Judgment:
This appeal is preferred by the assessee against the order of the Commissioner (Appeals) for the assessment year 1996-97 on the following grounds : (i) That the impugned order of the Commissioner (Appeals) is bad in law as well as in facts. It is based on incorrect interpretation of law and the facts have been incorrectly construed.
(ii) That the learned Commissioner (Appeals) erred in appreciation that the appellant had satisfied all the requirements of section 80-IA(4A) of the Income Tax Act, 1961, and as such the disallowance made by the assessing officer is wrong.
(iii) That the learned Commissioner (Appeals) erred in appreciating that the assessing officer on one hand treated the income from the infrastructure as of the appellant and he, on the other hand, held that there was no assignment of the contract in favour of the appellant.
(iv) The meaning, intent and purpose of the assignment of the contract as is envisaged under section 80-IA(4A) and contemplated by the legislation has been misapprehended by the lower authorities.
(v) That the learned Commissioner (Appeals) has erred in not giving any finding on the grounds that the learned assessing officer has charged interest under section 234B at Rs. 23,47,990 when the appellant-company had filed the return of income declaring taxable income at Rs. nil, which the appellant was legally entitled to do so.
We have heard the rival submissions of the parties and carefully perused the orders of the authorities below and the documents placed on record.
Ground Nos. (i) to (iv) relate to deduction claimed by the assessee under section 80-IA(4A) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The facts relating to the issue in narrow compass are that the assessee- company was incorporated on 19-5-1995, by the promoters of the company, Smt. Usha Agrawal and Shri Ajay Agrawal with the following objects, inter alia : "To carry on the business of buildings and operating projects for government, semi-government or private parties whether company or corporation on Build Operate and Transfer Principle (BOT)" The assessee in its computation of income attached with the return of income claimed the exemption at the rate of 100 per cent under section 80-IA(4A) of the Act on the entire income on the ground that it had taken contract for construction of Bakur bridge on build, operate and transfer basis (hereinafer referred to as the BOT) from the Engineer-in-Chief, PWD, Government of Madhya Pradesh under the scheme of investment by private entrepreneur with a right to recover the investment by toll tax collection over a period of 705 days from the date of implementation of the toll collection i.e, from 30-8-1995. In response to the query with regard to the assessee's entitlement for its claim of deduction under section 80IA(4A) of the Act, it was explained to the assessing officer that the Government of Madhya Pradesh had floated a tender for construction of bridge with the approaches including toll tax barriers, etc. on river Bakur on Indore Khandwa road by the tenderers, to be constructed with their own capital and resources with a right to collect toll tax for a specified period in lieu thereof. M/s Ajay Construction, a proprietorship concern, submitted a tender which was accepted by the State Government by agreement dated 14-2-1995. As per clause 7.1 of the tender M/s Ajay Construction, the tenderer, was permitted to sublet or assign to any other party or parties the whole or any portion of the work under the contract with the approval of Engineer-in- Chief, PWD, and the expression "tenderer" given in the preamble of the agreement shall include the successors, legal representatives and permitted assignees.
After obtaining the tender, M/s Ajay Construction entered into an agreement with Smt. Usha Agrawal, the promoter of the assessee-company through an agreement dated 1-4-1995, with the understanding that the entire construction work would be undertaken by the company to be incorporated in near future with all rights, which M/s Ajay Constructions possess with regard to the tender, in question, either from the State Government or otherwise. Thereafter, the assessee-company was incorporated on 19-5-1995, and the entire acts done by Smt. Usha Agrawal as a promoter of the company were adopted by the company and a fresh agreement with Ajay Constructions was executed on 21-7-1995, accepting all the terms and conditions enumerated in the agreement dated 1-4-1995, executed between M/s Ajay Constructions and Smt. Usha Agrawal, promoter of the assessee- company. The assignment in favour of the assessee- company was also recognised and permission was granted by the State Government vide their letter dated 17-7- 1995.
Relying upon these facts, it was claimed before the assessing officer that since the assessee has fulfilled all the requirements of section 80-IA(4A) of the Act, he is entitled to the deduction on the income derived from the development of the aforesaid infrastructure. Having not satisfied with the contentions of the assessee the assessing officer has rejected the claim of the assessee on the ground that the assessee never entered into an agreement with the State Government and he was simply an assignee of the contract. As such, the basic requirement for claiming the deduction under section 80-IA(4A) is not fulfilled. It was further observed by the assessing officer that the assessee-company was incorporated only with the object to claim the aforesaid deduction inasmuch as M/s Ajay Construction, being a proprietorship concern, was not entitled to claim the deduction under the impugned section.
The assessment order was challenged before the Commissioner (Appeals) with the submission that the entire contract was assigned in favour of the assessee through its promoter before its incorporation and the entire construction work was undertaken by the promoter of the assessee- company before its incorporation and by the assessee- company itself after incorporation. Since the assessee stepped into the shoes of M/s Ajay Construction, which was the original tenderer by virtue of a valid assignment of contract, the assessee had acquired all the rights and liabilities with the Government of Madhya Pradesh. Since the assignment of contract in favour of the assessee done by legal means by M/s Ajay Constructions with the permission of the State Government and the State Government had also authorised the assessee to recover the toll tax by issuing a notification, the assessee was deemed to have entered into an agreement with the State Government for the aforesaid construction and fulfilled the basic requirement of deduction envisaged under section 80-IA(4A) of the Act. The attention of the Commissioner (Appeals) was also invited to the object of introduction of this new provision to the statute by laying stress on the budget speech of the Finance Minister made in the Parliament for the financial year 1995-96 but the Commissioner (Appeals) was not satisfied with the contentions of the assessee and he upheld the assessment order.
Aggrieved with the order of the Commissioner (Appeals) the assessee is before us.
The learned counsel for the assessee, Mr. C.S. Agrawal, has submitted before us that the tenderer was permitted to assign, sublet to any other party or parties the whole or any portion of the work under the contract with the approval of the Engineer- in- Chief, PWD, by virtue of clause 7.1 of the tender and the expression tenderer shall also include its successors, legal representatives and permitted assignees as per the preamble of the agreement. It means the State Government has agreed under this agreement that whenever work contract was assigned by the tenderer in favour of some other person, the assignee shall step into the shoes of the tenderer and all the terms and conditions of the tender shall be enforceable against the assignees and for all practical purposes the agreement shall be treated to have been executed between the State Government and the assignee if the entire contract under the tender is assigned. Mr. Agrawal also invited our attention to the definition of assignment with the submission that according to the Webster's Dictionary "assignment" has been defined as 'a specified task or amount of work assigned or undertaken as if assigned by authority, the transfer of property, especially the transfer of property to be held in trust or to be used for the benefit of creditors. Mr. Agrawal further contended that after obtaining the tender from the State Government M/s Ajay Construction entered into an agreement with Smt.
Usha Agrawal, the promoter of the assessee-company, and assigned the entire contract in favour of the company to be incorporated by its promoter in near future and thereafter the entire construction work was undertaken by the promoter of the assessee-company and the assessee- company after its incorporation itself. Since the acts and deeds of the promoter of assessee company were adopted by the assessee- company itself, the entire contract work has been executed by the assessee- company and as such there was really a novation resulting in substitution of liabilities, nonetheless as a result of novation it can really be not justifiably contended that the enterprise has not entered into a contract with the State Government. He further invited our attention to the letters of the State Government through which they have granted permission of assignment in favour of the assessee and authorised the assessee to collect the toll tax. While authorising the assessee to collect the toll tax the State Government has admitted that the permission for assigning the work in favour of the assessee was granted on the same terms and conditions of the contract as entered with Mls Ajay Constructions and by virtue of the tripartite agreement between the State Government, Mls Ajay Construction, the original bidder and M/s Ayush Ajay Constructions (P) Ltd. (the assessee), the assessee stepped into the shoes of M/s Ajay Constructions. Since the State Government has admitted that the assessee has stepped into the shoes of the original bidder, M/s Ajay Constructions on the same terms and conditions, it is not proper to hold that there was no agreement between the State Government and the assessee for construction of the bridge on BOT basis.
Mr. Agrawal has further invited our attention to the budget speech of the Finance Minister for the financial year 1995-96 reported in (1995) 212 ITR (St) 69 and contended that it was admitted by the Finance Minister that inadequate infrastructure is a key constraint to the economic progress of the country. In order to promote the expansion of quality infrastructure, a five-year tax holiday for any enterprise which builds, maintains and operates infrastructure facilities in the area of highways, expressways and new bridges, airports, ports and rapid mass transport systems, was proposed. Accordingly, section 80-IA was brought to the statute with effect from 1-4-1996, with the restriction that if the assessee fulfils the condition laid down under this sub-section, it will be entitled to deductions under section 80-IA of the Act. One of the requisite conditions is that the assessee has entered into an agreement with the Central Government or the State Government or a local authority or any other body for developing, maintaining and operating a new infrastructure facility, subject to the condition that such infrastructure facility has been transferred to the Central Government, the State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement. In this clause the legislature did not debar any enterprise from claiming deduction under this section if it enters into an agreement with the original bidder or the enterprises who entered into an agreement with the Central Government or the State Government or a local authority and stepping into the shoes of the original bidder by virtue of the aforesaid assignment agreement or sub-letting agreement.
In fact, the legislature intended to give a phillip of deduction against the total income of the assessee derived from the aforesaid infrastructure inasmuch as the entire cost of the aforesaid infrastructure was borne by the assessee itself in order to promote expansion of quality infrastructure as evidently inadequate infrastructure is a key constraint to our economic progress. Mr.
Agrawal has also emphasized that while interpreting the tax statute the authorities concerned or the court should take a lenient view favourable to the assessee if ambiguity is noticed in a particular section so that the object may be achieved for which the particular enactment was brought. In support of his contention, he relied upon the following judgments : Mr. Agrawal further contended that while construing a particular provision of the statute, the authorities concerned or the court should also examine the real state of affairs of the assessee and also to determine whether the efforts made by the assessee were only a tax planning or a colourable device to avoid tax. The difference between the two acts is very thin and proper view can only be taken if the efforts of the assessee are viewed in proper perspective and in true spirit. The courts or the authorities should not adopt the cut and dry formula or hyper-technical approach. A pregmatic view should be taken while construing the tax statute. In support of this contention, he relied upon the judgments of the Apex Court in the case of Juggilal Kamlapat v. CIT (1969) 73 ITR 702 (SC) and McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC).
Since the assessee has placed all the relevant evidence to prove that once the assignment of tender in favour of the assessee was accepted by the State Government, the assessee should be deemed to have entered into an agreement with the State Government and more so this fact was also admitted by the State Government. As such, the assessee is entitled to the deduction under section 80-IA(4A) of the Act inasmuch as all requisite conditions have been fulfilled.
The learned Senior Departmental Representative, Mr. Brijesh Gupta, on the other hand, has submitted that in fact the tender was granted to M/s Ajay Constructions, a proprietorship concern, on 14-2-1995, when there was no provision on the statute with regard to any deduction from the income derived from the impugned infrastructure. The provisions of section 80-IA(4A) of the Act were brought to the statute by the Finance Act, 1995, with effect from 1-4-1996. Immediately thereafter the budget speech through which the Finance Minister had made a proposal of tax holidays to those enterprises which build, maintain and operate infrastructure facilities in the area of highway, expressways and new bridges, M/s Ajay Construction entered into an agreement with Smt. Usha Agrawal the wife of its proprietor, as a promoter of the assessee- company, and assigned the tender obtained from the State Government in favour of Smt. Usha Agrawal, but the entire construction work was undertaken by Ajay Agrawal, the proprietor of M/s. Ajay Constructions.
The agreement between the assessee- company in which Ajay Agrawal and his wife, Usha Agrawal, were the sole directors, and M/s Ajay Constructions was executed on 21-7-1995, after the completion of the construction work though the assessee-company was incorporated on 19-5-1995. Mr. Gupta has also invited our attention to the balance sheet and P&L a/c of the assessee-company with the submission that the assessee had no funds to undertake the construction work. The entire funds and other machineries were supplied to the assessee-company by M/s Ajay Constructions for which it has charged interest and rent.
Since the entire funds and other machineries were supplied to the assessee-company by M/s Ajay Constructions for which it has charged interest and rent and the entire work was undertaken by Ajay Agrawal, the proprietor of Ajay Constructions, the creation of the assessee- company without any funds was simply a colourable device to claim the deduction under section 80-IA(4A) which came on the statute after the allotment of the tender. Mr. Gupta further invited our attention to the letter of the State Government through which the permission for assignment was given and contended that through this letter though the permission of assignment was given, but Ajay Construction was not relieved from any obligation or responsibility which it had undertaken under the contract, towards the State Government. It means that there was no complete assignment of the work in favour of the assessee- company. It was only an assignment of the part of the work for which the assessee cannot claim that he has stepped into the shoes of M/s Ajay Constructions and deemed to have entered into the agreement with the State Government.
Mr. Gupta has also invited our attention to the object of creation of the assessee-company and contended that Ajay Construction being a proprietorship concern was not entitled to claim deduction under section 80-IA(4A) of the Act as the deduction could only be claimed if the agreement is entered into between the State Government and the company incorporated in India. With the object to avail of the benefit of this newly inserted provision, the M/s Ajay Constructions entered into an agreement through its proprietor Ajay Agrawal with his wife, Smt. Usha Agrawal, as promoter of the assessee-company. He further contended that the permission for assignment was granted to M/s Ajay Construction on 17-7-1995, after the completion of the work which is evident from the completion certificate. Since it is a colourable device to evade the tax the assessee is not entitled to any deduction under this section. He further contended that to ascertain the real state of affairs, the authorities concerned and the courts are fully empowered to pierce the corporate veil and to take a correct view in the light of real state of affairs of the assessee.
On consideration of the rival submissions advanced by the parties and from a careful perusal of the orders of the authorities below and the documents placed on record, we find that originally the tender for construction of bridge on river Bakur was submitted by M/s Ajay Constructions, a proprietorship concern, on 16-6-1994, and the same was finally granted to M/s Ajay Constructions on 14-2-1995. Admittedly, at the time when the tender was granted to M/s Ajay constructions the provisions of section 80-IA(4A) were not brought to the statute. When the proposal to this effect was made in the budget speech by the Finance Minister, M/s Ajay Constructions entered into an agreement with Smt. Usha Agrawal, promoter of the assessee- company vide agreement dated 1-4-1995, and assigned the tender/contract for construction of Bakur bridge on BOT. As per the said agreement, whatever expenses were borne by M/s Ajay Constructions were taken over by Smt. Usha Agrawal on behalf of the assessee- company to be incorporated in future. After the agreement, the construction work was undertaken by Smt. Usha Agrawal till the incorporation of the assessee- company and after the incorporation the construction work was carried on by the assessee- company. It is also evident from record that as per the terms and conditions of the tender, the tenderer, M/s Ajay Constructions, was permitted to sub-let or assign the whole contract or any part of it in favour of any person or enterprises with the approval of the State Government. The preamble of the tender also speaks that the expression "tenderer" would also include its successors, representative and permitted assignees. A copy of the tender/agreement is placed at pp.
20.91 of the compilation. From a careful perusal of the terms and conditions of the agreement/tender dated 14-2-1995, we would find that the original tender can be assigned in favour of any person or enterprise with the approval of Engineer- in- Chief, PWD, and if the whole contract is assigned, the assignee would step into the shoes of the tenderer on the same terms and conditions of the contract originally set out with the tenderer. It is also evident from record that after obtaining the approval from the State Government, a fresh agreement was executed between Ajay Construction and the assessee- company and the assessee- company owned and ratified all acts and deeds done by Smt. Usha Agrawal, promoter of the assessee- company. All the expenses incurred by Smt. Usha Agrawal prior to the incorporation of the assessee-company were also owned and taken by the assessee- company through the agreement dated 21-7-1995. It is also evident from record that the assessee has claimed to have incurred expenditure of Rs. 68,96,514.61 in the construction of the aforesaid bridge. As the operating period of daily collection was 705 days, the assessee-company has treated the expenditure as deferred revenue expenditure and charged the same to P&L a/c in the following years: On the basis of tripartite agreement executed between the assessee, M/s Ajay Constructions and the State Government, the assessee had claimed deduction under section 80-IA(4A) of the Act which was rejected by the assessing officer and the Commissioner (Appeals) on the ground that the assessee did not enter into an agreement with the State Government for construction of the aforesaid bridge on BOT basis, which is sine qua non for claiming the aforesaid deduction. Now, the short question before us is whether there was an agreement between the assessee-company with the State Government for construction of the aforesaid bridge on BOT basis or whether the assessee has stepped into the shoes of M/s Ajay Constructions, the original tenderer, after obtaining the assignment of the entire contract with the approval of the Chief Engineer, PWD, on the same terms and conditions of the agreement/tender settled between M/s Ajay Constructions and the State Government or whether by virtue or legal assignment of a tender/contract in favour of the assessee, the assessee is entitled to claim the deduction under section 80-IA(4A) of the Act.
Before going to the merits of the case, we feel it necessary to examine the purpose of introduction of section 80-IA(4A) to the statute. The object of this legislation can be viewed from the budget speech of the Finance Minister for the financial year 1995-96 in which the Hon'ble Finance Minister has observed as under before introducing the proposal of this enactment : 8. "Infrastructure is another area of potential weakness. If we are to aim at economic growth of 7 to 8 per cent which has been achieved in other countries and which alone can provide the jobs we need for our growing labour force then we need much larger investment and much greater efficiency in key infrastructure sectors such as power, roads, ports, irrigation, railways and telecommunications. Sound financial management holds the key to progress in this area. Adequate supply of quality infrastructure depends crucially on the financial viability of these sectors, which in turn depends upon the adoption of reasonable cost recovery policies. To take the example of power, many State Governments are unable to finance new investment in power generation because of the financial weakness of the State Electricity Boards.
Taking advantage of the Central Government's initiative to encourage private investment in power generation, many State Governments are actively trying to attract private sector investments into this area.
But private sector investors are unwilling to invest in power unless the State Governments and the Central Government provide guarantees and counter-guarantees to reassure the private sector producers that they will be paid for the power they generate. Such counter guarantees are justifiable only if they are viewed as providing temporary breathing space, during which State Electricity Boards undertake necessary reforms of their institutional structure, operating practices and pricing policies. In the long run, we cannot escape the reality that the users of electricity must pay for its cost. The same criterion holds for other infrastructure sectors also. Once financial viability is assured, we can expect a renewed surge of both public sector and private sector investments in these areas. " With this object sub-section (4A) of section 80-IA was brought to the statute by the Finance Act, 1995, with effect from 1-4-1996, according to which any enterprise carrying on developing, maintaining and operating any infrastructure facility, shall be entitled to deduction under section 80-IA of the Act if it fulfils the requisite conditions.
For the sake of brevity, we reproduce sub-section (4A) of section 80-IA of the Act : "(4A). This section applies to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely : (i) the enterprise is owned by a company registered in India or by a consortium of such companies; (ii) the enterprise has entered into an agreement with the Central Government or a State Government, or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement., (iii) the enterprise starts operating and maintaining the infrastructure facility on or after the 1-4- 1995. " Before construing the provisions of section 80-IA(4A) of the Act and its applicability. we should bear in mind the object of its insertion and the intention of the legislature of this legislation. As held by various High Courts that though the speech of the Finance Minister cannot be a decisive factor 'for construing a particular provisions but the same can be made the basis to ascertain the object of the legislation. In the case of K.P. Varghese v. Income Tax Officer (supra) their Lordships of the Apex Court have held that the speeches made by the members of the legislature on the floor of the house when the bill is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the bill explaining the reason for its introduction can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which legislation is enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India, that the interpretation of a statute being an exercise in the ascertainment of meaning every thing which is logically relevant should be admissible.
Their Lordships have further held that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided.
Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the court may modify the language used by the legislature or even do some violance to it, so as to achieve the obvious intention of the legislature and produce a rational construction.
Following the Apex Court's view the Hon'ble Madras High Court has taken a similar view in the case of M. Rangaswamy v. CIT (supra) in which their Lordships have held that in case of doubt or difficulty encountered in ascribing the proper meaning to a provision or word in a provision, the statement of objects and reasons or the explanatory notes on clauses relating to amendment or the report of the Joint Parliamentary Committee which preceded the legislation concerned, will be useful to ascertain the intention of the legislature.
It is also a settled position of law that while construing the tax provisions besides determining the intention of the legislature for its introduction to the statute, the expression used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute and which effectuate the object of the legislation. In the case of CIT v. Laxmi Metal Industries (1999) 236 ITR 130 (All) their Lordships of the Allahabad High Court have held that it is a recognised principle of interpretation that the administrative authority or the court should not whittle down the plenitude of the exemption or relief granted by the legislation by laying stress on any ambiguity here or there. The provisions relating to exemption have to be construed liberally. It was also held by the Apex Court in the case of CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625 (SC) that where there are two possible interpretations of a particular section which is akin to a charging section, the interpretation which is favourable to the assessee should be preferred while construing that particular provision. Reiterating the same view, the Apex Court in the case of CIT v. Shaan Finance (P) Ltd. (1998) 231 ITR 308 (SC) has held that in interpreting a fiscal statute, the court cannot proceed to make good the deficiencies if there be any. The court must interpret the statute as it stands and in case of doubt, in a manner favourable to the taxpayer. This view of the Apex Court is not new one as they have been consistently taking the same view since long as in the case of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) their Lordships have held that if the court finds that the language of taxing provision is ambiguous or capable of more meaning than one, then the court has to adopt the interpretation which favours the assessee.
Following the rule of interpretation of the taxing statutes laid down by the Hon'ble Apex Court, their Lordships of the Calcutta High Court have held in the case of CIT v. Jayashree Charity Trust (supra) that the words of a statute must be construed so as to give a sensible meaning to them. The words ought to be construed ut res magis valeat quam pereat. Following its earlier view the Apex Court in the case of Bajaj Tempo Ltd. v. CIT (supra) has gone further ahead by holding that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since as provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it. It is also held by the various High Courts that while interpreting the various provisions, the court must not adopt a hyper-technical approach and to apply a cut and dry formula. A pregmatic approach should be adopted so that the object of the introduction/insertion of a particular provision could be achieved.
If we examine the relevant provisions of section 80-IA.(4A) of the Act and the object of its insertion to the tax statute in the light of the budget speech of the Hon'ble Finance Minister and the abovesaid judicial pronouncements, we would find that the legislature has given a fillip of deductions to those enterprises who engage themselves in developing, maintaining and operating any infrastructure facilities for economic growth of the nation as it was felt by the legislature that inadequate infrastructure was a key constraint of our economic progress. As held by the Apex Court in the case of Bajaj Tempo Ltd. v.CIT (supra), the provisions of promoting economic growth should be interpreted liberally and the restriction on it too has to be construed so as to advance the objective of the provisions and not to frustrate it. If we put the facts of the case with the parameter laid down by the Apex Court and the various High Courts, we would find that the assessee though not entered into an agreement with the State Government at the initial stage but has obtained the tender/contract by virtue of a valid assignment, which was duly recognised by the State Government, should be deemed to have entered into an agreement with the State Government for construction of the impugned bridge on BOT basis. It is not the case of the revenue that the entire expenditure incurred in the construction of the aforesaid bridge was not borne by the assessee but by M/s Ajay Constructions, the main tenderer. The revenue has rejected the claim of the assessee for the simple reason that the assessee had never entered into any contract with the State Government and the assessee- company is nothing but a colourable device to evade tax. It is a settled position of law that the company is a juristic entity and it should be considered independent from the shareholders or the directors. Admittedly, M/s Ajay Construction, the original tenderer, have assigned the remaining work of the contract/tender along with the expenditure incurred by it to Smt. Usha Agrawal, the promoter of the assessee-company though an agreement dated 1-4-1995 and thereafter the construction work was undertaken by the promoter of the assessee-company till its incorporation. When the permission of the assignment was granted by the State Government, fresh agreement was executed between the assessee-company and the main tenderer, M/s Ajay Constructions, in which the assessee- company has ratified all the deeds and acts of its promoter. Smt. Usha Agrawal, and owned/taken over all the assets and liabilities of its promoter. The action of assigning and the work of construction undertaken by the assessee was recognised by the State Government and a tripartite agreement was executed between the assessee, M/s Ajay Constructions and the State Government through which the State Government have recognised that the assessee has stepped into the shoes of M/s Ajay Constructions and notified authorising the assessee to collect the toll tax for a particular period. A copy of the letter dated 22-5-2000, to this effect is also placed before us. The assessee has also placed various correspondence entered into between the assessee and the State Government and the letter dated 26-8-1995. through which the assessee was informed about the notification in his favour to collect the toll tax. A copy of the letter placed at page 140 of the compilation of the assessee. Copies of the notification and various receipts of toll tax are also placed on record for our perusal. It is also revealed from various correspondence of the assessee with the State Government that the assignment of contract was duly recognised by the State Government and it was admitted by them that the actual construction work was undertaken by the assessee only.
rom a careful perusal of the text and tenor of the tender we are of the view that the tender can be duly assigned with the approval of the Chief Engineer of PWD in favour of any person and the assignee would step into the shoes of the tenderer on the same terms and conditions.
Since the assessee- company has ratified all acts and deeds of its promoter, Smt. Usha Agrawal, and owned all the assets and liabilities of its promoter through an agreement of assignment dated 21-7-1995, executed between the assessee and M/s Ajay Constructions after obtaining approval from the State Government, the assessee shall be deemed to have undertaken the construction work since 1-4-1995. We have also carefully perused the statements of accounts in the light of various judgments referred to by the parties and find that though the financial assistance and the machineries were provided by M/s Ajay Constructions to the assessee-company in which the proprietor of M/s Ajay Constructions and his wife are the sole directors but this fact cannot be ignored that ultimately the contract was executed by the assessee- company and the act of assignment was duly recognised by the State Government. No doubt, it is true that in view of the judgment of the Apex Court in the case of Juggilal Kamlapat v. CIT and McDowell & Co. v. CTO (supra), the judicial authorities are competent enough to pierce the corporate veil and to ascertain the real state of affairs.
If we look, into the real state of affairs, we would find that Ajay Agrawal has obtained the tender through its proprietorship concern, M/s Ajay Constructions from the State Government and later on it assigned the contract to the assessee-company i.e. Ayush Ajay Constructions in which Mr. Ajay Agrawal and his wife Smt. Usha Agrawal, were the sole directors, to avail the tax deductions under section 80-IA(4A) of the Act inasmuch as the deductions are only given to those enterprises which are owned by the companies registered in India or by a consortium of such companies. Since the Government has provided this deduction in order to encourage economic growth of the country, the plentitude of exemption should not be whittled down by laying stress on ambiguity here and there. If it is proved that the assessee-company has obtained the status of a tenderer by virtue of a valid assignment, it should not be denied from the benefit of deduction provided by the Central Government through introduction of sub-section (4A) of section 80-IA of the Act. The action of Ajay Agrawal, proprietor of Ajay Constructions and the assessee can only be termed as a valid tax planning which is permissible under the law as held by the Apex Court in the case of McDowell & Co. Ltd. (supra), that tax planning may be legitimate provided it is within the framework of law. We, therefore, have no hesitation in holding that the assessee-company has fulfilled the requirements provided in clause (ii) of sub-section (4A) of section 80-IA of the Act for claimmg deduction under this section because had it not been recognised as a valid assignment of the tenderer by the State Government or had it not stepped into the shoes of the main tenderer, the State Government would not have notified authorising the assessee to collect the toll tax for a particular period as stipulated in the tender/agreement dated 14-2-1995. We, therefore, set aside the order of the Commissioner (Appeals) on this count and direct the assessing officer to allow the deductions claimed by the assessee under section 80-IA(4A) of the Act.
Apropos ground No. 5 it has been contended on behalf of the assessee that the revenue cannot charge interest under section 234B without passing a specified order in this regard in the assessment order. In support of his contention he relied upon the judgment of Patna High Court in the case of Uday Mistanna Bhandar & Complex v. CIT (1996) 222 ITR 44 (Pat) in which their Lordships have held that notice of demand under sections 234A and 234B claiming interest can only be issued when there is a specific order in the assessment order levying interest under that section. To use the expression "charge interest, if any," or "charge interest as per the rules" cannot be read to mean that the assessing officer has passed orders to charge interest under all the aforesaid sections. The order to charge interest is to be specific and clear as for that matter any order to charge any tax, penalty or fine.
When the assessment order is silent whether any interest is leviable, notice of demand under section 156 of the Act or not go beyond the assessment order and the assessee cannot be served with any such notice demanding interest. Mr. Agrawal has also relied upon the order of Delhi Bench D of the Tribunal in the case of Multies Chemicals v. Assistant Commissioner; ITA No. 8014/Del/92 in which the view of the Patna High Court was followed by the Tribunal. It was further contended that since no contrary view has been taken by any other High Court of the land, the view taken by the Patna High Court should strictly be followed by all the Benches of the Tribunal though they do not fall within the jurisdiction of the Patna High Court. In the assessment order the assessing officer has simply stated "charge interest as per law" which does not enjoin the revenue to issue as demand notice of interest under section 234B of the Act.
Shri Brijesh Gupta, the learned senior Departmental Representative, on the other hand, has submitted that charging of interest under section 234B is of compensatory nature. There is no need to pass a specific order for charging interest under that section. In support of his contention, he relied upon the following judgments : (ii) Union Home Products Ltd. v. Union of India (1995) 215 ITR 758 (Kar); On consideration of the rival submissions and from a careful perusal of various case laws referred to by the parties, we agree with the contention of the revenue that charging of interest under section 234B is a regulatory measure to see that the parties do not commit default in making the payment of advance tax. We also agree with the view of the revenue that charging of interest under section 234B is of compensatory nature but from the judgments referred to by the revenue , we do not find any contrary view to the Patna High Court that for charging interest under section 234B a specific order is not required to be passed in the assessment order. The Patna High Court has categorically held that for charging interest under sections 234A, 234B or 234C the assessing officer is required to pass a specific order to this effect in its assessment order. Their Lordships have categorically held that the notice of demand is somewhat like a decree in a civil suit which must follow the order. When a judgment does not specify any amount to be charged under any particular section, the decree cannot contain any such amount. Similarly, when the assessment order is silent, whether any interest is leviable, the notice of demand under section 156 of the Act cannot be beyond the assessment order and the assessee cannot be served with any such notice demanding the interest.
Since there is no contrary view of any other High Court, the Tribunal is required to follow the judgment of the Patna High Court on the issue though this Bench is not situated within the jurisdiction of the Patna High Court to maintain the judicial propriety. We are, therefore, of the view that in the instant case, since there was no specific order for charging of interest under section 234B of the Act the notice of demand charging interest under section 234B is purely illegal. We, however, have examined the case in hand on merit also and find that since we have already set aside the order to the Commissioner (Appeals) and deleted the addition, no interest is chargeable under section 234B of the Act.