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  • sub-clause (c) of clause (i) of sub-section (4) of section 80-IA
  • provisions of sub-clause (c) of clause (i) of section 80-IA(4)
  • sub-clause (c) of sub-section (4) of section 80-IA
  • sub-clause (c) of clause (i) of section 80-IA(4) .4.
  • provisions of sub-section (4) of section 80-IA,
  • sub-clause (c) of clause (i) of section 80-IA(4)
  • clause (i) of sub-section (4) of section 80-IA.
  • Finance Act, 1999 and the Finance Act, 2001,
  • FINANCE ACT 2001
  • sub-section 4(i) of section 80-IA
  • provisions of section 80-IA(4) (i)
  • provisions of section 80-IA(i)
  • clause (i) of section 80-IA(4)
  • clause (c) of sub-section (4)
  • section 80-IA(4) ."11.
  • section 80-IA(4) (i)
  • FINANCE ACT 1995
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  • section 80-IA(4)
  • section 80-IA
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  • sub-clause (c) of clause (i) of sub-section (4) of section 80-IA
  • provisions of sub-clause (c) of clause (i) of section 80-IA(4)
  • sub-clause (c) of sub-section (4) of section 80-IA
  • sub-clause (c) of clause (i) of section 80-IA(4) .4.
  • provisions of sub-section (4) of section 80-IA,
  • sub-clause (c) of clause (i) of section 80-IA(4)
  • clause (i) of sub-section (4) of section 80-IA.
  • Finance Act, 1999 and the Finance Act, 2001,
  • FINANCE ACT 2001
  • sub-section 4(i) of section 80-IA
  • provisions of section 80-IA(4) (i)
  • provisions of section 80-IA(i)
  • clause (i) of section 80-IA(4)
  • clause (c) of sub-section (4)
  • section 80-IA(4) ."11.
  • section 80-IA(4) (i)
  • FINANCE ACT 1995
  • FINANCE ACT 1999
  • section 80-IA(4)
  • section 80-IA
Smart Summary

Structured Summary of the Tribunal Order (D. Karunakara Rao, Accountant Member)

Factual and Procedural Background

This is an appeal by the revenue against the order of the Commissioner of Income Tax (Appeals)-I dated 22-7-2005. The revenue raised two grounds of appeal:

  1. Ground 1 challenged the CIT(A)'s allowance of a deduction of Rs. 14,020 under section 43B as belated payments made towards the employer's contribution to provident fund. The payments were made beyond the statutory grace period but before the "due date" for filing the return of income. The assessee relied on the Supreme Court decision in CIT v. Vinay Cements Ltd.; the Departmental Representative (DR) relied on the jurisdictional Bombay High Court decision in Commissioner of Income-Tax v. Pamwi Tissues Ltd.
  2. Ground 2 challenged the CIT(A)'s allowance of deduction under section 80-IA of Rs. 22,88,860. The Assessing Officer had disallowed the deduction on the basis that the assessee was merely a contractor/developer who did not operate and maintain the infrastructure facility (roads), and therefore did not satisfy conditions in sub-clause (c) of clause (i) of section 80-IA(4). The CIT(A) had held the assessee entitled to deduction, relying on subsequent statutory amendments and Tribunal precedent (Patel Engineering Co. Ltd.).

Legal Issues Presented

  1. Whether payments of employer's contribution to provident fund made beyond the grace period but before the due date for filing the return are deductible under section 43B.
  2. Whether an enterprise (or contractor) that only develops an infrastructure facility (for example, roads) but does not operate and maintain it is entitled to deduction under section 80-IA(4)(i) (post the statutory amendments).
  3. Interpretation of sub-clause (c) of clause (i) of section 80-IA(4): whether the requirement that "it has started or starts operating and maintaining the infrastructure facility on or after 1-4-1995" applies to an enterprise that only develops the facility.

Arguments of the Parties

Appellant (Revenue) — Principal Contentions

  • Ground 1: Relied on the jurisdictional High Court decision in Commissioner Of Income-Tax v. Pamwi Tissues Ltd. (Bombay) for the proposition that contributions paid beyond due dates are not allowable under section 43B, and urged adherence to that authority.
  • Ground 2: Argued that clause (i) of section 80-IA(4) sets out conditions at sub-clauses (a), (b) and (c) which must be fulfilled for deduction; contended that sub-clause (c) is applicable and the assessee, being only a contractor/developer and not operating and maintaining, has not satisfied those conditions. The DR also pointed out that the Tribunal decision in Patel Engineering Ltd. relied upon by the assessee pertains to the pre-amended period (2000-01) and so the post-amendment provisions should be applied.

Respondent (Assessee / Authorised Representative) — Principal Contentions

  • Ground 1: Relied on the Apex Court judgment in CIT v. Vinay Cements Ltd. to support allowance of belated PF contribution under section 43B where payment was made before the due date for filing return.
  • Ground 2: Submitted that subsequent amendments (Finance Act, 1999 and Finance Act, 2001) made deduction available to an enterprise carrying on the business of "developing" an infrastructural facility; argued that mere development (including build-and-transfer projects) entitles the assessee to deduction under section 80-IA(4)(i). Relied on the Tribunal decision in Patel Engineering Ltd. and on the amended statutory language brought by Finance Act, 2001 (post-amendment provisions).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Vinay Cements Ltd. (Apex Court) Authority relied upon by the assessee to contend belated PF payments made before filing due date are allowable under section 43B. The Tribunal noted the existence of the Apex Court judgment but accepted the territorial High Court's view (Pamwi) that the Supreme Court had merely dismissed the Special Leave Petition in Vinay Cements Ltd. and that dismissal could not be treated as law declared by the Supreme Court. Consequently the Tribunal did not follow Vinay Cements for ground 1.
Commissioner Of Income-Tax v. Pamwi Tissues Ltd. [Bombay High Court] Held that payments of contributions made beyond the due dates are not allowable under section 43B. The Tribunal followed the jurisdictional High Court's decision and allowed ground 1 of the appeal (i.e., ruled against allowing the deduction under section 43B for the belated payment).
Patel Engineering Co. Ltd. v. Commissioner Of Income-Tax (Central), Bombay [Tribunal Bench — cited as 2005] 94 ITD 141 (and also referenced elsewhere in the text) Held that a contractor may also be a developer and that clause (c) of sub-section (4) of section 80-IA is not applicable to an enterprise which only undertakes development (e.g., Build & Transfer projects). The Tribunal relied on and upheld the reasoning in Patel Engineering to conclude that sub-clause (c) does not apply to a mere developer and that the assessee is entitled to deduction under section 80-IA(4)(i); ground 2 was dismissed.
K.P. Verghese v. ITO [1981] 131 ITR 597 (Apex Court) Principle on statutory interpretation: literal reading may be modified to avoid absurdity; courts may adopt a construction that reflects legislative intent and avoids manifestly absurd results. The Tribunal invoked this interpretive principle to read sub-clause (c) as applicable only to enterprises that operate and maintain, thereby avoiding an absurd result that would deny deduction to enterprises which only develop infrastructure but are nonetheless intended beneficiaries under the amended law.
Luke v. IRC [1963] AC 557 Support for the rule that courts can depart from strict literalism to avoid absurd consequences and to give effect to legislative intent. Quoted in the judgment of K.P. Verghese and relied upon indirectly by the Tribunal in endorsing a purposive and non-absurd construction of section 80-IA(4).

Court's Reasoning and Analysis

The Tribunal conducted a two-part analysis corresponding to the two grounds of appeal.

Ground 1 — Deduction under section 43B for belated PF contribution

  • The Tribunal noted the competing authorities: the assessee's reliance on the Supreme Court judgment in Vinay Cements Ltd. and the DR's reliance on the jurisdictional Bombay High Court decision in Pamwi Tissues Ltd.
  • On examination, the Tribunal observed that the Bombay High Court had considered Vinay Cements Ltd. and concluded that because the Supreme Court had merely dismissed the Special Leave Petition in Vinay Cements, that dismissal could not be equated with a "law declared" by the Supreme Court sufficient to displace the High Court's ruling.
  • Given the binding effect of the jurisdictional High Court on the Tribunal, the Tribunal followed Pamwi Tissues Ltd. and allowed ground 1 taken by the revenue (i.e., treated the belated contribution as not allowable under section 43B).

Ground 2 — Entitlement to deduction under section 80-IA(4)(i) for a developer/contractor

  • Factual matrix: The assessee operated a division (Jai Hind Infrastructure Co.) engaged in development of roads under agreements with State Government agencies; the Assessing Officer found that the assessee acted only as a contractor, subcontracted work, and did not operate or maintain the roads, and therefore disallowed deduction under section 80-IA.
  • Statutory history examined:
    • Finance Act, 1995 (effective 1-4-1996 according to the text) amended section 80-IA to provide exemption for enterprises carrying on the business of developing, maintaining and operating infrastructure facilities.
    • Finance Act, 1999 (effective 1-4-2000 according to the text) further amended section 80-IA(4) to make deduction available to enterprises carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility.
    • The CIT(A) also relied on subsequent amendments effected by Finance Act, 2001 (and the text refers to effect from 1-4-2002) to support the position that developers are within the scope of the deduction.
  • Interpretation of sub-clause (c): The Tribunal parsed the statutory text. Sub-clause (c) required that "it has started or starts operating and maintaining the infrastructure facility on or after 1-4-1995." The Tribunal held that this condition is naturally applicable to enterprises that are engaged in operating and maintaining, and not to enterprises which only undertake development.
  • The Tribunal reasoned that applying sub-clause (c) to mere developers would lead to absurd results: the legislative scheme, after amendment, clearly contemplated that enterprises undertaking only development (for example, build-and-transfer projects) could be eligible for the deduction. Denying deduction to developers who are paid by the Government on transfer would frustrate the statutory intention and leave developers without any means to recoup their costs.
  • The Tribunal applied the purposive interpretive approach endorsed in K.P. Verghese v. ITO (and the authorities cited therein such as Luke v. IRC) to avoid an interpretation that produces absurdity, and found substance in the reasoning of the Co-ordinate Bench in Patel Engineering Ltd. which held that a contractor can be a developer and that clause (c) is inapplicable to mere developers.
  • On these grounds the Tribunal concluded that sub-clause (c) of clause (i) of section 80-IA(4) is inapplicable to the assessee, and that the assessee is entitled to deduction under section 80-IA(4)(i).

Holding and Implications

Final Disposition: The appeal of the revenue was PARTLY ALLOWED.

Direct Effect on the Parties

  • Ground 1: Allowed in favour of the revenue — the Tribunal followed the Bombay High Court in Pamwi Tissues Ltd. and did not permit the deduction under section 43B for the belated provident fund contribution (Rs. 14,020) paid beyond the grace period.
  • Ground 2: Dismissed — the Tribunal held that the assessee (a developer/contractor engaged in development of roads, including build-and-transfer arrangements) is entitled to the deduction under section 80-IA(4)(i) for Rs. 22,88,860 because sub-clause (c) does not apply to an enterprise engaged only in development.

Broader Implications

The order applies existing authorities and statutory amendments to the facts of this case. The Tribunal expressly followed the jurisdictional High Court on the section 43B point and relied on Tribunal precedent (Patel Engineering Ltd.) and the interpretative principle in K.P. Verghese for the section 80-IA point. The opinion does not purport to lay down any novel legal precedent beyond applying these authorities to the facts at hand.

    Assistant Commissioner of Income-tax, Central Circle-1, Mumbai v. Bharat Udyog Ltd.

    ORDER

    D. Karunakara Rao, Accountant Member. - This appeal by the revenue is against the order of CIT(A) -I dated 22-7-2005. Effectively, there are two grounds in the appeal. In ground 1, the revenue objected to the decision of the CIT(A) in allowing the deduction of Rs. 14,020 under section 43B being the belated payments made towards the Employer's contribution to provident fund. Admittedly, the payments are made beyond the grace period but before the 'due date' for filing the return of income. Assessee relied on the Apex Court's judgment in the case of CIT v. Vinay Cements Ltd. [2007] 166 Taxman 62. Per Contra, the DR relied on the judgment from the jurisdictional High Court in the case of Commissioner Of Income-Tax v. Pamwi Tissues Ltd. [2008] 215 CTR 150 (Bom.) for the proposition that the payments of contributions made beyond the due dates are not allowable under section 43B of the Income-tax Act.

    We have heard the rival submissions and perused the orders of the lower authorities as well as the aforesaid judgments. We have noticed that the jurisdictional Hon'ble High Court of Bombay has considered the decision of Hon'ble Supreme Court in the case of Vinay Cements Ltd. (supra) and held that if the contributions are not paid within the due date, it is to be disallowed. In our opinion, we have to follow the judgment of the jurisdictional High Court in the case of Pamwi Tissues Ltd. (supra) as their Lordship have held that the Supreme Court has merely dismissed the special Leave Petition in Vinay Cements Ltd. (supra) and it cannot be said that the said amounts to law declared by the Hon'ble Supreme Court. Accordingly, the ground 1 taken by the revenue is allowed.

    2. Ground 2 is against the decision of the CIT(A) in allowing of deduction under section 80-IA of Rs. 22,88,860 when the assessee is mere a contractor or developer of infrastructural facility and not engaged in operating and maintaining the infrastructural facility.

    3. Briefly stated, the facts are that the assessee has a division namely, Jai Hind Infrastructure Co., which is engaged in the development of Roads, as defined in clause (i) of sub-section (4) of section 80-IA. During the assessment proceedings, Assessing Officer found that the assessee is only a contractor and found that the deduction under section 80-IA is not available either to the contractor, who constructs an infrastructural facility like roads or to the developer, who develops such facilities. He observed that the contractor constructs the project on behalf of the developer for a sum of profit and he has not stake in the financial viability of the project. He further held that deduction under section 80-IA is available to a person, who is engaged in not only developing the infrastructural facility but also maintaining and operating the said infrastructural facility. He relied on sub-clause (c) of clause (i) of sub-section (4) of section 80-IA in this regard, which is a condition to be fulfilled for the purpose of availing the deduction. Accordingly, the Assessing Officer denied the benefit of deduction under section 80-IA to the assessee, who is involved only in developing the infrastructural facility and not operating or maintaining, the condition in sub-clause (c) of clause (i) of section 80-IA(4) .

    4. Aggrieved with the above, the assessee filed an appeal before the CIT(A) . CIT(A) allowed the deduction stating that subsequent to the amendment by the Finance Act, 1999 and the Finance Act, 2001, with effect from 1-4-2002, the deduction is available to an enterprise, which is carrying on the business of developing of infrastructural facility. The CIT(A) has also considered the assessee's submission that 'developing' alone entitles the assessee, as the same is like 'built and transfer' (B&T) Projects and held that an enterprise, which is involved in B&T Project are entitled to deduction under section 80-IA(4) . CIT(A) relied on the decision of Mumbai Bench in the case Patel Engineering Co. Ltd. v. Commissioner Of Income-Tax (Central), Bombay. [2005] 94 ITD 141. CIT(A) further held that condition at sub-clause (c) of clause (i) of sub-section (4) of section 80-IA is applicable to an enterprise which is carrying on a business of 'operating and maintaining' or developing operating and maintaining the infrastructural facility and inapplicable to a case of an enterprise like in assessee case, which has undertaken mere development of infrastructural facility and not developing, operating and maintaining or operating and maintaining. Aggrieved with the above decision of the CIT(A) , the revenue is before us.

    5. Ld. DR for revenue relied on the orders of the Assessing Officer and argued that the clause (i) of section 80-IA(4) specified certain conditions at sub-clauses (a) , (b) and (c) of the clause and the deduction is available on fulfilling these conditions. DR argued that the decision of the Tribunal in the case of Patel Engineering Ltd. (supra) relates 2000-01 and therefore, pertains to pre-amended period. On the other hand, ld. AR for assessee argued that the assessee is a developer of infrastructural facility, as per the post amended provisions of sub-section (4) of section 80-IA, any enterprise carrying on business of developing is entitled to deduction subject to the relevant conditions specified in the said sub-section. Assessee relied on post-amended provisions brought by Finance Act, 2001. Assessee also relied on the decision of the Co-ordinate Bench in the case of Patel Engineering Ltd. (supra) . Further, the AR argued that the said decision pertaining to the pre-amended period is in favour of the assessee and the same is relevant even more for the post amended too.

    6. We have heard the rival submissions perused the orders of lower authorities. We observe that this is the case where assessee took the contract for developing the road from the State Government with an agreement that it would be transferred after building the same for the purpose of operating and maintenance. We also find that assessee received contract amount and sub-contracted the same to the directors and their relatives. The assessee's case is that he is eligible for deduction on the profits earned on developing the roads and though not engaged in operating and maintaining the said roads and the conditions in sub-clause (c) do not apply to assessee's case. Whereas, the Assessing Officer's case is otherwise and the condition provisions of sub-clause (c) of clause (i) of section 80-IA(4) are applicable to the enterprise engaged in developing and contracting the infrastructure facility too.

    7. We find that is need to analyse the progress of amendments in sub-section 4(i) of section 80-IA and interpretational frame involved therein. The amendment in section 80-IA was brought about by Finance Act, 1995 with effect from 1-4-1996. By virtue of this amendment, the exemption under section 80-IA was provided to any enterprise carrying on the business of developing, maintaining and operating the 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 amendment effected by Finance Act, 1999 with effect from 1-4-2000, the 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.

    8. One of the problems associated with the application of the above statute is denial of deduction in a case of an enterprise, which is engaged only in developing of the infrastructural facility and not operating and maintaining the same. The deduction is denied as in the assessee's case in view of the provisions of sub-clause (c) of clause (i) of section 80-IA(4) . The provisions of sub-section (4) of section 80-IA reads as under:—

    "(4) This section applies to -


    (i) any enterprise carrying on the business of ( i) developing or ( ii) operating and maintaining or ( iii) developing operating and maintaining 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 or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;
    (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for ( i) developing or ( ii) operating and maintaining or ( iii) developing, operating and maintaining a new infrastructure facility.
    (c) it has started or starts operating and maintaining the infrastructure facility on or after 1-4-1995;

    Provided******

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


    (a) a road including toll road, a bridge or a rail system;
    (b) to ( d) ******"

    The above sub-clause (c) , therefore, is obviously applicable to an enterprise which is engaged in 'operating and maintaining' the infrastructure facility on or after 1-4-1995. It is not applicable to the case of an enterprise, which has engaged in mere 'development' of infrastructure facility and not its 'operation' and 'maintenance'. Therefore, 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 Departmental Representative is accepted, it would obviously/ understandably lead to manifestly absurd results. When the Act provides for deduction undisputedly for an enterprise, who is only 'developing' the infrastructure facility, unaccompanied by 'operating and maintaining' thereof by such person, there cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 1-4-1995. Since the assessee is only a developer of the infrastructure project and it is not maintaining and operating the infrastructure facility, sub-clause (c) of sub-section (4) of section 80-IA is not applicable.

    9. The interpretation of revenue is absurd also in view of the rational of the provisions of section 80-IA(4) (i) . From the assessment year 2000-01, deduction is available if the assessee carries on the business of any one of the abovementioned three types of activities. When an assessee is only developing an infrastructure facility/project and is not maintain- ing 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 infra- structure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Govern- ment. Therefore, merely because the transferor has paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee 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) , which is not the intention of the law. 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 pre-supposes 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, 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. Therefore, merely because the present assessee was paid by the Government, for development work, it cannot be denied deduction under section 80-IA(4) . 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 agencies 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. 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) .

    10. The above interpretation was upheld by the Co-ordinate Bench judgment in the case of Patel Engineering Ltd. (supra) where it has been decided that the contractor is entitled to deduction as held in Para 47 of the said decision. The same is reproduced as under:—

    "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, 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, . . . . is appropriately a developer of the said infrastructure facilities, and in turn is entitled, and entitled justifiably, to claim deduction under section 80-IA(4) ."

    11. The above judgment is also relevant, which contained adequate discussion on the applicability of sub-clause (c) to a case of an enterprise which is engaged in only developing of a infrastructural facility. Para 62 of the decision in the case of Patel Engineering Ltd. (supra) is reproduced as follows:—

    "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 1-4-1995" 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' 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 that 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 1-4-1995. 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. 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 . Assessee is not the developer and assessee is a contractor. Accepting that a contractor is also a developer, whether the assessee is entitled to deduction as he has not fulfilled the condition at sub-clause (c) of clause (i) of section 80-IA(4) . No dispute on the nature of the road as an 'infrastructure facility' and on the genuineness of the project. In the context of the projects involving the (B&T) Build and Transfer and for the purposes of availing benefits under section 80-IA(4) , the issues such as whether the contractor is a developer, whether the condition at sub-clause (c) of clause (i) apply to developer when engaged only in developing or and not operating or maintaining apart from others have been addressed by the Bombay Benches of Tribunal has addressed on various issues in this regard in the case of Patel Engineering Ltd. ( 94 ITD 411 ) . Revenue disputes that the said judgment relates to the pre-amended provisions and relevant assessment year is assessment year 2002-03. Thus the post amended provisions apply. It is true that these provisions of section 80-IA(i) have been amended by the Finance Acts, 2002 and 2005 bringing more clarity on the issue. Evolution is the said amendments pre-supposes that there is need for the more infrastructural facilities in India and the enterprises engaged in developing or operating or maintaining such projects within the meaning of section 80-IA(4) (i) are entitled to statutory deduction under the said section. Now the question is about the language used in the said section. In short, the Assessing Officer disputes that the condition at (c) apply to the enterprise engaged in developing. Changes include: (i) Clarifying that the enterprises engaged in developing the infrastructure facility are entitled to deduction and (ii) The condition of transferring the developed infrastructure mandatorily to the Governmental agencies is done away with. (i) use of 'it fulfils all the conditions' used in clause (i) and absence of 'wherever applicable' or 'as the case may be' in sub-clause (c) has led to the creation of the dispute, which are certainly curable by understanding the intention of the law and authority given by the Apex Court in the case of the K.P. Verghese."

    12. The above interpretation was taken after considering the Apex Court judgment in the case of K.P. Verghese v. ITO [1981] 131 ITR 597 and the relevant paras are as follows :

    "A strictly literal reading of a statutory provision ignores several vital considerations which must always be borne in mind while interpreting such provision. The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It an attempt to discover the intent of the Legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and as pointed out by Lord Denning, it would be idle to expect every statutory provision to the "drafted with divine prescience and perfect clarity." It is now a well-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even "do some violence" to it, so as to achieve the obvious intention of the Legislature and produce a rational construction vide Luke v. IRC [1963] AC 557. The Court may also in such a case read into the statutory provision a condition which, though note expressed, is implicit as constituting the basic assumption underlying the statutory provision. It is a well recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. . . ."

    13. Therefore, an assessee who is only engaged in the developing the infrastructural facility, i.e., road and not engaged in the 'operating and maintaining' the said facility is entitled to the benefits of the deduction under section 80-IA(4) . The provisions of sub-clause (c) of clause (i) of section 80-IA(4) are inapplicable to the assessee, who is engaged in mere developing of the infrastructure facility as defined in Explanation to said clause (i) . Considering all the facts and circumstances of the assessee's case and in the light of the above discussed decisions and interpretations, we are of the considered opinion that the assessee is entitled to deduction under section 80-IA(4) (i) . Accordingly, ground 2 is dismissed.

    14. In the result, appeal of the revenue is partly allowed.

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    Comments

    Assistant Commissioner of Income-tax, Central Circle-1, Mumbai v. Bharat Udyog Ltd.
    (Jun 30, 2008)