Validity of Section 80IA (4) of income Tax Act, 1961 challenged in the Bombay High Court

A writ Petition challenging the constitutional validity of the Explanation inserted by the Finance No.2 Act 2009 to section 80IA (4) of the Act with retrospective effect from 1.4.2000 has been admitted today (16.2.2010) by the Bombay High Court in Patel Engineering Ltd vs. ACIT W. P. No. 219 of 2010.

Section 80IA (4) inserted w.e.f. AY 1996-97 allows a deduction of 100%/30% of profits derived by undertakings engaged in developing, maintaining and operating infrastructure facilities. It is the case of the Petitioner that there was no distinction between undertakings developing etc infrastructure facilities on their own accord or as a works contractor and that this has been the consistent understanding of the income-tax authorities as well. It is argued that by the Explanation, the scope of the main substantive section has been restricted and that the effect of the retrospective amendment is to take away a vested right, both of which are not permissible under the law.

The Writ Petition has been fixed for final hearing on 15.3.2010.All those having matters relating to interpretation of section 80IA (4) which are pending before the High Court are requested to give the Appeal/Writ Nos. to the Associate for grouping matters.

Note: A similar challenge to the Explanation to s. 80IA (4) is pending before the Gujarat High Court in Ketan Construction vs. UOI. In B.T. Patil v ACIT 32 DTR (Mum.) it was held by the larger Bench of the Tribunal that even without the amendment, a contractor is not a “developer” and is not eligible for deduction u/s 80IA (4).