S.R. Chauhan, JM. - The above appeal by assessee for assessment year 2000-01 is directed against the order of CIT(A), Mumbai, dated 10th February, 2004

2. CO No. 100/Mum./2004 has been preferred by Revenue-respondent in respect of assessee's above appeal.

3. First we take up the issue of delay in the filing of CO by the Department. The CO has been filed with a delay of 31 days.

3.1 We have heard the arguments of both the sides on the point of delay in preferment of Revenue's cross-objection and have also perused the records including the Department's petition for condonation of delay.

3.2 The CIT, Departmental Representative, Shri G.D. Chandorkar, has contended that there is a delay of 29 days in filing of CO by the Department. He has contended that the related AO, who was to file the CO, in respect of assessee's appeal, was busy in time-barring assessments and was also holding additional charge of Dy. CIT, Circle-21, Mumbai, and so the aforesaid delay, in filing of CO, has taken place. He has contended that there has been reasonable/sufficient cause for the delay and so the said delay should be condoned. As against this, the learned Authorised Representative of assessee Shri S.K. Tulsiyan, advocate, has frankly submitted that he has no objection to the CO being admitted on record for hearing and disposal on merits.

3.3 Considering the rival contentions as also the relevant material on record, we find that there was reasonable/sufficient cause for the delay of 31 days in the filing of Revenue's CO and so we condone the said delay and admit the CO on record for disposal of the same on merits.

4. Now we proceed to consider the assessee's appeal and Revenue's CO on merits.

5. In appeal, the assessee-appellant has raised four grounds of appeal. Ground No. 4 is general. Ground No. 1 along with its various parts being the main ground in this appeal is as under:

"Re: Sec. 80-IA deduction Rs. 18.47 crores.

1. In the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding denial of deduction of Rs. 18,47,09,510, claimed under section 80-IA(4) in respect of income derived by the assessee from development of eligible infrastructural facilities.

2. Having regard to diverse submissions, the learned CIT(A) ought to have accepted contention of the appellant that the appellant was a developer of eligible infrastructure facilities and was, as a developer, entitled to grant of deduction under section 80-IA(4) of the Act.

3. In the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that the appellant was not a developer of impugned facilities but, was a civil contractor not entitled to relief inasmuch as:

(a )The appellant held no interest in land supporting the facility.

(b)The facility was owned by the Government.

(c )The appellant was not entrusted operation and maintenance of the facility after it was ready.

(d)The appellant was a civil contractor.

4. While rejecting the claim of the appellant for grant of section 80-IA deduction, the CIT(A) erred in adverting to irrelevant considerations while omitting to consider relevant factors and correct legal position."

6. The grounds raised by the Department in its cross-objection are as under:

"1. The CIT(A) has erred in concluding that the concept of ownership is not envisaged in section 80-IA, when he states in his order that it is the enterprise and not the infrastructure facility which should be owned by an Indian company or a consortium of Indian companies. The CIT(A), therefore, erred in stating that the interpretation of clause (i) r/w sub-clause (a) by the Assessing Officer holding that the 'infrastructure facility' should be owned by the assessee is not correct.

2. The CIT(A) has omitted to take into consideration the condition mentioned in section 80-IA(4)(i)( b) which stipulates that the facility developed should be transferred to the Government/State authority. This condition envisages the ownership of the facility by the assessee and the CIT(A) was, therefore, wrong in holding that it is the enterprise and not the facility which has to be owned by the assessee."

7. As assessee's ground No. 1 along with its various parts and both the grounds of Revenue in CO are all inter-related and pertain to the same issue of allowability of deduction under section 80-IA, so we are taking them up together for our consideration.

8. The facts of the case, in brief, are that the assessee is a listed company engaged in the execution of civil contracts, i.e., in the work of construction of roads, bridges, dams, canals, etc. During the year under consideration, the assessee was engaged in the business activity of construction of two projects, viz., Srisailam project in Andhra Pradesh and Koyna project in Maharashtra, the work of which was allotted to the assessee by the aforesaid two respective State Governments. It was claimed by the assessee that the above two projects were 'infrastructure projects' and the assessee 'developed' the same; therefore it is entitled to deduction under section 80-IA in respect of profit derived from the execution/development of the above two projects. The Assessing Officer rejected the assessee's claim. The learned CIT(A) agreed with the Assessing Officer holding the assessee to be not entitled to deduction under section 80-IA, mainly for the reason that the assessee was not the "developer" as such of the abovementioned two projects. Hence aggrieved, the assessee is in appeal before the Tribunal.

9. We have heard the arguments of both the sides and have also perused the records including the written submission of the learned Authorised Representative of assessee as also that of learned CIT/Departmental Representative, for Revenue.

10. The learned counsel for assessee has made elaborate arguments before us contending that the assessee has fulfilled all the conditions, which are necessary for the allowability of deduction under section 80-IA(4) and so the assessee is entitled to get the said deduction. He has also furnished his detailed written submission to support/supplement his oral arguments.

11. The learned CIT/Departmental Representative has, on the other hand, supported the orders of the authorities below and has contended that the assessee did not fulfil the conditions, which are necessary for allowing deduction under section 80-IA(4). He has also filed his elaborate written submission along with a paper book to support/supplement his oral contentions.

12. We have considered the rival contentions, oral as well as written, as also the relevant material on record. We now proceed to deal with and discuss the rival submissions/contentions point wise so as to analyse and appreciate the fulfilment or not by assessee, of various pre-conditions, which the assessee is required to fulfil, so as to be entitled to the benefit of deduction under section 80-IA(4).

13. We may note that section 80-IA was inserted in the statute by Finance (No. 2) Act, 1991 w.e.f. 1st April, 1991. Initially, as this provision stood, it provided deduction for profit and gains derived from any business of an industrial undertaking or a hotel or from operation of ships. However, this section was amended/modified by Finance Act, 1995 w.e.f. 1st April, 1996, i.e., from assessment year 1996-97 whereby profit and gains derived from some other business which are referred to as 'eligible business' were also allowed deduction sub-section (4A) of section 80-IA was also inserted simultaneously defining the 'eligible business' and the conditions, required to be fulfilled by an assessee so as to be entitled to deduction under section 80-IA.

14. The sub-section (4A) reads as under:

"(4A) This section applies to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely:—

(i )the enterprise is owned by a company registered in India or by a consortium of such companies;

(ii)the enterprise has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement;

(iii)the enterprise starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995."

15. section 80-IA was further amended/modified by the Finance Act, 1999 w.e.f. 1st April, 2000, i.e., from assessment year 2000-01. After the above modification, sub-section (4) of section 80-IA explains the eligible business and prescribes the conditions necessary to claim deduction under section 80-IA. This sub-section (4) reads as under:

"(4) This section applies to—

(i )any enterprise carrying on the business of (i ) developing (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely:—

(a )it is owned by a company registered in India or by a consortium of such companies;

(b)it has entered into an agreement with the Central Government or State Government or a local authority or any other statutory body for (i) developing (ii) maintaining and operating or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement;

(c )it has started or starts operating and maintaining the infrastructure facility on or after 1st day of April, 1995:

Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.

Explanation.—For the purposes of this clause, 'infrastructure facility' means,—

(a )a road, bridge, airport, port, inland waterways and inland port, rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette;

(b)a highway project including housing or other activities being an integral part of the highway project; and

(c )a water supply project, irrigation project, sanitation and sewerage system."

16. The learned Authorised Representative of assessee has contended that initially, when deduction under section 80-IA was provided in respect of infrastructure facility, the deduction was available to an assessee who was carrying on the business of developing, maintaining and operating any infrastructure facility. Thus, an assessee was required to carry out all the three activities of infrastructure facility being of (i) developing, (ii) maintaining and (iii) operating for being entitled to the deduction under section 80-IA. After the amendment of section 80-IA by Finance Act, 1999, the deduction is permissible to any enterprise, which is carrying on the business of only developing (I.F.), or of only maintaining and operating an infrastructure facility, or developing, maintaining and operating an infrastructure facility. He has contended that the present assessee carried on the business of "developing" the infrastructure facility. In support of his contention, he has referred to dictionary meanings of the words "develop", "developer" and "development" from various dictionaries and has quoted the same in his written submission, extract of which we reproduce below:

"From the Random House Dictionary of the English Language, the following definitions can be found:

Develop:

1. to bring out the capabilities or possibilities of; bring to a more advanced or effective state;

2. to cause to grow or expand.

Developer:

1. a person or thing that develops.

Development:

1. the act or process of developing; progress.

Synonym - expansion, elaboration, growth, evolution; unfolding maturing, maturation.

From Webster Dictionary the following definitions emerge:

Development:

a. To realise the potential of;

b. To aid in the growth of: strengthen, develop the biceps.

To bring into being: make active (develop a business).

To convert (a tract of land) for specific purpose, as by building extensively.

From Law Lexicon Dictionary, the following definitions could be seen:

Development:

1. The act, process or result of developing or growing or causing to grow; the state of being developed;

2. Happening

Development of land: The expression 'development' means the realisation of the potentialities of land or territory by building or mining: Sadruddin Suleman Jhaveri v. J.H Patwardhan* AIR 1965 Bom. 224, 242 (Constitution of India, Art. 31).

Development work: The construction of underground market does not destroy the intrinsic character of the park as a public park but re-locate and re-develop the park as a place for public recreation and as such the construction of the underground market is a development work. Calcutta Youth Front v. State of West Bengal AIR 1988 SC 436, 439 [Calcutta Municipal Corporation Act (59 of 1980) section 353(2), Explanation]."

17. The learned Authorised Representative of assessee has also explained the nature of both the projects executed by it, the details of which are given at p. 2 of the assessee's written submission. The same is reproduced below:

"Details of the Srisailam Project.—The Srisailam Project is a prestigious multi-purpose project involving water supply, irrigation and generation of hydro-power. The purpose of the project is to harness the potential of the river Krishna which flows from Maharashtra to Andhra Pradesh. It has a capacity of generating 900MW of power. It involves an underground power-house, which will generate power by using water supply from river Krishna in the State of Andhra Pradesh. The assessee-company was required to develop and provide an underground tunnel which, in its first leg, would connect river Krishna to the power house (known as Head Race Tunnel) for facilitating inlet of water from the river to the power house turbine. The water which flowed in from river Krishna was required to be routed back to the river and for this, the assessee was required to develop various underground specialised structures such as surge chamber, draft tube tunnels, tail race tunnel, etc. which would increase or decrease the velocity of water so that the water could be used for irrigation. The project is expected to provide 60 thousand million cubic feet of water for irrigation in the State of Andhra Pradesh. The Head Race Tunnel constructed by the assessee is of 347 metres in length and the height is 16.1 metres. The tail race tunnel admeasures 2323 metres in length and 16.1 metres in height. The project is expected to provide 60 thousand million cubic feet of water for irrigation in the State of Andhra Pradesh (as per Krishna Water Disputes Tribunal Report) refer p. 202 of paper book)".

"Details of the Koyna Project.—The work done by the assessee at Koyna is very similar to the work done at Srisailam. It is also a multipurpose project involving irrigation, water supply and generation of hydro power—the difference being that, at Koyna the assessee has constructed inlet tunnel up to the point of power house. At koyna, the assessee carried out a highly specialised underwater blast for the first time in Asia. The assessee spent enormous sum for locating and receiving this technology for Indian project. The water tapped from the lake passes through two intake tunnels 188 and 242 metres long. At the end of this, 4 numbers vertical shafts are located to house stop log gates, trash rack gates and service gates. After passing through these gates the water enters the Head Race Tunnels of 9.5 metres diameter and 4230 metres length. At the end of this tunnel, there is vertical surge shaft 21 metres diameter and 130 metres deep, from where the water is carried into 4 numbers take-off tunnels for a distance of further 60 metres. The complete design, layout and methodology required for carrying out underwater lake tapping was provided to the Government of Maharashtra by the assessee. Like Srisailam, this project also channelises 16 thousand million cubic feet of water for the purpose of irrigation and aims at irrigating 1,10,000 acres of nearby land (as per Krishna Water Disputes Tribunal Report) (refer p. 201 of the paper book)".

18. He has contended that "developer" means a person who makes the thing happen, it is the assessee, who, by mobilising and synthesising people, plan technical expertise, supervision, co-ordination and control, developed and created the infrastructure facility. He has contended that therefore, the assessee is the developer and not the Government of Maharashtra or the APSEB (Andhra Pradesh State Electricity Board) as stated by the authorities below. To justify his contention, he has given the example of an artist as under:

"We take the example of an artist who has entered into an agreement with Mr. X for painting a beautiful picture for him in return of a consideration. Since the painting would involve working on minute details, which would be a time consuming job, the agreement provided for payment of the consideration in several instalments over a period of time. Now, the question arises as to who should be considered as the creator of the painting—is it Mr. X who invested his funds in the painting and entrusted the work to the artist or is it the artist who actually accomplished the task, used his specialised skills and talent for creating the picture?" He stated that the obvious answer is that the artist is the creator of the painting/picture. Simply because Mr. X's funds were involved in the picture and the artist was paid from time to time, Mr. X cannot be considered to have created the picture."

19. He has contended that the assessee has undertaken development of infrastructure facility, and the term 'develop' should be understood reasonably as bringing about or producing a new facility by developing the natural resource (land) to harness the potential of another natural re- source being water. He has contended that the reference is to the development of a facility, which was hitherto not available to the commu-nity for use. He has contended that thus, the assessee has offered, to the community, a new facility for its use. He has contended that the assessee has utilised its technical expertise and know-how, and has undertaken detailed engineering; it has drawn up multiple drawings; it has also undertaken to bear risks; it has mobilised technical and other staff, appropriate materials and equipment to accomplish the development work. He has contended that it is only because of its expertise, specialisation, financial commitment and involvement that projects having such immense national importance were awarded to the assessee.

20. He has contended that the authorities below have denied the deduction to the assessee on the ground that there was no financial involvement of the assessee. He has contended that the above allegation is incorrect and that there was huge financial involvement on account of mobilisation of equipment, issuing of bank guarantee for building infrastructure facility in and around the project and in working capital; and the details of resources mobilisation by the assessee in both the projects are given at para 3.2.18 of his written submission, which are reprouced below:

"Srisailam Project: In order to complete the work within the stipulated period, the assessee had to engage (including those of sub-contractors) employee strength of more than 800 skilled workers; more than 1000 unskilled and semi-skilled workers, besides 40 engineers/consultants and 30 sub-contractors supervising and controlling the work force which belonged to them.

The assessee had to put in operation 19 excavators, 20 trucks, 80 tippers, 10 dumpers, 100 drilling machines, 5 stone crushers, 3 concrete batching plants, 35 concrete transit mixers, 11 concrete pumps, 6 shot creating machines, 3 booms jumbos, 6 crawler drills, 6 wheel loaders, 1 dozer, 2 cranes, 12 grouting machines, 46 compressors, 126 dewater pumps, etc. at a peak hour. The assessee has utilised state of art most modern three boom jumbos, hydraulic crawler drills; alina shot creating machines in the excution of the project. For the first time in India, the assessee executed steel fibre reinforced shot create work in the tunnels. The approximate market value of the machines deployed by the assessee was Rs. 30 crores. These included machines of about Rs. 22 crores purchased specifically for the site and deployed at site after onset of project.

Koyna Project: Various equipments deployed by the assessee for this project were 6 excavators, 30 dumpers, 2 EOT cranes, 3 mobile cranes, 2 crushing plants, 2 batching plants, 5 concrete pumps, 5 electric winches, 15 dewatering pumps, 10 grout pumps, 2 dozers, 20 blowers, 10 compressors, 10 transit mixers, 4 trucks, survey instruments and quality control lab apparatus, etc. The approximate market value of the machines deployed at the site was Rs. 10 crores. These included machines of about Rs. 4 crores purchased specifically for the site and deployed at the site after onset of the project. There were 25 engineers, 50 supervisory staff, 250 skilled workers and about 750 unskilled workers and other labour force."

21. The learned Authorised Representative of assessee has futher contended that developing an infrastructure facility involves undertaking huge risks as detailed in para No. 3.2.17 on pp. 9 and 10 of his written submission, which are reproduced hereunder:

"The risks involved in the projects can be discussed as under:

(i )The assessee was required to maintain its work under the contract for a period 12 months after completion thereof in case of both the projects. As such, the assessee was faced with the risk of incurring heavy expenses during this period in case any problem arose. It is noteworthy that fault correction in case of an underground tunnel is extremly difficult and expensive proposition. As such, the development rise was essentially with the assessee. Copy of representative letter showing handing over duly completed project to the authority of the Srisailam project has been enclosed herewith. (Refer page No. 11 of the paper book).

(ii)There was inherent risk of delayed payment, arbitration and litigation.

(iii)The development work has to be completed as per the agreement within time in spite of the geological risk. The developers enter into agreement for development of facilities irrespective of geological conditions specified in the contract document. Many a times, actual rock conditions in underground works vary from those specified under the contract. In spite of this, developer is required to perform and complete the project at its costs and risks. Some of the geological risks are as follows:

(i )Rock fall due to span and less detection period

(ii)Excessive uncontrollable water inflow via underground aqua fur.

(iii)Poisonous gas emission

(iv)Ground squeezing action

(v)Rock convergence

(vi)Shear failure leading to rock slide

(vii)Chimney formation due to rock falls

(viii)Overburden collapse, etc."

22. He has contended that in view of all the above, the Government was saved of these responsibilities and risks and hence, it is the assessee who has developed the infrastructure facility.

23. He has contented that the Government is not carrying on any business of construction activity, but Government is interested in development of infrastructure project to facilitate growth. He has contended that earlier all this activity of developing infrastructure project/facility was being done by CPWD and PWD, but they failed, so the Government invited private developers to whom the deduction under section 80-IA was allowed. He has contended that a person who sponsors can be a sponsor but not the developer. He has accordingly contended that the assessee is the developer of the two infrastructure facilities namely Srisailam project in Andhra Pradesh, and Koyna project in Maharashtra.

24. As against the above, the learned CIT/Departmental Representative has vehemently contended that the assessee is only a civil contractor and not a developer of the infrastructure facility/project. He has contended that the assessee was paid periodically for the work executed by it, and so the assessee is not a developer but it is Government of Maharashtra in respect of Koyna project and APSEB in respect of Srisailam project.

25. He has specifically referred to pp. 5 to 11, 13 of assessment order and contended that the Assessing Officer has observed that for claiming deduction under section 80-IA by an enterprise, the enterprise should own such infrastructure facility, and that the enterprise should enter into agreement with the Government or local authority for (i) development or (ii) maintaining and operating or (iii) developing, maintaining or operating a new infrastructure facility; should transfer such infrastructure facility to the Government or local authority and that such enterprise should start maintaining infrastructure facility on or after 1st April, 1995. He has contended that the Assessing Officer has drawn his finding that the assessee fulfils none of these conditions. He has contended that to claim deduction under section 80-IA the assessee should have owned the infrastructure facility/project whereas the assessee did not own these two infrastructure facilities/projects and that the Koyna project belongs to Maharashtra Government and Srisailam project belongs to APSEB, a public sector undertaking of the Government of Andhra Pradesh.

26. The learned CIT/Departmental Representative has, while arguing that the assessee is merely a civil contractor and not a developer, has drawn our attention to the specific observation of Assessing Officer on p.13 of assessment order, which is reproduced below :

"The assessee is merely a contractor and it had taken contract from Maharashtra Government for constructing the Koyna Dam, and from APSEB for constructing the Srisailam multipurpose power project. The contracts bagged by the assessee-company, known as Koyna Hydro Electric Project-State IV, was divided into two contracts. These two contracts were for construction of civil works related to the powerhouse. The Srisailam Project was a contract for excavation of tunnels and caverns for transformer and electricity powerhouse. The company executed these two contract works as per the terms and conditions and specifications set out in such contracts with Maharashtra Government and APSEB and was paid for each stage of work executed by it. The assessee-company had no financial stakes or investment in the above projects."

27. He has contended that deduction under section 80-IA(4) was provided to the developer of the infrastructure project, because, the Government did not have the sufficient resources to finance the infrastructure projects. He has contended that accordingly, for encouraging the participation of private sector in the development of infrastructure project, exemption under section 80-IA(4) was provided to the person who develops infrastructure project by mobilising his own resources. He has also specifically referred to the Assessing Officer's following observation on p. 13 of assessment order :

"The purpose of introducing section 80-IA was to attract more and more capital fund and invite private sector participation in development of infrastructure facilities. It was not the intention of the legislation to block Government fund in infrastructure projects and still grant exemption under section 80-IA of the Act. The project of Koyna Dam is owned by the Maharashtra Government and that of Srisailam project by the APSEB, a public sector undertaking of Andhra Pradesh Government."

28. Referring to p.1 of his written submission the learned CIT/Departmental Representative has contended that the allowability of this deduction is subject to the condition that such infrastructure facility shall be transferred to the Central/State Government or local authority/statutory body within the period stipulated in the agreement.

29. He has drawn our attention specifically to his following contention, as given on pp. 1 and 2 of his written submission :

"An analysis of the relevant provisions therefore leads to the following conclusion in order to be eligible to claim deduction, the assessee's gross total income should include profits derived from an industrial undertaking or an enterprise which is carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating an infrastructure facility, which in the instant case is a water-supply project."

30. He has also specifically taken us through his following contention on p. 3 of his written submission:

"On comparing the provisions of section 80-IA(4A) as introduced by Finance Act, 1995 with the provisions of section 80-IA(4A), relevant for the assessment year under consideration, it would be seen that the provisions are similar in scope and content, with a few insignificant charges which have no material bearing on the interpretation of the provision."

31. He has contented that the scope and effect of the amendment, which brought about the introduction of sub-section (4A) has been explained in the Department's Circular No. 717, dated 14th August, 1995 he has specifically drawn our attention to the following para, as contained on p.4 of his written submission :

"34.2 Industrial modernisation requires a massive expansion of, and qualitative improvement in, infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country within a reasonable time frame. In many countries, the BOT (build-operate-transfer) or the BOOT (build-own operate-transfer) concept have been utilised for developing new infrastructure."

32. He has also referred to Notes on Clauses of Finance Bill, 1999 [(1999) 236 ITR (St.) 135] and emphasised the following observation as contained on p.5 of his written submission :

"It further seeks to provide that when an enterprise develops infrastructure facility and subject to the agreement with the Central or State Government, local authority or statutory body, as the case may be, the operation and maintenance of such facility is carried on its behalf by some other undertaking, the provisions of this section shall continue to apply to such other enterprise for the unexpired period of the prescribed time."

33. Referring to his arguments regarding "measures to accelerate economic development" and "liberalisation of tax holiday" provisions for infrastructure in the context of memorandum explaining provisions in the Finance Bill, 2001, from pp. 7 and 8 of his written submission, he has contended that an enterprise claiming such benefit has to transfer such facility to the Government or public authority after the stipulated period. He has referred to the following contention on p.7 of his written submission :

"In other words, the required condition for availing of this benefit is that transfer under BOT (build, own, transfer) or BOOT (build, own, operate and transfer) schemes has to be met."

Investment in infrastructure has to compete with investment in other sectors and must, therefore, be attractive. There is, in particular, a need to encourage investment in the area of surface transport, water supply, water treatment system, irrigation project, sanitation and sewerage system or solid waste management systems.

34. He has drawn our attention to the following contention in para 10 on p.9 of his written submission:

"Board's Circular No. 717 (reproduced supra) thus highlights the fact that rapid industrial modernisation requires growth of infrastructure because of present poor conditions. It emphasises the fact that huge additional resources are required to fulfil the requirements of the country which Government alone may not be able to allocate. The circular then refers to the BOT (build-operate-transfer) or the BOOT (build-own-operate-transfer) concepts, which were prevalent in other countries, for the development of new infrastructure."

35. He has also referred to his following arguments as contained on pp. 9 and 10 of his written submission :

"Circular No. 717, dated 14th August, 1995 and the other circulars, notes and memoranda referred to above indicate and explain the legislative intent behind the concept of granting deduction relating to profits and gains derived from the business of any enterprise which has developed, or maintained and operated any infrastructural facility which is ultimately transferred to the Government/public authority within the stipulated period of time. Therefore, perusal of all the circulars/memorandums/notes and clauses of the various Finance Bills referred to above, it is clear that the concept of BOT/BOOT has been incorporated in the provisions of section 80-IA and the fundamental structure and philosophy of BOOT has remained constant through various amendments that have taken place from time to time. As the circulars specifically refer to the development of infrastructural facility through BOT/BOOT or similar schemes, it would be necessary to examine the scope and underlying philosophy of such schemes."

36. He has explained, with quite elaboration and with specific reference to pp. 1 to 68 of his paper book, as also pp. 10, 11, and 12 of his written submission, the concepts of BOT (build-operate-transfer), BOOT (build-own-operate-transfer) and BOLT (build-own-lease-transfer) contending that these concepts have been adopted from the United Nations Industrial Development Organization (UNIDO) which is primarily concerned with the development of infrastructural facilities in third world countries to boost economic development. He has specifically referred to his following argument contained in para 15 on p. 12 of his written submission :

"The hallmark of the BOT model is that it uses private investment to undertake the infrastructural development that has historically been the preserve for the public sector. In a BOT project a private company is given a concession to build and operate a facility that would normally be built and operated by the Government. The private company is also responsible for financing and designing the project. At the end of the concession period the private company return ownership to the Government. The concession that is granted by the Government to the private company is essentially a recognition of the fact that the private company has financed the project in a major way and, therefore, it should be granted an opportunity to recover its costs and make profits for a limited period of time before transferring the facility to the Government."

37. In his written submission, in para 15 on p. 12, it has further been contended as under :

"The underlying philosophy for a toll fee based structure is to recover investments and returns thereon from the users of the facility in order to minimise the need for public/Government financial support."

38. He has contended that BOOT and BOLT schemes also have more or less similar basic/main features.

39. He has further contended that the fundamental structure and philosophy of BOT/BOOT/BOLT have remained constant through vari- ous amendments and continues to be the same. He has contended that in the present case the assessee has not made any financial commitment or investment in these projects inasmuch as the Government is making periodical payment for the work executed by the assessee, and so there is no financial risk of assessee in the development of these projects with the result that there is no question of any development of infrastructure project by the assessee for the reason that the basic feature of BOT/BOOT schemes being the financial investment by the developer is absent in this case. In support of his contention, he has referred to CBDT Circular No. 717, dated 14th Aug., 1995, notes on clauses of Finance Bill, 1999 and memorandum explaining provisions in the Finance Bill, 1999 as already mentioned above. He has contended that it is in lieu of private funding and risk taken that the private party is granted concession to recover toll. He has also contended that the various expenditure detailed by assessee are in the nature of expenditure and not investment.

40. The learned CIT/Departmental Representative also contended that the assessee was not a developer, also for the reason that in the case of development of infrastructure by a private party, the promoter, that is the private party undertakes the job of drawing the design of project whereas here in the instant case the assessee has undertaken the development work based on the basic guidelines and specifications/drawings by and large, though not all, laid down by the Government/APSEB. In this regard, he has referred to p. 78 of paper book of Revenue being internal p. 8 of the specimen format of agreement to lay emphasis on his contention. He has contended that in the case of private sector development of infrastructure facility, the limited ownership for the time being vests with the private promoter/developer though the ultimate ownership does vest with the Government or statutory body. He has contended that it is in lieu of private funding and risk taken that the private party is granted concession to recover toll by operating the infrastructural facility and in this regard he has also referred to pp. 79 and 80 of paper book of Revenue. He has also contended that the assessee does (sic).

41. In rejoinder, the learned Authorised Representative of assessee has contended that the Finance Act, 1999 effective from 1st April, 2000, i.e., assessment year 2000-01 has incorporated a far reaching amendment in the section by making the business of "developing" and transfer of an infrastructure facility, i.e., BT (build and transfer), in itself, an eligible business for claiming deduction under section 80-IA(4).

42. He has further contended that even in a BOT project, the basic guidelines and specifications are laid down by the Government and in support of his contention he has referred to point No. 7 on p. 82 of CIT/Departmental Representative's paper book. He has contended that if that be the criteria, even the infrastructure facility developed as per the standard BOT agreement submitted by the CIT/Departmental Representative would not amount to development. He, therefore, contended that "development" is not the antithesis of "specification".

43. He has reiterated that the assessee has committed substantial resources—financial and otherwise and borne risks in the development of Koyna and the Srisailam project and that the contentions of the learned CIT/Departmental Representative, in this regard as also that the assessee is not a developer, are not correct.

44. We have considered the rival contentions as also the relevant material on record. From the perusal of record, we find that in the Srisailam project, the assessee-company has constructed an underground tunnel to provide water supply by connecting the river Krishna to the power house. The assessee has also constructed underground specialised structures such as surge chamber, draft tube tunnels, tail race tunnel which takes the water back to the river for use for irrigation, etc. Similarly, for Koyna project, the assessee constructed inlet tunnel for water supply up to the point of power house. The above construction work would, in our considered opinion, amount to development, as a new facility has been developed. In fact, we may note that the Revenue authorities too have not denied the factum of development having taken place; however, the contention of the Revenue has been that the developer is not the assessee but the Government of Maharashtra in respect of Koyna project and APSEB in respect of the Srisailam project, because, the investments have been made by them.

45. In the circumstances, as per the contentions raised before us orally as also in writing by the two rival representatives, the moot question that poses itself for our consideration is as to whether the assessee can be said to be developer when the amount has been paid to the assessee for the development work carried out by the assessee. In order to properly appreciate this question, it would be relevant, and no less beneficial, to refer to the legislative history of section 80-IA. As we have noted earlier, the amendment in section 80-IA was brought about by Finance Act, 1995 w.e.f. 1st April, 1996. By virtue of this amendment, exemption under section 80-IA was provided to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Thus to be eligible for this deduction, an assessee was required to carry out all the three activities, i.e., (i ) to develop, (ii) to maintain, and (iii) to operate. After the modification effected by Finance Act, 1999, w.e.f. 1st April, 2000, deduction under section 80-IA(4) has become available to any enterprise carrying on the business of (i) developing, or ( ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Therefore, from assessment year 2000-01, deduction is available if the assessee carries on the business of any one of the abovementioned three types of activities, and accordingly also when the assessee is carrying on the activity of only developing. When an assessee is only developing an infrastructure facility/project and is not maintaining nor operating it, obviously, such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realise its cost? If the infrastructure facility is, just after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the Maharashtra Government or APSEB has paid for the development of infrastructure facility carried out by the assesee, it cannot be said that the assesee did not develop the infrastructure facility. If the interpretation canvassed by the Revenue authorities is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under section 80-IA(4).

46. We have noticed above that the amendment brought in by the Finance Act, 1999 was with the sole intention/purpose of providing deduction under section 80-IA to the person, who only develops or who only maintains and operates an infrastructure facility. If a person who only develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. When the Legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer, i.e., to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorisation to operate the infrastructure facility and to collect toll therefrom, has no other source of recoupment of his cost of development. Considered as such, we note that the business activity of the nature of "BT" (build and transfer) also falls within eligible construction activity that is activity eligible for deduction under section 80-IA inasmuch as mere "development" as such and unassociated/unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under section 80-IA. In the case of such a construction activity, which does not involve the 'operate' aspect, the question of an assessee engaged in such activity (of 'BT' carrying on only 'development') to recover his costs of construction of his own from the infrastructure project/facility itself does not arise, and so for the recoupment of the costs, the same have to be paid whether through running bills or otherwise; and considering the largeness/hugeness of the total financial investment involved, some advance if paid at some point of time, will not, in our view, change the basic nature/feature of the assessee's business activity. Therefore, merely because the present assessee was paid by the Government, for development work, it cannot be denied deduction under section 80-IA(4) of the Act. The illustration of the artist, given by the assessee's counsel during the course of his arguments, is aptly illustrative and befitting. If an artist is asked to paint a beautiful picture and for such painting, payment is made by another person, the creator of the painting will be the artist and not the person who paid for it. We have also noted that the national water policy document furnished by the assessee, on p. 225 of its paper book-1, indicates the purpose of private sector participation. It states that private sector participation may help in introducing innovative ideas, generating financial resources and introducing corporate management and improving service efficiency and accounta-bility to users. It is revealed from record and has also not been disputed by the Revenue that both the projects executed by the assessee were highly technical and specialised, as also extremely tricky and did involve huge risks as well. It is also revealed from record that for executing such projects, the assessee has deployed people, plant and machinery, technical expertise, know-how and the financial resources as has also been the specific contention of the learned Authorised Representative of assessee as noted by us above.

47. There has also been the contention of the Revenue that the assessee is a contractor, executing civil contract and so it cannot be the developer as such. However, we are unable to agree with this contention of the Revenue. A person, who enters into a contract with another person will be a contractor no doubt; and the assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but that does not derogate the assessee from being a developer as well. The term "contractor" is not essentially contradictory to the term "developer". On the other hand, rather section 80-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. The assessee, presently under consideration before us, has developed infrastructure facility as per agreement with Maharashtra State Government/APSEB. Therefore, merely because, in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will it debar the assessee from claiming deduction under section 80-IA(4). Discussed/considered as above, we hold that the assessee having carried out the work of constructing the abovementioned two projects, namely Srisailam Project and Koyana Project, as detailed above, is appropriately a developer of the said two infrastructure facilities, and in turn is entitled, and entitled justifiably, to claim deduction under section 80-IA(4).

48. Now we proceed to consider the second issue, which is whether the infrastructure facility or the enterprise developing the infrastructure facility, is to be owned by the company registered in India? The learned CIT/Departmental Representative contended that the infrastructure facility should be owned by the company registered in India. Ground No. 1 of the Revenue's cross-objection is also to this effect. He contended that in this case, both the infrastructure facilities were not owned by the assessee-company, but by the Government of Maharashtra/APSEB; therefore, the assessee is not entitled to deduction under section 80-IA(4). The learned counsel for assessee, on the other hand, contended that the requirement is that the enterprise developing the infrastructure facility should be owned by an Indian company.

49. We have considered the rival contentions as also the relevant material on record. However, we find substance in the contentions of the learned Authorised Representative of assessee. In our considered opinion, it should hardly take any time for one to understand that the word 'it' in sub-clauses (a), (b ) and (c) of clause (i) of sub-section (4) of section 80-IA has been used to denote 'enterprise'. A plain reading of the said clause (i) makes it clear, without any ambiguity, that it is 'any enterprise' that should fulfil the condition of carrying on the particular type of business narrated/specified in the main part of clause (i); and so also it is 'any enterprise' that has to fulfil the other conditions specified further in sub-clauses (a), (b ) and (c) of clause (i) of sub-section (4) of section 80-IA. The word 'it' in the said sub-clauses (a), (b) and (c ) qualifies the word 'enterprise' used in the main part of clause (i) of sub-section (4).

50. Besides, if we were to compare sub-section (4A) of section 80-IA, which stands replaced by sub-section (4) of section 80-IA by the Finance Act, 1999, we find that in clauses (i), (ii) and (iii ) of the earlier sub-section (4A), the word "enterprise" was used, but in the replaced (new) sub-section (4) in the corresponding sub-clauses (a), (b) and (c ) the word "enterprise" has been replaced by the word "it". Obvious as it is, reading in the above context, it is amply clear that in sub-section (4), as amended by the Finance Act, 1999, the word "it" needs appropriately be interpreted to mean "enterprise". Moreover, if the interpretation canvassed by the Assessing Officer, that the word "it" represents the 'infrastructure facility', is accepted, it will lead to an absurd result, because, sub-clause (b) of clause (i) of sub-section (4) provides that : "it has entered into and agreement with Central Government......." and thus 'it' as used in sub-clause (b) has to be someone who/which has entered into an agreement with the Government, etc. Obviously, the infrastructure facility cannot be such an entrant as it cannot enter into an agreement with the Central Government or with anybody else. Understandably, it is only the 'enterprise', which can enter into an agreement with the Central Government or State Government or any other person. As such, viewed as above also, the word "it" denotes "the enterprise" and not "the infrastructure facility".

51. Accordingly, the conclusion drawn by learned CIT(A) on this count, that is on the count as to what is required to be owned in sub-clause (a) of clause (i) of sub-section (4) of section 80-IA, whether 'infrastructure facility' or 'the enterprise' is found to have rightly been drawn and quite justified, and the same need not be interfered with.

52. As seen above, we have held that 'the enterprise' should be owned by a company registered in India. In the instant case, the assessee is a company registered in India, which owns the enterprise and which developed the infrastructure facility. We, therefore, hold that the second condition for eligibility of deduction under section 80-IA(4) is also fulfilled by the assessee and ground No. 1 of the Revenue's cross-objection having no merit fails.

53. We now proceed to consider the next condition of having entered into an agreement with Central Government or State Government or a local authority or any other statutory body for developing an infrastructure facility, as contained in sub-clause (b) of clause (i) of sub-section (4) of section 80-IA. It is not in dispute, that the assessee has entered into an agreement with Government of Maharashtra for developing Koyna project and with APSEB for developing Srisailam project. APSEB is a statutory body. Thus, in respect of both the projects, the assessee is found to have fulfilled the condition contained in sub-clause (b) of clause (i) of sub-section (4) as well.

54. There is yet another condition required to be fulfilled for claiming deduction under section 80-IA which is such infrastructure facility should be transferred to Central Government or State Government or the local authority or any other statutory body within the stipulated time. It was vehemently contended by the learned CIT/Departmental Representative, that in this case there was no question of transfer of the infrastructure facility, because, whatever construction or development work was being done by the assessee always belonged to Maharashtra Government/APSEB, as the payment for the construction work was being given to the assessee periodically. To strengthen its plea, the Revenue has filed its cross-objection and has contended this aspect, in a way, in its ground No. 2 raised therein.

55. The learned CIT/Departmental Representative has explained the word 'transfer' with reference to dictionary meaning and case laws as under :

As per Black's Law Dictionary "transfer" is defined :

"1.An act of the parties, or of the law, by which the title to property is conveyed from one person to another (section 44, Transfer of Property Act);

2.To convey title or interest in property to another [section 19(2)(g) Indian Partnership Act];

3.To transfer from one place to another

Transfer : To convey; to make over from one to another, to remove Document whereby one person transfers property, securities, or rights to another.

A transfer is an act or transaction, by which property of one person is, by him, vested in another.

The term 'transfer' means to convey or pass the right of one person over to another, unless the general meaning is restricted or limited by something accompanying it as, for example, that the transfer was for a limited time or for a particular purpose.

'Transfer' with its grammatical variations and cognate expressions, means to make alienation 'inter vivos'. [UP Act 1 of 1869 (Estates), section 2 clause (1)].

The word 'transfer' would mean transfer of possession, which is lawful and valid - Navrangpura Gam Dharmada Milk Trust v. Ramtuji Ramaji AIR 1994 Guj. 75, 90." [Bombay Tenancy and Agricultural Lands Act, (67 of 1948), section 88(1)(b)].

56. The learned CIT/Departmental Representative has therefore, submitted that from the above meaning of the word "transfer", it is clear that the concept of transfer involves relinquishment or alienation of rights and presupposes divestment associated with ownership or part ownership and may be for limited time or for a particular purpose. He has contended that in the instant case the infrastructure facility was never transferred by assessee to the Maharashtra Government/APSEB. He has contended that in the instant case what the assessee has done is merely handing over of the infrastructure facility to the Maharashtra Government/APSEB and it is not a transfer of right. He has contended that in BOOT and BOT, the private parties have limited ownership which they transfer to Government/statutory authority after the concession period. In this regard, he has referred to para 19 on p. 14 of his written submission as also pp. 27 to 31 of paper book of Revenue. Referring to the interpretation of the term right or interest on p. 30 of paper book of Revenue, he has contended that the present assessee had no such right or interest in the infrastructure facility as it has simply done job work or civil work in respect of which the assessee had been getting payment from time to time. He has contended that in Koyna project some work had already been done by the Maharashtra Government and thereafter only the assessee took that project.

57. As against the above, the learned counsel for assessee has contended that as pointed out by the learned CIT, Departmental Representative himself, one of the connotations of "transfer" is transfer of possession, which is lawful and valid. The learned Authorised Representative of assessee drew our attention to specimen BOT agreement submitted by learned CIT, Departmental Representative in his paper book and contended that as per said 'BOT' agreement, the possession of land which is owned by the Government is initially handed over to the developer, who built the infrastructure facility thereon, operated and maintained it and thereafter transferred the same to the Government by handing over the possession. He then took us through the extracts of the agreements entered into by the assessee with the Maharashtra Government for the Koyna project and the APSEB for the Srisailam project which had similar terms and conditions on possession. He has accordingly contended that the assessee built/developed the infrastructure facility on the land provided by Government/APSEB and thereafter transferred such infrastructure facility to the Government/APSEB in terms of the agreement.

58. The learned Authorised Representative of assessee reiterated that for development of infrastructure facility, possession of land was transferred to the assessee by the State of Maharashtra/APSEB and after the development of the infrastructure facility, the same was transferred to State of Maharashtra/APSEB. In support of this contention, the assessee's counsel referred to the certificate from the Executive Engineer, Koyna Construction Division, Koyna Nagar, and the certificate from the Executive Engineer, SLBHES, Division 2 Srisailam Dam.

59. We have considered the rival contentions, as also the relevant material on record referred to by the parties. We may note that as per section 80-IA(4)(i)(b ), the infrastructure facility developed by the enterprise should be transferred to Government within the period stipulated in the agreement. It had been the contention of the learned CIT/Departmental Representative that since the land on which infrastructure facility has been developed always belonged to the Government and assessee has already been paid for construction work, there is no question of "transfer" of infrastructure facility by the assessee. However, we are unable to agree with this contention of the learned CIT/Departmental Representative. At the time of hearing before us it was pointed out by the learned counsel for assessee that land was handed over to the assessee for carrying out development work. In this reference, he referred to clause 12 of agreement with APSEB (i.e., p. 8 of assessee's paper book 2), and clause 42 of agreement with Government of Maharashtra (i.e., p. 32 of the assessee's paper book 2). He also stated that after completion of development of infrastructure facility, the same was transferred by handing over possession thereof. In support of this, he referred to p. 11 of assessee's paper book 1 for handing over of possession of infrastructure facility. We find that section 80-IA(4)(i)( b) requires development of infrastructure facility and transfer thereof as per agreement and it cannot be disputed in view of the material on record that the assessee has transferred the infrastructure facility developed by it, by handing over possession thereof to the Government of Maharashtra/APSEB, as required by the agreement. The very handing over of the possession of the developed infrastructure facility/project is the transfer of infrastructure facility/project by assessee to the Government/authority. The handing over of infrastructure facility/project by developer to Government/local authority/statutory body takes place after recoupment of developer's costs whether it is 'BT' or 'BOT' or 'BOOT' and in BOT and BOOT this recoupment is by way of collection of toll therefrom whereas in 'BT' it is by way of periodical payment by the Government/local authority/statutory body. Since in 'BT' (the case of an assessee being a mere developer) the developer not being required/authorised to 'operate' has no option of recoupment of its costs by collection of tolls from infrastructure. The land involved in infrastructure facility/project always belongs to the Government/local authority/statutory body, whether it be the case of BOT or BOOT or BT, and it is handed over by the Government/local authority/statutory body to the developer for development of infrastructure facility/project. The same has been the position in the instant case as well. Undisputedly/undisputably, the deduction under section 80-IA is also available to an assessee, who undertakes merely "development" of infrastructure facility without "operating" aspect of the same. Accordingly, in a case of 'BT', that is, a case of a mere 'developer' the recoupment of his costs has to be by Government/local authority/statutory body whether it be by periodical payment or by lump sum payment, and whether the payment is made while development work is in progress or when the same has been completed. In that view of the matter, the question of comparing the rights, title, or interest of an assessee (a developer) in infrastructure in the case of 'BT' with those of a developer in the case of 'BOT' or 'BOOT' is, in our considered opinion, of no relevant bearing on the issue, inasmuch as a developer seems to have almost same rights, title or interest (except regarding mode of payment or collection of tolls) in infrastructure facility whether it be the case of 'BT' or that of 'BOT' or 'BOOT', in view of the discussions made by us above. Accordingly, in the instant case as the activity of these two projects of infrastructure facility undertaken by the present assessee was of the kind of "BT" (build and transfer) being merely of 'development' and did not involve 'operate' aspect in respect of the same, the infrastructure facility developed by assessee had to be transferred and handed over to the Government of Maharashtra/APSEB on its completion only and without operating it, that is without resorting to the collection of toll therefrom for recoupment of its costs. Accordingly, in our opinion, the assessee has duly complied with this condition as well. We, therefore, hold that ground No. 2 of Revenue's cross objection has no merit and the same accordingly fails.

60. The learned CIT/Departmental Representative has contended that the enterprise has not started operating and maintaining the infrastructure facility on or after 1st April, 1995 and therefore the assessee is not entitled to deduction under section 80-IA(4). He has also contended that the learned Authorised Representative of assessee's argument has been that after amendment of 1999 there is absurdity among various sub-clauses of clause (i) of sub-section (4), so sub-clause (c) of clause (i) of sub-section (4) should be ignored for the reason that it has no application to assessee's case, but this contention of learned Authorised Representative of assessee does not deserve to be accepted inasmuch as the language of the statutory provision is clear and has no ambiguity therein. He has contended that the intention of Legislature is clear and that throughout all the amendments the fundamental concept of private funding, risk bearing, concession, period and transfer has all along been constant. As against this, the learned Authorised Representative of assessee has contended that this condition is not applicable in the case of an enterprise, which is only a developer; this condition would be applicable only to an enterprise, which is operating and maintaining, or developing, operating and maintaining the infrastructure facility. He has also contended that the requirement is that the facility should have become operational and complete after the cut-off date of 1st April, 1995. He has contended that any other interpretation would lead to absurdity and an interpretation, which leads to absurdity, should be avoided. In support of this contention, he relied upon the decision of Hon'ble Apex Court in the case of K.P. Verghese v. ITO [1981] 131 ITR 597 ¹.

61. We have considered the rival contentions. We find that Finance Act, 1995 inserted clause (4A) for providing deduction to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Sub-clause (iii) of sub-section (4A) provides the condition that the infrastructure facility is operated on or after the 1st April, 1995. In respect of facility whose operation and maintenance has already started before 1st April, 1995, an assessee was not eligible for deduction under section 80-IA. The Finance Act, 1999 has enlarged the scope of section 80-IA and with effect from assessment year 2000-01 any enterprise, which is carrying on the business of only developing the infrastructure facility, is also entitled to deduction under section 80-IA(4). Similarly, if any enterprise is carrying on the business of only maintaining and operating the infrastructure facility is also entitled to deduction under section 80-IA(4) and any enterprise which is developing as well as maintaining and operating, the infrastructure facility is also entitled to deduction under section 80-IA(4).

62. It is noteworthy that the condition at clause (c) which reads "It has started or starts operating and maintaining the infrastructure facility on or after 1st day of April, 1995" is obviously applicable to an enterprise which is 'maintaining and operating', the infrastructure facility, it cannot apply to the case of an enterprise, which has undertaken merely 'development' of infrastructure facility, and not its 'maintenance and operation' and so the question of 'operating and maintaining' of infrastructure facility by such enterprise before or after any cut-off date cannot arise. However, if the contention of the learned CIT, Departmental Representative is accepted, it would obviously/understandably lead to manifestly absurd results. When the Act provides deduction for a person who is only 'developing' the infrastructure facility, unaccompanied by 'operating' thereof by such person, there can be no question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 1st April, 1995. In that view of the matter, we find substance in the contentions of learned Authorised Representative of assessee and inescapably we have but to hold that the condition at clause (c) is applicable to an enterprise, which is carrying on the business of maintaining and operating or developing, maintaining and operating an infrastructure facility. As such, viewed as above, we hold that since the assessee is only a developer of the infrastructure project and it is not maintaining and operating the infrastructure facility, clause (c) of sub-section (4) is not applicable to the present assessee.

63. We may also consider the issue as to whether the facility developed by the assessee should fall within the purview of infrastructure facility as defined in the Explanation to section 80-IA(4). In the definition, amongst others, water supply project and irrigation project are "infrastructure facility". The learned CIT/Departmental Representative contended that the assessee has not developed any infrastructure facility as defined in the Explanation to section 80-IA(4). It was explained by the learned counsel that both the projects, i.e., Koyna and Srisailam projects are multi-purpose projects wherein water supply, irrigation and generation of hydro power was involved. He drew our attention to pp. 8 and 9 of the paper book 1 wherein the Maharashtra Government (chief engineer) and the APSEB (executive engineer) have certified to that effect.

64. We have considered the rival contentions as also the relevant material on record. From the perusal of record, we find that the Assessing Officer has accepted the view as put forward by the learned Authorised Representative of assessee and has observed at p. 1 of the assessment order that Koyna Dam was constructed with the purpose of providing irrigation and water supply to Konkan Region and also to generate hydro electricity. Similarly, for Srisailam project, at p. 2 of the assessment order, the Assessing Officer has observed that Srisailam project is a multi-purpose project, wherein water supply, irrigation and generation of hydro power are involved. (The said view is also supported by the two certificates pp. 8 and 9 of paper book-1 of assessee) of the engineers of the two respective projects. We find that the chief engineer, Koyna project has certified the purpose of the project as under :

"This is to certify that the water from Shivaji Sagar Lake of Koyna hydro electric project is utilised for water supply, irrigation and power generation as per the administratively approved project report by irrigation department, Government of Maharashtra, which is as per Krishna Water Disputes Tribunal.

This certificate is issued for official use only".

65. Similarly, the purpose of Srisailam project has been certified by the executive engineer, SLBHES, Srisailam Dam as under :

"This is to certify that Srisailam project is a multi-purpose project where water supply, irrigation and hydro power generation are involved. The water from Srisailam project is channelised through the tunnels and channels and used for the abovementioned purposes".

66. Obvious as it is, from the above we find that the facility developed by the assessee does fall within the category of water supply project and also irrigation project. We accordingly hold that both the projects, Koyna and Srisailam are in the nature of "infrastructure facility" as defined in the Explanation to section 80-IA(4).

67. There has also been the contention of the learned CIT/Departmental Representative that the assessee has developed only a part of the project and not the whole of it, it is not eligible for deduction under section 80-IA(4) inasmuch as the infrastructure facility as explained in clause (c) of Explanation below sub-section (4)(i) means developing the whole of it and not a part of it, and that the assessee's work is related to power house and it has nothing to do with water supply and so the assessee's work/activity does not fall in any of the items enlisted in clauses (a), (b) and (c ) of Explanation to section 80-IA(4)(i). As against this, the learned Authorised Representative of assessee has contended that both the facilities developed by the assessee were "infrastructure facility", in itself, for water supply and irrigation. He explained that in the Srisailam project, the assessee-company has constructed an underground tunnel to provide water supply by connecting the river Krishna to the power house. The assessee has also constructed underground specialised structures such as surge chamber, draft tube tunnels, tail race tunnel which takes the water back to the river for use for irrigation, etc. Similarly, for Koyna project, the assessee constructed inlet tunnel for water supply up to the point of power house. In this connection he has also referred to the drawings of both the projects, copies of which have been produced before us on record. He has also contended that the section nowhere contemplates that the assessee is eligible for deduction only if it develops the entire project. By way of illustration, he explained that if a road construction project is undertaken between Mumbai to Delhi, the entire development of the road would never be handed over by the Government to one developer. Such work would always be allotted for various stretches of road to different developers. He therefore contended that each stretch of development of the road project amounts to a development of 'infrastructure facility'.

68. We have considered the rival contentions as also the relevant material on record. We may note that the statutory provision as contained in section 80-IA provides for "development of infrastructure facility". It nowhere provides that entire infrastructure project is to be developed by one enterprise. It is revealed from record that both the projects were multi-purpose projects for water supply, irrigation and power generation. The assessee has developed such part of the project, as was for supply of water from river/lake to turbine. Therefore, the assessee has developed "infrastructure facility" for supply of water and for irrigation. Merely because development work done by assessee is a point to point milestone of a multi-purpose project, it would not debar the assessee from claiming deduction under section 80-IA(4), so long as the nature of development made by assessee falls within the ambit of "infrastructure facility" and since we have found it established above that development work carried out by assessee was for development of infrastructure facility, the assessee cannot justifiably be denied of the deduction under section 80-IA, merely because the assessee has not developed the entire project. We hold accordingly.

69. There has, however, also been an alternative argument canvassed by the learned CIT/Departmental Representative that the provisions of section 80-IA(1) state that where the gross total income of an assessee includes any profits and gains 'derived from' any business of an enterprise engaged in the development of an infrastructure facility, the assessee shall be entitled to deduction on the profits and gains 'derived from' such business. He has raised this contention on the footing that the facts of the assessee's case reveal that the assessee is not a developer but is a mere contractor and is deriving income from civil contract work, and that the assessee is not deriving any profits and gains from the development of an infrastructure facility. His contention, accordingly, has been that the claim of the assessee falls/fails at the very threshold level and so no deduction is available to the assessee under the provisions of section 80-IA. As against this, the learned Authorised Representative of assessee, reiterating his arguments on the point of assessee being a developer as already made by him and discussed by us above, has contended that the assessee is a developer and the assessee's income from the construction activity of these two projects is assessee's income derived from the eligible business.

70. We have considered the rival contentions. We have, however, already dealt with this contention of the learned CIT/Departmental Representative above and have held that the assessee is a developer of an infrastructure facility and so the assessee's income from its business of construction activity of the two projects is the income derived from eligible business, that is the business eligible for deduction under section 80-IA. Accordingly, the assessee is entitled for deduction under section 80-IA. The contention of the learned CIT/Departmental Representative on this count, therefore fails.

71. In view of our above discussion, we hold the assessee to have fulfilled all the requisite conditions prescribed under sub-section (4) of section 80-IA for being eligible for deduction under section 80-IA. We, therefore, delete this disallowance of assessee's claim for deduction of Rs. 18,47,09,510 under section 80-IA and direct the Assessing Officer to allow the same. As such ground No. 1 in assessee's appeal stands allowed and the Revenue's cross-objection stands rejected. We order accordingly.

72. Ground No. 2 in the assessee's appeal reads as under :

"2.00 RE. Warranty expenses

The learned CIT(A), having held that the project maintenance expenses had been incurred during the relevant assessment year erred in directing the learned Assessing Officer to allow the project maintenance expenses actually incurred by the assessee in the immediately succeeding year".

73. We have heard both the parties and perused the material placed before us.

74. During the year under consideration, the assessee has completed two projects and has offered the income on project completion basis. The assessee has also made provision for the project maintenance expenses, which it is required to incur as per the terms of agreement. The provision is made on estimated basis based on past experience. The Assessing Officer has disallowed the claim of the provision on the ground that is only a contingent liability. The CIT(A) has directed the Assessing Officer to allow project maintenance expenses actually incurred by the assessee in the immediately succeeding year. The limited request before us by the learned counsel for the assessee was to clarify, that deduction for the expenses is to be allowed in the year under consideration, though the computation of deduction may be made on the basis of expenses actually incurred by the assessee in the succeeding year.

75. We find that the Tribunal, Mumbai Bench has considered the identical issue in assessee's own case for assessment year 1986-87 vide ITA No. 1253/Bom./1990. The Tribunal has held as under :

"We have heard the parties and considered their rival submissions. When the entire receipt is offered to tax, the liability in executing the work has to be allowed in view of the decision of the Supreme Court in the case of Calcutta Company Ltd. v. Commissioner Of Income Tax, West Bengal [1959] 37 ITR 1 (SC). It is actually discharged at Rs. 19,55,985 and therefore that alone is to be allowed as a deduction and the balance has to be disallowed as excessive or over-estimate".

76. Since the facts of the year under consideration are identical with those of earlier year (assessment year 1986-87) the issue involved herein is squarely covered by the aforesaid decision of the Tribunal, Mumbai in assessee's own case for assessment year 1986-87, which we respectfully follow and accordingly direct the Assessing Officer to allow the deduction for project maintenance expenses in the year under consideration, i.e., in assessment year 2000-01, but limited to the extent of expenditure actually incurred by the assessee in the subsequent year; the excess estimate made by assessee over and above the expenditure actually incurred by assessee in the subsequent year shall remain disallowed being over-estimate.

77. Ground No. 3 of the assessee's appeal is against the charging of interest under section 234B of the Act and reads as under :

"3.00 In the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding interest levied under section 234B of the Act".

78. At the time of hearing before us both the parties fairly agreed that this ground is consequential. Accordingly, we direct the Assessing Officer to allow consequential relief, if any, by recomputing the interest under section 234B in accordance with the income that may be redetermined on giving effect to our appellate order. We order accordingly.

79. In the result assessee's appeal is partly allowed as indicated above, while the Department's cross-objection is dismissed.

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