TMI Blog2014 (4) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had satisfied the condition of ownership also, even if it was necessary - the Tribunal committed no error in holding that the assessees were entitled to the benefit u/s 80IB(10) of the Act 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 Revenue. Profit derived from sale of unutilized FSI - Whether the Tribunal was right in law in allowing deduction u/s 80IB(10) r.w.s. 80IB(1) to the assessee on profit derived from sale of unutilized FSI not being the element of profits derived from the business activity of development and construction of the housing project relating to the sale of tenements – Held that:- What is available for deduction under section 80IB(10) of the Act is the profit of an undertaking derived from developing and building a housing project. Mere sale of open land or unused FSI as part of the housing project where utilization of the FSI is way short of permissible limits cannot be said to have been derived from such housing project. Terms derived from, arising out of and attributable to are often times used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is nothing under Section 80IB (10) of the Act requiring that ownership of the land must vest in the developer to be able to qualify for such deduction. Secondly, term developer has been understood in common parlance as well as in legal sense carrying a much wider connotation. The Tribunal itself in the impugned order has traced different meanings of term developer explained in different dictionaries, which read as under:a. The Webster's Encyclopedia unabridged of the English Language gives Following meaning of the term 'developer' as: 1. One who or that which develops; 2.A person who invests in and develops the Urban or Suburban potentialities of real estate. b. Oxford Advanced Learners Dictionary of Current English Fourth Indian Edition gives meaning of the term 'developer' as persons or 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, growt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements between the assessees and the land owners in case of Radhe Developers. We also noted the terms of the agreement of sale entered into between the parties. Such conditions would immediately reveal that the owner of the land had received part of sale consideration. In lieu thereof he had granted development permission to the assessee. He had also parted with the possession of the land. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. It was specified that the assessee would bring in technical knowledge and skill required for execution of such project. The assessee had to pay the fees to the Architects and Engineers. Additionally, assessee was also authorized to appoint any other Architect or Engineer, legal adviser and other professionals. He would appoint Subcontractor 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y no stretch of imagination can it be said that the assessee acted only as a works contractor. The terms works contractor has been receiving judicial attention in several cases. xxxxxx xxxxxx 41. In the present case, we find that the assessee had, in part performance of the agreement to sell the land in question, was given possession thereof and had also carried out the construction work for development of the housing project. Combined reading of Section 2(47)(v) and Section 53A of the Transfer of Property Act would lead to a situation where the land would be for the purpose of Income Tax Act deemed to have been transferred to the assessee. In that view of the matter, for the purpose of income derived from such property, the assessee would be the owner of the land for the purpose of the said Act. It is true that the title in the land had not yet passed on to the assessee. It is equally true that such title would pass only upon execution of a duly registered sale deed. However, we are, for the limited purpose of these proceedings, not concerned with the question of passing of the title of the property, but are only examining whether for the purpose of benefit under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 present case where we are concerned with the deduction under Section 80IB(10) of the Act. xxxxx xxxxx 45 Under the circumstances, we are of the opinion that the Tribunal committed no error in holding that the assessees were entitled to the benefit under Section 80IB(10) of the Act 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. 3. Accordingly, question no.1 is answered in favour of the assessee and against the Revenue. 4. Question no.2 pertains to deduction claimed by the assessee on the profit derived from sale of unutilized FSI in the course of development and construction of a housing project. The basic figures in all the appeals are as under : Tax Appeal No. Name of the Assessee Total FSI available FSI used Percent age of FSI used 470/2009 M/s. Sahjanand Developers 242 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers from the municipal limits of these cities and one thousand and five hundred square feet at any other place. We may notice that subsequently an explanation came to be added at the end of the said subsection by Finance Act of 2009 but with effect from 1.4.2001 which explanation read as under: Explanation For the removal of doubts, it is hereby declared that nothing contained in this subsection shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government). In the notes on clauses explaining the introduction of section 80IB of the Act, in the context of subsection (10) thereof, it was stated as under: The provision also seeks to provide that for approved housing projects the profits of which are fully deductible, the builtup area in regions other than outside twentyfive kms. of municipal limits of Delhi and Mumbai, the builtup area of the residential units does not exceed one thousand fiver hundred square feet. 24. In the budget speech for the financial year 19992000, the Finance Minister in the context of tax benefits under section 80IA of the Act on housing projects, while increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction of residential units for persons of middle income group in urban and semiurban areas of large cities and even small towns where there would be dearth of supply of such residential units. Some of the essential conditions for claiming such deduction are : (a) that the housing project should be approved by the local authority before a specified date (which was extended from time to time); (b) that the undertaking commenced development and construction of the housing project after a specified date; (c)that the project is on the size and plot of land which is of minimum of one acre; (d) That each residential unit has a maximum built up area of 1500 sq. feet barring cities of Mumbai and Delhi and within a radius of 25 km of municipal units of such cities where such area should not exceed 1000 sq. ft. Further conditions were later on added which included restriction of not allotting more than one residential unit to any person who is not an individual. In case of allotment of residential unit to an individual, it was further provided that no other residential unit in such housing project be alloted to such individual or his/her spouse, minor children or Hindu undivided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the land. Given all other factors same, higher the FSI, the greater the value of the land. 29. It is in this context, we have to appreciate the underutilization of the FSI by the assessees in different housing projects under consideration. From the figures recorded in the earlier portion of the judgment, we can gather that such utilization of the FSI by the assessees ranges from the minimum of 11.14% of the full FSI available to a maximum of 65.81%. In majority of the cases, the assessees have covered barely about onefourth or onethird of the permissible FSI. 30. For any commercial activity of construction, be it residential or commercial complex maximum utilization of FSI is of great importance to the developer. Ordinarily, therefore, it would be imprudent for a developer to underutilize available FSI. Sale price of constructed properties is decided on the built up area. It can thus be seen that given the rate of constructed area remaining same, nonutilization of available FSI would reduce the profit margin of the developer. When a developer therefore utilizes only say 25% of FSI and sells the unit leaving 75% FSI still available for construction, he obviously works out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can point out any special grounds why the FSI could not be fully utilized, such as, height restriction because of special zone, passing of high tension electric wires overhead, or any such similar grounds to justify under utilization, the case may stand on a different footing. However, in cases where the utilization of FSI is way short of the permissible area of construction, looking to the scheme of section 80IB(10) of the Act and the purpose of granting deduction on the income from development of housing projects envisaged thereunder, bifurcation of such profits arising out of such activity and that arising out of the net sell of FSI must be resorted to. In the present case, none of the assessees have made any special ground for nonutilization of the FSI. 32. The contention of the counsel for the assessee that as long as there has been 100% utilization of the maximum permissible area on the ground floor, deduction under section 80IB(10) of the Act cannot be declined, cannot be accepted. As noted earlier, in case of M/s.Moon Star Developers and many other assesses, such full utilization of the ground floor area available for construction resulted into barely 20% to 25% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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