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TMI Blog2014 (9) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... aw the Hon'ble Tribunal was right in holding that the limits on commercial area provided in clause (d) to section 80IB(10) of the Act would not be applicable even after 01.04.2005 as the projects were approved before that date even though no such exception is provided under the Income Tax Act?" 2. This appeal was admitted on the aforesaid questions by a Division Bench of this Court on 22nd February, 2013. Since we found that several Appeals on similar questions were either admitted or pending admission in this Court, we by our order dated 4th July, 2014 passed in Income Tax Appeal No.308 of 2012, directed the learned counsel for the parties to submit a list to the Registrar so that these Appeals could be listed before this Court for disposal. By the said order, we also requested the respective counsels to address us on the point as to whether the judgment of this Court in the case of CIT v/s Brahma Associates, reported in (2011) 333 ITR 289 (Bom) would cover the cases where the housing project within the meaning of section 80-IB(10) had been approved prior to 31st March, 2005 and whether the view taken in Brahma Associates (supra) would cover all such matters. This is how thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, 2009 when the Assessing Officer inter alia held that the profits derived from the sale of commercial area was not entitled to a deduction under section 80-IB(10) of the Income Tax Act, 1961. The Assessing Officer in coming to the aforesaid conclusion inter alia recorded that during the year under consideration viz. A.Y. 2005-2006, the Assessee Company was engaged in the business as builders and developers and was following the project completion method of accounting. During the said year the Assessee had completed the "Discovery Project" which was a mixed housing project, having commercial shops. During the course of the assessment proceedings, the Assessing Officer found that the Assessee had claimed a deduction under section 80-IB(10) on the profit after sale of shops and this was disallowed on the ground that the Assessee had not complied with the basic requirement that the profit derived on the sale of commercial area of the project was not entitled for a deduction. 6. Being aggrieved by the Assessment Order, the Assessee preferred an Appeal before the Commissioner of Income Tax (Appeals), who by his order dated 15th April, 2010 upheld the findings of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approximately 1,910 sq.ft., which was approximately 6.63 % of the total built up area of the said housing project. Since the area occupied by the said shops exceeded the 5% limit specified in clause (d) of section 80- IB(10), the deduction claimed by the Assessee was disallowed. It is not in dispute that in the facts of this case, the housing project was approved by the local authority on 19th June, 2003 (i.e. before 31st March, 2005). It is also an undisputed position that the said Project was completed after 1st April, 2005. 9. Being aggrieved thereby, the Assessee preferred an Appeal to the CIT (Appeals), who by his order dated 5th November 2009, set aside the order of the Assessing Officer and held that the deduction under section 80-IB(10) was available to the Assessee. The CIT (Appeals) in allowing the appeal mainly followed the judgment of the Special Bench (Pune) of the ITAT in the case of Brahma Associates v/s Joint CIT (OSD), Circle 4, Pune, dated 6th April 2009, reported in (2009) 119 ITD 255 (Pune)(SB), wherein it was held that where housing projects were approved before 31st March 2005, the condition laid down in clause (d) of section 80-IB(10) was not applicable. Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residential unit had a built up area not exceeding 1000 sq.ft. and (iii) the development / construction of the said housing project commenced on or after 1st October, 1998 and completed before 31st March, 2001. Therefore, when this provision was first introduced, there were only three conditions that were required to be fulfilled by the undertaking engaged in the development / construction of housing projects approved by the local authority. There was no restriction on the quantum of commercial area that could included in the said housing project. That was to be determined by the local authority in accordance with its own rules and regulations. As long as the local authority sanctioned the project as a housing project and it complied with the three conditions as stipulated in section 80-IA(4F), the said undertaking was entitled to the deduction as set out therein. 14. Thereafter, by the Finance Act, 1999 entire section 80-IA was substituted by the newly introduced sections 80-IA and 80-IB which were on the lines of the existing section 80-IA but with certain modifications. The newly inserted section 80-IB(10) w.e.f. 1st April, 2000 read as under :- "(10) The amount of profits in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "(10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March 2001 by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to any assessment year from such housing project if:- (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October 1998 and completes the same before the 31st day of March 2003; (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 kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place." 17. Therefore, now w.e.f. from 1st April, 2001 section 80-IB(10) stipulated that any housing project approved by the local authority before 31st March 2001, was entitled to a deduction of 100 per cent of the profits derived in any previous year relevant to any assessment year from such housing project provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said project. Though these changes were brought about by Finance Act, 2003, the Legislature thought it fit that these changes be deemed to have been brought into effect from 1st April, 2002. All the remaining provisions of section 80-IB(10) remained unchanged. 20. Thereafter, by Finance (No.2) Act, 2004, w.e.f. 1st April, 2005 section 80-IB(10) was substituted and substantial changes were effected in the newly substituted sub-section (10) of section 80-IB. It reads thus:- "(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,- (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,- (i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008; (ii) in a case where a housing project has been, or, is approved by the local authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aggregate built up area of the housing project or 2,000 sq.ft., whichever was less. It is the effect of this clause (d) which we are called upon to decide in these appeals and whether it would apply to housing projects approved the local authority before 31st March, 2005. In other words, what we are called upon to decide is whether the said condition would apply to such housing projects approved by the local authority before 31st March 2005, when the aforesaid condition/restriction was not on the statute-book and was brought into effect only from 1st April, 2005. We should mention here that there have been further amendments to section 80- IB(10) in subsequent years. However, we are not dealing with the those further amendments as they do not arise for our consideration in the present Appeals. 22. It would be important to note another amendment that was brought about by Finance (No.2) Act, 2004 to sub-section (14) of section 80-IB, w.e.f. 1st April, 2005. Section 80-IB(14) was also amended by the same Finance (No.2) Act, 2004 and for the first time under clause (a) thereof, the words "built-up area" were defined. Section 80-IB(14)(a) reads thus:- "(14) For the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng project could not include any commercial area for an assessee to claim a deduction under section 80- IB(10). With effect from 1st April 2005, clause (d) was inserted which allowed shops and other commercial establishments to be included in a housing project provided it did not exceed 5% of the aggregate built up area of the housing project or 2,000 sq.ft., whichever was less. Therefore, according to Mr. Gupta, w.e.f. 1st April 2005, the Legislature allowed a stipulated amount of commercial area that could be included in a housing project, whereas prior thereto, there was a complete absence of such a provision. He therefore submitted that prior to 1st April 2005, no commercial area could be included in a housing project so as to entitle the assessee to a deduction under section 80-IB(10). In view thereof, clause (d) of section 80- IB(10) was in the nature of a relaxation and / or benefit and not a restriction, was the submission of Mr. Gupta. 26. In the alternative, Mr Gupta as well as Mr Ahuja submitted that if it is held that clause (d) of section 80-IB(10), and which was inserted w.e.f. 1st April 2005, was not in the nature of a relaxation, but instead was a restriction impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid reasons it was submitted that the substantial questions of law framed by this Court and reproduced above, be answered in favour of the Revenue and against the Assessees. Mr. Malhotra adopted the arguments of Mr. Gupta and Mr. Ahuja and which we have noted above. 29. On the other hand, Mr Mistry, the learned senior counsel appearing on behalf of the Assessee in ITXA No.308 of 2012, submitted that only those conditions could be applied to the housing projects that were on the statute-book on the date when the housing project was approved. In other words, if the housing project was approved by the local authority before 31st March 2005, then, the amended provisions of section 80-IB(10) that were brought into force w.e.f. 1st April 2005, and especially clause (d) thereof, would have no application to such a housing project. He submitted that the conditions imposed by the newly substituted section 80-IB(10) were all related and/or linked to the approval and/or construction and/or completion of the said housing project and therefore, the Legislature in its wisdom, deemed it fit to bring the same into force only w.e.f. 1st April, 2005 and did not give it any retrospectivity. 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icularly those linked with the approval / construction / completion of the housing project would necessarily apply only to those housing projects that were approved by the local authority after 1st April, 2005. One cannot expect an assessee to comply with a condition that was not a part of the statute when the housing project was approved and more so when the said condition was inextricably linked to the approval granted to the housing project by the local authority under its own rules and regulations, was the submission of Mr. Mistry. Clause (d) of sub-section (10) of section 80-IB, which is the bone of contention in the present appeals, according to Mr Mistry, is inextricably linked with the approval and construction of the housing project and therefore an assessee cannot be called upon to comply with the said condition when the same was never in contemplation either of the assessee or the Legislature, when the approval to the housing project was accorded by the local authority. For all the aforesaid reasons it was submitted that the substantial questions of law framed by this Court and reproduced above, be answered in favour of the Assessees and against the Revenue. 33. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects were approved prior to 31st March, 2005. In ITXA No.308 of 2012, in fact, the project was even completed prior to 31st March, 2005 and only the profits were offered to tax in A.Y. 2005-06. We do not think that the Legislature intended to give any retrospectivity to clause (d) of section 80-IB(10). This more so because it is clearly a condition that relates to and/or is linked with the approval and construction of the housing project. At the time when the housing project is approved by the local authority, it decides, subject to its own rules and regulations, what quantum of commercial area is to be included in the said project. It is on this basis that building plans are approved by the local authority and construction is commenced and completed. It is very difficult, if not impossible to change the building plans and / or alter construction midway, in order to comply with clause (d) of section 80-IB(10). It would be highly unfair to require an Assessee to comply with section 80-IB(10)(d) who has got his housing project approved by the local authority, before 31st March, 2005 and has either completed the same before the said date or even shortly thereafter, merely because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly submitted by Mr Mistry would lead to startling results. We therefore have no hesitation in holding that section 80-IB(10)(d) is prospective in nature and can have no application to a housing project that is approved before 31st March, 2005. As the deduction sought to be claimed under section 80-IB(10) is inseparably linked with the date of approval of the housing project, it would make no difference if the construction of the said project was completed on or after 1st April, 2005 or that the profits were offered to tax after 1st April, 2005 i.e. in A.Y. 2005-06 or thereafter. We therefore find no substance in the argument of the Revenue that notwithstanding the fact that the housing project was approved prior to 31st March 2005, if the construction was completed on or after 1st April, 2005 or if the profits are brought to tax in the A.Y. 2005-06 or thereafter, the said housing project would have to comply with the provisions of clause (d) of section 80-IB(10). To our mind, we do not think that the condition/restriction laid down in clause (d) of section 80-IB(10) has to be revisited and / or looked at and complied with in the assessment year in which the profits are offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April 1, 2005 did not permit commercial user in housing projects and on the other hand contend that the restriction on commercial user introduced with effect from April 1, 2005 should be applied retrospectively. The argument of the Revenue is mutually contradictory and hence liable to be rejected. Thus, in our opinion, the Tribunal was justified in holding that clause (d) inserted to section 80- IB(10) with effect from April 1, 2005 is prospective and not retrospective and hence cannot be applied to the period prior to April 1, 2005. 33. In the result, the questions raised in the appeal are answered thus : (a) .......... (b) .......... (c) .......... (d) .......... (e) Clause (d) inserted to section 80-IB(10) with effect from April 1, 2005 is prospective and not retrospective and hence cannot be applied for the period prior to April 1, 2005." (emphasis supplied) 38. In fact, this judgment also concludes the argument of the Revenue that clause (d) of section 80-IB(10) inserted with effect from 1st April, 2005 is actually in the nature of a relaxation and / or benefit granted to the Assessee and not a restriction as sought to be contended on behalf of the Assessees. On this v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he commercial user should not exceed three per cent of the aggregate built up area of the housing project or five thousand square feet whichever is higher. The expression "included" in clause (d) makes it amply clear that commercial user is an integral part of a housing project. Thus, by inserting clause (d) to section 80-IB(10) the Legislature has made it clear that though housing projects approved by the local authorities with commercial user to the extent permissible under the Development Control Rules / regulation were entitled to section 80-IB(10) deduction, with effect from April 1, 2005 such deduction would be subject to the restriction set out in clause (d) of section 80-IB(10). Therefore, the argument of the Revenue that with effect from April 1, 2005 the Legislature for the first time allowed section 80-IB(10) deduction to housing projects having commercial user cannot be accepted." (emphasis supplied) 39. As noted above, by the very same Finance (No.2) Act 2004, w.e.f. 1st April 2005 sub-section (14) of section 80-IB was amended and clause (a) was inserted therein which sought to define the words "built-up area". In the case of CIT and Anr. v/s G.R. Developers, reporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution. So we should keep in mind the object behind enacting this provision, namely, to bring in investments and to encourage the infrastructure development of middle income housing projects. If the aforesaid provision is held to be retrospective in nature, it would negate the object of the said provision. It is is settled law that the courts have to harmonize these provisions and interpret the same in a manner to achieve the object of the Legislature than to distress the said object. In that view of the matter, the definition of built up area, as inserted in sub-section (14)(a) of section 80-IB by the Finance (No.2) Act of 2004, which came into effect from April 1, 2005, cannot be held to be retrospective. It applies only to such housing projects, which are approved subsequent to April 1, 2005. In that view of the matter, the assessee, in the instant case, is entitled to the benefit of the aforesaid provision and, hence, the said substantial question of law is answered in favour of the assessee and against the Revenue." (emphasis supplied) 40. As can be discerned from the said judgement, the Karnataka High Court categorically held that the said provision viz. sub-section (14)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the construction projects are expected to contemplate future amendment in the statute and approve and / or carry out constructions maintaining the ratio of residential housing and commercial construction as provided by the amended Act being 3 per cent of the total built-up area or 5,000 sq.feet, whichever is higher (now in the post-2010 period) or 5 per cent of the aggregate built-up area or 2,000 sq.feet, whichever is less. The Revenue is also in error to suggest that even if such conditions are onerous, they are required to be fulfilled. The entire object of such deduction is to facilitate the construction of residential housing project and while approving such project when initially there was no such restriction in taxing statute and the permissible ratio for commercial user made 5 per cent to the total built-up area by way of amendment and reduction of which by further amendment to 3 per cent of the total built-up area, has to be necessarily construed on prospective basis. 35. As is very apparent from the record, there was no criteria for making commercial construction prior to the amended section and the plans are approved as housing projects by the local authority for both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in clause (d) makes it amply clear that commercial user is an integral part of a housing project. Thus, by inserting clause (d) to section 80-IB(10) the Legislature has made it clear that though housing projects approved by the local authorities with commercial user to the extent permissible under the Development Control Rules / regulation were entitled to section 80-IB(10) deduction, with effect from April 1, 2005 such deduction would be subject to the restriction set out in clause (d) of section 80-IB(10). Therefore, the argument of the Revenue that with effect from April 1, 2005 the Legislature for the first time allowed section 80-IB(10) deduction to housing projects having commercial user cannot be accepted." 44. We fail to see how this paragraph is of any assistance to the case of the Revenue. In the case of Brahma Associates (supra), it was the case of the Revenue that the residential project having any commercial construction is not entitled to the deduction under section 80-IB(10), and for supporting this argument, reliance was placed on the inclusion of clause (d) thereof w.e.f. 1st April, 2005 which restricts the area of commercial construction in a residential project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment a number of times. Prior to its amendment by the Finance Act, 1955, it permitted a business loss to be carried forward for not more than six years, except in the case of losses pertaining to certain assesment years ending with the assessment year 1943-44 where the period for carrying forward was shorter. Section 16 of the finance Act, 1955, amended s.24(2), and as a result of the amendment s. 24(2)(iii) provided that a business loss which was not wholly set off could be carried forward from year to year. Thereafter, Finance (No.2) Act of 1957 amended s. 24(2)(iii) with effect from April 1, 1957, and in consequence an unabsorbed loss could not now be carried forward for more than eight years. The assessee claims a vested right under s. 24(2)(iii), as it stood before its amendment in 1957, to have the unabsorbed loss of 1950-51 carried forward from year to year until the loss is completely absorbed. The claim is based on a misconception of the fundamental basis underlying every income-tax assessment. It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication: CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in force in the assessment year unless otherwise provided expressly or by necessary implication" and "a right claimed by an Assessee under the law in force in a particular assessment year is ordinarily available only in relation to a proceeding pertaining to that year." In the present case, we have held that the condition / restriction set out in clause (d) of section 80-IB(10) is inseparably linked to the date of the approval of the housing project. As a consequence thereto, we have held that the said clause cannot apply to a housing project approved before 31st March, 2005. The facts in the present case as well as the provision of law that we are called upon to interpret, are totally different from the ones in the case of Reliance Jute Industries Ltd. (supra) and therefore, the reliance placed on the said judgment is wholly misconceived. 47. The second judgment relied upon by the Revenue is also of the Supreme Court in the case of Ajay Agarwal (supra). We find that this judgment too is wholly inapplicable to the facts of the present case. This can be discerned simply from reading paragraphs 3 to 9 of the said judgment which set out the facts of the case before the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing interpreted by the Supreme Court in the aforesaid judgement were totally different from the facts of the present case, as well as the provisions of law that we are called upon to interpret. We therefore find, that this judgement too is wholly inapplicable to decide the controversy in the present appeal and the reliance placed thereon by the revenue is wholly misplaced. 48. It is now too well settled a proposition that the ratio of any decision must be understood in the background of the facts of that case. It has been said a long time ago that a case is only an authority for what it actually decides and not what logically follows from it. If one must refer to any authority on this subject, the Supreme Court in the case of Sarva Shramik Sanghatana (KV) v/s State of Maharashtra, reported in (2008) 1 SCC 494 has very succinctly and eloquently reiterated the said proposition. Paragraphs 14 to 18 of the said judgment read thus :- "14. On the subject of precedents Lord Halsbury, L.C., said in Quinn v. Leathem[1901 AC 495 : (1900-1903) All ER Rep 1 (HL)] : (All ER p. 7 G-I) "Before discussing Allen v. Flood [1898 AC 1 : (1895-1899) All ER Rep 52 (HL)] and what was decided therein, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes. In London Graving Dock Co. Ltd. v. Horton [1951 AC 737 : (1951) 2 All ER 1 (HL)] (AC at p. 761), Lord MacDermott observed: (All ER p. 14 C-D) 'The matter cannot, of course, be settled merely by treating the ipsissima verba of Willes, J. as though they were part of an Act of Parliament and applying the rules of interpretation appropriate thereto. This is not to detract from the great weight to be given to the language actually used by that most distinguished Judge, ...' 10. In Home Office v. Dorset Yacht Co. Ltd. [1970 AC 1004 : (1970) 2 WLR 1140 : (1970) 2 All ER 294 (HL)] Lord Reid said, 'Lord Atkin's speech ... is not to be treated as if it were a statutory definition. It will require qualification in new circumstances.' (All ER p. 297g) Megarry, J. in Shepherd Homes Ltd. v. Sandham (No. 2) [(1971) 1 WLR 1062 : (1971) 2 All ER 1267] , observed: (All ER p. 1274d) 'One must not, of course, construe even a reserved judgment of even Russell, L.J. as if it were an Act of Parliament;' And, in British Railways Board v ..... 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