Assessee eligible for benefit u/s 801A even if only part of Infrastructural Project work is executed by it

The view of the Larger Bench that the assessee had to be directly engaged in developing, maintaining and operating the facility and that there had to be a complete development of the facility and not just a part of it is contrary to the law laid down in ABG Heavy Industries 322 ITR 323 (Bom). The High Court held that The assessee did not have to develop the entire project in order to qualify for a deduction under s. 80-IA. The Parliament did not legislate a condition impossible of compliance.

In the case of ABG Heavy Industries (supra), the assessee therein had not developed the entire port but was only the supplier of cranes at the loading and unloading terminal at the said JNPT port. Thus assessee was not required to execute the entire project as observed by the Third Member. Another significant word used here is “owned”, which indicates that the infrastructure facility should be owned by a company so as to be entitled to deduction under this section. The work done by the assessee is not owned by it, it does not satisfy sub clause (a) of section 80IA(4)(i). The infrastructure facility should be owned by the assessee is not correct interpretation. It is evident from section itself as clarified by the jurisdictional High Court in ABG Heavy Industries (supra) inter alia held that the assessee has shouldered out Investment & technical risk in respect of the work executed and it is liable for liquidated damages if failed to fulfill the obligation laid down in the agreement. The liability which has been assumed by the assessee under terms of the contract are obligations involving the development of an infrastructure facility. The assessee has also in its employment technically and administratively qualified team of persons and therefore it is not correct to say that assessee is merely a contractor & not a developer. The assessee is eligible for benefit u/s 80-1A even if part of the Infrastructural Project work is executed.

ITAT PUNE BENCH “B”,

ITA.No.1408 & 1409/PN/2003

(Asstt. Year: 2000-01 & 2001-02

B.T.Patil & Sons Belgaum Constructions Pvt. Ltd.

Vs.

ACIT

Date of Pronouncement : 28.02.2013

ORDER
PER SHAILENDRA KUMAR YADAV, JM: Background of the case is that the Assessing Officer passed an assessment order disallowing the assessee’s claim for deduction u/s.80IA(4) of the Act. The CIT(A) confirmed the order of the Assessing Officer. Matter was carried before the ITAT. However, while passing the order, the Judicial Member and the Accountant Member differed. While the Judicial Member accepted the claim of the assessee, the Accountant Member did not agree. Accordingly, under provisions of section 2 55(4) of the Act the matter was referred to the Third Member. The issue in question pertains to A.Y. 2000-01 and 2001-02 The appeals were heard by the Third Member. However, while giving its opinion as per the provisions of section 255(4) of the Act the Third Member was of the opinion that the said matter ought to be heard by the Larger Bench of third Member i.e. a bench comprising of three members u/s. 255(4) of the Act. The matter was heard at length by the Larger Bench of the Third Member and they agreed with the Accountant Member. They were of the opinion that the assessee is not entitled to deduction u/s.801A(4) of the Act. The said matter was referred back to the Division Bench of the Tribunal to give effect in conformity with the opinion of the Third Member as per the provisions of section 2 55(4) of the Act.

2. The said appeals were pending before the Division Bench of the Tribunal to give effect to the opinion of the Third Member as per the provisions of section 2 55(4) of the Act. However, the matter was dismissed in limine because of non-appearance on behalf of the assessee. The assessee moved a Miscellaneous Application before the Tribunal to recall the said order. While the said Miscellaneous Application was pending before the Tribunal, by way of abundant precaution the assessee filed appeals before the Hon’ble Bombay High Court being appeal number ITXA 1307 of 2011 for A.Y. 2000^, 01 and 1640 of 2011 for A.Y. 2001-02 raising various contention regarding the allowance of deduction u/s. 801A(4) of the Act.

3. While the said appeal was sub judice before the Hon’ble Bombay High Court the Tribunal recalled its order dismissing the appeals of the assessee in limine and gave a fresh date of hearing to the assessee.4. While the said appeals are pending before the Hon’ble Tribunal to give effect to the opinion of the Third Member as per the provisions of section 2 55(4) of the Act, the Hon’ble Bombay High Court in the case of ABG Heavy Industries Ltd., passed an order granting deduction to the said assessee u/s. 801A(4) of the Act. The said jurisdictional order is contrary to the opinion given by the Third Member of the Tribunal. Meanwhile the appeal filed by the assessee against the order of the Tribunal dismissing the appeals of the assessee in limine, before the Hon’ble Bombay High Court came up for hearing on 24/01/20 13. In the course of hearing before the Hon’ble Bombay High Court the Counsel of the assessee brought to the notice of the Hon’ble High Court the fact that the Tribunal in the Miscellaneous Application filed by the assessee had recalled its order and the said matter was now fixed for hearing on 15/02/20 13. As such the assessee requested to withdraw the said appeal. The assessee also drew attention of the Hon’ble High Court to the decision of ABG Heavy Industries and requested the Hon’ble Bombay High Court to direct the Tribunal to consider the ABG Heavy Industries decision on the issue while giving effect to the opinion of the Third Member as per the provisions of section 2 55(4) of the Act.

5. The Hon’ble Bombay High Court permitted the Counsel of the assessee to withdraw the said appeals. While passing the order the Hon’ble High Court has kept all the contentions open and further directed the Tribunal to consider the decision of the ABG Heavy Industries and other decisions while passing their order giving effect to the opinion of the Third Member as per the provisions of section 2 55(4) of the Act. The relevant portion of the said order of Hon’ble jurisdictional High Court in ITXA No.1307 of 2011 for A.Y. 2000-01 and 1640 of 2011 for A.Y. 200 1-02 is as under:
” 1. Since the Tribunal has recalled the impugned order dated 23.03.2011, the appellant is withdrawing its appeal.
2. Further, while considering the matter afresh, the Tribunal will take into consideration all decisions including the decision of this court in the matter of CIT v. ABG Heavy Industries Ltd. reported in 322 ITR page 323. All contentions are kept open.

3. The appeal is dismissed of in above terms.”6. The issue before us is whether the Tribunal while complying with the provisions of section 2 55(4) of the Act can consider the judgment of the Hon’ble High Court in the case of ABG Heavy Industries. In light of the clear directions given by the Hon’ble Bombay High Court in the appeals filed by the assessee for the impugned assessment years inter alia directed the Tribunal to consider the said decision of ABG Heavy Industries and all other decisions, we can consider the said judgments of ABG Heavy Industries and also the other judgments for allowing the deduction u/s. 80IA(4) of the Act while giving effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act. Following the directions of the Hon’ble Bombay High Court being the Jurisdictional High Court, the Tribunal is bound to follow the directions and we do accordingly.
7. Stand of assessee before us is that issue at hand is covered by the decision of the Hon’ble Bombay High Court in the case of ABG Heavy Industries Ltd. & others (supra). In view of the amendment to section 80IA(4A) by Finance Act, 1999 effective from 01.04.2000 to avail the deduction under such section for the A.Ys. 2000-0 1 & 200 1-02, assessee should carry on all three activities i.e. developing, maintaining & operating cumulatively. By developing the infrastructure facility and transferring it to another person for maintaining and operating, the benefit can be availed only from the A.Y. 2002-03. In view of the amendment to section by Finance Act, 2001 where in ‘or’ is inserted between developing and maintaining & operating i.e. developing or Maintaining & operating. In case of ABG Heavy Industries Ltd. & others (supra), the Hon’ble Bombay High Court has observed as under:

“With effect from ^1st April, 2000, by the Finance Act of 1999, certain changes were brought about. Section 80-IA & 80-IR were substituted for section 80-IA. Sub-section (4) of section 80-IA of the act provided that the section shall apply to any enterprise carrying on the business of (i) developing, (ii) Maintaining & operating, or (iii) developing, maintaining and operating an infrastructure facility which fulfils certain conditions. By the Finance Act of 2001, the word ^,or^, came to be introduced after the word developing, to clarify in effect that the agreement between the enterprise and the authority of the central or the state Govt. or, as the case may be, a local authority or a statutory body may provide for (i) Developing, or (ii) Maintaining & operating, or (iii). Developing, maintaining & operating a new infrastructure facility. It was further held that the requirement of operation & maintenance of infrastructure facility should commence after ^1st April, 1995 has to be harmoniously construed with the main provision under which the deduction is available. Thus, jurisdictional High Court held that the amendment of Finance Act 2001of inserting ‘or’ between ‘developing’ and ‘Maintaining & operating’ is clarificatory in nature to cure the ambiguity of the amendment of Finance Act,1999 and therefore such amendment will be applicable retrospectively from the A.Y. 2000-01& onwards.

In order to be eligible for deduction the assessee should develop the infrastructure facility as a whole and not in a particular part of it. We find that Hon’ble Bombay High Court in the case of ABG Heavy Industries has observed as under:

“The assessee did not have to develop the entire project in order to qualify for a deduction under s. 80-IA. The Parliament did not legislate a condition impossible of compliance.”

8. In the case of ABG Heavy Industries (supra), the assessee therein had not developed the entire port but was only the supplier of cranes at the loading and unloading terminal at the said JNPT port. Thus assessee was not required to execute the entire project as observed by the Third Member. Another significant word used here is “owned”, which indicates that the infrastructure facility should be owned by a company so as to be entitled to deduction under this section. The work done by the assessee is not owned by it, it does not satisfy sub clause (a) of section 80IA(4)(i). The infrastructure facility should be owned by the assessee is not correct interpretation. It is evident from section itself as clarified by the jurisdictional High Court in ABG Heavy Industries (supra) inter alia held that the assessee has shouldered out Investment & technical risk in respect of the work executed and it is liable for liquidated damages if failed to fulfill the obligation laid down in the agreement. The liability which has been assumed by the assessee under terms of the contract are obligations involving the development of an infrastructure facility. The assessee has also in its employment technically and administratively qualified team of persons and therefore it is not correct to say that assessee is merely a contractor & not a developer. The assessee is eligible for benefit u/s 80-1A even if part of the Infrastructural Project work is executed.

9. It was found by the erstwhile Judicial Member that assessee fulfilled the conditions of being a developer as subsequently interpreted by the Hon’ble Bombay High Court. With regard to clarificatory amendment to sub-section (13) of section 80IA by Finance Act 2007 & 2009 whereby the assessee is not held eligible for deduction u/s 80IA(4A). In this regard, we find that the amendment of 2007 debars the sub-contractor from availing benefits u/s. 80IA(4A) . The amendment of 2009 is not applicable in the case where the assessee executes the work by shouldering Investment & technical risk by employing team of technically & administratively qualified persons and it is liable for liquidated damages if failed to fulfill the obligation laid down in the agreement and also securing by Bank guarantee. As the assessee has fulfilled the said conditions is evident as discussed above. Practically, the opinion of the Third Member of the Hon’ble Tribunal has been overruled by the Hon’ble Bombay High Court that even a contractor is a developer and further interpretation of the amendments by Finance Act 2009 and the conditions to be fulfilled by an assessee to be termed as developer for the purpose of section 80IA has been followed by various Tribunals.

10. In view of the above, we find that law as interpreted by the Third Member of the Hon’ble Tribunal is no longer good law. More specifically in light of the observations made by the Hon’ble Bombay High Court in the case of ABG Heavy Industries Limited and while giving the effect as per provisions 255(4) of the Act the Hon’ble Tribunal was clearly directed to consider the said decisions and allow the deduction u/s. 80IA of the Act for all the projects undertaken by the assessee.

11. The assessee Company has been included as a sub contractor for the all the other projects either the contracts are directly in the name of assessee company or in the name of the joint venture enterprise. The assessee has undertaken the work on Back to Back Agreement concept under sub contract from Patel Engineering Company Limited (hereinafter referred to as PEC) vide Sub-Contract Agreement dated 15.10.1992 for construction of Tunnel which supplies the water form River Koyna and makes it available to Power House. In fact the assessee and PEC had proposed a joint venture to the relevant authorities for the Execution of the said project. As the project was being financed by World Bank the relevant authorities forwarded the proposal to World Bank. World Bank however did not accept the proposal but they suggested that M/s. Patel Engineering Company Ltd., may employ the assessee company as sub contractor. It was at the suggestion of World Bank that the assessee companies name was included as a sub contractor instead of forming of a joint venture. The project authorities including World Bank have approved and certified the assessee as sub-contractor for the above said work after thorough scrutiny and detail description of the work to be undertaken by the assessee company. The assessee company name is included in Main contract Agreement entered into between the employer and PEC as sub contractor for Koyna Project Works by Project Authorities. In fact the Government of Maharashtra has entered in Tripartite Agreement with the assessee company and PEC. Works completion certificate has been issued in favour of the assessee company for the execution of the Work. Power of Attorney is given by Prime Contractor to Sub Contractor and accepted and exceeded by Project Authorities.

12. The fact that the assessee has a tripartite agreement with the relevant authorities makes the assessee a party to the main contract work itself and which clearly shows that the assessee on their own right are contractors and not just sub contractors as normally understood. The assessee is the contractor vis-a-vis the portion allotted to them and not only subcontractors, i.e. a direct party to the main agreement. The assessee has entered into a main agreement, in their own right, can claim the benefit of section 80IA. As the assessee being directly under contract to the concern for the work done and are also directly dealing with the Government on whose behalf the assessee are doing the work, they can be considered as main contractors alongwith PEC and are not simply sub contractors vis-a-vis the work undertaken by them. As such the assessee is otherwise fulfilling all the conditions they are entitled to deduction under the provisions of section 80IA. Similar view has been taken by ITAT Indore in the case of Ayush Ajay Construction Ltd. vs ITO 79 ITD 213, wherein the entire project was assigned by the party getting the tender to another company. In such circumstances the ITAT Indore, has held as under:

“It is a settled position of law that that while construing the tax provisions besides determining the intention of the Legislature for its introduction to the statute, the expression used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute and which effectuate the object of the legislation. The provisions or promoting economic growth should be interpreted liberally and the restriction on it too has to be construed so as to advance the objective of the provisions and not to frustrate it.

If the facts of the case were put within the above parameter, the assessee, though it not entered into an agreement with the State Government at the initial stage, had obtained the tender/contract by virtue of a valid assignment, which was duly recognised by the State Government. Therefore, it should be deemed to have entered into an agreement with the State Government for construction of the said bridge on BOT basis. It was not the case of the revenue that the entire expenditure incurred in the construction of the aforesaid bridge was not borne by the assessee but by “A “, the main tenderer.”

The revenue had rejected the claim of the assessee for the simple reason that the assessee had never entered into any contract with the State Government and the assessee-company was nothing but a colourable device to evade tax. it is a settled position of law that the company is a juristic entity and it should be considered independent from the shareholders or the directors. The action of the assigning and the work of construction undertaken by the assessee was recognised by the State Government and a tripartite agreement was executed between the assessee ‘A’ and the State Government through which the State Government had recognised that the assessee had stepped into the shoes of ‘A’ and notified authorising the assessee to collect the toll tax for a particular period. Since the assessee company had rectified all act and deeds of its promoter ‘=’? and owned all the assets and liabilities of its promoter through an agreement of assignment executed between the assessee and ‘A’ after obtaining approval from the State Government, the assessee should be deemed to have undertaken the construction work since 1-4-1995. Since the Government had provided this deduction in order to encourage economic growth of the country, the plenitude of exemption should not be whittled down, by laying stress on ambiguity here and there. If it was proved that, the assessee-company had obtained the status of a tenderer by virtue of a valid assignment, it should not be denied the benefit of deduction provided by the Central Government through introduction of sub-section (4A) of section 80 IA. The action of “A” and the assessee could only be termed as a valid tax planning which was permissible under the law. Therefore, the assessee had fulfilled the requirements provided in section 80IA (4A)(ii) for claiming deduction, and, therefore, the Assessing Officer should have allowed the deduction claimed by the assessee company.

13. It was further clarified on behalf of the assessee that with regards to Bhima Sina Link Tunnel project, the Original Agreement is between the owner and Joint Venture from consisting of the assessee company and M/s.Swapnali Constructions which was formed to Share the work in 60% & 40%. M/s.Swapnali Constructions expressed their inability to undertake the work and had transferred their share of 40% of work to the assessee company on Back to Back Agreement basis for a consideration vide agreement dated 28/04/97. Thus the assessee company had executed 100% of the work. It is further stated that the assessee company were issuing R.A. Bills for 100% of the work done to Joint Venture firm and Joint Venture firm in turn issued R.A. bills to the owners. Joint Venture firm had not executed any portion of work under the Project. The Joint Venture firm has filed its Return of Income with NIL Profit or Loss. In fact the work completion certificate issued by Project Authorities is in favour of the assessee company only and not in favour of Joint Venture, also the whole amount of initial security deposit, the Bank guarantees were given by the assessee company only in the name of the assessee and not by the Joint Venture, as the joint Venture partner is in no way connected with the execution of the work and to that effect it had already submitted necessary instrument like “Assignment Deed, “Power of Attorney”, Undertaking with Bankers etc.

14. In this background, the assessee could certainly claim the deductions under the provision of Section 80IA. One has to see the substance and not the Form Essentially, though it was a Joint Venture, it was converted into assessee’s venture. The Other Venturer withdrew and the entire work was executed by the assessee though in the name of Joint Venture. The Joint Venture is nothing but the venture of the assessee company and the other person not being a party after withdrawing the question of Joint Venture does not arise. The Venture was fully carried out by the assessee and it was entirely executed by the assessee company. Taking the substance of the transaction, the assessee are entitled to all the profits in respect of the contract executed by them, hence the assessee would certainly be entitled to deduction under the provisions of 80IA as they have fulfilled all the other conditions. This view get strength from decision in the case of ITAT, Indore Bench, in case of Ayush Ajay Constructions Ltd. (supra). Thus, wile giving effect to the opinion of Third Member u/s.255(4) of the Act, we take view in conformity with order of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra) available at this time though contrary to the opinion expressed by the Third Member. So in view of above discussion, following the ratio of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra), the Assessing Officer is directed to allow deduction u/s.80IA(4) of the Act to the assessee with regard to the projects in question for both the years. The matter is disposed off accordingly.

Pronounced in the open court on this the 28^th day of February, 2013.