By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi, Chartered Accountants
Section
80IA – The expression ‘owned’ referred
to in section 80IA(4)(1)(a) refers to ownership of the enterprise and not the
ownership of the infrastructure facility that is created.
The definition of `Infrastructure
facility’ as mentioned in Explanation to
section 80IA(4)(i) covers any road including toll road. It need not be coming under expressway or
highway category.
FACTS
The assessee filed its return of income
showing total income of Rs.20,48,49,810.
In arriving at the total income the assessee claimed deduction of Rs.
1,49,16,548 u/s. 80IA(4)(i) towards profits derived from developing, operating
and maintaining infrastructure facility. The Assessing Officer (AO) examined
the claim and reduced it by a sum of Rs. 2,78,385 being amount of proportionate
head office expenses allocated by him towards this unit.
The CIT in
exercise of his powers u/s. 263 was of the view that the order of the AO in so
far as it relates to allowing the claim of the assessee for deduction u/s.
80IA(4)(i) of the Act was erroneous and prejudicial to the interest of the
revenue. According to him, the assessee
was merely executing the job of civil construction on the basis of works
contract awarded by Executive Engineer.
He was also of the view that the roads constructed by the assessee were
not coming under expressway or highway category as mentioned in the Explanation
to the section. The assessee was not a
developer of an infrastructure facility and was not eligible to claim deduction
u/s. 80IA(4)(i).
HELD
The Tribunal observed that it cannot be said
that the AO failed to deal the specific facts of the case as per law and has
not scrutinised/verified the details in respect of the issues raised in the
show cause notice u/s. 263 of the Act.
The expression “owned” in
sub-clause (a) of clause (1) of sub-section (4) of section 80-IA of the Act
refers to ownership of the enterprise and not the ownership of the
infrastructure facility that is created. The ownership of the enterprise should
be that of a company and not any other person like individual, HUF, Firm etc.
sub-clause (a), clause (i) of sub-section (4) of section 80-IA uses the word
“it” and that 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.
The question as to whether the assessee is
‘developer’ or ‘contractor’ has to be tested in the light of the decisions
rendered on the issue by the Hon’ble Bombay High Court in the case of ABG Heavy
Industries (supra) and the order of the Division Bench of ITAT giving
effect to the larger bench (third member) decision in the case of B.T. Patil
& Sons (supra). According to these decisions, what is to be seen is
as to whether the assessee has shouldered out Investment & technical risk
in respect of the work executed and it is liable for liquidated damages if it
failed to fulfill the obligation laid down in the agreement. The liability that
was assumed by the assessee under terms of the contract would be obligations
involving the development of an infrastructure facility. The assessee has also
in its employment technically and administratively qualified team of persons.
If the above conditions are satisfied then it would not be correct to say that
assessee is merely a contractor and not a developer. Without giving adverse
finding on the above tests, the CIT could not conclude that the order of the AO
was erroneous and prejudicial to the interest of the revenue.
As regards the observation of the CIT that
the roads construed by the Assessee were not coming under expressway or highway
category as mentioned in the Explanation to section 80IA(4)(i) of the Act,
which defines Infrastructure facility for the purpose of claiming deduction
under the aforesaid section the Tribunal held that the definition covers any
road including toll road. It need not be coming under expressway or highway
category.
The Tribunal allowed the appeal filed by the
assessee.
