THE issue before the Bench is - Whether when the assessee originally a sub-contractor, but subsequently becomes a direct party to the main agreement in its own right, directly responsible for the work done and dealing with the Government on behalf of the developer, cannot claim the benefit of deduction u/s 80IA, merely because they have not developed the entire project. And the answer goes in favour of the assessee.
Facts of the case
The assessee has undertaken the work on Back to Back Agreement concept under sub contract from Patel Engineering Company Limited (PEC) vide Sub-Contract Agreement for construction of Tunnel which supplies the water form River Koyna and makes it available to Power House. 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, it did not allow the proposal of joint venture, but suggested that PEC may employ the assessee company as sub contractor. Thereafter, the assessee companies name was included as a sub contractor instead of forming of a joint venture in the Main Contract Agreement. The Government of Maharashtra entered in Tripartite Agreement with the assessee company and PEC. Works completion certificate was issued in favour of the assessee company.
However, the AO disallowed the deduction u/s 80IA to the assessee on the ground that it was merely a contractor and not a developer, and thus, was not eligible for deduction under the said section. On appeal, the CIT(A) confirmed the order of the AO. On further appeal before the Tribunal, the Judicial Member and the Accountant Member differed i.e., the Judicial Member accepted the claim of the assessee, but the Accountant Member did not agree. As per provisions of section 255(4), the matter was referred to the third member, who was of the opinion that matter should be heard by the Larger Bench of third Member i.e. a bench comprising of three members, who ruled against the assessee. 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. While the appeal was pending, the assessee did not appear, and the matter was dismissed in limine. The assessee moved a Miscellaneous Application before the Tribunal to recall the said order. and by way of abundant precaution, the assessee filed appeals before the Bombay High Court. While the application was pending before the High Court, the Tribunal recalled its order and granted a fresh date for hearing the matter.
Now, while the appeals were pending before the Tribunal, the Bombay High Court in the case of ABG Heavy Industries Ltd., passed an order granting deduction to the said assessee u/s. 80IA(4) of the Act, which was in contrary to the order passed by the Third Member of the Tribunal. The assessee informed the High Court during the hearing of the appeal, that the Tribunal had given a fresh date of hearing and also requested the High Court to give directions to the Tribunal to hear the matter considering the decision passed in ABG Heavy Industries Ltd, and the High Court did instruct the Tribunal to pass the order after considering the decision given in ABG Heavy Industries Ltd,.
The counsel of the assessee contended that the issue at hand was covered by the decision of the Bombay High Court in the case of ABG Heavy Industries Ltd. & others, where it was held that the assessee did not have to develop the entire project in order to qualify for a deduction u/s 80-IA.
Having heard the parties, the Division Bench of Tribunal held that,
++ in the case of ABG Heavy Industries, 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 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 80-1 A even if part of the Infrastructural Project work is executed;
++ it was found by the erstwhile Judicial Member that assessee fulfilled the conditions of being a developer as subsequently interpreted by the 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 Tribunal has been overruled by the 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;
++ in view of the above, we find that law as interpreted by the Third Member of the Tribunal is no longer good law. More specifically in light of the observations made by the 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 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;
++ 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, wherein the entire project was assigned by the party getting the tender to another company;
++ 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. Thus, while 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. 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., 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
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