Only companies are eligible for deduction u/s 80IA(4)

Citation of the Case: – The ACIT vs. Shri. B. Dhanasekaran (ITAT Chennai), Income tax (Appeal) nos. 620 of 2013 and 360 of 2015, Date of Judgment: 06/11/2015

Brief of the Case

ITAT Chennai held In the case of The ACIT vs. Shri. B. Dhanasekaran that the enterprises carrying on development of the infrastructure facilities should be owned by a company or consortium of companies. The infrastructure facilities need not be owned by a company. It was held that the word ‘ownership’ is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA (4) and not any other individual person like proprietor, HUF, Firm etc.

Facts of the Case

The return of income for the assessment year 2009-10 was filed on a total income of Rs.28,83,467/- .The case was selected through CASS for scrutiny. Notices u/s.143 (2) and 142(1) were issued to the assessee. The Assessing Officer completed the assessment u/s.143 (3) on 27.12.2011 after making the disallowance of section 80-IA which was claimed as exemption of Rs.18,45,450/- to the returned income.

Contention of the Assessee

The ld counsel of the assessee submitted that the provisions of Section 80IA (4) (i) as introduced by the by the Finance Act, 1999 and as amended from time to time are applicable to the assessee. The said section is meant for allowing deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development. The assessee claimed deduction as it is engaged in development of infrastructure and as it satisfied all the conditions mentioned therein.

It is clear that the enterprises which were developing, operating and maintaining and developing, operating and maintaining were only eligible for such deduction up to the assessment year 1999-2000 by virtue of the provisions of Section 80IA(4A). With the introduction of the new Section 80IA (4) amending the sub section (4) of Section 80IA and deleting the sub section (4A), the legislature provided deduction for any enterprise carrying on the business either developing or operating and maintaining or development, operating and maintaining instead allowing deduction only to the enterprises engaged in activity covering all the three activities together. Therefore, there is no requirement that all the three activities should have been carried on by a single enterprise so as to enable it to claim deduction under section 80IA (4) of the Act. This view is also supported by the decision of the Bombay High Court in the case of CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323/ 189 taxman 54.

The Mumbai Bench of the ITAT in the case of Asstt.CIT v. Bharat Udyog Ltd. [2009] 118 ITD 336/[2008] 24 SOT 412(Mum.) also held that after the amendment of Section 80IA(4) it is applicable to enterprises who are engaged in developing infrastructural facility. Earlier, the Mumbai Bench in the case of Patel Engg. Ltd., v. Dy. CIT [2005] 94 ITD 411 also observed that the civil contractors who are developing the infrastructure facility is eligible for deduction under section 80IA (4) of the Act. It is mentioned that the statutory provisions as contained in 80IA (4) provides for development of infrastructure facility. Therefore, it is clear that to be eligible for deduction under section 80IA (4), an enterprise need not necessarily be engaged in all the three activities of developing, maintaining and operating the infrastructure.

Contention of the Revenue

The ld counsel of the revenue submitted that the assessee is a contractor and not developer and the assessee does not develop any infrastructure facility by investing own funds. Rather it executed the work contracts awarded by the clients involved in construction of infrastructure related projects. Merely by executing the contracts relating to infrastructure projects assessee cannot be treated as ‘’developer’’ of infrastructure.

Further according to the ld. Departmental Representative the provisions of 80IA (4) applies to any enterprise which is ‘’owned by a company registered in India or by a consortium or a corporation or any other body established or constituted under any Central or State Act’’. In this case, the assessee is an individual having proprietary concern engaged in the business of civil contract work in the relevant financial year and hence it is also hit by the above condition laid down in Sec.80IA (4)(i)(a).

Held by CIT (A)

The CIT (A) observed that the assessee is not a works contractor and a developer as stipulated u/s.80IA (4) of the Act. The section 80-IA (4) applies to any enterprise, which carries on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities, which fulfill all the above conditions. From the assessment year 2000-01, deduction is available if the assessee is carrying out the business of anyone of the above mentioned three types of activities. When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, such an assessee will be paid for the cost incurred by it. If the infrastructural facility, after its development is transferred to the Government, the cost would be paid by the Government. Merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility.

If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing the infrastructure facility would be entitled to deduction u/s. 80 IA(4), which is not the intention of the Law. An enterprise who develop the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction. The assessee firm has carried on entire construction/development of the infrastructure facilities and satisfy all the conditions of sections 80 IA(4)(i)(a) of the act.

Accordingly, CIT (A) directed the Assessing Officer to verify the computation of income of the assessee and if the contention of ld. Authorised Representative for assessee found to be correct, the Assessing Officer may re-compute the taxable income and delete the excess addition made in the computation of income. Thus, he allowed the claim of the assessee.

Held by ITAT

We find that the provisions of Section 80IA (4) when introduced afresh by the Finance Act, 1999, the provisions under section 80IA (4A) were deleted from the Act. The deduction available for any enterprise earlier under section 80IA (4A) are also made available under Section 80IA(4) itself. Further, the very fact that the legislature mentioned the words (i) “developing” or (ii) “operating and maintaining” or (iii) “developing, operating and maintaining” clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-Tax Act.

We find that where an assessee incurs expenditure on its own for purchase of materials and towards labour charges and itself executes the development work i.e., carries out the civil construction work, it will be eligible for tax benefit under section 80 IA. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA, for executing works contract, will not be eligible for the tax benefit under section 80 IA.

A perusal of the statutory provisions makes it clear that it does not provide a blanket deduction i.e. in order to succeed in a claim of deduction; the concerned assessee has to derive profits and gains from any business referred to in sub-section 4. Further, sub-section 4 prescribes applicability of clause i.e. the case in which the deduction provision would apply. It is in this sub-section that the legislature has enumerated the nature of the undertakings, their activities in contributing raising of infrastructure. Further, in the explanation attached to the sub-section, the legislature has also entrusted the meaning of the infrastructure facilities.

Whether the assessee proprietorship concern satisfies sub-section 4 (i) of the act or not

For the said subsection, a reading of the provision makes it unambiguous that the concerned claimant has to be an enterprises carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility and it has to be owned by a consortium of such company or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act. Admittedly, the assessee is a proprietorship. We notice from the relevant statutory provision, the enterprise in the nature of proprietorship nowhere finds mention in the mandate of the legislature. As it is seen, the earlier portion of the statutory provision prescribes a company registered in India or a consortium of such companies or by an authority or corporation or any other body established or constituted and so on. In our view, the latter part is liable to be read in the light of the earlier part by following the principles of ejusdem generis.

Further, it was noticed that in the case of M/s. Ramky Infrastructure Ltd vs. DCIT, in ITA No.472/Hyd/2009 & others the Hyderabad bench of the Tribunal vide order dated 17.07.2013 observed in his order in para 14 following the earlier order of the Tribunal in the case of NCC-ECCI(JV) vs. ITO in ITA Nos. 124 & 125/Hyd/2009 vide order dated 17.06.2013 inter alia that word ‘owned’ in sub-clause (a) on clause (1) of sub-section (4) of section 80IA of the Act referred to the enterprise. In other words, the enterprises carrying on development of the infrastructure facilities should be owned by a company or consortium of companies. The infrastructure facilities need not be owned by a company. It was held that the word ‘ownership’ is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA (4) and not any other person like HUF, Firm etc. Hence, we hold that the assessee fails to satisfy the applicability clause of the provision as envisaged under section 80IA (4) (i).

Accordingly appeal of the revenue allowed.

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CA Deepak Aggarwal