S. 80IA(4) Deduction Available To Assessee Engaged In Developing Infrastructure Projects Like Roads, Canals: Gujarat High Court

The Gujarat High Court has allowed the deduction under Section 80IA(4) of the Income Tax Act to the assessee engaged in developing infrastructure projects like roads, canals, etc.The bench of Justice Bhargav D. Karia and Justice Niral R. Mehta has observed that the assessee has entered into a development of infrastructure facility agreement and not a work contract.The respondent or assessee was engaged in the business of construction activity and the development of infrastructure and other projects, i.e., irrigation canals and road construction.The assessee filed its return of income, declaring a total income of Rs. 25,15,950 after claiming the deduction under Section 80IA(4) for an amount of Rs. 6,20,01,678.The assessing officer, however, disallowed the deduction under Section 80IA (4) on the ground that the assessee is not a developer but a works contractor, relying upon the explanation after Subsection 13 of Section 80IA.The assessee preferred an appeal before the CIT (appeal). The CIT (appeal) allowed the appeal. The CIT (A) has observed that the assessee company is a developer of infrastructure facilities and is eligible for deduction under Section 801A(4). The disallowance made by the AO for deduction amounting to Rs. 6,20,01,678 is therefore not sustainable.The department being aggrieved by the order of the CIT (appeal) preferred the appeal before the Tribunal.The department contended that the income derived from the use of infrastructure facilities developed by the assessee is only eligible for reduction under Section 80IA (4), but the contract work was awarded to the assessee through the bidding process, where the lowest contract value was quoted by the assessee after considering the element of profit. The assessee was acting as a works contractor, and income was derived by way of developing the infrastructure facility and not from the use of the development facility.The department urged that the purpose of the deduction under Section 80IA (4) was that the private players of the parties will bring the investment for the development of the infrastructure facility, and later on, the facility will be exploited for generating income, which is only eligible for the purpose of deduction under Section 80IA (4). Various concepts, such as Built, Own, Operate, and Transfer (BOOT), Built, Own, Lease, and Transfer (BOLT), and Built, Operate, and Transfer (BOT), were introduced. No initial investment was made by the assessee in the projects, and the projects were funded by the employer. The assessee made investments in the nature of earnest money, performance guarantee, and mobilization advance, but the concepts are also applicable in the case of the work contract.The tribunal held that the assessee has undertaken the development of infrastructure and is eligible to claim the deduction under Section 80IA(4).Section 80IA provides for a deduction from the gross total income of the assessee, which includes any profit and gains derived by an undertaking or an enterprise from any business as an eligible business, by providing a deduction of an amount equal to 100% of the profit and gains derived from business for 10 consecutive assessment years.The court upheld the order of the CIT (appeal) and the Tribunal.Counsel For Appellant: Varun K. PatelCounsel For Respondent: N/ACase Title: The Principal Commissioner Of Income Tax (Central), Versus Montecarlo Construction Ltd.LL Citation: 2024 LiveLaw (Guj) 3Case No.: R/Tax Appeal No. 786 of 2023Click Here To Read The Order

S. 80IA(4) Deduction Available To Assessee Engaged In Developing Infrastructure Projects Like Roads, Canals: Gujarat High Court

Mariya Paliwala

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