S. 80-IA(4): Larger Bench verdict in B. T. Patil vs. ACIT 32 DTR 1 is not good law

.T. Patil & Sons Belgaum Constructions Pvt. Ltd vs. ACIT (ITAT Pune)




The assessee, a civil contractor, claimed deduction u/s 80-IA (4) in respect of the profits from infrastructure projects executed by it. The lower authorities rejected the claim on the ground that the assessee was a mere contractor and not a developer. Before the Tribunal, the Members of the Division Bench dissented and so the issue was first referred to a Third Member and then to a Larger Bench of three Members. The Larger Bench (32 DTR 1) rejected the assessee’s claim on the ground that in order to be eligible u/s 80IA (4), 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. When the matter came before the Division Bench for giving effect to the Larger Bench’s verdict u/s 255(4) the assessee did not appear and so the Bench dismissed the appeal in limine for non-appearance. The assessee filed a MA before the Tribunal to recall the said order and also filed an appeal before the High Court. The Tribunal recalled its order dismissing the appeals and refixed the matter for hearing. Consequently, the assessee withdrew the appeal filed in the High Court. In the order permitting the withdrawal, the High Court directed the Tribunal to consider the judgement in ABG Heavy Industries 322 ITR 323 (Bom). HELD by the Tribunal:

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 effect of the amendment by the Finance Act of 1999 is that the benefit of s. 80IA(4) is available to any enterprise carrying on the business of (i) developing, (ii) maintaining & operating, or (iii) developing, maintaining and operating an infrastructure facility. It was also held that the assessee did not have to develop the entire project in order to qualify for deduction u/s 80-IA and that Parliament did not legislate a condition impossible of compliance. The Explanation below 80-IA (13) inserted by FA 2007 & 2009 w.r.e.f 1.4.2000 which provides that s. 80-IA(4) shall not apply to a person executing a “works contract” does not apply to a 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. On facts, the assessee had shouldered the investment & technical risk in respect of the work executed and it was liable for liquidated damages if failed to fulfill the obligation laid down in the agreement. The liability which had been assumed by the assessee were obligations involving the development of an infrastructure facility. Consequently, it is not correct to say that the assessee is merely a contractor & not a developer. The assessee is eligible for benefit u/s 80-1A even if only part of the Infrastructural Project work is executed by it.

Note: This case is unique in that a Bench constituted to give effect to a Larger Bench verdict u/s 255(4) ends up reversing the Larger Bench verdict. For more on s. 80-IA(4) see Pratibha Industries (ITAT Mum)