TMI Blog2010 (12) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... anation appended to section 80-IB(10) is also not attracted at all. The development done in this case is not on account of a works-contract. – Assessee eligible for exemption u/s 80IAB(10) Addition u/s 2(22)(e) - deemed dividend - Held that: Only a loan, which would include other payments mentioned in section 2(22)(e) can be deemed to be dividend and to that extent of the company has accumulated profits on the date of payment. - the assessee had current account with company and advancing monies to the company as and when required for the purpose of business of the company - this section can be invoked to curtail the misuse of the funds belonging to a private limited company by its shareholder but not when there is a business transaction between the two entities; and funds of the Director were also lying with the company. In this case, assessee's money ranging between 313.72 lakhs to 490.67 lakhs with the Ceebros Property Development Pvt. Ltd., the payment by the same company to Cdeebros Hotels Pvt. Ltd. of ₹ 20,00,000 cannot be treated as intended deemed dividend under section 2(22(e) of the Act. Exemption u/s 80-IB(10) - car parking area - the car parking area is allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re evident on record. Although the fees are paid in the name of the owner, the assessee's case is that there is no dispute as to the fact that the construction was done by the assessee. All the activities connected with selling of flats like advertising, marketing, were carried out by the assessee herself. In income-tax, for computing capital gains, the date of sale is determined with regard to transfer of possession of the property and receipt of sale consideration. So, it was stated that for keeping line that legal possession after assessee gave full consideration and took possession of the land, the transfer as defined in section 2(47) of the Act stands completed. It was argued that the land owner after receiving the full consideration of the land did not spend even a pie towards its developmental activities. The main thrust of the assessee's case is that the character of transaction has to be taken into consideration irrespective of the fact in whose name transaction was given as it would not necessarily decide the nature of transaction as was held by the Supreme Court in the case of Motor General Stores (P) Ltd. reported in 66 ITR 692 (SC). The case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to analyse the requisite conditions to avail deduction under section 80-IB(10) of the Act specifically with reference to the newly appended Explanation thereto. Section 80-IB(10) reads as under:- [(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,- ( a )such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,- ( i ) in a case where a housing project has been approved by the local authority before the 1st day of April, 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. [( iii ) in a case where a housing project has been approved by the local authority on or after the 1st day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the karta.] Explanation - For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).] 5. The reading of the above provision evinces that for claiming deduction with regard to a housing project, the following main conditions have to be fulfilled:- (1) There should be an undertaking for developing and building a house project; (2) Such housing project has to be approved by the local authority; (3) The development and construction of housing project has to be commenced on or before 1st day of October, 1998; (4) The housing project should be made on a plot size of one acre minimum in area; (5) The residential unit developed and built has to be a built-up area of 1000 sq. fit. If it is situated in the city ofDelhi and Mumbai orDelhi or within 25 kms from the municipal limits of these cities and 1500 sq. fit at any other place. Apart from the above conditions, no other condition has been laid down in this section. If the assessee fulfils the above conditions, she becomes elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f are satisfied. If he were not the owner, plan approval also may not be in his own name, since local government usually insists on granting such approval only to the title holder. This by itself does not give right to owner to claim deduction under section 80-IB(10) nor does it forfeit the right of the developer to it . As per the Oxford Advance Learner's Dictionary, a developer is a person or company that buys land or building in order to build new houses, shops/stores, etc. or improves the old ones and makes a profit from doing this. As per Mozley Whiteley's Law Dictonary, development means with certain exceptions, the carrying out of building, engineering, mining or other operations in, on, over or under land, or the making of any material change in the use of any buildings or other land. 7. From the above discussion, what is required is that if the assessee is a beneficial owner or to put it in a legal term if she is a de facto owner of the land, any developer becomes eligible for this deduction. It is not at all necessary that the developer should be a de jure owner of the land. It is quite possible to develop the property with consent of the owner. It t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o obtain necessary approvals from the local authorities on behalf of the land owners and all the expenses for such purposes were to be incurred by the assessee. It was also noted that the size of the plot on which the project was developed was also in excess of one acre and the size of each residential house was less than 155 sq.fit. Referring to the provisions of section 80-IB(10) including its legislative history it noted that it was the undertaking that develops or builds the housing project that was entitled to deduction irrespective of the fact whether it was the owner or not, or whether it was the contractor thereof. The requirement of claiming deduction was that such an undertaking must develop and build housing project be it on their own land or on the land of others. In the present case, the Tribunal noted that the landowners had not made any conscious attempt to develop the property except ensuring their rights as landowner, so that the sale value of the land could be realized to them as per the terms of 'agreement to sale'. In view of the facts and circumstances of the case as well as the legal proposition laid down by the Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss akin to being a Contractor, for executing the construction work. However, as per the provisions of section 80-IB(10), a person has to be both a developer as well as the builder, as the provisions clearly stipulate that there should be an undertaking, developing and building housing projects, and not developing or building housing projects, and then only the profits from the undertaking are eligible for deduction. If the assessee is only either one of the two, then it is very clear that it is not eligible for the deduction. In the instant case, the developing activity has been entirely undertaken by M/s Sashwath Foundations limited and the buyers of land have merely engaged the assessee company only for construction work as contractors. Again as per the provisions of section 80-IB(10), the income has to be derived from the activity of developing and building of a housing project. It does not speak of the income of a contractor who constructs the houses or any other agency involved in the construction of houses, interior designers, civil contractor, architects, landscape designers, vaastu experts etc. Hence it is held that the assessee is not eligible for deduction u/s 80-IB(10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court was dealing with the Karnataka Ownership Flats (Regulation of Promotion of Construction, Sales, Management and Transfer) Act, 1974; and in that case the question for consideration for their Lordships was whether the appellants were dealers and were liable to pay turnover tax under the Karnataka Sales Tax Act. Ostensibly, this decision cannot apply to the facts of the case because the Income-tax Act is a fiscal law wherein certain sections give incentives to certain class of assessee in order to earn more revenue and somewhere the definition as is taken in legal parlance in the sale of goods and regarding transfer is not adopted in the same manner as it is done in other enactments. In Income-tax, if the assessee takes possession of the land after paying full consideration, the definition of the term 'transfer', as defined in section 2(47) of the Act, becomes complete. With the help of this decision, learned D.R. has tried to convince us that in this case it was works-contract and not that of 'developers'. In the last para of the High Court's decision, it has been held that the term works contract in that Act is an inclusive definition. It does not includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of M/s K. Raheja Development Corporation relied on by the learned D.R. are definitely rendered in entirely different context and facts are distinguishable. Consequently, we uphold the finding of the CIT(Appeals) in this regard and dismiss grounds No. 2.1, 2.2, 2.3 and 2.4. 12. The other issue raised in this case is regarding allowing the deduction of ₹ 5,30,250 paid to the Association of owners. The case of the Revenue is that the CIT(Appeals) has not given a finding that the amounts collected from the flat owners at the rate of ₹ 25 per sq. ft. was actually included in the contract receipt. As per the learned D.R., unless it is shown that the amount collected has been included in project receipts, the same cannot be allowed as deduction. 13. It is found that the assessee has collected ₹ 25 per sq. fit from every buyer towards Corpus Fund for the Association. A copy of the construction agreement in which the Corpus Fund for maintenance was separately shown as collected from the buyers. This receipt was shown as a liability as on31st March, 2005 as the Association had not been formed and same was handed over to the Association on 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned addition by holding that this being a business transaction and not loan or deposit, the sum cannot be treated as deemed dividend in the hands of the assessee. 16. After carefully considering the rival submissions as put forth before us, we are of the considered opinion that section 2(22)( e ) of the Act is a deeming provision which assumes existence of certain facts if the conditions specified in a particular section are fulfilled. We agree that these provisions are to be strictly construed. This legal fiction has to be carried out to such logical ends and not to illogical length. Only a loan, which would include other payments mentioned in section 2(22)( e ) can be deemed to be dividend and to that extent of the company has accumulated profits on the date of payment. We have gone through the Tribunal order dated 9th March, 2007 passed in this assessee's case for assessment year 2002-03 on which the learned A.R. has heavily relied. In that year from the copy of account of CHPL in the books of CPDPL for the period 1.4.2001 to 31.3.2002 the A.O. found that as on 1.4.2001 the account of CHPL started with a debit balance of ₹ 2.5 crores and odd and thereafter there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to a private limited company by its shareholder but not when there is a business transaction between the two entities; and funds of the Director were also lying with the company. In this case, assessee's money ranging between 313.72 lakhs to 490.67 lakhs with the Ceebros Property Development Pvt. Ltd., the payment by the same company to Cdeebros Hotels Pvt. Ltd. of ₹ 20,00,000 cannot be treated as intended deemed dividend under section 2(22( e ) of the Act. These facts have not been denied by the Assessing Officer. Consequently, we do not find any infirmity in the appellate order. So, there is no legality in making impugned addition. 17. Therefore, appeal of the Revenue stands dismissed. ITA No. 1907/Mds/2008 18. This appeal of the Revenue for the assessment year 2005-06 is directed against the order of the ld. Commissioner of Income Tax (Appeals)-VI, Chennai, dated 31.03.2008 against Shri C. Subba Reddy (HUF). 19. The first ground of this appeal relates to deduction under section 80-IB(10) of the Act. A similar issue regarding ownership of the land in the same manner as it is in the case of Smt. C. Rajini's case is involved. Therefore, with si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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