TMI Blog2010 (8) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 271(1)( c ) of the Act is not justified. 4.Initiation of levy of interest under section 234A/B/C of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before hearing of the appeal." 2. Facts of the case as per relevant orders are that return declaring income of Rs. 1,25,540 filed on 1-11-2004 for the assessment year 2004-05 by the assessee, engaged in building/construction activities, after being processed on 26-4-2005 under section 143(1) of the Income- tax Act, 1961 (hereinafter referred to as the "Act"), was selected for scrutiny with the service of a notice under section 143(2) of the Act on 22-3-2005. During the course of assessment proceedings, the Assessing Officer noticed that the assessee claimed deduction of Rs. 8,92,284 under section 80-IB(10) of the Act. In response to a show-cause notice dated 27-11-2006, the assessee while referring to provisions of the section 80-IB(10) of the Act replied vide letter dated 4-12-2006 that they fulfilled the conditions stipulated in the said provision. While referring to decisions in the case of Shankar Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 226 ITR 625 (SC). However, the Assessing Officer did not accept the submissions of the assessee and denied deduction under section 80-IB(10) of the Act in his elaborate order on the ground that "( i )the assessee was not owner of the land on which construction activities were carried out/project was built-up, ( ii )the approval of the housing project issued by the competent authority was found in the name of other persons, i.e., Sanjeev Digambar Bharmbhe P.A of Fabhsinh Mangalsinh Dodia Aartiben Fatehsinh Dodia, ( iii )the land owners have sold pieces of land to the unit holders directly and assessee has acted merely as confirming party, ( iv )assessee-firm acted merely as a contractor as it has entered into construction/development agreement and ( v )the assessee-firm has never sold the houses to the unit holders as there was no registered document in respect thereof." In nutshell, the Assessing Officer was of the opinion that the assessee was not eligible for deduction under section 80-IB(10) of the Act as the approval of the competent authority for development of the housing project was in the name of owners of the land and completion certificate was also gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the 1st day of October, 1998; ( b )the project is on the size of a plot of land which has a minimum area of one acre; and ( 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 kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place. From the above, it is clear that only those undertakings developing projects fulfilling the following conditions are eligible for deduction under section 80-IB(10) : 1.Undertaking should develop and build housing projects. 2.Such housing project should be approved before 31st March, 2005. 3.The undertaking has commenced development and construction of such housing project after 1st October, 1998. 4.The project is on the size of a plot of land with minimum one acre area. 5.The residential unit has a maximum built-up area of 1,500 sq. ft. in Cities other than Delhi and Mumbai. All the above conditions are to be cumulatively satisfied before granting deduction under section 80-IB(10). In the case of appellant, while condition Nos. 2, 3 and 4 are sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... local authority as residential as well as commercial project and containing commercial shops along with residential units could not be said to be housing project eligible for relief under section 80-IB(10). It was also held that no proportionate deduction under section 80-IB could be allowed to the extent of residential units also in such a case. Relevant portion of the said decision is quoted below : 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 section 80-IB(10) of the Act. Both the assessee and the revenue stated before use that the amendment brought by Finance (No. 2) Act, 2004 with effect from 1st April, 2005 introducing sub-clause ( d ) in the provisions of section 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 3,143 sq. ft. in its building project. The word housing project is not defined under section 80-IB(10) of the Act. We find that in Explanation to section 80HHBA(4) defining housing project is in enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation as held in number of decisions by the Hon ble Courts but the liberal interpretation shall not be to the extent of defeating the very purpose of enacting a particular incentive provision of law . We find that the plea of the ld. counsel for the assessee that while dealing with the provisions of section 5(1)( iv ) of the Wealth-tax Act, various Courts held that house used for commercial purpose was also eligible for exemption and, therefore, commercial property should be considered as a housing property, is not sustainable, since the decision relating to the provisions of section 5(1)( iv ) of the Wealth-tax Act were in the context of exemption of housing property for the purpose of the Wealth-tax Act and has no bearing to the present issue before us with regard to exemption of housing project under the provision of the Income-tax Act. 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 provisions of section 80-IB(10) of the Act by fulfilling th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant. The approval by the local authority as housing project or not was considered the sole criterion in deciding the eligibility of the project. The facts of the appellant are identical to the case of Laukik Developers decided by Hon. ITAT, Mumbai. In the case of appellant also the projects were approved by local authority as residential- cum -commercial project. Such project is not eligible for deduction under section 80-IB(10). It is not relevant whether commercial part is developed in earlier year. For considering the eligibility of the project, the eligibility of the entire project approved by the local authority is to be seen. If the part of the project is to be considered independent than the requirement of housing project approved by the local authority will have no meaning. In that case, an approved project can be developed by many undertakings and still claim the fulfilment of other criterias. Therefore, it is clear that what is to be seen is the approval of the project by the local authority. If the same is not approved as housing project , the undertaking developing the same is not eligible for deduction under section 80-IB(10). In view of the fact that appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made. Accordingly, the decision in the case of Laukik Developers delivered by Hon. ITAT, Mumbai that if the project is not approved as housing project , even if it is fulfilling all other conditions, the deduction under section 80-IB(10) will not be available, is still required to be followed. As regards appellant s claim that substantial compliance of the conditions precedent to the claim of deduction is made and, therefore, the same should not be denied keeping in view that liberal interpretation of beneficial provisions is to be made. What is to be seen is whether the project undertaken by the entity is eligible or not. The project become eligible only if all the conditions precedent thereto are satisfied. By not fulfilling a single condition the project goes out of eligibility. Therefore, while deciding the eligibility of any project for beneficial provisions, the interpretation has to be strictly legal and not liberal. The interpretation given here is not restricted or narrow. The rule of liberal interpretation of an incentive provision cannot hold good when it impairs the legislative requirement and spirit of provision. These are the Supreme Court s decisions relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch. Since their project was approved before the amendment introduced by way of clause ( d ) in section 80-IB(10) of the Act, the ld. CIT(A) was not justified in denying the deduction in the assessment year 2005-06, having recourse to the said clause ( d ), which was applicable prospectively, the ld. AR argued. On the other hand, the ld. DR while supporting the findings of the ld. CIT(A) contended that law as applicable for the year under consideration has to be applied while considering the claim for the deduction. 7. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. We find that the Assessing Officer disallowed the claim for deduction under section 80-IB(10) of the Act in these two assessment years on the ground that the assessee was not the owner of the land on which construction activities were carried out while the approval of the housing project issued by the competent authority was in the name of other persons, i.e., Sanjeev Digambar Bharmbhe P.A. of Fabhsinh Mangalsinh Dodia Aartiben Fatehsinh Dodia and that the land owners sold pieces of land to the unit holders directly and assessee acted merely as confirming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences development and construction of the housing project on or after the 1st day of October, 1998 and completes the same before 31st day of March, 2003; ( b )the project is on the size of a plot of land which has a minimum area of one acre; ( 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 kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place;" 7.2 In the Finance Act, 2000 with effect from 1-4-2001, the words "before 31-3-2001" were inserted after the words "housing project approved". Thus, all conditions for grant of deduction remained the same except that the approval of local authority for the development has to be obtained before 31-3-2001. 7.3 For the assessment year 2002-03, the law applicable was that the condition regarding completion of the project before 31-3-2003 was dispensed with. 7.4 For the assessment years 2003-04 and 2004-05, all the conditions remained the same except the condition regarding approval of the project by the local authority was stipulated to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 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 are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 80-IB of the Act. However, in section 80HHBA, which provides for a deduction in respect of profits and gains derived from the execution of the Housing Project which are awarded on the basis of global tender and also aided by the World Bank, the expression "housing project" by way of explanation has been defined to mean a project for the construction of any building, road, bridge or other structure in any part of India; and the execution of such other work (of whatever nature) as may be prescribed. Thus, the concept of housing project in section 80HHBA is very wide. The Concise Oxford Dictionary , Sixth Edition, gives its meaning in noun form as a "plan, scheme, planned undertaking." As per Chamber s Twentieth Century Dictionary (Revised edition), project means "a scheme of something to be done; a proposal for an undertaking; an undertaking." These definitions indicate that a project must be a planned affair or a scheme of something undertaken to be done. Since a housing project is required to be approved by a local authority, it would be fair to construe that the scheme or plan of the housing project must be in keeping with schemes laid down by the approving local a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the Special Bench in the case of Brahma Associates ( supra ). The ld. CIT(A) though accepted the contention on behalf of the assessee that clause ( d ) introduced by the Finance Act, 2004 with effect from 1-4-2005 was prospective in operation, he inferred in the assessment year 2005-06 that the said clause was applicable even to the projects already approved by the competent authority in the preceding years. As regards commercial area built-up included in the housing project, the ITAT Chennai Bench in the case of Arun Excello Foundations (P.) Ltd. ( supra ) concluded that the aforesaid clause ( d ) brought in the statute book with effect from 1-4-2005 by the Finance (No. 2) Act, 2004 was prospective in operation. As regards the other issue of commercial space built-up in the housing project, the ITAT while accepting the alternative plea on behalf of the assessee directed the Assessing Officer to allow the claim of the assessee on the residential units constructed on pro rata basis and that the assessee was not eligible for deduction under section 80-IB(10) on the commercial area constructed in the project to the extent of 9.31 per cent of the total constructed area. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imum requirement of convenience shopping could render the project ineligible for deduction under section 80-IB(10), say, for example, in cases in which total plot area is more than 1,00,000 sq. ft. In view of these discussions, in our considered view, linkage of convenience shopping to the limitation on use of built-up area as commercial space is a legally unsustainable proposition. 122. In view of the above discussions, we are of the considered view that deduction under section 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. ( supra ), Harshad P. Doshi ( supra ) and Saroj Sales Organisation ( supra ) in this respect, and we decline to concur with the view expressed in the case of Laukik Developers ( supra ). As a matter of fact, the view expressed by the Division Bench in the case of Laukik Developers ( supra ), as we have noted earlier in this order, has not even been canvasse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the discussions, only that part of the overall project can be said to be housing project. Accordingly, eligibility for deduction under section 80-IB(10) must remain confined to the same. 127. The answer to question No. 2 is, thus, in negative, though with the rider as set out above. 128. The last question before us is (whether) the limit under clause ( d ) of section 80-IB(10) will operate retrospectively and will also apply for the assessment year before us. 129. There is no dispute on this question also. Learned representatives have agreed that clause ( d ) is not to be treated as retrospective in application. That aspect of the matter is also not in dispute before us. We, accordingly, hold that the limit under clause ( d ) of section 80-IB(10) will not apply. 130. To sum up, the conclusions arrived at by this Special Bench are as follows: ( a ) The deduction under section 80-IB(10), as applicable prior to 1st April, 2005, subject to and in the light of the observations made in the preceding paras, is admissible in case of a housing project comprising residential housing units and commercial establishments. In case these projects are approved as housing projects by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid decision in the case of Brahma Associates ( supra ) and the percentage of built area for the shops and commercial establishments is not evident from the orders of the lower authorities nor the ld. Representatives of both the parties could throw any light on this aspect and it has not been examined as to whether or not the aforesaid clause ( d ) in the section 80-IB(10) introduced with effect from 1-4-2005 in the amended provisions is applicable to the projects already approved by the competent authority in the preceding years and/or enjoying the benefits of the said deduction on fulfilling the conditions stipulated in the extant provisions of section 80-IB(10) of the Act, we find merit in the contentions of the ld. AR and, accordingly, consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the issues raised in ground Nos. 1 and 2 of these two appeals to the file of the Assessing Officer for deciding the matter afresh in accordance with law in the light of our aforesaid observations, keeping in view the various judicial pronouncements, including those referred to above and of course after allowing sufficient opportunity to the assessee. Wi ..... 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