The Gujarat High Court recently rendered a decision permitting the deduction under Section 80IA(4) of the Income Tax Act for an entity involved in the development of infrastructure projects such as roads and canals. Justices Bhargav D. Karia and Niral R. Mehta presided over the case, emphasizing that the entity had entered into a development of infrastructure facility agreement rather than a mere work contract.
The respondent, engaged in construction activities and infrastructure development like irrigation canals and road construction, filed its income tax return, declaring a total income of Rs. 25,15,950. This declaration included a claimed deduction under Section 80IA(4) amounting to Rs. 6,20,01,678.
However, the assessing officer disallowed the deduction, asserting that the assessee was not a developer but a works contractor. This decision was based on the explanation following Subsection 13 of Section 80IA. Displeased with this disallowance, the assessee appealed before the Commissioner of Income Tax (CIT), who ruled in favor of the appeal. The CIT observed that the assessee was indeed a developer of infrastructure facilities and, as such, eligible for the deduction under Section 80IA(4). Consequently, the disallowance made by the assessing officer was deemed unsustainable.
The department, dissatisfied with the CIT's decision, proceeded to appeal before the Tribunal. Their argument centered on the contention that income from the use of infrastructure facilities developed by the assessee was the only eligible aspect for reduction under Section 80IA(4). They asserted that the contract work was awarded to the assessee through a competitive bidding process where the lowest contract value was quoted, making the assessee a works contractor. According to the department, the income derived was from developing the infrastructure facility, not from its utilization.
Further, the department emphasized the legislative intent behind Section 80IA(4), stating that private players would invest in infrastructure development, and subsequent income generation from facility exploitation would be eligible for deduction. Concepts such as Built, Own, Operate, and Transfer (BOOT), Built, Own, Lease, and Transfer (BOLT), and Built, Operate, and Transfer (BOT) were introduced to illustrate these principles. The department argued that as no initial investment was made by the assessee in the projects, and funding came from the employer, the deductions should not apply. The investments made by the assessee, such as earnest money, performance guarantee, and mobilization advance, were deemed applicable in the context of a work contract.
Section 80IA was cited as the relevant provision, providing for a deduction from the gross total income of the assessee. This deduction encompasses any profit and gains derived by an undertaking or enterprise from an eligible business, allowing a deduction equal to 100% of the profit and gains derived from the business for ten consecutive assessment years.
TAGS: Concepts such as Built Own Operate and Transfer (BOOT) Built Own Lease and Transfer (BOLT) and Built Operate and Transfer (BOT)
