Deduction under S 80-IA(4)

Contractors who only develop and do not have the occasion to operate and maintain the infrastructure facility are entitled to a deduction under s 80-IA(4), as held by PuneTrib in Laxmi Civil Engg P Ltd v Addl CIT — In favour of : The assessee; ITA Nos 766/PN/09, 254/PN/08, 431/PN/07 and 435/PN/07: (AYs 2006–2007, 2005–2006, 2003–2004 and 2004–2005).

Laxmi Civil Engg P Ltd v Addl CIT

ITAT BENCH 'A' PUNE

ITA Nos. 766/PN/09, 254/PN/08, 431/PN/07 & 435/PN/07

Assessment Years: 2006-07, 2005-06, 2003-04 and 2004-05

I C Sudhir, JM and D Karunakara Rao, AM

Decided on: 8 June 2011

Counsel appeared:

Shri M. K. Kulkarni for the appellant

Shri Mukesh Dubey CIT (DR) for the respondent

Order

Per Karunakara Rao, AM:

There are four appeals under consideration and the issue for adjudication is one and

the same. At the very outset, the learned counsel for the assessee mentioned that the

issue under consideration has to be decided in accordance with the modified ground

raised by the assessee. The said modified ground which is common in all appeals

read as under:-

“1) On the facts and in the circumstance of the case and in law the Ld.

Authorities below were not justified in rejecting the claim of deduction of the

appellant Company u/s 80-IA holding that the appellant was a contractor and

also holding that all the three conditions embodied in S.80-IA(4)(i) were

required to be simultaneously fulfilled when Hon’ble Bombay High Court in its

subsequent judgment pronounced on 15.02.2010 in the case of ABC Heavy

Engg. Ltd. (Supra) held that the amended provisions effective from 01.04.2002

the parliament did not intend that such conditions should be simultaneously

fulfilled. It is also held that the third condition also was required to be

harmoniously construed. Since the Ld. C.I.T.(A) held that the appellate

company has fulfilled first two condition and failed to fulfill the third

condition for denial of deduction u/s 80-IA of the Act, it was not according to

jurisdictional High Court Judgment (supra) and therefore, deduction be

allowed to the appellant company”

2. Tracing the background of the case, learned counsel for the assessee mentioned

that in the first round, the appeals were decided relying on the decision of the Third

Member in the case of B.T. Patil & Sons 126 TTJ 577 vide order dated 18.02.2010.

Subsequently, the said order of the Tribunal was recalled in view of the binding

jurisdictional High Court’s judgment pronounced on 15.02.2010 in the case if ABG

Heavy Engg. Ltd. reported in 37 DTR (Bom) 233.

3. Detailing the facts of the instant case of assessee, learned counsel for the assessee

mentioned that the assessee is a contractor/developer and claimed deduction under

section 80- IA(4) of the Income-tax Act. The claim was denied by both the authorities

of the revenue stating that the assesses is only a contractor and the assessee felled

to comply with all the conditions specified in sub-clauses (a), (b) & (c) of clause (i)

of sub-section (4) of section 80-IA of the Act.. In other words, the revenue

authorities are of the view that the assessee being a contractor cannot be a

developer and when he is a developer as he has not complied with all the three

conditions specified in sub-clauses (a) (b) & (c) of said clause (i) of the said section.

Stating that this issue is decided in favour of the assessee Bombay High Court in

the case of ABG Heavy Engg Ltd (supra), learned counsel took us though para-22 of

the said judgment of the Bombay High Court for the proposition that the assessee,

being contractor of the Government or Government Undertakings, are entitled the

said deduction under section 80I(4)and also for the proposition that the debatable

condition placed in sub-clause (c) i.e. “It has started or starts operating and

maintaining the Infrastructure facility on or after 1st day of April, 1995” should be

harmoniously interpreted with the main provision placed in clause (i) of section 80A

(4) of the Act. The case of the assessee is that he being a contractor-cum-developer,

who is eligible for deduction in that capacity, has noting to do with the “operating

and maintaining” and therefore he is independently eligible for deduction,

independent of the conditions at said sub clause (c) of the said section 80-IA (4) of

the Act.

4. Per contra, learned CIT-DR argued vehemently stating that the language of the

section is clear and he mentioned that assessee to be eligible for deduction must fulfill

all the three condition including the one at the said sub clause (c). While placing his

reliance entirely on the language used in the section, he argued stating that the

assessee is not entitled for deduction since he has not complied with the conditions

placed at sub-clause referred to above. He mentioned that the every assessee when

claimed deduction under section 80-IA (4) must fulfill all the conditions of subclauses

(a) (b) and (c) of section 80-IA (4) (I) of the Act.

5. We heard both the parties and perused the orders of the revenue. The contentions

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 fulfill 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

fulfills certain conditions. Those conditions are (1) 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 entirity 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 1st 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 JNP 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 fulfill the condition at sub- clause (c) which is an

impossibility and the requirements to fulfill 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.

7. In the result all four appeals of the assessee are allowed.