Design & Commissioning of Rail Signalling Systems is Developer Activity under Income Tax Act, Not Works Contract: ITAT rules in favour of Bharat Rail Automation [Read Order]
SUMMARY: It is evident from the contracts that the assessee undertook a 'Build and Transfer' model of the infrastructure facility, involving technical personnel, substantial finance, and associated risks and rewards.
The Income Tax Appellate Tribunal (ITAT), Nagpur Bench in a ruling in favour of Bharat Rail Automations Pvt. Ltd. , the assessee dismissed the appeal filed by the Revenue and held that the activity of designing and commissioning railway signaling systems qualifies as a "developer activity" under Section 80IA(4) of theIncome Tax Act, 1961, and cannot be treated merely as a "works contract".
The Revenue had challenged the order of the CIT(A), which had deleted the disallowance of Rs. 2,17,21,362/- claimed by Bharat Rail Automations Pvt. Ltd. as a deduction under Section 80IA(4) for AY 2015-16. The Assessing Officer had contended that the assessee was merely executing a works contract for the railway authorities and did not qualify as a "developer" who designs and develops a new infrastructure facility.
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The assessee countered this by relying on the Bombay High Court's decision in their own case for earlier assessment years (AYs 2007-08, 2009-10 & 2010-11), which had upheld the ITAT's order granting the deduction.
The Tribunal comprising Pawan Singh, Judicial Member & Khettra Mohan Roy, Accountant Member observed that the contracts specifically required the assessee to make drawings and execute the complete design of the signaling system. Furthermore, the assessee procured materials as per specifications, erected, installed, and commissioned the system before transferring the infrastructure to the Railway Department.
It is evident from the contracts that the assessee undertook a 'Build and Transfer' model of the infrastructure facility, involving technical personnel, substantial finance, and associated risks and rewards. Therefore, the basic conditions prescribed under Section 80IA(4) of the I.T. Act were fully satisfied, and the activity was not restricted to a mere works contract.
Applying the principle of judicial consistency under identical facts, the Tribunal held that the CIT(A) was correct in allowing the deduction and dismissed the Revenue's appeal.
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