S. 80IB(10) Do not mandate that housing project must be on vacant land plot having minimum one acre area
For the purposes of Section 80IB (10) it is not the mandate of the Section that the housing project must be on a vacant plot of land having minimum area of one acre and that where a new housing project is constructed on a plot of land having minimum area of one acre but with existing housing projects would qualify for Section 80IB (10) deduction.
Even otherwise, the argument of the Revenue does not stand to reason because, in the city of Mumbai where there is acute space crunch, it is difficult to find a vacant plot having minimum area of one acre and even if few such plots are existing it cannot be said that Section 80IB (10) deduction was intended to give benefit only to the undertakings who construct housing projects on those few plots. Therefore, it is clear that on a plot of land having minimum area of one acre, there can be any number of housing projects and so long as those housing projects are approved by the local authority and fulfill the conditions set out under Section 80IB (10), the deduction thereunder cannot be denied to all those housing projects. Section 80IB (10) while specifying the size of the plot of land, does not specify the size or the number of housing projects that are required to be undertaken on a plot having minimum area of one acre. As a result, significance of the size of the plot of land is lost and, therefore, the assessee subject to fulfilling other conditions becomes entitled to Section 80IB (10) deduction on construction of a housing project on a plot having area of one acre, irrespective of the fact that there exist other housing projects or not. In these circumstances, the decision of the Tribunal in rejecting the contention of the Revenue regarding the size of the plot cannot be faulted.
HIGH COURT OF JUDICATURE AT BOMBAY
INCOME TAX APPEAL NO. 3633 OF 2009
INCOME TAX APPEAL NO. 4361 OF 2010
The Commissioner of Income Tax
Versus
M/s. Vandana Properties
PRONOUNCED ON: 28th March 2012.
ORAL JUDGMENT: (Per J P Devadhar, J.)
1. These two appeals are admitted on the following common substantial question of law and taken up for hearing by consent of both the parties.
“Whether on the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in holding that the assessee firm was eligible for claiming deduction under Section 80IB (10) of the Act wherein the assessee failed to fulfill the primary conditions laid down under Section 80IB (10) of the Act such as commencement of construction, area of plot and size of the flats constructed by the assessee ?”
2. The assessment years involved herein are AY 20042005 and 20052006.
3. Since several appeals are filed in this Court raising similar questions, we have heard counsel for various parties as intervenors.
4. The respondent – assessee is a registered partnership firm engaged in the business of construction and development of housing projects.
5. For the sake of convenience, we set out the facts in Income Tax Appeal No.3633 of 2009. The relevant facts in that appeal are that on a plot of land, ad measuring 2.36 acres situated at Kandivali (West), Mumbai, the assessee had constructed buildings A, B, C and D over a period of years. Intimation of disapproval in respect of those buildings were granted during the year 1993 to 1996. By following the work in progress method of accounting, the assessee offered to tax the income earned by constructing buildings A, B, C and D from time to time. Deduction under Section 80IB (10) of the Act on the income earned from buildings A, B, C and D buildings was not claimed as the approval for construction of those buildings were granted prior to 1st October 1998. Pursuant to an order passed by the State Government in the year 2001 permitting conversion of the status of the land, the assessee became entitled to construct an additional building ‘E’ on the aforesaid plot of land. Accordingly, building plan for construction of building ‘E’ with several residential units on the said plot of land was submitted by the assessee.
6. By an Intimation of Disapproval dated 1 1th October 2002, the building plan for ‘E’ building consisting of various residential units was approved by the Municipal Corporation subject to various conditions set out therein. Thereafter, commencement certificate for construction of the ‘E’ building was issued on 10th March 2003.
7. In the returns of income filed for AY 2004- 2005 and 2005- 2006, the assessee estimated its profits from ‘E’ building by following the work in progress method of accounting and claimed deduction under Section 80IB (10) at Rs. 71,42,590/ and Rs. 71,73,660/ respectively.
8. On 11th October 2005, survey action under Section 133A of the Income Tax Act, 1960 (‘Act’ for short) on the business premises of the assessee as also at the project site was conducted to ascertain the allow ability of deduction under Section 80IB (10) of the Act. During the course of survey and thereafter statement of the Site Supervisor and Architect were recorded.
9. In the assessment order passed for AY 20042005, on 28th December 2005, the assessing officer disallowed the claim for deduction under Section 80IB (10) for the following reasons :
a) The approval for ‘E’ building was granted on 11th October 2002 as an extension of the approvals granted for A, B, C and D buildings commencing from 9th June 1993 and, therefore, ‘E’ building being continuation of A, B, C and D buildings, the project must be held to have commenced prior to 1st October 1998 and, hence, not eligible for 80IB (10) deduction.
b) A, B, C, D and E buildings are constructed on a plot measuring 2.36 acres and if 2.36 acres of land is proportionately divided between five buildings, the land pertaining to ‘E’ building would be less than one acre and, hence, deduction under Section 80IB (10) cannot be allowed.
c) During the survey, it was noticed that Flat Nos. 138 and 153 on the ground floor of ‘E’ building were found to be merged into one flat and since the area of the merged flat exceeds 1000 square feet, the deduction under Section 80IB (10) cannot be granted.
For the identical reasons, the deduction under Section 80IB (10) was disallowed for AY 20052006.
10. The appeals filed by the assessee against the dis allowance of the claim under Section 80IB (10) were dismissed by the Commissioner of Income Tax (Appeals).
11. On further appeals filed by the assessee, the Tribunal by its orders dated 29th April 2009 and 27th May 2009 held that the assessee is entitled to the deductions under Section 80IB (10). Challenging the aforesaid order, the present appeals are filed by the Revenue.
12. Mr.Suresh Kumar, learned Counsel for the Revenue argued before us that the amount of deduction under Section 80IB (10) of the Act is available to an undertaking where the development and construction of the housing project has commenced on or after 1st October 1998 and is completed within the time stipulated therein. In the present case, approval for construction of ‘E’ building was granted on 11th October 2002 as and by way of extension of the approval granted to the earlier housing project consisting of A, B, C and D buildings. Since approval to the housing project consisting of A, B, C, D and E building was first granted in the year 1993, it must be held in view of the Explanation to Section 80IB (10)(a) of the Act that the housing project has commenced development and construction when the first approval was granted in the year 1993 and to such a housing project which has commenced prior to 1st October 1998, the deduction under Section 80IB (10) could not be granted.
13. Counsel for the Revenue further submitted that for claiming deduction under Section 80IB (10), the housing project must be on the size of a vacant plot of land which has a minimum area of one acre. The submission is that, unless the housing project has commenced development/ construction on or after 1st October 1998 on a vacant plot of land of the size having a minimum area of one acre, the benefit of deduction under Section 80IB (10) would not be available. In the present case, the assessee has construed ‘E’ building on the size of a plot of land admeasuring 2.36 acres on which four buildings viz. A, B, C and D were already constructed and even if the land is proportionately divided between the five buildings viz. A, B, C, D and E, the area of the land pertaining to ‘E’ building would be less than one acre which would be in contravention of the conditions set out in Section 80IB (10) and, therefore, the Tribunal could not have extended the benefit of Section 80IB (10) to the assessee.
14. Lastly, counsel for the Revenue submitted that in the present case, the assessee has merged two flats on the ground floor of ‘E’ building into one flat as a result whereof the size of the residential unit in the housing project exceeded 1000 square feet which is in contravention of Section 80IB (10)(c) of the Act and, hence, the benefit of that Section could not be granted to the assessee. Accordingly, it is submitted that the appeals filed by the Revenue be allowed by answering the question raised in the appeal in favor of the Revenue and against the assessee. Counsel for the assessee as also the counsel for the intervenors have made elaborate arguments supporting the order passed by the Tribunal and the same are considered in the subsequent paras of this judgment.
15. Before considering the rival submissions, we may reproduce Section 80IB (10) as it stood prior to its substitution by the Finance (No.2) Act, 2004 with effect from 1st April 2005 herein below:
“(10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March, 2005 by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to any assessment year from such housing project if,
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1 st day of October, 1998;
(b) the project is on the size of a plot of land which has a minimum area of one acre; and
(c) the residential unit has a maximum buildup area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place.”
16. Section 80IB (10) substituted with effect from 1st April 2005, to the extent relevant herein, reads thus :
“(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,
(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;
(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority.
Explanation. For the purposes of this clause,
(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;
(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;
(b) the project is on the size of a plot of land which has a minimum area of one acre;
Provided…..
(c)…..
(d) …..”
17. The first question to be considered herein is, whether, in the facts of the present case, construction of ‘E’ building constitutes building a ‘housing project’ under Section 80IB (10) of the Act.
18. The expression ‘housing project’ is neither defined under Section 2 of the Act nor under Section 80IB (10) of the Act. Even under the Mumbai Municipal Corporation Act, 1988 as also under the Development Control Regulations for Greater Mumbai, 1991, the expression ‘housing project’ is not defined. Therefore, the expression ‘housing project’ in Section 80IB (10) would have to be construed as commonly understood.
