In a recent ruling the Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) observed that the deduction under Section 80 IA of the Income Tax Act, 1961 is not allowed to enterprise carrying civil contract work for developer of infrastructure facility.
The assessee company is engaged in the business of civil construction, filed its original return of income on 29.09.2011 and said return has been revised on 10.10.2011, disclosing total income of Rs. 74,70,298/-. The assessee has claimed deduction under Section 80- IA (4) of the Income-tax Act, 1961, towards various projects executed for Government and semi-government undertakings. The assessee claims that it was a developer of infrastructure projects as defined under Section 80-IA of the Income Tax Act and thus, its claim of deduction under Section 80-IA of the Income Tax Act was in accordance with law.
The Assessing Officer, disallowed deduction claimed under Section 80-IA(4) of the Income Tax Act on the basis of disallowance of deduction for assessment year 2009- 10. The Assessing Officer has discussed the issue at length in light of provisions of section 80-IA (4) of the Income Tax Act, Explanation of section 80-IA of the Income Tax Act, and the legislative intent as per Memorandum explaining the provisions in the Finance Bill, 2009 and came to the conclusion that, in cases of a simple civil contractor who executes works for various government and semi-government undertakings, deduction under Section 80-IA (4) of the Income Tax Act cannot be allowed
Mr. D. Anand representing the assessee, referring to provisions of Section 80-IA (4) of the Income Tax Act and explanation provided submitted that, the assessee is eligible for deduction under Section 80-IA (4) of the Income Tax Act, because the assessee has satisfied the conditions prescribed therein, including developing the infrastructure project by entering into agreement with state government or other authority and also executes developmental works by investing its own funds.
Since, the appellant has satisfied all the conditions prescribed under Section 80- IA(4) of the Income Tax Act, the Assessing Officer cannot disallow deduction claimed by the assessee, merely for the reason that the assessee is executing various contract works for government or semi-government departments.
Further referring to various decisions including the decision of Madras High Court in the case of PCIT vs V.A. Tech Wabag Pvt Ltd [2020] submitted that, an identical issue has been considered by the High Court in light of provisions of section 80-IA(4) of the Income Tax Act and held that, when assessee entered into contracts with local bodies or municipal bodies undertaking, contract works for developing the infrastructure facilities, it was directly entitled to the benefit of deduction under Section 80-IA(4) of the Income Tax Act
Mr. P. Sajit Kumar, on the other hand representing the revenue supporting the order of the Assessing Officer and CIT (A) submitted that, as per explanation to section 80-IA of the Income Tax Act, inserted by Finance Act, 2009 with retrospective effect from 01.04.2000, the provisions of section 80-IA of the Income Tax Act shall not apply to a person who executes works contract which is in the nature of works contract awarded by any person including the central or state government
The bench observed that the provisions of section 80-IA(4) of the Income Tax Act, provided deduction to an enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility which fulfills certain conditions. As per the provisions of section 80- IA (4) of the Income Tax Act, an enterprise should be owned by an Indian company and further it should entered into an agreement with the central or state government or a local authority
For the purpose of section 80-IA(4) of the Act, infrastructure facilities have been defined which includes a road including toll road, a bridge or rail system, a highway projects, water supply projects and a port or airport etc. The explanation has been inserted by the Finance Act, 2009 with retrospective effect from 01.04.2000 and as per said explanation nothing contained in section 80-sIA (4) of the Income Tax Act, shall apply in relation to a business referred to in sub-section (4), which is in the nature of works contract awarded by any person including central or state government and executed by the undertaking or enterprise referred in sub-section (1).
The two member bench of the tribunal comprising Manohan Das ( Judicial member ) and Manju Natha G ( Accountant member ) set aside the order of the CIT(A) on this issue and restore the issue back to the file of the Assessing Officer and direct the Assessing Officer to re-examine the claim of deduction under Section 80- IA(4) of the Income Tax Act, in light of necessary evidences including agreement entered into by the appellant with various departments and ascertain the nature of works executed by the assessee, in order to consider for the purpose of section 80-IA(4) of the Income Tax Act, and decide the issue in accordance with law. Accordingly, the appeal of the assessee allowed
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
