Background:-Section 80-IB (10) of the Act is aimed at promoting construction of housing projects, so as to address the problem of shortage of dwelling units. The predominant objective of this incentive provision, therefore, is to encourage better availability of the dwelling units for low and middle class segment of the society. Section 80-IB(10) of the Act provides that the assessee engaged in developing and building housing projects shall be entitled to claim hundred per cent (100%) deduction of the profit derived in the previous year from such housing projects if the undermentioned conditions are satisfied:
(i) The project should be approved by a local authority before 31-3-2008;
(ii) The undertaking should have commenced development and construction of the project after 1-10-1998 and should complete construction:
(a) in case of projects approved before 1-4-2004 on or before 31-3-2008; and
(b) in case of project approved after 1-4-2004 within four (4) years from the end of the financial year in which the project was approved by local authority;
(iii) The size of the plot of land should be minimum one (1) acre;
(iv) The build up area of the shops or other commercial establishments shall not exceed five (5) percent of the aggregate build up area of the project or two thousand (2000) square feet whichever is less;
(v) The maximum build up area of the residential unit should be one thousand (1000) square feet for the projects within the cities of Delhi and Mumbai and twenty five (25) kilometres from the local limits of the above mentioned cities and at any other place one thousand five hundred (1500) square feet.
(vi) Not more than one residential unit should be allotted to the same person who is not an individual assessee and where the person is an individual no other residential units in such project should be allowed to spouse or minor children of the individual;
(vii) The assessee should file the return of income before the due date of filling return under section 139(1) of the Act and deduction under section 80-IB of the Act should be claimed by the assessee in the return of income by him.
In order to provide some relief to the housing and real estate sector which, is presently reeling under global recession, it is provided in Finance Bill, 2010 to increase the period allowed for completion of a housing projects in order to qualify for availing the tax benefit under section 80-IB(10) of the Act, from the existing four (4) years to five (5) years from the end of the financial year in which the housing project is approved by the local authority. This extension will be available for housing projects approved on or after 31-3-2005. Thus, now deduction under section 80-IB (10) of the Act will be available in respect of the income relating the project for A.Y. 2010-11 and subsequent year which are approved by the local authority after 31-3-2005 and are pending for completion.
It is further amended to enhance the current norms for built-up area of shops and other commercial establishments in housing projects in order to enable basic facilities for the residents. The Finance Bill, 2010 also proposes to amend clause (d) of sub-section 10 of section 80-IB to provide that in case of housing projects approved by the local authority on or after 1-4-2005 the built-up area of the shops and other commercial establishments included in such housing project could be either three per cent (3%) of the aggregate built-up area of the housing project or 5000 square feet, whichever is higher.
Due to global recession most of the housing projects were not completed within the period of four years as provided in section 80-IB of the Act and would be denied benefit of section 80-IB (10) of the Act. As such, now the Finance Bill, 2010 proposes to allow the pending housing projects to be completed within a period of five (5) years instate of four (4) years for claiming deduction on their profits under section 80-IB(10) of the Act.
The proposal to enhance the current norms for built-up area of shops and commercial establishments is also in lines with the observations of the decision of the Special Bench in the case of, Brahma Associates vs. Jt. CIT [(2009) 119 ITD 255 (Pune) (SB)], wherein the Hon’ble Special Bench of the Tribunal while interpreting the provisions of section 80-IB(10) prior to introduction of sub clause (d) which restricted the area of commercial area in a housing project to five (5) per cent of the built up area observed at paragraph 81 that, “commercial use of area generally leads to a more convenient and complete housing project. Many a times, these housing projects are away from the commercial centres in the city, and, therefore, it is necessary that the residents of the dwelling units built in these housing projects have the benefit of commercial establishment in the near vicinity”.