TMI Blog2011 (1) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the order of the learned CIT(A)-XV, Ahmedabad dated 9-6-2010, for assessment year 2006-07 on the following ground : "1 On the facts and circumstances of the case, the learned CIT (Appeals) erred in confirming the finding of the Assessing Officer that the appellant firm is not entitled to deduction under section 80-IB(10) of the Income-tax Act." 1.1 The facts noted in the impugned order are that the assessee is a firm consisting of following partners : (i) Shri Trilokchand Govindram Agrawal (ii) Shri Shivshankar Govindram Agrawal (iii) Shri Sandip Rampurshotam Agrawal (iv) Shri Mukesh Rampurshottam Agrawal 2. The assessee firm constructed housing project known as 'Amaltas' at mouje Vejalpur, Ahmedabad. Return of income showing total income of Rs. 5,15,340 was filed on 31-12-2006 claiming deduction of Rs. 4,33,79,124 under section 80-IB(10). In the assessment order passed under section 143(3) on 29-12-2008 this section 80-IB(10) deduction claimed has been disallowed and assessment has been framed at total income of Rs. 4,38,94,463. Perusal of the assessment order shows that the Assessing Officer was of the view that the permissions and approvals by the loca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tellite, Ahmedabad - 380 015. 9. So far as time limit of permissions and approvals are concerned the same have not been disputed by the Assessing Officer but need to be read carefully along with development agreement. Careful reading of the Development Agreement dated 14-8-2003 signed between the assessee and the cooperative housing society shows that as per Schedule B (Annexure 1 of the order) of the Development Agreement dated 14-8-2003 the assessee was authorized to construct only 94 residential units/flats wherein usable area in square meters of the built-up construction has been mentioned as 12260.41 sq. mtrs., but the assessee is claiming section 80-IB(10) deductions with respect to 110 units. The BU permission for 110 units was given against revised development permission dated 5-8-2004 wherein usable area in square meters of built-up construction was mentioned as 17794 sq. mtrs., whereas the Development Agreement mentioned that the assessee had to construct 94 units with usable area in square meters of 12260.41 sq. mtrs. of the built-up construction. 10. Vide order sheet noting and hearing dated 9-6-2010 the ld. AR was asked to clarify the above point. It was clarifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission for the same stood revised by the local authority. And the appellant was never authorized in the development agreement to construct 110 units with reference to 17794 sq. mtrs. of usable area. Local authority BU permission is relevant only to the extent that the appellant did not construct within the time period of the flats for which it is seeking hundred per cent deduction of profits under the Income-tax Act. The development and BU permission per se do not authorize any assessee to claim hundred per cent deduction of its profit envisaged in the Income-tax Act. 13. The point of the Assessing Officer is that the appellant not being owner of the land on which it constructed residential units and is thus not entitled to deduction is a point of legal controversy raised by the Assessing Officer and has been dealt from Paras 28 to 32 below. 14. The second condition stipulated in clause (b) of section 80-IB(10) is : The project is on the size of plot of land which has a minimum area of 1 acre. The third condition stipulated in clause (c) of section 80-IB(10) is : The residential unit has a maximum built up area of 1500 square feet. 15. For better clarity vide this of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DVO's report dated 22-4-2010 was sent to the appellant vide this office notice dated 23-10-2010 requesting for counter comments on the DVO report. The date of hearing was fixed as 3-5-2010 vide letter dated 3-5-2010 the appellant asked for adjournment. Ten days adjournment was given. As no counter comments were received through another notice dated 18-5-2010 another date that is 2-6-2010 was fixed. On hearing dated 2-6-2010 Shri Nitin Parikh, CA appeared and filed counter comments on DVO report dated 22-4-2010. As other points raised by the DVO in earlier letters are no more in existence because report dated 22-4-2010 is the final report, therefore, the arguments given by the ld. AR with respect to report dated 22-4-2010 alone are material. 19. With respect to the point of DVO that terrace in front of penthouse to be included in the built-up area of the flat, vide submission dated 2-6-2010 it was stated as under : 'the argument is based on presumption and in total disregard of the fact that the terrace referred to by the DVO is open to sky and not balcony or verandah. It appears that the DVO is trying to create confusion and to create prejudice against the appellant. It is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommon area like staircase, parking etc., are not part of the built-up area envisaged for the purpose of section 80-IB(10) 23. The matter was discussed with the DVO with reference to his report dated 22-4-2010 and he informed that each flat owner in Amaltas Apartments has been allotted 450.22.sq. ft. area for parking two cars, which is to be used exclusively by the individual flat owner. The physical inspection of the site conducted by the DVO revealed that entire basement had been made parking area where each flat owner had specific space of parking for two cars against which flat number was also written. The DVO stated that in the table (Annexure 3 of this order) to confuse 'common parking area' heading has been put, though it is exclusive car parking area allotted to each flat owner. In this view car parking has been included in the 'super built-up, area incorrectly by the appellant though its built-up area allotted exclusively to each flat owner and is different from the common area like staircase which is used in common by flat owners along with other flat owners. 24. During the course of appellate proceedings it was argued by the ld. AR that parking space was not sold, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r commercial establishments included in the housing project does not exceed 5 per cent of the aggregate built up area or 2000 sq. ft. whichever is less. This condition has not been disputed by the Assessing Officer or the DVO and is thus found not violated. 27. The discussion of the conditions of section 80-IB(10) reveals that the fifth floor flats of Amaltas Apartment exceed 1500 sq. ft. limit when exclusive terrace in front of the penthouse is added to the built up area of the flats. Thus as per statutory conditions the appellant is not eligible for deduction section 80-IB(10) because it has been found violating 1500 sq.ft. built-up area limit prescribed in clause (c) of section 80-IB(10). 28. Now to come to the legal controversy whether section 80-IB(10) can be denied to an assessee on the logic taken by the Assessing Officer that he is not the owner of the land but acted merely as an agent of the cooperative Housing Society. It was stated in the statement by the appellant that as per development agreement society had given possession of said land to the developer for the purpose of development. That by virtue of the development agreement the appellant had obtained the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, site expenses, Architect fees and net work in progress 6,69,99,984 Other expenses 21,46,796 Total 6,91,46,780 Net profit as per Profit loss account before provisions of Income-tax 4,38,94,461 Though the appellant claims that it paid towards land development rights but there is no agreement or document to support this claim. There is no mention of it in the Development Agreement even. Even the Profit and Loss account does not show it. 2. The case of the appellant is different from the case of Radhe Builders because in that case the assessee had purchased land by virtue of the Development Agreement itself, but this is not the case here, there is no written document of any purchase of land or development rights neither any mention in the development agreement. 3. The appellant did not act as a Contractor of the housing society, as is proved by following clauses of the development agreement dated 14-8-2003 signed between the appellant and Kanji Maharaj Cooperative Housing Society Ltd. Clause A of the Development Agreement states that the Society has purchased the land at Vejalpur and the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) and clause (c) of section 80-IB(10) discussed in detail in the Paras above." 4. The learned counsel for the assessee reiterated the submissions made before the authorities below and referred to the agreement for housing project dated 14-8-2003 executed between the society and the assessee. Copy of which is filed at page No. 62 of the paper book. He has referred to some of the clauses of the agreement to show that the assessee has complete dominance over the property in question and developed the same with its own funds with all rights and titles and all profit and loss have been taken by the assessee, and even the proposed members shall have to be enrolled by the assessee. He also referred to the permission for development for 94 units dated 1-10-2003 (PB-85) and further referred to PB-93 dated 16-3-2004, through which permission to construct the property in question was modified to 88 units and also referred to PB 101 dated 6-8-2004 which is the permission for development of 110 units under FSI on payment. He has also referred to PB-118 dated 3-2-2005 through which building use permission was granted for 110 units developed and constructed by the assessee. The learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itle entered into an agreement to sell and the development agreement, and therefore if original permission was granted to construct 94 units, the assessee was entitled to raise any construction within the permissible limit, which is ultimately granted for 110 units. The assessee has, therefore, right to construct 110 units as per the above agreements and that there was no objection of the real owner of the property to the assessee in this regard. He has further submitted that the entire project was completed on time and rather before time in two years from the sanctioned plan from October, 2003 to February, 2005. He has further submitted that the contents of the agreement can be modified by the oral agreement by conduct by the parties. He has submitted that since the assessee enrolled member for the society and incurred entire development and construction expenses and also received entire consideration, the assessee fulfilled the requirement of section 80-IB(10) of the Income-tax Act. He has submitted that the definition of section 80-IB(14) provides the definition of "built-up area" which could not be included for open terrace because the open terrace is not balcony as noted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of consideration for the purpose of development right, he has submitted that the payment made in 2005 as per the agreement may be referred to the Assessing Officer for verification. The learned DR further submitted that there is no provision for pro rata benefits to be granted to the assessee and that all the conditions of the said section 80-IB(10) shall have to be satisfied before granting relief to the society. The learned DR, with regard to built-up area, relied upon the orders of the authorities below and submitted that as per the section 80-IB(10) benefits have been granted to the developers and builders in respect of construction of small units for public at large and that the same would not apply to the big property. The learned DR submitted that the facts in the case of Radhe Developers (supra) and the Shakti Corpn.'s case (supra) are different and in the case of the assessee no agreement and no details of the payment have been made, therefore, the assessee would not be entitled for any deduction. 6. We have considered rival submissions and material available on record. Section 80-IB(10) reads as under : "80-IB. Deduction in respect of profits and gains from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any law for the time being in force 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 kilometres from the municipal limits of these cities and one thousand and 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 per cent of the aggregate built-up area of the housing project or two thousand square feet, whichever is less. 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)." 7. The definition of "built-up area" is provided in section 80-IB(14)(a) of the Act, which means "the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated above, it is evident that the development and building work has been carried out by the assessee in pursuance of a tripartite agreement and it is not by the land-owners. Therefore, the mere fact that the landowner and the undertaking developing and building housing project, are two different entities would not make any difference. The deduction would be eligible to the person who is developing and building housing project and not to the mere owner thereof. A person who enters into a contract with another person is no doubt a contractor. Having entered into agreements with landowners for development and building the housing project, assessee was obviously a contractor but it does not derogate the assessee for being a developer, as well. The term contractor is not essentially contradictory to the term developer. As stated above, it is the undertaking that develops or builds the housing project that is entitled to deduction irrespective of the fact whether that it is the owner or not or whether it is the contractor thereof. The requirement for claiming deduction is that such an undertaking must develop and build housing project, be it on their own land or on the land of others ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the establishment; and includes a sub-contractor. In those circumstances, the assessee is entitled to deduction under section 80-IB(10) as it had developed and built the housing project; it had started construction after 1 day of April 1998; the project is on the size of a plot of land which has a minimum area of one acre and the maximum built-up area of the residential units is not more than 1,500 sq. ft. It may also be born in mind that deduction is not exclusively to an assessee but to an undertaking developing and building housing project, be it developed by a contractor or by an owner. The assessee, in the instant case, can also be said to be the owner of the land as it had made part payment to the landowners during the financial years 2000-01 and 2001-02 for an amount of Rs. 56 lacs, and taken the possession of the land for development and building the housing project and satisfy that condition as well of being the owner of the land in view of provisions of section 2(47)(v). When the assessee has taken on the possession of immovable property or retained it in part performance of a contract of a nature referred to in section 53A of the Transfer of Property Act, 1882 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of deduction. In view of above facts and circumstances of the case as well as legal proposition laid down by the Supreme Court in the case of Mysore Minerals Ltd. (supra), we hold that the assessee is entitled for claim of deduction on the profits derived from construction and development of residential housing project." 8. In the case of Shakti Corpn. (supra), the assessee claimed the deduction under section 80-IB(10). The Assessing Officer disallowed the assessee's claim on the ground that it was not the owner of the property; that the permission was not granted in the assessee's name and the approval from the Municipal Corporation was in the name of the original land owner and not in the name of the assessee. The Tribunal considered the averment and the material on record and allowed the claim of the assessee and it was held as under : "In the instant case, there was no agreement to share the constructed area. This agreement relates only to purchase part of the land from the landowner by the assessee for a predetermined consideration. All the responsibilities for carrying out the construction, permission, NA, NOC, legal proceedings and the results of the development lies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractor to construct or develop the housing project on behalf of the landowner. The agreement entered into in that case will not entitle the developer to have the dominant control over the project and all the risks involved therein will vest with the landowner only. The interest of the developer will be restricted only for the fixed remuneration for which he would be rendering the services. The decision in the case of Radhe Developers (supra) has not dealt with such situation. The proposition of law laid down in the case of Radhe Developers (supra) cannot be applied universally without looking into the development agreement entered into by the developer along with the landowner In the case of the assessee, since it had filed copy of the development agreement and crux of the agreement was that the assessee had purchased the land and had developed the housing project at its own, the assessee would be entitled to the deduction under section 80-IB(10)." 9. The learned counsel for the assessee referred to the terms of the agreement for housing project (PB 62). According to which, the responsibility of the assessee have been analyzed in such manner that the planning, sanction of plan, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n through banking channel. The details of the amount received as a sale proceeds from the members/proposed buyer is also filed to support the contention of the assessee that the assessee received entire sale proceeds in its books of account with all rights to use profit and loss. PB-130 is the reply filed before the learned CIT(A) to explain the above position that the assessee paid sale consideration to the society. The learned counsel for the assessee also referred to the queries raised by the CIT(A) in this regard which is properly explained by the assessee. The above facts would prove that the assessee entered into an agreement to sell with the society for consideration. All the responsibilities for carrying out the construction, permission and development of the project lie with the assessee. The real owner of the land was only to co-operate with the assessee in carrying out the development and also to execute necessary documents whenever required by the assessee as a developer. The real owner has also handed over the physical possession to the society as a builder for carrying out the development of the project. The land owner did not left with any right, interest or title in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the issue is now covered by the above decision of the Tribunal in favour of the assessee, because, the assessee has acquired dominion right over the land and has developed the housing project by incurring all the expenses and taking all the risk involved therein. The crux of the matter would be that the assessee has purchased the land and has developed the housing project at its own cost, therefore, we are of the view that the assessee will be entitled for deduction under section 80-IB(10) of the Act. 10. The assessee filed details of built up area of all 110 units of the residential flats at page Nos. 52 and 53 of the PB to show that the built up area was less than 1500 sq. feets. However, the DVO reported in his report (PB-46) that considering the open terrace in front of pent-house room at 6th floor which is analogous to balcony/verandah, then built-up area in this manner will measure more than 2500 sq. feet to 2600 sq. feet approximately. It is therefore a case set up against the assessee that the open terrace is analogous to balcony/verandah and if it is included in the definition of built-up area, then it would exceed the prescribed limit. The definition of built-up ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be held that if the assessee had developed a housing project wherein the majority of the residential units had a built-up area of less than 1500 sq. ft, i.e., the limit prescribed by section 80-IB(10) and only a few residential traits were exceeding the built-up area of 1500 sq. ft., there would be no justification to disallow the entire deduction under section 80-IB(10). It would be/air and reasonable to allow the deduction on a proportionate basis, i.e., on the profit derived from the construction of the residential unit which had a built-up area of less than 12500 sq. ft., i.e., the limit prescribed under section 80-IB(10). In view of the above, the Assessing Officer was to be directed that if it was found that the built-up area of some of the residential units was exceeding 1500 sq.ft., he would allow the proportionate deduction under section 80-IB(10). Accordingly, the appeal of the revenue was to be dismissed and cross-objection of the assessee was deemed to be partly allowed." Therefore, in the light of the decision of the ITAT, Nagpur Bench, the authorities below should not have rejected the claim of the assessee at least on alternate contention that the assessee wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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