TMI Blog2009 (4) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court, in the case of Padmasundara Rao (Decd.) vs. State of Tamil Nadu [ 2002 (3) TMI 44 - SUPREME COURT] had an occasion to attempt reconciling between the principle of casus omissus and the need of purposive interpretation. The view that non-residential use of built-up area upto 10 per cent will not vitiate the true character of a housing project is fully justified in the background of provision discussed above. In our view, it would be illegal to apply ceiling of 5 per cent to assessment years prior to asst. yr. 2005-06 though no such ceiling was provided under the statute, and deny benefit to borderline cases. At the same time there is no justification to allow exemption to project not carried as per the dominant objective of the provision. The legislature itself has accepted 5 per cent as permissible commercial use from asst. yr. 2005-06 onwards, and in the period when such a limit was not in force, we can safely take 10 per cent as the maximum permissible commercial use in a housing project, for the reasons discussed.. There would be no legal justification to deny exemption to residential segment of such a housing project, which satisfies conditions of s. 80-IB(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years as well. We are of the considered view that deduction under s. 80-IB(10), as applicable prior to 1st April, 2005, is indeed admissible in case of a 'housing project' comprising residential housing units and commercial establishments. Question No. 1, therefore, must be answered in the affirmative. Accordingly, we approve decisions of the Division Benches in the cases of Arun Excello Foundations (P) Ltd. [ 2007 (2) TMI 264 - ITAT MADRAS-A] , Harshad P. Doshi [ 2007 (1) TMI 461 - ITAT MUMBAI] and Saroj Sales Organisation [ 2008 (1) TMI 420 - ITAT BOMBAY-E] in this respect, and we decline to concur with the view expressed in the case of Laukik Developers[ 2006 (7) TMI 534 - ITAT MUMBAI] . As a matter of fact, the view expressed by the Division Bench in the case of Laukik Developers, as we have noted earlier in this order, has not even been canvassed before us by the Revenue. We have noted that s. 80-IB(10) categorically refers to the profits derived in the previous year, relevant to any assessment year, from such housing project . What is deductible is 'profit of the housing project', and not the profit attributable to the residential units . On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... size of the plot, excluding portion under commercial unit, is more than minimum area of one acre, (ii) residential units built on such area must satisfy condition of cl. (c) of the provision, and (iii) other necessary conditions are fulfilled, and where income from construction of residential dwelling units can be worked out on standalone basis, deduction under s. 80-IB(10) will be available in respect of residential segment of the project. (b) The deduction under s. 80-IB(10) is available in respect of profits of housing project as a whole, and, as such, it is not relevant as to what is the portion of profits which can be said to be attributable to residential units. This is subject to the rider that in case commercial use of built-up area in a project is more than 10 per cent and, for this reason the project cannot be said to be a predominantly housing project, but, in terms of observations made in para 115 above, the assessee is entitled to deduction in respect of residential unit segment of the overall project on fulfilment of necessary conditions, the entitlement of incentive deduction will be confined to only to the profits to the residential segment of the overall project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, Dr Pathak's suggestion is that the words "introduced by Finance (No. 2) Act, 2004" be added after the words 'cl. (d) of s. 80-IB(10)' and before the words 'should operate'. It is submitted that these minor changes will lead to greater clarity about the controversy requiring our adjudication. He, however, admits that there will be no impact of these changes so far as core issues requiring our adjudication are concerned. Shri Kapila, learned special counsel for the Revenue, objects to these suggestions. It is his contention that once the questions for consideration by the Special Bench are framed by the Hon'ble President, it is not open for the Bench to tinker with the same. The matter will have to go back to the Hon'ble President for reframing of questions. In view of this objection, Dr. Pathak does not press for the suggested changes to the questions. 5. Briefly stated, material facts of the case, so as far as relevant to the issues before this Special Bench, are like this. The assessee before us is an AOP and is formed by a single joint venture agreement between Brahma Builders and some members of Surendra Kumar B. Agarwal family. The assessee has contructed a project cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO then rejected the claim of deduction under s. 80-IB(10) by observing as follows: "As observed earlier, deduction under s. 80-IB(10) is allowable only for housing projects...... the housing project is not defined in the section, but s. 80-IB(10) says housing projects as approved by the local authority. In the case of the assessee, local authority is Pune Municipal Corporation. The assessee's project, Brahma Estate, has been approved by PMC as 'residential + commercial'. This is very much evident from the approved layout plan. Thus the assessee's project has not been approved by the Pune Municipal Corporation as a housing project, but it has been approved as 'residential + commercial' project. Therefore, the said project is not eligible for deduction under s. 80-IB(10)." 7. The AO then took note of the amendment in s. 80-IB(10) w.e.f. 1st April, 2004 whereby it is provided that "the built-up area of the shops and other commercial establishments included in the housing project does not exceed 5 per cent of the aggregate built-up area of housing project, or 2,000 sq. ft., whichever is less". The AO was of the view that this amendment is effective asst. yr. 2003-04, this ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. yr. 2005-06 such condition would be applicable to disallow the deduction. 9. Learned CIT(A) then also summarized the main contentions of the assessee, in support of admissibility of deduction under s. 80-IB (10) as follows: (i) The project was approved prior to 31st March, 2005, development was started after 1st Oct., 1998, area of plot was more than 1 acre and the residential units were less than 1500 sq. ft. As all the conditions for claim under s. 80-IB(10) were satisfied, the deduction under the said section was wrongly disallowed by the AO. (ii) The appellant was following project completion method and consistently following recognized sales method, which is an accepted method of accounting. The appellant had competed and handed over the residential units in the accounting period relevant to the asst. yr. 2003-04. (iii) The appellant never claimed that commercial area constructed was convenient shopping as the two separate buildings were constructed for commercial area. The AO's observation regarding commercial area being more than 20 per cent of the plot area while as per DP Rules it was allowed at not more than 5 per cent or 2000 sq. ft. whichever is less is, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such amendments unless specifically provided. In Allied Motors (P) Ltd. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), the Hon'ble Supreme Court held that the proviso to s. 43B(a) which permitted deduction of unpaid taxes, if paid prior to the due date of filing the return, was intended to remedy an unintended consequence of disallowing legitimate taxes wherein mercantile system of accounting is followed. The objective as evidenced by the Finance Minister's speech, memorandum of understanding, the reasons for introduction of the proviso and the rational as understood by the Courts persuaded the Supreme Court to hold that the amendment was curative or merely declaratory in nature and, therefore, the proviso was held to have retrospective effect. The Supreme Court has taken similar view in Suwalal Anandilal Jain vs. CIT (1997) 140 CTR (SC) 278 : (1997) 224 ITR 753 (SC), relied upon by the AO, in a judgment rendered by the three judges as regards the nature of amendment being Expln.-2 to s. 40(b), which was inserted with a view to remove the disallowance of interest paid to a partner in the capacity different from one in which he was a partner. Since the blanket disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt consistently in affirmative over a period of years. There is no conflict which required resolution by way of a reference. The decisions in the case of CIT vs. Podar Cement (P) Ltd. ETC. (1997) 141 CTR 67 (1997) 226 ITR 625 (SC), Allied Motors (P) Ltd. Etc. vs. CIT, Brij Mohan Das Laxman Das vs. CIT (1997) 138 CTR (SC) 214 : (1997) 223 ITR 825 (SC) and Suwalal Anandilal Jain vs. CIT were referred to by the Constitutional Bench for consideration. On the basis of the above discussion, it is amply clear that the amended provisions of s. 80-IB(10) w.e.f. 1st April, 2005 cannot have retrospective effect so as to be applicable to the asst. yr. 2003-04. I also do not agree with the AO that if the amended provisions of s. 80-IB(10) are not treated as clarificatory, s. 80-IB(10) could not be harmoniously interpreted......" 12. While the CIT(A) held that the amendment could not be treated as retrospective in application and, to that extent, he reversed the stand of the AO. Incidentally, Revenue is not in appeal against the said finding of the CIT(A) in the present case. 13. The next question that the CIT(A) had posed for himself was whether deduction under s. 80-IB(10) is available t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal authority...... The residential unit should have maximum built-up area of one thousand square feet where such residential unit is situated in Delhi or Mumbai and one thousand five hundred square feet at other places. It was clarified that this tax incentive was provided to increase the stock of house for lower and middle-income group keeping in view the fact that there was still huge shortage of houses. Further, in the speech of the Finance Minister introducing the Finance Act, 2004, under the purpose of tax holiday under s. 80-IB......, it has been stated as under: 'Under the existing provisions contained, in sub-s. (10) of s. 80-IB, a deduction equal to one hundred per cent of the profits of an undertaking developing building housing projects is allowed if the housing project is approved by a local authority before 31st March, 2005. The deduction is subject to the conditions that the undertaking should have commenced development of the housing project after 1st Oct., 1998, the project should be on a size of a plot of land which has a minimum area of one acre, and that the residential unit should have a maximum built-up area of one thousand square feet where such residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief and its remedy to which the enactment is directed. It is the Parliament's opinion in these matters that is paramount. When the question arises as to the meaning of a certain provision in a statute, it is not only legitimate but proper to read that provision in its context. The context means the statute as a whole, the previous state or law, other statutes in pari materia, the general scope of the statute and the mischief that it was intended to remedy. 2.23 The relevance of legislative intention has been summarized in the book of 'Principles of Statutory Interpretation' by Justice G.P. Singh (Seventh Edition), at p. 9, thus: 'The intention of the legislature thus assimilates two aspects: in one aspect it carries the concept of 'meaning', i.e. what the words mean and in another aspect, it conveys the concept of 'purpose and object' or the 'reason and spirit' pervading through the statute. The process of construction, therefore, combines both literal and purposive approaches. In other words, the legislative intention i.e. the true or legal meaning of an enactment is derived by considering the meaning of the words use in the enactment is derived by considering the meaning of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of s. 80-IB(10) insofar as commercial activity was not envisaged in the said section. The rule established over the years is that omission in a statute cannot supplemented through interpretation. In CIT vs. K.S. Vaidyanathan (1985) 47 CTR (Mad)(FB) 101 : (1985) 153 ITR 11 (Mad)(FB), the view expressed is that if a particular case gets omitted from the terms of a statute though it appears that it should have been there and the omission seems to have been caused due to accident or inadvertence, the case cannot include the omitted case by supplying the omission. A cansus omissus cannot be supplied by the Court except in the case of a clear necessity and when reason for, it is found within the four corners of the statute itself. Where the legislature clearly declares its intent in the scheme and language of a statute, it is the duty of the Court to give full effect to the same without scanning its wisdom or policy, and without engrafting, adding or implying anything which is congenial to or consistent with such expressed intent of the lawgiver; more so, if the statute is a taxing statute [CST vs. Parson Tools Plants 1975 CTR (SC) (SC) 88 : (1975) 35 STC 413 (SC)]. The Courts ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts whose built-up area was more than 1000 sq. ft. The counsel for that assessee submitted that - (i) the housing project was approved by municipal corporation, which was the local authority; (ii) the housing project was not defined in s. 80-IB(10) but as per Explanation to s. 80HHBA, the housing project meant a project for construction of any building, road, bridge or other constructions in any part of India; (iii) the local authority sanctioned the building plan under residential zone; (iv) the housing project had to provide facilities for convenience of its residents in this housing project in a planned manner, which may contain shops, etc; (v) Sec. 5(1)(iv) of the WT Act, 1957 has been interpreted to state that the house used for commercial purposes was eligible for exemption and, therefore, commercial property laws considered as housing property; (vi) rejecting of claim of the assessee under s. 80-IB(10) was untenable, as the amendment in the provisions of s. 80-IB(10) was effective from 1st April, 2005; (vii) the amendment was not retrospective and, therefore, should not be applied to earlier years; (viii) deduction under s. 80-IB(10) will be available even if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the housing project on order after 1st day of Oct., 1998. (b) the project is on the size of a plot which was a minimum area of one acre; and (c) the residential unit has a maximum built-up area of one thousand the square feet where such residential unit is situated within the cites 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. The first issue before us is whether the building project of the assessee at village Gajbandhan, Dombivali is a "housing project" of the assessee for the purposes of s. 80-IB(10) of the Act. Both the assessee and the Revenue stated before us that the amendment brought by Finance No. (2) Act, 2004 w.e.f. 1st April, 2005 introducing sub-cl. (d) in the provision of s. 80-IB(10) shall have no application to the case of the assessee for the reason that the amendment is not retrospective in nature. The assessee has admittedly constructed commercial area of 3143 sq. ft. in its building project. The word "housing project" is not defined under s. 80-IB(10) of the Act. We find that in the Explanation to s. 80HHBA(4) defining "housing project" i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a number of decisions by the Hon'ble Courts but the liberal interpretation shall no be to extent of defeating the very purpose of enacting a particular incentive provision of law. We find that the plea of the learned counsel for the assessee that while dealing with the provision of s. 5(1)(iv) of the WT Act, various Courts held that house used for commercial purposes was also eligible for exemption and therefore commercial property should be considered as a housing property, is not sustainable, since the decisions relating to the provision of s. 5(1)(iv) of WT Act were in the context of exemption of housing property for the purpose of the WT Act and has no bearing to the present issue before us with regard to exemption of 'housing project' under the provisions of IT Act, 1961. We are of the considered view that no proportionate deduction can be allowed to the assessee to the extent of residential units constructed by it in the building project for the simple reason that the building project should be eligible first in order to claim exemption under the provision of s. 80-IB(10) of the Act by fulfilling the conditions precedent for its application and the non-fulfilment of a single ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78 (SC)-Rules of interpretation would come into play only if there is any doubt with regard to the express language used in the provision. Where the words are unequivocal, there is no scope for importing the rule of liberal interpretation of an incentive provision. (iii) CIT vs. N.C. Budharaja Co. Anr. Etc. Etc. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC)-Liberal interpretation of an incentive provision should not do violence to plain language. The object of an enactment should be gathered from a reasonable interpretation of the language used therein. (iv) IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC)-Any interpretation has to be as per wording of the provision including incentive provision. If the wordings of the provision are clear, then the benefits, which are not available under the provision, cannot be conferred by ignoring, or misinterpreting the words in the provision." It is trite law that there is no violation of equity in taxing statutes. Even otherwise, it is settled that equity and hardship are hardly relevant consideration for interpreting tax laws [Karamchari Union, Agra vs. Union of India (2000) 159 CTR (SC) 148 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -IB(10), as applicable prior to 1st April, 2005, is admissible in case of a 'housing project' comprising residential housing units and commercial establishments. That is the issue we must take up first. 20. Dr. Pathak, learned counsel appearing for Brahma Associates, began by submitting basic facts of the case. It was pointed out that the project was started on 14th Aug., 2000 and it was completed on 3rd Oct., 2005. Copies of the completion certificates of various buildings in the project were filed before us. Learned counsel for the assessee submits that the AO's objection to grant of deduction under s. 80-IB(10) was two fold - first, that since commercial use in the project was more than 5 per cent of the total constructed area and its such commercial use went beyond what is permissible as 'convenience shopping' in PMC Rules, it cannot be termed as a 'housing project'; and that-second, the 2004 amendment, i.e. insertion of cl. (d) in s. 80-IB(10) was retrospective in effect as it was only a clarificatory amendment. While the CIT(A) held that the 2004 amendment to s. 80-IB was only prospective in nature-a finding against which Revenue is not appeal, the CIT(A) also held that ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the house building activity when the predecessor section in 80-IA(4F) was introduced. It was submitted that where the provisions were not clear, Finance Minister's Speech could be relied upon for interpreting the provisions of the Act. In support of this proposition, reliance was placed on the Hon'ble Supreme Court's landmark judgment in the case of K.P. Varghese vs. ITO Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC). Our attention was also invited to the Finance Minister's Speech, Notes on Clauses and Circular No. 5 issued by CBDT while amending s. 80-IB(10) and providing a restriction on the built-up area of the shops and commercial establishments. It is to be noted that nowhere it was mentioned that earlier the housing project could not include any shops or commercial establishments. In fact, the Notes on Clauses and the circular state that "it is further proposed to provide that the built-up area of the shops and commercial establishments included in the housing project should not exceed '5 per cent". Thus, it is clear that by bringing this amendment, the legislature has only put a restriction on the area of shops and commercial establishments included in the housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asst. yr. 2004-05, no such restriction existed and the commercial usage nevertheless continued to be an integral part of the housing project. A reference was the made to the Hon'ble Supreme Court's judgment in the case of Gem Granites vs. CIT (2004) 192 CTR (SC) 481 : (2004) 271 ITR 322 (SC). In this case, the Supreme Court was required to deal with the controversy whether deduction under s. SOHHC was allowable to an assessee engaged in the business of trading in cut and polished granite for asst. yr. 1987-88. Supreme Court observed that till 1991, the deduction was not available to minerals and ores. However, later on, there was an amendment and it provided that deduction would not be available to minerals and ores (other than processed minerals and ores specified in twelfth schedule). Accordingly, Supreme Court observed that the exclusion in the later amendment clearly indicated that earlier, the deduction was not available even to processed minerals and ores. By the same logic, cl. (d) of s. 80-IB(10) states that the built-up area of the shops and commercial establishments included in the housing project should not exceed the specified limit. Thus, cl. (d) is merely providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect. It is to be noted that s. 80-IB(10) does not state that the deduction is allowable to a project which is approved by the local authority as a housing project. All that the s. 80-IB(10) states is that the deduction is allowable to a housing project which is approved by a local authority. Thus, limiting the deduction only to the cases wherein the project is approved as a housing project by the local authority is not justified. A distinction is thus made out between a housing project approved by the local authority and a project approved as a housing project by the local authority. 25. Reliance on Hon'ble Supreme Court's judgment in the case of CIT vs. Shaan Finance (P) Ltd. (1998) 146 CTR (SC) 110 : (1998) 231 ITR 308 (SC) for the proposition that the Courts cannot alter the words in the section or provide for casus omissus. A reference was then made to Hon'ble Supreme Court's judgment in the case of CIT vs. Taj Mahal Hotel 1973 CTR (SC) 480 : (1971) 82 ITR 44 (SC) for the proposition that if the word has not been defined in a statute, it must be construed in its popular sense. Further, reliance was also placed on the Supreme Court decision in the case of CED vs. R. Kanakasaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al authority". He thus submits that all that the statute requires is that it should be a housing project and it should be approved by the local authority. 27. Referring to Division Bench decision in the case of Laukik Developers vs. Dy. CIT wherein it has been held that the term "housing project" would not include any commercial shops or establishments, it was pointed out that in said decision, Division Bench had stated that the assessee could not establish that its building project was primarily a housing project. The question then arises as to what is 'primarily' a housing project. It was submitted that the said decision is inherently incapable of being implemented, as it does not lay down precise yardsticks on which it can be decided whether or not a project is primarily a housing project. Without prejudice to this argument, it was also contended that the only objective yardstick for deciding whether a project is mainly or primarily a residential project was that 51 per cent of the units should be residential units. Learned counsel's perception is that once more than 51 per cent of the total area was occupied by residential units, the project was primarily a housing project an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us, learned counsel for the assessee, as also the learned special counsel appearing for the Revenue, submitted that it is nobody's case that amendment was retrospective in nature. Since both the parties have agreed on this issue, it is not necessary to address ourselves any further on this issue. 30. We may mention that the assessee had raised an additional ground of appeal before us, whereby the assessee has also claimed deduction under s. 80-IB(10) in respect of the profit in respect of commercial portion was also claimed to be eligible for deduction under s. 80-IB(10). Learned counsel for the Revenue objects to this additional ground by submitting that as the relevant facts are not on record, the additional ground (should not be admitted) at this stage. Learned counsel for the assessee, (on the) other hand, submits that since the AO himself has specifically computed the profits from the commercial portion in the assessment order at Rs. 13,67,687, it cannot be said that relevant facts are not on record and there is, therefore, no good reason for not admitting this additional ground of appeal and adjudicating the same on merits. We, however, see no reasons to address ourselv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute. This is, according to the learned counsel, a classic case for filling up the gaps in the process of interpretati0n of law -something which is not permissible as is the settled legal position. A reference is then made to s. 2(ea) of the WT Act which refers to 'house' used for commercial as also residential purposes. It is thus possible that a housing project may have commercial as well as residential units, and yet it may be treated as a housing project. According to the learned counsel, there is no conflict in a project being housing project and that project also having commercial housing units. It is submitted that a housing project could be purely residential or for residential as well as commercial purposes. Learned counsel also submits that the development charges collected by the PMC are on the basis of rates applicable for residential area, and a letter from architect is furnished before us to substantiate this contention. He then makes an interesting reference to the website of Kolkata Metropolitan Development Authority (www. kmdaonline.org) which, at one place, states as follows: "Barrack pore Housing (Phase II) Housing is one of the priority areas of KMDA's inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be declined for pre-2004 amendment period only on the basis that a part of constructed area has been utilized for commercial purposes. Once the project in question has a residential as well as commercial units, the project is to be treated as a 'housing project', and, in terms of the provisions of s. 80-IB(10), entire profits of the housing project are eligible for deduction. No distinction is envisaged in the profits relatable to the commercial units and residential units. He submits that since 5 per cent limit was not applicable until the amendment in s. 80-IB(10) came into effect by the virtue of Finance (No. 2) Act, 2004, no such limit can be read into the Act. It is also submitted that the provisions of s. 80(IB)(10)(d), prescribing the aforesaid limit of 5 per cent, are only prospective in nature, and that there is no dispute on this aspect of the matter. 34. Shri Rajan Vora, appearing for Apoorva Properties Estates Ltd.-an intervenor in this Special Bench, invites our attention to the 'Memorandum Explaining Provisions in the Finance (No. 2) Bill, 2004' which states that 'it is proposed to substitute the existing sub-section so as to rationalize the provisions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o such housing projects and one cannot interpret law in such a manner so as to defeat the purpose of the statute. It is submitted that until the 2004 amendments, no limit was fixed on such a commercial use or use at shops, and, therefore, it cannot be open to Revenue to read the limits into provisions of the law. He also submits that when commercial built-up area is the main component of housing project, it ceases to be a housing project. The onus, however, is on the Revenue to demonstrate that it is not a housing project and that the thrust of the project is commercial usage of built-up area. He submits that no hard and fast formula can be developed for the same and this must be demonstrated by the Revenue that it is not primarily a housing project. He further submits that in a situation when the project is approved by the local authority as a housing project, the deduction under s. 80-IB(10) is required to be granted by the Revenue as is clear mandate of the Board clarification issued in response to representation by Maharashtra Chamber of Housing Industry. He also relies upon the Tribunal decisions in the cases of Harshad P Doshi and Saroj Sales Organization and submits that onc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Awas Yojna was launched to build houses for the poor in rural areas. Housing finance companies provide credit, but bulk of the credit flows to urban and semi-urban areas. There are some rural housing development programmes but they lend meager amounts upto Rs 10,000. There is virtually no source of credit for the farmer who wishes to build a modest house on his freehold land or to improve or add to his old dwelling. This gap must be filled. In consultation with the National Housing Bank (NHB) and others, I have worked out a plan. Loans up to Rs 2 lakhs will be given for building houses on freehold land in rural areas at normal rate of interest, subject to borrower putting in one-third of the value of the house. NHB is requested to prepare a scheme in which other organizations will also participate. The Prime Minister will launch this scheme on 15th Aug., 1997, and it is our goal to sanction 50,000 loans in the first year." 38. Shri Kapila submits that the above references to housing in Finance Minister's 1997 Budget Speech could not, by any stretch of logic, be related to anything other than dwelling units. Indira Awas Yojna was a scheme for the dwelling units and that was a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs units, which included shelterless households and those with only kucha dwellings". This again shows "that reference to housing is in fact a reference to dwelling units. To the same effect, we are taken through several Budget Speeches of the successive Finance Ministers. The common thread in all these Budget Speeches has been that every time a reference is made to 'housing', it would be clear from discussion under that heading that reference is in fact for dwelling units. 42. Our attention is then invited to 2000 Budget Speech by the Finance Minister in which the Finance Minister, at one place has stated as follows: "Mr Speaker, Sir, I wish to now turn to another area of special focus in this budget, namely housing sector. In regard to this sector, I propose a comprehensive package of fiscal incentives focused at: -the middle class investors wishing to purchase a dwelling unit; -the promoters of middle income housing projects; and -the housing finance companies." 43. These words of the Finance Minister clearly show that reference to housing projects is in fact a reference for dwelling units. The expression 'housing projects' is used in the company of expressions 'dwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing which is more appropriate to context and the-setting in which that expression appears. Reliance is placed on the judgment of Hon'ble Supreme Court in the case of CIT vs. Venkateswara Hatcheries (P) Ltd. (1999) 153 CTR (SC) 105 : (1999) 237 ITR 174 (SC). It is submitted that, as held by the Hon'ble Supreme Court in the Venkateswara Hatcheries (P) Ltd., where dictionary gives more than one meaning of a word, that word 'has to be construed in the context of the provisions of the Act and regard must also be had to the legislative history of the provisions of the Act and the scheme of the Act'. According to the learned counsel, the two important considerations in ascertaining appropriate meanings of a word, which is capable of more than one meaning, are (i) legislative history, and (ii) objects of the provisions in which the word is used. Our attention is then drawn to extracts from 'Webster's Encyclopedic Unabridged Dictionary of English Language', copies of which are filed at pp. 3 and 4 of the compilation, and it is submitted that, considering the legislative history and undisputed objectives for which the tax concession under s. 80-IB(I0) was introduced, the most appropriate and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot have anything to do with solving the acute housing problem in our country-the objective for which tax incentive under s. 80-IB(10) was granted. It is thus contended that deduction under s. 80-IB(10) cannot be granted for commercial complexes and offices because there are other deduction, such as under s. 80-IB(7A) or under s. 80-IB(7B), for those purposes. 51. Learned special counsel then invites our attention to a news report "Realtors say affordable houses unviable" appearing in the Indian Express of 22nd Jan., 2009. It is pointed out that this report states that private real estates developers have told the Government that "affordable housing is financially unviable in India" and that "If the Government wants them to build low cost houses, not only will it have to give them a sovereign guarantee to buy these houses, but also extend a host of direct and indirect tax exemptions". This report also thus, according to the learned, special counsel, supports his submission that the expression 'housing' refers to dwelling units. 52. Shri Kapila then relies upon the Hon'ble Supreme Court's judgment in the case of Allied Motors (P) Ltd. Etc. vs. CIT in support of the proposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es status of charitable institution. On this basis, it is argued that once assessee accepts that developing commercial project is one of the main objects of the assessee's activity, the assessee cannot be said to be eligible for tax incentive meant for a housing project. 55. It is also contended that there is admittedly no ratio fixed upto which a residential-cum-commercial project may have commercial use. If assessee's contention is to be accepted, even if only one residential unit is built and all the remaining use is for commercial purposes, the project can still qualify for deduction under s. 80-IB(10) which will be nothing less than a mockery of the law. The correct interpretation, therefore, would be that to the extent permissible commercial use of area is concerned, the same can be taken as an integral part of the housing project. Anything in excess of such commercial usage, according to the learned counsel, would vitiate the character of project and would render the same ineligible for deduction under s. 80-IB(10). Learned counsel submits that by introducing cl. (d), by Finance (No. 2) Act 2004, restricting the commercial use to 5 per cent of total built-up area, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deduction under s. 80-IB(10). On the second question, i.e. on the question of proportionate deduction, learned special counsel submits that first thing to be shown is whether deduction under s. 80-IB(10) is available and if the presence of commercial building vitiates the character of the project, deduction under s. 80-IB(10) is not at all available. However, he fairly concedes that in the absence of any rule to that effect, pro rata deduction cannot be allowed in respect of the profits of the residential units. In other words, if deduction is to be held admissible, according to the learned special counsel, it is to be admissible on the entire profits of the project. On the third and final question, i.e. on retrospectivity of insertion of cl. (d) in s. 80-IB(10) inserted by the Finance (No. 2) Act, 2004, learned counsel submits that it is not his case that cl. (d) will have retrospective application, though, his contention is that reference to 5 per cent is clarificatory in nature inasmuch as convenience shopping to the extent of 5 per cent in accordance with the Development Control Rules, even in pre-amendment situation, could also be allowed for commercial use and that would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... multiplex theatre or a convention centre and not for purely developing the same. The parity drawn up by the learned counsel was thus, according to the assessee, incorrect. 63. As regards learned special counsel's stand that where the shops are constructed as convenience shopping having regard to the rules of local authority, the deduction under s. 80-IB(10) would be allowable to the project, learned counsel for the assessee submitted that there was no reason for allowing the deduction only for the convenience shopping as it is allowable even if the shops constructed are not convenience shopping as per the local laws. It was again emphasized that cl. (d) inserted w.e.f. 1st April, 2005 also did not mention anything regarding the convenience shopping and therefore, it was not justified to allow the deduction only if the shops constructed were convenience shopping. 64. As regards learned special counsel's plea that contextual meaning of a term should be preferred over its pure dictionary meaning, it was submitted that even accepting his arguments, under the IT Act itself, the word "house" denoted both residential and commercial units and therefore, applying the contextual meaning, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus indicated that a project, which is mainly a residential project, should, in the worse case scenario, be treated as a residential project. Learned special counsel, however, vehemently opposes this suggestion and submits that the expression 'mainly' which does not anywhere figure in the relevant provision cannot be supplied by the Court as that would amount to supplanting the law rather than interpreting the law. 70. Shri Tulsiyan submitted that even if convenience shopping or commercial use of area is more than 5 per cent, as long as local authorities permit it to be a part of the housing project and approve the project as such, that should not be allowed to affect entitlement of deduction under s. 80-IB(10). He once again lays emphasis on the fact that what is material is whether or not the local authorities approve the project as a housing project. Once such an approval is granted, the area used for non-residential purposes is immaterial. Non-residential use of area beyond 5 per cent of cannot take away the tax benefit due to a project which is approved as a housing project. 71. Shri Puranik submits that 5 per cent restriction for use as convenience shopping, under the Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, the successive Finance Ministers have made every endeavor to address problem of acute shortage of dwelling units-primarily for less privileged sections of the society. As learned special counsel rightly points out that this problem is tackled on one hand by expenditure on various housing schemes, and, on the other hand, by providing tax incentives on the revenue side. As a matter of fact, the fact that size of residential unit is restricted to 1,000 sq. fts. in areas within 25 kms from municipal limits in Delhi and Mumbai, and to 1,500 sq. fts. in other areas, also shows this unmistakable thrust in the tax incentive. The tax incentive by way of deduction under s. 80-IB(10) is clearly linked to provision for affordable dwelling units. As regards assessee's contention that the provision is aimed at promoting house building activity, in our considered opinion, promotion of house building activity cannot be viewed in isolation or as main objective of this provision. Undoubtedly, when construction of dwelling units takes place, house building activity is promoted and economic benefits from the same are realized. No fiscal incentive is a unidimensional measure for achieving an objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be 'drafted with divine prescience and perfect clarity.' We can do no better than repeat the famous words of Judge Learned Hand when he said: '....... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.' We must not adopt a strictly literal interpretation of...... but we must construe its language having regard to the object and pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be any residential project which is a purely residential project and in which no part of the land is used for commercial purposes. Commercial use of area is thus an integral part of a housing project and merely because a part of the plot is used for commercial purposes, the character of housing project is not vitiated. It is not even Revenue's case before us that there cannot be any element of commercial usage of built-up area in a housing project. 79. Let us take a pause here and deal with the decision of a Division Bench in Laukik Developers vs. Dy. CIT. That is a case in which assessee had admittedly constructed 3,143 sq. ft. commercial area in its building project in a suburban area of Mumbai city, and the project was approved by the Kalyan Dombivile Municipal Corporation as a residential-cum-commercial project. On these facts, the Division Bench was of the view that "the construction of shops and commercial place cannot be considered a 'housing project' for the purposes of application of provisions of s. 80-IB(10) of the Act". It was not even Revenue's case that the project was only for building commercial space, but, as evident from the arguments recorded in para 3 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is also thus beyond dispute or controversy that, notwithstanding legislature's unambiguous objective of introducing tax benefits under s. 80-IB(10) for augmenting availability of dwelling units for low and middle class, the availability of tax benefits are not confined to only such housing projects which are purely residential projects and in which no part of area is used for commercial purposes. Now that we come to the conclusion that an element of commercial use is implicit and permissible in a housing project, the next question that we need to address ourselves to is as to upto what degree and in what measure such a commercial use is permissible. 81. As a matter of fact, this 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 centers 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. There is thus no contradiction in providing for commercial use of built-up area and in providing for affordable dwelling units. When a local authority approves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 5 of 2005; dt. 15th July 2005) stated that "It has also been decided that the built-up area of shops and other commercial establishment included in the housing project should not exceed 5 per cent of the aggregate built-up area of the housing project, or 2,000 sq. ft. whichever is less". It is thus clear that the amendment brought into effect a limitation on use of built-up area as commercial area or as shops etc. The wordings of the statute, as also of the explanatory notes, leave no doubt that what was brought into effect was a restriction on use of built-up area for commercial purposes, and not a relaxation to use the built-up area for commercial purposes. If it was a relaxation, it could have been worded in the way so as to convey relaxation to use the built-up area upto 5 per cent for non-residential use. That is not the case. 85. In the case of Gem Granites, Their Lordships of Hon'ble Supreme Court were in seisin of a situation in which the benefit of deduction under s. 80HHC in respect of export of, inter alia, cut and polished granite specifically granted w.e.f. 1st April, 1991 by laying down an exception to the denial of benefits to exports of minerals or ores, wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to check this mischief, the provision regarding limitation on commercial built-up area in a housing project was introduced as a requirement but this limitation applied w.e.f. 1st April, 2005 only. The restriction placed on commercial use of built-up area in a housing project, by itself, shows that commercial use of built-up area was permissible, in principle, in a housing project. The amendment brought about by insertion of cl. (d) in s. 80-IB(10), in our understanding, is a substantive amendment and it is applicable from the date the legislature has so specifically provided i.e. 1st April, 2005. 87. The view that we are thus taking, find support from the following decisions. 88. Their Lordships of Hon'ble Supreme Court in the case of H.V. Thakur vs. State of Maharashtra AIR 1994 SC 2623 have culled out the following principles of interpretation after considering the various cases decided by Hon'ble Supreme Court and have observed that these principles are illustrative though not exhaustive which will cover the ambit and scope of amending Act and its retrospective operation: "(i) A statute which affects substantive rights is presumed to be prospective in operation, unless m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ican States, which forbid it. The true principle is that lex prospicit non-respicit (law looks forward not back). As Willes, J. said, retrospective legislation is 'contrary to the general principle that legislation by which the conduct of mankind is to be regulated ought, when introduced for the first time, to deal with future acts, and ought not to change the character of past transactions carried on upon the faith of the then existing law'." 90. In para 24 Their Lordships have referred to the aforementioned decision of apex Court in the case of H.V. Thakur us. State of Maharashtra and principles of interpretation laid down therein. 91. We have held that cl. (d) inserted in the section is applicable for the asst. yr. 2005-06 onwards. We have also held that clear and dominant objective of the incentive provision is to provide dwelling units for low and middle class though some commercial built-up area by itself does not vitiate the claim. These two findings are to be construed in harmony. The pertinent question, therefore, is to find out how much use of area for commercial purpose in a housing project could be treated as permissible inasmuch as it would not vitiate the characte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minance. That apart, even from a reasonableness point of view, it would indeed be unreasonable to suggest that when as much as fifty per cent of the built-up area in a housing project is being used for commercial purposes, the project can still be said to be a project predominantly for the purposes of residential units. On the other extreme, Revenue contends that shopping complex or commercial portion should be restricted t05 per cent of total constructed area which is more or less on the same lines as cl. (d) introduced subsequently. This extreme view also, for the reasons we have already set out, cannot be accepted either. 94. We have to draw up some lakshman rekha nonetheless so as to ensure that the basic character of the project continues to remain in harmony with the object of the tax incentive i.e. augmenting affordable dwelling units. 95. No doubt, this is not an easy job in the sense that we do not readily find any objective criterion for the same. The language of the enactment prior to introduction of cl. (d) in the section did not provide any area limit on commercial construction in the housing project and, therefore, the problem in providing a clear and easy answer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an instrument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have often been unfairly criticized. A Judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the Judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears, a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the language of the statute, but also from a consideration of the social conditions which gave rise to it, and of the mischief which it was passed to remedy, and then he must supplement the written word so as to give force and life to the intention of the legislature." 97. The above observations of Denning L.J. were severely criticized by Lord Simonds but Lord Denning stuck to his views and this is clear from his decision in case of Eddis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions." 111. A five Judge Bench of Hon'ble Supreme Court, in the case of Padmasundara Rao (Decd.) vs. State of Tamil Nadu (2002) 176 CTR (SC) 104 : (2002) 255 ITR 147 (SC) had an occasion to attempt reconciling between the principle of casus omissus and the need of purposive interpretation. Their Lordships, inter alia, observed as follows: "Two principles of construction-one relating to casus omissus and the other in regard to reading the statute as a whole-appear to be well settled. Under the first principle a casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing housing projects approved by a local authority before 31st March, 2007 instead of 31st March, 2005 under the existing provisions, subject to the conditions that (a) such undertaking has commenced or commences development and construction of the housing project or after 1st Oct., 1998 and completes the construction within four years, from the end of the financial year in which the housing project is approved by the local authority; (b) the project is on the size of a plot of land which has a minimum area of one acre except in the case of 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, 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 cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases. Where approximately 90 per cent or more of the total area is utilised for building dwelling units of specified area and other conditions of the section are fulfilled, there is no justification to deny the benefit merely because the project had been passed as "residential-commercial project". Such project should be held to be predominantly residential project fully satisfying the description of term "housing project" as envisaged under statutory provision prior to asst. yr. 2005-06. On reference to other provisions of the IT Act, we find that 90 per cent of compliance is taken as substantial or full compliance of the provision, for example, of discharging advance tax obligations. We, therefore, hold that where 90 per cent is built-up for residential unit, and commercial use is 10 per cent or less, there is substantial compliance of the statutory provisions and the purpose of the provision is duly met. In this connection, we may usefully refer to and rely upon provision of s. 234B of the Act which holds that when 90 per cent or more advance tax is paid by the assessee, the advance tax obligations are treated as discharged. In cases where commercial use of built-up area is 10 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords, in order that the profits from dwelling unit segment of the project is eligible for deduction under s. 80-IB(10) in such a case, size of the plot, excluding portion under commercial unit, must be more than minimum area of one acre and residential units built on such area must satisfy condition of cl. (c) of the provision. In our considered opinion, above income of undertaking from project referred to above should be granted exemption under the statutory provision, as such income satisfy the purpose of the enactment. In any case, denial of deduction is such cases will be purely based on hypertechnical ground, because instead of seeking approval as residential-cum-commercial project for the entire project, the assessee could have as well taken separate approval for residential segment which, even on standalone basis, would have satisfied all the requisite conditions. As we have already pointed out, approval as residential project was not a condition precedent for grant of deduction under s. 80-IB, and in city like Pune, there was no provision in the local regulation to approve project as a 'housing project'. There would be no legal justification to deny exemption to residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to leave the character of the housing project intact. As we have discussed above, commercial use of upto 10 per cent built-up area, in the years prior to the asst. yr. 2005-06 when 5 per cent limit was not in force, will clearly not vitiate the predominant purpose of the housing project i.e. augmenting supply of dwelling units. In such cases, and in the light of the detailed discussions we had in the preceding paras, the projects will continue to predominantly residential projects and legitimately be entitled to deduction under s. 80-IB(10). The apprehensions about misuse of the provisions are thus unfounded. 118. In view of the above discussions, we are not inclined to infer that a ceiling over commercial use of built-up area @ 5 per cent exists in the assessment year before us in which admittedly no such restriction finds place in the statute. We have also held that notwithstanding the inapplicability of this limit of 5 per cent limit in the assessment year in appeal before us, it cannot be inferred that commercial use of built-up area could be allowed to any limit and yet the project will continue to be treated as a housing project. We have held that as long as the residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idential purposes it cannot be said that the objective of providing residential units is vitiated. 121. We have also noted Revenue's plea that as long as it is use of built-up area for commercial purposes is confined to convenience shopping within permissible limits and subject to the conditions as per Development Control Rules, eligibility for deduction under s. 80-IB(10) remains intact and that the moment such usage goes beyond what is permissible as convenience shopping as per Development Control Rules, the eligibility for deduction under s. 80-IB(10) is lost. We are unable to approve this plea either, as it goes well beyond the limitations set out even in post-2004 amendments. Clause (d) of s. 80-IB(10), which was introduced vide Finance (No. 2) Act, 2004, provides that "the built-up area of the shops and other commercial establishments, included in the housing project, does not exceed five per cent of aggregate built-up area or two thousand square feet, whichever is less". This has nothing to do with convenience shopping which not only restricts the size of each shop to 20 sq. mtrs. but also limits the purposes for which these shops can be used. Take for example a situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits derived in the previous year, relevant to any assessment year, from such housing project". What is deductible is 'profit of the housing project', and not the profit attributable to the residential units". Once, therefore, we hold that the project in question is a housing project, entire profits of the housing project are deductible under s. 80-IB(10). The question of proportionate deduction is, therefore, not at all relevant in this context. 125. We have also taken note of the fact that in Arun Excello Foundations (P) Ltd. case, Chennai Division Bench has granted proportionate deduction @ 90.69 per cent based on the percentage of residential units in the housing project, but, interestingly, that was the alternate plea raised by the assessee and the Division Bench proceeded to accept the alternate plea without dealing with the main plea at all. The question of dealing with alternate plea arises only when the main plea is rejected. Neither we approve such an approach of the Division Bench in principle, nor, as discussed above, are we inclined to approve, on merits, the decision of Division Bench in the case of Arun Excello Foundations (P) Ltd. case on the question of grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residential units built on such area must satisfy condition of cl. (c) of the provision, and (iii) other necessary conditions are fulfilled, and where income from construction of residential dwelling units can be worked out on standalone basis, deduction under s. 80-IB(10) will be available in respect of residential segment of the project. (b) The deduction under s. 80-IB(10) is available in respect of profits of housing project as a whole, and, as such, it is not relevant as to what is the portion of profits which can be said to be attributable to residential units. This is subject to the rider that in case commercial use of built-up area in a project is more than 10 per cent and, for this reason the project cannot be said to be a predominantly housing project, but, in terms of observations made in para 115 above, the assessee is entitled to deduction in respect of residential unit segment of the overall project on fulfilment of necessary conditions, the entitlement of incentive deduction will be confined to only to the profits to the residential segment of the overall project. (c) The limit on commercial use of built-up area as prescribed by cl. (d) of s. 80-IB(10) has no re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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