By TIOL News Service

KOLKATA, JUNE 08, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether assessee is eligible for deduction u/s 80IA, if he is a developer and not 'works contractor'. YES is the answer.

Facts of the case:

The assessee is a AOP (Joint Venture). It was successful in getting the bid for detailed survey, drawing, design and execution of sewerage project on turn-key basis for Zones-II,III,IV and V project of Municipal Corporation at Jabalpur. Accordingly, the assessee entered into an agreement with the two members 1) M/s. Simplex Infrastructue Ltd and 2) M/s. Meinhardt (Singapore) Pte. Ltd) for terms and conditions. Aassessee AOP filed its return. Under scrutiny, notices u/s. 143(2) & 142(1) were issued. In response to which, the assessee appeared time to time and filed various details and supporting evidences in support of the return as filed. The AO found that the assessee has claimed deduction u/s. 80IA being identical amount of net profit for development of infrastructure facility. The AO was of the view that the assessee JV (Joint Venture) received contractual amount of Rs.15,04,45,674/- for the work done and derived net profit of Rs.43,85,379/-. In the audit report as well as in the return of income the assessee JV claimed the same as deduction u/s. 80IA(4) of the Act. The AO further found that the assessee raised RA bills in accordance with the measurement and held that it is a work contract within the meaning of Explanation to section 80IA, which was substituted by the Finance Act 2009 and came into force w.e.f 1-4-2000 retrospectively. However, the AO considering the status of assessee as a 'works contractor’ the claim of deduction u/s. 80IA of the Act was disallowed and added the same to the total income of the assessee. The assessee challenged the same before the CIT(A) who was of the view that the assessee was a developer and as such Explanation to section 80IA(13) does not apply to the assessee. Therefore, the following the earlier order of the Kolkata Tribunal in assessee’s own case for the AY 2008-09 and earlier order of the CIT(A) XIX for the AY 2009-10 allowed the deduction u/s. 80IA. He directed the AO to allow deduction u/s. 80IA.

On appeal, the HC held that,

++ the assessee stood successful in getting the bid for detailed survey, drawing, design and execution of sewerage project on turn-key basis for Zones-II,III, IV and V project at Jabalpur. The assessee JV was awarded the said project work by the Municipal Commissioner, Jabalpur. Thereby the assessee is a developer for the reason that the assessee involved in preparation survey, drawing, design and execution of sewerage project work. We find that the assessee made investments and development of infrastructure to support the various contract works. The assessee is also responsible in all respects for the procurement of labours, machinery, equipments, goods, materials for the said project work. The assessee is also responsible for the payment and supply of labour, water and electric charges usage for the project. The assessee is responsible for making the payments of labours and for supply of various items related to the said project. We also find that the Bombay High Court in the case of CIT Vs. ABG Heavy Industries Limited reported - 2010-TIOL-151-HC-MUM-ITclarify that in order to avail of a deduction, the assessee could (i) develop or (ii) operate and maintain or (iii) develop, operate and maintain the facility. Therefore, the fulfillment of these three activities/ conditions by the assessee would become eligible for claim of deduction. On perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor and was a developer and hence Explanation to section 80IA(13) does not apply. Thus, CIT(A) was justified in directing the AO to allow the deduction u/s. 80IA of the Act as claimed by it.

(See 2017-TIOL-807-ITAT-KOL)