Karnataka H.C : Contract to effect repairs to infrastructure by construction of protection wall on canals would be mere works contract not eligible for deduction under section 80-IA

High Court Of Karnataka

Yojaka Marine (P.) Ltd. vs. ACIT, Circle 1(1)

Assessment Year : 2005-06

Section : 80-IA

N.Kumar And B. Manohar, JJ.

IT Appeal Nos. 428-429 Of 2012

April 22, 2013


N. Kumar, J – These appeals are filed challenging the order dated 25.07.2012 passed by the Tribunal which has affirmed the findings recorded by the Authorities holding that the Contract in question is a Works’ Contract and therefore, the assessee is not entitled to the benefit under Section 80-IA of the Income Tax Act, 1961.

2. The assessee is a Contractor for Marine, Mechanical, Civil, under-water works and supplier of machinery and equipment on hire. The assessee is also engaged in the business of marine products. During the previous year relevant to the Assessment Year 2005-06, the assessee has claimed a deduction of Rs. 18,21,641/-under Section 80-IA being the maintenance of infrastructure facility. During the course of hearing, the assessee was asked to produce the supporting evidence for claiming deduction under Section 80-IA. They produced the agreement entered into with the Inland Waterways Authority of India. It shows the assessee has undertaken the work of construction of permanent banks of Champakara Canal and Udyogmandal Canal in NH-3, Kerala. It is a project related to inland water way and allotted by Inland Waterways Authority of India. After going through the agreement, the assessing authority held that it is only the work contract granted to the assessee for the work of construction of protection wall to the Champakara Canal and Udyogamandal Canal. In the work order it is stated that the assessee’s offer for the bank protection work in Champakara Canal and Udyogamandal Canal has been accepted by the authority for providing 10,100 mtrs. Of pipe and slab type bank protection and 3,500 mtrs rip/rap Masonary type protection and maintenance of the same for 36 months after the defects liability period at a cost of Rs. 3,28,56,406.85ps. The above cost includes mobilization/demobilization charges and shipping charges of the equipment from place to place as per the directions of Engineering In-charge. The assessee claimed deduction for maintenance of infrastructure facility. On appreciation of the aforesaid material, the assessing authorities held that there is no element of developing or operating and maintaining or developing, operating and maintaining of any infrastructure facility. Maintenance of Infrastructure facility is to be combined with operating or developing and operating. 80-IA deduction is not allowable for only maintenance of infrastructure facility. Hence, the claim of the assessee for deduction is dis-allowed.

3. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). On re-appreciation of the entire material on record and after referring to various judgments, the Appellate Commissioner held that the assessee is a mere contractor executing Civil Works for an Infrastructure Enterprise and is covered under the Explanation to Section 80-IA and therefore, the assessee is not eligible to claim deduction and dismissed the appeal. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal also re-appreciated the entire evidence on record, looked into the decisions cited by the parties and held that the assessee has been engaged to do only the repair work and maintenance thereof at the relevant period, which is a mere Works’ Contract in the Form of repairs to the already existing canals, rather than the creation of any infrastructure. What the assessee had executed in the relevant period in respect of the embankments of the Champakara and Udyog Mandal Canals and the Tapi River Banks was merely a works project and not the creation or development of any new infrastructure as claimed. Therefore, it declined to interfere with the orders passed by the Assessing Authorities. It is against the said order the appeal is filed.

4. The learned counsel appearing for the appellant assailing the impugned order contends that the nature of work entrusted to the assessee included not only repair and maintenance of the existing canal but also included construction of protection wall of the canals. In respect of the same, the assessee has invested money and therefore, Section 80-IA is attracted.

5. We do not see any merit in the said contention. All the three fact finding authorities, on a careful examination of the terms of the contract and taking note of the nature of the work executed by the assessee have held that it is a Works’ Contract. It is not a case where the assessee has made any investment in an infrastructure project. The authority owning the infrastructure project has entered into a contract with the assessee for repair and maintenance for a period of three years. In fact terms of the agreement shows that the assessee has to furnish the Bank Guarantee and the assessee has been paid mobilization advance and, therefore, it is not a case of assessee investing its money in development of infrastructure or operating and maintaining an infrastructure, which is already developed or developing and maintaining of any intrastructure development. It is an agreement entered into to effect repairs to infrastructure by construction of permanent bank protection measures to Udyog Mandal canal and Champakara canal and maintaining the same for a period of three years. Therefore, it is a works contract as held by the three authorities. We do not see any merit in these appeals. No substantial question of law also arises for consideration in these appeals. Accordingly, appeals are dismissed.

[Citation : 354 ITR 530]

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