of minor bridges including construction of side drain and other protection works from km. 94.500 to km. 95.780 between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding-Silchar (WO No. 23 CA No. 703)	-do-	Gauge conversion for NF Railway	21.2.2003 Cl. at page No. 206	2.7.2006	6 months Cl. at page No. 210	2.1.2007	Nil	-do-
18.	Earthwork in formation for raising/widening of existing formation in layers including earthwork in cutting to make profile as per BG standard including strengthening/extension/rebuilding of minor bridges including construction of side drain and other protection works from km. 95.780 to km. 96.500 between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding-Silchar (WO No. 24 CA No. 697)	-do-	Gauge conversion for NF Railway	17.2.2003 Cl. at page No. 211	2.7.2006	6 months Cl. 7 at page No. 215	2.1.2007	Nil	-do-
19.	Earthwork in formation for raising/widening of existing formation in layers including earthwork in cutting to make profile as per BG standard including strengthening/extension/rebuilding of minor bridges including construction of side drain and other protection works from km. 96.500 to km. 97.000 between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding-Silchar (WO No. 25 CA No. 701)	-do-	Gauge conversion for NF Railway	19.2.2003 Cl. 2.6 at page No. 171	2.7.2006	6 months Cl. 7 at page No. 178	2.1.2007	Nil	-do-
20.	Earthwork in formation for raising/widening of existing formation in layers including earthwork in cutting to make profile as per BG standard including strengthening/extension/rebuilding of minor bridges including construction of side drain and other protection works from km. 97.000 to km. 97.800 (new chainages) between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding-Silchar (W. No. 26 CA No. 700)	-do-	Gauge conversion work for NF Railway	19.2.2003 Cl. at page No. 216	2.7.2006	6 months Cl. at page No. 220	2.1.2007	Nil	-do-
21.	Construction of RBG Building of NF Railway (Between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding - Silchar (WO No. 13 dt. 3.2.2004)	-do-	Gauge conversion for NF Railway	3.2.2004 Cl.at page No. 221	10.7.2005	6 months Cl. at page No. 224	30.7.2007	Nil	-do-
22.	EPC Turnkey system: Investigation, preparation of hydraulic particulars, designs and drawings and Excavation of HNSS Main Canal from km. 20.000 to km. 42.000, including CM & CD works and distributory system to feed an ayacut of 2300 acres kharif I.C. (PK 24) & Investigation, preparation of hydraulic particulars, designs and drawings and Excavation of HNSS Main Canal from km. 77.000 to km. 100.000 including CM & CD works ayacut of 5100 acres kharif I.D. (package-27).	Govt. of Irrigation & CAD Deptt.	AVR Handri Niva Sajala Sravanthi main canal	25.2.2005 Cl. 20 at page No. 270.	work in progress	24 months Cl. 1 at page No. 306	Cl. 53.1 at page No. 279	Nil	-do-
23.	Earth work excavation and forming embankment of gravity canal from km. 11.000 to km. 13.000 of Kalwakurthy Lift Irrigation Scheme, Mahabubnagar Distt.	I & CADD Govt. of AP	Gravit Canal Kalwakurthy Lift Irrigation Scheme.	30.4.2005 Cl. 8 at page No. 526	25.6.2006	24 months Cl. 9.1 at page No. 526	25.6.2008 Cl. 25.1 at page No. 529	Nil	-do-
24	Restoration to design standards of B.M. Drain from km. 0.00 to 16.000 and B.M. Drain left arm from km. 0.00 to 16.00 and BM Drain left arm from km. 0.00 to 10.00 in Guntur Distt.	-do-	Drain work	21.4.2005 Cl. at page No. 524	14.8.2005	24 months	14.8.2007 Cl. 21.1 at page No. 523	Nil	-do-
25.	NS Project, Ongole - Improvement to Nallamada drain below Commamuru from km. 2.60 to 21.20 involving earthwork excavation for the reach from km. 2.60 to 8.60 including formation and removal of cross bund at km. 2.60 at Guntur	I&CAD Guntur	Nallamada drain work	30.3.2005 Cl. at page No. 535	15.9.2005	24 months	15.9.2007 Cl. 21 at page No. 524	Nil	-do-
26.	Immediate restoration of Track by removing slipped earth on the track by the side of track BR. No. HCS/241/06 dated 26.9.2006, BR. No. 8795 dated 28.9.06 CA No. sE/148 dated 20.6.2006	NF Railway Maligaon	Gauge conversion for NF Railway	28.9.2006	15.7.2007	6 months	15.1.2008	Nil	-do-
27.	Immediate restoration of track by removing slipped earth on the track by the side of track BR. No. HCS/240/06 dated 26.9.06, BR. No. 894 dated 28.9.06 CA No. SE/146 dated 20.6.2006.	-do-	-do-	28.9.2006	15.7.2007	6 months	15.1.2008	Nil	-do-
28.	Immediate restoration of damaged bank at km. 96.300 to 93.400 by providing rail biling, stone concrete BR. No. 507 dated 24.7.06 CA No. SE/143 dated 20.6.2006	-do-	-do-	20.6.2006	15.7.2007	6 months	15.1.2008	Nil	-do-

Claimed for which the assessee is not eligible as they are sub-contract works

1.	Earth work excavation of flood flow canal from km. 4.000 to km. 5.000 of flood flow canal project from Sri Ram Sagar Project (Back to back sub-contract from GVR & Co., Hyderabad).	I&CADD Govt. of AP	Flood flow canal project from Sri Ram Sagar Project	15.10.2003	20.8.2004	24 months	20.8.2006	Nil	All losses during the course of development including men and materials are to the account of the assessee.
2.	Earth work excavation of flood flow canal from km. 5.000 to km. 6.000 of flood flow canal project from Sri Ram Sagar Project (Back to back sub-contract from GVR & Co., Hyderabad).	-do-	-do-	15.10.2003	13.10.2004	24 months	13.10.2006	Nil	-do-

(i)		For this purpose, the possession of the site is handed over to the assessee by the Government. The assessee takes possession and access to the property and thereafter it shall be the responsibility of the assessee to develop the said area into more useful infrastructure facility. In the process, every Act required (whether mentioned in the agreement or not) in converting the area into more useful one shall be that of the assessee. The assessee has to undertake the responsibility of maintenance of the existing traffic and there should not be inconvenience to the regular traffic. The developed area after completion of the development of infrastructure is handed over to the Government. After handing over, the assessee shall maintain the infrastructure for a period of 48 months and any defects are to be rectified.
(ii)		From the above facts it is clear that the assessee is converting the area entrusted to it into more useful and more profitable area and handing over the developed one to the Government. Therefore, the activity of the assessee is "to develop" an existing two lane road into four lane road thereby making the road more useful and profitable.

(8) Explanations introduced by the Finance Act, 2007 and 2009:

(i)		The next question to be considered is whether the Explanation introduced either by Finance Act, 2007 or by Finance Act, 2009 retrospectively would debar the assessee from claiming the deduction u/s 80-IA(4).
		The Explanation introduced by the Finance Act, 2007 reads as under:
		"Explanation - For the removal of doubts it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be".
(ii)		It is clear from the above that any assessee who entered into a contract with the enterprise mentioned in Sub section (4) would not be eligible for deduction. It clearly indicates that any sub-contractor who undertakes a part of the work from the undertaking which was allotted the work would not be eligible for such deduction. The said Explanation has no application to the assessee. The assessee did not claim such deduction or any income pertaining to a sub contract work undertaken from the enterprises referred to in sec.80-IA(4). Therefore, the Explanation introduced by the Finance Act, 2007 shall not affect the claim made by the assessee.
(iii)		The Explanation introduced by the Finance Act, 2009 added that those the enterprises undertaking simple works contracts by entering into agreements with the enterprises or with the Government or Government Organizations. The said amended Explanation reads as under:
		"For the removal of doubts, it is hereby declared that nothing contained in this 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 (including the Central or State Government) and executed by the undertaking or enterprise referred in sub-section (1)".
(iv)		It can be seen from the above Explanation that any enterprises which enters into a mere works contract either with any other enterprise or Government or Government corporation shall not be eligible for the deduction.
(v)		It is made clear that any enterprise, which entered into development of infrastructure, would be eligible for deduction and not those enterprises, which enter into contract for executing works contracts. The assessee herein entered into agreement for development of infrastructure facility and not for a mere works contract. It is submitted that this Explanation has to be read in the context of the application of the main provisions of sec.80-IA (4) of the Act.
(vi)		The purpose of introduction; and the amendments brought in are already discussed in the earlier paragraphs. From a reading of sec.80-IA (4)(i) it is clear that the deduction is available for any company which enters into agreement with any Government or Government body. It is clear that the deduction is available not for any person but for those companies entering into agreement with the Government or other Government bodies/corporations. It is also made clear that the deduction is available for the corporate bodies entering into agreement with the Government Organizations. Therefore, the main provision makes it clear that the deduction is available to companies entering into agreement with Government bodies or Government
(vii)		Therefore, it is not correct to read the Explanation to mean that the Government body is eligible for deduction u/s 80-IA and the company entering into agreement with such Government body is not eligible for deduction.
(viii)		The Explanation newly introduced clearly indicates that the companies registered in India or a consortium of such companies as is referred to sub-section (4) are eligible for deduction. There is no mention in the Explanation that the Government bodies or the Government corporations are only eligible for deduction. They may also be eligible for such deduction along with the other private companies, provided they themselves undertake development of infrastructure facility. All that the said Explanation excludes are the contracts entered into by a company which are in the nature of works contract. The Explanation distinguished between a works contract and a contract for development.

(9) Meaning of the word "Works contract":

(i)		Insofar as the meaning of the word "works contract" is concerned, the Bombay High Court in the case of CIT v. Glenmark Pharmaceuticals Ltd., [2010] 324 ITR 199/191 Taxman 455 Explained as under:
		"Held, dismissing the appeal, that the agreement was on a principal to principal basis. The manufacturer had his own establishment where the product was manufactured. The material required in the manufacture of the article or thing was obtained by the manufacturer from a person other than the assessee. The property in the articles passed upon the delivery of the product manufactured. Until delivery, the assessee had no title to the goods. The goods had an identifiable existence prior to delivery. The contract entered into by the assessee was not a contract for carrying on any work within the meaning of section 194C. The Revenue was not justified in treating the assessee, as an assessee in default.".
(ii)		The activity carried on by the assessee is not one which can be said to be a works contract. The Bombay High Court made it clear that in a works contract, the contractee would provide the material and all other requirements in the process of manufacture/production. The contractor merely carries on the work with the material supplied by the contractee and the knowledge supplied by the contractee. Further, in a works contract, the risk is undertaken by the contractee and in case of development contract, the contractor undertakes the risks involved. In the case of the assessee, it was allotted a premises and the possession of the premises was handed over to the assessee. It was asked by the Government to develop the said area into an infrastructure facility. All the activities necessary in the process of development and the losses suffered in the process, the material to be used including the expertise shall be of the assessee. The maintenance of the existing facility during the period of development also shall be of the assessee. Therefore, the assessee is a developer and not a works contractor. The assessee also submitted in detail the meaning of the word "development". The meanings given in the above mentioned paragraphs to the word "develop" would be - making some area of land more profitable or useful". The assessee is making the area more useful than it was earlier and, therefore, the activity carried by the assessee is akin to development and certainly not a works contract.
(iii)		In this context, it may be necessary to refer to the Circular No.4 of 2010 dt.18-05-2010 (after introduction of the Explanation by the Finance Act, 2009) which is extracted below:
		"References have been received by the Board as to whether widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80-IA(4)(i) of the Income-tax Act, 1961.
		Section 80-IA(4)(i) provides for a deduction to an undertaking engaged in developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility subject to satisfaction of the conditions laid down in the section. The Explanationto sub-section 80-IA(4)(i) states that for the purpose of this clause, infrastructure facility means inter alia:-

"(a)		a road including toll road, a bridge or a rail system;
(b)		a highway project including housing or other activities being an integral part of the highway project".

		The issue has been examined by the Board. It has been decided that widening of an existing road by constructing additional lanes as a part of a highway project by an undertaking would be regarded as a new infrastructure facility for the purpose of section 80-IA(4)(i). However, simply relaying of an existing road would not be classifiable as a new infrastructure facility for this purpose".
(iv)		The Board clearly mentioned that widening of existing road in an infrastructure facility and any enterprise carrying on the activity of widening of an existing road would be eligible for deduction u/s 80-IA(4) as the CBDT considered such works to be development of an infrastructure facility.
(v)		The above mentioned circular is issued after the Finance Act, 2009 amending the Explanation. In view of the above, the assessee is of the view that it is entitled for deduction u/s 80-IA (4)(i) of the I.T. Act, and accordingly claimed such deduction in the returns of income filed for the assessment year 2000-2001 and onwards.

10. The views of the lower authorities mentioned herein below is contary to the true spirit of the provisions of section::

(i)		While completing the assessments in the Assessing officer rejected the claim made by the appellant on the ground that the assessee is not the owner of the infrastructure facility. According to the Assessing officer, Sub-section (4) which reads
		"It is owned by the company registered in India or by a consortium of such companies".
		would mean that the infrastructure should be owned by the company. The appellant submitted that the ownership mentioned in sec. 80-IA(4) refers to the enterprise carrying on the business of development and not to the infrastructure facility as presumed by the Assessing officer.

(a)		According to AR the assessee herein is not carrying on the activity as mentioned in u/s 80-IA (4)(i) r.w.s.80-IA(4) (i) (c) of the said section. The Assessing Officer referred to the sub-clause (c) which mentions that "it has started or starts operating or maintaining the infrastructure facility on or after first day of April, 1995" would mean that such deduction is allowable only for an enterprise which develops and operates and maintains infrastructure facility.
(b)		The Assessing Officer is also of the view that the assessee is a mere contractor and not a developer. In view of the amendment brought in retrospectively by the Finance Act, 2007 the Assessing Officer came to the conclusion that the income from mere works contract would not be eligible for deduction u/s 80-IA (4) of the I.T. Act. In the later assessment years, the Assessing Officer also referred to the amendment brought in by the Finance Act, 2009, retrospectively.

(iv)

The learned Commissioner of Income-tax (Appeals) for the assessment years confirmed the view taken by the Assessing Officer.

14. The AR further submitted his arguments as follows:

(i)		Whether the assessee needs to be the owner of the infrastructure facility or not : The AR submitted that the word "owned" in sub-clause (a) of clause (1) of sub-section (4) of sec.80-IA refer to the enterprise. It is clear from a reading of the section that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is Explained in sub-clause (a). Therefore, the word "ownership" is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction u/s 80-IA(4) and not any other person like individual, HUF, Firm etc. This view is supported by the decision of the Hon'ble ITAT, Mumbai "F"-Bench in the case of Patel Engg. Ltd. (supra).
(ii)		It is further submitted that according to sub-clause (a), clause (i) of sub-section (4) of sec. 80-IA the word "it" denotes the enterprise carrying on the business. The word "it" cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project; Water treatment system, Irrigation project; a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word "it" is used to denote an enterprise. Therefore, the assessee submits that there is no requirement that the assessee should have been the owner of the infrastructure facility.

15. The next contention of the Assessing Officer is that the assessee is not a developer but is only a works contractor. The authorities below relied on the amendments brought in by the Finance Act, 2007 and 2009 to mention that the activity undertaken by the appellant herein is not eligible for deduction u/s 80-IA (4) of the I.T Act. In this regard an analysis has to be made by the authorities as to whether a particular work undertaken by the assessee herein is a mere works contract or in the nature of development. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the appellant. The agreement entered into with the Government. or the Government body may be a mere works contract or for development of infrastructure.

16. It was submitted that it can be seen from the agreements entered into that the appellant was handed over the possession of the premises various projects till the development of infrastructure facility was complete and was handed over to the Government, it shall be the assessee's responsibility to do every act. The assessee has to develop the infrastructure facility in the premise handover to the assessee. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system, excavation of transition and diversion channel or may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work; it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality; and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds initially, its expertise; its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 48 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as Explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under sec. 80-IA(4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Assessing Officer. The assessee submits that the Circular issued by the Board extracted above would clearly indicate that the assessee is eligible for deduction under sec. 80-IA(4) of the Act.

17. The lower authorities mentioned that the assessee is a mere contractor of the work and not a developer. In this regard, the assessee may be permitted to refer to the provisions of the Act. it is mentioned that to be eligible for deduction u/s 80-IA (4) of the I.T. Act, a person being a company has to enter into an agreement with the Government. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. Therefore, the view taken by the authorities in this regard is not correct. The assessee's view is supported by the following decisions:

(1)		The decision of the ITAT, Pune Bench "A" vide order dated 8.6.2011 in the case of Laxmi Civil Engg. (P.) Ltd. v. Addl CIT [IT Appeal No. 766 (Pune) of 2009, dated 8-6-2011] wherein it is held that even if a person is a contractor, if all the conditions mentioned in sec.80-IA(4) are fulfilled, the assessee becomes eligible for deduction.
(2)		The decision of the Hon'ble ITAT, Mumbai "F"-Bench in the case of Patel Engg. Ltd. (supra) wherein it is held that the term "contractor" is not essentially contradictory to the term "developer". The Hon'ble Tribunal found that a person who has undertaken the contract for development is not only a contractor but is also a "developer" eligible for deduction u/s 80-IA(4) of the I.T Act.
(3)		Decision of the Mumbai Bench of the Hon'ble ITAT in the case of Asstt. CIT v. Bharat Udyog Ltd. [2008] 24 SOT 412 wherein it is held that an assessee engaged in development of infrastructure but not in maintaining and operating the same would be eligible for deduction u/s 80-IA (4) though he is described as a contractor and was paid by the Government.
(4)		The decision of the ITAT in the case of Metal Infra Projects Ltd. v. CIT 26 DTR 359, wherein it is held that simply because the agreement mentioned the assessee as contractor, he would not cease to be the developer.

18. It can be seen from the above that the word "contractor" used in the agreements entered into would not debar the assessee from being a developer. In fact the assessee entered into agreement for development of infrastructure facility and therefore, he is a contractor. Therefore, the authorities are not justified to hold that the assessee is not a developer simply because he is mentioned as a contractor in the agreement.

19. The Revenue authorities cannot make a distinction between the words "Contractor" and "developer". The conditions mentioned in the Income-tax Act, in sec. 80-IA are that the assessee shall be a company and should have entered into an agreement with the Government or Government body for development of the infrastructure facility. Even if it did so in the process of fulfilling the contract, it would be eligible for deduction under the said section.

20. The learned AR submitted that:

(i)		Both the Assessing Officer and the learned Commissioner of Income-tax (appeals) are not correct in rejecting the claim made by the assessee for deduction under sec. 80-IA(4) of the Act.
(ii)		The lower authorities are of the view that separate books of account were not maintained for each of the work. In this regard it is submitted that proper accounts were maintained separately for each work except for the head office expenditure. Further, it is held by the Honourable ITAT in the case of Patwa Kinariwala Electronics v. IAC [1994] 77 Taxman 319 (Ahd.) (Mag.), wherein it is held that maintenance of separate books is not fatal. A similar decision is taken by the Honourable ITAT in the case of Shoghi Communications Ltd. v. Dy. CIT [2006] 9 SOT 489 (Chd.). The Honourable ITAT, Chennai Bench in the case of Asstt. CIT v.Cavinkare (P.) Ltd. [2009] 120 ITD 126 held that separate books of account for each unit need not be maintained. However, it was submitted that the assessee has maintained separate books of account and can arrive at the profit for each of the unit.
(iii)		The lower authorities for one of the assessment years are of the view that the deduction is allowable only when the assessee enters into agreement with Government and not with any other body corporate. The assessee in this regard humbly submits that the provisions of sec. 80-IA(4) makes it clear that an agreement can be entered into by the assessee with either the Government or the Government organization or a statutory body. The Statutory body includes any corporation or corporate body incorporated by the Government.

21. On the other hand, the learned departmental representative submitted written submissions based on the arguments put forth before us. He relied on the orders of the lower authorities and submitted that to be eligible for deduction under section 80-IA(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. According to him, a mere developer is not eligible for deduction under section 80-IA (4) of the Act. In this regard, he referred to sub-section (2) of sec.80-IA (4) and also sub-clause (c) of the section 80-IA(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 ABG Heavy Industries Ltd.,(supra) 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) insofar 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 year 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 80-IA. 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. 80-IA 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 80-IA 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 v. N.C. Buddhiraja & Co. [1993] 204 ITR 412, 433/70 Taxman 312 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 80-IA is, therefore, available to the former, and not to the latter forms of business. The deduction claimed under section 80-IA 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 asessee 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.

22. 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.

23. 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 Explanationinserted below section 80-IA (13) of the Act, with retrospective effect from 1-4-2000 has over-riding 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 ofAquarius Travels (P )Ltd. v. ITO [2008] 111 ITD 53 (Delhi). 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 Pharmaceuticals Ltd. (supra) which digests the case law for ascertainment of whether facts of the agreement would amount to a contract for work or for sale.

24. He placed reliance on the decision of jurisdictional High Court in the case of Dr. Mrs. Renuka Datla v. CIT [1999] 240 ITR 463/107 Taxman 143 (AP), the provisions granting exemptions have to be strictly construed. It was held by the Supreme Court in the case of IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521/135 Taxman 594 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 assesee, Mumbai High Court in the case of ABG Heavy industries Ltd. (supra) and ITAT Pune Bench in the case ofLaxmi Civil Engineering (P.) Ltd. (supra), it is submitted that these decisions supported the proposition that (i) the ITAT's decision in the case of B.T. Patil & Sons, Belgaum Construction (P.) Ltd. v. Asstt. CIT [2010] 35 SOT 171 (Mum.) (LB) 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 Ltd. (supra) and followed within its jurisdiction by the Pune Bench of the ITAT in the case of Laxmi Civil Engg.(P.) Ltd. (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.(P.) Ltd. (supra), 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 Ltd. (supra) and a developer need not operate and maintain the infrastructure facility, as held by the Mumbai High Court in the case ofABG Heavy Industries Ltd. (supra). It is submitted that the decision of the Pune Bench of the ITAT in the case of Laxmi Civil Engg.(P.) Ltd.(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 B.T. Patil & Sons Bengaum Construction (P.) Ltd.'s case (supra) as well as the Mumbai High Court in ABG Heavy Industries Ltd. case (supra) 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 ofLaxmi Civil Engg.(P.) Ltd. (supra),? Such as 10 year ownership; retransfer; assumption of assured responsibility regarding operational readiness, etc., noticed in ABG Heavy Industries Ltd. case (supra) 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 Laxmi Civil Engg.(P.) Ltd. (supra).
(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 & Sons, Belgaum Construction (P.) Ltd. (supra), the cumulative or non cumulative satisfaction of conditions in section 80-IA(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 & Sons, Belgaum Construction (P.) Ltd. (supra) none of whom were absent in the case of ABG Heavy Industries.

25. 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 & Sons, Belgaum Construction (P.) Ltd. (supra). Therefore, it can be said that the decision of the Mumbai High Court in the case of ABG Heavy Industries Ltd. (supra) will be binding in its jurisdiction for infrastructure contract cases, only insofar 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 & Sons, Belgaum Construction (P.) Ltd.'s case (supra). 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 80-IA(4). The decision of the Mumbai High Court in the case of ABG Heavy Industries Ltd. (supra) 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 & Sons, Belgaum Construction (P.) Ltd. case (supra) 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 Ltd. v. Asstt. CIT [2012] 20 taxmann.com 289, 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."

26. Without prejudice to the argument that the stand that the Mumbai High Court's order in ABG Heavy Industries Ltd.'s case (supra) 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 Ltd. case (supra) 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 Ltd. case (supra) 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 Ltd. case (supra), 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 Ltd. case (supra) 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 80-IA. 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 un-ware 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)."

27. 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 & Sons, Belgaum Construction (P.) Ltd.(supra). It is further submitted that the Mumbai High Court's decision in the case of ABG Heavy Industries Ltd. case (supra) not only runs on different facts, it does not even refer to the case of B.T. Patil & Sons, Belgaum Construction (P.) Ltd. (supra). 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 & Sons, Belgaum Construction (P.) Ltd. (supra) 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. v. Dy. CIT [ITA No.5172(Mum.) of 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. (P.) Ltd. (supra) considers the Tribunal decision of B.T. Patil & Sons, Belgaum Construction (P.) Ltd. case (supra) as well as its jurisdictional High Court decision in the case of ABG Heavy Industries Ltd. (supra) and goes on to hold that the assessee is not entitled to the deduction under section 80-IA (4) in view of the Explanation introduced with retrospective effect.

28. The learned Departmental Representative relied upon sub-section (2) of sec.80-IA 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 80-IA(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 80-IA. 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. Otherwise this section would not operate.

29. 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.80-IA (4A) were made applicable only to the enterprise which develop, maintain and operates infrastructure facility. The assessee did not claim deduction under section 80-IA (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 80-IA(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.80-IA (4) would extend to those undertakings which develop, operate and build, operate and transfer. It is only a clarificatory circular. As submitted earlier, section 80-IA (4) and section 80-IA (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.

30. In the Rejoinder the AR submitted as follows:

(ii)		According to DR, the assessee should have been engaged in development and maintenance of infrastructure facility. According to him a mere developer is not eligible for deduction u/s 80-IA (4) of the I.T Act. In this regard the learned DR referred to sub-section (2) of sec.80-IA (4) and also sub-clause (c) of sec.80-IA(4) (i). Insofar as sub-clause (c) of sec.80-IA(4) is concerned, the assessee already submitted that it would apply only to those enterprises carrying on the business of maintaining and operating the infrastructure facility. The assessee already submitted in the above mentioned paragraphs that any enterprise carrying on either the business of developing or business of maintaining and operating or the business of developing , maintaining and operating would be eligible for deduction. Out of such enterprises if any enterprise has undertaken the work of maintenance and operation, sub-clause (c) of sec.80-IA would apply. 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 ABG Heavy Industries Ltd. (supra) observed that the requirement that the operation and maintenance of the infrastructure facility come 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.
(iii)		There is significance for Clause-(c) insofar as the enterprises carrying on business of developing and maintaining and operating infrastructure facility are concerned. As submitted in the earlier paragraphs, the deduction was available for such undertakings from the assessment year 1996-97 onwards under sub-section (4A) of sec.80-IA. While introducing the provisions by the Finance Act, 1995, it is necessary to explain the period for which or from which the deduction is applicable. It is Explained that such deduction is applicable to the enterprises starting operating and maintaining the infrastructure facility on or after 01-04-1995. 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 year 1996-97 and onwards would not be eligible. As submitted in the earlier paragraphs sub-section (4A) was removed w.e.f. 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 80-IA. 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. 80-IA of the Act.
(iv)		Therefore, sub-clause (c) come 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.
(v)		The DR relied upon sub-section (2) of sec.80-IA of the I.T. Act. Sub-section (2) is already extracted above. The learned DR's view is 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, the learned DR is of the view that unless operation of the infrastructure facility is also undertaken; the assessee would not be eligible for deduction. It is also argued by the learned DR that the computation of deduction under sub-section (1) cannot be made and the computation provision would fail to operate.
(vi)		The DR 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 u/s 80-IA(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 u/s 80-IA. 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. Otherwise this section would not operate. Even without this provision, the deduction u/s 80-IA(i) can be worked out. Therefore, it is only a supplementary provision facilitating the assessee in choosing the period for which a deduction under the said section can be claimed. Therefore, the argument of the learned DR is not correct in his argument.
(vii)		The DR 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 the provisions of sub-section (4) and sub-section (4A) as they existed at the relevant point of time. At the relevant point of time, 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.
(viii)		The DR referred to the Circular No.733 reported in 219 ITR 8 (Statutes). Even the said Circular was issued for the pre-amended provision of Sec.80-IA(4). The assessee is now concerned with the provisions of Sec. 80-IA(4) as introduced afresh by the Finance Act, 1999 with effect from 1.4.2000. The earlier circulars would not come to the rescue of the department as such circulars wereExplaining the provisions of sec.80-IA(4A) and not sec.80-IA (4), as they were existing prior to 1-4-2000.
(ix)		The Circular 717 Explaining the provisions of the Finance Act, 1995 at paragraph 34.3 mentions about the enterprises which develops, maintains and operates any new infrastructure facility such as roads, highways, express ways etc. in BOT or BOOT or similar other places. At the time of issue of the said circular by the Board, 80-IA(4) was applicable only to hotels and not the infrastructure facility. The provisions of sec.80-IA(4A) as mentioned above were made applicable only to the enterprises which develops, maintains and operates infrastructure facility.
(x)		The assessee did not claim deduction u/s 80-IA(4A) of the I.T. Act. Therefore, neither the circulars issued up to that date nor the provisions of the law as were existing up to the assessment year 1999-2000 can be applied for the purpose of determining the allowability of deduction u/s 80-IA(4) claimed by the assessee herein.
(xi)		The 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.80-IA(4) would extend to those undertakings which develop, operate and build, operate and transfer. It is only a clarificatory circular. As submitted earlier, sec.80-IA(4) and sec.80-IA (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.
(xii)		The DR also relied upon Explanation brought in by the Finance Act, 2007 and the Finance Act 2009 which the assessee alreadyExplained in detail in the above paragraphs. The assessee humbly submits that the said Explanation have no application to the facts of the assessee's case, as the assessee is engaged in the development of infrastructure facility.
(xiii)		The DR also mentioned that the development and risk are not undertaken by the assessee. This is not factually true. The assessee placed before the Honourable ITAT, a copy of the agreement entered into. It can be observed that the assessee took possession of the undeveloped area and handed over the developed area. In the process, he has undertaken every activity including the risks involved in the process. It has to reimburse losses suffered by any one including the Government and the people, if any one suffers the loss. It can also be seen that any loss caused because of the natural calamities also has to be made good by the assessee only. It had to undertake the maintenance of the existing road, while the process of development is on. It can neither stop the traffic nor stop the work. In the process, if any of the vehicle or person suffers loss because of any reason, it shall be the responsibility of the assessee. Every loss in the process has to be that of the assessee only. Therefore, the learned DR is not correct in mentioning that the assessee does not have any risk.
(xiv)		The DR also mentioned that the assessee did not invest any amount in the process of the activity. It is also mentioned by the DR that the Government pays Mobilisation advance to the assessee. Therefore, the learned DR mentioned that the assessee did not invest any amount initially. The learned DR is of the view that the activity cannot be considered as development as the assessee did not invest its own money in the process. This argument of the learned DR is also not correct. There is no such mention in the provisions of sec. 80-IA(4) that the assessee should invest its own money in the process of development. The only requirement is that the enterprise should be a company and such enterprise should be in the business of development of infrastructure facility. How the funds are pooled for the purpose is not mentioned in the Act. The assessee humbly submits that the Departmental authorities cannot introduce words into the Act to give a different meaning. They have to read the provisions as they exist in the Act. A plain reading of the provisions of sec. 80-IA (4) does not indicate that the assessee to be eligible for deduction should have introduced its own funds. Therefore, the learned DR is not correct in this regard. In the following cases, various Courts have held that the provisions allowing relief should be read liberally and nothing can be added to the words used in the Act, so as to disentitle an assessee for the relief.

(1)		Decision of the Supreme Court in the case of CIT v. Clive Insurance Co. Ltd. [1978] 113 ITR 636
(2)		Decision of the Delhi High Court in the case of CIT v. Ms.Vasavi Pratap Chand [2002] 255 ITR 517/122 Taxman 792
(3)		Decision of the Madras High Court in the case of CIT v. Eastern Chemicals & Minerals (P.) Ltd. [1991] 192 ITR 423/58 Taxman 201
(4)		Decision of the Supreme Court in the case of Central Board of Direct Taxes v. Aditya V. Birla [1988] 170 ITR 137/36 Taxman 9
(5)		Decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192
(6)		Decision of the Supreme Court in the case of CIT v. Straw Board Mfg. Co. Ltd. [1989] 177 ITR 431/44 Taxman 189
(7)		Decision of the Supreme Court in the case of Broach Distt. Co-operative Cotton Sales Ginning & Pressing Society Ltd.[1989] 177 ITR 418/44 Taxman 439
(8)		Decision of the Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480
(9)		Decision of the Madras High Court in the case of J.K. Abdul Jabbar v. CIT [1999] 237 ITR 389/[1998] 101 Taxman 21.
(10)		Decision of the Supreme Court in the case of CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989]176 ITR 117/43 Taxman 328.
(11)		The decision of the Supreme Court in the case of CIT v. U.P. Co-operative Federation Ltd. [1989]176 ITR 435/43 Taxman 20.

In the following cases, various Courts have held that it is not open for the Department to read what is not there either in the documents or in the Statutory provision:

(1)		Decision of the Orissa High Court in the case of CIT v. Orissa State Warehousing Corpn. [1993] 201 ITR 729
(2)		Decision of the Delhi High Court in the case of CIT v. Bansal Credits Ltd. [2003] 259 ITR 69/126 Taxman 149
(3)		Decision of the Supreme Court in the case of Federation of Andhra Pradesh Chambers of Commerce & Industry [2001] 247 ITR 36/115 Taxman 143
(4)		Decision of the Gauhati High Court in the case of CIT v. Jhabarmal Agarwalla [1992] 195 ITR 351/65 Taxman 176
(5)		Decision of the Madras High Court in the case of CED v. Sileshkumar R. Mehta [1990] 181 ITR 10 (FB)
(6)		Decision of the Supreme Court in the case of CIT v. Ajax Products Ltd. [1965] 55 ITR 741
(7)		Decision of the Supreme Court in the case of Tarulata Shyam Smt. v. CIT [1977] 108 ITR 345

(xv)		In this regard, the DR referred to the decision of the Supreme Court in Novopan India Limited, 1994 INDLAW SC 1028 wherein the Apex Court in the matter connected with Central Excise held that when a question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. It is submitted that the reference to the said decision is misplaced. The said decision is rendered in connection with the Central Excise duty. The issue involved is whether a particular item manufactured is governed by the exception or is taxable as per the notification. The question in the said case is taxability of the item manufactured. Therefore, the said question is to be construed strictly. In the case of the assessee, the question to be considered is whether a particular deduction is allowable from the gross total income determined. A reading of the decision of the Apex Court will make it clear that the said decision has no application to the facts of the assessee's case.
(xvi)		The DR argued that the assessee did neither invest nor undertook risk:
		The Income-tax Act, in section 80-IA simply stated that a company which entered into an agreement with either Government or a Government Organization and develops infrastructure facility is eligible for deduction. The exception provided in the Explanation is when a simple works contract is entered into by any person with an enterprise carrying on the activity of development of infrastructure facility or with the Government or Government Organization, when the development of infrastructure is carried on by such Government or body. There is no such mention in the Act, that the assessee, to be eligible for deduction, should have invested his own funds in the development activity. The assessee mentioned the definition of the word "develop" as provided by various dictionaries which clearly mention that any premises can be considered as developed if it can be put for more useful or profitable purposes. A person who converts the existing premises to a more useful and profitable one, it has to be called as "development of infrastructure facility". When there is no specific requirement in the Act, that the assessee has to invest, the entire fund required for developing infrastructure, this view of the learned DR is not correct.
(xvii)		Without prejudice to the above, the assessee the AR submitted that the assesee has introduced huge money its business. This would mean that the appellant invested its own funds in process of development of the infrastructure facility. The assessee has to wait for a period of 56 days/28 days for the payment after submission of the bill. Further, as submitted in the earlier paragraphs, the Government of India obtained the finance from outside the Country for the purpose of development of infrastructure facility.
(xviii)		The assessee utilized the funds either of its own or borrowed from others for the purposes of undertaking the development activity. Therefore, it cannot be said that the assessee has not utilized its own funds. The assessee also utilized its own technical personnel and undertook risk in the process of the business activity. It is not correct to mention that the assessee did not invest its own funds and did not employ its technical personnel. The requirement of the tender includes possession of capital; capability of obtaining loans from the banks or financial institutions; and the availability of the technical personnel. The assessee would be a successful bidder only when such requirements are fulfilled. Therefore, the learned DR is not correct in this regard.
(xix)		The assessee undertook all the risks involved in the activity from the commencement date till the date of taking over. The agreement also mentions that loss or damage happens to the work, or any part thereof or materials or plant shall be the responsibility of the assessee. It also mentions that the assessee shall be responsible for death or injury to any person or loss or damage to any property which may arise in consequence of the execution and completion of the works. Therefore, the assessee is liable for risks.
(xx)		The DR is also of the view that the maintenance undertaken by the assessee as per the contract is only as a sort of warrantee and not the maintenance as mentioned in Sec.80-IA(4) of the I.T. Act. In this regard it is submitted that the assessee is claiming deduction as a person developing the infrastructure facility and not as a person maintaining such infrastructure facility. Further, the said clause was mentioned only to show that the assessee has undertaken a job of developing the entire infrastructure facility at the premises allotted to it and handed it over with a condition that it should be maintained by the assessee for a certain specified period. This only indicates that a composite agreement is entered into for development of the infrastructure facility with a clause to maintain the said infrastructure facility for a certain period.
(xxi)		The DR mentioned that the assessee was not paid for any maintenance. It is true that there is no payment for maintenance but still the assessee has to undertake maintenance of the infrastructure facility for a period as mentioned in the agreement. This would clearly indicate that the assessee is a developer and not a mere engaged in works contract. In works contract, the personal undertaking the work would not be responsible for any loss suffered during the period of work; he would not be responsible for maintenance of the infrastructure facility during the course of development; he would not be liable for maintaining the work afterwards also. The assessee, on the other hand, is made responsible for all such activities.
(xxii)		The DR finally mentions that it is a simple case of works contract and not an agreement for development of infrastructure facility. He is of the view that NHAI is the developer and not the assessee herein.
(xxiii)		The AR submitted the Government of India authorized the NHAI to call for the tenders for the work. The Govt. of India received a loan from Overseas Economic Co-operation Fund, towards the cost of development. Accordingly, a tender was issued by the NHAI. Sec. 31 of the NHAI Act, empowers the Central Government to temporarily divest the NHAI from development by handing it over to any person authorized for the purpose. The NHAI is authorized by the Government to entrust the duty of development of project to any other eligible person. In the process, the assessee became the successful bidder and undertook the work of development. Sec.31 of the NHAI Act, is reproduced hereunder:
		"If, at any time, the Central Government is of the opinion that in the public interest it is necessary or expedient so to do, it may by order, direct the Authority to entrust the development, maintenance or management of any National Highway or part thereof with effect from such date and for such period and to such person as may be specified in the order and the authority shall be bound to comply with such direction".
		It can be seen from the above mentioned provision that the assessee steps into the role of the NHAI for Development of the project, which the work of development is entrusted to it.
(xxiv)		The DR mentioned that tax was deducted at source by the Government under sec. 194 C of the Act, and therefore, the work undertaken is only a works contract and not development. In this regard the assessee submits that the provisions of sec. 194 C make it clear that deduction of tax has to be made from payments made in respect of "any works". The work "any work" denotes the work of development of infrastructure facility also. Therefore, the observation of the learned DR is not correct.
		Further it is submitted that all the works were not entrusted by the NHAI alone. It can be seen from the list annexed that some of the works were entrusted by the Government of Karnataka, Government of Assam, Railways, Government of Rajasthan, Ministry of Road Transport, Government of India directly and Government of Gujarat directly to the assessee. In view of the above, it is not correct for the learned DR to mention that NHAI is the developer and not the assessee. If the argument of the learned DR were to be correct the Legislature should have clearly mentioned that the authority which is responsible for development would be eligible for deduction u/s 80-IA (4) of the I.T. Act. Such a mention is not there in the Act, and on the other hand, it is mentioned that any company is eligible for deduction. Therefore, this view of the learned DR is not correct.
(xxv)		The learned DR referred to the decision of the Hon'ble Supreme Court in the case of N.C. Budharaja & Co. (supra). The learned CIT DR discussed the object of amendment made to sec.80-IA by the Finance Act, 1995. The assessee humbly submits that the decision of the supreme Court referred to by the learned DR relates to the deduction allowable for the Assessment Years 1974-75 to 1977-78 and the learned DR also discussed the amendment by the Finance Act, 1995. The claim of the assessee is for the Assessment Year 2000-01 and afterwards. The judgment of the Supreme Court was deciding the issues as per the provisions existed at the relevant point of time which are not applicable to the years under consideration. Therefore, the reliance of the DR on the said decision is misplaced.
(xxvi)		The learned DR also referred to the Circular No.779 dated 14-09-1999. The said circular was issued only to clarify that the enterprises which were earlier eligible for deduction u/s 80-IA (4A) up to the assessment year 1999-2000 would continue to be eligible for deduction u/s 80-IA (4) for the Assessment Year 2000-01 and onwards. This clarification does not indicate that the deduction u/s 80-IA(4) is allowable only in respect of the enterprises carrying on the activity of operating and maintaining. The Circular No.794 dated 09-08-2000 referred to by the learned DR clearly mentions that the benefits u/s 80-IA(4) were extended to water treatment and solid waste management system in order to attract commercial enterprises to operate such facilities. This circular also has no application for the facts of the assessee's case.
(xxvii)		The Circular No.14 of 2001 referred to by the learned DR not on the point. It also clarifies the position as obtaining prior to 1999-2000 and later. It does not apply to the years under consideration.
(xxviii)		The DR also refers to the Circular No.3 of 2008 dated 12-03-2008. In the said circular it was made clear that "the benefit u/s 80-IA is allowable in a case where a person makes investment and himself executes the development work i.e. carrying out the civil construction work. In contrast to this, a person who enters into a contract with any other person for executing the works contract will not be eligible for the tax benefits u/s 80-IA." It is humbly submitted that the assessee makes the investment on its own insofar as the works are concerned and itself executes the development work. The circular clarified that the execution of the civil work is equal to development. This makes it very clear that the assessee is eligible for deduction u/s 80-IA of the I.T. Act, as the assessee invested its own finance in the process of development and undertakes the development work on its own with all the risks involved. Therefore, the circular supports the claim of the assessee that it is a developer.
(xxix)		The DR referred various circulars and mentions that the enterprises which carry on the activity under the concept of BOT and BOLT alone will be eligible for deduction. In this regard, the assessee humbly submits that the provisions of Sc.80IA(4) makes the matters clear that a person who develops or operates and maintains or develops, operates and maintains would be eligible for deduction. The provision itself is very clear. It is applicable to any enterprise carrying on anyone activity. The Bombay High Court in the case ofABG Heavy Industries Ltd. (supra) clarified that all the three activities need not be done and the assessee would be eligible for deduction if it carried on even a single activity out of the above three activities. Therefore, the presumption that the assessees which carry on BOT/BOLT alone are eligible for deduction is not correct. There is no mention in the enabling sections that an assessee to be eligible for deduction should have been engaged in BOT/BOOT/BOLT schemes.
(xxx)		The DR mentions that the meaning of the word "developer" can not be ascertained from the I.T. Act. He relied on the decisions in CITv. Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 149/62 Taxman 471 (SC), Gokuldas Exports v. CIT [1993] 200 ITR 401/67 Taxman 219 (Kar.), CIT v. G.B. Transports [1985] 155 ITR 548/[1986] 27 Taxman 40 (Ker.) to mention that the interpretation must be in consonance with the purpose of the statute. The assessee submits that the interpretation has to be in consonance with the purpose of the Act. The assessee already submitted the changes made to the provisions of the law and also discussed various amendments brought in by the Legislature. It can be understood from the above and from the reading of the provisions of sec.80-IA (4)(i) that an assessee who enters into an agreement with Government for the purpose of development of infrastructure facility is eligible for deduction. In such circumstances, the mention by the learned DR that the entire infrastructure facility should be invested by the assessee and that it should be maintained by the assessee clearly shows that the interpretation provided by the learned DR is not in consonance with the provisions of law and, therefore, the said decisions favour the assessee and not the department.
(xxxi)		The DR also referred to the observations made by the Special Bench of the ITAT in the case of B.T. Patil & sons, Belgaum Construction (P.) Ltd. (supra). It is submitted that the said decision is recalled and the observations made cannot be considered. Further, the Bombay High Court in the case of ABG Heavy Industries Ltd. (supra) held that the three conditions mentioned in sec. 80-IA(4) need not cumulatively be fulfilled. Therefore, any observation to the contrary by the Special Bench is not relevant at present.
(xxxii)		In the rejoinder the Ld. AR, countered the argument of the DR wherein the DR arguments are mostly to the effect that the assessee is not a developer, but only a works contractor and that the assessee's who engage themselves in all the three activities alone would be eligible for deduction under sec. 80-IA of the Act. In the earlier paragraphs, the assessee's counsel submitted in detail that it is a developer and not engaged in the works contract alone and that for the purpose of being eligible for deduction under sec. 80-IA of the Act, one need not carry on all the activities of Develop; operate and maintain.

31. Findings: We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We find that the provisions of section 80-IA (4) of the Act, when introduced afresh by the Finance Act, 1999, the provisions under section 80-IA (4A) of the Act, were deleted from the Act. The deduction available for any enterprise earlier under section 80-IA (4A) are also made available under section 80-IA (4) itself. Further, the very fact that the Legislature mentioned the words (i) "developing" or (ii) "operating and maintaining" or (iii) "developing, operating and maintaining" clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-tax Act. We find that where an assessee incurred expenditure for purchase of materials himself and executes the development work i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80-IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in section 80-IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80-IA of the Act. We find that the word "owned" in sub-clause (a) of clause (1) of sub-section (4) of section 80-IA of the Act, refer to the enterprise. By reading of the section, it is clear that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is Explained in sub-clause (a). Therefore, 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 80-IA (4) and not any other person like individual, HUF, Firm etc.

32. We also find that according to sub-clause (a), clause (i) of sub-section (4) of section 80-IA the word "it" denotes the enterprise carrying on the business. The word "it" cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by anyone. Even otherwise, the word "it" is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility.

33. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act, 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80-IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. We find that the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all Acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as Explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80-IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80-IA (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer.

34. We also find that as per the provisions of the section 80-IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor.

35. We find that the decision relied on by the learned counsel for the assessee in the case of Laxmi Civil Engg. works (P.) Ltd. (supra) squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 80-IA of the Act, after considering the Judgment of the Mumbai High Court in the case ofABG Heavy Industries Ltd. (supra). The case of ABG Heavy Industries Ltd. (supra) is not the pure developer whereas, in the present case, the assessee is the pure developer. We also find that section 80-IA of the Act, intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80-IA of the Act, which ultimately culminated into Amendment under section 80-IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in section 80-IA of the Act, in the Finance Act, 2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80-IA of the Act. But, certainly, the Explanationcannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contract or sub-contract as distinct from the developer. This is clear from the express intension of the parliament while introducing theExplanation. The Explanatory memorandum to Finance Act, 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80-IA of the Act, is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources. Further, the order of Tribunal in the case of B.T. Patil & Sons, Belgaum Construction (P.) Ltd. (supra) is prior to amendment to sec 80-IA(4), after the amendment the section 80-IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the "or" between three activities was not there, after the amendment "or" has been inserted w.e.f. 1-4-2002 by Finance Act, 2001. Therefore, in our considered view, the assessee should not be denied the deduction under section 80-IA 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 Explanationsection 80-IA(13), those work are not entitled for deduction u/s 80-IA 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. It is needless to say that in similar circumstances, similar view has been taken by the Chennai Bench of the Tribunal and deduction u/s. 80-IA was granted in the case ofChettinad Lignite Transport Services (P.) Ltd. in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the Tribunal has taken the same view by inter alia holding as follows:

"7. Moreover, the reasons for introducing the Explanation were clarified as providing a tax benefit because modernisation requires a massive expansion and qualitative improvement in infrastructures like expressways, highways, airports, ports and rapid urban rail transport systems. For that purpose, private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other work contract has been encouraged by giving tax benefits. Thus the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the section but where a person makes the investment and himself executes the development work, he carries out the civil construction work, he will be eligible for the tax benefit under section 80-IA."

36. The above order was followed in subsequent assessment years 2007-2008 & 2008-09 in ITA Nos. 1312 & 1313/Mds/2011 vide order dated 18.11.2011 in the case of the same assessee. Further, in similar circumstances, this Tribunal in the case of GVPR Engineers Ltd. v. Asstt. CIT[2012] 51 SOT 207/21 taxmann.com 25 (URO) (Hyd.) has taken similar view and granted deduction under section 80-IA of the Act.

37. Further, we make it clear that where the assessee has carried out the development of infrastructure work in Consortium and not as a sub-contractor, then also the assessee is entitled for deduction u/s 80-IA of the Act. The same is applicable in case of work allotted by Government Corporation/Government Bodies.

38. Further in the case of R.R. Constructions, the Chennai Bench of the Tribunal in its order dated 3.10.2011 in I.T.A. No. 2061/Mds/2010 for assessment year 2007-08 held as follows:

"3. We have heard rival submissions and have carefully perused the entire record. The first issue of the appeal is regarding claim of deduction under section 80-IA(4) of the Act. The case of the revenue is that the assessee is a 'works contractor' and not a 'developer' as stipulated under section 80-IA(4) of the Act. The section 80-IA(4) applies to any enterprise, which carries on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities, which fulfil all the above conditions. There cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 01.04.1995. From the assessment year 2000-01, deduction is available if the assessee is carrying out the business of any one of the above mentioned three types of activities. When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realize its cost? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 80-IA(4), which is not the intention of the law. An enterprise, who develop the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The Legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer i.e. to the person who is carrying on the activity of only development infrastructure facility. Ostensibly, a developer would have income only if he is paid for the development of infrastructure facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll there from, has no other source of recoupment of his cost of development. While filing the return, the assessee had made claim under section 80-IA(4) of the Act.

4. The assessee has also produced all six agreements regarding six projects undertaken before the Assessing Officer, whose copies are available before us also. It is a fact that even after taking a contract from the Government, if the assessee develops infrastructure facilities, it would be regarded as a 'developer' and not as a 'works contractor'. The assessee firm has carried on entire construction/development of the infrastructure facilities and satisfy all the conditions of section 80-IA(4)(i)(a). It is undeniable fact that the assessee has taken development of infrastructure facility agreement from the State Government/local authority. A contractor who develops the infrastructure facility becomes a developer to claim exemption under section 80-IA(4). The Hon'ble Bombay Bench of ITAT while deciding the case of Patel Engineering Ltd. v. DCIT in ITA No. 1221/Mum/2004 has gone to the extent of holding that the assessee, a civil contractor, having executed a part of contracts of irrigation and water supply on 'build and transfer' basis and handed over them to contractee Governments, was eligible for deduction under section 80-IA(4).

5. We have also taken a similar view in ITA No. 554/Meds/2010 in the case of East Coast Constructions & Industries Ltd. v. DCIT vide order dated 13.09.2011 and relevant paras from 9 to 14 are reproduced hereunder:

"9. After considering the rival submissions, we can safely say that the benefit of section 80-IA is available only to a 'developer' who carries on business of 'developing of infrastructure facility'. A person who enters into contract with another person for executing 'works contracts' is not eligible for such a benefit. Explanation to section 80-IA was inserted by Finance Act, 2007 with retrospective effect from 1.4.2000 which has further been amended by Finance (No. 2) Act, 2009 with retrospective effect from 1.4.2000. The amendment in this Explanationwas necessitated due to contrary judicial decision on this issue. Thus, we can unequivocally now say that any undertaking or enterprise which executes the infrastructure development project, as referred to in sub-section (4) as a works contract awarded by any person including the Central or State Government, is not eligible for tax benefit u/s 80-IA(4). Having said that, now we examine the facts of this case. The assessee-company was given this benefit in assessment year 2003-04 by the Department on identical facts after considering the Explanationand amendment thereto. To trace the history of this deduction, we find that originally, in the provision of section 80-IA, there was no mention of any development of 'infrastructure facility'. It is only with effect from 1.4.2000, this section was divided into two portions 80-IA and 80IB. section 80-IA(4) prescribes about the deduction available to a developer who develops infrastructure facilities. In view of the amendment inserted by the Finance Act, 2007, with retrospective effect from 1.4.2000, the deduction u/s 80-IA is available to those assessees who are 'investing and developing infrastructure facility' and not to persons who simply executes 'works-contracts'. Explanationin question, as it stands today, reads as under:

"Explanation - For the removal of doubts, it is hereby declared that nothing contained in this section(i.e. 80-IA) shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be."

In contrast to this, a person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80-IA.

10. We have found that the assessee-company is a works contractor, who has entered into agreement with the local bodies to execute certain part of the work awarded to it through contract for infrastructure facility. It is true that where a person who makes infrastructure and himself executes development work and carries out civil work will be eligible for tax benefit u/s 80-IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract, will not be eligible for tax benefit u/s 80-IA. It was clarified by the Circular No. 3 of 2008 dated 12.3.2008 that the provisions of section 80-IA shall not apply to a person who executes only work contracts and only those who make the development work will be eligible for tax benefit u/s 80-IA of the Act. Be that as it may, when we apply this provision in its letters and spirit, we find that this assessee is verily eligible for deduction u/s 80-IA, as the assessee-company fulfils all the relevant conditions. The facts of this case go to prove that the assessee is a 'developer' of infrastructure facilities. The reasons for our above conclusion are given in the following paras. Firstly, the assessee-company not only designs but also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and maintained by it. As per the definition of Advanced Law Lexicon [placed at page 533 of the paper book] "Developer" means - a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorized for such purpose by any such developer. The "works contract" means an agreement in writing for the execution of any work relating to construction, repair, or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, workshop, powerhouse, transformers or such other works of the State Government or public undertakings as the State Government may be by notification, specify in this behalf at any of its stages entered into by the State Government or by an official of the State Government or public undertaking and includes an agreement for the supply of goods or material and all other matters relating to execution of any of the said works. The case of ACIT v. Indwell Lianings Pvt. Ltd. (supra), on which the Assessing Officer has placed reliance is also relevant and we extract certain relevant portion of this decision for ready reference:

Vide Finance Act, 2007, an Explanation was inserted with retrospective effect from April, 2000 after sub-section (13) of section 80-IA, which reads as under :

"For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be."

According to Attorney's Pocket Dictionary, in relation to a corporation or business, the term "undertaking" denotes its whole enterprise and the word "enterprise" connotes all the related activities performed either through unified operation or common control by any person or persons for a common business purpose.

The mens legis with reference to developer of infrastructure facility can be gathered from the memorandum Explaining the provisions in the Finance Bill, 2007, reported in [2007] 289 ITR (St.) 292 at page 312, which reads as under :

"Section 80-IA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and Special Economic Zones.

The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract.

Accordingly, it is proposed to clarify that the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80-IA. In contrast to this, a person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80-IA.

This amendment will take retrospective effect from April I, 2000 and will accordingly apply in relation to the assessment year 2000-01 and subsequent years."

It is made abundantly clear that the prescription of section 80-IA shall not apply to a person who executes work contracts entered into with an undertaking or enterprise. Thus, in a case where a person who makes investment and himself executes development works and carries out civil works, will be eligible for tax benefit under section 80-IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract will not be eligible for the tax benefit under section 80-IA of the Act.

In the present case, we find that the assessee was doing only contract works of in situ cement lining for water supply project of the Gujarat Water Supply and Sewerage Board. As such, the benefit of section 80-IA cannot be extended to the assessee. The decisions relied upon by the assessee were rendered prior to the amendment and as such not relevant for deciding this issue. We, therefore, restore the order of the Assessing Officer and reverse the order of the Commissioner of Income-tax (Appeals)."

11. To further elaborate the discussion on this issue, paras 5 & 6 of the decision of ITAT Pune Bench rendered in the case of Laxmi Civil Engg. (P.) Ltd. v. Addl. CIT, order dated 8.6.2011 are being extracted herein below:

5. We heard both the parties and perused the orders of the revenue. The contentious issues before us are (i) whether the contractor is synonymous with the developer within the meaning of section 80-IA (4)(i) of the Act; (ii) whether the condition placed in clause (c) is applicable to the case of a developer, who is not carrying on business of operating and maintaining the infrastructural facilities. In our opinion, the answer to these question are provided by the judgment of the Bombay High Court in the case of ABG Heavy Engg. Ltd. (supra). In this regard, we perused the above cited para-22 of the said judgment and for the sake of completeness, the said paragraph is reproduced as under:-

"22. The submission which was urged on behalf of the Revenue is that Clause (iii) of sub-section (4A) of section 80-IA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1st April, 1995. The same requirement is embodied in sub-clause (1) of sub-clause (4) of the amended provisions. It was urged that since the assessee was not operating and maintaining the facility, he did not fulfil the condition. The submission is fallacious both in fact and in law."

That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April, 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1st April, 1995. After section 80-IA was amended by the Finance Act, 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility' which fulfils certain conditions. Those conditions are (I) ownership of the enterprises by a company registered in India or by a consortiums; (II) an agreement with the central or State Government, local authority or Statutory body; and (III) the Start of operation and maintenance of the infrastructure facility should commence after 1st April, 1995. The requirement that operation and maintenance of the infrastructure facility should commence after 1st April, 1995 has to be harmoniously construed with the main provision under which deduction is available to an assessee who develops or operates and maintains, or develops, operates and maintains an infrastructure facility".

A harmonious reading of the provisions in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops, or operates and maintains; or (iii) develops, maintain and operates that infrastructure facility. However, the commencement of the operation and maintenance: of the infrastructure facility should be after 1" April, 1995. In the present case the assessee clearly fulfilled this condition".

Before the amendment that was brought about by parliament by Finance Act, 2001 we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to S. 80-IA(4) of the Act, set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature

6. The above judgment of the Hon'ble High Court is delivered in the case of ABG Heavy Engg. Ltd. (supra), who is a contractor for the INP Trust and that contactor, assessee is found to be an eligible developer for making claim of deduction u/s section 80-IA (4) of the Act. From the above, it is evident that the person who only develops the infrastructure do not have the occasion to operate and maintain the infrastructure. It is further evident that the harmonious reading is necessary and mandatory in view of High Court's judgment in the case of an enterprise carrying on business or developing which is the case of the assessee, all the conditions referred to clause (i) of section 80-IA (4) should refer to the conditions as applicable to the developer. In other words, the developer who is only developing the infrastructure facilities since he does not operate and maintain Infrastructural facilities, cannot be expected to fulfil the condition at sub-clause (c) which is an impossibility and the requirements to fulfil the said condition shall amount to absurdity and therefore uncalled for. Therefore, we find requirement of harmonious reading of sub-clause (c) vis-à-vis of clause (i) of section 80-IA (4) of the Act. Thus, the discussion in High Court's decision in paragraph-22 extracted above, is directly applicable to the facts of the case and eventually is entitled for the deduction under section 80-IA (4) of the Act. Accordingly, the modified ground, which is common in all the four appeals is allowed in favour of the assessee. "

12. Let us remind ourselves that the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT , 196 ITR 188, has ordained that taxing statute granting incentives for promoting growth and development should be liberally construed.

13. Now, the question arises as to whether the term 'contractor' is not essentially contradictory to the term 'developer'. In fact, in every development the term 'developer' will definitely be a 'works contractor' but every works contractor may not be a 'developer'. A 'developer' is a specific kind of works contractor to be eligible for deduction u/s 80-IA(4) who fulfils all the conditions namely, if the assessee develops the infrastructure facility if it operates the infrastructure facility and if it maintains the infrastructure facility or to put it in simpler terms, the harmonious reading of the provisions in its entirety would lead to the conclusion that this deduction is available to an enterprise who - develops or operates and also maintains; or develops, maintains and operates that infrastructure facility. The provision for giving the impugned incentives has been examined, re-examined, modified and amended after giving conscious and deliberate discussions by the concerned law makers. To our great chagrin even after this conscious exercise an entity who executes the works contract entered into between local authority/Central or State Government and makes a development of an infrastructure has not been excluded from the scope of this provision. And rightly so, because what infrastructure is required in public domain is the outlook/duty of a local authority or of a Central/State Government. When a certain infrastructure is needed, the concerned authorities have a broader picture in their mind aiming at acquiring certain facility for which infrastructure development is required. So, to say, when any assessee/enterprise agrees under a contract to develop such an infrastructure facility, it cannot straight away be dubbed as not the brainchild of that enterprise, but only of the authority in question. Therefore, again this provision insofar as the conditions required to be fulfilled to be eligible for this incentive had to be provided by the juridical forums dealing with this issue. After in-depth deliberations, discussions and examination of these provisions, finally, it has been resolved that if an enterprise even after entering into a contract with a local authority or the Governments, may be Central or State, in case it constructs the infrastructure facility, operates it and also maintains the same, it would be eligible for this deduction.

14. Now, let us examine the facts of the given case. It is an undeniable fact that the assessee is engaged in the civil construction work like construction of flyover, bridge underpass, sewerage, water supply etc. for various local bodies, railways, Central/State Governments. In fact, as per the terms of agreement, even the initial proposals formulated by the Department which are stated to be tentative, the assessee has the liberty to make different proposals without detrimental to the general features of the Departmental proposal, like Road level/bottom of deck level, MFL, Sill level, Linear water way, width of the bridge etc. Right from the drawings to the work of construction has been done by this assessee and has borne the cost itself. The company has constructed, delivered and maintained and security is also maintained thereafter. So, this is a case of transfer of property in chattel and not a contract of service. A 'developer' as per the Advanced Law Lexicon means "a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorized for such purpose by any such developer". In the case of Asstt. CIT v. Bharat Udyog Ltd., 'F' Bench of ITAT Mumbai, has concluded that any assessee who is engaged in developing the infrastructure facility and also operating and maintaining the same, is entitled to the benefit of deduction u/s 80-IA(4). A copy of this decision is enclosed at page 139 of the paper book. In the case of Patel Engineering Ltd. v. Dy. CIT 84 TTJ (Mumbai) 646 [copy enclosed at page No. 145 of the paper book], it has been held that a person, who enters into a contract with another person will be treated as a 'contractor' undoubtedly; and that assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but does not derogate the assessee from being a 'developer' as well. The term 'contractor' is not necessarily contradictory to the term 'developer'. On the other hand, rather section 80-IA(4) itself provides that assessee should develop the infrastructure facility as per the agreement with the Central Government, State Government or a Local Authority. So, entering into a lawful agreement and thereby becoming a contractor should in no way be a bar to the one being a 'developer'. The assessee has developed infrastructure facility as per the agreement with Maharashtra Government/APSEB, therefore, merely because in the agreement for development of infrastructure facility the assessee is referred to as a contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a 'developer'; nor will it debar the assessee from claiming deduction u/s 80-IA(4). The facts of the present case are exactly identical to the facts of that case rendered by ITAT Mumbai Bench in which under identical facts and circumstances, the assessee has been held to be eligible for deduction u/s 80-IA(4). section 80-IA(4)(i)(b) requires development of infrastructure facility and transfer thereof as per agreement and it cannot be disputed in view of the material on record that the assessee has transferred the infrastructure facility developed by it by handing over the possession thereof to the concerned authority as required by the agreement. The handing over of the possession of developed infrastructure facility/project is the transfer of the infrastructure facility/project by the assessee to the authority. The handing over of the infrastructure facility/project by the developer to the Government or authority takes place after recoupment of the developer's costs whether it be 'BT' or 'BOT' or 'BOOT' because in 'BOT' and 'BOOT' this recoupment is by way of collection of toll there from whereas in 'BT' it is by way of periodical payment by the Government/Authority. The land involved in infrastructure facility/project always belongs to the Government/Local authority etc., whether it be the case of 'BOT' or 'BOOT' and it is handed over by the Government/Authority to the developer for development of infrastructure facility/Project. The same has been the position in the given case as well. So, deduction u/s 80-IA(4) is also available to this assessee which has undertaken work of a mere 'developer'. Rather, the statutory provision as contained in section 80-IA which provides for deduction of infrastructure facility no way provides that entire infrastructure facility project has to be developed by one enterprise. Thus, as per section 80-IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Authority. Entering into a lawful agreement and thereby becoming should, in no way be a bar to the one being a 'developer'. In this regard, as we have already stated, the decision of ACIT v. Bharat Udyog Ltd, 118 ITD 336 and Patel Engineering Ltd v. Dy. CIT , 84 TTJ 646, are relevant. As per Circular No. 4/2010[F.No. 178/14/2010-ITA-I] dated 18.5.2010, widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80-IA(4)(i). The assessee is not required to develop the entire road in order to qualify for deduction u/s 80-IA as has been held by the Hon'ble Bombay High Court in the case of CIT v. ABG Heavy industries Ltd. 322 ITR 323. The newly inserted Explanation 2 to section 80-IA vide Finance Act, 2007, does not apply to a works contract entered into by the Government and the enterprise. It applies to a work contract entered into between the enterprise and other party 'the sub-contractor'. The amendment aims at denying deduction to the sub-contractor who executes a work contract with the enterprise as held by the ITAT, Jaipur 'A' Bench in the case of Om Metal Infra projects Ltd. v. CIT-I, Jaipur, in I.T.A. Nos. 722 & 723/JP/2008 dated 31.12.2008. The reliance by the ld. CIT(A) on the decision of ITAT, Chennai Bench in the case of ACIT v. Indwell Lianings Pvt. Ltd. 313 ITR(AT) 118, has been enlarged in its finding by the ITAT, Mumbai 'F' Bench in its decision rendered in the case of ACIT v. Bharat Udyog Ltd. by holding that such a deduction is only to be denied to a sub-contractor and not a mini contractor. Similar view has been taken by the ITAT Chennai Bench in the case of ACIT v. Smt. C. Rajini (supra) in which both of us constituted the Bench. In this decision the definition and difference between works contractor and a developer has been examined in detail. The main thrust of the decision is that a developer need not be the owner of the land on which development is made. Although that decision was rendered in the context of a developer of buildings and the deduction was in respect of 80-IB(10), but the definition of 'developer' given in that case is also relevant for this purpose. Moreover, we are in agreement that in incentive provisions, the construction should be liberally given as held by the Hon'ble Supreme Court rendered in the case of Bajaj Tempo Ltd. v. CIT, 196 ITR 188. Thus, when the assessee makes investment and himself executes development work and carries out civil works, he is eligible for tax benefit u/s 80-IA of the Act. Accordingly, with the foregoing discussion, we hold that the assessee is entitled to deduction u/s 80-IA(4) of the Act, and therefore, we order to delete the addition made in this respect."

6. Therefore, by following the above arguments and reasoning, we confirm the findings of the ld. CIT(A) and do not find any valid merit in the Revenue's appeal. Accordingly, the appeal stands dismissed.

39. In view of the above discussion, we are inclined to partly allow the ground relating to claiming of deduction u/s. 80-IA of the Act, in all these appeals.

40. The next ground in ITA No. 1171/Hyd/2010 is with regard to disallowance of interest. Brief facts of the issue are that assessee has made an investment in subsidiaries as under:

(1) IT Serve (Global) (Inc)	- Rs. 46,44,000
(2) Sushee Hi Tech Developers	- Rs. 58,20,364
(3) ZVS Ratna Sushee JV	Rs. 2,39,390
Total	Rs. 1,07,03,754

41. The Assessing Officer noted that the assessee had not admitted any interest income on the loans so advanced, contending that those were interest free. On the other hand, the assessee had debited interest liability of Rs. 26,30,685 on borrowed funds. Even though the assessee was required to Explain as to why the interest expenditure attributable to the loans given to subsidiaries, free of interest, should not be disallowed, noExplanation was furnished by the assessee. Since the investments were opined as made without any benefit, despite the fact that the assessee had made borrowings and incurred interest expenses, the Assessing Officer referred to the decisions in the case of CIT v. V.I. Baby & Co. [2002] 254 ITR 248/123 Taxman 894 (Ker.), as also CIT v. H.R. Sugar Factory (P.) Ltd. [1991] 187 ITR 363)/[1990] 53 Taxman 63 (All.) and disallowed interest attributable to investments of Rs. 13,37,969. On appeal the CIT(A) confirmed the action of the Assessing Officer.

42. We have heard both the parties on this issue. The learned AR relied on the judgment of Supreme Court in the case of SA Builders Ltd. v. CIT[2007] 288 ITR 1/158 Taxman 74 wherein held that when the amount advanced to the sister concerns free of interest on account of commercial expediency, interest on such borrowings is allowable as business expenditure. However, in the present case the assessee is not able to explain what were the business advantages assessee derived from these interest free advances to sister concerns and also not able to Explain whether the amount advanced to sister concern was actually used for the business purposes or not. In these circumstances, it is not possible to us to blindly follow the judgment of Supreme Court to allow the claim of the assessee. In our opinion, as the assessee has not shown the commercial expediency, we are inclined to confirm the orders of the lower authorities and reject the ground taken by the assessee.

43. The next ground in ITA No. 1171 is with regard to confirming the action of the Assessing Officer in applying the provisions of section 40 A(3) of the IT Act. It was found by the Assessing Officer that the assessee made a cash payment of Rs. 3,53,570 on various dates in excess of Rs. 20,000. Accordingly, the Assessing Officer invoked the provisions of section 40 A(3) disallowing 20% of the above payment which works out at Rs. 70,714. The CIT(A) confirmed the disallowance as the assessee has not shown any reasonable cause for making cash payment in exceeding Rs. 20,000. Against the assessee is in appeal before us.

44. We have heard both the parties and perused the material on record. Even before the assessee could not show any reasonable cause for making the cash payment exceeding Rs. 20,000. The assessee also not brought on record any exceptions to make cash payments as provided in Rule 6DD of IT Rules, 1962. In these circumstances, we do not find any infirmity in the order of the CIT(A) and the same is confirmed on this issue.

45. The next ground in ITA No. 269/Hyd/09 is with regard to disallowance of property tax paid by the company, though the property tax paid on the property which was provided as a collateral security to the State Bank of India for obtaining the loan and it was necessary for the assessee to incur such expenditure so as to retain the security provided by Shri K. Anil Reddy and Shri Ramakrishna Reddy.

46. We have heard both parties and perused the material on record. Admittedly, the property on which the property tax was paid was not owned by the assessee. The liability of payment of property tax on the property is on the owner of the property and not on any other person. In view of this, we do not find any infirmity in the order of the CIT(A) and the same is confirmed.

47. The next ground in ITA No. 269/Hyd/09 is with regard to disallowance of expenditure of Rs. 1,89,250 incurred on increasing the share capital. Alternatively, the assessee claimed to allow this expenditure as a deduction u/s. 35D of the IT Act.

48. We have heard both the parties on this issue. This issue is squarely covered against the assessee by the judgment of the Supreme Court in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26 wherein held that expenditure incurred by a company in connection with the issue of shares with a view to increase its share capital, is directly related to the expansion of the capital base of the company, and is capital expenditure, even though it may incidentally help in the business of the company and in the profit making. In view of this judgment, we dismiss the ground taken by the assessee.

49. In the result, the appeals of the assessee are partly allowed.

--

 

Shri Gurinder Singh Bawa vs. Dy. CIT, ITA No. 2075/Mum/2010, Order dated 16.11.2012

Sec. 153A: After expiry of s. 143(2) time limit, s. 143(1) assessment is final & addition u/s 153A can be made only if incriminating material is found in search For AY 2005-06, the AO passed an intimation u/s 143(1) accepting the return as filed. Subsequently, there was a search u/s 132. The AO noticed that an amount of Rs. 93 lakhs received by the assessee as a loan in earlier years had been treated as a gift and credited to the capital account. He passed an assessment order u/s 153A in which he held that the said amount was assessable as a cash credit u/s 68. The CIT(A) partly confirmed the addition. Before the Tribunal, the assessee argued that as no incriminating material was found during the search, the addition could not be made u/s 153A. HELD by the Tribunal upholding the plea: In All Cargo Global Logistics 137 ITD 287 (Mum)(SB), the Special Bench held that in a case where the assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. However, in a case where the assessment has not abated, an assessment u/s 153A can be made only on the basis of incriminating material (i.e. books of account & other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search). On facts, as the assessment was completed u/s 143(1) and the time limit for issue of s. 143(2) notice had expired on the date of search, there was no assessment pending and there was no question of abatement. Therefore, the addition could be made only on the basis of incriminating material found during search. As the addition u/s 153A was made on the information/material available in the return of income (i.e. the information regarding the gift was available in the return of income as capital account had been credited by the assessee by the amount of gift) and not on the basis of any incriminating material found during the search, the AO had no jurisdiction to make the addition u/s 153A.

 

IT : Where company's engaged in business of share brokerage and share trading, income of an assessee on account of trading of shares for itself is speculation income ■■■ [2013] 33 taxmann.com 190 (Pune - Trib.) IN THE ITAT PUNE BENCH 'A' Nashik Capital Financial Services (P.) Ltd v. Deputy Commissioner of Income-tax, Circle -1, Nashik* SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER  AND R.K. PANDA, ACCOUNTANT MEMBER IT APPEAL NOS.691 TO 694 (PUNE) OF 2011 [ASSESSMENT YEARS 2000-01, 2002-03 TO 2004-05] MARCH  28, 2013  Section 73 of the Income-tax Act, 1961 - Losses - In speculation business [Computation of income] - Assessment years 2000-01, 2002-03 and 2004-05 - Assessee-company was engaged in trading of shares for customers and for itself on delivery basis - Whether trading of shares by assessee for itself was a speculative business and income arising therefrom was speculative income within meaning of Explanation to section 73 - Held, yes [Para 6] [In favour of revenue] FACTS   ■   The assessee, a private limited company, was engaged in trading of shares for customers and for itself on delivery basis. ■   The Assessing Officer treated business of the assessee with regard to trading of shares for itself as speculative business within the meaning of provisions of section 73 and held that income on that account was speculative income. ■   The Commissioner (Appeals) had confirmed the said order. ■   On second appeal: HELD   ■   Section 73 and Explanation thereto is a specific provision for the companies and applies to them irrespective of the mode of transaction,i.e., delivery based transactions or otherwise. The purpose of the provision was to curb the device sometimes resorted to by business houses controlling group of companies to manipulate and reduce the taxable income of companies under their control. [Para 5] ■   In view of the above, the Commissioner (Appeals) was justified in holding that the provision of section 73 and Explanation thereto was applicable in the assessee's case and Assessing Officer was justified in treating the income on account of brokerage of shares as business income and income on account of trading of shares for itself as speculation income within the meaning of section 73 and Explanation thereto. The Assessing Officer was further directed to carry forward losses if any as per provisions of the Act. [Para 6] CASE REVIEW   CIT v. Lokmat Newspapers (P.) Ltd. [2010] 189 Taxman 370 (Bom.) and CIT v. Gopal Purohit [2010] 188 Taxman 140 (Bom.) (para 5)distinguished. CASES REFERRED TO   CIT v. Lokmat Newspapers (P.) Ltd. [2010] 189 Taxman 370 (Bom.) (para 5) and CIT v. Gopal Purohit [2010] 188 Taxman 140 (Bom.) (para 5) Lalit S. Sangle for the Appellant. Ms. Ann Kapthuama for the Respondent. ORDER   Shailendra Kumar Yadav, Judicial Member - All these appeals pertain to the same assessee on similar issue. So they are being disposed of by a common order for the sake of convenience. 2. The only issue is with regard to treatment of company's income from trading of shares as speculative activity in accordance with the provisions of section 73 of the Act and explanation thereto for the A.Y. 2000-01, 2002-03, 2003-04 and 2004-05. The brief facts of the case are that the assessee is a private limited company engaged in the business of share brokerage and share trading. The assessee has worked as a sub-broker of Joindre Capital Services Ltd. The assessee was engaged in trading of the shares for the customers through the main brokers and earned commission income from the said transactions. Besides, the assessee was also engaged in buying and selling of shares for itself on delivery basis. The said deliveries were taken through Demat Account maintained with the brokers. The assessee company has not maintained separate books of account for the share transactions of the clients and of its own self. The main source of income of the assessee company was income from commission and income from share trading. All the establishment expenses were debited to P & L Account and net income/loss was computed. 3. The Assessing Officer during assessment proceedings applied the provision of explanation to section 73(2) of the Act and treated the share trading business of the assessee as a speculation business. The bifurcation of the income and expenses was made on assumption basis. The final result of P & L account was worked out for normal income and speculation income/loss on assumption basis and assessments completed u/s.143(3) or 143(3) r.w.s. 148 of the Act. Matter was carried before the First Appellate Authority, who confirmed the same. Same has been opposed before us. 4. The Ld. Authorised Representative submitted that the CIT(A) was not justified in confirming the orders of the Assessing Officer which were based on assumption about the reconstruction of profit and loss account by allocation of explanation on prorata basis for the normal business and speculation business, whereas books of accounts were audited. The Assessing Officer has strictly applied the explanation to section 73 of the Act. According to the Ld. Authorised Representative authorities below have not appreciated the facts placed before them during the course of hearing u/s.143(3) which were reproduced before the appellate authority. Accordingly the orders of the authorities below be set aside and the assessee should be granted relief on this account. Same has been opposed by the Ld. Departmental Representative. She has supported the orders of the authorities below and submitted that the orders of the Assessing Officer and the CIT(A) are as per fact and law which should be upheld. 5. After going through the above submissions and material on record, we find that the Assessing Officer has held the business income of the assessee with regard to purchase and sale of shares for itself as speculation transaction within the meaning of provisions of section 73 and explanation thereto. On the other hand, assessee company has submitted that all transactions were delivery based and hence the activity should be treated as business activity instead of as speculation as held by the Assessing Officer. The assessee has relied on the decision in the case of CITv. Lokmat Newspapers (P) Ltd. [2010] 189 Taxman 370 (Bom.) and CIT v. Gopal Purohit [2010] 188 Taxman 140 (Bom.). In this regard we find that facts in both the cases are different from that of the assessee's case. While in Gopal Purohit's case (supra) the issue involved was that of capital gain vis-a-vis business income. In said case the assessee, an individual, was engaged in transaction of shares in dual capacity, i.e., transactions settled otherwise than by actual delivery were returned by assessee as business income and receipts from transactions by actual delivery were returned as capital gains. The Hon'ble Bombay High Court has given the decision in favour of the assessee and Revenue's ground that the entire income needs to be treated as business income was rejected. In the said case, applicability of section 73 and explanation thereto was not the issue. Section 73 and the explanation thereto is a specific provision for the companies and applies to them irrespective of the mode of transaction, i.e., delivery based transactions or otherwise. The purpose of the provision was to curb the device sometimes resorted to by business houses controlling group of companies to manipulate and reduce the taxable income of companies under their control. For the sake of clarity the explanation to section 73 is reproduced as under: "Where any part of the business of a company ([other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "capital gains" and "Income from other sources"] or a company, the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.] 6. The Hon'ble Bombay High Court in the case of Lokmat Newspapers (P) Ltd. (supra) held as under: "no restriction into the scope and ambit of the deeming fiction which is created by the Explanation to section 73 was contemplated by Parliament. Once a deeming fiction is created by law, it must be given full and free effect, of course, in relation to the ambit within which it is intended to operate. The deeming fiction created by the Explanation to section 73 defines when an assessee is to be deemed to be carrying on a speculation business for the purpose of the section. The deeming fiction is, therefore, one which arises specifically in the context of the provisions of section 73 and is confined to that purpose alone. The Explanation stipulates that where an assessee is a company whose business consists in any part of the purchase and sale of shares of other companies, it shall be deemed to be carrying on a speculation business to the extent to which the business consists of purchase and sale of such shares. Whether or not it is a profit or loss that has resulted from carrying on such business, is a consideration which is alien to the meaning of what constitutes a speculation business by the Explanation to section 73. Once an assessee is deemed to be carrying on a speculation business for the purpose of section 73, any loss computed in respect of that speculation business, can be set off only against the profits and gains of an other speculation business. Similarly, for the purpose of sub-section (2), the loss in respect of a speculation business which has not been set off either in whole or in part can be carried forward and can be set off against profits and gains "of any speculation business"." In view of the above, the CIT(A) was justified in holding that the provision of section 73 and explanation thereto was applicable in the assessee's case and Assessing Officer was justified in treating the income on account of brokerage of shares as business income and income on account of trading of shares for itself as speculation income within the meaning of section 73 and explanation thereto of the Act. The Assessing Officer was further rightly directed to carry forward losses if any as per provisions of the Act. On this account, Ld. Authorised Representative submitted that Assessing Officer has not allowed to carry forward of the losses as directed by the CIT(A). This limited issue is restored to the Assessing Officer with a direction to allow carry forward of losses as directed by the CIT(A) as per provisions of the Act after providing opportunity of hearing to the assessee. Since the issue in all the appeals is same, so all appeals are disposed off as indicated above. 7. As a result all the appeals are allowed for statistical purposes as indicated above. Sec. 153A: After expiry of s. 143(2) time limit, s. 143(1) assessment is final & addition u/s 153A can be made only if incriminating material is found in search For AY 2005-06, the AO passed an intimation u/s 143(1) accepting the return as filed. Subsequently, there was a search u/s 132. The AO noticed that an amount of Rs. 93 lakhs received by the assessee as a loan in earlier years had been treated as a gift and credited to the capital account. He passed an assessment order u/s 153A in which he held that the said amount was assessable as a cash credit u/s 68. The CIT(A) partly confirmed the addition. Before the Tribunal, the assessee argued that as no incriminating material was found during the search, the addition could not be made u/s 153A. HELD by the Tribunal upholding the plea: In All Cargo Global Logistics 137 ITD 287 (Mum)(SB), the Special Bench held that in a case where the assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. However, in a case where the assessment has not abated, an assessment u/s 153A can be made only on the basis of incriminating material (i.e. books of account & other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search). On facts, as the assessment was completed u/s 143(1) and the time limit for issue of s. 143(2) notice had expired on the date of search, there was no assessment pending and there was no question of abatement. Therefore, the addition could be made only on the basis of incriminating material found during search. As the addition u/s 153A was made on the information/material available in the return of income (i.e. the information regarding the gift was available in the return of income as capital account had been credited by the assessee by the amount of gift) and not on the basis of any incriminating material found during the search, the AO had no jurisdiction to make the addition u/s 153A.

 

 

ST : Even if leased aircrafts were delivered abroad, leasing services received from abroad are liable to service tax as assessee had used it in travel business for flying from Indian destinations to foreign destinations and vice versa

ST : Where it was mandatory for assessee to undertake maintenance and repairs of aircraft in India i.e., no services were rendered from abroad, assessee could not be made liable to service tax even if it had kept a security deposit towards repair and maintenance of aircraft with lessor

■■■

[2013] 33 taxmann.com 218 (Mumbai - CESTAT)

CESTAT, MUMBAI BENCH

Air India Charters Ltd.

v.

Commissioner (TAR), Service Tax*

P.R. CHANDRASEKHARAN, TECHNICAL MEMBER
AND ANIL CHOUDHARY, JUDICIAL MEMBER

ORDER NO.S/84/2013/CSTB/C-I 
APPLICATION NO. ST/S/1228 OF 2012 
APPEAL NO. ST/373 OF 2012

JANUARY  23, 2013 

I. Section 65(12), read with section 66A, of the Finance Act, 1994 - Banking and other financial services - Stay Order - Assessee procured aircrafts under equipment lease financing for which payment was made to various entities abroad - Department demanded service tax on reverse charge basis on financial leasing under 'Banking and Financial Services' - Assessee argued that aircrafts had been delivered abroad to its branches and, therefore, services were rendered outside India - HELD : Even though aircrafts had been delivered abroad, since Air India is in travel business and aircrafts were used for flying from Indian destinations to foreign destinations and vice versa, prima facie, it was liable to pay service tax as it had paid service charges to foreign lessor - Pre-deposit was ordered accordingly [Paras 5.1 and 5.3] [In favour of revenue]

II. Section 65(64), read with section 66A, of the Finance Act, 1994 - Management, Maintenance or Repair Services - Assessee procured aircrafts under lease financing and kept a deposit with lessor towards maintenance reserve - Department demanded service tax on reverse charge basis on maintenance reserve under "Management, Maintenance and Repairs" - Assessee argued that maintenance reserve kept abroad was only as a security deposit for repairs and maintenance of aircrafts and no service was actually received and all repairs had to be undertaken in India by DGCA approved authority - HELD : Since assessee had to undertake maintenance and repairs services in India by DGCA approved authority on their own, no services were rendered abroad - Prima facie, therefore, no liability could be attached merely because assessee had kept a security deposit towards repair and maintenance of aircraft with lessor [Para 5.1] [In favour of assessee]

Piyush Chhajed for the Appellant. P.N. Das for the Respondent.

ORDER

 

P.R. Chandrasekharan, Technical Member - The appeal and stay application are directed against Order-in-Original No. 30/ST/SB/2011-12 dated 28.2. 2012 passed by the Commissioner (TAR), Service Tax, Mumbai.

2. The appellant M/s Air India Charters Ltd. procured aircrafts for which they got equipment lease financing and for which payment was made by the appellant to various entities abroad, connected with lease finance. They also kept a deposit with the International Finance Corporation, lessor towards maintenance reserve. The department was of the view that the appellant is liable to discharge Service Tax in respect of the above activities undertaken under the category of 'Banking and Financial Services' namely, finance leasing. As regards the maintenance reserve, the department was of the view that they are liable to pay Service Tax under the category of "Management, Maintenance and Repairs". Accordingly, a show-cause notice was issued and Service Tax demand of Rs. 27.92 cores approximately was confirmed along with interest thereon apart from the penalties under Section 76, 77 and 78 of the Finance Act, 1994. Hence, the appellant is before us.

3. The learned Chartered Accountant for the appellant submits that as far as the maintenance reserve kept abroad is concerned, maintenance/repairs of the aircraft is undertaken in India by DGCA approved authority. However, the maintenance reserve kept abroad with the lessor is only as a security deposit for repairs and maintenance of the aircrafts. The activity of maintenance and repair takes place in India and, therefore, the amount kept in reserve is not for the payment of services rendered and hence, the same does not come within the ambit of Management, Maintenance or Repairs services.

3.1 As regards Financial Lease services, he submits that the aircraft has been delivered abroad and they have various branches situated abroad and hence, the services have been rendered abroad and, therefore, the same is not taxable as per the Indian law. Hence, he prays for waiver of pre-deposit of dues adjudged against the appellant at the interim stage.

4. The learned Commissioner (AR), on the other hand, strongly opposed the arguments of the appellant. He submits that since Air India Charters Ltd. has paid for the services rendered, they are the service recipients and, therefore, they are liable to discharge Service Tax liability under Reverse Charge Mechanism under the Section 66A of the Finance Act, 1994.

5. We have carefully considered the rival submissions.

5.1 As far as the demand on Management, Maintenance or Repairs services is concerned, the appellant's arguments have merit. If the appellant has to undertake the maintenance and repairs services in India by the DGCA approved authority on their own, it cannot be said that the services are rendered abroad and they are liable to pay Service Tax merely because they have kept a security deposit towards repair and maintenance of the aircraft with the lessor. As regards the demand of Service Tax on Finance Leasing, even though the aircrafts have been delivered abroad, Air India is in travel business and aircrafts are used for flying from Indian destinations to foreign destinations and vice-versa. This in any way does not affect the taxability of the Service. Inasmuch as they have paid the service charges to the foreign lessor, they are liable to pay Service Tax as a service recipient under Section 66A of the Act, and this liability squarely lies on them. Therefore, prima facie we are not satisfied that the appellant has made out a case for 100% waiver of the dues adjudged.

5.2 The learned Counsel for the appellant made an offer to make a deposit of Rs. 3 crores including the payment of Rs. 1.6 crores already made, at this stage for hearing of the appeal and also pleads financial hardship.

5.3 Considering the offer made by the learned Counsel satisfactory and taking into account the financial condition of the appellant, we direct the appellant to make the balance amount of Rs. 1.5 crores within a period of eight weeks and report compliance on 9.4.2013. On such compliance, pre-deposit of the balance amount of dues adjudged against the appellant namely, balance of Service Tax, interest and penalties shall stand waived and recovery thereof stayed during pendency of the appeal.

VINEET

--
Regards,

Pawan Singla

BA (Hon's), LLB

Audit Officer

 

 

 

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