High Court Remands 80-IA Dispute: Is Metro Rail JV a ‘Developer’ or Just a ‘Contractor’?

By | November 18, 2025
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High Court Remands 80-IA Dispute: Is Metro Rail JV a ‘Developer’ or Just a ‘Contractor’?

Issue

  1. Whether an un-incorporated Joint Venture (JV) executing an underground metro project for the Lucknow Metro Rail Corporation Ltd. (LMRCL) qualifies as a “developer” eligible for deduction under Section 80-IA(4), or is merely a “works contractor” ineligible for the benefit.

  2. Whether the agreement entered into with LMRCL satisfies the statutory condition of being an agreement with the “Central Government, State Government, or a Statutory/Local Authority,” considering LMRCL’s status as a nodal agency.

Facts

  • The Assessee: An un-incorporated Joint Venture (JV) formed to execute a specific infrastructure project.

  • The Contract: The JV entered into a contract with LMRCL (Lucknow Metro Rail Corporation Ltd.) to design and construct an underground tunnel and three underground metro stations for a fixed consideration.

  • The Claim: The assessee claimed a deduction under Section 80-IA on the profits from this project, asserting it was “developing” an infrastructure facility.

  • The Disallowance: The Assessing Officer (AO) denied the deduction on two grounds:

    1. The assessee was merely a “works contractor” and not a “developer” (Section 80-IA benefits are not available to mere works contractors).

    2. LMRCL is not a Central/State Government, Local Authority, or Statutory Body, so the agreement did not satisfy the condition in Section 80-IA(4)(i)(b).

  • The Tribunal’s Order: The ITAT confirmed the disallowance, concluding the assessee was a contractor. However, it did so without deeply analyzing the specific clauses of the agreement regarding financial risk and responsibility.

Decision

  • The High Court set aside the Tribunal’s order and remanded the matter back to the Tribunal for fresh disposal.

  • On LMRCL’s Status: The Court held that since LMRCL was appointed as a “nodal agency” by the Central and State Governments for the administration of the metro rail project, the agreement entered into with LMRCL would satisfy the requirements of Section 80-IA(4)(i)(b).

  • On Developer vs. Contractor: The Court observed that the Tribunal had recorded “bare conclusions” that the assessee was a contractor without citing reasons or analyzing the evidence.

  • Direction: The Tribunal was directed to re-examine the clauses of the agreement to determine if the assessee assumed the risks and responsibilities of a “developer” (entrepreneurial risk) or merely executed work as a contractor.

Key Takeaways

  • “Developer” vs. “Contractor”: This distinction is the heart of Section 80-IA litigation. A “developer” assumes financial and operational risks (e.g., deployment of funds, risk of non-completion), whereas a “contractor” merely executes work for a fee without such risks. The label in the contract matters less than the substance of the risk allocation.

  • Nodal Agencies Count: Agreements with Special Purpose Vehicles (SPVs) or nodal agencies (like LMRCL, DMRCL) appointed by the government are generally treated as agreements with the government/statutory body for the purpose of Section 80-IA, provided they function as an arm of the State.

  • Reasoned Orders are Mandatory: Appellate authorities (like the ITAT) cannot dismiss a claim with a one-line conclusion. They must discuss the specific clauses of the contract and the evidence on record to substantiate their classification of the taxpayer as a contractor or developer.

HIGH COURT OF BOMBAY
Gulermak TPL Joint Venture
v.
Income-tax Appellate Tribunal*
B. P. COLABAWALLA and AMIT S. JAMSANDEKAR, JJ.
WRIT PETITION (L) NO. 27894, 27895 OF 2025
SEPTEMBER  30, 2025
Jehangir Mistry, Senior Counsel, Hiten Thakkar and Shubham Bhandari, Advs. for the Petitioner. Ravi Rattesar, Adv. for the Respondent.
ORDER
1. Heard Mr.Jehangir Mistri, learned senior advocate along with Mr.Hiten Thakkar, advocate for the Petitioner in both the Petitions, and Mr.Ravi Rattesar, learned advocate for the Respondents herein.
2. Rule. Respondents waive service. With the consent of parties, Rule made returnable forthwith and heard finally.
3. As the facts and issues raised in both the Petitions are similar, we take up WP(L) No.27895 of 2025 for assessment year 201718, and our decision will apply mutatis mutandis to WP(L) No.27894 of 2025 for assessment year 2018-19.
4. These Petitions under Article 226 and 227 of the Constitution of India challenge the orders dated 30th July 2025 passed by the Income-Tax Appellate Tribunal (“the Tribunal”). The impugned orders dated 30th July 2025 dismissed the Petitioner’s Miscellaneous Applications for rectification [under Section 254(2) of the Income-tax Act, 1961 (“the Act”)] of the orders dated 29th January 2025 passed under Section 254(1) of the Act for the assessment years 2017-18 and 2018-19.
5. The Petitioner is an un-incorporated joint venture between Gulermak Agir Sanayi Insaat Ve Taahhut Sirketi, a company incorporated under the laws of Turkey, and registered in India under Section 380 of the Companies Act, 2013, and Tata Projects Limited, a company incorporated under the Companies Act, 1956. The joint venture was formed by the parties to obtain and execute a contract with Lucknow Metro Rail Corporation Limited (“LMRCL”), a nodal agency established for the purpose of administering and regulating the Lucknow Metro Rail to be constructed in the city of Lucknow.
6. On 27th May 2016, the Petitioner entered into a contract with LMRCL under which the Petitioner was to design and construct an underground tunnel and 3 underground metro stations for fixed consideration. The agreement entered into by the Petitioner, inter alia, imposed various obligations upon it regarding designing, procurement of labour and material, testing of the work, obtaining necessary permissions, employing its materials, plant and labour to complete execution of the construction of the tunnel/metro stations, taking financial risk and guaranteeing the quality of its work, providing/obtaining insurance, warranties etc.
7. For the Assessment Year (“A.Y.”) 2017-18, the Petitioner filed its return of income claiming a deduction under Section 80-IA of the Act for developing an infrastructure facility on the profits earned from the aforesaid contract with LMRCL. The Assessing Officer passed an assessment order under Section 143(3) of the Act, inter alia, denying the deduction under Section 80-IA of the Act on various grounds, two of which are relevant for the purposes of these Petitions, viz. that (a) the Petitioner was only a contractor and not a developer of the infrastructure facility; and (b) the condition set out in Section 80-IA(4) (i)(b) of the Act was not satisfied as the agreement was not entered into with Central Government, State Government, Statutory Authority or a Local Authority.
8. The Petitioner challenged the denial of deduction under Section 80-IA by filing an Appeal under Section 246A of the Act before the Commissioner (Appeals). The first Appellate Authority, vide order dated 15th September 2022, confirmed the disallowance made by the Assessing Officer under Section 80-IA of the Act. The Petitioner therefore approached the Tribunal under Section 253 of the Act challenging the order of the Commissioner (Appeals) approving the disallowance under Section 80-IA of the Act.
9. During the course of the hearing of the Appeal before the Tribunal, the Petitioner pointed out the various clauses in the agreement entered into with LMRCL, analysed the facts of the case, and urged, inter alia, that various binding decisions of the High Courts and Co-ordinate benches of the Tribunal had settled the tests to be considered when deciding the issue of whether a person was a developer entitled to deduction under Section 80-IA, or a mere contractor. The Petitioner had filed a detailed and comprehensive note setting out the various clauses of the agreements and facts, as well as the binding decisions on the issue, which, accordingly to the Petitioner, would irrefutably lead to the conclusion that the Petitioner was a developer entitled to the deduction under Section 80-IA of the Act. The said note is annexed to the Petition and contains reference to 30 clauses of the said Agreement, 14 decisions of the High Court and Tribunal and a circular issued by the Central Board of Direct Taxes on the subject. The Petitioner also pointed out (and cited authority on the subject) that the statute had been amended w.e.f. 1st April 2002 and it had been made clear that an assessee was entitled to a deduction under Section 80-IA, even if it’s business was merely developing an infrastructure facility, as opposed to developing operating and maintaining the said facility. In the above Petition, the Petitioner avers that the Tribunal was satisfied with these contentions and required the Petitioner’s counsel to move on to other grounds in the cross appeals before it. The said note also set out the various decisions including the decision of the Gujarat High Court in CIT v. Ranjit Projects Pvt Ltd (Guj)], SLP dismissed in CIT v. Ranjit Projects (P.) Ltd. , which had held that a contract executed with a Special Purpose Vehicle (SPV)/Nodal Agency, whose entire share capital was held by a State Government [like LMRCL] would be entitled to a deduction under the said section, and was not in contravention of the condition specified in Section 80-IA(4)(i)(b) of the Act. As required by the Tribunal, during the hearing of the appeal the Petitioner also set out in the form of another note a detailed reply to the arguments of the Revenue’s counsel which once again set out the nature of contracts, which were the subject matter of the binding precedent, and the fact that they had also been entered into with SPV’s/Nodal Agencies and replied to all other arguments of the Revenue.
10. The Tribunal in a cursory manner, by order dated 29th January 2025 dismissed the Appeal of the Petitioner and confirmed the disallowance of deduction under Section 80-IA of the Act, purportedly on the grounds that (a) the Petitioner was not developing the infrastructure facility and was only a contractor; and (b) the agreement with LMRCL does not satisfy the requirement of having an agreement with the Central Government, State Government, Statutory Authority or a local Authority under Section 80-IA(4)(i)(b) of the Act. While setting out the aforesaid conclusions, the Tribunal did not refer to the 2 detailed notes filed by the Petitioner during the course of the hearing which captured various contentions, did not refer to the material on record, or even the terms of the contract, and simply did not deal with the binding judgments of the co-ordinate benches of the Tribunal and the High Courts. Merely bare conclusions were recorded, based on, inter alia, erroneous factual assumptions and presumptions. On the other issues raised in the Appeal the Tribunal has not recorded any finding against the contentions urged by the Petitioner.
11. Since the order dated 29th January 2025 [passed under Section 254(1) of the Act] did not deal with the various contentions of the Petitioner, did not refer to or consider the evidence on record including the binding judgments on the subject, and suffered from various other mistakes apparent from the record, the Petitioner filed a Miscellaneous Application under Section 254(2) of the Act for rectification of the order dated 29th January 2025. The said Miscellaneous Application exhaustively set out the mistakes apparent from record. However, the Tribunal, vide order dated 30th July 2025, dismissed the Miscellaneous Application on, inter alia, the ground that it was not necessary to deal with each and every clause of the contract entered into with LMRCL or the judicial decisions relied upon by the Petitioner, which were all ignored stating that the same were “fact specific” without in any manner setting out how this conclusion was arrived at. The Tribunal further held that merely because it has not specifically discussed various clauses of the agreement or the judicial precedents cited in the body of the order, there was no mistake apparent from the record. In this regard, the Tribunal relied on the judgment of this Court in CIT v. Ramesh Electric and Trading Co. (Bombay)] and the judgment of the Supreme Court in case of CIT v. Reliance Telecom Limited  ITR 1 (SC)].
12. We have heard the learned counsel for the parties and perused the material on record. Before delving into the issues involved in the present Petitions, we may re-iterate that the Income-tax Appellate Tribunal is the last fact finding authority under the Act. Therefore, it is necessary that the Tribunal while deciding an Appeal, considers the entire material on record and thereafter decides the factual and legal issues that arise in an Appeal. It is the duty of the Tribunal to examine the evidence which is brought on record by the parties and render findings of facts and law, as an Appeal before the High Court is entertained only on a substantial question of law.
13. This well settled principle of law has been set out, inter alia, in the judgment of the Supreme Court in the case of Omar Salay Mohammed Sait v. CIT [1959] 37 ITR 151 (SC)] wherein it was observed as under:
“We are aware that the Income-tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court.”
(emphasis supplied)
14. Similarly in the case of Esthuri Aswathiah v. CIT [1967] 66 ITR 478 (SC) the Supreme Court held as under:
“The function of the Tribunal in hearing an appeal is purely judicial. It is under a duty to decide all questions of fact and law raised in the appeal before it: for that purpose it must consider whether on the materials relied upon by the assessee his plea is made out. Conclusive proof of the claim is not predicated: the Tribunal may act upon probabilities, and presumptions may supply gaps in the evidence which may not, on account of delay or the nature of the transactions or for other reasons, be supplied from independent sources. But the Tribunal cannot make arbitrary decisions: it cannot found its judgment on conjectures, surmises or speculation. Between the claims of the public revenue and of the taxpayers, the Tribunal must maintain a judicial balance. The order passed by the Tribunal without recording any reasons in support of the estimate of unaccounted income cannot, thereof, be sustained.”
15. Also, in the case of Killick Nixon & Co. v. CIT [1967] 66 ITR 714 (SC) wherein again the Apex Court held as under:
“Under the Scheme of the Income-tax Act, the Tribunal is the final fact finding authority on question of fact. The Tribunal in deciding an appeal is bound to consider all the evidence, and the arguments raised by the parties. The Tribunal apparently did not consider the evidence; it merely recorded a bare conclusion without setting out any reasons in support thereof. It is therefore no possible to say whether the Tribunal considered the evidence and the contentions raised by the assessee; it cannot be assumed merely because a conclusion is recorded that the Tribunal considered the evidence.”
(emphasis supplied)
16. Applying the principles laid down by the Hon’ble Supreme Court in the aforesaid judgments, we find that the order dated 29th January 2025 passed by the Tribunal falls short of the requirements set out by the Supreme Court in the abovementioned judgments. Clearly, the Tribunal has not considered the evidence on record and had merely recorded bare conclusions without setting out any reasons in support thereof. We say so because we find that the Tribunal, while coming to the conclusion that the Petitioner was a mere contractor and not a developer, has failed to consider various clauses of the agreement with LMRCL. It was incumbent upon the Tribunal to consider the following clauses in the agreement with LMRCL relating to:
a.Designing of underground tunnel and 3 underground metro stations;
b.Procurement of material, labour, plant and machinery for execution of the contract;
c.Obtaining approvals, permits or licenses from various authorities for execution of the contract;
d.Testing of the work carried out and remedying the defect found in the work at its own cost;
e.Providing warranty and defect liability for the period up to 3 years after completion of the project;
f.Providing performance guarantee in the form of 10% of the contract value;
g.Payment of liquidated damages for delay in completion of project @0.5% of the contract value;
h.Insurance for design and work, project site, equipment, workers, etc.
17. We are of the opinion that the aforesaid clauses in the agreement with LMRCL were material to determine whether the Petitioner was acting as a mere contractor or, it was a developer of the infrastructure facility undertaking operational, financial and entrepreneurial risk in execution of the aforesaid contract. The conclusion of the Tribunal that the Petitioner was a mere contractor without considering the various clauses of the agreement and other material placed on record clearly renders the order of the Tribunal as one which suffers from a mistake apparent from the record.
18. Further, it is the agreed position that the Petitioner during the course of the hearing had filed a note which referred to the aforesaid clauses in the agreement and had also relied upon the judgments of the co-ordinate benches of the Tribunal and the High Courts to support its contention that it was a developer of the infrastructure facility. However, (apart from a single decision noted by the Tribunal in an erroneous context), none of the judgments relied upon by the Petitioner have been referred to, much less considered, by the Tribunal in the order dated 29th January 2025. In fact, when the Petitioner in the Miscellaneous Application [filed under section 254(2) of the Act] pointed out that the Tribunal has failed to consider the various clauses in the agreement and the judicial pronouncements on the subject, the Tribunal dismissed the Application of the Petitioner holding that it was not necessary to refer to each and every clause of the agreement and that judgments filed by the Petitioner were fact specific without pointing out as to what are the distinguishing facts. We are, therefore, of the opinion that the order of the Tribunal dated 29th January 2025 passed under section 254(1) of the Act clearly suffers from a mistake apparent from the record.
19. We further find that the Tribunal in the order dated 29th January 2025 had also held that the agreement of the Petitioner with LMRCL does not satisfy the condition of section 80-IA(4)(i)(b) of the Act as the agreement was not entered into with the Central Government, State Government, Local Authority or a Statutory Authority. In this connection, the Petitioner had relied upon the judgments in case of Ranjit Projects (P.) Ltd. (supra) (SLP dismissed by SC), Bothra Shipping Services (P.) Ltd. v. Dy. CIT  (Kolkata – Trib.)(Cal.)] and Kirloskar Brothers Ltd. v. Dy. CIT (Pune – Trib.) [appeal dismissed by this Court in ITXA No. 1204 of 2015], wherein it has been held that the agreement entered into by an assessee with a SPV/ Nodal Agency appointed by an authority referred in 80-IA(4)(i)(b) will satisfy the requirement of the said Section. According to the Petitioner, the aforesaid judgments were squarely applicable in the present case since LMRCL was not only held jointly by central and state government but was appointed as a nodal agency by the central and state government for administration of the metro rail project in Lucknow.
20. However, the Tribunal in the order dated 29th January 2025 has not considered the ratio laid down by the aforesaid judgments relied upon by the Petitioner during the course of the hearing. What we find is that the Tribunal has instead incorrectly referred to the judgment of Gujarat High Court in case of Ranjit Projects (supra) to decide the issue of “contractor or developer”. The aforesaid judgment was not cited by the Petitioner for that purpose as is evident from the note submitted before the Tribunal. The Tribunal therefore, has failed to properly consider the judgment of the Gujarat High Court in case of Ranjit projects (supra). Non consideration of the judgments, and which, at least prima facie were relevant, would certainly amount to a mistake apparent from the record.
21. Our conclusion that the failure of the Tribunal to consider the contentions urged before it, the material on record, and failure to consider the judgments cited before it, amounts to a mistake apparent from record, is supported by the judgment of this Court in the case of Amore Jewels Pvt. Ltd. v. Dy. CIT [WP No. 1833 of 2018, dated 3-8- 2018] wherein a similar issue arose for consideration and this Court allowing the Writ Petition held as under:
“We find that, though the order dated 13th February 2015 does render a finding that no positive material was brought on record, there is no discussion whatsoever of the various case laws detailed in the submissions which according to the Petitioner clinches the issues in support of its case that the shareholding investment by the five companies was genuine. In the above view, the Tribunal ought to have allowed the Petitioner’s rectification application and considered the petitioner’s appeal before it on merits, inter alia, taking into account the material and case laws which has been already filed by the Petitioner’s during the hearing leading to the order dated 13th February 2015″
22. Similarly, in the case of Sony Pictures Networks India (P.) Ltd. v. ITAT  (Bombay)], this Court has held that the failure of the Tribunal to decide a fundamental submission of an assessee in an appeal is a mistake apparent from record. The relevant portion of the judgment is extracted as under:
“9. The reliance upon an observation in the decision of this Court in Ramesh Electrical (supra) (without consideration of the context) to conclude that in every case, where a submission/argument is not considered, rectification will not be the remedy available. The Tribunal ignored the fact that the above observation of this Court in Ramesh Electrical (supra) was on the basis thatfor a rectification application to be maintainable, the mistake should be apparent from the record. In this case, the mistake/error in not dealing with the fundamental submission in appeal is apparent from the record, as the submission that the distribution fee was not royalty was recorded and yet not dealt with in the order. Thus the decision of this Court in the case of Ramesh Electrical (supra), turned on its own peculiar facts and as held by the Supreme Court that a Judgment of the Court is not to be read as a statute. The factual background of the case is to be considered while applying the judgment and holding oneself bound by the rule of precedents. (Please see CCE, Calcutta v. Alnoori Tobacco Products(SC)(S.C.) and Escorts Ltd. v. CCE  (SC)”
23. Further, the Hon’ble Supreme Court, in the case of CCE v. Bharat Bijlee Limited (2006) 198 ELT 489 (SC), has also held that the failure of the Tribunal to consider material evidence on record is a mistake apparent rectifiable under section 35C(2) of the Central Excise Act, 1944, which provisions are in pari materia with the provisions of section 254(2) of the Income-tax Act, 1961. The relevant part of the judgment of the Hon’ble Supreme Court is as under:
“6.After going through the earlier order dated 13-6-1996 passed by the Tribunal and the Impugned Order, we are satisfied that the Tribunal had failed to take into consideration the material evidence which was present on the record. Failure to take into consideration the material evidence, which is present on the record, would certainly amount to mistake apparent on the face of the record and the Tribunal under the circumstances would have the jurisdiction to correct the said mistake in exercise of its powers under section 35C(2) of the Act.”
24. The learned counsel for the Respondent Revenue strongly objected to the arguments canvassed by the Petitioner and placed reliance on the judgment of this Court in case of Ramesh Electric and Trading Co. (supra) to contend that failure of the Tribunal to consider an argument does not amount to a mistake apparent from the record. On perusal of the judgment in the case of Ramesh Electric (supra), this Court has noted that the Tribunal, in purported exercise of power under section 254(2) of the Act, had reheard the entire appeal, reassessed all the circumstances and reversed the conclusion which was reached in the order passed under section 254(1) of the Act. It was in that context that the aforesaid observation was made by this Court. Further, the judgment in case of Sony Pictures (supra) has already clarified that the ratio laid down in the case of Ramesh Electric (supra) is not applicable in cases such as the present one, where the entire arguments, materials and judicial precedent have not been considered by the Tribunal. Therefore, we reject the reliance placed by the counsel for the revenue on the judgment of Ramesh Electric (supra).
25. The learned counsel for the Respondent Revenue thereafter placed reliance on the judgment of the Supreme Court in case of Reliance Telecom Ltd.(supra) to contend that when there is a mistake in the order of the Tribunal then, the proper course of action is to file an appeal under section 260A of the Act. On perusal of the above judgment, we find that the Tribunal in that case had passed a detailed judgment and dismissed the appeal of the assessee. Thereafter, in proceedings under section 254(2) of the Act, the Tribunal reheard the appeal on merits and recalled the order passed under section 254(1) of the Act. It was in this background that the Supreme Court held that the Tribunal could not have recalled its earlier order by exercising the powers under section 254(2) of the Act and the correct remedy was to file an appeal against the order of the Tribunal.
26. The facts in the present case are materially different. The fundamental grievance of the Petitioner in the present case is that the Tribunal while passing the order dated 29th January 2025 has not considered the material/evidence on record, the contentions raised before it during the course of the hearing and the various judgments of the co-ordinate benches of the Tribunal and the High Courts. We find that the grievance of the Petitioner is justified as the order dated 29th January 2025 does not refer to, much less considers, the reliance placed by the Petitioner on the factual documents and the legal position on the subject before coming to the conclusion that the Petitioner was not entitled to the deduction under section 80-IA of the Act. Therefore, the reliance placed by the counsel for the Revenue on the judgments in the case of Ramesh Electric (supra) and Reliance Telecom (supra) is wholly misconceived.
27. For all the aforementioned reasons, we set aside the Impugned Order dated 30th July 2025 and also the order dated 29th January 2025 passed under section 254(1) of the Act as the same suffers from mistakes apparent from the record and direct the Tribunal to decide the appeals of the Petitioner afresh in accordance with law.
28. The Petitioner has pointed out that it has filed appeals in this Court against the orders of the Tribunal dated 29th January 2025 for A.Y. 2017-18 (ITXAL No.23615 of 2025) and 2018-19 (ITXAL No.23697 of 2025). In view of this judgment, the Petitioner undertakes to withdraw these Appeals within 2 weeks of this order being uploaded on the High Court’s website. The said undertaking is accepted. In the event, the Revenue decides to challenge this order before the Hon’ble Supreme Court, and this order is set aside, the Appeals filed by the Petitioner referred to above shall be revived and then shall be decided on their own merits and in accordance with law.
29. Rule is made absolute in the aforesaid terms and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.
30. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.