Case Law Details
The first and foremost issue to be decided is as to whether the area of projected terrace (open to sky) is liable to be included within the meaning of expression “built-up area” contained in clause (c) of section 80IB(10) of the Act.
On this aspect, the stand of the assessee is that the word “terrace” is not includible in the meaning of expression “built-up area” even if one has to go by the definition of the built-up area prescribed in section 80IB(14)(a) of the Act. The learned counsel referred to the decision of the Ahmedabad Bench of the Tribunal in the case of Amaltas Associates vs. ITO, (2011) 131 ITD 142 for the proposition that open terrace, not being a balcony or verandah cannot be considered as a part of the ‘built-up area’ as defined in section 80IB(14)(a) of the Act. According to the learned counsel, the Ahmedabad Bench of the Tribunal was considering the stand of the Revenue that open terrace was to be considered a part of the ‘built-up area’. According to him, the Ahmedabad Bench of the Tribunal considered the definition contained in section 80IB(14)(a) of the Act and opined that the definition of expression ‘built-up area’ includes a balcony which is not an open terrace. Further, it has also been submitted that a ‘terrace’ is not to be equated to a ‘projection’, which is one of the components finding place in the definition of the expression ‘built-up area’ as per section 80IB(14)(a) of the Act. The learned counsel further clarified that in so far as the present case is concerned, it is a case of terrace (open to sky) which is quite distinct from a balcony. It is asserted that the two terms are independent and for that matter a reference was also made to the Development Control Rules of the local authority in question i.e. Pimpri Chinchwad Municipal Corporation (PCMC). Further, heavy reliance has also placed on an unreported judgement of the Hon’ble Madras High Court in the case of M/s Ceebros Hotels Private Limited vs. DCIT, vide Tax Case (Appeal) No. 581 of 2008 order dated 19.10.2012, a copy of which was placed on record. The judgement of the Hon’ble Madras High Court has been relied upon to support the proposition that the area of an open terrace is liable to be excluded from the working of the built-up area of the unit. It is also contended that the Hon’ble Madras High Court has further followed the aforesaid judgement in its latter judgement in the case of CIT vs. Sanghvi and Doshi Enterprise, (2013) 255 CTR 156 (Mad.).
On the other hand, the learned CIT-DR has vehemently submitted that open terrace which is a subject-matter of controversy was a private terrace which was available for use of the owner of the unit to the exclusion of others. The learned CIT-DR has emphasized that in the present case the housing project of the assessee is comprising of independent row houses built on a Duplex model and it is not a case of multi-storey building having independent flats. It was, therefore, contended that the aforesaid distinction has to be borne in mind while appreciating the meaning of expression ‘built-up area’ contained in section 80IB(14)(a) of the Act. Nevertheless, the learned CIT-DR has relied upon the following decisions : (i) Hyderabad Bench of the Tribunal in the case of Modi Builders & Realtors (P.) Ltd., (2011) 12 taxmann.com 129 (Hyd.); and, (ii) Mumbai Bench of the Tribunal in the case of Siddhivinayak Homes, Mumbai vs. Department of Income Tax on 28 September, 2012, vide ITA No.8726/Mum/2010 order dated 26.09.2012, for the proposition that all projections and elevations at the floor level are liable to be included in the definition of ‘built-up area’ for the purposes of examining the condition prescribed in clause (c) of section 80IB(10) of the Act. The learned CIT-DR also raised an issue that the built-up area for the purposes of clause (c) of section 80IB(10) of the Act has to be understood in the light of what has been sold by the assessee builder to the respective customers. According to the learned CIT-DR, though the said aspect is not emerging from the orders of the authorities below, so however, the built-up area as understood for the purposes of sale-purchase between builder and the ultimate buyer can also be relevant factor to consider as to what all areas are to be considered as a part of the expression ‘built-up area’ contained in clause (c) of section 80IB(10) of the Act.
14. We have carefully considered the rival submissions. Section 80IB(10) provides for deduction in relation to profits derived from undertaking development and building of a housing project subject to certain conditions prescribed therein. One of the foremost condition is contained in clause (a) of section 80IB(10) of the Act which is to the effect that the housing project eligible for the claim of deduction shall be approved by the local authority. The assessee before us is a builder who has undertaken development and construction of a housing project, named, ‘Sai Nisarg Park – Mayureshwar’ and the said project has been approved by the concerned local authority i.e. PCMC on 29.07.2005 and undisputedly it complies with the requirement of clause (a) to section 80IB(10) of the Act. There are other conditions prescribed in section 80IB(1 0) by way of clauses (b) to (f) of the Act, so however, the only controversy before us revolves around the condition prescribed in clause (c) of section 80IB(1 0) of the Act. As per clause (c) of section 80IB(10) of the Act, the maximum built-up area of the residential units comprised in the eligible housing project shall not exceed 1000 sq.ft. where such units are situated within city of Delhi and Mumbai or within 25 km. from the Municipal limit of such cities and in other places the prescribed limit is 1500 sq.ft.. The housing project of the assessee before us is located within the Municipal limits of PCMC and therefore in terms of clause (c) of section 80IB(10) of the Act, the maximum built-up area of the residential unit is capped at 1500 sq.ft.. The dispute before us is with regard to six residential units, which have been detailed by us earlier, wherein as per the Assessing Officer, the individual built-up area exceed 1500 sq.ft.. The working of built-up area done by the Assessing Officer is sought to be resisted by the assessee and the bone of contention is whether or not to include the area of projected terrace (open to sky) for computing the built-up area of the respective units.
The Finance (No.2) Act, 2004 inserted the definition of built-up area w.e.f. 01.04.2005 in terms of section 80IB(14)(a) of the Act. In terms of the said definition, built-up area means the inner measurement of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units. On the strength of the aforesaid definition, the claim of the Revenue is that the terraces in question are projections attached to the respective residential units and also that there is no room under the area of the terrace and such terraces are exclusively used by the respective unit owners. In other words, as per the Revenue the projected terrace falls within the meaning of words ‘projections’ and ‘balconies’ contained in section 80IB(14)(a) of the Act and the same is not a common area shared with other residential units and in this manner, in terms of section 80IB(14)(a) of the Act, such an area is liable to be included in the expression ‘built-up area’.
In so far as the applicability of the definition of built-up area inserted by Finance (No.2) Act, 2004 w.e.f. 01.04.2005 is concerned, it is quite clear that the same is applicable for ascertaining the fulfillment of condition prescribed in clause (c) of the Act in relation to the present project, since the project of the assessee has been approved by the local authority on 29.07.2005 i.e. after the definition of built-up area contained in section 80IB(14)(a) of the Act came into force w.e.f. 01.04.2005. Therefore, in the present case, it is imperative that the meaning of expression ‘built-up area’ is to be understood having regard to its definition contained in clause (a) of section 80IB(14) of the Act.
The Hon’ble Madras High Court in the case of M/s Ceebros Hotels Private Limited (supra) was considering the following question of law :-
“Whether on the facts and in the circumstances of the case, the Tribunal was correct in including the open space of the terrace of the 7th floor, within the meaning of the ‘built-up areaç which has been defined to include the inner measurements of the residential unit at the floor level including the projections and balconies as increased by the thickness of the walls but does not include the common areas shared with other residential units?”
A bare perusal of the aforesaid question of law before the Hon’ble Madras High Court would reveal that the issue related to whether open space of the terrace would fall within the expression ‘built-up area’. The facts before the Hon’ble High Court were that assessee had constructed various apartment blocks and each block had 64 apartments. The apartments located at first to sixth floor were of areas less than 1500 sq.ft.. However, the flats located on the 7th floor had the advantage of exclusive open terrace. While considering the relief u/s 80IB(1 0) of the Act, the Assessing Officer took into consideration the area of such exclusive/private open terrace as a part of the built-up area of the units located at the 7th floor. After considering the above aspect, the built-up area of the flats located at the 7th floor exceeded 1500 sq.ft. and hence the Assessing Officer held that the condition prescribed in clause (c) of section 80IB(10) of the Act was not fulfilled. The said position taken by the Assessing Officer was upheld right up to the Tribunal. However, the Hon’ble High Court disagreed with the stand of the Revenue and held that such open terrace would not be includible in the calculation of ‘built-up area’ for the purpose of examining the condition prescribed in clause (c) of section 80IB(10) of the Act. In this view of the matter, the aforesaid judgement of the Hon’ble Madras High Court and which has been further affirmed in a subsequent decision in the case of Sanghvi and Doshi Enterprise (supra), covers the issue before us.
However, in the course of hearing, the learned CIT-DR attempted to distinguish the judgement of the Hon’ble High Court by pointing out that the same related to assessment year 2003-04, a period during which the definition of ‘built-up area’ contained in section 80IB(14)(a) of the Act was not on the statute and also the fact that the housing project under consideration of the Hon’ble High Court was approved by the concerned local authority prior to 01.04.2005 i.e. prior to the date when the definition of ‘built-up area’ was brought on the statute by way of section 80IB(1 4)(a) of the Act.
We have carefully perused the judgement of the Hon’ble Madras High Court and find that though the Hon’ble High Court was considering a project approved prior to 01.04.2005 yet it has taken into consideration the definition of ‘built-up area’ contained in section 80IB(14)(a) of the Act, which was inserted w.e.f. 01.04.2005. As per the Hon’ble High Court even after assuming that such definition was to be retrospectively applied yet the area of open terrace would not fall within the meaning of the expression ‘built-up area’. The Hon’ble High Court referred to the Indian Standard Method of Measurement of Plinth, Carpet and Rentable Areas of Buildings as issued of Bureau of Indian Standards and also the meaning of the aforesaid expression assigned as per the rules and regulations of the local authority and concluded that an open terrace could not be equated to a ‘projection’ or ‘balcony’ referred to in section 80IB(14)(a) of the Act.
Notably, the Hon’ble High Court also considered an argument from the side of the Revenue to the effect that the sale of the area of open terrace by the assessee to the respective purchaser would justify the inclusion of such terrace area into the calculation of ‘built-up area’. Before us also, the learned CIT-DR has raised the said issue though she has fairly conceded that such a finding was not emerging from the orders of the lower authorities.
As per the Hon’ble High Court, terrace area would not form part of the built-up area by the reason of the fact that assessee sold it to the purchaser as a private terrace. At this stage, we may also point out that there is nothing in section 80IB(14)(a) of the Act to suggest that the factum of the terrace being available for exclusive use of the respective unit owner is a ground to consider it as a part of ‘built-up area’ for the purposes of clause (c) of section 80IB(1 0) of the Act. Thus, the argument of the learned CIT-DR is hereby rejected.
In view of the aforesaid judgement of the Hon’ble Madras High Court, we are unable to uphold the stand of the Assessing Officer to include area of terrace as a part of the ‘built-up area’ in a case where such terrace is a projection attached to the residential unit and there being no room under such terrace, even if the same is available exclusively for use of the respective unit-holders.
Before parting, we may also refer to the decisions of the Mumbai Bench of the Tribunal in the case of Siddhivinayak Homes, Mumbai (supra) and that of the Hyderabad Bench of the Tribunal in the case of Modi Builders & Realtors (P.) Ltd. (supra) which have been relied upon by the learned CIT-DR in support of her submissions. The Mumbai Bench of the Tribunal was considering as to whether the projections/elevations which were at the floor level and could be utilized as a carpet area were to be considered for the purposes of computing built-up area or not. The Mumbai Bench of the Tribunal was considering a project which was approved on 19.07.2003, much before the insertion of section 80IB(14)(a) of the Act by the Finance (No.2) Act, 2004 w.e.f.01 .04.2005. The following observations of the Tribunal have emphasized by the learned CIT-DR :-
“20. Now coming to the issue as to whether balconies and projections are to be included in the built-up area, we observe that the Ld. CIT(A) has rightly stated that when the projections/elevations are just have 4”, 3”, 5” and 7” of the floor level, they implies that there are extended area and can be utilized as carpet area. Not only this, Ld. CIT(A) has also stated that the booking confirmation/ particulars sheets that are made at the time of booking the flats give the exact area that is sold to the buyers and the books impounded and inventoried also give the picture to the actual area sold, and this includes all projections and other common areas. Therefore, we agree with Ld. CIT(A) that the said extended area of projections/elevations/balconies are to be included while measuring all the flats and, accordingly, Ld. CIT(A) has rightly held that area of some of the flats exceeded the prescribed limit of 1000 sq.ft.. We also agree that sub-section (14)(a) as inserted by Finance (No.2) Act, 2004 w.e.f. 01.04.2005 is only clarificatory in nature particularly the said definition will be applicable to the assessment year under consideration as the projects are admittedly completed in F. Y.2006-07, and, therefore, the cases cited by Ld. A.R. (supra) are not relevant to the facts of the case before us. Hence, we hold that authorities below have rightly held that assessee is not entitled for deduction in respect of the flats u/s 80IB of the Act.”
A perusal of the aforesaid would reveal that the Tribunal has considered the definition of built-up area inserted by the Finance (No.2) Act, 2004 w.e.f. 01.02.2005 on the ground that it is applicable to the assessment year before them which was 2007-08 because the project was completed during the said assessment year, even though the project was approved prior to 01.04.2005. Secondly, the Tribunal also noted that the disputed projections were considered as a saleable area when assessee sold the flats. In our considered opinion, the decision of the Mumbai Bench of the Tribunal has been rendered on its own peculiar facts. Apart therefrom, it would be also worthwhile to note that the Hon’ble Madras High Court in the case of M/s Ceebros Hotels Private Limited (supra) followed a judgement of the Hon’ble Karnataka High Court in the case of CIT vs. Anriya Project Management (Services) Private Limited, (2012) 21 taxmann.com 140 (Karnataka) and held that the introduction of definition of ‘built-up area’ in section 80IB(1 4)(a) of the Act came into force from 01.04.2005 and “the same will have relevance to those Housing Projects, which were approved subsequent to 01.04.2005”. The aforesaid view rendered by the Hon’ble Madras and Karnataka High Courts is divergent to what has been concluded by the Mumbai Bench of the Tribunal to the effect that the definition contained in section 80IB(14)(a) of the Act is applicable to assessment year 2007-08 though the project was approved prior to 01.04.2005. In view of the ratio of the decision of the Mumbai Bench of the Tribunal being divergent to that held by the Hon’ble Madras High Court in the case of M/s Ceebros Hotels Private Limited (supra), we are unable to apply it in preference to that of the Hon’ble Madras High Court, which is a superior authority.
Secondly, reliance has been placed by the learned CIT-DR on the decision of the Hyderabad Bench of the Tribunal in the case of Modi Builders & Realtors (P.) Ltd. (supra) to submit that the ‘built-up area’ would include a portico and balcony. Factually speaking, the Hyderabad Bench of the Tribunal was considering the inclusion or otherwise of area comprised by balcony and portico which is quite distinct from the controversy before us. Moreover, in view of the judgement of the Hon’ble Madras High Court which is a superior authority than a Tribunal, the parity of reasoning laid down by the Hon’ble High Court is liable to be followed.
Considered in the above background, we conclude by holding that the Assessing Officer and thereafter the CIT(A) has erred in including the area of projected terrace (open to sky) for the purposes of computing ‘built-up area’ while examining the condition prescribed in clause (c) of section 80IB(10) of the Act. Once the area of projected terrace (open to sky) is excluded then there is no dispute that the residual built-up area of six units in question falls within the prescribed limit of 1500 sq.ft.. As a result, we hold that assessee fulfills the condition prescribed in clause (c) of section 80IB(10) of the Act with regard to the six units in question. Therefore, we set-aside the order of the CIT(A) and direct the Assessing Officer to consider that the six units in question fulfill the condition prescribed in clause (c) of section 80IB(10) of the Act, and the assessee is entitled to the benefit of section 80IB(1 0) of the Act.
