No deduction U/s. Section 80IB(10) if completion certificate issued after cut off date

CIT Vs M/s Global Reality (Madhya Pradesh High Court)

The next question that needs to be answered, is, whether the stipulation in Section 80IB(10)(a) can be said to be directory. Considering the prodigious benefit offered in terms of Section 80IB to the assessee (hundred per cent of the profits derived in any previous year relevant to any assessment year); and the purpose underlying the same – which is inter alia burden on the public exchequer due to waiver of commensurate revenue – the stipulation for obtaining completion certificate from the Local Authority before the cut off date, must be construed as mandatory. The fact that compliance of that condition is dependent on the manner in which the proposal is processed by the Local Authority, the provision cannot be construed as a directory requirement. It is a substantive provision mandating issuance or grant of completion certificate by the Local Authority before the cut off date or specified time, as a precondition to get the benefit of tax deduction. Else, it will then be open to the assessee to rely on other circumstances or evidence to plead that the housing project is complete – requiring enquiry into those matters by the Tax Authorities – sans a completion certificate issued by the Local Authority in that behalf. A priori, the argument of substantial compliance is sufficient, would lead to uncertainty about the date of completion of the project which is the hallmark for availing of the benefit of tax deduction. Only with this intent the legislature in its wisdom has predicated that, “the completion of construction” of the housing project is taken to be “the date on which” the completion certificate “is issued” by the Local Authority. To interpret it to include an ex post facto certificate or such certificate issued by the Local Authority after the cut off date, would not only result in rewriting of the express provision and run contrary to the unambiguous position pronounced in the Section, but also doing violence to the legislative intent. For, Explanation (ii) will then have to be read as “date of completion of construction of the housing project shall be taken to be the date as certified by the Local Authority in that behalf”, irrespective of the date of issuance of such certificate by the Local Authority. Indeed, in a given case if the assessee is able to substantiate that the completion certificate “was in fact issued” by the Local Authority before the cut off date, but could not be produced by him within time due to reasons beyond his control, the argument of substantial compliance of the provision can be tested. Any other interpretation would result not only in uncertainty (in finalization of assessment proceedings due to non-issuance or delayed issuance of such certificate by the Local Authority and prone to manipulations at the end of the Local Authority); but also have to yield to the subjective satisfaction of the Assessing Authority and of investing wide discretion in that Authority, which, eventually, may only end up in getting embroiled in litigation. If the assessee has failed to comply with the condition of obtaining completion certificate from the Local Authority before the cut off date, he must take the consequence therefor and of denial of the benefit of tax deduction offered to him on that count.

We cannot be oblivious of the fact that the Municipal Laws of different States are not uniform in respect of procedure for issuance of completion certificate. To wit, in some States, the dispensation provided is to issue partial or full occupation certificate; and thereafter issue completion certificate after removal of all the deficiencies pointed out by the Local Authority. In some States, the Municipal Law may provide for issuing partial or full completion certificate. The requirement of completion certificate issued by the Local Authority, as envisaged in Section 80IB(10)(a) of the Income Tax Act, which is a Central enactment dealing with the special subject of taxation, however, is, of only one certificate – which is full completion certificate issued by the Local Authority before the cut off date. That is to lend credence to the factum of completion of the entire housing project in all respects as per the approval granted by the Local Authority. It can be safely assumed that the legislature was conscious of this position, for which, express provision has been made as to the meaning of the date of completion of the housing project linked to the “date on which” completion certificate “is issued” by the “Local Authority”, as predicated in Explanation (ii) thereunder.

We accordingly hold that issuance of completion certificate, after the cut off date by the Local Authority but, mentioning the date of completion of project before the cut off date, does not fulfill the condition specified in clause (a) of Section 80IB (10) read with Explanation (ii) thereunder. We reject the argument of the assessee that the effect of amended clause (a) of sub-Section 10 of Section 80IB, which has come into force with effect from 1^st April, 2005, has retrospective effect or that it is unjust in any manner or incapable of compliance at all. Similarly, the requirement of securing completion certificate issued by the Local Authority before the cut off date is not directory, in view of the express provision in Section 80IB(10)(a) and the Explanation (ii) thereunder. The completion certificate granted by the Local Authority must bear the date of having been issued before the cut off date.

That takes us to the argument of the assessee that the stipulation in Section 80IB(10)(a) of completion certificate issued by the Local Authority before the cut off date, cannot be applied in the case of assessee following the work in progress accounting method. In our opinion, the provision in the form of Section 80IB(10)(a), applies uniformly to all the assessees – be it following work in progress accounting method or otherwise. The benefit of deduction under this provision can be availed by the assessee following the work in progress accounting method, provided he has complied with the stipulation of having produced completion certificate issued by the Local Authority before the cut off date, as may be applicable in his case. In other words, if the housing project was approved by the Local Authority before 1^st April, 2004, he must submit completion certificate issued by the Authority having been issued before the 31^st March, 2008. Whereas, in the case of housing project approved on or after 1^st April, 2004, the assessee can avail of the benefit provided completion certificate issued by the Local Authority is within four years from the end of the financial year in which the concerned housing project was approved by the Local Authority. If this condition is not fulfilled, the assessee who maintains work in progress accounting method and has claimed deduction under Section 80IB(10)(a) must suffer the consequence of disallowance or withdrawal of the benefit claimed by him on that count.

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