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Hyderabad Tribunal rules that a joint venture (JV), and not its constituent member, is eligible for infrastructure development incentive deduction u/s 80-IA(4) of the ITL
In the case of HES Infra Pvt. Ltd. [1] (Taxpayer), the issue before the Tribunal pertained to whether infrastructure development incentive deduction under Section (S.) 80IA(4) of the Income Tax Laws (ITL) is available in the hands of the members who have actually executed the contract or to the joint venture (JV), which had bid for and was awarded the said contract by the Government.
In the facts of the case, the Taxpayer was engaged in eligible infrastructure development activity as follows: (i) cases where the contract was directly awarded to the Taxpayer by the Government (Direct Contracts); as well as (ii) cases where the contract was awarded to a JV/ Consortia formed by the Taxpayer but executed by the Taxpayer as a constituent to the JV in proportion to its share (JV Contracts). The Tax authority denied the benefit of deduction u/s 80IA(4) in respect of JV Contracts.
The Taxpayer justified claim of deduction w.r.t. JV Contracts placing reliance on Vishakhapatnam Tribunal ruling in the case of Transstory (India) Ltd[2]. and other favorable rulings[3] which had allowed the claim to the JV constituent executing the contract.
In the instant case, the Hyderabad Tribunal ruled in tax authority’s favor. The Tribunal held that the provisions of S. 80IA(4) are unambiguous and clear and provide deduction to only that enterprise, in whose favor the work has been allotted by or agreement has been entered with the Government.
Further, the Tribunal also rejected the Taxpayer’s contention that the favorable rulings (supra) referred by the Taxpayer are binding. The Tribunal held that these favorable rulings did not have the benefit of the subsequent Supreme Court (SC) decision in the case of Dilip Kumar and Company & Ors[4] . In that case, the SC held that in the matter of determining the eligibility of exemption/incentive, the eligibility conditions must be strictly interpreted and if there is any ambiguity in the taxing statute, the benefit of doubt must be conferred on the revenue.
Since in the instant case, the agreement was admittedly entered by the JV with the Government and not the Taxpayer, on a strict reading following the SC decision in the case of Dilip Kumar and Company & Ors. (supra), the Taxpayer would not be eligible for deduction in respect of JV Contracts.