Deduction u/s 80IB(10) includes commercial establishments/ shops also

Macro Marvel Projects Limited Vs ITO (ITAT Chennai)

Under section 80IB(10) the housing project contemplates commercial establishments or shops also.

Facts-

The assessee originally claimed the deduction of Rs. 28,32,048/- u/s. 80IB(10) in respect of its project named Marvel Apoorva and Wood Creek Country. Subsequently, the assessee revised its ROI restricting its claim of deduction in the project Marvel Apoorva only. The assessee in the revised statement of income claimed deduction of Rs. 68,79,782/- u/s. 80IB(10) of the Act in respect to projectMarvel Apoorva resulting thereby a net loss of Rs. 35,78,307/-.

The sum and substance of the entire history is that the only issue remains for adjudication is whether the assessee is entitled to claim deduction u/s. 80IB(10) of the Act in respect of housing project undertaken and constructed by it despite the fact that nominal part is commercial area.

Conclusion-

Held that the decision of the Hon’ble Supreme Court in the case of Sarkar Builders is squarely applicable. Wherein, the Hon’ble Supreme Court has gone a step further while interpreting the provisions of section 80IB(10) of the Act, made it clear that the housing project contemplates under this section that includes commercial establishments or shops also. It was further clarified that by way of amendment in the form of Clause (d), an attempt is made to restrict the size of the said shops and/ or commercial establishments.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This ITA 194/Mad/2008 is arising out of the order of the Commissioner of Income Tax (Appeals)-V, Chennai in appeal No. 103/2006-07 order dated 02.10.2007. The Assessing Officer challengedrectification order passed by CIT(A) in ITA 103/2006-07, rectifying the order of CIT(A) in ITA No. 103/2006­07 dated 26.06.2007. In ITA No. 2259/Chny/2007, the assessee is in appeal before Tribunal against the order of Commissioner of Income Tax (Appeals)-V, Chennai in ITA No. 103/2006-07 order dated 26.06.2007. Assessment was framed by the ITO, Company ward IV(1), Chennai for the AY 2003-04 u/s. 143(3) of the Income-tax Act, 1961 (herein after referred to as ‘the Act’) vide order dated 31.03.2006.

2. This matter travelled before Hon’ble High Court by various Miscellaneous Petitions and Hon’ble High Court finally in Tax Case Appeal No. 797, 870 & 871/2010 vide judgment dated 14.02.2022 remitted all the matters back to the file of the Tribunal by giving specific directions in para 12 as under:

“12. In view of the above submissions of the learned counsel for both sides, the impugned orders passed by the Tribunal are set aside. The matters are remanded to the Tribunal for passing appropriate orders on merits and also in the light of the decisions referred hereinabove. Such exercise shall be completed by the Tribunal as expeditiously as possible, after providing opportunity of hearing to the appellant. Accordingly, the Tax Case Appeals are disposed of. No costs.”

3. Before us now, Ld. Counsel for the assessee has filed the history of these appeals and submitted chart in which list of dates and events and table explaining TCA Nos before Hon’ble High Court, which are relatable to orders of the Tribunal. The following chart has been placed by Ld. Counsel for the assessee:-

LIST OF DATES AND EVENTS

TABLE EXPLAINING TCA Nos

4. It means that now the issue before us for adjudication remains in ITA No. 2259/Chny/2007 which is restored by Hon’ble High Court in TCA No. 870/2010. The sum and substance of the entire history is that the only issue remains for adjudication is whether the assessee is entitled to claim deduction u/s. 80IB(10) of the Act in respect of housing project undertaken and constructed by it despite the fact that nominal part is commercial area. For this, assessee has raised following grounds:

“a. The Commissioner of Income-tax (Appeals) erred in rejecting the appellant’s appeal, without reference to the facts of the case and legalities thereof.

b. The Commissioner of Income-tax (Appeals) ought to have seen that the Appellant was entitled to the benefit of deduction u/s. 80IB of the Income Tax Act.

c. The lower authorities erred in not noting that the Development Control Rules in respect of Chennai Metropolitan areas issued by the Chennai Metropolitan Development Authority, authorized a primary residential zone to include a commercial area with floor area not exceeding 100sq.m.

d. The Commissioner of Income-tax (Appeals) ought to have seen that the extent of commercial holding in the housing project undertaken by the appellant was less than 100 sq.m. and there was, thus, no justification for denial of benefit under sec. 80IB of the Income Tax Act.

e. The Commissioner of Income-tax (Appeals) ought not to have rejected the clarification issued by the CBDT on the ground that the same was not signed. He further ought to have noted that any clarification issued by the Central Board of Direct Taxes is on a factual and legal issue that is applicable to any assessee and cannot be restricted to apply only to the assessee in whose case it was issued.”

5. Brief facts are that the assessee originally claimed the deduction of Rs. 28,32,048/- u/s. 80IB(10) of the Act in respect of its project named Marvel Apoorva and Wood Creek Country. Subsequently, the assessee revised its return of income on 03.02.2006, restricting its claim of deduction in the project Marvel Apoorva only. The assessee in the revised statement of income claimed deduction of Rs. 68,79,782/- u/s. 80IB(10) of the Act in respect to project Marvel Apoorva resulting thereby a net loss of Rs. 35,78,307/-. The assessee claimed before the AO that the project name Marvel Apoorva was a plot area of 2.7 acres and having sanctioned built up area as mentioned in para 4 of AO’s order which is reproduced as under:-

“Total Built up area sanctioned:             15843.85 sq.m               170547.36 sq.ft

Residential Built up area sanctioned:      15617.13 sq.m               168106.83 sq.ft

Commercial area sanctioned:                   226.72 sq.m          2440.47 sq.ft”

The AO noted from the copies of plans sanctioned furnished before him that the commercial block consists of 98.46 sq.m. of departmental store in the ground floor and a committee room in the first floor for the residents association. According to AO, the project consists of commercial area and hence, he disallowed the claim of deduction by observing in para 4.1 read as under:

“From the above, it is clear that the deduction was envisaged for housing project only and there was no mention of allowing any commercial area in it. In the present case, the commercial area was part of the stock-in-trade of the assessee and forms part of the whole project. Also, the assessee could not establish the existence of the Notification statedly issued by CBDT, upon which reliance was placed. In view of this, this project is not considered as a housing project within the meaning of section 80IB, but a housing cum commercial project, which does not qualify for deduction under that section. In view of this, the assessee’s claim of deduction u/s. 80IB is disallowed and added to the total income.”

Aggrieved, assessee preferred appeal before the CIT(A).

6. The CIT(A) confirming the action of the AO by observing in para 4.1.3 as under:

“4.1.3. The arguments put forward by the learned A.R have carefully been examined vis-a-vis the contention raised by the A.O in the assessment order and in the remand report. After carefully analyzing the facts relating to the appellant’s case, I am unable to concur with the views of the learned A.R for the following reasons:

(a) In respect of the appellant’s housing project the sanctioned commercial area stands at 2440.47 sq. ft. (or 226.72 sq. meter), whereas as per the Development Control Rules of the Chennai Metropolitan Development Authority, primary residential zone can include shops occupying area not exceeding 100 sq. meters. Even by virtue of the amendment brought about by the Finance Act, 2004, the commercial area permissible within a housing project cannot exceed 2000 sq. ft.

(b) The clarification dated 04-05-2001 of the CBDT is addressed to the Maharashtra Chamber of Housing Industry in response to their query, but no such clarification ha been issued to the Tamilnadu Chamber of Housing Industry. Moreover, the copy of the CBDT’s notification furnished by the learned AR is found to be an unsigned one which, therefore, raises doubt about its sanctity.

(c) In respect of the Y. 2003-04, there is no provision in section 80 IB (10) which permits commercial area within a housing project.

On the basis of the above grounds, I hold that the A.O was fully justified in disallowing the appellant’s claim u/s 80IB(10). The grounds of the appellant in this regard thus fail.”

Aggrieved, assessee is in appeal before Tribunal.

7. Now, Ld. Counsel for the assessee Shri. G. Baskar, Advocate argued that the commercial area is only to the extent of 98.4 sq.m. which is for the daily needs of the residents of the project. Ld. Counsel stated that the committee hall is for the use of the residents for carrying out the welfare activities of the resident society and he stated that in the year i.e., 2003-04, there was no such restriction put forth by the legislature rather the amendment in section 80IB(10) of the Act of 100q.mt of commercial area exemption, was brought in by the legislature by the Finance Act, 2004 w.e.f. 01.04.2005 and he argued that the assessee’s project is approved before 31.03.2005 by the local authorities and other conditions to claim deduction as per the provisions of section 80IB(10) of the Act are also complied with. Ld. Counsel for the assessee took us through the details filed before the AO during original assessment proceedings vide letter dated 13.03.2006 which are reproduced in the assessment order, which read as under:-

“1. The plan approval was obtained before 01.04.2004, i.e. on 04.05.2001 from CMDA the designated authority under the Act.

2. Total land area of the project was 2.45 acres which is more than the prescribed minimum area of 1 acre.

3. All the residential units has a built up area of less than 1500 sq.ft. In view of the above facts the company has complied all the conditions stipulated u/s 80IB(10) of the Income tax Act 1961.”

8. Ld. Counsel stated that there is no objection raised by the AO as regards to non fulfilment of of any of the conditions as per the provisions of section80IB(10) of the Act and assessee has complied with all the provisions of the Act and as noted by Hon’ble Madras High Court, this issue is now covered in favour of the assessee by the decision of Hon’ble Supreme Court in the case of CIT Vs Sarkar Builders 375 ITR 392 and Hon’ble High Court has considered this aspect while hearing the arguments of the Ld. Counsel for the assessee in para 9 which reads as under:

“9. When these appeals are taken up for consideration, the learned counsel for the appellant submitted that the questions of law raised in these appeals were already decided in favour of the appellant by the Honourable Supreme Court in (CIT Vs. Sarkar Builders) reported in 375 ITR 392. In that it was held by the Honourable Supreme Court that when a housing project is approved, with or without commercial user to the extent permissible under the Rules/Regulations, then, deduction under Section 801B (10) would be allowed. In other words, if a project could be approved as a housing project having residential units with permissible commercial user, then it is not open to the income tax authorities to contend that the expression ‘housing project’ in Section 801B(10) is applicable to projects having only residential units. It was further held that amendment of the Act came into force on 01.04.2005 and as long as the development/construction commenced on or after 01.10.1998 and completed before 31.03.2005, the assessee is entitled to the deduction. Therefore, the learned counsel for the appellant submitted that in the light of the above decision of the Honourable Supreme Court, it has to be examined as to whether the appellant has completed the construction of the housing projects before the amendment or after the coming into force of the amendment vis-a-vis the entitlement of the appellant to get deduction under Section 801B (10) of the Act.”

9. On the other hand, Ld. Sr. DR could not controvert the above facts situation but only argued that there is no limit for commercial area prescribed on or before 01.04.2005 and assessee’s case is for AY 2003-04 and once the assessee has constructed commercial area, the assessee is not entitled for claim of deduction u/s. 80IB(10) of the Act.

10. After hearing the rival contentions and going through the facts and circumstances of the case, we noted that out of the assessee’s housing project of total built up area of 15,843.85 mt., this commercial built up area constituted only 98.46 sq.mt. which is negligible and marginal. We noted that the clause permitting the housing project to include commercial area up to 5% of the aggregate built up area was brought in by legislature w.e.f. 01.04.2005 and according to us the same can be given effect to the assesse’s case retrospectively. This view of our is supported by the decision of the Hon’ble Supreme Court in the case of Sarkar Builders (supra), wherein it is held as under:

“(g) From this provision, therefore, it is clear that the housing project contemplated under sub-section (10) of Section 80IB includes commercial establishments or shops also. Now, by way of an amendment in the form of Clause (d), an attempt is made to restrict the size of the said shops and/or commercial establishments. Therefore, by necessary implication, the said provision has to be read prospectively and not retrospectively. As is clear from the amendment, this provision came into effect only from the day the provision was substituted. Therefore, it cannot be applied to those projects which were sanctioned and commenced prior to 01.04.2005 and completed by the stipulated date, though such stipulated date is after 01.04.2005.

These aspects are dealt with by various High Courts elaborately and convincingly in their judgments. It is not necessary to go into the detailed reasoning given by these High Courts. However, we would like to extract the following discussion from the judgment dated 25.07.2014 of the Bombay High Court in ITA Nos. 201 and 308 of 2012, where this very aspect is answered in the following manner:

“36. There is yet another reason for coming to the aforesaid conclusion. Take a scenario where an Assessee, following the project completion method of accounting, has completed the housing project approved by the local authority complying with all the conditions as set out in section 80-IB(10) as it stood prior to 1st April, 2005. If we were to accept the argument of the Revenue, then in that event, despite having completed the entire construction prior to 1st April, 2005 and complying with all the conditions of section 80-IB(10) as it stood then, the Assessee would be disentitled to the entire deduction claimed in respect of such housing project merely because he offered his profits to tax in the A.Y. 2005-06. In contrast, if the same Assessee had followed the work-in-progress method of accounting, he would have been entitled to the deduction under section 80-IB(10) upto the A.Y. 2004-05, and denied the same from A.Y. 2005­06 and thereafter. It could never have been the intention of the Legislature that the deduction under section 80-IB(10) available to a particular Assessee would be determined on the basis of the accounting method followed. This, to our mind and as rightly submitted by Mr. Mistry, would lead to startling results. We therefore have no hesitation in holding that section 80-IB(10) is prospective in nature and can have no application to a housing project that is approved before 31st March, 2005. As the deduction sought to be claimed under section 80-IB(10) is inseparably linked with the date of approval of the housing project, it would make no difference if the construction of the said project was completed on or after 1st April, 2005 or that the profits were offered to tax after 1st Apri, 2005 i.e. in A.Y. 2005-06 or thereafter. We therefore find no substance in the argument of the Revenue that notwithstanding the fact that the housing project was approved prior to 31st March 2005, if the construction was completed on or after 1st April, 2005 or if the profits are brought to tax in the A.Y. 2005- 06 or thereafter, the said housing project would have to comply with the provisions of clause (d of section 80-IB(10). To our mind, we do not think that the condition/restriction laid down in clause (d) of section 80-IB(10) has to be revisited and/or looked at and complied with in the assessment year in which the profits are offered to tax by the Assessee. When the Assessee claims a deduction under section 80-IB(10), the Assessee is required to comply with such a condition only if it is on the statute-book on the date of the approval of the housing project and it has nothing to do with the year in which the profits are brought to tax by the Assessee. We have come to this conclusion only because we find that clause (d) of section 80-IB(10) is inextricably linked to the date of the approval of the housing project and the subsequent development/construction of the same, and has nothing to do with the profits derived therefrom. We may hasten to add that if a particular condition is not inseparably linked to the date of approval of the housing project, different considerations would arise. However, we are not called upon to decide any such condition and hence we are not laying down any general proposition of law, save and except that clause (d) of section 80-IB(10), being a condition linked to the date of the approval of the housing project, would not apply to any housing project that was approved prior to 31st March, 2005 irrespective of the fact that the profits of the said housing project are brought to tax after the said provision was brought into force.”

As the issue is squarely covered, we find that Hon’ble Supreme Court has gone a step further while interpreting the provisions of section 80IB(10) of the Act, made it clear that the housing project contemplates under this section that includes commercial establishments or shops also. It was further clarified that by way of amendment in the form of Clause (d), an attempt is made to restrict the size of the said shops and/ or commercial establishments. Therefore, Hon’ble Supreme Court, by necessary implication noted that the provision has to be read prospectively and not retrospectively. Accordingly, in view of the decision of Hon’ble Supreme Court in the case of Sarkar Builders (supra), we allow the appeal of the assessee.

11. Coming to ITA No. 194/Chny/2008, we noted that since we allow the main appeal of the assessee, the appeal filed by Revenue has become academic and infructuous. Hence, the same is dismissed.

12. In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.

Order pronounced on 29^th June, 2022.