TMI Blog2011 (3) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... Parking space is only an appendix to the flat i.e. residential unit and it cannot be its integral part. One may have a car and may purchase a car parking space along with flat - In any case it is not show that purchase of parking space as well as flat was a combined selling unit and no option was available to any purchaser either to purchase flat and not to purchase the parking space - Decided in favor of the assessee - 328 (AHD.) OF 2010 - - - Dated:- 25-3-2011 - MAHAVIR SINGH, D.C. AGRAWAL, JJ. S.N. Soparkar and P.M. Mehta for the Appellant. Ravindra Kumar for the Respondent. ORDER D.C. Agrawal, Accountant Member. ‑ This is an appeal filed by the assessee raising following grounds :- (1) In law and in the facts and circumstances of the appellant's case, the order passed by CIT(A) is bad in law and deserves to be cancelled as she has passed an order without considering and appreciating the facts of case of appellant. (2) In law and in the facts and circumstances of the appellant's case, the ld. CIT(A) has grossly erred in upholding the disallowance for deduction under section 80-IB(10) of the Act for Rs. 5,86,81,337. She ought to have all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct, i.e. houses/flats. l The assessee is not the owner of the land. l It is further noticed that the assessee has not taken the approval of the housing project from local authority. The original and revised approval of development is issued by AUDA on 10-3-2005 4-1-2006 respectively issued to NCHCL who is entirely separate entity in the eyes of law. l Assessee firm has acted merely as an agent and contractor as it has entered into construction agreement with the landowner. l The issue involved is whether an assessee, carrying on the activity of developing and building housing projects on a land which is not owned by him but by landowners with whom the assessee has entered into a development agreement, can be said to be entitled to deduction under section 80-IB(10) when the approval of the project is granted by the local authority to the landowner and not to the assessee. (4) For getting benefit under section 80-IB(10) this sub-section should be read along with sub-section (1). In fact sub-section (10) is only machinery section which specifies the amount of deduction whereas sub-section (1) provides as to who is entitled for deduction. (5) Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1500 sq. ft. (4) Even though assessee claims that it has paid towards acquisition of cost of land but there is no agreement or document to support his claim. It is surprising as to how the huge amount of Rs. 1,04,30,000 was paid by the assessee without a mention in the development agreement. (5) Development agreement refers to the project as a project of the society. (6) Clause (8) of the development agreement states that the construction was to be made on the land of the society. (7) Clause (2) of the agreement states that society has granted permission to the assessee under leave and licence basis for entering into said land for the purpose of doing work of development of the said land. (8) Clause (10) of the development agreement states that the contractual lien of the assessee will continue till the completion of the project. (9) Clause (14) of the development agreement states that whatever contribution the assessee collects from the members towards the cost of the flat, the same will be handed over or adjusted against the account of society maintained by the assessee. (10) The case of the assessee is different from the facts in the case of Radhe De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lculating prescribed limit under section 80-IB(10). He submitted that it may be possible to park vehicle inside the habitable area but it is not possible for human to habitat in the parking space for the vehicles. A habitat space is one where human being can live, dine, sleep and do there day to day corus for living. Any other space which does not facilitate all the essential ingredients of living cannot be called space for habitation. (4) The ld. A.R. submitted that in fact assessee has submitted all the details before the AO and the ld. CIT(A) about the development of the project such as following :- (A) Vide letter, dated 7-8-2009 1. Location plan. 2. Dimensioned layout plan as approved by local authority. 3. Copies of building plan as sanctioned with built-up area calculation of each category/residential unit. 4. Copy of building use permission (completion certificate) from local authority. (B) Vide letter, dated 15th September, 2009 - 1. Xerox copies of Typical Floor Plan of all -A, B, C D Blocks. 2. Xerox copy of Terrace Buildings plant of 'D' Block 3. Xerox copy of land purchase deed. 4. Justification of terrace a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written agreement for that purpose and once there is no dispute between the assessee and the society as to the cost of the land, paid by the assessee then it is incorrect to hold that the assessee was not the owner of the land. It is also mentioned by the ld. AR that assessee had to pay above sum to the society irrespective of the fact that any flat is sold by the assessee or not. Such payment was made even before the start of the construction work. Even in the books of the assessee the payment is shown to have been made for purchase of development rights. Once books are not rejected the entries in the books and their description also cannot be rejected. 7. He submitted that the Society has given all the powers including possession of the land to the assessee and it has empowered the assessee to develop the land and sell the units at assessee's own risk and cost. It is mentioned in the resolution passed by the Society that it had assigned all the powers, rights, responsibilities and liabilities including possessing right, development right, collection of fees/consideration from the prospective buyers as well as residential unit etc. to the assessee for a lump sum payment of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal construction is rested upon the developer and during the time when the project was going on, the complete responsibility for whatever agreements executed under the project and whatever transactions taken place with third parties, the same was rested upon the developer and the society was not responsible. (v) The appellant developer has created common amenities and other infrastructure like roads, garden, electricity, water, drainage, etc. for aforesaid project at their own cost thus, appellant has created a new product on the plot or land by performing aforesaid development work. (vi) The firm has got printed brochure for advertisement of scheme at its own cost. Name of the firm only (without reference of the societies) has been reflected on the brochure. (vii) The developer has accepted money from the persons to whom housing units are sold. The price to be charged to customers is solely determined by the appellant and thereby, receives entire consideration of sale from such parties. Entire sales value of a unit has been shown as income in the books of account of appellant. It is submitted that entire risk and responsibilities of sale is on Nikhil Developers and if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scheme was framed for evading Stamp duty. The assessee in fact had developed the society for the purposes of evading Stamp duty. Further title of the flats was never with the assessee. There was no legal right of assessee either over the land or over the flats. In fact even after completion assessee has not given any measurement of the flats. Unless the assessee desires, even the owners of the flat could not have been allowed any entry. Therefore, assessee was neither the owner of the land nor of the flats. It was only a contractor who built the flats for the society, handed over the de facto possession to the society which in fact sold the flats and realized the money. 14. Regarding parking space ld. DR submitted that parking space is integral part of residential unit. It is privately used like residential unit. It is an extension of residential portion where belongings of the assessee are kept. If belongings of the assessee are kept in the main house then for that reason the house does not ceased to be residential house. Similarly when car is parked in the parking space then it does not cease to be part of residential house. There is always specific parking space for the flat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and right and responsibility are confined to constructing the project at a certain cost fixed as per agreement. The right of disposal of the project and associated profits and loss would belong to other person i.e. contractee. The profit of the contractor is confined to profit arising from construction and not from profit arising from sales of the flats. 16. In final sum up ld. DR submitted that - (1) Condition laid down under clause (c) of section 80-IB(10) is not satisfied. (2) As per development agreement construction is to be made by the society, assessee has to act only on leave and licence basis, the collection made from members i.e. ultimate purchasers is to be handed over to the society or adjusted. It has developed the project only as a contractor of the society which is a separate entity. (3) The assessee is not the owner of the land, it has never purchased the land. (4) The society is in dominant control as it has purchased the land, it has appointed the assessee as a contractor as per agreement, it has issued allotment letter to the ultimate purchasers, the assessee has never transferred flats to the ultimate purchasers and finally that assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms and conditions, as per which the party of the other part will do all the works as detailed below. (1) To appoint/to get appointed through others, the Architects, Engineers, Legal Advisers and such other professionals, whose services are necessary for the purpose of implementing the said project, to decide their scope of work, to decide their fees, remuneration, etc., to bear all their necessary expenses, to execute the necessary agreements with them, for the purpose of successfully planning, construction and development of the said project. (2) For implementing the said project, it will be entitled to give sub-contract, labour contract, etc. as per its own requirement and wishes but at the time of giving such appointments, it will have to bear in mind that the total responsibility for planning, construction and development of the said project will rest upon it i.e. the party of the other part. 3(A) The party of the other part will have to explain properly to the existing members of the society and by guiding them in a fair manner, and will have to obtain the necessary contribution from them. Besides, they will have to recommend to the society for enrolling of those pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of obtaining quality of construction. (5) To help to the maximum possible extent, the site supervisor in discharging his responsibilities. (6) The developer will have to give certificates to the effect that the construction of the development project is made as per the designs, detailed drawings and specifications given by the Architect Engineer and Structural Engineer. (7) To regularly produce before competent officer, the progress reports and necessary certificates. (8) If in any circumstances the developer is retired from the agreement or if his appointment is suspended then in that case, it will have to be informed in writing to the competent officer of AUDA. (9) If because of any reason, the registered experts are relieved from their jobs, then in that case, it will have to be informed in writing to the competent officer of AUDA. (10) During the execution of the project, the developer shall not make or get made, any change in the sanctioned drawings of the project, which changes are against the instructions of Architects/Engineers, Site Supervisors, Clerk of Works of Structural Engineers and the Developer shall be held totally responsible in case any con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recommend and allot to any member, all the rights for usage of whatever terrace or open space that comes into existence in the project. 10. Party of the other part shall hold the physical possession with it, of the land as well as whatever construction is put up on the said land, till the completion of the project and further, till the agreement for the land as well as construction upon it is not completely executed, the contractual lien of the party of the other part will continue. 18. Thus reading of above clauses of the agreement clearly indicates that assessee has been made de facto owner of the entire land and project till it is handed over to the members after receipt of necessary sale amount and recommending their names to the society for issuing membership letters. It is not a case where society has entered into an agreement with the assessee to construct the project at a particular cost or at a particular rate with respect of area constructed having escalation clause, with or without penalty clause and retaining with it the rights to dispose of the flats, and enjoy the benefit of profit or loss. We are convinced that society is formed only as a special purpose vehicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this section to apply to the amalgamated or resulting company as they would have applied to the amalgamating or demerged company as if the amalgamation or demerger had not taken place. 26. The sub-section (10) relating to housing project was amended from time to time. Firstly, by Finance Act, 2000, with effect from 1-4-2000 extending the outer limit for completion of the housing project on or before 31-3-2002 as against 31-3-2001 originally enacted. This sub-section was again amended by Finance Act, 2003 removing the time-limit for completion of the project meaning thereby that for the assessment years 2002-03, 2003-04 and 2004-05, the assessment years with which we are concerned, there was no outer time-limit for completion of the project. There have been certain further amendments in this section by Finance (No. 2) Act, 2004 with effect from 1-4-2005, but we are not concerned with these amendments insofar as all these appeals are concerned. Therefore, we are not dealing with the same. 27. A bare reading of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 and for which a tripartite agreement has been entered into for development and building housing project; or be the assessee a contractor for developing and building housing project or an owner of the land. 30. What is the meaning of the term develop, developer, developing, development, we can find the answer in certain dictionaries, including the Law Dictionary. (a) The Webster's Encyclopedia Unabridged Dictionary of the English Language gives following meanings of the term 'developer' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Throwing itself into the business of development and building of housing projects by taking all risks associated with the business by engaging architects, structural consultants, designing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, approving plans, hiring machinery and equipments, hiring engineers, appointing contractors, etc. No doubt, the permission has been obtained in the name of the registered landowners, but the same have been obtained by the assessee-firm through its partners who are holding power of attorney of the respective landowners. It is a fact that the assessee is a 'developer' and not a 'contractor' as held by the lower authorities. The developer is not working on remuneration for the landowners, but developer is working for himself in order to exploit the potential of its business in his own interest and, therefore, opted for all business risks associated with the business of development of real estate including developing and building of housing projects. As per the provisions of section 2(1)(g) of Regulation of Employment and Conditions of Service Act (27 of 1996), the term 'Contractor' means a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment 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) of the Act. 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 it amounts to transfer under section 2(47)(v), which reads as under : "(47) 'transfer', in relation to a capital asset, includes, ( i ) to ( iva )** ** ** (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or" 35. Section 53A of the Transfer of Property Act, 1882 referred to in the aforesaid section of the Income-tax Act, reads as under : "53A. Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder :- "31. The Supreme Court in the case of Gujarat Industrial Development (supra), considering the meaning of 'developer' held that the word 'Development' appearing in the provisions should be understood in its wider sense and, therefore, granted exemption even though the Gujarat Industrial Development Corporation was engaged in the industrial development. The 'development' means the realization of potentialities of land or territory by building or mining. Accordingly, it can be safely said that a person who undertakes to develop real estate by developing and constructing a housing project is an eligible undertaking; developing and building of housing projects within the meaning of section 80-IB(10) of the Act. In the present case in hand, the landowner has 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' and the 'Development Agreement'. The landowners, no doubt, have not thrown themselves into development of property. It is only the assessee who is developing the property. Throwing itself into the business of development and buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dwelling units may be up to a maximum limit of 1,500 sq. ft. instead of 1,000 sq. ft. at present to make them entitled for benefit. The built-up area for areas falling in Delhi and Mumbai and within 25 kms. of the municipal limits of both, however, shall remain the same. The proposed amendment will take effect from 1-4-2000, and will, accordingly, apply in relation to the assessment year 2000-01 and subsequent years. " 21. Sub-section (10) was amended from time to time. The last relevant amendment was made by Finance Act, 2004 w.e.f. 1-4-2005 which modified the definition of built-up area with which we are concerned and with whish we will deal subsequently. The conditions required to be satisfied for availing deduction under section 80-IB(10) are - "(i) there must be an undertaking developing and building housing project; (ii) such housing project is approved by the local authority; (iii) the development and construction of housing project has commenced on or after 1-10-1998; (iv) the housing project is on a size of a plot of land which has minimum area of one acre; and (v) the residential unit developed and built has a built up area of 1,000 sq. ft. if. it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashwath Constructions (P.) Ltd. in IT. Appeal No. 1069 (Mad.) of 2008 for the assessment year 2005-06, dated 25 February, 2009, wherein it was held as follows:- "In our opinion it is not sine qua non for a developer to become the de jure owner of the land. It is quite possible to develop the property with the consent of the owner. It transpires from the perusal of the records that the assessee was the de facto owner of the property, as the entire allotment procedure was executed by the assessee company only. We have noted that the assessee did incur all the expenses connected with the development of the property. Application for planning permission was also made by the assessee. Necessary fee for the same was paid by it. Road formation was also done by the assessee. Besides, for marketing the flats the assessee did advertise the property also. We have perused the reasoning adduced by the Commissioner (Appeals) in the impugned order. In our opinion he took a correct view in the matter and his order calls for no interference on this count. Accordingly we uphold the same." 24. Now we refer to section 80-IB(10) so as to find out whether the condition of legal ownership of the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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; and (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed [three per cent of the aggregate built-up area of the housing project or [five thousand square feet, whichever is higher];] (e) not more than one residential unit in the housing project is allotted to any person not being an individual; and (f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:- (i) the individual or the spouse or the minor children of such individual, (ii) the Hindu undivided family in which such individual is the karta. (iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.] Explanation - For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject, its development and sale of the flats. It had enjoyed the profits arising from the sale of the flats. If the society would have been a contractee in the real term, meaning thereby that assessee was contractor, carrying out any work contract, society should have shown the sale proceeds as its own and shown the profits from such sale proceeds by debiting the payments made to the contractor against the sale proceeds of the flats. No such evidence has been produced by the Revenue. It is also not shown that society had filed any return of income showing any profit or loss from the project. At least, it is not ascertained that any notice under section 148(1) has been issued to the society asking it to file the return of income to declare the profit earned by it on this project. If entire financial arrangements from purchase of land till disposal of the flats remained under the control of the assessee and no part of the sale proceeds of the flats accrued to the society as profit, or at least no evidence has been put up in support of such claim we are unable to hold that assessee only acted as work contractor. In a case of work contractor there has to be some profit or loss to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lat was a combined selling unit and no option was available to any purchaser either to purchase flat and not to purchase the parking space. Even where parking becomes integral part of sale proposition it cannot be equated with a residential unit. ITAT Mumbai Bench in ITO v. Rasiklal N. Satra [2006] 98 ITD 335 held that 'residence' means a building or a part of the building one can drink, eat, and sleep. A parking space does not enable and it cannot enable a person to cook, eat, drink sleep and do other daily corus. Then it cannot be an integral part of residential unit. Therefore, we cannot accept this argument that area of the parking space should be combined with area of the residential unit so as to work out the total area for the purpose of finding out whether it exceeds specified limit. In any case what should be the built up area has already been defined in the Act. Therefore, concept of built-up area cannot be extended to other items not mentioned in the definition of built up area. Built up area has been defined in the Act under section 80-IB(14) as under :- Section 80-IB(14) For the purposes of this section,- [(a) "built-up area" means the inner measurements of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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