Smt. Parayarukandy Vettath Hemalatha Vs DCIT (Kerala High Court)
One-Acre Promise, Seventy-Cent Performance: Personal Mansion on Reserved Land Sinks Builder’s Section 80-IB(10) Deduction
Summary: A housing project may be developed in phases and the one-acre condition u/s 80-IB(10) can be tested with reference to the project as a whole. However, a developer who initially earmarks more than one acre for an affordable housing project, but subsequently withdraws a substantial portion for constructing her own 4,000 sq. ft. residential house, cannot continue claiming that the entire land formed part of the eligible project.
The Kerala High Court held that the assessee’s deliberate withdrawal of 46.93 cents reduced the actual project area to 70.57 cents, below the statutory minimum of one acre. The claim for 100% deduction u/s 80-IB(10) was, therefore, rightly rejected.
The assessee proposed an affordable housing project over 117.5 cents of land and obtained a building permit on 16 November 2005. The scheme contemplated construction in two phases. Phase I occupied 70.57 cents, while Phase II was proposed over the remaining 46.93 cents.
The assessee completed the first phase consisting of 60 apartments. Since the apartments were sold in different years, deduction u/s 80-IB(10) was claimed for AYs 2009-10 & 2018-19.
For AY 2009-10, the AO initially allowed the deduction through an assessment order dated 8 November 2011. However, the Principal Commissioner invoked his revisional jurisdiction u/s 263, holding the assessment to be prejudicial to the Revenue. On appeal, the ITAT remanded the matter to the AO for fresh assessment.
By the time the fresh assessment was undertaken, an important factual development had taken place. Instead of constructing Phase II of the affordable housing project on the remaining 46.93 cents, the assessee had obtained permission to construct a personal residential house on that portion. On this basis, the AO denied the deduction. A similar claim made for AY 2018-19 was also rejected. These conclusions were ultimately affirmed by the appellate authorities and the ITAT.
Project Can Have Phases, but the Promised Land Must Remain with the Project
The assessee contended that the original building permit covered the entire extent of 117.5 cents. Merely because construction was proposed in two phases, it could not be said that Phase I alone constituted the housing project. The decision of the Bombay High Court in CIT v. Vandana Properties [2012] 206 Taxman 584 (Bom.) was relied upon.
In Vandana Properties, it was held that the project must be viewed as a whole and not artificially divided into phases. Therefore, where different phases together formed one housing project situated on land measuring at least one acre, deduction could not be denied merely because an individual phase occupied an area below one acre.
The Kerala High Court accepted this legal proposition. It agreed that the assessee’s project was originally conceived over 117.5 cents and that a housing project could validly be implemented in phases. Thus, the Court had no quarrel with the principle laid down in Vandana Properties.
However, the difficulty for the assessee arose not from the project being divided into phases but from the subsequent abandonment of Phase II. The assessee withdrew the entire 46.93 cents earmarked for that phase and appropriated it for her personal residence. Consequently, that portion ceased to form part of the housing project.
After its exclusion, the project was left with only 70.57 cents. The minimum land-area condition prescribed u/s 80-IB(10)(b) was, therefore, not fulfilled.
Affordable Housing Incentive Cannot Finance a Personal Mansion
The Court emphasised that section 80-IB(10) was introduced to incentivise the development of affordable housing. Its object was not to subsidise the construction of residential houses for individual enjoyment.
Clause (c) of section 80-IB(10), as applicable to Kerala, prescribed a maximum built-up area of 1,500 sq. ft. for each residential unit. The assessee’s personal house measured approximately 4,000 sq. ft. It could not, by any stretch, be regarded as an eligible residential unit or as part of the affordable housing project.
The assessee could not initially reserve 117.5 cents to satisfy the one-acre requirement, construct apartments on only 70.57 cents, subsequently withdraw the balance for personal occupation and still claim that the original extent continued to support the deduction.
According to the Court, such deliberate reduction of the project land defeated the statutory condition and the very object of the incentive.
Challenge to Section 263 Became Academic
The assessee further argued that when the Principal Commissioner invoked section 263, construction of the personal residence had not yet commenced. The revision was then based upon the mistaken view that only the land used for Phase I could be considered, contrary to Vandana Properties. Therefore, it was argued that the revision itself was defective and every subsequent proceeding founded upon it should fail.
The Court acknowledged that the Commissioner’s original understanding could be questioned in light of Vandana Properties. Nevertheless, after the ITAT remanded the matter, the AO made a fresh assessment when the assessee had already commenced construction of her personal house on the reserved land.
The subsequent admitted facts materially altered the situation. Once it became evident that Phase II had been abandoned and the land diverted for personal use, no fault could be found with the fresh assessment or the appellate orders.
Finding no substantial question of law, the High Court dismissed both appeals.
Author’s Comments
The judgment draws a fine but important distinction between a phased project and a partially abandoned project. The former does not lose deduction merely because one phase independently occupies less than one acre. The latter may lose the benefit when land originally represented as part of the eligible project is permanently diverted for an ineligible purpose.
The ruling also reinforces that deduction provisions linked to social objectives require continuing fidelity to the project represented before the authorities. Land cannot be temporarily counted to cross the statutory threshold and later converted into a personal asset. In short, the one-acre condition must exist in substance, not merely in the original blueprint.
Cases Discussed
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
1. Indubitably for incentivising affordable housing, the Income Tax Act, 1961 (‘Act’ for short) provides, in Section 80-IB(10), that “the amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to the assessment year from such housing project.”
2. However, the afore is qualified by several conditions, as are stipulated in the said Section; two of which are in Sub-Sections (b) and (c) thereof, which reads ut infra:
“(b) the project is on the size of a plot of land which has a minimum area of one acre:
Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;
(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place;”
3. The issue impelled in these cases squarely falls within the ambit of these statutory provisions, with the Assessee in both these cases having claimed 100% deduction under the above Section, asserting that she had constructed a complex of affordable apartments in a plot of 117.5 cents of land.
4. It is uncontested that, while the building permit for the project was obtained by the assessee in the year 2005 – the specific date being 16.11.2005 – she had postulated the Scheme to have two phases: the first one occupying 70.57 cents and the second phase, to be constructed in future, in the balance 46.93 cents.
5. It is conceded that the first phase, with 60 apartments, was completed by the assessee; consequent to which, she claimed 100% deduction in two different assessment years, namely 2009-10 and 2018-19 – which is explained by her learned Senior Counsel, Sri.Abraham Joseph Markos, to be because the apartments were sold in those years. The claim afore for the first year was initially allowed, but to be disallowed later – the facts leading to which, we will trace presently; while, in the case of the latter year, it was disallowed.
6. When the assessee claimed 100% deduction under the afore Section for the years 2009-10, the first phase has been completed, but admittedly without the second phase having been initiated. The assessing Officer initially accepted her claim for deduction and issued Assessment Order dated 08.11.2011; but which, was then re-opened by the Principal Commissioner, invoking the provisions of Section 263 of the ‘Act’, finding it to be against the Revenue. The order of the Principal Commissioner, issued on 11.03.2014, was challenged by the assessee before the learned Income Tax Appellate Tribunal, Cochin Bench (ITAT), which then remanded the matter to the Assessing Officer, to make a fresh assessment; thus culminating in such dated 23.03.2015.
7. Interestingly, when the assessing Officer made the fresh assessment for the year 2009-10, he noticed that, instead of developing the second phase in the balance 46.93 cents of land, as was offered by the assessee earlier, she had, by then, applied for and obtained a building permit for a residential house for herself; to conclude that she is, therefore, not entitled to the deduction provided under Section 80-IB(10) of the ‘Act’.
8. While so, the assessee filed returns for the year 2018-19, and the assessing Officer, obviously being alerted by the earlier events, found against her qua the deductions sought for; and this led to her filing an appeal against both Assessment Orders before the First Appellate Authority, namely the Deputy Commissioner of Appeals, which led to an order dated 16.10.2025; against which, she attempted second appeals before the learned ITAT, which has also now been dismissed.
9. The assessee is thus before us, challenging the orders of the ITAT for the years 2009-10 and 2018-19; and she does this through ITA Nos.113 and 114 of 2026 respectively.
10. Since both these appeals involve challenge to the orders of the ITAT issued within the same factual ambit; and the legal issues involved are also anologous, we have heard these matters together and propose to dispose it of jointly through this judgment.
11. Sri.Abraham Joseph Markose, learned Senior Counsel, instructed by Sri.John Vithayathil – learned counsel for the appellant, argued that, when it is admitted that the building permit obtained by her client in the year 2005 took in the entire 117.5 cents of land, it becomes incontestable and irrefutable that the benefit of 100% deduction, as provided under Section 80-IB(10) of the ‘Act’, becomes eligible to her. He contended that, it was after about 8 or 9 years later, that his client found the second phase to be unviable on account of market dynamics; and then applied for construction of a house for herself and that this was done not surreptitiously and without any concealment, but with full disclosure; and hence the deduction she was statutorily entitled to in the year 2009-10, which continued for the year 2018-19, could not have been withdrawn or refused, as has been done by the Assessing Officer and affirmed by the subsequent Authorities, including the learned ITAT.
12. The learned Senior Counsel then pointed out that, the Principal Commissioner of Income Tax, in fact, initiated action under Section 263 of the ‘Act’ against his client, qua the assessment year 2009-10, not because she had commenced construction of her residential house in the balance of 46.93 cents, but even before such, citing that the first phase of the project took in only 70.57 cents. He argued that this finding is fallacious and cited the judgment of the Hon’ble High Court of Bombay in The Commissioner of Income Tax v. Vandana Properties [2012]206TAXMAN584(Bom) in substantiation. He contended that, when the foundational basis on which the Principal Commissioner initiated action under Section 263 of the ‘Act’ against his client is forensically vitiated, all further action pursuant thereto could also have to be found to be so. He reiteratively prayed that these appeals be allowed; and the impugned orders of the ITAT, as also the Assessment Orders, to the extent to which the deduction claimed by his client has been disallowed, be set aside.
13. Sri.Harikumar G – learned Senior Standing Counsel for the respondents, however had another version to present, namely, that the assessee has, in fact, attempted to misuse the provisions, by taking to herself a portion of the project and converting it as a personal residential house. He asserted that since Section 80-IB(10) of the ‘Act’ incentivises affordable housing on certain specified criteria – including that the plot of land ought to be a minimum of 1 acre in extent; and that each residential unit must only have a maximum built-up area of not more than 1500 sq.ft as far as Kerala is concerned – the deliberate reduction of land, by reducing it to her own use subsequently, the assessee has attempted to obtain a benefit which she could never have claimed or sought for. He argued that the learned ITAT has understood this correctly, to find against the assessee; and prayed that these appeals be, therefore, dismissed.
14. We must start saying that, we have little to quarrel with the propositions of law placed before us by Sri.Abraham Joseph Markose, learned Senior Counsel.
15. That Section 80-IB(10) of the ‘Act’ provides 100% deduction to the assessee to incentivise the development of affordable housing, can never be subject to cavil; as also the factum that the project had been initially propounded with an extent of 117.5 cents is without dispute. We travel with the assertions of the learned Senior Counsel that, in Vandana Properties (supra), the Hon’ble High Court of Bombay has held that it is the project as a whole to be accounted for and not phases; and that, even if there are multiple phases, as long as the whole takes in the minimum stipulated extent of land, the benefit of deduction could still be availed of and sought for by the assessee.
16. However, what is glaring in this case is that, the facts expressly conceded, lead to a wholly different scenario altogether.
17. This is because, even when the assessee declared that she is reserving 117.5 cents for the project – albeit in two phases; she resiled from it a few years later and then took 46.93 cents out of it and reduced it to her personal possession and ownership, by constructing a residential house for herself. That the second construction was not part of a residential project – much less, an affordable one – is beyond any argument; and hence, it would axiomatically construe that the total extent of the project stood attenuated to 70.57 cents, by deliberate action.
18. As we have said prefatorily, the provisions of Section 80-IB(10) of the ‘Act’, particularly relating to development and building of housing projects, is intended solely to incentivise affordable housing and not residential houses for an individual or a set of individuals. This is unmistakable from Sub-Section (c) of Section 80-IB(10), which mandates that each of the residential units, to be entitled for the deduction, must not have an area than what is prescribed – in the case of Kerala, it being 1500 sq.ft.
19. Apotically, therefore, any contra argument, that the second construction is to be seen to be a component of the project, certainly fail for the singular reason that it is a 4000 sq.ft residential house, much beyond what is stipulated in the aforesaid provision.
20. It is here that the submissions of Sri.Harikumar G., has vital relevance. One cannot fathom how the assessee, after having reserved 117.5 cents for the project – to thus claim the benefit under Section 80-IB(10) of the ‘Act’ – could then reduce 46.93 cents out of it, to her own exclusive occupation and possession by constructing a large residential house therein. To exacerbate, she does not give up her claim under Section 80-IB(10) of the ‘Act’, but continues to press it through the sequence of legal recourse she has taken.
21. The above being said, the other arguments of the learned Senior Counsel qua the competence of the Principal Commissioner to invoke Section 263 of the ‘Act’ pale into insignificance. But we, for the purpose of completeness, feel it necessary to answer it also.
22. No doubt, at the time when the Principal Commissioner initiated action under Section 263 of the ‘Act’, the second construction had not been embarked upon by the assessee. This being factually right – conceded by the Revenue also; it is possible to assert that the Principal Commissioner’s intervention was improper; since he did so on the impression that only the 70.57 cents, utilised for the first phase of the project, could be taken into account for and not the balance. Going by Vandana Properties (supra), this view can be contested; but would be of no consequence now because, subsequently, the learned ITAT interfered; and directed the Assessing Officer to make a fresh assessment, by which time, the assessee had commenced the construction of her residential house in 46.93 cents.
23. Needles to say, when the factual scenario is admittedly so, one cannot find fault with either the assessments made by the Assessing Officer, or the subsequent orders issued by the First Appellate Authority or the learned Tribunal.
In summation, we find no substantial question of law arising in these matters for our consideration; and consequently, dismiss them.
