Constituent member executing infrastructure project via JV

Constituent member executing infrastructure project via JV is developer entitled to Section 80IA deduction.

Issue

Whether a constituent company of a Joint Venture (JV) or Consortium is eligible for infrastructure deductions under Section 80IA when the primary government agreement is signed by the JV, and whether such comprehensive engineering and maintenance projects are disqualified under the “works contract” exclusion.

Facts

The assessee-company is engaged in infrastructure development and claimed tax deductions under Section 80IA for Assessment Years 2017-18 and 2018-19.
These profits were derived from two major Government infrastructure projects that were originally bid for and secured under the names of JVs/Consortia in which the assessee was a constituent member.
The Assessing Officer (AO) disallowed the claims, stating that the statutory agreement was entered into by the JVs/Consortia, not by the assessee-company in its individual capacity.
The AO further denied the deduction by classifying the activities as a mere “works contract” under the restrictive Explanation below Section 80IA(13).
Factual records established that the JVs/Consortia were formed strictly as pass-through entities for bidding and securing the contracts, while the actual execution was divided among members in pre-agreed proportions.
The assessee independently deployed its own resources, furnished Earnest Money Deposits (EMD) and performance guarantees, and bore all technical, commercial, and financial risks.
Supplementary agreements explicitly transferred project execution responsibilities and liabilities to the constituent members, and the JVs/Consortia themselves never claimed any Section 80IA deductions.
The scope of the work went beyond simple construction to include investigation, design, engineering, procurement, construction, and long-term operations and maintenance.

Decision

Agreement Requirement Satisfied: Held, yes. When a Joint Venture or Consortium is formed solely to bid for and secure a government contract, but the actual execution, risk-bearing, and resource deployment are handled independently by a constituent member, that member satisfies the statutory requirement of having an agreement with the Government under Section 80IA(4)(i)(b).
Status as a Developer Confirmed: Held, yes. Because the assessee’s obligations encompassed the entire lifecycle of the project (investigation, design, engineering, procurement, construction, and maintenance) and involved significant financial and performance risks, the company qualifies as a “developer” rather than a mere works contractor.
Deductions Allowed: Held, yes. The structural layout of the arrangement does not violate the spirit of the incentive. The assessee-company is fully entitled to the deductions under Section 80IA, and the AO’s disallowances were overturned.

Key Takeaways

Substance Over Form in JVs: For infrastructure tax incentives, courts look at the ultimate executing entity that deploys capital and absorbs the project risks. A bidding consortium’s signature on a government contract does not strip the executing constituent member of its identity as a developer.

Defining a Developer vs. Contractor: A mere “works contractor” executes a predefined blueprint with minimal financial risk. An enterprise becomes a “developer” under Section 80IA when it takes on comprehensive responsibilities like design, technical engineering, procurement, and long-term operational or maintenance risks.

IN THE ITAT HYDERABAD BENCH ‘A’

ACIT

Navayuga Engineering Company Ltd.^*

Ravish Sood, Judicial Member
and Manjunatha G., Accountant Member

IT Appeal Nos.457 and 458 (Hyd) of 2025
[Assessment years 2017-18 and 2018-19]

APRIL 30, 2026

Pawan Kumar Chakrapani, CA for the Appellant. Ms. U Mini Chandran, CIT-DR for the Respondent.

ORDER

Ravish Sood, Judicial Member.- The present appeals filed by the Revenue are directed against the respective orders passed by the Commissioner of Income Tax (Appeals) (for short, “CIT(A)” dated 18.01.2025 and 31.01.2025, which, in turn, arises from the respective orders passed by the Assessing Officer (for short, “AO”) under Section 153A of the Income-tax Act, 1961 (for short, “the Act”) dated 07.05.2021 and 29.04.2021 for the Assessment Year 2017-18 and Assessment Year 201819, respectively. As the captioned appeals involve common issues, they are being taken up together and disposed of by way of this consolidated order. We shall first take up the appeal filed by the Revenue for AY 2017-18 in ITA No. 457/Hyd/2025, and the findings recorded therein shall apply mutatis mutandis to the other appeal. The Revenue has assailed the impugned order on the following grounds of appeal before us:

“1. Whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the provision of deduction under Section 80-IA(4) is applicable to constituents of a Joint Venture/Consortium without appreciating that the assessee company had not entered into an agreement with the Central Government, State Government, local authority, or any other statutory body?

2. Whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating that the facts of the case are not in conformity with the clarificatory amendment to Section 80-IA of the Act (Explanation 2 to Section 80-IA inserted by the Finance Act, 2017), which was introduced to unambiguously provide that only those enterprises that have entered into a development agreement with the Central Government, State Government, or local authority and have invested their own funds for developing such facilities would be eligible for the deduction?

3. The appellant craves leave to amend, alter, or add any ground(s) that may be necessary.”

2. Succinctly stated, the assessee company, which is incorporated under the provisions of the Companies Act, 2013 and engaged in the business of developing infrastructure facilities such as irrigation projects, water supply systems, hydropower projects, roads, railways, and other allied works, had filed its original return of income for AY 2017-18 under Section 139 of the Act on 29.11.2017, declaring an income of Rs. 222,43,63,800/-. In the said return of income, the assessee company had not claimed any deduction of the profits under Section 80IA of the Act. Thereafter, the case of the assessee company was selected for scrutiny assessment and notice under Section 143(2) of the Act, dated 14.09.2018, was issued.

3. Subsequently, a search and seizure operation under Section 132 of the Act was conducted in the case of the assessee company on 25.10.2018. Consequent to the search, the assessment proceedings for the year under consideration abated, and a notice under Section 153A of the Act, dated 23.08.2019, was issued by the AO. In response, the assessee company filed its return of income on 21.09.2019, declaring Nil income (after claiming deduction under Section 80IA(4) of Rs. 390,95,92,132/-) and “book profit” under Section 115JB of Rs. 288,14,97,939/-.

4. The assessee company, in its return of income filed under Section 153A of the Act, had raised for the first time the claim for deduction under Section 80IA(4) of the Act in respect of, viz. (i). profits derived from three infrastructure projects directly awarded to the assessee company; and (ii). profits derived from the two infrastructure projects awarded to the Joint Venture/Consortium in which the assessee company was a constituent member. Accordingly, the assessee company claimed a total deduction of Rs. 471,01,02,549/- under Section 80IA(4) of the Act, viz. (i) three projects directly awarded to the assessee company: Rs. 137,47,86,495/-; and (ii) two projects awarded to the Joint Venture/Consortium in which the assessee company was a constituent member: Rs. 333,53,16,054/-. However, the assessee company restricted its claim for deduction to its gross total income of Rs. 390,95,92,132/- and declared Nil income under the normal provisions of the Act.

5. As is discernible from the record, the claim of deduction raised by the assessee company under Section 80IA(4) in its return of income filed under Section 153A of the Act pertained to two major infrastructure projects awarded to the Joint Venture/Consortium in which it was a constituent member, as under:

(i)

Pranahitha Chevella Lift Irrigation Scheme, Link-II, Package No. 6 (awarded to M/s Navayuga Patel BHEL- Consortium):

The aforesaid project involved detailed investigation, design, and execution of a mega lift irrigation system for drawing and lifting 146.24 TMC of water from the Sri Pada Yellampally Reservoir to the Medaram Reservoir, along with the construction of gravity canals, tunnels, pump houses, pressure mains, and execution of civil, hydro-mechanical, and electro-mechanical works.

(ii)

Stage-II, Phase-I of the Sri Pada Sagar Project (awarded to IVRCL-Navayuga & SEW- JV):

This project involved investigation, soil exploration, design, supply, installation, testing, and commissioning of pumping machinery, transformers, substations, pipelines, canals, pump houses, and allied civil structures, CM & CD works, channels without lining and delivery cistern, etc., for developing irrigation potential covering approximately 2.00 lakh acres of ayacut (area of land).

Both of the aforementioned projects were awarded by Government bodies to the Joint Venture/Consortium in which the assessee company was a constituent member.

6. The AO during the course of the assessment proceedings under Section 153A of the Act examined the claim of the assessee company for deduction under Section 80IA(4) of the profits derived from the aforesaid projects. The assessee company, on being queried regarding the maintainability of its claim for deduction under Section 80IA(4) of the Act, to the extent the agreements were entered into by the Joint Venture/Consortium and not by the assessee company in its individual capacity, submitted that the Joint Venture/Consortium was formed only for bidding and securing contracts from the Government bodies. It was submitted that, as per the terms of the Joint Venture/Consortium agreements, the work was to be executed by the constituent members in agreed proportions, and each constituent member was independently responsible for executing its share of the work, deploying the necessary resources, and bearing the associated risks. The assessee company contended that it had executed its proportionate share of work in both projects and had undertaken the corresponding technical, commercial, and financial risks. Elaborating further on its contention, the assessee company claimed that it was actively involved in all stages of project execution, including investigation, design, supply, erection, testing, and commissioning. The assessee company also submitted that, in certain cases, it had furnished bank guarantees and performance securities directly to Government bodies. Further, it was claimed that the execution of work was carried out independently, and whatever bills were raised by the assessee company as a JV constituent were, in turn, raised by the JV on the Government body. Also, it was stated that whenever payments were received by the JV from the Government body, the same were distributed amongst the constituents. It was also submitted that the Joint Venture/Consortium had neither executed the projects themselves nor retained the profits; rather, the profits were earned by and attributable to the constituent members, including the assessee company. Further, it was submitted that the Joint Ventures /Consortium had not claimed any deduction under Section 80IA(4) of the profits of the subject projects.

7. However, the AO, though neither disputed the nature of the projects as infrastructure projects nor the fact that the assessee company had executed the work and undertook risks, but disallowed its claim of deduction raised under Section 80IA(4) of the Act. Ostensibly, the primary ground for the disallowance of the claim of the assessee company for deduction was that the agreements for development were entered into by the Joint Venture/Consortium with Government bodies and not by the assessee company in its individual capacity. According to the AO, the assessee company, being only a constituent member, did not satisfy the condition under clause (b) of Section 80IA(4) of the Act, which required that the enterprise claiming deduction must have entered into an agreement with the Government or a statutory authority.

8. The AO further observed that deduction under Section 80-IA was not applicable to works contracts. According to him, the contracts executed by the assessee company pursuant to assignments from the Joint Venture/Consortium were in the nature of works contracts, as the developer-level risks were borne by the Joint Venture/Consortium, while the assessee company would bear only general business risks. The AO also noted that though the assessee company had placed reliance on the decision of the ITAT, Visakhapatnam in M/s Transstroy (India) Ltd. v. ITO, ITA No. 54/Vizag/2009, dated 14/07/2011, but the Revenue had not accepted the said decision and preferred an appeal before the Hon’ble High Court. Accordingly, the AO, based on his aforesaid observations, rejected the claim raised by the assessee company for deduction of the profits derived from the aforesaid projects under Section 80IA(4) of the Act.

9. Aggrieved, the assessee company carried the matter in appeal before the CIT(A).

10. During the appellate proceedings, the assessee company reiterated that the Joint Venture/Consortium was formed only for bidding purposes and that the actual execution of the projects was carried out by the constituent members. It was submitted that the assessee company had, in substance, entered into agreements with Government authorities through the Joint Venture/Consortium and had executed the projects, borne risks, and earned profits therefrom. It was further contended that the assessee company was a developer, not a mere works contractor, and was eligible for deduction under Section 80IA(4) of the Act.

11. The CIT(A), after considering the submissions of the assessee company and examining the material on record, including the Joint Venture/Consortium agreements, observed that the assessee company had executed the projects and undertaken the associated risks. The CIT(A) held that the condition of entering into an agreement with Government bodies stood satisfied in substance through the Joint Venture/Consortium arrangement. Accordingly, the CIT(A) allowed the deduction under Section 80IA(4) of the profits derived from the projects executed by the assessee company through Joint Venture/Consortium, vide observations recorded at Page Nos. 74 to 120 of his order.

12. The Revenue aggrieved with the CIT(A) order has carried the matter in appeal before us.

13. We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.

14. Mrs. U. Mini Chandran, Learned Commissioner of Income Tax, Departmental Representative (for short, “Ld. CIT-DR”) at the threshold of hearing of the appeal, submitted that the CIT(A) had grossly erred in law and facts of the case in setting aside the assessment order and allowing the claim of the assessee company for deduction of the profits derived from the subject contracts under section 80IA(4) of the Act. Elaborating on her contention, the Ld. CIT-DR submitted that the assessee company in its original return of income filed under section 139 of the Act, dated 29/11/2017 had not raised any claim of deduction under section 80IA(4) of the Act of the profits derived from the two projects that were awarded to the Joint Venture/Consortium wherein it was one of the constituent member, viz., (i) Project: Pranahitha Chevella Lift Irrigation Scheme, Link-II, Package No. 6 (awarded to M/s. Navayuga Patel BHEL (Consortium); and (ii) Project: Stage-II, Phase-I of the Sri Pada Sagar Project (awarded to IVRCL- Navayuga & SEW-JV). The Ld. CIT-DR submitted that the assessee company had consciously not claimed deduction under section 80IA(4) of the Act with respect to the aforesaid two projects, for the reason that it had not directly entered into an agreement with the Government bodies, which is a precondition for claiming deduction under the said section. Apart from that, the Ld. CIT-DR submitted that as the assessee company had executed a works contract, therefore, as per the clear mandate of the “Explanation” to section 80IA of the Act, as had been made available on the statute vide the Finance (No. 2) Act, 2009, w.r.e.f. 01/04/2000, it was disentitled from claiming deduction under section 80IA(4) of the Act. The Ld. CIT-DR vehemently submitted that, as observed by the AO, the assessee company is a works contractor and not a developer. The Ld. CIT-DR to support her contention that deduction under section 80IA(4) of the Act is not applicable to a business in the nature of works contract had relied upon the judgment of the Hon’ble High Court of Gujarat in the case of Katira Construction Ltd. v. UOI 352 ITR 513 (Gujarat), wherein it has been held that the “Explanation” to Section 80IA of the Act, as made available on the statute vide the Finance (No. 2) Act of 2009 with effect from 01-04-2000, was valid and, being clarificatory in nature, was applicable retrospectively.

15. Coming to the first facet of her contention, the Ld. CIT-DR submitted that as the Joint Venture/Consortium, viz., (i) M/s. Navayuga Patel BHEL-Consortium (Project: Pranahitha Chevella Lift Irrigation Scheme, Link-II, Package No. 6); and (ii) IVRCL- Navayuga & SEW-JV (Project: Stage-II, Phase-I of the Sri Pada Sagar Project) had entered into the respective agreements with the Central/State Government bodies and carried out the actual work, thus there was no justification for the assessee company, i.e., a constituent member of the said Joint Venture/Consortium to claim deduction of the profits derived from the said projects under section 80IA(4) of the Act. The Ld. CIT-DR submitted that as the assessee company had failed to cumulatively satisfy the set of preconditions contemplated in Section 80IA(4) of the Act, it could not have claimed the deduction under the said section. Apart from that, the Ld. CIT-DR submitted that “Explanation-2” to section 80IA of the Act, inserted vide the Finance Act, 2017, had dispelled all doubts and clarified that only those enterprises that have entered into development agreement with the Central/State/Local Authorities and invested their own funds to develop such facilities will only be eligible for claiming the benefit of deduction under the said statutory provision. The Ld. CIT-DR submitted that the CIT(A) not only failed to appreciate that as the assessee company had not entered into any agreement with the Government bodies, which disentitled it from claiming deduction under section 80IA(4) of the Act, but had also summarily brushed aside the AO’s observation that as the contracts executed by the assessee company upon assignment from the Joint Ventures/Consortium were in the nature of works contracts, thus, on the said count also it was disentitled from claiming the subject deduction.

16. Per contra, Shri Pawan Kumar Chakrapani, CA, Learned Authorized Representative (for short, “Ld. AR”) for the assessee company, at the threshold of hearing of the appeal, submitted that the assessee company had filed its original return of income for AY 2017-18 on 29/11/2017, declaring an income of Rs. 222.43 crores (approx.). Subsequently, notice under section 143(2) of the Act, dated 14/09/2018, was issued by the AO. However, as a search and seizure operation was conducted upon the assessee company on 25/10/2018, the pending assessment in its case was abated. The Ld. AR submitted that the assessee company, along with its other constituent members, had formed the Joint Ventures/Consortium only for bidding and securing contracts from Government bodies. Elaborating on his contention, the Ld. AR submitted that, under the terms of the Joint Venture/Consortium agreements, the work on the subject projects was to be executed by the constituent members in agreed proportions. The Ld. AR submitted that each constituent member company was independently responsible for executing its share of the work, deploying the necessary resources, and bearing the associated risks. The Ld. AR submitted that the assessee company had executed its proportionate share of work in the subject projects and had undertaken the corresponding technical, commercial, and financial risks. The Ld. AR submitted that the assessee company had remained actively involved in all stages of project execution, including investigation, design, supply, erection, testing, and commissioning. It was further submitted that in certain cases, the assessee company had furnished bank guarantees and performance securities directly to the Government bodies. Carrying his contention further, the Ld. AR submitted that the assessee company had executed its work independently, and in some instances, bills were raised and payments received either directly or through the Joint Venture/Consortium mechanism, with tax deducted at source (TDS) in the name of the assessee company. The Ld. AR submitted that the Joint Ventures/Consortium had neither executed the projects themselves nor retained profits, and the profits were earned by and attributable to the constituent members, including the assessee company. The Ld. AR submitted that the Joint Venture/Consortium had not claimed any deduction under section 80IA(4) of the Act for the aforesaid projects. The Ld. AR submitted that the Joint Venture/Consortium was a pass-through entity formed by their constituent members for bidding and procuring work from the Central/State Government bodies, etc. Elaborating further on his contention, the Ld. AR submitted that the subject project works awarded to the Joint Venture/Consortium were executed by the constituent members.

17. Coming to the second facet of the issue, the Ld. AR submitted that the assessee company is a developer and not a works contractor. The Ld. AR to buttress his contention that the Joint Venture/Consortium were formed only for bidding and securing contracts from Government bodies, but the project work was executed by the constituent members in agreed proportions, wherein they were responsible for executing their respective share of the work, deploying necessary resources, and bearing the associated risks, had drawn our attention to the contents of the JV/Consortium agreements, Award of contract, Supplementary agreements etc. The Ld. AR submitted that the assessee company had either executed the entire work or its proportionate share in the subject projects and had undertaken the corresponding technical, commercial, and financial risks. Also, the Ld. AR submitted that the assessee company, for the aforesaid projects awarded to the Joint Venture/Consortium, had furnished bank guarantees and performance securities in favor of Government bodies. The Ld. AR to fortify his aforesaid contention had drawn support from the observations of the CIT(A) recorded in context of one of the projects, wherein he had observed that as per the consortium agreement, viz., M/s Navayuga-Patel-BHEL, dated 03/05/2008 it was specifically mentioned at Page-2 of the agreement that the consortium was formed by the above mentioned three parties to bid for the project together, and in case of award of the project to the consortium, successfully perform the work of the project so awarded in accordance with the conditions of the agreement. The Ld. AR submitted that the consortium agreement clearly specified that the consortium was constituted for the limited purpose of submitting a joint bid for the project, viz. “Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)”. Also, it was submitted that the role of each Consortium partner in the execution of the project work was delineated, which included design, supply, irrigation, testing, commissioning, and maintenance related to the specific work allotted. Apart from that, he submitted that in the consortium agreement, it was stated that the assessee company, viz., M/S. Navayuga Engineering Company Limited shall be the consortium leader and will conduct all negotiations in connection with the bidding in the lead role. The Ld. AR to fortify his contention that the assessee company was a developer and not a works contractor, submitted that as a constituent member of the consortium, it had furnished to the Government body a bank guarantee for Rs. 53.99 crores (approx.) of “Earnest Money Deposit” (EMD), as a performance guarantee for the successful completion of the subject project. Apart from that, it was submitted by the Ld. AR that a “Supplementary agreement” to the consortium agreement was executed on 14/11/2008, wherein it was agreed that M/s. BHEL would perform only a specialist role, and the assessee company and M/s. Patel Engineering Company Limited will execute the entire contract and be solely responsible for the consortium’s assets and liabilities. Further, the Ld. AR submitted that a “Supplementary agreement”, dated 02/03/2018, was thereafter entered with the Superintendent Engineer, Karimnagar, through which the total responsibility, including the financial responsibility, was transferred to the assessee company. Elaborating further on his contention, the Ld. AR submitted that the claim of the assessee company for deduction under section 80IA(4) of the profits derived from execution of the infrastructure project, viz., Pranahita Chevella Lift Irrigation Scheme-Link-II (Package-6), had been allowed by the AO while framing the assessment in its case for AY 2019-20, vide his order passed under section 143(3) r.w.s. 153C of the Act. The Ld. AR submitted that the same set of facts applied to the other project for the subject year, as well as to those pertaining to the immediately succeeding year.

18. The Ld. AR to support his contention that the assessee company being a constituent member of the Joint Venture/Consortium, having executed the respective projects and undertaken the relevant risks, including financial risks etc. as a developer of the infrastructure project, had satisfied the condition of entering into an agreement with the relevant Central or State Government or any authority as specified in clause (b) of section 80IA(4)(i) of the Act, relied upon the orders of the ITAT, Hyderabad “A” Bench in the case of ACIT, Central Circle-2(1), Hyderabad v. ACIT v. Megha Engineering & Infrastructure Ltd. [IT Appeal No.1499 (Hyd) of 2019, dated 25-09-2024]; (ii). The Dy. CIT v. SEW Infrastructure Ltd. [IT Appeal No. 1721 to 1723 (Hyd.) 2017, dated 26-2-2025]; and (iii) Dy. CIT v. KNR Constructions Ltd. [IT Appeal Nos.190 & 191 (Hyd.) 2018, dated 23-4-2021]. Also, the Ld. AR had relied upon the order of the ITAT, Visakhapatnam Bench in Transstroy (India) Ltd. v. ITO [2011] 134 ITD 269 (Visakhapatnam)/ITA No.540/Vizag/2009, dated 14/07/2011. The Ld. AR had further drawn support from the order of the ITAT, Agra Bench in PNC Construction Co. Ltd. v. Dy. CIT [2013] 144 ITD 577 (Agra – Trib.)/ITA No.145/Agr/2012, dated 15/02/2013.

19. Apart from that, the Ld. AR submitted that, as the assessee company was extensively involved in the planning, development, and designing of the mega irrigation projects and had borne the financial, operational, and other risks, it was thus a developer and could not be brought within the meaning of a works contractor. The Ld. AR, based on his aforesaid contention, submitted that as the assessee company had duly satisfied the pre-conditions for claiming deduction under section 80IA(4) of the Act, the CIT(A) had rightly allowed the same.

20. The Ld. CIT-DR rebutted the aforesaid contentions advanced by the assessee’s counsel. The Ld. CIT-DR submitted that the case laws relied upon by the assessee company were distinguishable and not applicable to its case. Elaborating on her contention, the Ld. CIT-DR submitted that, as the case laws pressed into service by the assessee’s counsel were in the context of the preamended provisions, the same will not carry his case any further. Accordingly, the Ld. CIT-DR supported the AO’s order.

21. We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.

22. Before proceeding further, we deem it apposite to cull out section 80IA(4) of the Act along with the “Explanation” below Section 80IA(13) of the Act, as initially made available on the statute vide the Finance Act, 2007 w.r.e.f 01-042000 and thereafter amended as per the Finance (No. 2) Act, 2009 w.r.e.f 0104-2000, as the controversy involved in the present appeal hinges around the interpretation of the scope and gamut of the said section, which reads as under: (relevant extract):

“Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

80-1A. [(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.]

(2) . The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and operate any infrastructure service or develops an industrial park for develops a special economic zone referred to in clause (ii) of sub-section (4) or generates power or commences transmission or distribution of power or undertakes substant renovation and modernisation of the existing transmission or distribution lines.

Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (c) of the Explanation to clause (i) of sub-section (4) the provisions of this sub-section shall have effect as if for the words “fifteen years”, the words “twenty years” had been substituted.]

(3) . XXX XX XXX

(4) . This section applies to-

(1) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfills 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 the 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:

[Provided further that nothing contained in this section shall apply to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 1st day of April, 2017.]

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

(a)

a road including toll road, a bridge or a rail system;

(b)

a highway project including housing or other activities being an integral part of the highway project;

(c)

a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system;

(d)

a port, airport, inland waterway, inland port or navigational channel in the sea]:]’

(5) to (13). XXX XX XXX

[Explanation.- For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1).]”

23. We find on a careful perusal of the aforesaid statutory provision that an assessee is entitled to claim deduction under section 80IA(4) of the profits and gains derived from industrial undertakings or enterprises engaged in infrastructure development, subject to the cumulative satisfaction of certain conditions, viz. (i). the gross total income of the assessee includes profits and gains derived from an undertaking or enterprise carrying on any business referred to in sub-section (4) of section 80IA, i.e., (a) developing, or (b) operating and maintaining, or (c) developing, operating and maintaining any infrastructure facility; (ii). such enterprise is owned by a company registered in India, or by a consortium of such companies, or by an authority, board, corporation, or body established or constituted under any Central or State Act; (iii) the enterprise has entered into an agreement with the Central Government, State Government, local authority, or any other statutory body for the purpose of, viz. (a) developing or (b) operating and maintaining or (c) developing, operating and maintaining, any infrastructure facility; and (iv). it has started or starts operating and maintaining the infrastructure facility on or after the 1^st day of April, 1995.

24. We find that the Revenue has assailed the order passed by the CIT(A), on the ground that he has wrongly allowed the claim of the assessee company for deduction under Section 80IA(4) of the profits and gains derived from the two projects awarded by Government bodies to the joint venture/consortium in which the assessee company is a constituent member, viz: (i) Pranahitha Chevella Lift Irrigation Scheme, Link-II, Package No. 6 (awarded to Navayuga-Patel- BHEL Consortium); and (ii) Stage-II, Phase-I of the Sri Pada Sagar Project, (awarded to IVRCL-Navayuga-SEW, JV).

25. We observe that it is the claim of the Revenue that the order of the CIT(A), who had allowed the assessee company’s claim for deduction under Section 80IA(4) of the Act is vitiated by two fundamental infirmities, viz. (i) the assessee company did not directly enter into any agreement with the Government authorities in respect of the projects which were awarded to the Joint Venture/Consortium, as such direct agreement is a sine qua non for claiming deduction under Section 80IA(4) of the Act; and (ii) that as per the “Explanation” to Section 80IA of the Act, inserted by the Finance (No. 2) Act, 2009 with retrospective effect from 01.04.2000, the assessee company, having executed “works contracts” is not entitled to claim the said deduction.

26. At this juncture, it is pertinent to note that although the Revenue has specifically assailed the order of the CIT(A) on the first issue, namely, the absence of a direct agreement between the assessee company and the Government or statutory authority, but no specific ground has been raised before us challenging the impugned order on the ground that the assessee company is disentitled from claiming the deduction on account of having executed a works contract as contemplated under the “Explanation” to Section 80IA(13) of the Act, inserted by the Finance (No. 2) Act, 2009, with retrospective effect from 01.04.2000. On the contrary, in “Ground of appeal No. (ii)”, the Revenue has contended that the allowance of deduction is contrary to a purported “Explanation-2” to section 80IA of the Act, allegedly inserted by the Finance Act, 2017. This contention of the revenue is erroneous, as no such “Explanation-2” was inserted in section 80IA of the Act by the Finance Act, 2017. Accordingly, the “Ground of appeal no. (ii)” raised by the Revenue is not only misconceived, but also does not arise from the impugned order passed by the CIT(A).

27. Be that as it may, we note that the AO, in the assessment order, had, inter alia, observed that the benefit of deduction under section 80IA is not available to a business in the nature of a “works contract” and thus, on that basis, had held that the assessee company was disentitled from claiming deduction under section 80IA(4) of the Act. This contention was also reiterated by the Ld. CIT-DR during the course of the hearing of the appeal before us. We, therefore, consider it appropriate and in the interest of completeness to address this issue as well, as it constitutes the second limb of the Revenue’s challenge to the claim of the assessee company for deduction under section 80IA(4) of the Act. Our aforesaid view to address the abovementioned issue, i.e., the claim of the revenue that the benefit of deduction under section 80IA is not available to a business in the nature of a “works contract”, which though had formed one of the reason for the AO to decline the assessee’s claim of deduction u/s 80IA(4) but had neither been addressed by the CIT(A) nor raised before us by the revenue in its “grounds of appeal”, is supported by the judgment of the Hon’ble High Court of Punjab & Haryana in VMT Spinning Co. Ltd. v. CIT, Ludhiana 389 ITR 326 (Punjab & Haryana)/ITA No. 445 of 2015, dated 16/09/2016. It was observed by the Hon’ble High Court that the Tribunal has the power to decide an appeal on a ground neither taken in the memorandum of appeal nor by seeking its leave, provided the party affected has a sufficient opportunity to be heard on that ground.

28. We shall now, in the backdrop of our aforesaid observations, chronologically deal with the Ld. CIT-DR’s contention that the CIT(A) had erred in law and facts of the case in setting aside the assessment order and allowing the claim of the assessee company for deduction under section 80IA(4) of the Act, for the two-fold reasons stated by us herein above, as under:

A). Agreement with the Central/State Government or other statutory body has been entered into by the Joint Venture/Consortium and not by the assessee company:

29. We shall deal with the first facet of the controversy, i.e., whether the assessee company, being a constituent member of JVs/Consortiums to whom the Government bodies awarded the projects is entitled to claim deduction under Section 80IA(4) of the Act, particularly when the assessee company had executed the respective projects and the JV/Consortium themselves have not claimed such deduction.

30. As observed by us herein above, it is the primary contention of the Ld. CIT-DR, that as the assessee company had failed to comply with the specific condition contemplated under section 80IA(4)(i)(b) of the Act, as per which there has to be a direct agreement with the Government Authorities as a pre-condition for claiming deduction under the aforesaid statutory provision, therefore, in absence of any such agreement it is disentitled from claiming the deduction under section 80IA(4) of the Act. In our view, the aforesaid contention of the Ld. CIT-DR is fallacious and does not merit acceptance. We say so because a perusal of the orders of the authorities below and the documents placed on record reveals that the Joint Venture/Consortium was formed by the assessee company, along with the other constituent members, solely for bidding and obtaining the respective contracts from Government bodies. In fact, we find that at the time the Joint Venture/Consortium agreements were executed, it was clearly stated that the work/project awarded to the Joint Venture/Consortium would be executed by its members/constituents. It was mutually agreed among the constituent members that each party shall be responsible for the performance of its scope of work and shall bear all technical, commercial, and financial risks associated with its performance. In our view, on careful perusal of the Joint Venture/Consortium agreements, it is evident that the Joint Venture/Consortium was formed solely for the purpose of bidding for Government contracts. Once the project or contract was awarded to the Joint Venture/Consortium, it was to be executed by its constituents in the agreed-upon ratio. We, thus, concur with the CIT(A) that the Joint Venture /Consortium was merely a pass-through entity which was floated by its constituents only for the purpose of procuring the work from the Central/State Government, statutory authorities, etc.

31. For instance, we find that in the consortium agreement, viz. M/s Navayuga-Patel-BHEL, dated 03/05/2008, it is specifically mentioned at Page 2 of the agreement that the consortium is formed by the above mentioned three parties to jointly bid for the project – “Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)” together as a consortium, and in case of award of a project to the consortium, successfully perform the work of the project so awarded in accordance with the conditions of the contract. Also, the role of each consortium partner in the execution of the project work is delineated, including design, supply, irrigation, testing, commissioning, and maintenance of electromechanical works, hydro-mechanical works, and the delivery pipeline (Clause 1). Apart from that, the agreement states that the assessee company, viz., M/S. Navayuga Engineering Company Limited shall be the consortium leader and will conduct all negotiations in connection with the bidding in its lead role (Clause 4). Further, it is stated in the consortium agreement that no party shall be deemed to be representative, agent or employee of the other party for any purpose whatsoever, nor shall any party have any authority or right to assume or create obligations of any kind or nature or create on behalf of or in the name of the other party nor accept service of any legal process of any kind addressed to or intended for the other party, nor bind the other party in any respect without special prior authorization of the other party (Clause 5). Apart from that, it is stated in the agreement that the property that any party may use in its scope of work shall remain the individual property of such party (Clause 5). Further, it is stated that the relationship amongst the parties hereto is strictly temporary, and nothing contained in the agreement is intended or shall be construed as creating a partnership, joint venture, or other legal entity between the parties otherwise than as specifically set out (Clause 16).

32. We find that the AO in the assessment order had observed that the assessee’s claim that the JV/Consortium was only a pass-through entity was devoid of any merit in the context of the rights and liabilities with the main contractee. The AO observed that it was the JV that had entered into a contract with the main contractor and that, under the terms of the contract, the entire responsibility for carrying out the project rested with the JV. Elaborating further, the AO observed that if there was any default on the part of the assessee company, the main contractee could not impose any responsibility on the assessee company; such responsibility could only be imposed on the JV/Consortium. It was further observed that the rights and liabilities arising out of the contract would not pass on to the sub-contractors or the constituents of the JV/Consortium merely because, for their own convenience, the work has been distributed amongst them. In our view, the aforesaid observations of the AO are fallacious and contrary to the facts borne out from the record. We say so, for the reason, that the AO had lost sight of the basic fact that the assessee company alongwith the other constituent members of the JV/Consortium were not sub-contracted any work by the JV/Consortia, but as mentioned in the JV/Consortium agreements the assessee company alongwith the other constituent members had formed the JV/Consortium for the limited purpose of bidding and securing Central/State Government contracts, i.e., as a pass through entity, and the actual execution of the projects was carried out by the said constituent members and not the JV/Consortium. Apropos the AO’s observation that in case of default on the part of the assessee company, the main contractor, i.e., the Government body, cannot fix responsibility on the assessee company and such responsibility could only be fixed on the JV/Consortium, we are afraid that the same is misconceived and contrary to the facts borne from the record. We say so, for the reason that the “Consortium agreement”, dated 03/05/2008, specifically provides that the liabilities of the consortium members for the execution of the project shall be on a back-to-back basis as per the terms of the main contract to be executed with the employer, i.e., the Government body (Clause 10). Accordingly, the fact that all three parties to the consortium agreement were independent and had come together only for the limited purpose of bidding for the Government project and executing it in accordance with their delineated scope of work and roles can be inferred from a perusal of the terms of the consortium agreement. Also, we find on a perusal of the “Articles of Contract” executed between the consortium, viz. Navayuga-Patel-BHEL and the Government of Andhra Pradesh, dated 12/11/2008, Page Nos. 275 to 279 of APB, that the assessee company, as a constituent member of the consortium, had furnished a bank guarantee of Rs. 53.99 crores (approx.) for the “Earnest Money Deposit” (EMD) as a performance guarantee for the successful completion of the project. We further find that a “Supplementary agreement” to the consortium agreement was executed on 14/11/2008, under which it was agreed that M/s. BHEL would perform only a specialist role, and the assessee company and M/s. Patel Engineering Company Limited will execute the entire contract and be solely responsible for the consortium’s assets and liabilities. Further, another “Supplementary agreement”, dated 03/02/2018, was thereafter entered with the Superintendent Engineer, Karimnagar, through which the total responsibility, including the financial responsibility, was transferred to the assessee company.

In fact, we find that the CIT(A) in his order had observed that the claim of the assessee company for deduction under section 80IA(4) of the profits derived from execution of the infrastructure project, viz., “Pranahita Chevella Lift Irrigation Scheme-Link-II (Package-6)”, had been allowed by the AO while framing the assessment in its case for AY 2019-20, vide his order passed under section 143(3) r.w.s. 153C of the Act. We, thus, in the backdrop of the aforesaid facts, concur with the CIT(A) that M/s Navayuga-Patel-BHEL consortium was a pass-through entity formed by the assessee company and the other two constituent members to bid for the project, viz. – “Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)” together as a consortium, and on award of the project to the consortium, the constituent members (including the assesse company) had performed the work of the project so awarded as per their respective delineated roles.

33. Apropos the IVRCL-Navayuga & SEW-JV (Project: Stage-II, Phase 1 of Sri Pada Sagar Project), a Joint Venture agreement was executed between the assessee company, IVRCL Infrastructure and Projects Limited & SEW Constructions Limited, dated 09/03/2005. We find that on Page 2 – Para 1 of the agreement, it is clearly mentioned that the Joint Venture had been constituted for the purpose of preparing and submitting an application (hereinafter referred to as “BID”) and to carry out the works as per the division of scope of work and responsibilities (Clause 1). Thereafter, it is stated that the joint venturers/members shall be solely responsible for the performance of the scope of work and shall bear all technical, commercial, and financial risks involved with the performance of their scope of work (Clause 5.3). Further, the agreement states that the joint venturers/members shall be responsible for providing, without limitation, all resources required to properly fulfill the scope of work (Clause 5.2). It is further stated in the agreement that all certificates obtained from the Government body in respect of the advance deduction of Income tax and Sales tax will be passed on by the JV to the respective joint venturers/members, viz. IVRCL, Navayuga & SEW in proportion to the value of the work executed by them individually (Clause 5.8). Also, it is mentioned that all and any duty drawbacks in respect of Customs duty/Excise duty obtained from the employer for the project will be passed on by the JV to the respective members, i.e., IVRCL, Navayuga & SEW in proportion to the value of works executed by them individually (Clause 5.9). We find that the JV agreement clearly specifies the scope of roles and responsibilities to be undertaken by the Joint Venture partners/venturers, along with the risks to be taken up by each of them. We find that the AO in the assessment order observed that the assessee’s claim that the JV/Consortium was only a pass-through entity was devoid of merit in the context of the rights and liabilities under the main contractee. The AO observed that it was the JV that had entered into a contract with the main contractor and that, under the terms of the contract, the entire responsibility for carrying out the project rested with the JV. Elaborating further, the AO observed that if there was any default on the part of the assessee company, the main contractee could not impose any responsibility on the assessee company; such responsibility could only be imposed on the JV/Consortium. It was further observed that the rights and liabilities arising out of the contract would not pass on to the sub-contractors or the constituents of the JV/Consortium merely because, for their own convenience, the work has been distributed amongst them. In our view, the aforesaid observations of the AO are fallacious and contrary to the facts borne out from the record. We say so, for the reason that the AO had lost sight of the basic fact that the assessee company, along with the other constituent members of the JV were not subcontracted any work by the JV/Consortium, but as mentioned in the JV agreement the assessee company, along with the other constituent members, had formed the JV for the limited purpose of bidding and securing Central/State Government contracts, i.e., as a pass-through entity, and the actual execution of the projects was carried out by the said constituent members and not the JV/Consortium. Apropos the AO’s observation that in case of default on the part of the assessee company, the main contractee, i.e., the Government body, cannot fix responsibility on the assessee company and such responsibility could only be fixed on the JV/Consortium, we are afraid that the same is misconceived and contrary to the facts borne from the record. We say so, for the reason that the “JV agreement”, dated 09/03/2005, specifically provides that notwithstanding the delineation of the responsibilities amongst the JV members, the JV members had acknowledged and affirmed that they shall be jointly and severally bound to the employer, i.e., the Government body for the execution of the contract for the project awarded in accordance with the terms and conditions (Clause 5.5). Apart from that, we find that as per the “Articles of Contract”, dated 03/04/2005, executed between the Government of Andhra Pradesh and IVRCL-Navayuga & SEW, JV, it was agreed to retain with the Government “Earnest Money Deposit” (EMD) of Rs. 43.42 crores (approx.) up to 02/01/2010, which was to be contributed by all the three constituents in proportion to their respective stakes. We, thus, in the backdrop of the aforesaid facts, concur with the CIT(A) that M/s IVRCL- Navayuga & SEW, JV was a pass-through entity formed by the assessee company and the other two constituent members to bid together for the project, viz. “Stage-II, Phase 1 of Sri Pada Sagar Project”, and on award of the project to the JV, the said constituent members, including the assesse company, had performed the work of the project so awarded as per their respective delineated roles.

34. In our view, as the subject Joint Venture/Consortium were formed by the assessee company along with the other constituents/joint venturers only for bidding and securing the infrastructure development projects of the Central/State Governments and other statutory authorities, and the subject work was executed by the said respective members/joint venturers as per their delineated roles, i.e., designing and development of the project, investigation, supply, erection, testing, commissioning, deploying necessary resources, arranging finance, and undertaking the corresponding technical, commercial and financial risks, therefore, in the backdrop of the fact that the Joint Venture/Consortium had not claimed the deduction under Section 80IA(4) of the Act, it can safely be concluded that the assessee company and the other constituent members had entered into agreements with the Government bodies and thereafter executed the projects in their respective ratios as agreed upon. We thus, in terms of our aforesaid deliberations, are of a firm conviction that the assessee company, viz. Navayuga Engineering Company Limited, as a joint venturer/constituent member of the subject Joint Venture/Consortium, viz. (i). M/s Navayuga-Patel-BHEL (Project – Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6); and (ii). IVRCL-Navayuga & SEW-JV (Project: Stage-II, Phase 1 of Sri Pada Sagar Project) had duly satisfied the condition of entering into an “agreement” with the Government as required per the mandate of Section 80IA(4)(i)(b) of the Act.

35. At this juncture, we may herein observe that our aforesaid view that where a Joint Venture/Consortium is formed by the Joint venturers/constituent members only as a pass-through entity, i.e., for bidding and securing the infrastructure development projects of the Central/State Governments and other statutory authorities, and the subject work is executed by the said respective joint ventures/members as per their delineated roles, then such constituent members satisfied the precondition contemplated under Section 80IB(4)(i)(b) of the Act, is supported by the view taken in the following judicial pronouncements:

(i).

Megha Engineering and Infrastructure Ltd. (supra):

The Tribunal, after drawing support from the order of the ITAT, Vishakapatnam, in the case of Transstroy (India) Limited v. ITO, ITA No. 540/Vizag/2009, dated 14/07/2011, has held that when the assessee company had satisfied all the conditions prescribed under Section 80IA(4) of the Act, then merely for the reason that the agreement is entered into by JV/Consortium (a pass-through entity), the deduction under Section 80IA(4) cannot be denied. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under:

“10. We have heard both parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the appellant has executed several development projects as enumerated in the assessment order and among the works, some projects were directly awarded to the appellant as main developer/builder, while some projects were awarded to the JVs/Consortium, but executed by assessee company, as constituent partner of the said JV in proportion to their share. It is also not in dispute that the appellant has satisfied all the conditions except clause (b) of Section 80IA(4), as noted by the Assessing Officer. In other words, the AO accepted the fact that the projects executed by the appellant, including those projects which were awarded to JVs/ Consortiums, but executed by the assessee are infrastructure projects, as defined under Section 80IA(4) of the Act and thus, on being satisfied with the relevant provisions therein, the assessee is eligible for deduction under Section 80IA(4) of the Act. The only dispute is with regard to not satisfying clause (b) of Section 80IA(4)(1), which states that in order to claim deduction under Section 80IA(4) of the Act, the enterprises shall enter into an agreement with the Central government or State Government or local authority or any authority for developing, operating and maintaining or developing, operating and maintaining a new infrastructure facility. The appellant claims that it has satisfied clause (a) of Section 80IA(4) of the Act, because as a constituent partner of JV /Consortia, it has signed agreement with relevant Central or State Government or local authority for development of infrastructure project. Further, as per clause (a) of Section 80IA(4) of the Act, in order to claim deduction under Section 80IA(4), the enterprise should be owned by a company registered in India or by a consortium of such companies. Further, Clause (a) makes it clear that a company registered in India, or a consortium of such company registered in India should be owned the undertaking and Clause (b) states that such entity should be entered into agreement with the relevant authorities. Going by the above provisions, in our considered view, the assessee being one of the constituent partners of JV/ Consortia has signed the agreement with the Central or State Government or local government for development of infrastructure project. Therefore, in our considered view, once the appellant, being a constituent partner JV / Consortia has entered into an agreement with relevant authorities, then it is as good as the appellant has entered into agreement in its individual capacity for development of infrastructure project. This fact has been further strengthened by the relevant JV / Consortium agreement between the JV partners, wherein it has been clearly specified that this JV /Consortia has been constituted for the purpose of preparing or submitting qualification document and joint bid for the project. The said agreement further states that in the event of the contract being awarded to the JV / Consortium, being the members of the said JV / Consortium, the development works as contemplated by the above contract shall be executed as per the development and scope of works, but for no other purposes. We further noted that the JV / Consortia agreement between members clearly specify the scope of undertaking, its exclusivity, role and responsibility of the JV partners and risk to be undertaken by each of the JV partners. Further, immediately after JV / Consortium, the same has been informed to relevant authorities and also the plan of action has been submitted to the principles for execution of development projects. Further, in few cases, the appellant, being the constituent partner of the JV has directly submitted bills to the authorities and the principles has directly paid to appellant, instead of JV / Consortia, after deducting the TDS applicable as per law in the name of the appellant. From the above, it is undisputedly clear that although the JV/Consortium is a separate entity for the purpose of assessment, but all other activities, including designing, development, and maintenance of the project are undertaken by the assessee. Therefore, we are of the considered view that once the assessee, being a constituent partner of the JV/Consortium, has executed the project and also undertaken relevant risks, including financial risks, the assessee becomes a developer of the infrastructure project and also as a constituent partner of the JV/Consortium, satisfied the condition of entering into an agreement with relevant Central or State government or any authority as specified in clause (b) of Section 80IA(4)(1) of the Act. This is further fortified by the provisions of Section 80IA(4) of the Act and as per the proviso, the deduction is allowed to a successor entity in case one enterprise developed such infrastructure facility and after development, transfer such infrastructure facility to another Enterprise for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with agreement with the Central / State Government or 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. Going by the above provisions, when the law itself allowed the benefit to successor entity in case of transfer, then there is no reason as to why such deduction shall not be allowed to constituent partner JV / Consortium, more particularly, when the facts of said JVs / Consortium clearly established the fact that the appellant has carried out all the activities, including design and development of project and maintaining of said project.

11. The appellant has relied upon the decision of Income Tax Appellate Tribunal, Hyderabad in assessee’s own case for assessment years 2010-11 to 2015-16, in ITA No.607 to 601/Hyd/2016 dt.15.02.2019. We find that the coordinate bench of ITAT for earlier years has considered very similar issues and by following the decision of Income Tax Appellate Tribunal, Visakhapatnam in the case of Transstory (India) Ltd. (supra) has held that the assessee is entitled for deduction under section 80IA(4) of the Act on the profits earned from the execution of the projects awarded to JV / Consortium. The relevant findings of the Tribunal are as under.

“9.2 With regard to other issue, i.e. contracts awarded to JVs and whether the assessee can claim the same as a constituent of the above JVs, the coordinate bench of ITAT, Visakhapatnam in the case of Transstory (India) Ltd. (supra) held that the constituents of JVs are eligible to claim deduction u/s 80IA. For the sake of clarity, we reproduce the findings of the Bench in the said case, as under:

“Undisputedly the joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of contract without limitation on resources required for the purpose of fulfilment of the scope and also solely responsible for the performance of its scope of work and shall bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party shall assign its rights and obligations to any other party without written consent of other party. From a careful perusal of this joint venture agreement and the consortium agreement, it is evidently clear that the joint venture and the consortium was formed only with an object to bid contract. Once the project or contract is awarded to the joint venture or the consortium, it is to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. In the instant case in case of a joint venture agreement, the assessee was entitled to execute the 40 per cent of total work awarded by the Andhra Pradesh Government to the joint venture and in case of a consortium it was agreed that the entire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction under s. 80 – IA(4). These facts clearly indicates that the joint venture was only a de jure contractor but in fact the assessee was a de facto contractor.

There is no dispute with regard to the fulfilment of other requisite conditions. The dispute was only raised that the contract was awarded only to the joint venture and not to the assessee and therefore assessee is not entitled for deduction. Joint venture and the consortium was formed only to obtain the contract from the Government body and they in fact did not execute the work awarded to it. In a joint venture agreement or a consortium agreement, it was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in an agreed manner. The work was Megha Engg. & Infrastructure Ltd. awarded by the Andhra Pradesh Government and the KSHIP, a body of the State Government of Karnataka to the JV and consortium but the work was executed by the assessee and the other constituents. In case of joint venture agreement, 40 per cent works were executed by the assessee and in case of consortium, the 100 per cent work was executed by the assessee. Whatever bills were raised by the assessee for the work executed on JV and consortium, the joint venture and consortium in turn raised the further bill of the same amount to the Government. Whatever payment was received by the joint venture, it was accordingly transferred to their constituents. Therefore, the joint venture or the consortium was only a paper entity and has not executed in contract itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions under s. 80 -IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of s. 80-IA(4), the benefit of deduction under this section is to be given only to the enterprise who carried on the classified business. Therefore, in the light of this legal proposition, the assessee is entitled for the deductions under s. 80 -IA(4) on the profit earned from the execution of the work awarded to JV and consortium.”

Respectfully following the above decision, we dismiss the ground raised by the revenue in this regard.”

12. A similar view has been taken by ITAT, Lucknow Bench in the case of PMC Constructions Co. P. Ltd v. DCIT (supra), wherein it has been held that the appellant is eligible for deduction under Section 80IA(4) in respect of the profits derived from the projects awarded to JV/Consortium but executed by the appellant. The decision of the ITAT Lucknow Bench has been upheld by the Hon’ble Allahabad High Court. The sum and substance of the ratios laid down by the various benches of the Tribunal is that when the appellant has satisfied all the conditions prescribed under Section 80IA(4) of the Act, but merely for the reason that the agreement is entered into by JV/Consortium, the deduction under Section 80IA(4) cannot be denied.

13. Coming back to case laws relied upon by the ld. DR for the Revenue. The ld. DR relied upon the decision of ITAT, Hyderabad Bench in the case of DCIT v. HES Infra Pvt. Ltd (supra), We have gone through the decision of ITAT, Hyderabad Bench in the above case, and we find that, the Tribunal has gone on sole premise of interpretation of statutory provisions in light of the decision of Hon’ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai v. M/s. Dilip Kumar and Company (supra) and held that in case of a person claiming deduction under the provisions of Section 80IA(4), the onus is on the assessee to prove that the assessee has fulfilled all the parameters laid down by the statute for claiming deduction. Since the appellant has not entered into agreement with these Government / statutory authorities, there is a violation as laid down by the statute and the assessee is not entitled to claim deduction. With due respect, we are unable to follow the decision relied upon by the ld.DR for the simple reason that, in the above case, the Tribunal has not discussed whether the appellant is otherwise eligible for deduction under Section 80IA(4) of the Act or not. Secondly, while deciding the issue, the Tribunal has not considered the decision of co-ordinate bench in appellant’s own case for earlier years and other decisions rendered by the coordinate bench of the Tribunal. Further, the Hon’ble Supreme Court, in a subsequent decision in the case of Government of Kerala and another v. Mother Superior Adoration Convent in Civil Appeal No.202 of 2012, after considering its earlier decision in case of Commissioner of Customs (Import), Mumbai v. M/s. Dilip Kumar and Company (supra) held that the 5-Judge Bench did not refer to line of authority which made a distinction between exemption provisions generally and exemption provisions which have a beneficial purpose. The Court further held that they cannot agree with Shri Gupta’s contention that sub-silentio the line of judgments qua beneficial exemptions has been done away with by this 5-Judge Bench. It is well settled that a decision is only an authority for what it decides and not what it matters logically follow from it. This being the case, it is obvious that the beneficial purpose of exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of those cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand should be eschewed. Going by the subsequent decision of the Hon’ble Supreme Court in the above case, it is undisputedly clear that exemption provisions should be interpreted liberally in order to achieve the objectives of the legislature and going by the above ratio, in our considered view, there is no dispute with regard to the fact in the present case, the appellant is engaged in the business of developing infrastructure project like irrigation project, water supply system, hydropower plants and roads and railway lines and the statute provides for specific exemption under section 80IA(4) of the Act in respect of infrastructure projects, in our considered view, going by the liberal interpretation of the statute, the assessee must be given the benefit of deduction, having been satisfied all the conditions, including the condition of entering into an agreement with the State Government or Central Government or with any local authority, as a constituent partner of the JV/Consortium, more particularly, except entering into agreement, all other activities were carried out by the assessee. Further, the earlier order of ITAT in assessee’s own case was dt.15.02.2019 and order of the Hon’ble Apex Court in Commissioner of Customs (Import), Mumbai v. M/s. Dilip Kumar and Company (supra) is dated 31.07.2018. The Co-ordinate Bench of the ITAT had also taken note of the Judgment of the Hon’ble Apex Court in Commissioner of Customs (Import), Mumbai v. M/s. Dilip Kumar and Company (supra) while adjudicating the issue of deduction u/s 80IA(4) of the Act. Therefore, in our considered view, the arguments of the learned counsel for the revenue in light of the order of ITAT in the case of DCIT v. HES Infra (P) Ltd., that the earlier order of the Tribunal in assessee’s own case, has not considered the Hon’ble Apex Court’s decision in the case of Commissioner of Customs (Import), Mumbai v. M/s. Dilip Kumar and Company (supra), is not correct. Therefore, we prefer to follow the decision of ITAT, Hyderabad Bench in assessee’s own case, rather than the decision relied upon by the ld. D.R. in the case of DCIT v. HES Infra Pvt. Ltd (supra).

14. In this view of the matter and considering the facts and circumstances of the case, and also by following the case laws discussed herein above, we are of the considered view that the assessee is eligible for deduction under Section 80IA(4) of the Act towards profits derived from infrastructure project awarded to JV / Consortium, but executed by the appellant. The ld.CIT(A) after considering relevant facts, has rightly allowed the deduction under Section 80IA(4) of the Act. Thus, we are inclined to uphold the findings of ld. CIT(A) and reject the grounds taken by the Revenue.”

(ii).

Transstroy (India) Ltd. (supra)

The Tribunal observed that in the case before them, the joint venture and consortium was formed only to obtain the contract from the Government body, and the said Joint Venture/Consortium, in fact, did not execute the work awarded to it. It was further observed that in the joint venture/consortium agreement, it was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in accordance with the agreed manner. The Tribunal observed that, whatever bills were raised by the assessee company for the work executed on J.V. and the consortium, the joint venture and consortium, in turn, raised bills of the same amount on the Government. Also, it was observed that any payments received by the joint venture were transferred to its constituent members. The Tribunal, based on the aforesaid facts, observed that the joint venture or the consortium was only a paper entity and had not executed any contract itself. Also, the Joint venture and consortium had neither offered any income from the work executed by its constituents, nor claimed any deductions under section 80IA(4) of the Act. Accordingly, the Tribunal observed that, in all practical purposes, the contract was awarded to the joint venture’s constituents through the joint venture, and the work was executed by them. It was, thus, observed that as per the provisions of section 80IA(4) of the Act, the benefit of deduction under the said section is to be given only to the enterprise that carried on the classified business. Therefore, it was concluded that the assessee company was entitled to the deduction under section 80IA(4) of the profits earned from the execution of the work awarded to JV and consortium. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under:

“8. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below and documents placed on record, we find that undisputedly the joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of without limitation on resources required for the purpose of fulfilment of the scope and also solely responsible for the performance of its scope of work and shall bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party shall assign its rights and obligations to any other party without written consent of other party. From a careful perusal of this joint venture agreement and the consortium agreement, it is evidently clear that the joint venture and the consortium was formed only with an object to bid contract. Once the project or contract is awarded to the joint venture or the consortium, it is to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. In the instant case in case of a joint venture agreement, the assessee was entitled to execute the 40% of total work awarded by the Andhra Pradesh Government to the joint venture and in case of a consortium it was agreed that the entire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction u/s 80IA(4) of the Act. These facts clearly indicates that the joint venture was only a de jure contractor but in fact the assessee was a de facto contractor.

9. The scope of joint venture and its relation with its constituents were examined by this bench of the Tribunal in the case of UAN Raju Constructions (supra) and the Tribunal has given the finding that there cannot be any relation of contractor and sub-contractor between the joint venture and its constituents after making a detailed analysis of this relationship. The relevant observation of the Tribunal are extracted hereunder:

“(6) We have heard the parties and carefully perused the record. We have also gone through the “Joint venture partners Agreement” entered by the parties on 20-10-2003 and also the codicil entered between them. The main dispute is with regard to the assessability of income, if any, in the hands of the assessee-AOP. The case of the AO is that the “Joint Venture” and its members should be treated as separate persons and hence the contract allocated to the members should be treated as “Sub-contracting”. However, the case of the assessee is that the Joint Venture has come into existence only to procure and win the contracts and since the contracts were allocated between the members and further they were executed separately by each of the members, no income can be said to have arisen in the hands of the assessee-AOP.

(7) In our country, the implementation of infrastructure projects is taking place in a massive scale. In this connection, global tenders are invited. Hence two or more business enterprises are joining hands by forming a consortium of Joint Venture in order to get qualified for participating in tender process. They regulate themselves, by entering into an agreement, the methodology to be adopted for executing the contract obtained. Before going into the main issues, we feel that it is imperative to discuss about the status and legal position of “Joint Venture” vis-a-vis Income tax Act. The Joint Ventures are not be governed by the provisions of the “Indian Partnership Act, 1932. It is also a known fact that there is no statute which governs a Joint Venture. Hence the issue regarding the relationship between the members and also between the members and the Joint venture has to be decided on the basis of the terms of agreement entered between the parties. Though the “Joint Venture Agreements” generally fall in the category of “Association of Persons” (AOP) under the Income tax Act, yet their assessability in the status of “AOP” was not free from doubt and we notice that the authorities have decided this issue on the basis of facts and circumstances of each case.

(8) The Hon’ble Supreme Court has made a detailed discussion on the concept of “Joint Venture” in the case of Fazir Chand Gulati v. Uppal Agencies Private Ltd. (2008) 10 SCC 345. The relevant observations are extracted below:-

“17. This Court had occasion to consider the nature of ‘joint-venture’ in New Horizons Ltd. v. Union of India [1995 (1) SCC 478]. This Court held:

“The expression “joint venture” is more frequently used in the United States. It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. [Black’s Law Dictionary; Sixth Edition, p.839]. According to Words and Phrases, Permanent Edition, a joint venture is an association of two or more persons to carry out a single business enterprise for profit [P. 117, Vol. 23]. “[Emphasis supplied]

The following definition of ‘joint venture’ occurring in American Jurisprudence [2nd Edition, Vol.46 pages 19, 22 and 23] is relevant:

“A joint venture is frequently defined as an association of two or more persons formed to carry out a single business enterprise for profit. More specifically, it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other business entity, pursuant to an agreement that there shall be a community of interest among the parties as to the purpose of the undertaking, and that each joint venture must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise. Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships.”

“A joint venture is to be distinguished from a relationship of Independent contractor, the latter being one who, exercising an independent employment, contracts to do work according to his own methods and without being subject to the control of his employer except as to the result of the work, while a joint venture is a special combination of two or more persons where, in some specific venture, a profit is jointly sought without any actual partnership or corporate designation.” [Emphasis supplied]

To the same effect is the definition in Corpus Juris Secundum (Vol. 48A pages 314-315):

“Joint venture,” a term used interchangeably and synonymous with joint adventure’, or coventure, has been defined as a special combination of two or more persons wherein some specific venture for profit is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit or a special combination of persons undertaking jointly some specific adventure for profit, for which purpose they combine their property, money, effects, skill, and knowledgea€[a€[a€[a€[. Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are: (1) joint ownership and control of property; (2) sharing of expenses, profits and losses, and having and exercising some voice in determining division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied; and (5) fixing of salaries by joint agreement.” [Emphasis supplied]

Black’s Law Dictionary (7th Edition, page 843) defines ‘joint venture’ thus “Joint Venture: A business undertaking by two or more persons engaged in a single defined project. The necessary elements are: (1) an express or implied agreement; (2) a common purpose that the group intends to carry out; (3) shared profits and losses; and (4) each member’s equal voice in controlling the project.”

(a)	It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit, (or)
(b)	it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, (or)
(c)	a special combination of two or more persons wherein some specific venture for profit is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit.
(d)	that each joint venturer must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise.
(e)	Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are:

9. On a careful reading of the order of the Hon’ble Supreme Court, we notice the following essential ingredients for a “Joint Venture”.

(1)	joint ownership and control of property;
(2)	sharing of expenses, profits and losses, and having and exercising some voice in determining division of net earnings;
(3)	community of control over, and active participation in, management and direction of business enterprise;
(4)	intention of parties, express or implied; and
(5)	fixing of salaries by joint agreement.”

10. As stated earlier, in order to participate in the global tender process, some of the foreign companies have established joint ventures with the Indian Companies. With regard to the issue of the assessability of Joint ventures, the foreign companies have approached the Authority for Advance Ruling (AAR). We discuss below the decision rendered by AAR in brief.

(a)	Van Oord KQJL BV (248 ITR 399): In this case the parties therein had specifically provided in the agreement that each party will bear its own loss and retain the profits separately. There was also specific declaration that it was not the intention to create a joint venture to carry on business in common. The parties therein had undertaken separate scope of works according to their respective technical skills. There was no control and connection between the work done by each of the parties. Thus it was noticed that there was no intention to carry out any business in common. Under these factual circumstances, the AAR held that the consortium cannot be treated as Association of Persons under the Income Tax Act. It is pertinent to note that this decision was rendered prior to 1.4.2002, i. e. prior to the insertion of the Explanation to section 2(31).
(b)	Geo Consult ZT GMBH (304 ITR 283): In this case, though the work was allotted to each of the members and each member has to bear its own costs and expenses, yet it was noticed that the agreement stated that the members will collaborate for all the work associated with the project which is to be managed on a joint basis by all the members. Further the agreement provided that the members are jointly and severally responsible for execution of project. The AAR has expressed opinion, by placing reliance on the decision of Hon’ble Supreme Court in the case of N. V. ShanmugamandCo. v. CIT\\ 91\\ 81 ITR 3 01, that the ultimate division of profits amongst members of the joint enterprise is not a relevant criterion. Finally it was held that the Joint venture is assessable as “AOP”.
(c)	M/s Hyundau Rotem Co., Korea and M/s Mitsubishi Co., Japan (AAR Nos. 798799 of 2008 dt. 23-03-2010. In this case, the AAR has held that the Consortium formed by four members is not assessable as AOP, since the AAR has felt that the facts of the case are similar to the facts relating to Van Oord ACZ BV, supra.

Section 2(31) of the Act defines the term “Person”, which inter alia, includes “an association of persons or a body of individuals, whether incorporated or not. Since the term “Association of Persons” (AOP) was not defined in the Act, the Courts have interpreted to mean that it is an association established to produce income. Hence the Finance Act 2002 has inserted an “Explanation” to section 2(31), according to which, an AOP shall be deemed to be a person, whether or not such AOP was formed or established with the object of deriving income, profits or gains. However, in the instant case, there is no dispute with regard to the assessability of the “Joint Venture” per se. Both the assessee and the department have taken the stand that the “Joint Venture “is assessable in the status of “Association of Person”. However, the issue is whether the AO is right in treating the Joint Venture-AOP as the main contractor and its members as the sub-contractors, thereby estimating the income which was not earned by the Joint Venture.

11. On the basis of the understanding of the concept of “Joint Venture”, let us consider the facts in the present case. The amended clause 3 reads as under:

“(a) The joint venturers shall subject to the provisions hereinafter contained, be entitled to share the work as mutually agreed on item wise, depending on the work schedule. Sharing of the work and execution of the work can be altered at any given time with mutual consent of both the J. V. Partners”.

As per the original clause 3(a), the members of Joint Venture would share in a prescribed percentage in all profits arising out of joint venture. However, the said clause was in contradiction to the preamble of the agreement; wherein it had been stated that the members are desirous of sharing the contract amount. In view of the above, it appears that the Clause 3(a) was amended in accordance with the original intention of the members. However in clause 12 dealing with Final Accounts, we find a mention about sharing of profit or loss, but there is no mention about the proportion. However, in reality, the members have shared the work only and hence there was no profit or loss for the Joint Venture.

11.1 Further, clause 9 of the agreement which deals with the “Resources” specifically states that each joint venturer shall provide plant and equipment required for the execution of their portion of contract and such plant and machinery shall not become asset of the joint venture. Thus there is no clear provision in the Joint Venture which provide for joint execution of the project and joint realization of profit.

11.2 Clause-4 deals with the relationship between the members of the joint ventures. Sub-clauses (c) and (d) are relevant.

“c. This Agreement shall not be construed by either Joint Venturer hereto as constituting each of them the agent of the other nor the Joint Venture as the agent for either of them.

d. The Joint Venturers agree that this Agreement shall not constitute a partnership and any liabilities of any sort whatsoever which one Joint Venturer may incur towards or on behalf of the other Joint Venturers shall be in accordance with this Agreement and be thereto limited”

As per the concept of the Joint Venture, each joint venturer shall stand in the relation of a principal as well as an agent of the other. However clause 4(c) of the agreement specifically states that the members do not constitute the agent of each other. The said clause also states that the “Joint venture” should not be taken as the agent of the members also. Thus, according to the agreement, each member stands in its own right and no specific relationship is created between the Joint Venture and its members.

12. Thus, on an understanding of the concept of the “Joint Venture” and the terms of agreement between the members of the present case, we are of the view that in the instant case, the consortium of Joint Venture has been formed only to procure the contract works. By way of the agreement, the parties have only regulated the relationship inter se with respect to their joint responsibility that existed in relation to the Principal, viz., M/s Konkan Railway. In reality, both the parties have divided the contract works between themselves and they have executed their share of work on their own risks. It is pertinent to note here that the AO has not given any finding on the issues like that each member had authority to interfere with or control the work executed by the other member; that both the members have jointly executed the project and thus produced the income jointly. In our opinion, the finding on the lines stated above is crucial to determine the issue of availability of income in the hands of Joint Venture-AOP. On the contrary, the AO is on record that the each of the members has declared the income derived from their respective share of contract works in their hands. In this kind of situation, we do not find any merit in the presumption made by the AO that the Joint Venture is the “Main Contractor” and the members are the “Sub-contractors”. Once this presumption has been found to be wrong, then the question of estimation of income by way of Sub-contract commission does not arise. So also the question of deduction of tax u/s 194C(2) of the Act and the disallowance u/s 40(a)(ia) does not arise. In view of the foregoing discussions, we do not find any infirmity in the decision reached by the Ld CIT(A).”

10. There is no dispute with regard to the nature of business or the activities undertaken by the assessees. The dispute is only with regard to the identity of a person to whom this benefit of deduction u/s 80IA(4) can be allowed. We have carefully perused the provisions of section 80IA(4) and we find that the benefit of exemption/deduction is to be allowed to any enterprise carrying on business of developing or operating and maintaining or developing, operating, maintaining any infrastructure facility subject to fulfilment of certain conditions. One of the condition is that the enterprise should be owned by a company registered in India or by a consortium of such companies or any other body established or constituted under any centre or any state Act. The other condition is that it has entered into an agreement with the Central Government or a State Government or local authorities or any other statutory body for developing, operating and maintaining or developing, operating & maintaining a new infrastructure facility. There is no dispute with regard to the fulfilment of other requisite conditions. The dispute was only raised that the contract was awarded only to the joint venture and not to the assessee and therefore assessee is not entitled for deduction. If we read these provisions of sub-section (4) of section 80IA, we would find that this benefit of deductions is to be given to an enterprise who carry on the aforesaid classified business. The legislature have also used the word consortium of such companies, meaning thereby the legislature was aware about the object of formation of consortium and joint ventures. Generally the joint ventures or consortiums are formed to obtain a contract from the Government body for its execution by its constituents. If the constituents do not want to execute the work, there was no need to form a consortium. Therefore, mere formation of consortium for obtaining a contract should not debar the enterprises who in fact carried on the aforesaid classified business from claiming the deduction or exemption u/s 80IA(4). For the sake of reference, we extract the provisions of section 80IA(4) as under:

Section 80IA(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 the 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 including toll road, a bridge or a rail system;
(b)	a highway project including housing or other activities being an integral part of the highway project;
(c)	a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system;
(d)	a port, airport, inland waterway inland port or navigational channel in the sea;
(ii).	my undertaking which has started or starts providing telecommunicatioi services, whether basic or cellular, including radio paging, domestic satellit service, network of trunking, broadband network and internet services on o liter the 1st day of April, 1995, but on or before the 31st day of March, 2005	i 3 r
	Explanation.—For the purposes of this clause, “domestic satellite” means a satellite owned and operated by an Indian company for providing .elecommunication service;
(iii)	my undertaking which develops, develops and operates or maintains and jpcrates an industrial park or special economic zone notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on the 1 st day of April, 1997 and ending m the 31st day of March, 2006:
	Provided that in a case where an undertaking develops an industrial park on or after the 1st day of April, 1999 or a special economic zone on or after the 1st day of April, 2001 and transfers the operation and maintenance of such ndustrial park or such special economic zone, as the case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub-section (1) shall be allowed to such .ransferee undertaking for the remaining period in the ten consecutive
	assessment years as if the operation and maintenance were not so transferred to the transferee undertaking:
	Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates and industrial park, the provisions of this clause shall have effect as if for the figures, letters and words “31st day of March, 2006” the figures, letters and words “31st day of March, 2011” had been substituted;
(iv)	an undertaking which,-
	**	**	**
	(vi) **	**	**

11. Turning to the facts of the case, we find that joint venture and the consortium was formed only to obtain the contract from the Government body and they in fact did not execute the work awarded to it. In a j oint venture agreement or a consortium agreement, it was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in an agreed manner. The work was awarded by the Andhra Pradesh Government and the KSHIP, a body of the State Government of Karnataka to the J.V. and consortium but the work was executed by the assessee and the other constituents. In case of joint venture agreement, 40% works were executed by the assessee and in case of consortium, the 100% work was executed by the assessee. Whatever bills were raised by the assessee for the work executed on J.V. and consortium, the joint venture and consortium in turn raised the further bill of the same amount to the Government. Whatever payment was received by the joint venture, it was accordingly transferred to their constituents. Therefore, the joint venture or the consortium was only a paper entity and has not executed in contract itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions u/s 80IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of section 80IA(4), the benefit of deduction under this section is to be given only to the enterprise who carried on the classified business. Therefore, in the light of this legal proposition, we are of the view that the assessee is entitled for the deductions u/s 80IA(4) on the profit earned from the execution of the work awarded to JV and consortium. We accordingly set aside the order of the CIT(A) and direct the A.O. to allow the deductions.

12. In the result, the appeal of the assessee is allowed.”‘

36. We may herein observe that the assessee company had, in the course of the assessment proceedings, relied on the aforesaid order of the coordinate bench of the Tribunal in the case of Transstroy (India) Limited (supra), but the AO had declined to follow the same on the ground that the revenue had not accepted the said order and filed an appeal against the same with the Hon’ble High Court. In our view, the aforesaid observation of the AO is against the rule of judicial discipline, as per which a mere filing of an appeal against the order of the appellate authority can be no ground for not following the said order. Our aforesaid view is supported by the order of the Hon’ble Supreme Court in the case of UOI v. Kamlakshi Finance Corporation Ltd. (SC)/AIR 1992 SC 711, wherein it is held as under:

“The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the department – in itself an objectionable phrase – and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court.”

(iii).

PNC Construction Co. Ltd.(supra) :

The Tribunal had, in its aforesaid order observed that though the infrastructure project was awarded by the Government of Madhya Pradesh to NCC-PNC, Joint Venture, which was formed with the sole purpose to submit a joint bid for Sagar-Beena project, the assesee company, which had undertaken to execute the project, being a member of the Joint Venture (JV) satisfied the conditions laid down in Section 80IA(4)(i)(a) & (b) of the Act and thus, was entitled for deduction under the said section. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under (relevant extract):

“25. With this back ground of discussions, if we consider the facts of the case under consideration, we find that the infrastructure project was awarded by the Government of Madhya Pradesh, a copy of the agreement has been placed in assessee’s Paper Book at page no.56. This agreement was in between the Government of Madhya Pradesh and NCC-PNC (Joint Venture), Agra. A supplementary agreement of Nagarjuna Construction Company Limited dated 10.08.2004 between M/s. Nagarjuna Construction Company Limited and M/s. PNC Construction Company Limited, the assessee, wherein it is stated that both the parties have formed a Joint Venture called the “NCC-PNC JV” by virtue of Agreement dated 08.04.2004, with the sole purpose to submit a joint bid for Sagar Beena Road Project. M/s. PNC Construction Co. Limited was offered for the entire works of joint venture and shall be liable for all taxes including income tax solely liable to government of Madhya Pradesh. The agreement with Government of Madhya Pradesh and NCC-PNC joint venture accepted the concept of Joint Venture vide clause no.27.1 which is at page no.95 of assessee’s Paper Book. On perusal of agreements and supplementary agreement, we notice that the CIT(A) failed to consider the relevant provision of section 80IA(4)(i)(a) which provides that the prescribed infrastructure project in section 80IA(4)(i) is owned by company registered in India or by a consortium of such companies. The CIT(A) has considered only clause 80IA(4)(i)(b) of the Act without considering section 80IA(4)(i)(a) of the Act. If we read both the clauses of sub-section (4)(i)(a) and (b), we find that the project agreement was with the Madhya Pradesh Government and it was owned by consortium of companies registered in India i.e. NCC-PNC. Thus, in the light of above discussions and in view of the decisions of the I.T.A.T. in the case of ACIT v. JSR Constructions (P) Ltd, ITA No.898/Bang/2009, order dated 29.03.2011 and DCIT v. M/s. Transstroy (India) Limited, ITA No.325 & 326/Viz/2011, order dated 13.04.2012, we find that the assessee has satisfied the conditions laid down in section 80IA(4)(i)(a)(b) of the Act. We are, therefore, of the view that the assessee is entitled for deduction under section 80IA(4) of the Act in respect of Sagar-Beena Project.”

At this juncture, it will be relevant to point out that the aforesaid order of the Tribunal in PNC Construction Co. Ltd. (supra) has been upheld by the Hon’ble High Court of Allahabad in CIT v. PNC Construction Co. Ltd. (Allahabad). The Hon’ble High Court had approved the order of the Tribunal, which had observed that as the project was awarded by the Government of Madhya Pradesh to NCC-PNC (Joint Venture), a consortium of companies, the conditions prescribed in Section 80IA(4)(i)(a) & (b) were satisfied by the assessee company, i.e., a constituent member of the Joint Venture (JV), as it had carried out the defined business of developing or operating or maintaining any infrastructure and had offered the profits and gains from the said project in its hands.

(iv).

KNR Constructions Limited (supra)

The Tribunal, in its aforesaid order, had relied on the order of the ITAT, Visakhapatnam, in the case of Transstroy (India) Limited(supra), and held that the assessee company, a member of the Joint Venture (JV), having executed the project that was awarded by the Government/Statutory body to the JV, was entitled to claim deduction under Section 80IA(4) of the profits derived from the said project. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under:

“5. We have given our thoughtful consideration to rival pleadings. Coming to Revenue’s first and foremost argument regarding consortiums’ and JVs entitlement to claim 80IA deduction relief, we make it clear that the tribunal’s co-ordinate bench order in M/s. Transtroy India Limited(supra) has already decided the same issue in assessee’s favour and against the department. No contrary judicial precedent has been quoted at the Revenue’s behest to rebut the same. We thus, uphold the CIT(Appeals) findings qua this former grievance canvassed from the revenue’s side.”

(v).

SEW Infrastructure Limited (supra):

The Tribunal in its aforesaid order had observed that merely for the reason of not entering into a direct agreement with the Central/State Governments. Local Authority or Statutory Body, etc., the deduction for profits from an eligible project cannot be denied. Elaborating on its conviction, it was further observed that the benefit of deduction under Section 80IA(4) of the Act is a “project specific” but not “assessee specific”. The Tribunal had observed that as per the plain interpretation of the provisions of Section 80IA(4) of the Act, it was clear that any enterprise carrying on the business of development or operating and maintaining or developing, operating and maintaining any infrastructure facility which fulfills certain conditions, is an “eligible assessee” entitled to claim a deduction under Section 80IA(4) of the Act. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under:

“8.4. We have given our thoughtful consideration to the reasons given by the Assessing Officer to deny deduction claimed u/sec.80IA(4) of the Act, in light of arguments advanced by the Learned Counsel for the Assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that, once the projects developed by the assessee are infrastructure projects as defined u/sec.80IA(4) of the Act and the assessee has developed the projects, in our considered view, merely for the reason of not entering into direct agreement with Central/State Governments, Local Authority or Statutory Body etc., the deduction towards profits from eligible project cannot be denied. Further the benefit of deduction provided u/sec.80IA(4) of the Act is a “project specific” but not “assessee specific”. If we go by the plain reading of the provisions of Sec.80IA(4) of the Act, it is very clear that any enterprise carrying in the business of development or operating and maintaining or developing operating and maintaining any infrastructure facility which fulfils certain conditions, such an “eligible assessee” is entitled to claim deduction u/sec.80IA(4) of the Act . Therefore from a plain reading of the above provision, it is undisputedly clear that deduction is allowable only for a “project specific” but not “an assessee specific” which is further fortified by the proviso provided therein, where the statute allowed deduction to a successor entity for the remaining period of exemption in case the project is transferred to any other entity for the purpose of operation and maintenance of the project. Therefore, we are of the considered view that once the Assessing Officer having satisfied that all the projects developed by the assessee are infrastructure projects and are eligible for deduction u/sec.80IA(4) of the Act, the Assessing Officer erred in disallowing the claim of deduction merely on the ground of not entering into direct agreement with Central/State Governments, Local Authority or Statutory Body etc. In our considered view, the purpose of forming J V is, it used to make sure that the conditions imposed by the principals are met by the Consortium of J V Members. Further as per the J V Agreement it is informed to the principals that the project is executed by the Individual Members of the J V Consortium. Therefore, in our considered view, once J V entered into agreement, it is as good as the agreement was entered by constituent of the J V Consortium Member(s) itself. Therefore, wherever the projects on which the JV has entered into agreement, in our considered view, it is as good as the assessee has entered into agreement with Central/ State Government, Local Authority or Statutory Body etc., for development of the projects and thus, in our considered view, the assessee is eligible for deduction u/sec.80IA(4) of the Act.

8.5. In so far as deduction claimed u/sec.80IA(4) of the Act, on the profits derived from development of infrastructure projects where the assessee is not directly entered into agreement with Central/State Governments, Local Authority or Statutory Body etc., but entered into agreement as a constituent J V Consortium, we find that this issue is squarely covered in favour of the assessee by the decision of ITAT, Hyderabad Bench in the case of ACIT v. Megha Engineering and Infrastructure Limited vide ITA.No. 1499/ Hyd./2019 vide order dated 15.02.2019, where under identical set of facts and also on identical projects on which the assessee has claimed deduction u/sec.80IA(4) of the Act, as a constituent of JV/Consortium Member, the Tribunal after considering relevant facts and various judicial precedents allowed the deduction claimed by the assessee towards profits derived from “eligible projects” u/sec.80IA(4) of the Act.”

(vi.)

CIT v. SMSL-UANRCL (JV) (Bombay):

In the aforesaid case before the Hon’ble High Court, the assessee-joint venture, viz. SMSL UANCRL (JV) had not executed the contract work, and the assessee company, viz. M/s SMS Infrastructure Ltd was one of its constituents. Also, the receipts from the said project were disclosed by the constituent member, viz. M/s SMS Infrastructure Ltd. in its “books of accounts” as well as in its return of income. The return of income filed by the constituent member, viz. M/s SMS Infrastructure Ltd. was accepted by the AO while framing the assessment in its case under Section 153A r.w.s 143(3) of the Act. The Hon’ble High Court, in the backdrop of the aforesaid facts, dismissed the appeal of the revenue and observed that the subject income could not have been taxed again in the hands of the assessee-joint venture, viz. SMSL UANCRL (JV). In the backdrop of the aforesaid observations of the Hon’ble High Court, we are of the view that, as in the present case before us, the income from the subject projects had been disclosed by the assessee company, viz. Navyuga Engineering Company Limited (supra) in its “books of accounts” as well as in its return of income for the year under consideration, which, thereafter, had been accepted by the AO while framing the assessment in its case under Section 153A of the Act, dated 07/05/2021, it can safely be concluded that as for all practical purposes the assessee company along with the other constituent members had associated and formed the JVs/Consortiums for the limited purpose of bidding for the Government projects and thereafter executed the said respective projects, thus satisfied the condition contemplated under Section 80IA(4) of the Act.

37. Apart from our aforesaid observations, we may herein observe that as per the “Memorandum” explaining the provisions in the Finance Bill, 2007 reported in (2007) 289 ITR (St) 292 (Page 312), the 10 year tax holiday to an enterprise or undertaking engaged in the development of infrastructure facilities was provided for the reason that the industrial modernization required a passive expansion of, and qualitative improvement in, infrastructure (viz. expressways, highways, airports, ports and urban rail transport systems) which was lacking in our country. Elaborating on the purpose of providing the tax incentive, it was observed that it was intended to encourage private sector participation through investment in the development of the infrastructure sector. It was, thus, observed that in a case where the person makes the investment and himself executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under Section 80IA of the Act. In our view, as Section 80IA(4)(b) is a provision in the taxing statute granting incentives for promoting growth and development, the same should be liberally construed. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in Bajaj Tempo Ltd. v. CIT 196 ITR 188 (SC), wherein it was emphasized that a provision in the taxing statute granting incentives for promoting growth and development should be construed liberally

38. We thus, in terms of our aforesaid deliberations, are persuaded to subscribe to the view taken by the CIT(A) that as the joint venture and consortium, viz. (i). M/s Navayuga-Patel-BHEL (Project – Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6); and (ii). IVRCL-Navayuga & SEW-JV (Project: Stage-II, Phase 1 of Sri Pada Sagar Project), respectively, were merely pass-through entities that were formed to bid for and obtain the Government contracts, and the work awarded by the Government bodies was executed by the joint venturers/consortium members, including the assessee company, in an agreed manner as per their delineated roles, therefore, for all practical purposes, the respective contracts were awarded to the joint venturers and constituent members of the JV/consortium who, thus, satisfied the aforesaid statutory precondition contemplated under Section 80IA(4)(i)(b) of the Act. We thus, in terms of our aforesaid observations, uphold the CIT(A) order to the said extent.

(B). Assessee having executed a “works contract” is not entitled for deduction under Section 80IA(4) of the Act:

39. We shall now deal with the second facet of the Ld. CIT- DR’s contention, that as the contracts executed by the assessee company on assignment from JVs and Consortium are in the nature of works contracts, therefore, as per the “Explanation” below Section 80IA(13) of the Act, as made available on the statute vide the Finance (No.2) Act, 2009, w.r.e.f 01/04/2000, it was not entitled to claim deduction of the profits derived therefrom under Section 80IA(4) of the Act. At this stage, we may herein observe that though the AO had held the aforesaid two projects, viz. (i). M/s Navayuga-Patel-BHEL (Project – Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6); and (ii). IVRCL-Navayuga & SEW-JV (Project: Stage-II, Phase 1 of Sri Pada Sagar Project) as “works contract”, but had in the same breath allowed the assessee company’s claim for deduction under Section 80IA(4) w.r.t the three other similar projects that were directly awarded to it and had not drawn any adverse inference on the ground that the same were in the nature of works contract.

40. As observed by us hereinabove, the aforesaid issue had neither been assailed before us by the revenue by raising a specific ground of appeal to the said effect nor emanates from the impugned order of the CIT(A) before us. However, as the Ld. CIT-DR has assailed the CIT(A) order before us, on the ground that he had failed to consider the aforesaid observation of the AO, which, had, inter alia, formed a basis for rejecting the claim of the assessee company for deduction under Section 80IA(4) of the Act, we deem it apposite to deal with and address the same for the sake of completeness.

41. We find that the AO in the assessment order had observed that to claim the deduction under Section 80IA(4) of the Act, the assessee has to undertake either development or operation & maintenance or both in respect of an infrastructure facility. It was observed that the distinction between a workscontract and a development activity depends on the scope of the project and the activities carried on by the assessee in respect of that project. The AO had further observed that the contract agreement should not be limited to specific civil works and should cover the development of the entrusted area as a whole. The AO had laid down the criteria to be satisfied for an assessee to be treated as “developer” in respect of any specific project, viz. (i) the duty of the developer should not be restricted only to the civil works; (ii) the developer is under an obligation to “design” a project and get it approved by the owner of the project; (iii). that though the ownership of the site rests with the owner, the developer exercises complete domain over the land or project during the process of development; (iv). the developer doesn’t raise bills at each and every step of construction; (v). the developer is authorized to raise funds by private placement or by financial institutions; (vi) no material is supplied by the owner, and the expenses for the material are to be borne by the developer itself; and (vii). The developer is expected to assume the risks. Thereafter, the AO called for and perused various documents, viz. (i). copies of the agreements entered into with the State Government, (ii). consortium agreement, (iii). joint venture agreement, (iv) supplementary agreement, and (v). details of projects undertaken by the assessee company during the year under consideration. We find that the AO had thereafter relied on the judgment of the Hon’ble High Court of Gujarat in Katira Constructions Ltd. (supra), and had summarily observed that the contracts executed by the assessee company upon assignment from JVs and Consortium were in the nature of a works contract, as it did not carry any risk of the developer, and the entire risk was carried by the main contractor or JV in most cases. It was further observed that the assessee company carried only business risk, which is present in all enterprises, and there was no risk of a developer in its case. The AO, based on his aforesaid observations, had, by drawing support from the “Explanation” to Section 80IA of the Act, as was initially made available on the statute vide the Finance Act, 2007, w.r.e.f 01/04/2000, and, thereafter, substituted by the Finance (No.2) Act, 2009, w.r.e.f 01/04/2000, declined the claim of the assessee company for deduction under Section 80IA(4) of the Act.

42. We have given thoughtful consideration to the aforesaid issue in the backdrop of the orders of the authorities below and the contentions advanced by the Ld. Authorized Representatives of both parties.

43. Before proceeding further, we deem it apposite to briefly refer to the legislative background of Section 80IA(4) of the Act, as the same will reveal the legislative intent and underlying purpose behind the said enactment. Section 80-IA was an instrument of legislative policy, conceived with a view to providing an impetus to private sector participation in the development of infrastructure, as was initially made available on the statute vide the Finance Act, 1995 w.e.f 01.04.1996, which thereafter had been subjected to multiple amendments over the years, as under:

(i).

Section 80-IA of the Act as it was originally enacted, provided that where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility, amongst others, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as specified in sub-section (6).

(ii).

Vide the Finance Act, 1995 sub-section (4A) was inserted by the Finance Act of 1995 with effect from 1-4-1996. Sub-section (4A) stipulated that the section would apply to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfils certain conditions;

(iii).

Vide the Finance Act, 1999 w.e.f 01-04-2000, Section 80-IA and section 80-IB were substituted for section 80-IA. Sub-section (4) of section 80-IA of the Act provided that the section shall apply to any enterprise carrying on the business of (i) developing, (ii) maintaining and operating, or (iii) developing, maintaining and operating an infrastructure facility which fulfilled certain conditions.

(iv).

Vide the Finance Act of 2001, w.e.f 01.04.2002 the word ‘or’ came to be introduced after the word “developing”, to clarify in effect that the agreement between the enterprise and the authority of the Central or State Government or, as the case may be a local authority or a statutory body may provide for (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating a new infrastructure facility.

Accordingly, vide the Finance Act, 2001, w.e.f 01.04.2002, an assessee whose gross total income included any profits and gains derived by an undertaking or enterprise from “developing” any infrastructure facility was subject to fulfillment of certain conditions contemplated in sub-clause (a) to (c) entitled to claim a deduction under Section 80IA(4) of the Act. However, an “Explanation” to Section 80IA(13) was made available on the statute vide the Finance (No.2) Act, 2009 (substituting that was earlier made available by the Finance Act, 2007) w.r.e.f 01/04/2000, as per which the deduction under Section 80IA(4) would not be available to a business which is in the nature of a “works contract” awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1) of Section 80IAof the Act.

44. Now, this takes us to the “Explanation” to Section 80IA of the Act inserted vide Finance (No.2) Act, 2009 with retrospective effect from 1.4.2000 (which had substituted the “Explanation” as was earlier made available on statute vide the Finance Act, 2007, w.r.e.f 01/04/2000), which reads as under:

“For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in subsection (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1).”

It would be relevant to go to the “Memorandum” explaining the provisions in the Finance Bill 2007 reported in (2007) 289 ITR (St.) 292 (at Page 312), which reads as under:-

“Section 80-IA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones. The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract.

Accordingly, it is proposed to clarify that the provisions of section 80- IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80- IA. In contrast to this, a person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80- IA.

This amendment will take retrospective effect from April 1, 2000 and will accordingly apply in relation to the assessment year 2000. -01 and subsequent years.”

(emphasis supplied by us)

45. In the backdrop of the legislative intent behind insertion of sub-section (4) to Section 80IA as discussed above, we find that the legislature to provide an impetus to private sector participation in the development of infrastructure, had vide the Finance Act of 2001, w.e.f 01.04.2002, clarified that the profits and gains derived by an enterprise from “developing an infrastructure facility” will be entitled for deduction under Section 80IA(4) of the Act, but if the “Explanation” is interpreted in a way that income from infrastructure development work undertaken under any contract with any person including the Central or State Government is also not eligible for deduction under Section 80-IA, then the basic intention behind extension of said benefit to a “developer” will be defeated and Section 80IA(4) to the said extent will become redundant. We, thus, based on our aforesaid deliberations, are of a firm conviction that the “Explanation” below Section 80IA(13) will not divest an eligible assessee of its claim of deduction of the profits derived from “development” of an infrastructure facility, but at the same time the said tax holiday will not be available to a business in the nature of a “works contract” whether awarded by Central or State Government or any person.

46. Admittedly, the words “developer” and “contractor” have not been defined in or for the purposes of section 80IA of the Act. Also, it is a settled legal position that, ordinarily, the meaning or definition of a word used in one statute cannot per se be imported into another, as held by the Hon’ble Supreme Court in the case of UOI v. R.C. Jain (SC)/(1981) 2 SCC 308 . Therefore, to ascertain the meaning of a word not defined in the Act, a useful reference can be made to the General Clauses Act, 1897. If a particular word is not defined in the relevant statute but is defined in the General Clauses Act, that definition provides ample guidance and can be adopted in the former enactment. According to Section 3 of the General Clauses Act, the definitions given in this Act shall have applicability in all the Central Acts unless a contrary definition is provided of a particular word or expression. However, on perusing Section 3 of the General Clauses Act, we observe that neither the word “contractor” nor “developer” has been therein defined. Thus, the General Clauses Act is also of no assistance in this regard. Confronted with the said situation, i.e., when these words are neither defined in the Income-tax Act, 1961, nor in the General Clauses Act, then the same should be construed as used in the common parlance as per their plain dictionary meaning. Our view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of Abdulgafar A. Nadiadwala v. ACIT [2004] 267 ITR 488 (Bombay). In the said case, the Hon’ble High Court was looking into the meaning of the words “goods” and “merchandise”, which were not defined under section 80HHC of the Act. The Hon’ble High Court held that it is well-settled that in the absence of there being anything contrary to the context, the language of a statute should be interpreted according to the plain dictionary meaning of the terms used therein. Also, we find that a similar view has been expressed by the Hon’ble Supreme Court in the case of CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 (SC)

, in which it was held that the ordinary dictionary meaning of a word should be relied upon unless there is an overriding reason to justify a departure.

47. Coming back to the meaning of the words “developer” and “contractor”, which have neither been defined in the Act nor in the General Clauses Act, 1897, we fall upon Oxford Advanced Learners Dictionary to find out their meaning, as under:

(a).

“Developer” is a person or company that designs and creates new products;

(b).

“Contractor” is a person or a company that has a contract to do a work or provides services or goods to another.

Further, to understand the scope and gamut of the term “Work”, we can borrow the meaning ascribed to it as per the “Explanation” below Section 194C(7) of the Act, which reads as under:

(iv).”work” shall include-

(a)

advertising;

(b)

broadcasting and telecasting including production of programmes for such broadcasting or telecasting;

(c)

carriage of goods or passengers by any mode of transport other than by railways;

(d)

catering;

(e)

manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.]”

(emphasis supplied by us)

48. We further draw support from the meaning of the aforesaid terms as had been looked into by the Hon’ble Courts. We find that the Hon’ble High Court of Bombay, in its recent order in the case of Patel Engg. Ltd. [2026] 486 ITR 538 (Bombay)/ITA No. 1146 of 2004, dated 11/03/2026, while dealing with the scope and gamut of Section 80IA(4) of the Act, had observed that the term “developer” means a person carrying out the action of development, i.e., bringing something into existence by way of scientific structural planning, technical expertise and precise execution. On the other hand, a “works contract” means a contract executed as per the planning, design and direction of some other person. The Hon’ble High Court had further observed that the primary point of distinction between a developer and contractor is essentially to be determined based on the terms of the contract, and by applying two primary tests to the facts of the case, viz. (i) whether the financial, operational and other executional risks were borne by the assessee or not; and (ii). whether the planning, development, and design have been carried out by the assessee or it is merely executing/performing specific actions as per the directions of the Government. The Hon’ble High Court observed that the assessee company before them was not merely executing any specific direction given by the authorities, but had borne and undertaken all development, geological, and investment risks. It was further observed that the assessee company was involved in the complete development of the project from designing the project as per the specification provided in the tender, deciding the assets to be deployed in its choice and discretion, amount and resources to be invested and costing the same out, bearing the financial and operational risk, and ultimately executing the project. The High Court based on its aforesaid observations held that the “Explanation” inserted by the amendment made available on the statute vide the Finance Act, 2007 as well as Finance (No.2) Act, 2009 is not applicable where the assessee executes the work by shouldering investment & technical risk by employing team of technically & administratively qualified persons and is also liable for liquidated damages if it fails to fulfil obligations laid down in the agreement. For the sake of clarity, we deem it apposite to cull out the observations of the Hon’ble High Court, as under:

“32. We find substance in the submission of Shri Dada that the Explanation inserted by the amendment made vide Finance Act, 2007 as well as Finance Act, 2009 is not applicable in the case where the assessee executes the work by shouldering investment & technical risk by employing team of technically & administratively qualified persons and where it is also liable for liquidated damages if it fails to fulfil the obligation laid down in the agreement.

33. Dealing with the submission of the Revenue that the assessee is a contractor and not a developer for the purpose of Section 80-IA, it is seen that during the assessment year, the assessee was essentially engaged in the business of activity of development of construction of two projects i.e., Koyna Project executed pursuant to the agreement with the Government of Maharashtra, and Srisailam Project executed pursuant to the agreement with the Government of Andhra Pradesh. The Koyna dam was constructed with the purpose of irrigation and water supply in Konkan region and also with the intent to generate 1-itxa 1146-04-J.doc hydro-electricity. The Srisailam Project situated on Krishna river, is a multi-purpose project developed for the purpose of water supply, irrigation and generation of hydro-electric power.

34. Shri Dada submitted that the meaning of term “developer” means a person carrying out the action of development. We therefore find force in the submission of Shri Dada that development by its intrinsic nature means bringing something into existence by way of scientific structural planning, technical expertise and precise execution. As against that, a works contract means a contract executed as per the planning, design and direction of some other person. The primary point of distinction between a developer and a contractor, as rightly submitted by Shri Dada, is essentially to be determined based on the terms of the contract, and by applying two primary factors to the facts of the case, them being (i) whether the financial, operational and other executional risks were borne by the assessee or not, and (ii) whether the planning, development and design has been carried out by the assessee or it is merely executing/performing specific actions as per the directions of the Government.”

(emphasis supplied by us)

49. We further find that a similar view had earlier been taken by the Hon’ble High Court of Gujarat in Pr. CIT (Central) v. Montecarlo Construction Ltd., Ahmedabad (Gujarat). In the case before the Hon’ble High Court, the assessee company was engaged by State Government bodies for construction and infrastructure projects. The Revenue alleged that the assessee company was merely a contractor and not a developer of the infrastructure project. However, the CIT(A) as well as the Tribunal, after perusing the nature and scope of work done by the assessee company from designing to executing the project, the risks borne by the assessee company, and the terms of agreement of the assessee company with the government bodies, concluded that as the assessee company was a developer of the infrastructure facility and not merely a contractor, therefore it was eligible for deduction under Section 80IA(4) of the Act. We find that the argument of the Revenue regarding the insertion of “Explanation” to Section 80IA of the Act, vide the Finance Act, 2009, with retrospective effect from 01/04/2000, was also considered by the High Court. Also, the Hon’ble High Court had recognized the distinction between a mere contractor and a developer. It was observed that a developer undertakes overall responsibility for the project’s development, including managerial and financial obligations, and exercises control over the project during the development period, even though ownership of the underlying land remains with the Government. The Hon’ble High Court also clarified that merely describing the assessee as a “Contractor” in the agreement or the deduction of TDS under the relevant provisions would not determine its status, and also, the ownership of the infrastructural facility is not a requirement for claiming deduction under section 80IA(4) of the Act. For the sake of clarity, we deem it apposite to cull out the observations of the Hon’ble High Court of Gujarat in Montecarlo Construction Ltd. (supra), wherein it had referred to and upheld the view taken by both the lower authorities, observing as under (relevant extract):

“3.4 Being aggrieved the assessee preferred appeal before the CIT (Appeal). The CIT (Appeal) allowed the appeal by observing as under:

“40. Considering the above discussion wherein it is amplified by quoting various clauses of agreements entered between the appellant and the respective State Government bodies, it becomes clear that the appellant cannot be merely considered as a contractor. The perusal of scope of work, the designing responsibility of the appellant, mobilization of funds and the construction material, the inherent risk because of improbable factors determining the execution of the project indicate that the appellant cannot be considered as a contractor. It may be clarified that a contractor is a person who does only civil construction and once the job of civil construction is over, his contract is over and the agreement ends. The contractor works as per the design and specification given and he does not involve much of his own money but raises the bill for his civil construction work time to time to collect the expenditure incurred. On the other hand, a developer is a person who takes full responsibility to develop the project by involving his managerial as well as financial responsibilities. Essentially, a developer has to design the project as per the specifications given to whom and thereafter has to execute the construction work in the capacity of a contractor. During the period of execution of project, the developer temporarily become the owner of the site on which the project is executed. In real terms, the ownership always remains with the Government. On the other hand, from the perusal of various clauses of agreement that the appellant cannot be merely termed as a contractor in the facts of this case. I am also of the view that merely the fact that the appellant is termed as ‘contractor’ in the various agreements and also the fact that TDS is made u/s, 194C, one cannot infer that the appellant as contractor. the issue of ownership as pointed out by the AO has already been settled by the Hon’ble ITAT, Ahmedabad that it is not envisaged in the section that the appellant should be the owner of the infrastructural project.

41. Accordingly, Having regard to the facts and circumstances of the case and the ratio of judicial pronouncements cited supra and also the judgment of Bombay high Court in the case of ABG Heavy Industries, judgment of Gujarat High Court in the case of Radhe Developers and the judgment of the ITAT Ahmedabad in the case of Sugam Construction Pvt Limited, and also the Circular number 4, cited supra, I am of the view that the Appellant. Company is a developer of infrastructure facilities and is eligible for deduction u/s 801A(4) of the Act The Disallowance made by the AO of the appellant’s claim for deduction u/s 801A(4) amounting to Rs. 6,20,01,678/- is therefore not sustainable. The same is hereby ordered to be deleted and the claim of deduction by the Appellant is hereby allowed.

42. The appeal is thus allowed.”

3.5 to 3.6 xxx xxx xxx

3.7 The Tribunal after considering the submissions of the assessee and after analysing the facts of the case arrived at the following conclusion:

“11.16 On the detailed analysis of the above project, we find that the assessee meets the criteria laid down for the developer as discussed above. As such, the assessee was to make detailed drawings, design calculations/fabrication etc. at its own cost. Further, the assessee is also responsible for arranging methods of the execution of work along with detailed drawings, sketches, furnishing the details of sufficient plants, equipment, and labor. The assessee has to arrange the land for a temporary site office, office laboratory, parking yard, store yard, labor camp, workshop etc. The assessee was duty bound to protect the environment on and off the staff site and avoid the damage or nuisance etc. to the persons or to the property of the public. The assessee was to maintain at its own cost sufficient experienced supervisory staff required for the work and arrangement of their housing. The assessee was to have the field laboratory for the purpose of testing materials. The assessee has to arrange electric power and water supply. The assessee was also under the obligation to provide traffic safety arrangements like sign board, speed limit speed breakers, diversion board, etc. Besides the above, the assessee was to pay the liquidated damages in case of delay in the completion of project and other defaults.

11.17 The purpose for which the provisions of section 801A (4) were brought under the statute were achieved in the given facts and circumstances. Thus, the fact that the assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. Further, the tender document as discussed above has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the employer and indemnify at the same time for any losses/damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose, the MPRDCL retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of a defect, if any. Thus, it cannot be said that the assessee had not taken any risk in the given facts and circumstances especially when the assessee has undertaken the project as a whole for the development of the road right from the beginning till the end. Thus, on perusal of the terms and conditions in the tender documents furnished by the assessee, it is clear that the assessee was not a works contractor simply but a developer and hence, the explanation to section 80-IA(13) does not apply to the assessee.”

3.8 to 3.13 xxx xxx xxx

3.14 The CIT (Appeal) has further examined as to whether the project assigned to the assessee was in capacity of a contractor or the same was executed as a developer with respect to the canal projects, agreements were entered into by the assessee was analysed and tendered documents containing the terms and conditions of the project were taken into consideration with respect to the following aspects as to the entire investment in the project was to be made by the assessee. Interim payment to the tune of estimated contract value in respect of the development work done for each month after retention and other adjustments were to be made, security deposit was to be paid by the assessee, there was a penalty for delay, procurement of the material was the responsibility of the assessee, procurement of land for camp, for shop, labour camp etc. also the employment of qualified engineers, action and compensation in respect of bad work, defect liability of the accidents to persons in relation to Workman Compensation Act, indemnity insurance of the workmen employed. The CIT (Appeal) and the Tribunal considering such aspects of the tendered agreement, concurrently held that the assessee has entered into a development of infrastructure facility agreement and not the works contract.”

50. The aforesaid order was followed by the Hon’ble High Court in the assessee’s own case in Pr. CIT v. Montecarlo Ltd 475 ITR 143 (Gujarat), wherein it was held that the assessee company was a developer of the infrastructure facility and not a contractor, and was eligible for deduction under Section 80IA(4) of the Act. Thereafter, the revenue had carried the matter by filing a “Special Leave Petition” (“SLP”) before the Hon’ble Supreme Court, which, vide its order passed in Montecarlo Construction Ltd. (supra) original order of the High Court of Gujarat in Montecarlo Construction Ltd. (supra) was not challenged before it, thus it had attained finality.

51. We further find that the Hon’ble High Court of Gujarat in Pr. CIT v. N.C.C. M.S.K.E.L. (JV) (Gujarat), had observed that the assessee before them, who was awarded the contract of development of the airport, was denied the claim for deduction under Section 80IA(4) of the Act, as it was alleged that it was undertaking a works contract and was not a developer. The Hon’ble High Court observed, that the assessee was awarded a contract for the full-fledged development of an Airport, which is evidently not for any repairs or maintenance or upkeep or revamp of the existing Airport facilities but for developing a new infrastructure facility at Sardar Vallabhbhai Patel International Airport, and was supposed to undertake necessary financial and entrepreneurial risk so as to qualify as a developer. Accordingly, the High Court, by observing that the assessee before them was a “developer,” held it as eligible for deduction under Section 80IA(4) of the Act.

52. We further find that the Hon’ble High Court of Gujarat in the case of CIT v. Radhe Developers (Gujarat)/[2012] 341 ITR 403 (Gujarat), had in the context of the claim of the assessee for deduction under Section 80IB(10) of the Act, read in the backdrop of a pari materia “Explanation” made available on the statute vide the Finance (No.2) Act, 2009, w.r.e.f 01/04/2001, which excluded the claim of deduction to a “works contract”, observed that the assessee before them, i.e., a builder would fall within the meaning of a “developer” if he controlled the project and had assumed risk, even if he is not the owner of the land. On the other hand, it was observed that a “works contractor” only executes work for consideration without assuming any risk or control. The Hon’ble High Court, while so observing, held that the distinction between a “developer” and “works contractor” depends on economic reality and not contractual labels.

53. We further find that the Hon’ble High Court of Rajasthan in the case of CIT v. Om Metal Infraprojects Ltd. [IT Appeal No. 33 of 2012, dated 22-8-2017], had upheld the order passed by the Tribunal in Om Metals Infraprojects Ltd. v. Addl. CIT [IT Appeal No. 911 (JP) of 2010, dated 5-8-2011] for Assessment Year: 2007-08. In the said case, the assessee company had constructed an earthen dam to provide irrigation to certain parts of Maharashtra and also provide drinking water as a part of an irrigation project, viz. “Goshi Khurd Project” promoted by the Government of Maharashtra undertaking, viz. Vidarbha Irrigation Development Corporation, Nagpur. The assessee company had claimed a deduction under Section 80IA(4) for “profits derived” from the aforesaid infrastructure project of Rs. 16.89 crores (approx.). However, the AO by drawing support from the “Explanation” below Section 80IA(13) that was applicable w.r.e.f 01/04/2000, concluded that as the assessee company was awarded a “works contract” by the State Government of Maharashtra which was part of the total work of construction, development and operation of irrigation project, thus, its claim for deduction under Section 80IA(4) was not tenable. The CIT(A) upheld the assessment order. On further appeal, the Tribunal rejected the revenue’s contention that the assessee was not a “developer” but a “contractor” because it prepared the Gates as per the design given by the Corporation and merely fitted the gates and operated them for two years to train the Corporation’s staff. The Tribunal held that the assessee company was a developer and was eligible for deduction under Section 80IA(4), even after the “Explanation” was added to Section 80IA(4) by the Finance Act, 2007, and thereafter amended by the Finance Act, 2009, with retrospective effect from 1.4.2000. The Hon’ble High Court of Rajasthan, in its order passed in Om Metal Infraprojects Ltd. (supra) had while upholding the order of the Tribunal and dismissing the revenue’s appeal, observed that the issue was squarely covered by the decision of the High Court of Bombay in CIT v. ABG Heavy Industries Ltd 322 ITR 323 (Bombay), against which SLP had been dismissed on 06/12/2010. Apart from that, the Hon’ble High Court had relied on its earlier order involving identical facts in CIT v. Shiva Construction (P.) Ltd. [IT Appeal No. 631 of 2008, dated 25-5-2017]. For the sake of clarity, we deem it apposite to cull out the observations of the Hon’ble High Court in Om Metal Infraprojects Ltd. (supra), as under:

“3. The issue regarding 80IA deduction is squarely covered by the decision of Bombay High Court Commissioner of Income Tax, Central II v. ABG Heavy Industries Ltd. reported in (2010) 322 ITR 323 (Bombay) against which the SLP came to be dismissed on 6th December, 2010 and also decision of this Court in Tax Appeal No. 631/2008 (CIT, Ajmer v. M/s Shiva Construction Pvt. Ltd.) decided on 25th May, 2017.

4. In that view of the matter, the issue is answered in favour of the assessee against the department.

5. The appeal stands dismissed.”

54. We further find that a similar issue had been adjudicated by the ITAT, Hyderabad “B” Bench in GVPR Engineers Ltd. v. Asstt. CIT (Hyderabad)/ITA Nos. 347/Hyd/2008, dated 29.02.2012. The Tribunal had looked into the fine distinction between a “developer” and “works contractor” in light of the “Explanation” below Section 80IA(13) of the Act. The Tribunal observed that the assessee company had, pursuant to the agreement for development of an infrastructure facility, viz. (i) taken over from the Government the possession of the premises of the project for development of the infrastructure facility; (ii) undertaken all the responsibilities to do all the acts till the possession of the property is handed back to the Government; (iii). shall facilitate the people to use the available existing facility even while the process of development is in progress; (iv). any loss to the public caused in the process would be the responsibility of the assessee; (v). all the works for the development of the infrastructure facility were to be executed by the assessee; (vi). the assesse’s duty was to develop infrastructure, whether or not it involved the construction of a particular item as agreed to in the agreement; (vii). the agreement was not for a specific work, but it was for the development of the facility as a whole; (viii). the assessee was not entrusted with any specific work to be done by the assessee; (ix). the material required was to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material; (x). the Government was not to provide any material to the assessee; (xi). the Government had provided the works in packages and not as a works contract; (xii). the assessee had utilized its funds, its expertise, and its employees, and had taken responsibility for developing the infrastructure facility; (xiii). the losses suffered either by the Government or the people in the process of such development would be that of the assessee; (xiv). the assessee was to hand over the developed infrastructure facility to the Government on completion of the development; (xv). the assessee had to undertake maintenance of the said infrastructure for a period of 12 to 24 months; and (xvi). that during the maintenance period, if any damage occurs, it shall be the responsibility of the assessee. The Tribunal, based on the aforesaid facts, observed that, as against the possession of an undeveloped area handed over to the assessee by the Government, the assessee was required to develop an infrastructure facility and hand over the same to the Government. The Tribunal, after perusing the facts of the case in the backdrop of the assessee company’s activities, observed that the assessee company was not a mere “works contractor” but was to be considered a “developer” of an infrastructure facility. Accordingly, the Tribunal set aside the AO’s order, which, by treating the assessee company as a works contractor, had declined to allow its claim for deduction under Section 80IA(4) of the Act. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under:

28. The next question is to be answered is whether the assessee is a developer or mere works contractor.The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. We find that the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee’s responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee’s duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer.

29. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word “contractor” is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word “contractor” is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor.

30. We find that the decision relied on by the learned counsel for the assessee in the case of CIT v. Laxmi civil Engineering works [supra] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 80IA of the Act after considering the Judgement of the Mumbai High Court in the case of ABG Heavy Engineering [supra]. The case of ABG is not the pure developer whereas, in the present case, the assessee is the pure developer. We also find that Section 80IA of the Act, intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80IA of the Act, which ultimately culminated into Amendment under section 80IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in Section 80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contact or subcontract as distinct from the developer. This is clear from the express intension of the parliament while introducing the Explanation. The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources. Further, the order of Tribunal in the case of B.T. Patil cited supra is prior to amendment to sec 80IA(4), after the amendment the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the “or” between three activities was not there, after the amendment “or” has been inserted w.e.f. 1-4-2002 by Finance Act 2001. Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act if the contracts involves design, development, operating & maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s 80IA of Act. In our opinion the contracts which contain above features to be segregated on this deduction u/s. 80-IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those work are not entitle for deduction u/s 80IA of the Act. The profit from the contracts which involves design, development, operating & maintenance, financial involvement, and defect correction and liability period is to be computed by assessing officer on pro-rata basis of turnover. The assessing officer is directed to examine the records accordingly and grant deduction on eligible turnover as directed above. It is needless to say that similar view has been taken by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the Tribunal has taken the same view by inter-alia holding as follows:

“7. Moreover, the reasons for introducing the Explanation were clarified as providing a tax benefit because modernisation requires a massive expansion and qualitative improvement in infrastructures like expressways, highways, airports, ports and rapid urban rail transport systems. For that purpose, private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other work contract has been encouraged by giving tax benefits. Thus the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the section but where a person makes the investment and himself executes the development work, he carries out the civil construction work, he will be eligible for the tax benefit under section 80IA.”

31. The above order was followed in subsequent assessment years 2007-2008 & 2008-09 in ITA Nos. 1312 & 1313/Mds/2011 vide order dated 18.11.2011 in the case of the same assessee. Being so, we are inclined to partly allow the ground relating to claiming of deduction u/s. 80IA.”

Also, we find that a similar view has been taken by the ITAT, Hyderabad, in Koya & Co. Construction (P) Ltd. v. ACIT [IT Appeal No 180 (Hyd) of 2006, dated 2-3-2012]. In the said case, the revenue had denied the claim of the assessee company for deduction under section 80IA(4), inter alia, on the ground that the assessee company before them was only a contractor carrying on construction of the infrastructure and therefore not eligible for deduction under Section 80IA(4) of the Act. On appeal, the Tribunal had relied upon the order of the ITAT, Pune in Laxmi Civil Engineering (P.) Ltd. v. Addl. CIT [IT Appeal No. 766/PN/2009, dated 8-6-2011], which, in turn, had drawn support from the judgment of the Hon’ble High Court of Bombay in ABG Heavy Industries Ltd (supra), and had held that mere development of an infrastructure facility is an eligible activity for claiming deduction under Section 80IA of the Act. The Tribunal based on its elaborate deliberations, had set aside the orders of the authorities below which had denied the claim of the assessee company for deduction under Section 80IA(4) of the Act, inter alia, for the reason that as it was only a contractor carrying on construction of the infrastructure, it was hit by the “Explanation” below Section 80IA(13) of the Act. The Tribunal, while setting aside the orders of the authorities below, had observed as under:

“Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act if the contracts involves design, development, operating & maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s 80IA of Act.”

(emphasis supplied by us)

Further, a similar view had been taken by the ITAT, Chennai in The ACIT v. R.R Constructions [IT Appeal No. 2061/Mds/2010, dated 03/10/2011]. In the said case, the AO had though observed that as the assessee company was a “works contractor” and not a “developer”, it was as per the “Explanation” below Section 80IA(13) of the Act not entitled for deduction under Section 80IA(4) of the Act, but his order declining the claim of for deduction under Section 80IA(4) was set-aside by the CIT(A). On appeal, the Tribunal upheld the CIT(A) order. It was observed by the Tribunal that if an assessee, after taking a contract from the Government, develops infrastructure facilities, it would be regarded as a “developer” and not as a “works contractor”. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under:

“It is a fact that even after taking a contract from the Government, if the assessee develops infrastructure facilities, it would be regarded as a ‘developer’ and not as a ‘works contractor’. The assessee firm has carried on entire construction/development of the infrastructure facilities and satisfy all the conditions of section 80IA(4)(i)(a). It is undeniable fact that the assessee has taken development of infrastructure facility agreement from the State Government/local authority. A contractor who develops the infrastructure facility becomes a developer to claim exemption under section 80IA(4). The Hon’ble Bombay Bench of ITAT while deciding the case of Patel Engineering Ltd. v. DCIT in ITA No. 1221/Mum/2004 has gone to the extent of holding that the assessee, a civil contractor, having executed a part of contracts of irrigation and water supply on ‘build and transfer’ basis and handed over them to contractee Governments, was eligible for deduction under section 80IA(4).”

Also, we find that the ITAT, Ahmedabad in the case of Sugam Construction (P.) Ltd. v. ITO (Ahmedabad – Trib.), had observed that a developer engaged in constructing infrastructure facilities (like roads/canals) is eligible for a tax deduction under Section 80-IA(4) of the Income Tax Act, provided they act as a developer and not just a works contractor. The Tribunal had broadly defined the traits of a “developer” as under:

“12.7. Now we shall examine about a ” developer”. From the above reading we have also gathered (a) That a developer is a person who undertakes the responsibility to develop a project. (b) That a developer is therefore not a civil contractor simplicitor. (c) That if we apply the commercial aspect, then a developer has to execute both managerial as well as financial responsibility. (d) That the role of a developer, according to us, is larger than that of a contractor. (e) That when a person is acting as a developer, then he is under obligation to design the project, it is an another aspect that such design has to be approved by the owner of the project, i.e. the Government in the present case. (f) That he has not only to execute the construction work in the capacity of a contractor but also he is assigned with the duty to develop, maintain and operate such project. (g) That to ascertain whether a civil construction work is assigned on development basis or contract basis can only be decided on the basis of the terms and conditions of the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a “work contract” or a “development contract”. (h) That in a “development contract” responsibility is fully assigned to the developer for execution and completion of work. (i) That although the ownership of the site or the ownership over the land remains with the owner but during the period of development agreement the developer exercise complete domain over the land or the project. (j) That a developer is not expected to raise bills at every step of construction but he is expected to charge the cost of construction plus mark-up of his profit from the assignee of the contract.(k) That a developer is therefore expected to arrange finances and also to undertake risk. (l) That in contrast to the rights of a ” contactor” a “developer” is authorized to raise funds either by private placement or by financial institutions on the basis of the project. These are few broad qualities of a developer through which the character of a developer can be defined.”

Also, the ITAT Hyderabad in the case of Sushee Hi-Tech Constructions (P.) Ltd. v. Dy. CIT (Hyderabad – Trib.)/ITA Nos 269 & 1165/Hyd/2009, had observed that the assessee should not be denied the deduction under Section 80IA of the Act as the contracts involves, development, operating, maintenance, financial involvement, and defect correction and liability period, and thus such contracts cannot be called as simple works contract.

55. We shall now in the backdrop of the aforesaid settled position of law, after considering the nature of the work and the terms of the contract/award between the Joint Venture/Consortium and the Government bodies, JV/Consortium agreements, supplementary agreements etc., determine as to whether the assessee company is to be regarded as a “developer” or merely a “works contractor” in view of the “Explanation” below Section 80IA(13) of the Act, by applying the two primary tests to the facts of the case, as emphasised by the Hon’ble High Court of Bombay in Patel Engg. Ltd (supra), viz. (i) whether the financial, operational, and other executional risks were borne by the assessee company or not; and (ii) whether the assessee company had carried out the planning, development, and design, or it had merely executed/performed specific actions as per the directions of the Government.

56. In our view, for answering the aforesaid issue, i.e., whether the assessee company is to be regarded as a “developer” or merely a “works contractor” in view of the “Explanation” to Section 80IA(13) of the Act, we need to briefly recapitulate and examine the legal position governing the fine distinction between a “developer” and a “works contractor”. We find that the Hon’ble High Court of Bombay in The Patel Engineering Ltd.(supra), has held that the term “developer” must be understood in a pragmatic and purposive manner. The Hon’ble High Court has observed that a person who undertakes not merely execution but also design, engineering, planning, and assumes responsibility for the ultimate functionality of the infrastructure facility cannot be treated as a mere works contractor. It was observed that the essence of a works contract lies in execution without discretion, where the contractor merely follows pre-determined specifications without assuming any significant technical or financial risk. We find that the said principle has also been elaborated by the Hon’ble High Court of Gujarat in Montecarlo Construction Ltd. (supra), wherein the Court has drawn a clear distinction between a “developer” and a “works contractor” by emphasizing that a developer is one who conceives, designs, executes, and delivers an infrastructure facility, whereas a works contractor merely executes the work assigned to him. The Hon’ble High Court specifically observed that where the assessee undertakes investigation, design, engineering, and execution, and bears the risks associated with such activities, the contract cannot be categorized as a “works contract”. Further, the Hon’ble High Court of Gujarat reiterated its aforesaid view in Montecarlo Construction Ltd. (supra), and once again affirmed that the “Explanation” to Section 80IA(13) applies only to pure works contracts and not to cases where the assessee performs development functions. We find that the Hon’ble Supreme Court in Montecarlo Ltd. (supra), has dismissed the “Special Leave Petition” (“SLP”) filed by the Revenue, both on delay and on merits, and it was observed that the earlier judgment of the Hon’ble High Court in PCIT v. Montecarlo Construction Ltd. (Guj) has attained finality.

57. We have perused the aforesaid judicial pronouncements and find that certain guiding principles therein emerge, viz. (i) the substance of the work undertaken is determinative; (ii) involvement in design, engineering, and execution indicates developer status; (iii) assumption of risk and responsibility for the end product is a key indicator of development activity; and (iv) the “Explanation” to Section 80IA(13) of the Act excludes only those contracts where the assessee acts as a mere executor without any developmental role.

58. Considering the tests laid down by the Hon’ble High Court of Bombay in Patel Engg. Ltd. (supra) in mind for distinguishing a “works contractor” from a “developer”, viz. (i) whether the financial, operational and other executional risks were borne by the assessee company or not; and (ii) whether the assessee company had carried out the planning, development and design or it had merely executed/performed specific actions as per the directions of the Government, we are of the view that it will be apposite to refer to the contents of a “Chart” that was submitted by the assessee company with the CIT(A) (Page 33 -34 of CIT(A) order), which reads as under (relevant extract):

Sr. No.

Name of the Project

Brief Nature of Project

Whether Material Supplied by Govt.

Risk Factor Borne by Whom

Development

Operation & Maintenance

Date of Commenc ement of Project

Date of Completion

Financial Involvement

Defect Correction

Mainten ance Period

Defect Liability Period

Pranahita Chevella Lift Irrigation Scheme -Link II (Package 6

Detailed investigation, design, and execution of a complex lift irrigation system comprising construction of canals, tunnels, lifts, pressure mains, and electromechanical components for drawl and lifting of 146.24 TMC of water from Sri Pada Yellampally Reservoir near Vemunur (V), Ramagundam (M), Karimnagar District to Madaram Reservoir near Nandi Meadaram (V), Dharmarama (M), Karimnagar District with the Components such as 1. Lined Gravity Canals reservoir near Nandi Madaram Gravity Ca. 2. CM & CD Works 3. Lifts 4. Lined Tunnels 5. Pressure Mains and with all associate Civil HydroMechanical and ElectroMechanical Works.

Navyuga Engineering Company Limited

12.11.2008

11.12.2019

Navyuga Engineering Company Limited

Navyuga Engineerin g Company Limited

15 years

2 years

Sripada Sagar Project

Stage -II Phase “Iinvestigation, soil exploration, design, supply, installation, testing and commissioning of pumping machinery, transformers sub-stations, raising mains including construction of pump house all civil structures, CM & CD works channels and delivery cistern etc., to develop 2.00 lac acres of ayacut in the upland area of Karimnagar District from Sripada Sagar Project.

As per the share of work executed by the members:, Navyuga Engineering Company Limited, IVRCL Limited & SEW Infrastructure Limited

03.04.2005

Yet To Be Completed

As per the share of work executed by the members:, Navyuga Engineering Company Limited, IVRCL Limited & SEW Infrastructure Limited

As per the share of work executed by the members:, Navyuga Engineerin g Company Limited, IVRCL Limited & SEW Infrastructu re Limited

2 years

We shall now look into the salient features of both the projects executed by the assessee company during the year under consideration, as under:

(A) . Pranahita Chevella Lift Irrigation Scheme – Link II (Package 6):

(i)

. We find on a perusal of the record that the scope of the aforesaid project includes detailed investigation, design, and execution of a complex lift irrigation system comprising construction of canals, tunnels, lifts, pressure mains, and electro-mechanical components for drawl and lifting of 146.24 TMC of water from Sri Pada Yellampally Reservoir near Vemunur (V), Ramagundam (M), Karimnagar District to Madaram Reservoir near Nandi Meadaram (V), Dharmarama (M), Karimnagar District, Page 275 – 279 of APB.

(ii)

. In our view, the execution of the aforesaid project would necessarily involve hydrological analysis, engineering design, and integration of multiple systems, which cannot be carried out without significant technical expertise and independent decision-making. We are further of the firm conviction that by applying the ratio of the judgment of the Hon’ble High Court of Bombay in Patel Engineering Ltd. (supra), as the assessee company before us was not merely executing instructions but was actively involved in the design and engineering of a complex mega irrigation project and had assumed financial, operational and other executional risks, thereby assuming responsibility for the functionality of the system, it cannot be brought within the meaning of a “works contractor”. Further, as per the principles laid down by the Hon’ble High Court of Gujarat in Montecarlo Construction Ltd. (supra), the involvement of the assessee company in the investigation and design itself takes the contract outside the purview of a “works contract”. We are thus of the view that testing the nature of the project against the aforesaid judicial parameters clearly establishes that the assessee company acted as a developer of the mega irrigation project.

(iii)

. We further find on a perusal of the record that the total value of works to be carried out under the L.O.A issued by the I & CAD Department amounted to a substantial amount of Rs. 3859.71 crores (approx.). We find that all the works involved in developing the infrastructure facility were to be executed by the assessee company. The agreement was not for a specific work, but was for the development of the infrastructure facility as a whole. In fact, the assessee company was not entrusted with any specific work to be done by the assessee company, but with the work of development of an infrastructure facility, i.e., a mega irrigation project which was spread over a period of 11 years (approx.) [12.11.2008 (date of commencement of the project) till 11.12.2019 (date of completion of the project)]. The material for executing the infrastructure project was not to be supplied by the Government but was to be procured by the assessee company. The Government had provided the subject infrastructure project work in a package, viz, Pranahita Chevella Lift Irrigation Scheme – Link II (Package 6), and not as a works contract. Further, we find that the assessee company utilized its funds, its expertise, and its unskilled, semi-skilled, and technically skilled employees, deployed its plant & machinery, and took full responsibility for developing the infrastructure facility. Further, as per the record, the risk factor involved in the development of the project was to be borne by the assessee company. The Government body had retained an Earnest Money Deposit (EMD) of Rs. 96,49,29,000/-, viz. (i). Bank Guarantee dated 14/08/2008 issued by SBI, Commercial Branch, Bank Street, Hyderabad: Rs. 53,99,29,000/-; and (ii). Bank Guarantee dated 05/08/2008 issued by Dena Bank, Corporate Business Branch, Mumbai: Rs. 42,50,00,000/-, for the due fulfillment of the contract to the satisfaction of the Government body. It was agreed to keep EMD @ 2.5% valid till the completion of work to the satisfaction of the Government body, plus a twenty-four-month observation period. Also, as per the agreement, during the agreement period, an amount equal to 7.5% of the value of work done will be withheld from the bills as a “Further Security Deposit” (FSD). Also, as per the terms of the agreement, the security deposited by the contractor was to be returned, subject to the contractor fulfilling and performing the terms and conditions of the contract, to the satisfaction of the Government body. The assessee company had handed over the developed infrastructure facility to the Government upon completion of the infrastructure project. Thereafter, the assessee company had to undertake the Operation & Maintenance (O&M) of the said project for a period of 15 years. Also, the assessee company was to bear all liabilities/costs during the 2-year defect liability period. Therefore, it is clear that, from an undeveloped area, the assessee company developed an infrastructure project and handed it over to the Government, with a further obligation to provide Operation & Maintenance (O&M) for a period of 15 years and a defect liability period of 2 years.

(iv)

We may herein observe that neither anything to the contrary is available on the record nor the revenue has placed before us any material which would dislodge the veracity of the aforesaid facts filed by the assessee company before the CIT(A). We thus, based on our aforesaid observations, are of a firm conviction that as the assessee company had brought into existence by way of scientific structural planning, technical expertise, and precise execution the infrastructure facility, viz. “Project – Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)”, after carrying out designing, drawings, investigation, estimation, land plans etc., and bearing the financial, operational and other executional risks as a developer, which, after its completion on 11/12/2019, was to be operated and maintained by it for a period of 15 years along with a defect liability period of 2 years, therefore, it is a “developer” of the subject project and cannot be brought within the meaning of a simpliciter “works contractor”.

(v)

. We thus, based on our aforesaid observations, are of the view that as the assessee company had, as a “developer”, developed the project, viz. “Project – Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)”, therefore, the “Explanation” to Section 80IA made available on the statute vide the Finance (No.2) Act, 2009, w.r.e.f 01/04/2000 will not apply in its case.

(B). Sripada Sagar Project – Stage II, Phase I:

(i).

We find on a perusal of the record that the scope of the work involved in the aforesaid project includes investigation, soil exploration, design, supply, installation, testing and commissioning of pumping machinery, transformers sub-stations, raising mains including construction of pump house all civil structures, CM & CD works channels and delivery cistern etc., to develop 2.00 lakh acres of ayacut (area of land) duly considering the needs of drinking water enrooting Villages from Sripada Sagar Project Near Yellampalli (V), Ramagundam (M) in Karimnagar District, Andhra Pradesh on EPC Turnkey System, Page 280-285 of APB.

(ii).

In our view, this is a classic example of an EPC turnkey project where the assessee company is responsible for delivering a fully operational system. The Hon’ble High Court of Gujarat in Montecarlo Construction Ltd. (supra) has emphasized that such turnkey contracts involving design and execution are to be treated as development activities. Also, the Hon’ble High Court of Bombay in Patel Engineering Ltd. (supra) has stressed that the responsibility for the final outcome is a decisive factor. In our view, as the assessee company in the aforesaid project has clearly undertaken the responsibility of delivering functional irrigation and drinking water infrastructure, it qualifies as a developer.

(iii).

Also, as per the agreement, we find that the constituent members of the JV, viz, the assessee company (35.75%), along with the other co-members, i.e., IVRCL (35.75%) and SEW (28.50%), as per their respective share of work had borne the risks involved in the project executed by them. The project commenced on 03/04/2005 and, during the subject year, remained incomplete. It was agreed that the respective joint venturers/members, i.e., the assessee company, IVRCL & SEW, as per their respective share of work to be executed, would undertake the operation and maintenance of the project for a period of 2 years. The financial involvement in executing the project was borne by the assessee company, IVRCL & SEW, in proportion to their respective shares. Further, the obligation to correct the defect for a period of 2 years was on the assessee company, IVRCL & SEW, in proportion to their respective shares. The respective joint venturers/members, i.e., the assessee company, IVRCL & SEW, were to execute the project work in accordance with their respective delineated shares. Additionally, they would undertake the operation and maintenance of the project for a period of 2 years, as per their respective share of work executed. We further find that all works involved in developing the infrastructure facility were to be executed by the joint venturers/members of the JV. The agreement was not for a specific work, but was for the development of the infrastructure facility as a whole. In fact, the assessee company was not entrusted with any specific work, but with the development of an infrastructure facility, i.e., an irrigation project to be built on the river Godavari for supplying water to additional agricultural areas not covered in Stage 1. The said project was started on 03.04.2005 and was yet to be completed during the subject year. The material for executing the infrastructure project was not to be supplied by the Government but was to be procured by the contractor. The Government had provided the subject infrastructure project work in a stage-wise manner (Stage II, Phase 1), viz., Sripada Sagar Project – Stage II, Phase I, and not as a works contract. Further, we find that the assessee company utilized its funds, expertise, and unskilled, semi-skilled, and skilled employees, deployed its plant & machinery and technology, and took full responsibility for developing the infrastructure facility. Further, as per the record, the risk involved in the development of the project was to be borne by the assessee company and the other members/joint venturers in proportion to their respective shares.

(iv).

The Government body had retained an Earnest Money Deposit (EMD) of Rs. 43,42,50,000/- up to 02/01/2010. It was further agreed to keep EMD @ 2.5% valid till the completion of work to the satisfaction of the Government authority, plus a 24-month Operation and Maintenance (O&M) period, and 3 months beyond the Defect Liability Period. Also, as per the agreement, during the course of the agreement period, an amount equal to 5% of the value of work done was to be withheld from the bills as a “Further Security Deposit” (FSD). Further, as per the terms of the agreement, the Security deposited was to be returned, subject to the fulfillment and performance of the agreement, upon the Government body’s satisfaction.

(v).

(vi).

We thus, based on our aforesaid observations, are of the view that as the assessee company had brought into existence by way of scientific structural planning, technical expertise, and precise execution the infrastructure facility, viz. Sripada Sagar Project – Stage II, Phase, i.e., an irrigation project for 2 lakh acres of ayacut (area of land), after carrying out investigation, soil exploration, designing, installation of pumping machinery, transformers sub-stations, construction of pump houses, civil structures, CM & CD works, delivery cistern etc., and bearing the financial, operational and other executional risks as a developer, which, after its completion is to be operated and maintained by it for a period of 2 years along with a defect liability period of 2 years, therefore, it is a “developer” of the subject project and cannot be brought with the meaning of a simpliciter “works contractor”.

59. Accordingly, based on our aforesaid observations, we are of the view that as the assessee company had, as a developer, developed its delineated share of the irrigation project, viz. “Project: Stage-II, Phase 1 of Sri Pada Sagar Project” along with the other joint venturers/co-members, i.e., IVRCL & SEW, therefore it will not be hit by the “Explanation” to Section 80IA made available on the statute vide the Finance (No.2) Act, 2009, w.r.e.f 01/04/2000.

60. Before parting on the aforesaid issue, we may herein observe that, as we have based on our aforesaid observations, concluded that the assessee company had executed the respective irrigation projects as a “developer”, therefore, the reliance placed by the AO upon the judgment of the Hon’ble High Court of Gujarat in the case of Katira Constructions Ltd. (supra), wherein it has been held that the “Explanation” to Section 80IA of the Act, as made available on the statute vide the Finance (No. 2) Act of 2009 with effect from 01-04-2000, was valid and, being clarificatory in nature, was applicable retrospectively, thus, will not carry the case of the revenue any further.

61. We, thus, in terms of our aforesaid observations, uphold the view taken by the CIT(A) that the assessee company, while computing its income for the subject year, is duly entitled to the deduction of the profits derived from the aforesaid two projects, viz, (i). Project – Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6); and (ii). Project: Stage-II, Phase 1 of Sri Pada Sagar Project under Section 80IA(4) of the Act.

62. Resultantly, the appeal filed by the revenue, being devoid and bereft of any substance, is dismissed in terms of our aforesaid observations.

ITA 458/HYD/2025

AY 2018-19

63. We shall now take up the appeal filed by the revenue for AY 2018-19 in ITA No. 458/Hyd/2025, wherein the impugned order passed by the CIT(A) has been assailed on the following grounds of appeal before us:

4. Whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating that the facts of the case are not in conformity with the clarificatory amendment to Section 80-IA of the Act (Explanation 2 to Section 80-IA inserted by the Finance Act, 2017), which was introduced to unambiguously provide that only those enterprises that have entered into a development agreement with the Central Government, State Government, or local authority and have invested their own funds for developing such facilities would be eligible for the deduction?

5. The appellant craves leave to amend, alter, or add any ground(s) that may be necessary.”

64. Succinctly stated, the assessee company had filed its original return of income for the assessment year 2018-19 on 30.11.2018, declaring an income of Rs. 384,95,06,430/- (raising a claim of deduction of Rs. 158,15,65,405/-under Section 80IA(4) of the Act). Subsequently, a revised return of income was filed on 31.03.2019, declaring an income of Rs. 152,79,36,330/- (after claiming deduction under section 80IA(4) of the Act of Rs. 415,12,32,105/-).

65. Search & seizure proceedings under Section 132 of the Act were conducted in the case of the assessee company on 25.10.2018. Thereafter, the assessee company, in response to notice issued under section 153A of the Act, had filed its return of income on 21.09.2019, declaring an income of Rs. 133,34,99,930/- (after claiming deduction under Section 80IA(4) of Rs. 454,89,93,363/-) and “book profit” under section 115JB of the Act at Rs. 463,29,62,382/-. In the return of income filed in response to notice issued under section 153A of the Act, the assessee company had claimed deduction under section 80IA(4) of the Act of Rs. 454,89,93,363/-, which comprised, viz. (i). deduction in respect of profits derived from three projects directly awarded to it; and (ii). deduction of the profits derived from five projects executed by it as a constituent member of Joint Ventures/Consortiums. The assessee company also furnished the audit report in “Form No. 10CCB” in support of its aforesaid claim of deduction. The Joint Ventures/Consortiums had not claimed deduction under section 80IA(4) of the Act.

66. During the course of the assessment proceedings, the AO observed that the assessee company was a constituent member in various Joint Ventures/Consortia, viz. (i). M/s Navayuga-Transstroy, JV; (ii). M/s Navayuga-GMW, JV; (iii). M/s Navayuga-Patel-BHEL (Consortium); (iv). M/s Navayuga-IVRCL & SEW JV; and (v). M/s IVRCL-Navayuga & SEW, JV. The aforesaid Joint Ventures/Consortiums were formed solely for bidding and procuring large infrastructure projects to be awarded by State Governments.

67. The AO examined the claim of deduction of the assessee company under section 80IA(4) of the Act. Although the deductions claimed in respect of projects directly awarded to the assessee company were not disputed, but the deduction claimed in respect of profits derived from projects executed as a constituent member of the Joint Ventures/Consortium was disallowed by the AO. The AO held that the agreements for execution of the projects were entered into by the Joint Ventures/Consortium with the Government bodies and not by the assessee company directly; therefore, the condition prescribed under section 80IA(4) regarding entering into an agreement with the Central Government, State Government, or any statutory authority was not satisfied.

68. The AO further observed that deduction under Section 80IA(4) was not applicable to “works contracts”. According to him, the contracts executed by the assessee company pursuant to assignments from Joint Ventures/Consortium were in the nature of “works contracts”, as the developer-level risks were borne by the Joint Venture/Consortium, while the assessee company would bear only general business risks. The AO also noted that although the assessee company had placed reliance on the decision of the ITAT, Visakhapatnam in Transstroy (India) Ltd. v. ITO ITA No. 54/Vizag/2009, dated 14/07/2011, but the Revenue, having not accepted the said decision, had preferred an appeal before the Hon’ble High Court. Accordingly, the AO, based on his aforesaid observations, rejected the claim of the assessee company for deduction of the profits derived from projects executed as a constituent member of the Joint Ventures/Consortium raised under Section 80IA(4) of the Act.

69. Aggrieved by the assessment order, the assessee company preferred an appeal before the CIT(Appeals). The assessee company claimed that it had independently executed its share of work in the Joint Ventures, had undertaken full technical, financial, and entrepreneurial risks, and had performed functions akin to those of a developer, not merely those of a contractor. It was further submitted that the Joint Venture (JV) was only a consortium arrangement for securing the Government contracts, whereas the actual execution of the projects was carried out by the constituent members in their respective shares.

70. Thereafter, the CIT(A), after deliberating on the JV agreements, Supplementary agreements, and Contracts of the respective projects awarded to the five Joint Ventures/Consortia, wherein the assessee company was a constituent member, dealt with the salient features of the said projects, as under:

A). Navayuga-Patel-BHEl Consortium:

The CIT(A) observed that the aforesaid consortium was entered into between Navayuga Engineering Company Limited (assessee company), M/s. Patel Engineering Limited and BHEL, vide an agreement, dated 03/05/2008. Thereafter, it was observed by him that an “Article of Contract”, dated 12/11/2008, was executed between Navayuga-Patel-BHEL (Consortium) and the Superintendent Engineer, SYP Circle, Manchiryal, wherein the terms on which the work of “Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)” was awarded to the aforesaid consortium were mentioned. The CIT(A) observed that a “Supplementary agreement”, dated 03/05/2008, was executed between the aforesaid constituent members of the consortium on 14/11/2008. The CIT(A), thereafter referred to the contents of the aforesaid consortium agreement, supplementary agreement, and articles of contract, and observed, as under:

(i).

The CIT(A) observed that Page-2 of the consortium agreement, dated 03/05/2008, revealed that the purpose for constituting the same was for submitting a joint bid by the constituent members for the project, viz. “Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)”. Also, he observed that the role of each consortium partner in the execution of the work was delineated, including design, supply, erection, testing, commissioning, and maintenance related to the specific work allotted to them.

(ii).

The CIT(A) observed that at Page-3 of the consortium agreement, dated 03/05/2008, it was agreed amongst the constituent members that the assessee company, viz., M/s. Navayuga Engineering Company Limited shall be the consortium leader, and it will conduct all negotiations in connection with the bidding in the capacity of being the lead member.

(iii).

The CIT(A) observed that the contract for “Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)” was entered between the Joint Venture/Consortium and Superintendent Engineer, SYP Circle, Manchiryal on 12/11/2008, wherein the assessee company, as the lead member of the consortium, had signed the contract on the latter’s behalf.

(iv)

The CIT(A) observed that the assessee company, as a constituent member of the Joint Venture/Consortium, had furnished a bank guarantee for Rs. 53.99 crores (approx.) of “Earnest Money Deposit” (EMD), as a performance guarantee for the successful completion of the project.

(v).

The CIT(A) further observed that in the supplementary consortium agreement, dated 14/11/2008 it was agreed that M/s. BHEL would perform only the specialist role under the consortium agreement, wherein a separate order for (i) supply, and (ii) erection, testing, and commissioning of E & M equipment would be issued at an agreed price, terms, and conditions as decided amongst the consortium partners, while for the assessee company and M/s. Patel Engineering Limited would execute the entire contract and remain solely responsible for the consortium’s assets and liabilities.

(vi).

The CIT(A) observed that a supplementary agreement, dated 02/03/2018, was entered into with the Superintendent Engineer, Karimnagar, through which the total responsibility, including financial responsibility, was transferred from M/s. Navayuga-Patel-BHEL (consortium) to the assessee company. Also, it was observed by him that the claim of the assessee company for deduction under section 80IA(4) of the profits derived from execution of the infrastructure project, i.e., “Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)” was allowed by the AO while framing the assessment of the assessee company vide his order passed under section 143(3) r.w.s 153C of the Act for AY 2019-20.

B). Navayuga Transstroy, JV:

The CIT(A) observed that the assessee company M/s. Navayuga Engineering Co. Ltd. and M/s Transstroy India Limited had executed the Joint Venture (JV) agreement, dated 01/12/2004. The CIT(A) further observed that an “Article of Agreement”, dated 21/03/2005, was executed between M/s. Navayuga-Transtroy, JV and Superintendent Engineer, Medium Irrigation Project Circle Bellampally, Adilabad for the project, viz., “Package No.18 – Investigation, Design, Estimation and Construction of Sri Komaram Bhim Project (Peddavagu Project) near Ada Village, Asifabad (M), Adilabad District”. Thereafter, the CIT(A) referred to the aforesaid JV agreement and “Article of Agreement”, and observed as under:

(i).

The CIT(A) observed that the JV agreement, dated 01/12/2004, referred to the roles and responsibilities of each of the constituent members. It was observed by him that at Clause 5 of the agreement, it was mentioned that each of the parties shall be solely responsible for the performance of its scope of work and shall bear technical, commercial and financial risks involved with the performance of its scope of work.

(ii).

The CIT(A) observed that the assessee company was the lead partner of M/s. Navayuga Transstroy, JV.

(iii).

The CIT(A) observed that the “Article of Agreement”, dated 21/03/2005, executed between the Superintendent Engineer, Medium Irrigation Project Circle Bellampally, Adilabad and M/s. Navayuga Transtroy, JV revealed the scope and description of work which was to be taken up by both the constituents of the Joint Venture, i.e., the work of “Package No: 18 – Investigation, Design Estimation and construction of Sri. Komaram Bhim Project (Peddavagu Project)” near Ada Village Asifabad (M) Adilabad district, comprising of formation of earth dam full Reservoir level at (+) 243.00 M, construction of spillway to dispose off 7391 cumecs (261000 cusecs) including fabrication, supply and erection of gates, gate operation equipment, all accessories painting to gates and electrification etc., construction of head regulator for letting out water in to left canal, excavation of left Irrigation channel with lining, distributory system and field channels to Irrigate an ayacut of 9916 Ha (24,500 Acres) Khariff Paddy and 9915 Ha(24500 acres) of Rabl I.D. including construction of CM & CD works, formation of 8 Km length of new road including black topping for diversion of existing road coming under submergence, including the maintenance, and have caused an estimate proposal contained in Schedule A drawings and specifications describing the work to be done to be prepared.

(iv).

The CIT(A) observed that a supplementary Joint Venture Agreement, dated 01/02/2005 was executed between the assessee company and M/s. Transstroy India Limited, wherein the scope of work to be carried out by the assessee company regarding the water resources development projects was mentioned as under:

“1) Scope of Work:

The scope of work of the individual of the Joint Venture for execution of the Project specifies as under:

(a) Navayuga:

(i)

Overall Supervision, Project Management, Quality Control and Coordination with clients.

(ii)

Execution of the work at the quoted rates including provision of all materials, equipment, all personnel required for the work and including all direct & indirect expenses involved.

(iii)

Providing of all necessary Bank Guarantees towards Performance Guarantees, Security Deposits, Advances, etc.,

(iv)

Providing of all Insurance covers required as per the contract

(v)

Payment of all Taxes, Duties etc., as applicable in terms of the contract.

(vi)

Bearing all costs of Arbitration for settlement of claims with “Employer” if applicable.

(vii)

All liabilities and liquidated damages, if any, arising out of the agreement.”

(v).

The CIT(A), referring to the supplementary Joint Venture Agreement, dated 01/02/2005, observed that the shares of each of the constituents of the Joint Venture (JV) were mentioned, viz., (i) share of the assessee company: 60%; and (ii) share of M/s. Transtroy:40%.

C). Navayuga GMW JV:

The CIT(A) observed that the assessee company and M/s. GMW Private Limited had entered into a Joint Venture (JV) on 26/05/2016. Also, the CIT(A) observed that “Articles of Contract”, dated 15/07/2016, was entered into between M/s. Navayuga-GMW, JV and Superintendent Engineer, Kaleswaram Project, Circle No.1, Ramagundam, Karimnagar. The CIT(A) further observed that a supplementary JV agreement dated 30/05/2016 was executed between the assessee company and M/s. GMW Private Limited. Thereafter, the CIT(A) referred to the contents of the aforesaid JV agreement, supplementary agreement, and “Articles of Contract”, and observed as under:

(i).

The CIT(A) observed that in the JV Agreement, dated 26/05/2016, it was specifically mentioned that the JV was formed for the purpose of jointly bidding for the tender for Kaleswaram Project-Sundilla Barrage Construction, i.e., construction of Barrage with Radial Gates, etc.

(ii).

The CIT(A) observed that the assessee company was the lead member of the JV.

(iii).

The CIT(A) observed that the role and responsibility of the members of the JV was mentioned in the JV Agreement, dated 26/05/2016, viz., (a) that the assesse company shall be the lead member of the JV; and shall have the Power of Attorney from all members for conducting of the business for and on behalf of the assessee JV during the bidding process and during the execution of the project; and (b) that the second party, i.e., M/s. GMW Private Limited shall be a member of the JV.

(iv).

The CIT(A) observed that the shares of the parties in the JV were mentioned in the aforesaid agreement, dated 25/05/2016, viz., (i) M/s. Navagyua Engineering Company Limited (assessee company): 80%; and (ii) M/s. GMW Private Limited: 20%.

(v).

The CIT(A) observed that the “Articles of Contract”, dated 15/07/2016 entered into between M/s. Navayuga-GMW, JV and Superintendent Engineer, Kaleswaram Project Circle No.1, Ramagundam, Karimnagar, revealed the scope of work, which read as under:

“Whereas the Government of Telangana (herein after called the Government) is desirous of taking up the work of “Kaleshwaram Project. Sundilla Barrage Construction of Barrage with Radial Gates, Hoisting arrangements Including formation of Guide Bunds on either side of Barrage etc., across Godavari river near Sundilla (V), Khamanpur (M), Karimnagar District” and have caused an estimate of probable quantities contained in Schedule-A drawings and specifications describing the work to be done to be prepared.

And where as the said Schedule-A, Drawings numbered serially 1 to inclusive (Schedule-B) and the special specifications (Schedule-C), Additional Conditions for Materials (Schedule-D), General Conditions (Schedule-E), Detailed Tender Notice, Tender articles of agreement have been signed by or on behalf of the parties hereto.”

(vi).

The CIT(A) observed that the supplementary JV Agreement, dated 30/05/2016 entered between the assessee company and M/s. GMW Private Limited, inter alia, revealed the scope of work of the assessee company, which read as under:

“1) Scope of Work:

The scope of work of the individual of the Joint Venture for execution of the Project shall be as under:

(a) Navayuga:

(i)

Overall Supervision, Project Management, Quality Control and Coordination with Employer.

(ii)

Execution of the entire work at the quoted rates including provision of all materials, equipment, all personnel required for the work and including all direct & indirect expenses involved till the completion of defect liability period as per the requirement of the Contract.

(iii)

Providing of all necessary Bank Guarantees towards Performance Guarantees, Security Deposits, Advances, etc.,

(iv)

Providing of all Insurance covers required as per the contract.

(v)

Payment of all Taxes, Duties etc., as applicable in terms of the contract.

(vi)

Bearing all costs of Arbitration for settlement of claims with “Employer” if applicable.

(vii)

All liabilities and liquidated damages, if any, arising out of the agreement.”

D). Navayuga-IVRCL & SEW JV:

The CIT(A) observed that the assessee company, IVRCL Infrastructure Projects Limited & SEW Constructions Limited, had executed a Joint Venture (JV), agreement dated 09/03/2005. Also, it was observed by him that an agreement, dated 26/09/2005, was entered into between the Superintendent Engineer, MGJLIP Circle, Mahaboobnagar, and M/s. Navayuga-IVRCL-SEW, JV. The CIT(A), referring to the contents of the JV agreement/contract agreement, observed as under:

(I).

The CIT(A) observed that the assessee company, as per the JV agreement, dated 09/03/3005, was the lead partner of Navayuga-IVRCL & SEW, JV.

(ii).

The CIT(A) observed that Navayuga-IVRCL & SEW, JV was formed to bid for the work of “Execution of stage-2 Pumping Station (5x30MW) of Kalwakurthi Lift Irrigation Scheme at Jonnalaboguda Balance Reservoir near Khanapur Village, Koderu Mandal, Mahaboobnagar District of Andhra Pradesh on EPC basis” for lifting water received from Singotham Reservoir, which in turn receives water from Stage-1, Pumping Station of Kalwakurthi Lift Irrigation Scheme at Regumangadda, Near Yelluru Village, Kollapur Mandal, Mahaboobnagar District, Andhra Pradesh.

(iii).

The CIT(A) observed that the roles and responsibilities/liabilities of the parties to the Joint Venture (JV) were stated in the JV Agreement, dated 09/03/2005, as per which each of the parties shall be solely responsible for the performance of its scope of work and shall bear all technical, commercial and financial risks involved with the performance of its scope of work. Also, it was stated that the physical division of each party’s scope of work shall be mutually agreed upon after the award of the work.

(iv).

The CIT(A) observed that the contract agreement, dated 26/09/2005, entered into between the Superintendent Engineer, MGJLIP Circle, Mahaboobnagar and M/s. Navayuga-IVRCL & SEW, JV revealed the scope of work, which read as follows:

“Navayuga-IVRCL & SEW JV having its office at Plot No. 1259, Lakshmi Towers, Road No. 36, Jubilee Hills, Hyderabad 500033 (hereinafter called “the Contractor) of the other post.

Whereas the Employer desirer that the Works known as Execution of Stage -2 Pumping Station (5x30MW) of Kalwakurthi Lift Irrigation Scheme at Jonnalaboguda Balancing Reservoir near Khanapur Village, Koderu Mandal, Mahaboobnagar District of Andhra Pradesh, India on EPC basis Tender No: T.No.34/NKLI/2004-2005 Dated: 12.01.2005 should be executed by the Contractor, and has accepted a Tender of the Contractor for the execution and completion of these Works and the remedying of any defects Is therein Including Operation and Maintenance of the Work for three (3) years after successful commissioning.”

E). M/s. IVRFCL-Navayuga & SEW, JV:

The CIT(A) observed that the assessee company had executed a JV with IVRCL Infrastructure & Projects Ltd and SEW Constructions Limited on 09/03/2005. Also, it was observed by him that the “Articles of Contract” was signed between the Superintendent Engineer, Manchiryal and IVRCL-Navayuga & SEW, JV on 03/04/2005 for the work at “Stage-II, Phase-I of Sri Pada Sagar Project”. Thereafter, the CIT(A) referred to the contents of the JV Agreement and “Articles of Contract”, and observed as under:

(i).

The CIT(A) observed that the intention of forming the IVRCL-Navayuga & SEW, JV, as mentioned at Page 2 of the JV Agreement, dated 09/03/2005, was to submit a joint bid for the project Sri Pada Sagar Project.

(ii).

The CIT(A) observed that the JV agreements mentioned the scope of undertaking the role and responsibility of the JV Partners and the risks to be taken by each of them.

(iii).

The CIT(A) observed that M/s. IVRCL Infrastructure and Projects Limited was agreed to be the leading partner of the JV.

(iv).

The CIT(A) observed that the stake of each party in the JV was fixed, viz., (a). M/s. IVRCL Infrastructure and Projects Limited: 35.75%; (b). M/s. Navayuga Engineering Company Limited (assessee company): 35.75%; and (c). M/s. SEW Constructions Limited: 25.50%.

(v).

The CIT(A) observed that as per the “Articles of Contract”, dated 03/04/2005, entered between Superintendent Engineer, Mandhiryal and IVRCL-Navayuga & SEW, JV, the scope of work for executing the project at Stage-II, Phase-1 of Sri Pada Sagar Project, read as under:

“Stage-II, Phase-1 of Sri pada Sagar Project: Investigation, soil exploration, design, supply, installation, testing and commissioning of pumping machinery, transformers sub-stations, raising mains including construction of pump house all cial structures, CM && CD works, channels without lining and delivery cistern etc., to develop 2.00 Lakh acres of ayacut duly considering the needs of drinking water for enrooting villages from Sripada Sagar Project near Yellampaiil (V). Ramagundam (M) in Karimnagar District, Andhra Pradesh

And have caused an estimate/proposal contained in schedule, drawings and specifications describing the work jo be done to be prepared.”

(vi).

The CIT(A) observed that as per the “Articles of Contract”, dated 03/04/2005, “Earnest Money Deposit” (EMD) of Rs. 43.42 crores (approx.) was agreed to be retained with the Government up to 02/01/2010, which was to be contributed by all three constituents of the JV in proportion to their respective stakes in JV.

(vii).

The CIT(A) observed that the contribution of “Earnest Money Deposit” of Rs. 43,42,50,000/- comprised of, viz., (i) M/s. Navayuga Engineering Company Limited: Rs. 15,65,44,000/-; (ii) IVRCL Infrastructure and Projects Limited: Rs. 15,53,44,000/-; and (iii) M/s. SEW Constructions Limited: Rs. 12,37,62,000/

71. Thereafter, the CIT(A), based on his aforesaid observations, relied upon the order passed by the ITAT, Hyderabad in the case of Megha Engineering & Infrastructure Limited, (supra), and observed in his order, as under:

(i)

that the assessee company, as a constituent member of the JV/Consortium, had paid a substantial amount as a bank guarantee to the State Government as an Earnest Money Deposit (EMD) towards performance guarantee.

(ii).

that the bank guarantee was provided by the assessee company and not the respective JVs/Consortium;

(iii).

the JVs/Consortium agreements between the constituent members specified the scope of undertaking, its exclusivity, role, and responsibility of the JV partners, and risks to be undertaken by each of the constituent members/partners;

(iv).

that at the time of executing the JVs/Consortium, it was agreed that the work/project awarded to the JVs/Consortium will be executed by the constituents of the JVs/Consortium;

(v).

that, as per the JVs/Consortium agreements, it was agreed that each party shall be responsible for the provision of, without limitation of resources required for the proper fulfillment of the scope of its work;

(vi).

that it was agreed amongst the constituent members of the JVs/Consortium that they shall bear all technical, commercial, and financial risks involved in performing their respective scope of work;

(vii).

that it was agreed that once the project is awarded to the JVs/Consortium, then it is to be executed by the constituents of the JVs/Consortium in the ratio agreed upon by the constituents; and

(viii).

that for all practical purposes, it was the constituents who had executed the projects awarded to the JVs/Consortium.

72. The CIT(A) further observed that the order of the Tribunal in the case of Megha Engineering & Infrastructure Limited (supra) was followed by a coordinate bench in another case, viz.,Pratima Infrastructure Ltd. v. ACIT [IT Appeal No. 451 (Hyd) of 2024, dated 27.11.2024]. Elaborating on his observation, the CIT(A) had observed that the Tribunal, while disposing of the said appeal, had observed that the work that was carried out by Prathima Infrastructure Limited (supra) relating to the same project, viz. “Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)” for the drawl and lifting of 146.24 TMC of water from Sri Pada Yellampalli Reservoir near Vemunur (V), Ramagundam Mandal, Karimnagar District, Medaram Reservoir near Nandi Medaram (V), Dharmaram Mandal, Karimnagar District was akin to a “developer” to develop infrastructure projects like an irrigation project. The CIT(A) observed that the project undertaken by M/S Prathima Infrastructure Limited, i.e., “Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)”, is the same project carried out by the assessee company as a constituent member of M/s. Navayuga-Patel-BHEL (Consortium).

73. Thereafter, the CIT(A), based on his aforesaid observations, examined the nature and scope of the work executed by the assessee company as a constituent of the JVs/Consortium, and observed as under:

(i)

M/s Nayayuga Patel BHEL Consortium: The nature of work is given in para no. 6.4/10(v) of this order. The project Pranahitha Chevella Lift Irrigation Scheme Lift II, package -6 is identical to the project before Hon’ble ITAT while deciding the case of M/s Pratima Infrastructure Limited. After noticing the nature, scope and extent of the project, Hon’ble ITAT held that the projects of such nature are huge infrastructure facilities and the constituents involved in execution of such projects undertake entrepreneurial and investment risk that any developer would have undertaken. In the present case, appellant being a lead partner majority stake holder in the joint ventures had undertaken entrepreneurial and investment risk that any developer would undertake.

(ii)

M/s Navayuga Transstroy JV: The nature and scope of work undertaken by the appellant as a part of constituent JV is as under:

“Whereas the Government of Andhra Pradesh (Herein after called the Government) are desirous of taking up the work of Package No:18 “Investigation, Design Estimation and construction of Sri. Komaram bhim Project (Peddavagu Project) near Ada Village Asifabad (M) Adilabad district comprising of formation of earth dam full Reservoir level at (+) 243.00 M, construction of spillway to dispose off 7391 cumecs (261000 cusecs). Including fabrication, supply and erection of gates, gate operation equipment, all accessories painting to gates and electrification etc. construction of head regulator for letting out water in to left canal, excavation of left Irrigation channel with lining distributary system and field channels to Irrigate an ayacut of 9916 Ha (24,500 Acres) Khariff Paddy and 9915 Hal24500 acres) of Rabi ID. Including construction of CM & CD works, formation of 8 Km length of new road Including black topping for diversion of existing road coming under submergence including the maintenance and have caused an estimate proposal contained In schedule A drawings and specifications describing the work to be done to be prepared.”

The work involved Investigation, design, estimation and construction of Sri. Komaram Bhim Project interalia including construction of spillway including fabrication, supply and erection of gates, excavation of irrigation channel with lining distributary system and field channels etc. formation of 8 km length of new road etc. The nature, size and scope involve investigation, design, execution of various components of the project which clearly indicate that the appellant is involved in investigation, design, estimation and construction. The work of the appellant did not restrict to the civil works but included various activities like design, estimation, execution etc. It had also taken entrepreneurial and financial risks.

(iii)

M/s Navyuga GMW JV: The scope of the work as per the articles of contract entered between the JV Navayuga GMW and State Government is as below:

“Whereas the Government of Telangana (herein after called the Government) Ire desirous of taking up the work of “Kaleshwaram Project-Sundilla Barrage Construction of Barrage with Radial Gates, Hoisting 2012-13 arrangements Including formation of Guide Bunds on either side of Barrage etc., across Godavari river near Sundilla (V), Khamanpur (M), Karimnagar District and have caused an estimate of probable quantities contained in Schedule-A drawings and specifications describing the work to be done to be prepared.

For the above work the scope of work allocated and executed by the appellant as per supplementary JV agreement is as follows:

“1) Scope of work:

The scope of work of the individual parties of the Joint Venture for execution of the

Project shall be as under:-

(a) Navayuga:

(i)

Overall Supervision, Project Management, Quality Control and Coordination with Employer.

(i)

(iii)

Providing of all necessary Bank Guarantees towards Performance Guarantees, Security Deposits, Advances, etc.,

(iv)

Providing of all Insurance covers required as per the Contract.

(v)

Payment of all Taxes, Duties etc., as applicable in terms of the

(vi)

Bearing all costs of Arbitration for settlement of claims with “Employer” if applicable.

(vii)

All liabilities and Liquidated Damages, if any, arising out of the agreement.”

(iv)

Similarly, the scope, nature and size and extent of the work to be executed by the appellant company as constituent of JV for M/s Navayuga IVRCL & SEW IV and for M/s IVRCL- Navayuga & SEW JV are given in para no. 6.4.9.4 and 6.4.9.5 of this order respectively. The details contained in the articles of contract entered between the State Government and 5 JV’s indicate that the appellant as a constituent partner had to execute projects, was involved in processes such as investigation, design and execution and hence can be said as developer and not a contractor/sub-contractor.”

74. The CIT(A) thereafter concluded as under:

(i)

that as held by the Jurisdictional Tribunal in Megha Engineering & Infrastructure Limited (supra), the assessee company, as a constituent member of the JVs/Consortium, satisfied the condition of entering into agreements with the relevant Central or State Government or any authority as per the provisions of section 80IA(4) of the Act; and

(ii)

that considering the facts of the case, viz. (a) the nature and size of the project in which the assessee company was involved as a constituent member; (b) clearly delineated roles and responsibilities; (c). Involvement in technical, commercial, and financial risks in the scope of its work; and (d) involvement in design, execution, and commissioning of the projects, clearly revealed that it could not be termed as a “works contractor” but by all means is a “developer” of the respective projects. For the sake of clarity, we deem it apposite to cull out the observations of the CIT(A), as under:

“The JV’s as such had not claimed any deduction u/s. 801A(4) of the Act. AO held that the JV/Consortium has entered contract with Government authorities and not the appellant therefore, the claim made for the profits derived as a constituent of JV/Consortium was rejected. In fact, AO never disputed the fact that the enterprise is owned by an Indian company and also satisfied the other conditions however, disputed the condition of entering into an agreement with the Central Government or a State Government or any Local authority or any Statutory body. The nature and scope of work undertaken and executed by the appellant as a constituent of JV is large and complex infrastructure facilities. The appellant company was involved in investigation, design, estimation, construction, supply, erection, testing, commission and maintenance of electro mechanical works, civil works, road construction, hydro mechanical works and delivery pipe line etc in equal proportion to its share in JV as a constituent member. As per mutually agreed terms and conditions between the constituents of the JV/Consortium it was agreed that each party shall be responsible for the provisions of contract without limitation on resources required for the purpose of the scope and also solely responsible for the performance of its scope and shall bear all technical, commercial and financial risk involved in performing its scope of work. In facts of the case, the nature and size of the projects in which appellant company involved as a constituent member, clearly delineated roles and responsibilities, involvement in technical, commercial and financial risks to its scope of work. involvement in design, execution and commissioning of the project indicate amply that the appellant cannot be merely termed as a work contractor but by all means is developer of the project. Appellant is Constituent Member of JV/Consortium, the JV/Consortium agreement between the members specified the scope of undertaking, its exclusivity, role and responsibility of the JV partners and risk to be undertaken by each of the JV partner. The appellant as a constituent member was directly involved with the project as it is evident from the payment of EMD to the State Government. Once the project was awarded to the JV/Consortium it is to be executed by the Constituent of the JV in a ratio agreed upon by the constituent. On examination of a case in which similar facts were involved Hon’ble jurisdictional ITAT held that the constituents of a JV/Consortium are eligible to claim deduction u/s. 801A(4) on the profits derived from the execution of infrastructure project. In the present case also being a constituent member of JV/Consortium appellant has executed the project and also undertaken relevant risks including financial risks hence becomes a developer of the infrastructure project and also as a constituent partner of the JV/Consortium satisfied the condition of entering into an agreement with relevant Central or State Government or any Authority as per the provision of section 801A(4) of the Act. In view of the facts of the case and respectfully following ratio laid down by Hon’ble Jurisdictional ITAT, I am of the considered opinion that the appellant is eligible for deduction under section 801A(4) of the Act towards profits derived from infrastructure project awarded to JV/ Consortium but executed by the appellant. Accordingly AO is directed to allow the deduction claimed U/s 801A(4) from the profits derived as a constituent partner of JV/Consortium. Sub parts no. 1(b) to 1(d) are allowed. In sub part 1(e) of Ground of appeal no.1, appellant submitted that the AO arrived at Rs. 298,23,66,950/- as deduction claimed for projects awarded to JV/Consortium against the correct amount of Rs. 296,74,27,957/-. AO is directed to verify the correct amount of claim made u/s. 801A(4) for the projects awarded to JV/Consortium and as per above decision allow such correct amount. In view of this, sub part 1(e) is allowed.”

75. The CIT(Appeals), after examining the Joint Venture agreements, scope of work, and nature of activities undertaken by the assessee company, observed that the assessee company was involved in investigation, design, estimation, and execution of the projects and had undertaken substantial financial and technical risks. He observed that the nature, size, and complexity of the projects, and the responsibilities assumed by the assessee company, clearly established that it was functioning as a “developer” of infrastructure facilities and not merely as a “works contractor” or a sub-contractor. The CIT (Appeals) also relied upon certain judicial precedents, including the decision of the Tribunal in the case of Pratima Infrastructure Limited(supra), wherein it was held that even a sub-contractor executing part of a large infrastructure project is eligible for deduction under section 80IA(4) of the Act, if the nature of work is akin to that of a developer. It was further noted that the provisions of section 80IA(4) do not mandate that there must be a direct agreement between the assessee and the Government authority in all cases.

76. In view of the above, the CIT(Appeals) held that as the assessee company, being a constituent member of the Joint Ventures, had executed infrastructure projects involving entrepreneurial and investment risks, it was eligible for deduction under section 80IA(4) of the profits derived from such projects. Accordingly, the CIT(A) directed the AO to allow the assessee company’s claim for deduction after verifying the correct quantum of the claim.

77. We, in the backdrop of our observations recorded while disposing of the revenue’s appeal for the immediately preceding year, i.e., AY 2017-18, and considering the tests laid down by the Hon’ble High Court of Bombay in Patel Engg. Ltd (supra) for distinguishing a “works contractor” from a “developer”, viz. (i) whether the financial, operational and other executional risks were borne by the assessee or not; and (ii) whether the assessee had carried out the planning, development and design or it had merely executed/performed the specific actions as per the directions of the Government; as well as the other judicial pronouncements/orders referred by us hereinabove, shall now look into the JV/Consortium agreements, Supplementary agreements, Award of Contract, as well as the salient features of the five projects executed by the assessee company during the year under consideration as can be gathered from the “Chart” filed by the assessee company before the CIT(A) (reproduced at Page 32 to 37 of his order), JV/Consortium agreements, supplementary agreements, and award of contract, hereinbelow. However, before proceeding further, we may herein observe that though the AO had held the subject 5 projects, viz. (i). M/s Navayuga-Patel-BHEL (Project- Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6); (ii). IVRCL-Navayuga & SEW-JV (Project: Stage-II, Phase 1 of Sri Pada Sagar Project); (iii). Komaram Bheem Project (Peddavagu Project); (iv). Kaleshwaram Project – Sundilla Barrage Project; and (v). Kalwakurthy Lift Irrigation Scheme – Stage II Pumping Station as “works contract”, but had, in the same breath, allowed the assessee company’s claim for deduction under Section 80IA(4) w.r.t the three other similar projects that were directly awarded to it and had not drawn any adverse inference on the ground that the same were in the nature of works contract.

(A) . Pranahita Chevella Lift Irrigation Scheme – Link II (Package 6):

(i)

. As we have based on our deliberations recorded in the context of the aforesaid project, viz. “Pranahita Chevella Lift Irrigation Scheme – Link II (Package 6)”, while disposing of the revenues appeal for the immediately preceding year, i.e., AY 2017-18 in ITA No. 457/Hyd/2025, concluded, viz. (i). that the assessee company, viz. Navayuga Engineering Company Limited, as a joint venturer/constituent member of the subject Joint Venture/Consortium, viz. M/s Navayuga-Patel-BHEL [Project – Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6)] duly satisfied the condition of entering into an “agreement” with the Government as required per the mandate of Section 80IA(4)(i)(b) of the Act; and (ii). as a developer, had developed the project, viz. “Project – Pranahita Chevella Lift Irrigation Scheme-Link-II- (Package-6), therefore, the “Explanation” to Section 80IA made available on the statute vide the Finance (No.2) Act, 2009, w.r.e.f 01/04/2000 will not apply in its case, and had based on the said observations upheld the view taken by the CIT(A) that the assessee company is entitled for deduction under Section 80IA(4) of the Act, therefore, follow the same view for the subject year and uphold the order of the CIT(A) to the said extent.

(B). Sripada Sagar Project – Stage II, Phase I:

(i)

. As we have based on our deliberations recorded in the context of the aforesaid project, viz. “Project: Stage-II, Phase 1 of Sri Pada Sagar Project)”, while disposing of the revenues appeal for the immediately preceding year, i.e., AY 2017-18 in ITA No. 457/Hyd/2025, concluded, viz. (i). that the assessee company, viz. Navayuga Engineering Company Limited, as a joint venturer/constituent member of the subject Joint Venture/Consortium, viz. (i). M/s IVRCL-Navayuga & SEW-JV (Project: Stage-II, Phase 1 of Sri Pada Sagar Project) duly satisfied the condition of entering into an “agreement” with the Government as required per the mandate of Section 80IA(4)(i)(b) of the Act; and (ii). as a developer, had developed the project, viz. “Project: Stage-II, Phase 1 of Sri Pada Sagar Project”, therefore, the “Explanation” to Section 80IA made available on the statute vide the Finance (No.2) Act, 2009, w.r.e.f 01/04/2001 will not apply in its case, and had based on the said observations upheld the view taken by the CIT(A) that the assessee company is entitled for deduction under Section 80IA(4) of the Act, therefore, follow the same view for the subject year and uphold the order of the CIT(A) to the said extent.

(C). Komaram Bheem Project (Peddavagu Project):

Re: Agreement with the Central/State Government or other statutory body has been entered into by the Joint Venture and not by the assessee company:

(i).

We find that the joint venture arrangement entered into between M/s Navayuga Engineering Company Limited (assessee company) and M/s Transstroy India Limited through the agreement dated 01.12.2004 reflects a structure where the parties intended to collaborate primarily for the purpose of securing and executing a government contract, while retaining clear separability in their respective obligations (Clause 1). A critical clause in this agreement provides that each party shall be solely responsible for the performance of its own scope of work and shall independently bear all technical, commercial, and financial risks arising therefrom. This clause is fundamental because it negates the existence of any real joint responsibility or mutual agency between the parties. Instead of functioning as a unified enterprise, the arrangement emphasizes independence in execution and risk allocation (Clause 5.3). In our view, such a structure typically indicates that the parties did not intend to come together to jointly earn income, but rather to work in parallel under a common contractual umbrella.

(ii).

The subsequent agreement dated 21.03.2005 entered into with the Government of Andhra Pradesh formally places the joint venture as the contracting entity for a large-scale irrigation project involving the construction of an earth dam, spillway, canals, and associated infrastructure. We find that, although the contract is executed in the name of the joint venture, the detailed description of work, read with the JV agreement, makes it evident that the actual execution responsibilities are divided between the constituent members. The government’s recognition of the JV as a single contracting party is therefore more of a matter of administrative and contractual convenience rather than a reflection of how the work is to be performed in substance. Accordingly, we are of firm conviction that the JV does not appear to possess independent operational capability; instead, it relies entirely on its members to discharge the obligations.

(iii).

The supplementary joint venture agreement dated 01.02.2005 further reinforces this position by explicitly allocating substantial responsibilities to Navayuga Engineering Company Limited (assessee company) as the lead partner. The assessee company is entrusted with overall supervision, project management, quality control, coordination with the employer, execution of work, procurement of materials and manpower, and assumption of all financial and contractual obligations, including bank guarantees, insurance, taxes, arbitration costs, and liabilities and liquidated damages (Clause 1(a). The scope of these responsibilities demonstrates that the assessee company is effectively the executing entity for the project. Although Transstroy (India) Limited holds 40% share, the documentation suggests that its role is comparatively limited or segmented. This asymmetry in responsibility and risk undermines the notion of a jointly managed or executed venture and points instead to a model in which one dominant partner undertakes the substantive work while the JV structure is retained for formal purposes.

(iv).

We find that the AO in the assessment order had observed that the assessee’s claim that the JV/Consortium was only a pass-through entity was devoid of any merit in the context of the rights and liabilities with the main contractee. The AO observed that it was the JV that had entered into a contract with the main contractor and that, under the terms of the contract, the entire responsibility for carrying out the project rested with the JV. Elaborating further, the AO had observed that if there was any default on the part of the assessee company, then the main contractor cannot fix any responsibility of the assessee company, and such responsibility could only be fixed on the JV/Consortium. It was further observed that the rights and liabilities arising out of the contract would not pass on to the sub-contractors or the constituents of the JV/Consortium merely because, for their own convenience, the work has been distributed amongst them. In our view, the aforesaid observations of the AO are fallacious and contrary to the facts borne out from the record. We say so, for the reason that as observed by us hereinabove, that the AO had lost sight of the basic fact that the assessee company alongwith the other constituent members of the JVs/Consortium were not sub-contracted any work by the JV/Consortia, but the fact (as mentioned in the JV/Consortium agreements) was that the assessee company alongwith the other constituent members had formed the JV/Consortium for the limited purpose of bidding and securing Central/State Government contracts, i.e., as a pass through entity, and the actual execution of the projects was carried out by the said constituent members and not the JV/Consortium (Clause 1 of JV agreement, dated 01/12/2004/page 1 of Supplementary JV agreement, dated 01/02/2005). Apropos the AO’s observation that in case of default on the part of the assessee company, the main contractor, i.e., the Government body, cannot fix responsibility on the assessee company and such responsibility could only be fixed on the JV/Consortium, we are afraid that the same is misconceived and contrary to the facts borne from the record. We say so, for the reason that in the “JV agreement”, dated 01/12/2004, the JV members had acknowledged and affirmed that despite delineation of the responsibilities, they shall be jointly and severally bound to the Employer, i.e., the Government body for the execution of the contract for the project awarded in accordance with the terms and conditions (Clause 5.5).

(v).

We, thus, based on our aforesaid observations read in the backdrop of our deliberations on the aforesaid issue and the judicial pronouncements relied upon in the appeal for the preceding year, i.e., AY 2017-18 in ITA No. 457/Hyd/2025, conclude that the assessee company, viz. Navayuga Engineering Company Limited, as a joint venturer/constituent member of the subject Joint Venture/Consortium, viz. (i). M/s Navayuga-Transstroy, JV [Komaram Bheem Project (Peddavagu Project)] duly satisfied the condition of entering into an “agreement” with the Government as required per the mandate of Section 80IA(4)(i)(b) of the Act.

Re: Assessee having executed a “works contract” is not entitled to a deduction under Section 80IA(4) of the Act:

(i).

We find on a perusal of the record that the scope of the aforesaid project involves the construction of an earth dam, spillway, canal network, and irrigation infrastructure, i.e., formation of earth dam full Reservoir level at (+) 243.00 M, construction of spillway to dispose off 7391 cumecs (261000 cusecs) including fabrication, supply and erection of gates, gate operation equipment, all accessories, painting to gates and electrification etc., construction of head regulator for letting out water in to left canal, excavation of left irrigation channel with lining, distributory system and field channels to irrigate an ayacut (area of land) of 9916 Ha (24,500 Acres) Kharif Paddy and 9915 Ha (24500 acres) of Rabi I.D. Including construction of CM & CD works, formation of 8 Km length of new road, including black topping for diversion of the existing road coming under submergence, including the maintenance, Page 756 -761 of APB

(ii).

In our view, the construction of a dam and spillway is not a routine execution activity as it involves geotechnical investigations, hydraulic design, and structural engineering, along with continuous monitoring and adaptation during execution. As observed by the Hon’ble High Court of Gujarat in PCIT v. Montecarlo Construction Ltd. (supra), such projects involve the application of technical knowledge and assumption of risks, which are the hallmarks of a developer. On the other hand, a works contractor, in the strict sense, would merely execute predefined tasks without assuming such responsibilities. We, thus, are of firm conviction that by applying the ratio of both the aforesaid judgments, viz., (i). The Patel Engineering Ltd. (supra); and (ii). Montecarlo Construction Ltd. (supra), the role of the assessee company in the subject project clearly falls within the scope and gamut of a development activity.

(iii).

We find that as per the JV supplementary agreement, dated 01.02.2005, the assessee company shall be solely responsible for the overall performance of the project, and shall independently bear all technical, commercial, and financial risks arising in the project. The project commenced on 21.03.2005 and was completed on 30.06.2020. It was agreed that the assessee company would undertake the operation and maintenance (O&M) of the project for a period of 2 years. The assessee company was entrusted with overall supervision, project management, quality control, coordination with the employer, execution of work, procurement of materials and manpower, and assumption of all financial and contractual obligations, including bank guarantees, insurance, taxes, arbitration costs, and liabilities and liquidated damages. Further, the assessee company undertook the obligation to correct the defect for a period of 2 years. We further find that the agreement was not for a specific work but for the development of the infrastructure facility as a whole. In fact, the assessee company was not entrusted with any specific work but with the work of development of an infrastructure facility, i.e., the construction of an earth dam. The material for executing the infrastructure project was not to be supplied by the Government but was to be procured by the contractor. The Government had provided the subject infrastructure project work, viz., the construction of the Sri Komaram Bhim Project, and not a works contract. Further, we find that the assessee company utilized its funds, expertise, and unskilled, semi-skilled, and skilled employees, deployed its plant & machinery and technology, and took full responsibility for developing the infrastructure facility.

(iii).

We further find that, as per the record, the risk factor involved in the project was borne by the assessee company. The project commenced on 21/03/2005 (date of award) and was completed on 6/2020. The assessee company had retained with the Government an Earnest Money Deposit (EMD) of Rs. 5,50,00,000/-, viz. (i). Bank Guarantee dated 16/02/2005 issued by SBI, Commercial Branch, Hyderabad: Rs. 1,00,00,000/-; and (ii). Bank Guarantee dated 16/03/2005 issued by State Bank of India, Commercial Branch, Hyderabad: Rs. 4,50,00,000/-, both valid up to 30/04/2009. The Contractor had agreed to keep the EMD @ 2.5% valid until the completion of the work to the satisfaction of the Government authority, plus a 24-month observation period. Also, as per the agreement, during the course of the agreement period, an amount equal to 5% of the value of work done will be withheld from the bills as a “Further Security Deposit” (FSD). Further, as per the terms of the agreement, the security deposited was to be returned upon fulfillment and performance of the contract to the satisfaction of the Government authority.

(vi).

We thus, based on our aforesaid observations, are of the view that as the assessee company had, viz. (i), based on its scientific structural planning, technical expertise, and precise execution brought into existence the infrastructure facility, viz. Sri Komaram Bhim Project (Peddavagu project), which involves the construction of an earth dam, spillway, canal network, and irrigation infrastructure, etc.; (ii) had borne the financial, operational and other executional risks as a developer; and (iii). remained under the obligation to operate and maintain the project for a period of 2 years, along with a defect liability period of 2 years; therefore, it is a “developer” of the subject project and cannot be brought within the meaning of a simpliciter “works contract”.

78. We, thus, based on our aforesaid observations, are of the view that as the assessee company had as a developer, developed its delineated share of the infrastructure facility, viz. Sri Komaram Bhim Project (Peddavagu project), therefore, will not be hit by the “Explanation” to Section 80IA, as has been made available in the statute vide the Finance (No.2) Act, 2009, w.r.e.f. 01/04/2000.

(D). Kaleshwaram Project – Sundilla Barrage :

Re: Agreement with the Central/State Government or other statutory body has been entered into by the Joint Venture and not by the assessee company:

(i).

We find that a similar pattern emerges in the joint venture formed between Navayuga Engineering Company Limited (assessee company) and GMW Private Limited under the agreement dated 26.05.2016. It transpires from a perusal of the “JV agreement” that both parties had joined hands to bid for the Government project, as it was a precondition for bidding [Page 2/Clause (B) & (C)].In this arrangement, the assessee company holds an 80% share and is designated as the lead member with full authority to act on behalf of the JV, through a power of attorney granted by the other member. The agreement explicitly authorizes Navayuga Engineering Company Limited, i.e., the assessee company, to conduct all business during both the bidding stage and execution phase. The role of GMW Private Limited is described in minimal terms, indicating that it functions primarily as a supporting or qualifying partner rather than an active participant in execution. This concentration of authority and control in one partner again suggests that the JV lacks independent decision-making or operational substance (Clause 3).

(ii).

The contract dated 15.07.2016 with the Government of Telangana for the Kaleshwaram Project follows the same structural pattern. The JV is recognized as the contractor for the construction of the “Sundilla Barrage”, including radial gates, hoisting arrangements, and associated civil works. However, as in the earlier instance, viz. M/s Navayuga Engineering Company Limited- M/s Transstroy India Limited, JV, the contract’s form does not align with the practical realities of execution. The JV serves as the contracting interface with the government, but the actual work is carried out by the constituent members, primarily M/s Navayuga Engineering Company Limited (the assessee company). As observed by us hereinabove, this disconnect between contractual form and operational substance is a recurring feature across the agreements.

(iii).

The “Supplementary agreement” dated 30.05.2016 further clarifies the allocation of responsibilities within this JV. The assessee company, viz. M/s Navayuga Engineering Company Limited is assigned comprehensive responsibility for supervision, project management, execution, procurement, financial commitments, provision of guarantees, insurance coverage, tax payments, dispute resolution costs, and liability for damages [Clause 1(a)]. The scope of work of the assessee company mirrors that of its earlier supplementary agreement with M/s Transstroy (India) Private Limited (supra) and again places the entire burden of execution and risk on the assessee company. The repetition of this structure across different projects and partners indicates a consistent business model in which the assessee company acts as the principal executor, while the JV framework is used to meet eligibility criteria or contractual requirements imposed by the government authorities.

(iv).

We find that the aforesaid JV agreements reveal a clear pattern, wherein though the contracts are formally awarded to joint ventures, the substance of the arrangements reflects independent performance by the constituent members, with one dominant partner assuming primary responsibility, i.e, the assessee company. We further find no evidence of a common pool of profits, joint management of operations, or shared assumption of risks, as typically associated with a true joint venture or association of persons. Instead, the parties have consciously structured their relationship to maintain separability in execution and financial exposure. The JV acts largely as a conduit or coordinating mechanism rather than as an independent profit-earning entity.

(v).

In our view, the characterization of the JV has significant implications from a legal and tax perspective, wherein the absence of joint responsibility, mutual agency, and shared risk suggests that the essential elements required to constitute an “association of persons”(AOP) are not satisfied. Further, we are of firm conviction that the income arising from the projects is more appropriately attributable directly to the individual members based on the work performed by them, rather than to the JV as a separate taxable entity. The dominant role of the assessee company, particularly in both JVs, viz. (i). Navyuga-Transstroy, JV (as discussed by us hereinabove); and (ii). Navyuga-GMW, JV, further supports our view that the JV does not carry on business in its own right but merely facilitates the execution of contracts by its members.

(vi).

Apart from that, we find that the “Certificate” dated 29/04/2019, had been issued to the assessee company, viz. M/s Navyuga Engineering Company Limited by, viz. Executive Engineer, Kaleshwaram Project, wherein it is stated that the assessee company had executed the project, which further fortifies the fact that the aforesaid project, i.e., “Kaleshwaram Project – Sundilla Barrage” was for all practical purposes entrusted to and executed by the assessee company. For the sake of clarity, we deem it apposite to cull out the relevant facts stated in the aforesaid certificate, Page 1127 of APB:

“As a part of the above work, M/s Navyuga Engg. Co. Ltd., has constructed the barrage across Godavari river with a reservoir capacity of 8.83 TMC (250.04 MCM)”

(emphasis supplied by us)

Further, the “Certificate on completion of Work”, dated 11/12/2019, states that the work of “Kaleshwaram Project, Package-6 was entrusted to Navayuga Engineering Company Limited, i.e., the assessee company, Page 1129 of APB.

(vii)

We find that the AO in the assessment order had observed that the assessee’s claim that the JV/Consortium was only a pass-through entity was devoid of any merit in the context of the rights and liabilities with the main contractee. The AO observed that it was the JV that had entered into a contract with the main contractor and that, under the terms of the contract, the entire responsibility for carrying out the project rested with the JV. Elaborating further, the AO had observed that if there was any default on the part of the assessee company, the main contractee could not impose any responsibility on the assessee company, and such responsibility could only be imposed on the JV/Consortium. It was further observed that the rights and liabilities arising out of the contract would not pass on to the sub-contractors or the constituents of the JV/Consortium merely because, for their own convenience, the work has been distributed amongst them. In our view, the aforesaid observations of the AO are fallacious and contrary to the facts borne out from the record. We say so, for the reason that as observed by us hereinabove, that the AO had lost sight of the basic fact that the assessee company alongwith the other constituent members of the JVs/Consortium were not sub-contracted any work by the JV/Consortia, but the fact (as mentioned in the JV/Consortium agreements) was that the assessee company alongwith the other constituent members had formed the JV/Consortium for the limited purpose of bidding and securing Central/State Government contracts, i.e., as a pass through entity, and the actual execution of the projects was carried out by the said constituent members and not the JV/Consortium (Clause B & C/page 1 of JV agreement, dated 26/05/2016). Apropos the AO’s observation that in case of default on the part of the assessee company, the main contractor, i.e., the Government body, cannot fix responsibility on the assessee company and such responsibility could only be fixed on the JV/Consortium, we are afraid that the same is misconceived and contrary to the facts borne from the record. We say so, for the reason that the “JV agreement”, dated 26/05/2016, specifically provides that the JV partners had undertaken to be jointly and severally responsible for all obligations and liabilities relating to the Project and in accordance with the terms of the Bid Documents and the Contract, under and in accordance with the Contract to be entered into with the Employer, i.e., the Government body. (Clause 4 of JV agreement dated 26.05.2016).

(viii).

We, thus, based on our aforesaid observations, read in the backdrop of the judicial pronouncements relied upon by us hereinabove, conclude that the assessee company, viz. M/s Navayuga Engineering Company Limited, as a joint venturer/constituent of the subject Joint Venture/Consortium, viz. (i). M/s Navayuga GMW-JV (Kaleshwaram Project – Sundilla Barrage) duly satisfied the condition of entering into an “agreement” with the Government as required per the mandate of Section 80IA(4)(i)(b) of the Act.

Re: Assessee having executed a “works contract” is not entitled to a deduction under Section 80IA(4) of the Act:

(i).

We find on a perusal of the record that the work involved in the aforesaid project was the construction of a barrage across a major river, i.e., construction of Barrage with Radial Gates, Hoisting arrangements including formation of Guide Bunds on either side of Barrage etc., across Godavari river near Sundilla (V), Khamanpur (M), Karimnagar District, Page 752-755 of APB.

(ii).

In our view, the construction of a barrage across a major river involves complex river engineering, hydraulic calculations, and installation of mechanical systems such as radial gates, and also the execution of such a project would require continuous technical inputs and decision-making, wherein the contractor is responsible for ensuring the structural stability and operational efficiency of the barrage. We are of the view that in the backdrop of the observations of the Hon’ble High Court of Bombay in The CIT Central II, Mumbai v. M/s Patel Engineering Ltd. (supra), such responsibility for delivering a functional infrastructure facility is indicative of a developer. Also, as observed by us hereinabove, the Hon’ble High Court of Gujarat in Montecarlo Construction Ltd. (supra) has held that where the assessee undertakes such specialized and risk-intensive activities, the contract cannot be treated as a works contract. Therefore, in our view, the role of the assessee company in this project also satisfies the test of a developer.

(iii).

We further find that the total value of works to be carried out by the Contractor was Rs. 1248.27 crores (approx.) (as per the “Articles of Contract”, dated 15/07/201608). The Earnest Money Deposit (EMD) of Rs. 31,20,68,300/-was retained with the Government, viz., the Bank Guarantee dated 12/07/2016 issued by PNB, Large Corporate Branch, Banjara Hills, Hyderabad, for the due fulfillment of the contract to the satisfaction of the Government authority. It was agreed to keep EMD valid till the completion of the defect liability period. Also, as per the agreement, during the period of the agreement, an amount equal to 7.5% of the value of work done will be withheld from the bills as a “Further Security Deposit” (FSD). Further, as per the terms of the agreement, the security deposited would be returned upon fulfillment and performance of the agreement to the satisfaction of the Government authority.

(iii).

As observed by us hereinabove, the JV constituents, viz. (i). Navyuga Engineering Company Limited; and (ii). M/s GMW Pvt. Ltd., vide JV agreement dated 26.05.2016, had initially agreed to be jointly and severally responsible for all obligations and liabilities relating to the project in accordance with the terms of the Bid documents and the Contract, under and in accordance with the contract to be entered into with the Government body. However, vide the terms of the “Supplementary agreement”, dated 30/05/2016, the assessee company, viz. M/s Navayuga Engineering Company Limited was assigned comprehensive responsibility for supervision, project management, execution, procurement, financial commitments, provision of guarantees, insurance coverage, tax payments, dispute resolution costs, and liability for liquidated damage involved in the execution of the project. The project commenced on 15.07.2016 and, during the subject year, was not yet complete. It was agreed that the assessee company would undertake the operation and maintenance (O&M) of the project for a period of 2 years. The financial involvement for executing the project was with the assessee company. Further, the obligation to correct the defect for a period of 2 years was also on the assessee company. The agreement was not for a specific work, but was for the development of the infrastructure facility as a whole. In fact, the assessee company was not entrusted with any specific work to be done, but with the work of development of an infrastructure facility, i.e., construction of a barrage including radial gates, hoisting arrangements, including formation of guide bunds on either side of the barrage across the Godavari River at Sundilla (V), Khamanpur (M), Karimnagar District. The material for executing the infrastructure project was not to be supplied by the Government but was to be procured by the contractor. The Government had provided the subject infrastructure project work, viz, Kamleshwaram Project -Sundilla Barrage, and not a works contract. Further, we find that the assessee company utilized its funds, expertise, and unskilled, semi-skilled, and skilled employees, deployed its plant & machinery and technology, and took full responsibility for developing the infrastructure facility. Further, as per the record, the risk factor involved in the development of the project was to be borne by the assessee company.

(vi).

We, thus, are of the view that as the assessee company had, viz. (i), based on its scientific structural planning, technical expertise, and precise execution, brought into existence the infrastructure facility, viz. Kamleshwaram Project (Sundilla Barrage), which involves the construction of a barrage including radial gates, hoisting arrangements including formation of guide bunds on either side of the barrage, and associated civil works, etc., across the Godavari river; (ii) had borne the financial, operational, and other executional risks as a developer; and (iii). remained under the obligation to operate and maintain the project for a period of 2 years, along with a defect liability period of 2 years; therefore, it is a “developer” of the subject project and cannot be brought within the meaning of a simpliciter “works contract”. Accordingly, the assessee company, in our view, will not be hit by the “Explanation” to Section 80IA made available on the statute vide the Finance (No.2) Act, 2009, w.r.e.f 01/04/2000.

(E) Kalwakurthy Lift Irrigation Scheme – Stage II Pumping Station:

Re: Agreement with the Central/State Government or other statutory body has been entered into by the Joint Venture and not by the assessee company:

(i).

We find that the joint venture arrangement entered into between M/s Navayuga Engineering Company Limited (assessee company), M/s IVRCL Infrastructure & Projects Limited and M/s SEW Constructions Limited through the agreement dated 09.03.2005 reflects a structure where the parties intended to collaborate primarily for submitting an application for the purpose of bidding and securing a government contract, while retaining clear separability in their respective obligations (Clause 1). A critical clause in this agreement provides that each party shall be solely responsible for the performance of its own scope of work and shall bear all technical, commercial, and financial risks associated with its performance (Clause 5.3). Also, it is provided that each party shall be responsible for the provision of, without limitation, all resources required for the proper fulfillment of its scope of work (Clause 5.2). This clause is fundamental because it negates the existence of any real joint responsibility or mutual agency between the parties. Instead of functioning as a unified enterprise, the arrangement emphasizes independence in execution and risk allocation. In our view, such a structure typically indicates that the parties did not intend to come together to jointly earn income, but rather to work in parallel under a common contractual umbrella.

(ii).

The subsequent agreement dated 26.09.2005 entered into with the Government of Andhra Pradesh formally places the joint venture as the contracting entity for a large-scale irrigation project, viz. “Execution of Stage-2 Pumping Station (5X30MW) of Kalwakurthi Lift Irrigation Scheme at Jonnalaboguda Balancing Reservoir near Khanapur Village, Koderu Manda, Mahboobnagar District”, comprising Civil, Electro Mechanical, Hydro Mechanical, Transmission Lines and Sub-Station Works etc. We find that, although the contract is executed in the name of the joint venture, the detailed description of the work and the background JV agreement make it clear that the actual execution responsibilities are divided between the constituent members. The government’s recognition of the JV as a single contracting party is therefore more of a matter of administrative and contractual convenience rather than a reflection of how the work is to be performed in substance. Accordingly, we are of firm conviction that the JV does not appear to possess independent operational capability; instead, it relies entirely on its members to discharge the obligations.

(iii).

The joint venture agreement dated 12.10.2005 (after award) further reinforces this position by explicitly allocating the scope of work amongst the JV members, viz. (i). M/s Navyuga Engineering Company Limited; (ii).M/s IVRCL Infrastructure & Projects Limited; and (iii). M/s SEW Constructions Limited. The risks and liabilities arising from the contract were limited to the extent of the work assigned to each JV partner (Page 4). However, the assessee company is entrusted with the overall responsibility of providing bank guarantee bonds for performance guarantees, security deposits, advances, etc., required in the course of execution of the work, at its own cost and risk, in the name of JV (Page 4). Apart from that, all insurance covers as stipulated under the agreement entered into between the JV and the Government body shall be provided by the assessee company (Page 4). The scope of these responsibilities demonstrates that the assessee company is the executing entity, bearing all financial responsibilities and risks associated with the project. The specific clause in the JV agreement that each party shall be solely responsible for the performance of its own scope of work and shall bear all technical, commercial, and financial risks associated with it undermines the notion of a jointly managed or jointly executed venture.

(iv).

We find that the AO in the assessment order had observed that the assessee’s claim that the JV/Consortium was only a pass-through entity was devoid of any merit in the context of the rights and liabilities with the main contractee. The AO observed that it was the JV that had entered into a contract with the main contractor and that, under the terms of the contract, the entire responsibility for carrying out the project rested with the JV. Elaborating further, the AO observed that if there was any default on the part of the assessee company, the main contractor could not impose any responsibility on the assessee company; such responsibility could only be imposed on the JV/Consortium. It was further observed that the rights and liabilities arising out of the contract would not pass on to the sub-contractors or the constituents of the JV/Consortium merely because, for their own convenience, the work has been distributed amongst them. In our view, the aforesaid observations of the AO are fallacious and contrary to the facts borne out from the record. We say so, for the reason that as observed by us hereinabove, that the AO had lost sight of the basic fact that the assessee company alongwith the other constituent members of the JVs/Consortium were not sub-contracted any work by the JV/Consortia, but the fact (as mentioned in the JV/Consortium agreements) was that the assessee company alongwith the other constituent members had formed the JV/Consortium for the limited purpose of bidding and securing Central/State Government contracts, i.e., as a pass through entity, and the actual execution of the projects was carried out by the said constituent members and not the JV/Consortium (Clause 1 of JV agreement dated 09/03/2005). Apropos the AO’s observation that in case of default on the part of the assessee company, the main contractor, i.e., the Government body, cannot fix responsibility on the assessee company and such responsibility could only be fixed on the JV/Consortium, we are afraid that the same is misconceived and contrary to the facts borne from the record. We say so, for the reason that the “JV agreement”, dated 09/03/2005, specifically provides that notwithstanding the delineation of the responsibilities amongst the JV members, they had acknowledged and affirmed to be jointly and severally bound to the Employer, i.e., the Government body for the execution of the contract for the project awarded in accordance with the terms and conditions (Clause 5.5 of JV agreement dated 09/03/2005).

(v).

We, thus, based on our aforesaid observations read in the backdrop of our deliberations on the aforesaid issue and the judicial pronouncements relied upon in the appeal for the preceding year, i.e., AY 2017-18 in ITA No. 457/Hyd/2025, conclude that the assessee company, viz. Navayuga Engineering Company Limited, as a joint venturer/constituent member of the subject Joint Venture/Consortium, viz. (i). Navayuga-IVRCL-SEW, JV (Kalwakurthy Lift Irrigation Scheme – Stage II Pumping Station) duly satisfied the condition of entering into an “agreement” with the Government as required per the mandate of Section 80IA(4)(i)(b) of the Act.

(vi).

Apart from that, in the “Certificate”, dated 08/06/2020, issued by the Executive Engineer, MGKLIS, it is stated that the assessee company, viz. M/s Navayuga Engineering Company Limited has successfully completed the lift irrigation project, thereby proving that, for all practical purposes, the said project was executed by the assessee company (Page No. 1125 of APB).

(vii).

Also, we further find that in the certificate, dated 08/06/2020, issued by the Executive Engineer, MGKLIS, it is stated that the assessee company has successfully operated and maintained the system (O&M) from 01/04/2017 to 31/03/2020, which further evidences that the project was executed by the assessee company, Page 1126 of APB

Re: Assessee having executed a “works contract” is not entitled for deduction under Section 80IA(4) of the Act:

(i).

We find on a perusal of the record that the scope of work involved in the aforesaid project was the designing and execution of “Stage-2 Pumping Station of Kalwakurthy Lift Irrigation Scheme” at Jonnalaboguda balancing reservoir near Khanapur Village, Koderu Wandal, Mahboobnagar District on EPC basis for lifting water received from Singotam Reservoir, which in turn received water from Stage-1 Pumping station of Kalwakurthy Lift Irrigation Scheme at Regumangadda, Near Yelluriu Village, Kollapur Mandal, Mahboobnagar District, Andhra Pradesh, Page 762 -764 of APB.

(ii).

We find that the aforesaid project is executed on an EPC basis, which by its very nature involves designing, procurement, construction, and commissioning. As observed by us hereinabove, the Hon’ble High Court of Bombay in CIT v. Patel Engineering Ltd. (supra) has specifically recognized EPC contracts as falling within the ambit of development activities as they involve end-to-end responsibility. The assessee company, in the present case, has undertaken the entire lifecycle of the project component, commencing on 26.09.2005 (date of award) and ending on 31.03.2017 (date of completion), including designing and commissioning. Accordingly, by applying the ratio of the judgment of the Hon’ble High Court of Gujarat in Montecarlo Construction Ltd. (supra), such comprehensive responsibility coupled with risk assumption by the assessee company in the execution of the subject project clearly excludes the contract from the category of a works contract and brings it within the meaning of a developer.

(iii).

We are of the view that the execution of the aforesaid project would necessarily involve hydrological analysis, engineering design, and integration of multiple systems, which cannot be carried out without significant technical expertise and independent decision-making. We are further of the firm conviction that by applying the ratio of the judgment of the Hon’ble Bombay High Court in The Patel Engineering Ltd. (supra), as the assessee company was not merely executing instructions but was actively involved in the designing and engineering of a complex irrigation project and had assumed financial, operational, and other executional risks, and assumed responsibility for the functionality of the system, it cannot be brought within the meaning of a simpliciter works contractor. Further, as per the principles laid down by the Hon’ble High Court of Gujarat in Montecarlo Construction Ltd. (supra), the assessee company’s involvement in the investigation and design of the project itself renders the contract outside the purview of a works contract. We are thus of the view that testing the nature of the project against the aforesaid judicial parameters clearly establishes that the assessee company acted as a developer of the irrigation project.

(iii).

We further find on a perusal of the record that the total value of the work to be carried out under the L.O.A issued by the I & CAD Department amounted to a substantial amount of Rs. 578.03 crores (approx.) (as per revised price structure – Page 764 of APB). We find that the works involved in developing the infrastructure facility were to be executed by the assessee company and the other JV members, as per their delineated scope of work. The agreement was not for a specific work, but was for the development of the infrastructure facility as a whole. In fact, the assessee company and the other JV members were not entrusted with any specific work, but with the work of development of an infrastructure facility, i.e., an irrigation project. The material for executing the infrastructure project was not to be supplied by the Government but was to be procured by the contractor. The Government had provided the subject infrastructure project work, viz, “Stage-2 Pumping Station of Kalwakurthy Lift Irrigation Scheme” and not a works contract. Further, we find that the assessee company utilized its funds, its expertise, and its unskilled, semi-skilled, and technically skilled employees, deployed its plant & machinery, and took full responsibility for developing the infrastructure facility. Further, as per the record, the financial risk involved in the project’s development was to be borne by the assessee company. After completion of the project, the assessee company had to undertake the operation & maintenance (O&M) of the same for a period of 3 years. Also, the assessee company was to bear the costs during the 3-year defect liability period. Therefore, it is clear that, from an undeveloped area, the assessee company developed an infrastructure project and handed it over to the Government, with a further obligation to provide Operation & Maintenance (O&M) for a period of 3 years and a defect liability period of 2 years.

(iv).

We thus, based on our aforesaid observations, are of a firm conviction that as the assessee company had brought into existence by way of scientific structural planning, technical expertise, and precise execution the infrastructure facility, viz. “Stage-2 Pumping Station of Kalwakurthy Lift Irrigation Scheme”, after carrying out designing, drawings, investigation, estimation, land plans etc., and bearing the financial, operational and other executional risks as a developer, which, after its completion on 31/03/2017, was to be operated and maintained by it for a period of 3 years along with a defect liability period of 2 years, therefore, it is a “developer” of the subject project and cannot be brought with the meaning of a simpliciter “works contractor”.

(v).

We thus, based on our aforesaid observations, are of the view that as the assessee company had, as a “developer”, developed the project, viz. “Stage-2 Pumping Station of Kalwakurthy Lift Irrigation Scheme”, therefore, the “Explanation” to Section 80IA made available on the statute vide the Finance (No.2) Act, 2009, w.r.e.f 01/04/2000 will not apply in its case.

79. We, thus, based on our aforesaid deliberations are of firm conviction that as the scope of work undertaken by the assessee company regarding the aforesaid projects is not confined to execution of work simpliciter but extends to investigation, design, engineering, procurement, construction, and postconstruction operation and maintenance of the infrastructure facility, wherein it has assumed substantial financial and performance risks and has deployed its own resources, therefore, it cannot be characterised as a mere works contractor within the meaning of “Explanation” below Section 80IA(13) of the Act, but is a developer under Section 80IA(4) of the Act.

80. Before parting on the aforesaid issue, we may herein observe that, as we have based on our aforesaid observations, concluded that the assessee company had executed the respective irrigation projects as a “developer”, therefore, the reliance placed by the AO upon the judgment of the Hon’ble High Court of Gujarat in the case of Katira Constructions Ltd.(supra), wherein it has been held that the “Explanation” to Section 80IA of the Act, as made available on the statute vide the Finance (No. 2) Act of 2009 with effect from 01-04-2000, was valid and being clarificatory in nature was applicable retrospectively, thus, it will not carry the case of the revenue any further.

81. We, thus, in terms of our aforesaid observations, uphold the view taken by the CIT(A) that the assessee company during the year under consideration is duly entitled to the deduction of the profits derived from the aforesaid 5 projects under Section 80IA(4) of the Act.

82. Resultantly, the appeal filed by the revenue, being devoid and bereft of any substance, is dismissed in terms of our aforesaid observations.

83. In the result, both the appeals filed by the revenue in ITA No. 457/Hyd/2025 and ITA No. 458/Hyd/2025 are dismissed.