TMI Blog2012 (12) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... dential flats with built up area of less than 1500 sq.ft. where the same project contains flats with built up area exceeding 1500 sq.ft - held that:- Assessee was not entitled to relief in respect of those flats, which exceeded 1500 sq.ft. it is evident that what the assessee had undertaken is not a mere construction, but developing and constructing of a project, which qualifies for deduction u/s 80IB of the Income Tax Act. Deduction contemplated therein is oriented towards the project and not with reference to an assessee. It is no doubt true that the project has to be done by the assessee, but then, when the deduction is specific enough as regards the particular activity, administrative process, is purely at the hands of the Statutory Authority concerned, over which, the assessee could not have any control, the Explanation cannot, in any manner, have a negative effect on a factual aspect of the matter, namely, completion of the construction. Thus, in a case like this, where, the local authority, being the Corporation, had already certified about the completion of the project as per the approved plan, the fact that one of the Authorities, namely, Chennai Metropolitan Development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal was right in not giving any finding about the difference between developers, builders and construction contracts to claim deduction u/s. 80IB(10) of the Act? 3. Whether on the facts and circumstances of the case, the Tribunal was right in deciding that there need not be any cap of 10% for flats having built up area exceeing 1500 sq.ft. with regard to claim for deduction u/s.80IB of the Act?" 3. In the course of the hearing before this Court, the Revenue, however, presented a petition for reframing the questions of law, since the questions admitted did not project the issues fully. On a perusal of the questions now raised before this Court, after hearing the learned senior counsel appearing for the assessee, who had no serious objection for re-framing the questions, the following substantial questions of law, as reframed, arise for consideration: "1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that developer or builder, is eligible for claiming benefit under Section 80(IB)(10), and assessee can be treated as developer or builder, eligible for claiming benefit under Section 80IB(10) of the Income Tax Act? 2. Whether on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such amounts. The BUILDER is also entitled to receive such sale consideration and all other payments from the purchasers and appropriate the same for himself. The BUILDER in its own right shall hand over possession of such areas to the purchasers on completion of construction as per agreements. 8. The BUILDER shall receive entire sale consideration of the flats from the proposed purchasers including the cost of undivided share of land and pay to the OWNER the cost of the land as per the sale deeds of undivided share of land registered by the OWNER. 11. The Parties here to make it abundantly clear that owners have not handed over the possession of the schedule mentioned land to the Builder. The owners have only given a limited licence to the Builder to enter the land to carryout the construction and this licence can be revoked at any time by the owners. 12. The BUILDER shall pay to the OWNER the cost of the land as specified in the sale deed of undivided share of land in favour of the proposed purchasers." 5. In terms of the agreement thus reached between the parties, a deed of power of attorney was given to the assessee by the owner of the property for carrying on fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject under letter dated 23.09.2003. A perusal of the said proceedings of CMDA addressed to the Commissioner, Corporation of Chennai reveal that the approval granted was not final and that the assessee was to approach the Chennai Corporation for issuance of planning permit under the respective Local Body Act. Only after that, the proposed construction could be commenced. It is also a matter of record that the assessee accordingly appeared before the Local Authority, viz., the Corporation of Chennai and had obtained the planning permit from the local body also. As per the documents placed before this Court, which was also placed before the Authorities below, the Local Authority, Corporation of Chennai, issued completion certificate on 28.12.2007 to the Member Secretary, Chennai Metropolitan Development Authority. It is also a matter of record that the assessee completed its construction on ground plus 12 floors on 05.03.2006, even though the assessee had placed the request for issuance of completion certificate well in advance on 13.3.2006. Considering certain disputes between Chennai Metropolitan Development Authority and the assessee as regards the compliance of the approved plan, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ims also suffered rejection by the respective Assessing Officer, had appealed before the Tribunal. Thus, under a common order along with the assessee's case, the Tribunal considered the other assessees' case too. 9. As far as the claim of the Revenue that the assessee not being the owner of the building, the question of grant of deduction under sub-section (10) of Section 80 IB of the Income Tax Act was not available, the Tribunal pointed out that the ownership of the land was not the criteria to decide the status of the developer to claim deduction. Pointing out the situation where the owner may desire to retain the ownership of a portion of the land and sell it in an undivided portion, the Tribunal held that the Legislature must have taken note of such a situation in mind while providing for the deduction. Referring to the Memorandum explaining Finance Bill, 2009, introducing Explanation to Section 80IB(10) of the Income Tax Act, the Tribunal pointed out to the provisions emphasised about the investment risk, which could be taken either by the owner or the builder or jointly by both. Thus, taking note of the risk elements involved in the promotion of developing a project, own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he builder will always have an option and the right to maintain all common services, namely, security arrangement for the entire building complex, maintenance of lifts, common passage and lobbies etc.; Clause 52 relating to the usage of certain areas by the builder and Clause 27 relating to collection of maintenance coupled with other risk involved, the Tribunal held that the assessee had the responsibility to develop and construct the housing project and the owner of the land is nowhere in the picture. Thus, the assessee was entitled to the relief under Section 80IB of the Income Tax Act and the absence of ownership would not disentitle the assessee, as a developer from claiming relief under Section 80IB(10) of the Income Tax Act. 11. Referring to Section 80IB of the Income Tax Act again, the Tribunal held that if a person is just a contractor only and no risk at all attached to him in planning and executing the project, the question of granting relief under Section 80IB of the Income Tax Act does not arise. As far as the present case is concerned, the assessee had no doubt sub-contracted the work to other person. The other person, extending the mere labour to put up the const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal held that when the completion of the project was well before 31.3.2008, the local authority had also certified the same, the assessee was entitled to succeed. 14. As regards the contention of the Revenue that certain flats exceeded 1500 sq.ft., the Tribunal thought it fit to remand the matter back to the Assessing Officer to find out whether, in fact, there had been any violation of section 80IB(10)(c) of the Income Tax Act. 15. The last of the question that was raised before the Tribunal was as regards the expression 'built-up area'. The Tribunal pointed out that it was an admitted fact that the open terrace attached to the particular flats purchased were adjoining to the dwelling unit. In the circumstances, the Tribunal viewed that it had to be held as a projection of dwelling unit itself and the owner of the top floor having access to the said terrace as a private terrace. Taking this area along with the built-up area, the Tribunal considered the question of proportionate relief. Learned Accountant Member held that the assessee was not entitled to relief in respect of those flats, which exceeded 1500 sq.ft. The learned Accountant Member pointed out that if the buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f proportionate relief, where the built-up area of the flats measuring more than 1500 sq.ft., exceeded 10% of the built-up area, learned Judicial Member held that fixing such percentage would be doing violence to the provisions in Section 80IB(10), which is very clear and unambiguous. Referring to the decision reported in 196 ITR 188 (Bajaj Tempo Ltd. V. Commissioner of Income Tax (Appeals) and 247 ITR 36 (Federation of Andhra Pradesh Chambers of Commerce and Industry and others V. State of Andhra Pradesh and others), learned Judicial Member held that an appellate authority should not cause violence to the provision of the Act. Contrasting this case with the decision of the Bombay Tribunal in the case of Saroj Sales Organization reported in 115 TTJ (Mum) 485 and referring to the decision in the case of Assistant Commissioner of Income-tax V. Viswas Promoters (P) Ltd. in I.T.A.No.1912 of 2007 dated 13.10.2008 (subject matter of T.C.(A)Nos.1014 of 2009 and 857 of 2010 dated 02.11.2012 (M/s.Viswas Promoters Private Limited V. The Assistant Commissioner of Income Tax), he held if there is any violation in respect of any of the condition specified in Section 80IB(10) in respect of any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MA ASSOCIATES, the third Member pointed out that the Tribunal could not fix such a ceiling in the absence of any such ceiling prescribed under the Act. Thus, he agreed with the judicial member on this. In the light of the above, the majority view of the Tribunal was that the assessee would be entitled to the relief on a proportionate basis to the extent of a compliance on Section 80IB(10) on the with built-up area of the flats. Aggrieved by this, the Revenue has filed the present appeals before this Court. The assessee has also filed appeals as regards the inclusion of the open terrace area in the built-up area. 20. Learned standing counsel appearing for the Revenue placed reliance on the aspect of ownership as a criteria for grant of relief under Section 80IB of the Income Tax Act and submitted that Section 80IB(10) contemplates grant of deduction and it being a deduction provision, the same has to have a compliance in absolute terms by the assessee. As far as the present assessee is concerned, he is merely a contractor. In the circumstances, when he had acted on behalf of the owner, the assessee, not being a developer, cannot claim any relief under sub-section (10) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of rejecting the assessee's plea. Adopting the theory of strict construction on the deduction provision, he submitted that all that the Section is concerned about is on the business specific and not the assessee specific. Thus when the deduction contemplated is in respect of profits and gains on the business activity of developing and building housing projects, the enquiry cannot travel beyond what is required under the Act. He further pointed out that the agreement specifically pointed out that the risk on the developmental aspect rested only on the assessee and that irrespective of the sale of the flats in entirety, the owner was entitled to the value on the value of the undivided share of land, pro-rata to the flats' extent sold and it is for the parties to work out the cost of the undivided share of the land and in this case, the assessee and the owner had agreed to a particular manner of working out the cost of the land to be paid to the owner. 22. Referring to the assessment order that on receipt of the sale consideration on the sale of undivided share in the property, the owner was assessed to capital gains, he submitted that the income from the projects had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on certificate that the project had been completed in accordance with the sanctioned plan and Rules and Regulations. 24. Referring to the role of Explanation appended to the Section that it could at no point of time control the substantive portion of Section and could only explain or make it explicit where there is a doubt in the Section, he pointed out that when there is a factual finding by the Tribunal and the local Authority concerned had issued the completion certificate and the said finding had not been, in any manner, challenged by the Revenue, it is not open to them to read the Explanation in a literal manner as though it controls the substantive part of the Section. Referring to the definition of 'local authority' under Section 2(23) of the Town and Country Planning Act and Section 9A regarding the establishment and construction of Chennai Metropolitan Development Authority, particularly with reference to Section 9A(e)(i), he submitted that the local authority is also part of the Chennai Metropolitan Development Authority. 25. The letter issued by the Chennai Metropolitan Development Authority dated 23.9.2003 clearly pointed out that the sanction of the plan was, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the open terrace is concerned, the question was answered against the assessee in the appeal before the Tribunal. The assessee has come on appeal before this Court in T.C.(A)Nos.314 and 315 of 2012 raising the following substantial questions of law: "Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding that the private terrace area should be included in the built-up area of the flats for the purpose of making out statutory extent of built-up area as per Clause (a) of Section 80IB(14) of the Income Tax Act?" 27. As already pointed out, in view of our decision in T.C.(A)No.581 of 2011, we allow T.C.(A)Nos.314 and 315 of 2012. We have already held that the open terrace area could not be the subject matter of inclusion as a built-up area to deny the benefit of Section 80IB of the Income Tax Act. In the circumstances, even though as regards some of the flats' measurement, the matter stands remanded back to the Assessing Officer and we have rejected the Revenue's appeal questioning the remand, we hold that the decision of this Court in T.C.(A)No.581 of 2008 applied in T.C.(A)Nos.314 and 315 of 2012 would nevertheless govern the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 city of Delhi or Mumbai or within twenty five kilometers 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." 29. We had already seen the various clauses in the agreement between the assessee and the owner dated 28.4.2003. A reading of the various clauses therein clearly points out the role of the assessee, which is not just as that of a builder to put up construction as per the directions of the owner; on the other hand, as rightly pointed out by the Tribunal, the risk element that is involved in the project undertaken by the assessee is more than of a normal builder, undertaking mere construction. It is seen from the data furnished before the Assessing Officer that while flats in the 6th floor and 11th floor were sold even as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel appearing for the assessee, in the decision reported in (2012) 341 ITR 403 (Commissioner of Income-Tax V. Radhe Developers), the Gujarat High Court considered the question on ownership as a condition for grant of deduction under Section 80IB(10) in depth and accepted the case of an assessee similarly placed. It held that the provisions nowhere require that developers who are the owner of the land alone would be entitled for grant of deduction under Section 80IB(10). Going through the decision of the Gujarat High Court, we have no hesitation in holding that we are in respectful agreement with the law declared by the Gujarat High Court. 32. This takes us to the second question as regards the completion certificate. As already pointed out in the preceding paragraphs, the assessee had evidently completed the construction as early as 05.03.2006, a fact which is not disputed by the Revenue. It is also an admitted fact that the approval was granted for construction, both by the Chennai Metropolitan Development Authority and the local authority, namely, Chennai Corporation. The letter of the Chennai Metropolitan Development Authority according sanction to the project as early ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Planning Act, 1971 and clause (e) of sub-section (2) has reference to the representatives of local authorities, being constituent of the Chennai Metropolitan Development Authority, read as under: "9-A Establishment of the Chennai Metropolitan Development Authority - (2) (a)......... (b)..... (c)..... (d)..... (e) the representatives of local authorities as specified below - (i) if there is only one local authority functioning in the Chennai Metropolitan Planning Area, two representatives nominated by that local authority; (ii) if there are two or more local authorities functioning in the Chennai Metropolitan Planning Area, such persons not exceeding four in number as are appointed by the Government who are members of such local authorities." Now, when the local authority, being part of Chennai Metropolitan Development Authority and also the approving authority, thus having certified about the completion, we do not find any justifiable ground to invoke Explanation (2) to sub-section (10) of Section 80IB of the Income Tax Act for the purpose of negativing the claim. In any event, going by the fact that the Explanation cannot have a control on the substantive pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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