B. T. Patil & Sons vs. ACIT (ITAT Mumbai Larger Bench)

DATE: (Date of pronouncement)
DATE: November 4, 2009 (Date of publication)

Click here to download the judgement (b_t_patil_contractor_80_IA.pdf)

S. 80-IA (4) deduction is not available to contractors

The assessee, a civil contractor, claimed deduction u/s 80-IA (4) in respect of the profits from infrastructure projects executed by it. The lower authorities rejected the claim on the ground that the assessee was a mere contractor and not a developer. On appeal, the Judicial Member upheld the claim on the ground that the assessee was a developer. The Accountant Member dissented and after taking note of the Explanation to s. 80-IA then proposed to be inserted by the Finance Bill 2007 w.r.e.f 1.4.2000, rejected the claim. The President, acting as Third Member, noted that as the AM had decided on the basis of a point not raised by the parties during the hearing (i.e. the Explanation), a solitary TM decision on the issue may create complications and so the issue was referred to a Larger Bench. HELD by the Larger Bench:

(i) On the question whether the reference was under sub-sec (3) or (4) of s. 255, there is a material difference in the circumstances where a reference is made to a Special Bench u/s 255 (3) and a Third Member or Larger Bench u/s 255 (4). A Third Member / Larger Bench is constituted only when there are differing orders. The present case was one of differing orders and consequently the reference was u/s 255 (4);

(ii) As proceedings u/s 255(4) are confined to the points of difference and the Bench has to confine itself to the facts of the case, interveners are normally not allowed. The exceptions are where a pure question of law is involved. Interveners are allowed provided they confine themselves strictly to the point in difference;

(iii) A Bench constituted u/s 255 (4) has to apply the law as amended with retrospective effect even though such law was not available at the time of passing of the separate orders by the dissenting Members. The order of the TM/Bench is final and conclusive on the point in difference and the failure to apply the applicable law will render the order of the TM/Bench absurd and erroneous;

(iv) On merits, s. 80-IA (4) (even pre-amendment) applies to a “developer”. The difference between a “developer” and “contractor” is that the former designs and conceives new projects while the latter executes the same. As the assessee was merely executing the job of civil construction, it was not eligible u/s 80-IA (4). The assessee was also not the “owner” of the facility;

(v) The intention of the Legislature is to provide deduction u/s 80-IA (4) only to the person directly engaged in developing, maintaining and operating the facility. There should be a complete development of the facility and not just a part of it;

(vi) The Explanation below 80-IA (13) inserted by FA 2007 & 2009 w.r.e.f 1.4.2000 which provides that s. 80-IA(4) shall not apply to a person executing a works contract entered into with the enterprise is unambiguous and cannot be interpreted otherwise.

Patel Engineering 94 ITD 411 (Mum) reversed. Indwell Linings 122 TTJ 137 (Che) approved.