IT DEPT TO RECOVER 1000 CRFROM INFRASTRUCTURE DEVELOPMENT COMPANIES

NOV 27, 2009



The Income-Tax (I-T) department will recover close 
to Rs 1,000 crore from infrastructure development 
companies after a recent tax tribunal order clarified
 that the exemption available for infrastructure
development cannot be extended to contractors or
sub-contractors.

 The order puts an end to the practice of 
contractors and sub-contractors claiming benefits under
 section 80 I A of Income-tax Act, which was incorporated
to encourage investment in infrastructure projects.

While deciding an appeal by Belgaum-based BT Patil & Sons
 Construction, the three-member bench of the Income-Appellate
Tribunal (ITAT), Mumbai, held that the provision in the
 Income-tax Act is only for enterprises engaged in
infrastructure projects, and therefore cannot be extended
to work contracts and sub-contracts.

With this order, issued in October-end, contractors
 and sub-contractors who moved I T A T and Commissioner
 (Appeals) against tax demand on them would now have
to pay tax. In certain cases, the I-T department is
planning to reopen assessments.

Significantly, the ITAT order also underscores
retrospective aspect of the provision.

 The provision was given retrospective 
effect from 2000 by an amendment made in 2007.
The ITAT held that “the explanation, as inserted by Finance
Act 2007 with retrospective effect from 1/4/2000, made it clear
that the benefit of section 80 IA shall not apply to a person
who executes a works contract entered into with
 the eligible enterprise”.

The ITAT Bench, comprising GC Gupta, 
Pramod Kumar and RS Syal, observed that
the language of the provision clearly explained
 the intention of the legislature so much so that
 even if a work contract is undertaken by a sate
or central government, it cannot avail the benefit
 under section 80 IA of the I-T Act.