Build-Transfer Projects Can Qualify Under Section 80-IA

The Bombay High Court, speaking through Justice Makarand Subhash Karnik and Justice S. M. Modak, dismissed the Revenue’s appeals in ITXA/934/2008 and the connected appeal. The court answered the substantial question of law on Section 80-IA(4) in favour of the assessee, M/s Patel Engineering Ltd.

The dispute concerned assessment years 2000-01 and 2001-02. The assessee had executed two infrastructure projects, the Srisailam Project in Andhra Pradesh and the Koyna Project in Maharashtra, both allotted by the respective State Governments. It claimed deduction under Section 80-IA(4) on the footing that it had developed infrastructure facilities and derived profits from those projects.

The Revenue’s case was that the assessee was only a contractor. It argued that the projects belonged to the State Governments or State instrumentalities, that the assessee did not own the infrastructure facilities, and that the deduction was meant for developers who mobilised resources for infrastructure creation. The Assessing Officer and the CIT(A) accepted that view and disallowed the claim.

The ITAT reversed those findings and allowed the assessee’s appeals. The High Court agreed with the Tribunal.

The court held that ownership of the land or project was not decisive for Section 80-IA(4). What mattered was whether the assessee had developed the infrastructure facility and transferred it in terms of the statutory requirement. On the facts before it, the court accepted the Tribunal’s view that the arrangement was in the nature of build and transfer. Once the development activity was completed, the facility was handed back to the Government, which amounted to a transfer within Section 80-IA(4)(1B).

The court also drew a distinction between a pure contractor and a developer engaged in infrastructure development. On the record, the assessee fell in the latter category. The fact that the projects were owned by the Government and that the assessee did not own the facility did not defeat the deduction claim.

The appeals were therefore dismissed, and the substantial question of law was answered against the Revenue and in favour of the assessee.

Practical takeaway: for Section 80-IA(4), a build-transfer infrastructure arrangement can qualify as development, even without ownership of the project or land.