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2016 (7) TMI 670 - ITAT BANGALOREEligibility of deduction under section 80 IB (10) - income derived from the sale of flats - Held that:- There is no quarrel on the point that the income derived from the sale of flats developed under the housing development project is eligible for deduction under Section 80IB (10) of the Act. However, such deduction is available only on the income arising from the development activity. In the case of the assessee the income offered by the assessee consist of two elements - the difference in the cost of acquisition of the land and fair market price of the land as on 15.10.2004 being the capital gain and the second element is the profit being the difference between the market price of the land and the sale price of the constructed portion of the share of the assessee in the project. Consequently, there are two components of income one is capital gain on land and other is business income from sale of flats in the housing project. There is no dispute that the land in question was part of block of assets of the assessee and therefore the treatment given by the assessee to the land in question in the books of accounts was capital asset and therefore at the time of joint development agreement the capital asset owned by the assessee was transferred to the undertaking under the joint development agreement for construction and development of housing project. Therefore, on transfer of land for the housing project it gives raise to the income being capital gains. The assessee has claimed to have incurred certain expenditure. However, we note that the alleged expenditure by the assessee does not pertain to the development / construction activity of the project because as per the terms of the agreement, the entire cost of construction or other development activities was to be borne by the developer. Even otherwise the alleged expenditure if any incurred by the assessee is post development and post ear-marking of the built up share in the project. When the assessee was under no obligation to incur any expenditure except to contribute the land for the project then this claim of the assessee is inconsistent with the terms and conditions of the agreement as well as the facts and circumstances of the case. Hence the said finding of the CIT (Appeals) is contrary to the basic fact and agreed terms of the agreement. However, we find that the income which is derived from the sale of flats, exclusion of capital gain towards the land would be eligible for deduction under Section 80IB(10) of the Act as held by the Hon'ble High Court in the case of Shreevani Constructions (2012 (7) TMI 88 - KARNATAKA HIGH COURT). Accordingly, we set aside the matter to the record of the Assessing Officer to recompute the income in the above terms. As regards the issue of the area of certain flats exceeding 1500 sq. ft., the Assessing Officer is directed to compute the correct area and allow proportionate deduction as held by the Tribunal in the series of decisions relied upon by the CIT (Appeals). - Decided partly in favour of revenue for statistical purpose.
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