TMI Blog2011 (12) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... ownership also. Therefore, assessees were entitled to the benefit u/s 80IB(10) even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners Decided against the Revenue - TAX APPEAL No. 546 of 2008 ,TAX APPEAL No. 1225 of 2009 ,TAX APPEAL No. 1177 of 2010 ,TAX APPEAL No. 727 of 2009 ,TAX APPEAL No. 1984 of 2009 ,TAX APPEAL No. 1991 of 2009 ,TAX APPEAL No. 1992 of 2009 ,TAX APPEAL No. 1983 of 2009 - - - Dated:- 13-12-2011 - TAX APPEAL No. 1632 of 2009 ,TAX APPEAL No. 1362 of 2009 ,TAX APPEAL No. 1190 of 2009 ,TAX APPEAL No. 995 of 2009 ,TAX APPEAL No. 1166 of 2010 ,TAX APPEAL No. 1151 of 2010 ,TAX APPEAL No. 1157 of 2010 ,TAX APPEAL No. 1175 of 2010 ,TAX APPEAL No. 1176 of 2010 ,TAX APPEAL No. 1150 of 2010 ,TAX APPEAL No. 1153 of 2010 ,TAX APPEAL No. 1145 of 2010 ,TAX APPEAL No. 1155 of 2010 ,TAX APPEAL No. 1143 of 2010 ,TAX APPEAL No. 1174 of 2010 ,TAX APPEAL No. 1149 of 2010 ,TAX APPEAL No. 659 of 2010 ,TAX APPEAL No. 974 of 2008 ,TAX APPEAL No. 975 of 2008 ,TAX APPEAL No. 616 of 2009 ,TAX APPEAL No. 1499 of 2008,,TAX APPEAL No. 1497 of 2008 ,TAX APPEA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B(10) of the Act. The Assessing Officer was of the opinion that the assessee firm was not the owner of the land. Approval by the local authority as well as permission to develop the project and permission to commence construction were not in the name of the assessee firm. The Assessing Officer was also of the opinion that the assessee had merely acted as an agent or a contractor for construction of residential houses. 6. The assessee carried the matter in appeal. CIT(Appeals) vide order dated 19.9.2006 rejected the assessee's appeal. CIT(Appeals) put considerable stress on the requirement of ownership of the land to qualify for deduction under Section 80IB(10) of the Act. He was of the opinion that the land is intrinsic and inalienable part of the housing project. No assessee, therefore, could carry on the business of undertaking developing and building housing projects without owning the land. 7. The assessee carried the matter further in appeal before the Income Tax Appellate Tribunal ( the Tribunal for short). The Tribunal vide its impugned judgment dated 29.6.2007 allowed the assessee's appeal and reversed the orders passed by the Revenue authorities. The Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record, the Tribunal was of the opinion that the benefit of section 80IB(10) of the Act to the assessee could not be denied. 8.4 The Tribunal held that the assessee had acquired dominion over the land, which he had developed by constructing housing project incurring expenses and also taking risks. The Tribunal, however, observed that decision in the case of M/s. Radhe Developers would not apply in cases, where the assessee had entered into an agreement for a fixed remuneration and worked merely as contractor to construct the housing project on behalf of the land owners. In such a case, agreement between the assessee and the land owner would not permit the assessee to claim the benefit. 9. In the case of M/s. Shakti Corporation, since the assessee had produced documents on record, the Tribunal accepted its case for benefit under Section 80IB(10) of the Act. However, in group of other cases, which the Tribunal was disposing off by the said common judgment, such documents were not readily available. The Tribunal remanded the proceedings to the Assessing Officer with a direction that the Assessing Officer should look into the agreement entered into in each case by the land own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l took us through various conditions in the agreements between the assessee and the land owners to contend that at best the assessee can be stated to have acted as contractor for developing of housing project for and on behalf of the land owners. Referring to the Explanation added to sub-Section (10) of Section 80IB of the Act by Finance (No.2) Act, 2009 with effect from 1.4.2001, counsel submitted that any assessee executing the housing project as a works contract would not qualify for deduction under Section 80IB(10) of the Act. Counsel submitted that the Tribunal in its judgment did not have the benefit of such explanation added with retrospective effect. 15. Counsel submitted that the Tribunal erred in holding that the assessees, by virtue of different agreements entered into with the land owners, could be treated to be owners of the land. In support of his contentions, counsel relied on following decisions:- (1) In the case of Faqir Chand Gulati v. Uppal Agencies Private Limited and another (supra), wherein the Apex Court in the background of the Consumer Protection Act examined various terms of agreement between the land owner and the constructor to come to the conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in so far as the Income Tax Act is concerned, by virtue of the provisions contained in Section 2(47) of the Act, read with Section 53A of the Transfer of Property Act, transfer of the land must be taken to have been completed. Counsel submitted that any other view would lead to a situation where neither the land owner nor the assessee would be eligible for deduction under Section 80IB(10) of the Act. He submitted that any such interpretation should be avoided. 21. With respect to explanation added to sub-Section (10) of Section 80IB with retrospective effect from 1.4.2001, counsel submitted that the present cases do not involve execution of a housing project by way of works contract and in all cases, assessees had acted as developers. 22. Counsel relied on the following decisions:- (1) In the case of Mysore Minerals Ltd. v. Commissioner of Income-Tax reported in [1999] 239 ITR 775, wherein the Apex Court, for the purpose of considering the depreciation of building, gave wide meaning to the term owner used in Section 32 of the Act to include even a person who was in possession of building on part payment of the price but in whose name the building was not yet register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival contentions, we may notice relevant conditions of the agreement between the parties. Since some of the conditions of the agreement are slightly different, we may record the relevant conditions of both the cases, namely, in case of M/s. Radhe Developers as well as in the case of Shakti Corporation. 25. As noted in the case of M/s. Radhe Developers, the assessee had entered into development agreement with the land owners and a group of persons representing the earlier intending purchasers. Such tripartite agreement dated 18.5.2000 provided inter alia as under:- 3. The party of the third Part are connected with the construction of business since many years and have experience of constructing residential houses. 4. With the consent of The Party of the First and Second Part, The Party of the Third Part as a developer and builder wants to do a project/scheme of constructing residential houses having area less than 1500 sq.ft. For the middle class society. 5. The Party of the First and The Party of the Third Part have executed one Agreement of Sale on 18-05-2000 accordingly on that basis the rights of agreement of Sale dated 7-9-91 at the rate of Rs.100/- per Sq.ft. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute agreements so that the construction work of this project can be completed successfully. (2) To complete this scheme as per his discretion he can given sub-contract, labour contract etc. but while doing such appointments it is to be kept in mind that the responsibility of construction of this project is/shall be on him that is on Developer cum Contractor. (3) The said Developer cum Building Contractor is authorized to admit the persons who are willing to join in the scheme to get the houses of fixed area and in this manner to admit the respective member in the scheme or at the time of admission of such member as per the scheme the fixed amount of contribution of construction and other amounts and incidental expenses that the admitting members shall have to pay as admission fees the receipt of deposit or a clear receipt of amount contribution shall have to be given, moreover the Developer cum Building Contractor has given full right and authority also to decide the price of houses of this scheme and to execute necessary agreements with the purchasers of houses. (4) Whatever the construction contribution and other contributions or other deposits etc. that the said Deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Second Part. (9) In order to complete the scheme as per arrangement plan and in prescribed time period, Developer cum Building Contractor has to all the proceedings at Government and Semi-government and Municipal Corporation Office and in legal Courts and at other places on behalf of The Party of the First and Second Part on necessary applications and written statements, replies and in the forms all that is to be done by Developer cum Building Contractor and for that hereby the authority and powers are given to him. In spite of that in future if any Specific power of Attorney is to be obtained at that time The Party of the First and Second Part shall have to execute that in favour of Developer cum Building Contractor. (10) To complete this scheme in the prescribed time period and for the purpose of admitting the members in the scheme, to give advertisement of the total or partial scheme in local news paper or to print out its booklet, to place sign board, neon board on site the rights and authorities are hereby given to the Developer cum Building Contractor. (11) That the said Developer cum Building Contractor as per this scheme, whatever construction he shall do on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the First and Second Part. (16) The Party of the First and Second Part have handed over all the responsibilities of the scheme to the Developer cum Building Contractor so at present to the party of the first part as per rules and regulations he is getting F.S.I. but in future if changes take place in rules and regulation of F.S.I in such circumstances other than the present scheme on the land if Special construction is allowed then for such additional work other than total construction made, as per rules and regulations by getting passed the Plans from VMC. Vadodara to do the construction all the rights and Authorities shall be with Developer cum Building Contractor and thereafter also whatever F.S.I. Rights shall remain that also as per this agreement shall be with the party of the third part. (17) As per the project of total skill the properties that will be alloted for the Easy and successful administration and management of the property to constitute all necessary rules and regulations policies and bye-laws the rights and authorities shall be with Developer cum Building Contractor and those rules shall be agreeable and binding to all concerned parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal proceedings in respect of aforesaid land shall be that of the Party if the Second Part and for that Purpose, the party of the first part are bound to subscribe signatures, consents, affidavits, if and when found necessary. However, the entire expenses that may be required to be incurred by the Second Party on the same cannot be recovered from the Party of the First part. With this clear-cut condition, this land is entrusted to you for making the development. (3) On the basis of this Agreement, the party of the Second part herein is entitled to make advertisement by displaying the board in any other manner for the scheme over the land mentioned in the schedule. (4) The party of the Second Part Developers can register the members for the new construction that may be made over the said land/property, can issue receipt to the members, can issue allotment letter to the members, can execute the Agreement to sale, can hand over the possession, can execute Tripartite Agreement, but the entire responsibility for the same shall be that of the party of the Second Part. (5) That the party of the Second Part Developer has to make the construction as per the Rajachiththi issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty of the Second Part Developer. (10) From the date of this Agreement, you, the Party of the Second Part is bound to pay tax, land revenue, special cess etc. in the offices of the Vadodara Municipal Corporation, Government, Semi Government and whatever tax, land revenue, eduction cess, special cess, etc. are outstanding prior to be the date of this Agreement, the same are and shall be paid by us, the party of the First part as a land owner. (11) ** ** ** (12) That for performing development activity over the said land as well as for the publicity of the said scheme/project, the party of the Second part can print brochures, etc. and can publish advertisement, etc. of the same in the daily newspaper and prior to making construction over the said land, can construct a site office and for storing the building material, can construct the godown, etc. at its own cost. (13) That the required facilities of water, drainage, etc. connections for the houses constructed over the said land as well as for electric connection from Gujarat Electricity Board shall be obtained and provided by the party of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd construction of the housing project or after 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. 29. From the above provisions it can be seen that Section 80IB(10) provided for deduction of the entire amount of profits of an undertaking derived from the business of developing and building housing projects which were approved by the Local Authority before the specified date. Such deduction, however, was subject to certain conditions, namely, that such undertaking had commenced development and construction prior to a specified date and that the project was on the size of a plot of land with a minimum area of 1 acre and the residential unit had maximum inbuilt area of 1500 sq.feet, (except in cases of cities of Delhi and Mumbai, where maximum area permitted was 1000 sq.feet.) 30. The essence of sub-Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r company that develops land. c. Random House Dictionary of the English Language, the following can be found. Develop: a. To bring out the capabilities or possibilities of; bring to a more advanced or effective state. b. To cause to grow or expand. Developer: a. The act or process of developing; progress. b. Synonym: Expansion, elaboration, growth, evolution, unfolding, maturing, maturation. d. Webster Dictionary, the following definitions emerge: a. To realize the potential of; b. To aid in the growth of Strength, develop the biceps, c. To bring into being: make active (develop a business) d. To convert (a tract of land) for specific purpose, as by building extensively. e. Law lexicon Dictionary: The following definitions could be seen: Development a. To act, process or result of development or growing or causing to grow; the state of being developed. b. Happening. 32. Section 80IB(10) of the Act thus provides for deductions to an undertaking engaged in the business of developing and constructing housing projects under certain circumstances noted above. It does not provide that the land must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int any other Architect or Engineer, legal adviser and other professionals. He would appoint Sub-contractor or labour contractor for execution of the work. The assessee was authorized to admit the persons willing to join the scheme. The assessee was authorised to receive the contributions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. In case, for some reason, the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the full FSI as per the existing rules and regulations. However, in future, rules be amended and additional FSI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a contract of sale, it is the dominant interest and object of the parties in entering into the contract, as evinced by the terms of the contract, the circumstances of the contract and the custom of the trade that provide a guiding indicator. The object of the parties is of necessity to be deduced from the terms of the contract. In order to elucidate the distinction which has been made, it would be necessary to turn to some of the authorities on the subject. While dealing with authorities it would be necessary to note that some of the decided cases deal with issues under sales tax legislation and many of those judgments relate to the period prior to the enactment of the Forty Sixth Amendment to the Constitution. The technicalities of sales tax legislation, especially as a consequence of the Forty Sixth amendment do not fall for determination in this proceeding. The decided cases are being referred to only with a view to emphasise the distinction between a contract for work and a contract for sale. 15. In Govt. of Andhra Pradesh v. Guntur Tobaccos Ltd., AIR 1965 SC 1396; 16 STC 240, the Supreme Court held that in the execution of a contract of work some materials may be used an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts for printing and the question involved was whether the taxable turnover for the purpose of the Tamil Nadu General Sales Tax Act, 1959 would include the printing and block making charges. The Supreme Court held that the contract in question was a contract of work, having regard to the nature of the job to be done and the confidence reposed in the contractor for work to be rendered. The supply of paper was merely incidental. More recently, in State of A.P. v. Kone Elevators (India) Ltd. [2005] 3 SCC 389; [2005] 140 STC 22, the assessee was under the terms of contract required to supply and install lifts to its customers, while it was the customers' obligation to undertake work connected in keeping the site ready for installation. The Supreme Court noted that under its contractual obligations, the assessee had undertaken the installation of lifts manufactured and brought to site in a knocked-down state and the contract in question was a contract of sale and not a works contract. The distinction between a contract of sale and a works contract found elaboration in the following observations (page 26 of 140 STC): If the intention is to transfer for a price a chattel in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer, though some work may be required to be done under the contract as ancillary or incidental to the sale, then it is a sale. If the primary object of the contract is the carrying out of work by bestowal of labour and services and materials are incidentally used in execution of such work then the contract is one for work and labour. (3) If the thing to be delivered has only individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If A may transfer property for a price in a thing in which B had no previous property then the contact is a contract for sale. On the other hand where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. (4) The bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to a conclusion that the contract is in substance one for the sale of goods and not for the work and labour. However, the test is not decisive... 18. A contract for sale has hence to be distinguished from a contract of work. Whether a particular agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be discharged thereunder and the surrounding circumstances. If the intention is to transfer for a price a chattel in which the transferee had no previous property, then the contract is a contract for sale. Ultimately, the true effect of an accretion made pursuant to a contract has to be judged not by artificial rules but from the intention of the parties to the contract'. In a 'contract of sale', the main object is the transfer of property and delivery of possession of the property, whereas the main object in a 'contract for work' is not the transfer of the property but it is one for work and labour. Another test often to be applied to is: when and how the property of the dealer in such a transaction passes to the customer; is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a 'sale', if it is the latter, it is a 'works-contract'. Therefore, in judging whether the contract is for a 'sale' or for 'work and labour', the essence of the contract or the reality of the transaction as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. 41. In the present case, we find that the assessee had, in part pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat of the land owners. Assessee thus was not working as a works contract. Introduction of the Explanation to Section 80IB(10) therefore in this group of cases also will have no effect. 43. We may at this stage examine the ratio of different judgments cited by the Revenue. The decision in case of Faqir Chand Gulati v. Uppal Agencies Private Limited and another (supra) was rendered in the background of the provisions of the Consumer Protection Act. In the case before the Apex Court, the land owner had entered into an agreement with the builder requiring him to construct apartment building on the land in question. Part of the constructed area was to be retained by the owner of the land. In consideration of the land price remaining area was free for the builder to sell. When the land owner found series of defects in the construction, he approached the Consumer Protection Forum. It was in this background the Apex Court was considering whether the land owner can be stated to be a consumer and the builder a service provider. It was in this background that the Apex Court made certain observations. Such observations cannot be seen out of context nor can the same be applied in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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