Case Law Details

Case Name : Commissioner of Income tax Vs Sanghvi and Doshi Enterprise (Madras High Court)
Appeal Number : Tax Case IT (Appeal) No. 581 & 582 OF 2011 and 314 & 315 of 2012
Date of Judgement/Order : 01/11/2012
Related Assessment Year :
Courts : All High Courts (3632) Madras High Court (269)

HIGH COURT OF MADRAS

Commissioner of Income tax

Versus

Sanghvi and Doshi Enterprise

TAX CASE (APPEAL) NOS. 581 & 582 OF 2011

and 314 & 315 of 2012

M.P. No. 1 of 2011

NOVEMBER 1, 2012

JUDGMENT

1. Both the assessee as well as the Revenue have filed appeals as against the common order of the Income Tax Appellate Tribunal relating to the assessment years 2005-06 and 2006-07.

2. As far as Revenue’s Appeals (T.C.(A)Nos.581 and 582 of 2011) are concerned, at the time of admission, the following substantial questions of law were admitted by this Court for consideration:

“1.  Whether on the facts and circumstances of the case, the tribunal was right in deciding the eligibility of deduction without considering the mandatory conditions stipulated u/s.80IB and 80IB(10) of the I.T. Act?

 2.  Whether on the facts and circumstances of the case, the Tribunal was right in not giving any finding about the difference between developers, builders and construction contracts to claim deduction u/s.80IB(10) of the Act?

 3.  Whether on the facts and circumstances of the case, the Tribunal was right in deciding that there need not be any cap of 10% for flats having built up area exceeing 1500 sq.ft. with regard to claim for deduction u/s.80IB of the Act?”

3. In the course of the hearing before this Court, the Revenue, however, presented a petition for reframing the questions of law, since the questions admitted did not project the issues fully. On a perusal of the questions now raised before this Court, after hearing the learned senior counsel appearing for the assessee, who had no serious objection for re-framing the questions, the following substantial questions of law, as reframed, arise for consideration:

“1.  Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that developer or builder, is eligible for claiming benefit under Section 80(IB)(10), and assessee can be treated as developer or builder, eligible for claiming benefit under Section 80IB(10) of the Income Tax Act?

 2.  Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee had complied with the condition of submission of completion certificate from local authority within the time limit as per the provisions of Section 80IB(10)(a) of the Income Tax Act?

 3.  Whether on the facts and in the circumstances of the case, the Tribunal was right in that the assessee is entitled for the deduction under Section 80IB(10) for the housing project with respect to residential flats with built up area not exceeding 1500 sq.ft. even though in the same housing project, the assessee had constructed flats exceeding built up area of 1500 sq.ft.?

 4.  Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of Section 80IB(10) provide for partial deduction to the housing project with respect to residential flats with built up area of less than 1500 sq.ft. where the same project contains flats with built up area exceeding 1500 sq.ft.?”

4. The assessee is engaged in the business of developing construction of housing projects. It is seen from the facts narrated that the assessee had entered into an agreement with M/s.Hotel Mullai Pvt. Ltd. on 28th April, 2003 for joint development of the property in the name and style “Vimalachal” in Vepery, Poonamallee High Road, Chennai. The terms of agreement stated that the assessee had agreed to build an extent of 1,91,990 sq.ft. super built-up area on the said property. The owner of the property, namely, M/s.Hotel Mullai Pvt. Ltd., would be paid a sum of Rs. 600/- per sq.ft. worked out on the super built-up area as towards the sale of proportionate undivided share of the land transferred to the buyer and the aggregate amount payable to the owner of the property would be Rs. 11,51,94,000/-. Clause 4 of the agreement stated that the assessee, as a builder, would collect the cost of the undivided share of the land and pay the same to the owner. Apart from that, relevant clauses for the purpose of considering the question herein are Clauses 7, 8, 11 and 12, which read as follows:

“Clause 7. The parties hereto agree that the BUILDER has a right to enter into separate Builder’s agreement with the proposed purchaser/s and the BUILDER shall be entitled to fix such rate per sq.ft. for constructed area as it may deem fit and the OWNER shall have no claim to such amounts. The BUILDER is also entitled to receive such sale consideration and all other payments from the purchasers and appropriate the same for himself. The BUILDER in its own right shall hand over possession of such areas to the purchasers on completion of construction as per agreements.

8. The BUILDER shall receive entire sale consideration of the flats from the proposed purchasers including the cost of undivided share of land and pay to the OWNER the cost of the land as per the sale deeds of undivided share of land registered by the OWNER.

11. The Parties here to make it abundantly clear that owners have not handed over the possession of the schedule mentioned land to the Builder. The owners have only given a limited licence to the Builder to enter the land to carryout the construction and this licence can be revoked at any time by the owners.

12. The BUILDER shall pay to the OWNER the cost of the land as specified in the sale deed of undivided share of land in favour of the proposed purchasers.”

5. In terms of the agreement thus reached between the parties, a deed of power of attorney was given to the assessee by the owner of the property for carrying on further activity in relation to the development of the property. Individual sale agreements were also entered into between the owner of the property and the prospective purchasers, a copy of the sale agreement, which is almost identical in respect of all purchasers, is produced before this Court. A perusal of one such agreement, namely, the agreement with Mr. Bhogilal dated 14th November, 2003 reveals the following clause, namely,

That “in pursuance of a Scheme for Development evolved by the OWNERS and sanction has been applied for and obtained from the Chennai Metropolitan Development Authority for putting up storeyed buildings on the land described in Schedule “A” hereunder.

And WHEREAS under a Contractors Agreement dated 4.8.2003 the OWNERS appointed M/s.Sanghvi & Doshi Enterprise hereinafter referred to as the BUILDER as their contractor to construct the building proposed to be constructed on the land described in Schedule “A” hereunder and the proposed building to be known as “VIMALACHAL” with rights for the BUILDER to enter into Builders Agreements for allotment and construction of built up area directly with parties with whom the OWNERS have entered into agreements of sale of undivided share in the land described in Schedule “A” hereunder.”

“The PURCHASER/S shall of necessity enter into a separate Builder’s Agreement with the BUILDER as the Contractor for the construction of The PREMISES and neither agreement shall be enforceable dehors the other”.

“In case the ALLOTTEE/S commits default in payments that have fallen due and that the default continues even after 15 [fifteen] days from the date of notice in writing then the BUILDER is empowered to cancel the allotment of the PREMISES to the ALLOTTEE/S and sell the Undivided Share of land to any other person and allot this PREMISES to the new ALLOTTEE/S and then repay the amount paid by the ALLOTTEE/S duly deducting the expenses incurred by the BUILDER.”

6. It is a matter of record that the assessee had sub-contracted the work to one M/s. G.K. Shetty Builders Pvt. Ltd. by entering into an agreement on 01.10.2003 for carrying out actual construction work. In terms of the agreement thus undertaken for development and construction, the assessee claimed deduction under Section 80IB of the Income Tax Act. It is a matter of record that Chennai Metropolitan Development Authority accorded sanction to the project under letter dated 23.09.2003. A perusal of the said proceedings of CMDA addressed to the Commissioner, Corporation of Chennai reveal that the approval granted was not final and that the assessee was to approach the Chennai Corporation for issuance of planning permit under the respective Local Body Act. Only after that, the proposed construction could be commenced. It is also a matter of record that the assessee accordingly appeared before the Local Authority, viz., the Corporation of Chennai and had obtained the planning permit from the local body also. As per the documents placed before this Court, which was also placed before the Authorities below, the Local Authority, Corporation of Chennai, issued completion certificate on 28.12.2007 to the Member Secretary, Chennai Metropolitan Development Authority. It is also a matter of record that the assessee completed its construction on ground plus 12 floors on 05.03.2006, even though the assessee had placed the request for issuance of completion certificate well in advance on 13.3.2006. Considering certain disputes between Chennai Metropolitan Development Authority and the assessee as regards the compliance of the approved plan, in the wake of threat of forfeiture of the security deposit given by the assessee to the Chennai Metropolitan Development Authority, the owner of the property stated to have been moved this Court by way of Writ Petition in W.P.No.7916 of 2007. By order dated 03.04.2007, a Division Bench of this Court directed the Chennai Metropolitan Development Authority to consider the explanation of the petitioner dated 05.2.2007 and pass orders within a period of eight weeks from the date of receipt of a copy of the order. The petitioner was asked to send a fresh application thereafter vide proceedings of Chennai Metropolitan Development Authority dated 16.11.2007 and the assessee had filed the same on 20.11.2007. However, Chennai Metropolitan Development Authority issued completion certificate only on 13.6.2008.

7. In the background of the above-said facts, the Assessing Officer considered the claim of the assessee for deduction under Section 80(IB)(10) of the Income Tax Act. The Assessing Officer viewed that the assessee had acted only as a builder for M/s. Hotel Mullai Pvt. Ltd. and Section 80 IB(10) allows deduction only in respect of developing and building housing projects and not developing or building. Since the assessee had only acted as a mere executor of the project and was not the owner of the property, the question of the assessee being considered for grant of deduction did not arise. Apart from that, the Assessing Officer also considered the question as regards the completion certificate being given beyond the date prescribed under Explanation (1) to sub-section (10) of Section 80IB of the Income Tax Act. Yet another violation pointed out by the Assessing Officer was that the extent of built-up area in the project exceeded the condition as to the limit given under Section 80IB(10)(c) of the Income Tax Act. In the circumstances, the Assessing Officer viewed that the assessee was not entitled to relief under Section 80IB(10) of the Income Tax Act. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who confirmed the view of the Assessing Officer.

8. Aggrieved by this, the assessee went on further appeal before the Income Tax Appellate Tribunal. Along with the assessee’s case, two other assessees, viz., M/s. Sri Mahalakshmi Housing and M/s. Sri Mahalakshmi Builders, who were also similarly placed and whose claims also suffered rejection by the respective Assessing Officer, had appealed before the Tribunal. Thus, under a common order along with the assessee’s case, the Tribunal considered the other assessees’ case too.

9. As far as the claim of the Revenue that the assessee not being the owner of the building, the question of grant of deduction under sub-section (10) of Section 80 IB of the Income Tax Act was not available, the Tribunal pointed out that the ownership of the land was not the criteria to decide the status of the developer to claim deduction. Pointing out the situation where the owner may desire to retain the ownership of a portion of the land and sell it in an undivided portion, the Tribunal held that the Legislature must have taken note of such a situation in mind while providing for the deduction. Referring to the Memorandum explaining Finance Bill, 2009, introducing Explanation to Section 80IB(10) of the Income Tax Act, the Tribunal pointed out to the provisions emphasised about the investment risk, which could be taken either by the owner or the builder or jointly by both. Thus, taking note of the risk elements involved in the promotion of developing a project, ownership as an element for consideration for deduction did not arise. The Tribunal further pointed out to the argument of the Revenue that as the owner was paid based on the built-up area, it was only the owner, who was the developer. Rejecting such a reasoning by the Revenue, the Tribunal pointed out that all that the owner was entitled to on the terms of the agreement between the parties was for the undivided share of the land measured in terms of the built-up area and he had no interest in the cost of construction, which the builder alone had to bear. In the circumstances, the consideration that was payable to the owner in respect of the sale of undivided share was with reference to the super built-up area. Irrespective of whether all the flats are booked or not, the owner would receive the cost of the land. Thus, on a reading of the various clauses in the agreement, the Tribunal held that the fact that the assessee was not the owner would not disentitle the assessee from claiming relief under Section 80IB(10) of the Income Tax Act. It further pointed out that the builder on its part had invested on materials and labour as and when the construction progressed and the recoupment of the investment was uncertain. Thus, irrespective of whether all the flats were booked or not, the builder would have to construct the entire building and even if there was a booking for a flat in the fourth floor and the third floor remained unbooked, the assessee nevertheless would have to go ahead with the construction of the third floor and hand over the possession of the fourth floor to the person, who had paid for the undivided share in the land. In this, the Tribunal pointed out that the risk of the assessee was multifold in contrast to the owner, who had no risk involved at all.

10. We may herein point out that on a perusal of the data furnished before this Court, we find that the flats in the other floors, viz., 5th and 7th floors were sold much ahead of the first floor flats. Apparently, keeping these facts in view, the Tribunal held that the builder had to invest his funds to build the entire project, the realisation from which was quite uncertain. Once the construction project not over, irrespective of the sale that had taken place, the owner would certainly ask for return on the value of the undivided share value. In the context of Clause 25 of the agreement that the builder will always have an option and the right to maintain all common services, namely, security arrangement for the entire building complex, maintenance of lifts, common passage and lobbies etc.; Clause 52 relating to the usage of certain areas by the builder and Clause 27 relating to collection of maintenance coupled with other risk involved, the Tribunal held that the assessee had the responsibility to develop and construct the housing project and the owner of the land is nowhere in the picture. Thus, the assessee was entitled to the relief under Section 80IB of the Income Tax Act and the absence of ownership would not disentitle the assessee, as a developer from claiming relief under Section 80IB(10) of the Income Tax Act.

11. Referring to Section 80IB of the Income Tax Act again, the Tribunal held that if a person is just a contractor only and no risk at all attached to him in planning and executing the project, the question of granting relief under Section 80IB of the Income Tax Act does not arise. As far as the present case is concerned, the assessee had no doubt sub-contracted the work to other person. The other person, extending the mere labour to put up the construction would not be entitled to any relief under Section 80IB of the Income Tax Act. On the other hand, with all the risk attached in developing and executing the project, the assessee, being a developer and builder, qualified for deduction under Section 80IB of the Income Tax Act. As far as the owner of the land is concerned, there was no risk involved and the interest was in the realisation of the potentialities by way of encashing the past investment made.

12. On the question of the other objection relating to the subsequent buyers modifying two flats as one, thereby, resulting in the violation of clause (c) of sub-section (10) to Section 80IB of the Income Tax Act, the Tribunal held that the assessee could not be faulted with for the same. In the circumstances, when clauses (e) and (f) of sub-section (10) of Section 80IB of the Income Tax Act are effective only from 01.04.2010, not being retrospective in operation, the mere fact of the purchasers’ combining two flats into one, per se, would not be held as violation of the provisions of the Act.

13. As regards the question as to whether the project had been completed on or before 31.3.2008 as per the conditions contained in Section 80IB(10)(a) of the Income Tax Act, the Tribunal pointed out that the objection of the Revenue was that the Chennai Metropolitan Development Authority had issued the completion certificate only on 13.6.2008, i.e., three months from the due date prescribed under the statute, namely, 31.3.2006. The Tribunal pointed out that as far as the construction of the building is concerned, the Local Authority, the Chennai Corporation, is the appropriate authority to regulate construction as per the building bye-laws and sanction plans. The Tribunal observed that when it is not disputed that the Corporation is the local authority, the certificate issued by it could not be disregarded. The building was inspected on 23.11.2007 by the Corporation local authorities and was found to be in accordance with the permit conditions. Looking from the angle of the role of the Chennai Corporation as well as Chennai Metropolitan Development Authority, the Tribunal pointed out that the certificate issued on 13.6.2008 by the Chennai Metropolitan Development Authority cannot, in any manner, negate the relevance of the Corporation’s certificate and the factual completion before 31.3.2008. Thus, the Tribunal held that when the completion of the project was well before 31.3.2008, the local authority had also certified the same, the assessee was entitled to succeed.

14. As regards the contention of the Revenue that certain flats exceeded 1500 sq.ft., the Tribunal thought it fit to remand the matter back to the Assessing Officer to find out whether, in fact, there had been any violation of section 80IB(10)(c) of the Income Tax Act.

15. The last of the question that was raised before the Tribunal was as regards the expression ‘built-up area’. The Tribunal pointed out that it was an admitted fact that the open terrace attached to the particular flats purchased were adjoining to the dwelling unit. In the circumstances, the Tribunal viewed that it had to be held as a projection of dwelling unit itself and the owner of the top floor having access to the said terrace as a private terrace. Taking this area along with the built-up area, the Tribunal considered the question of proportionate relief. Learned Accountant Member held that the assessee was not entitled to relief in respect of those flats, which exceeded 1500 sq.ft. The learned Accountant Member pointed out that if the built-up area of the building exceeding 1500 sq.ft. was more than 10% of the total built-up area of the project, then the assessee would lose deduction on the entire project. Thus the learned Member viewed that if flats measuring more than 1500 sq.ft. did not exceed 10% of the total built-up area, the assessee would be entitled to the deduction on the units satisfying the condition, failing which the assessee would lose the entire deduction. In considering this issue, learned Accountant Member also referred to the decision of the Calcutta High Court in the case of CIT v. Bengal Ambuja Housing Development [I.T.A.No.458 of 2006 dated 5.1.2007] as well as to the decision of the Bombay Tribunal, which was a subject matter of appeal before the Bombay High Court in CIT v. Brahma Associates [2011] 333 ITR 289, which was ultimately confirmed in favour of the assessee. He referred to the decision of the Special Bench of the Tribunal in the case of Brahma Associates v. Jt. CIT [2009] 30 SOT 155/119 ITD 255 (Pune) (SB) holding that if the commercial built-up area was not more than 10% of the total built-up area, the assessee would be entitled to pro-rata relief. Thus, the Tribunal viewed that even in case of units having more than 1500 sq.ft. Of the build-up area, the total extent should not exceed 10% of the total built-up area, a line which was adopted by the Tribunal to consider the relief.

16. It is a matter of record that in passing the order, learned Judicial Member and the Departmental Member, while agreeing on other issues, had differences on a question as to whether the assessee would lose the benefit of deduction under Section 80IB(10) of the Income Tax Act on the entire project, if the built-up area of 1500 sq.ft. exceeded the 10% limit on the total built-up area of the project. As far as the Judicial Member is concerned, he viewed that even if one of the flats in the housing project violated the conditions under Section 80IB(10), particularly as regards the extent, the assessee would not be entitled to any deduction under Section 80IB(10) of the Income Tax Act in respect of the total project. Thus, violation of any one of sub-clauses as are available for the relevant assessment year leads to the rejection of the claim for deduction under Section 80IB(10) in toto for it is the project as a whole that was to be considered for grant of deduction. Coming to the question of proportionate relief, where the built-up area of the flats measuring more than 1500 sq.ft., exceeded 10% of the built-up area, learned Judicial Member held that fixing such percentage would be doing violence to the provisions in Section 80IB(10), which is very clear and unambiguous. Referring to the decision in Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 and Federation of Andhra Pradesh Chambers of Commerce and Industry v. State of Andhra Pradesh [2001] 247 ITR 36, learned Judicial Member held that an appellate authority should not cause violence to the provision of the Act. Contrasting this case with the decision of the Bombay Tribunal in the case of Saroj Sales Organisation v. ITO [2008] 115 TTJ (Mum) 485 and referring to the decision in the case of Asstt. CIT v. Viswas Promoters (P) Ltd. [2010] 126 ITD 263 (Chennai) and Viswas Promoters (P.) Ltd. v. Asstt. CIT [2013] 29 taxmann.com 19 (Mad.), he held if there is any violation in respect of any of the condition specified in Section 80IB(10) in respect of any residential units in the housing project, the assessee would be disentitled to the deduction under Section 80IB(10) in rspect of total project. Thus, there can be no percentage fixed as 10% as ‘Lakshman Rekha’ to be fixed as a margin in the total built-up area, as had been viewed by the Accountant Member.

17. As far as the Departmental Member is concerned, he took a different view. While holding that the open terrace area had to be included in the built-up area, he held that with or without open terrace area, the total extent of flats having built-up area in excess of 1500 sq.ft. should not exceed 10% of the total built-up area of the project. Thus, if the built-up area of the flats exceeding 1500 sq.ft. (with or without terrace put together), is more than 10% of the total built-up area of the project, then the assessee would lose the deduction on the entire project.

18. Considering the said differences in the reasons of the two Members, the matter was placed before the third Member, the Vice President of the Tribunal, on the following substantial question of law:

“In the facts and circumstances of the case, is the assessee entitled to deduction under sec.80IB(10) of the Income-tax Act, 1961 if there is violation even in respect of a single residential unit in the project?”

19. On a consideration of the issues, the third Member agreed with the Accountant Member that the assessee would be entitled to deduction under Section 80IB(10) in respect of flats having built-up area not exceeding 1500 sq.ft. and would not be entitled to deduction in respect of those flats having the built-up area exceeding 1500 sq.ft. In this, he followed the decision in the case of Bengal Ambuja Housing Development (supra) of the Calcutta High Court. The third Member agreed with the Judicial Member and dissented with the Accountant Member as regards the 10% ceiling proposed by the Accountant Member to find out whether the assessee would be entitled for deduction under Section 80IB(10) of the Income Tax Act. He held that even though the reference to the Third Member did not contain anything about this ceiling, yet, to avoid further controversy and as a related subject, the said issue also merited consideration before the third Member. Referring to the decision of the Bombay High Court in Brahma Associates‘ case (supra), the third Member pointed out that the Tribunal could not fix such a ceiling in the absence of any such ceiling prescribed under the Act. Thus, he agreed with the judicial member on this. In the light of the above, the majority view of the Tribunal was that the assessee would be entitled to the relief on a proportionate basis to the extent of a compliance on Section 80IB(10) on the with built-up area of the flats. Aggrieved by this, the Revenue has filed the present appeals before this Court. The assessee has also filed appeals as regards the inclusion of the open terrace area in the built-up area.

20. Learned standing counsel appearing for the Revenue placed reliance on the aspect of ownership as a criteria for grant of relief under Section 80IB of the Income Tax Act and submitted that Section 80IB(10) contemplates grant of deduction and it being a deduction provision, the same has to have a compliance in absolute terms by the assessee. As far as the present assessee is concerned, he is merely a contractor. In the circumstances, when he had acted on behalf of the owner, the assessee, not being a developer, cannot claim any relief under sub-section (10) of Section 80IB of the Income Tax Act. The deduction contemplated is in respect of undertaking developing and building housing projects. When the terms of the agreement were clear that the payment to the owner was linked to the construction cost, the assessee is not entitled to have a relief under Section 80IB of the Income Tax Act. He pointed out that even though the business of the assessee is development and construction, as far as the present case is concerned, he is not entitled to any relief. As regards the grant of approval by the local authority is concerned, on the fact shown on the completion certificate issued by the Chennai Metropolitan Development Authority on 13.6.2008, it is clear that the assessee not having obtained completion certificate on or before 31.3.2008, Explanation to sub-section (10) would operate in this case to negative the claim for deduction. As far as the remand portion is concerned, although learned standing counsel appearing for the Revenue raised an objection, yet, on a perusal of the order and being pointed out by this Court that further action is also taken pursuant to the order of the Tribunal, no serious argument is advanced; nevertheless, he pointed out that if the assessee does not comply with the terms of Section 80IB(10) of the Income Tax Act, the question of grant of relief, even proportionate, did not arise. So too the question of inclusion of open terrace at the hands of the individual flat owner. In the circumstances, when the open terrace is also to be included in the extent of the built-up area and when it exceeds the required or the specified built-up area given under clause (c) to sub-section (10) of Section 80IB of the Income Tax Act, the same would disentitle the assessee from claiming relief before the Assessing Officer. In the circumstances, he submitted that the question of considering any proportionate relief did not arise. Hence, the order of the Tribunal has to be set aside and the appeals be allowed.

21. Countering the claim of the Revenue, learned senior counsel appearing for the assessee pointed out that Section 80IB of the Income Tax Act no where points out that the person engaged in developing and constructing has to be the owner of the property on which the development had taken place. In the absence of any such requirement in the Section, it is not open to the Revenue to introduce concepts for the purpose of rejecting the assessee’s plea. Adopting the theory of strict construction on the deduction provision, he submitted that all that the Section is concerned about is on the business specific and not the assessee specific. Thus when the deduction contemplated is in respect of profits and gains on the business activity of developing and building housing projects, the enquiry cannot travel beyond what is required under the Act. He further pointed out that the agreement specifically pointed out that the risk on the developmental aspect rested only on the assessee and that irrespective of the sale of the flats in entirety, the owner was entitled to the value on the value of the undivided share of land, pro-rata to the flats’ extent sold and it is for the parties to work out the cost of the undivided share of the land and in this case, the assessee and the owner had agreed to a particular manner of working out the cost of the land to be paid to the owner.

22. Referring to the assessment order that on receipt of the sale consideration on the sale of undivided share in the property, the owner was assessed to capital gains, he submitted that the income from the projects had been assessed as business income at the hands of the assessee. Going by the fact that the owner is not in the business of development and construction and the terms of the agreement, it is too late in the day for the Revenue to contend that the assessee should be the owner for the purpose of claiming deduction under sub-section (10) of Section 80IB of the Income Tax Act. Referring to the sub-contract that the assessee had entered into with G.K. Shetty Builders dated 01.10.2003, he further referred to the Explanation, which was introduced to sub-section (10) under Finance (No.2) Act of 2009, with effect from 01.04.2010 that the denial of deduction is only as regards the undertaking, which merely executed the project as works contract awarded by a person. In the case of the assessee, the Tribunal had given a factual finding on an analysis of various terms of agreement as to the risk involved in the assessee’s execution of work in developing and building the housing project. In the light of the Explanation available with effect from 1.4.2010 only and on the facts found by the Tribunal, the Revenue is not justified in contending that the assessee not being the owner is not entitled to the relief under Section 80IB of the Income Tax Act. In this connection, learned senior counsel placed reliance on the decision in CIT v. Radhe Developers [2012] 341 ITR 403, wherein a similar question was raised by the Revenue and the same was rejected by the Gujarat High Court. Thus, in the absence of any other decision contra to this and going by the provisions of the Act and read in the context of the Explanation and the factual finding, the order of the Tribunal be sustained.

23. As regards the completion certificate issued by the Chennai Metropolitan Development Authority dated 13.6.2008, which according to the Revenue goes against the assessee by reason of Explanation (2) to sub-section (10), learned senior counsel appearing for the assessee referred to the provisions contained in Section 80IB(10) and Explanation (2) and submitted that as far as the assessee’s case is concerned, the Housing Project was completed even before 31st March, 2008, a fact which was recorded even in its application dated 5.3.2006 before the Chennai Metropolitan Development Authority. The local authority, namely, Chennai Corporation had also given the completion certificate that the project had been completed in accordance with the sanctioned plan and Rules and Regulations.

24. Referring to the role of Explanation appended to the Section that it could at no point of time control the substantive portion of Section and could only explain or make it explicit where there is a doubt in the Section, he pointed out that when there is a factual finding by the Tribunal and the local Authority concerned had issued the completion certificate and the said finding had not been, in any manner, challenged by the Revenue, it is not open to them to read the Explanation in a literal manner as though it controls the substantive part of the Section. Referring to the definition of ‘local authority’ under Section 2(23) of the Town and Country Planning Act and Section 9A regarding the establishment and construction of Chennai Metropolitan Development Authority, particularly with reference to Section 9A(e)(i), he submitted that the local authority is also part of the Chennai Metropolitan Development Authority.

25. The letter issued by the Chennai Metropolitan Development Authority dated 23.9.2003 clearly pointed out that the sanction of the plan was, however, subjected to approval by the local authority, namely, Chennai Corporation, who are to issue the building permit under the relevant local body Act. Thus, read in the context of the above-said provisions and in the context of the approval of the plan granted by the Chennai Metropolitan Development Authority as well as building permit approved by the Chennai Corporation, when the Chennai Corporation had already granted the completion certificate as early as 28.12.2007, it is not open to the Revenue to contend that the Chennai Metropolitan Development Authority had given completion certificate only on 13.6.2008 and hence, the assessee could not claim deduction under Section 80IB(10) of the Income Tax Act. He further pointed out that in any event, the factual aspect of the completion is noted already by the statutory Authority, namely, local authority, which had also a role in the approval of the project. Thus, going by Section 80 IB (10) of the Income Tax Act, it is not open to the Revenue to contend that there was no approval by the local authority. He further referred to the order of this Court dated 03.04.2007 in W.P.No.7916 of 2007 and submitted that the assessee had submitted his application well in advance and on the threat of forfeiture of the security deposit, the owner approached this Court. Immediately after the order of this Court and on an intimation from the Chennai Metropolitan Development Authority, the assessee had also filed a fresh application. The delay that had occurred thereafter in passing the order was only on account of the Chennai Metropolitan Development Authority and not on account of the assessee. The belated issuance of the certificate, particularly by the Chennai Metropolitan Development Authority, cannot, in any manner, negate the claim of the assessee. As regards the relief to be granted on a proportionate basis, he submitted that this Court had already considered the said issue in Viswas Promoters (P.) Ltd.’s case (supra) and on the inclusion of the private terrace into the built-up area, this Court had also considered the same in T.C.(A)No.581 of 2008 dated 19.10.2012 in favour of the assessee. In the circumstances, he submitted that the Revenue has not made out any case for interference.

26. As far as the inclusion of the open terrace is concerned, the question was answered against the assessee in the appeal before the Tribunal. The assessee has come on appeal before this Court in T.C.(A)Nos.314 and 315 of 2012 raising the following substantial questions of law:

“Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding that the private terrace area should be included in the built-up area of the flats for the purpose of making out statutory extent of built-up area as per Clause (a) of Section 80IB(14) of the Income Tax Act?”

27. As already pointed out, in view of our decision in T.C.(A)No.581 of 2011, we allow T.C.(A)Nos.314 and 315 of 2012. We have already held that the open terrace area could not be the subject matter of inclusion as a built-up area to deny the benefit of Section 80IB of the Income Tax Act. In the circumstances, even though as regards some of the flats’ measurement, the matter stands remanded back to the Assessing Officer and we have rejected the Revenue’s appeal questioning the remand, we hold that the decision of this Court in T.C.(A)No.581 of 2008 applied in T.C.(A)Nos.314 and 315 of 2012 would nevertheless govern the remand order now before the Assessing Officer. Thus the Assessing Officer shall keep this decision in the background while finding out the measurement of the units for the purpose of finding out the compliance of Section 80IB(10)(c) of the Income Tax Act.

28. Before going into the merits of the case, the relevant provisions during the relevant assessment years, viz., 2005-2006 and 2006-07, need to be extracted.

80-IB-Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.

(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 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 city 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; and

(d)  the built-up area of the shops and other commercial establishments included in the housing project does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet, whichever is less.”

29. We had already seen the various clauses in the agreement between the assessee and the owner dated 28.4.2003. A reading of the various clauses therein clearly points out the role of the assessee, which is not just as that of a builder to put up construction as per the directions of the owner; on the other hand, as rightly pointed out by the Tribunal, the risk element that is involved in the project undertaken by the assessee is more than of a normal builder, undertaking mere construction. It is seen from the data furnished before the Assessing Officer that while flats in the 6th floor and 11th floor were sold even as early as 2003, flats in first floor with Nos.104 and 103 were sold in the year 2009. So too, some of the flats in second floor and third floor were sold in the year 2007, 2006 and 2005. The flat in 12th floor was sold on 15.10.2003 and in the 9th floor on 5.11.2003. The flats in the first floor with Nos.101 and 102 were sold on 17.6.2009. Apart from this, we find that there were still some flats left unsold.

30. In the background of these facts, the risk factors, as projected by the assessee accepted by the Tribunal, needs to be seen. Under Clause 4 of the agreement, the assessee was to collect a sum of Rs.600/- per sq.ft. on super built-up area for the sale of undivided share of land transferred to the buyer. The said clause also fixes the ceiling as to the consideration, which would be paid to the owner, namely, at Rs. 11,51,94,000/-. The clause in the agreement further pointed out that the builder has to enter into a builder agreement with the proposed purchaser and it is open to the builder to fix such rate per square foot for construction of the area as it deems fit, over which the owner has no claim at all. The builder has to pay the specified cost of the land on the undivided share of sale in favour of the purchaser to the owner, pro-rata to the built-up area. A reading of the agreement of sale with the purchasers further points out that the builder’s agreement was entered on the very same day with the assessee. Thus, seen in the background of the data available as regards the date of sale, the clause in the agreement between the owner of the land and the assessee and the sale agreement with the prospective purchasers, it is evident that what the assessee had undertaken is not a mere construction, but developing and constructing of a project, which qualifies for a deduction under Section 80IB of the Income Tax Act. As rightly pointed out by learned Senior Counsel appearing for the assessee, a bare reading of Section 80IB of the Income Tax Act shows that the deduction contemplated therein is oriented towards the project and not with reference to an assessee. It is no doubt true that the project has to be done by the assessee, but then, when the deduction is specific enough as regards the particular activity, we fail to see how one should assume any significance in the matter of considering a deduction.

31. As rightly pointed out by learned Senior Counsel appearing for the assessee, in the decision Radhe Developers’s case (supra), the Gujarat High Court considered the question on ownership as a condition for grant of deduction under Section 80IB(10) in depth and accepted the case of an assessee similarly placed. It held that the provisions no where require that developers who are the owner of the land alone would be entitled for grant of deduction under Section 80IB(10). Going through the decision of the Gujarat High Court, we have no hesitation in holding that we are in respectful agreement with the law declared by the Gujarat High Court.

32. This takes us to the second question as regards the completion certificate. As already pointed out in the preceding paragraphs, the assessee had evidently completed the construction as early as 05.03.2006, a fact which is not disputed by the Revenue. It is also an admitted fact that the approval was granted for construction, both by the Chennai Metropolitan Development Authority and the local authority, namely, Chennai Corporation. The letter of the Chennai Metropolitan Development Authority according sanction to the project as early as 23.9.2003 clearly points out that the sanction was also subject to the approval by the Corporation. Thus, with the planning details being subjected to the approval by the Corporation as the competent local authority and it having certified as to the completion as early as 28.12.2007, we are satisfied that the completion being on or before 31.3.2008, the reliance placed on Explanation (2) to reject the assessee’s case could not be sustained. In any event, given the fact that the approval, which is an administrative process, is purely at the hands of the Statutory Authority concerned, over which, the assessee could not have any control, the Explanation cannot, in any manner, have a negative effect on a factual aspect of the matter, namely, completion of the construction. Thus, in a case like this, where, the local authority, being the Corporation, had already certified about the completion of the project as per the approved plan, the fact that one of the Authorities, namely, Chennai Metropolitan Development Authority had issued a letter only on 13.6.2008, per se, cannot negative the assessee’s claim for deduction.

33. Section 2(23) of the Tamil Nadu Town and Country Planning Act, 1971 defines ‘local authority’, as follows:

Section 2 Definitions : “In this Act, unless the context otherwise requires” –

(23) “local authority” means –

 (i)  the Municipal corporation of Chennai, or of Madurai, or

(ii)  a municipal council constituted under the Tamil Nadu District Municipalities Act, 1920 (Tamil Nadu Act V of 1920); or

(ii)  a township committee constituted under the Tamil Nadu District Municipalities Act, 1920 (Tamil Nadu Act V of 1920), or the Tamil Nadu Panchayats Act, 1958 (Tamil Nadu Act XXXV of 1958), or under any other law for the time being in force or the Mettur Township Act, 1940 (Tamil Nadu Act XI of 1940), or the Courtallam Township Act, 1954 (Tamil Nadu Act XVI of 1954), or the Bhavanisagar Township Act, 1954 (Tamil Nadu Act XXV of 1954), or

(iii) a panchayat union council or a panchayat constituted under the Tamil Nadu Panchayats Act, 1958 (Tamil Nadu Act XXV of 1958).”

34. The establishment of the Chennai Metropolitan Development Authority is dealt with under Section 9-A of the Tamil Nadu Town and Country Planning Act, 1971. The constituents of CMDA are listed under sub-section (2) of Section 9-A of the Tamil Nadu Town and Country Planning Act, 1971 and clause (e) of sub-section (2) has reference to the representatives of local authorities, being constituent of the Chennai Metropolitan Development Authority, read as under:

“9-A Establishment of the Chennai Metropolitan Development Authority –

(2) (a)** ** **
(b), (c) and (d)** ** **

(e) the representatives of local authorities as specified below –

 (i)  if there is only one local authority functioning in the Chennai Metropolitan Planning Area, two representatives nominated by that local authority;

 (ii)  if there are two or more local authorities functioning in the Chennai Metropolitan Planning Area, such persons not exceeding four in number as are appointed by the Government who are members of such local authorities.”

Now, when the local authority, being part of Chennai Metropolitan Development Authority and also the approving authority, thus having certified about the completion, we do not find any justifiable ground to invoke Explanation (2) to sub-section (10) of Section 80IB of the Income Tax Act for the purpose of negativing the claim. In any event, going by the fact that the Explanation cannot have a control on the substantive provision, as a matter of construction, we agree with the assessee’s contention and we have no hesitation in confirming the order of the Tribunal.

35. In the light of the above-said facts, we reject the Revenue’s appeal.

36. This leaves us with the last question on proportionality, which was considered by us in T.C.(A)Nos.1348 and 1349 of 2007 dated 18.10.2012. Though the assessee had complied with the extent of built-up area as per clause (c) and the assessee is entitled to have the benefit of deduction under Section 80IB of the Income Tax Act, since the Tribunal had remanded the portion of the built-up area for verification before the Assessing Officer and a factual enquiry has to be made thereon as to whether the built-up area is in fact 1500 sq.ft. or more than that, we do not think that the Revenue could have any serious objection on this aspect. In the circumstances, we confirm the order of the Tribunal on the remand portion.

37. In the light of the above-said discussion, we reject the Revenue’s appeal on all the grounds and hold that the Tribunal had rightly granted the relief to the assessee.

38. As far as the assessee’s appeals are concerned, as already pointed out, with the issue as regards the inclusion of the open terrace area in the individual flat cannot be included in the built-up area was considered in T.C.(A)No.581 of 2008 dated 19.10.2012, we allow T.C.(A)Nos.314 and 315 of 2012.

39. Accordingly, T.C.(A)Nos.581 and 582 of 2011 are dismissed and T.C.(A)Nos.314 and 315 of 2012 are allowed. No costs. Consequently, M.P.No.1 of 2012 is closed.

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