TMI Blog2014 (12) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... t required for getting benefits u/s 80IB(10) of the Act and the assessee was the deemed owner of the land u/s 2(47) of the Act - the assessee had borne the entire cost of construction, including materials, and the receipt was not fixed for the contractor and the assessee was a developer and builder of the housing project. In K. Raheja Development Corporation v. State of Karnataka [2014 (10) TMI 110 - KARNATAKA HIGH COURT] while construing the meaning of the term "works contract", what the Supreme Court had in mind was Article 366(29-A)(b) of the Constitution. By Article 366(29-A)(b), a legal fiction had been introduced into a contract which was divisible into one for sale of goods and the other for supply of labour - the term "works contract" has to be understood in a manner that Parliament had in its view at the time of the Forty-sixth Amendment which was more than appropriate to Article 366(29-A)(b) and which was not restricted to "works contract" as commonly understood i.e. a contract to do some work on behalf of somebody else. The ordinary meaning of the term "works contract" means a contract to do some work on behalf of somebody else whereas in the above decisions, the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts of the present case and the contract with the Assessee not be termed as works contract? The assessment year is 2007-08 and the relevant accounting period is the financial year 2006-07. 2. The facts stated briefly are that land bearing various survey numbers and block numbers totally admeasuring 50,800 square metres came to be purchased by Satellite Ambli Co-operative Housing Society Limited (hereinafter referred to as the Society ) on 13th December, 2004 for a consideration of ₹ 47,32,000/-. Pursuant to the application and plan filed by the society, the local authority accorded permission for development and construction of the project to the Society and Sapna Ambli Co-operative Housing Society Limited on 27th April, 2005 and 4th January, 2006. The assessee entered into a Development Agreement with the above referred Societies on 17th February, 2006 and in terms of the agreement, the assessee was given possession of the land for construction of housing units as per the plan. The assessee was allowed to enroll prospective buyers as members on behalf of the Society and was also allowed to collect the consideration for land as well as super-structure from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, held that the assessee did not fulfil the conditions laid down under section 80IB(10) of the Act. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) who allowed the claim of the assessee after considering the terms and conditions of the agreement between the societies and the assessee. Revenue went in appeal before the Tribunal but did not succeed. 3. Mr. Nitin Mehta, learned senior standing counsel for the appellant strenuously argued that the Tribunal has failed to consider the explanation to section 80IB(10) of the Act. According to the learned counsel, the work in question was a works contract and hence, the provisions of sub-section (10) of section 80IB of the Act would not be attracted in the facts of the present case. Strong reliance was placed upon the decision of the Supreme Court in the case of Larsen and Toubro Limited v. State of Karnataka, (2014) 1 SCC 708 wherein it has been held thus: In the development agreement between the owner of the land and the developer, direct monetary consideration may not be involved but such agreement cannot be seen in isolation to the terms contained therein and following development ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax v. Radhe Developers (supra) would be squarely applicable to the facts of the present case. On the merits of the case, it was submitted that the core conditions as laid down under section 80IB(10) of the Act are duly satisfied in the facts of the present case. It was pointed out that the assessee firm had paid the land cost to the society and had also entered into a Development Agreement with the society and had acquired the dominant control over the land from the date of acquisition of the land and had built and developed the residential housing project in the name and style of Vraj Homes by incurring all the expenses of construction, development and administration, taking all risks involved therein. It was submitted that the Development Agreement also makes it clear that it is the assessee-developer who is responsible for the profit or loss in respect of the development of the housing project and has the dominant control over the land from the date of acquisition of the land and all the risks as to cost of construction and development of the housing project and profit or loss of the housing project vests with the developer. Referring to the findings recorded by the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll authority for execution of the said development project, including development of the land and construction of residential units. The assessee had engaged professionals such as architect for designing architectural work and had also enrolled members and collected the consideration from the buyers of the residential units. The assessee had also paid the cost of the land to the Societies including stamp duty and had taken possession of the land for construction of the project. The Tribunal observed that as per the decision of this court in the case of Radhe Developers (supra), a legal title was not required for getting benefits under section 80IB(10) of the Act and that the assessee was the deemed owner of the land under section 2(47) of the Act. Having regard to the fact that the assessee had borne the entire cost of construction, including materials, and the receipt was not fixed for the contractor and the assessee was a developer and builder of the housing project, the Tribunal upheld the order passed by the Commissioner (Appeals) and dismissed the appeal. 8. Thus, the Tribunal upon appreciation of the evidence on record has found that the present case meets with the paramet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is not entitled to the benefit thereof. It has also been submitted on behalf of the appellant, that the present case relates to assessment year 2007-08 whereas the Explanation to sub-section (10) of section 80IB of the Act came to be inserted with effect from 1st April, 2001 and hence, the present case would be governed by the Explanation and the work in question being in the nature of a works contract , the provisions of section 80IB(10) of the Act would not be attracted. It is the case of the appellant that the Commissioner (Appeals) as well as the Tribunal, have failed to consider the above referred aspect. 9. Before adverting to the merits of the case, it may be germane to refer to the decisions on which reliance had been placed by the learned counsel for the respective parties. Since the Tribunal has upheld the order passed by the Commissioner (Appeals) on the basis of the decision of this court in the case of Commissioner of Income-tax v. Radhe Developers (supra), reference may be made to the findings recorded by the court in that decision, which are as follows:- 31. Neither the provisions of Section 80-IB nor any other provisions contained in other rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o act, process or result of development or growing or causing to grow; the state of being developed. b. Happening. 32. Section 80-IB(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 be owned by the assessee seeking such deductions. 33. It is well settled that while interpreting the statute, particularly, the taxing statute, nothing can be read into the provisions which has not been provided by the Legislature. The condition which is not made part of section 80-IB(10) of the Act, namely, that of owning the land, which the assessee develops, cannot be supplied by any purported legislative intent. 34. We have reproduced relevant terms of development agreements in both the sets of cases. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects. Under the agreements, the assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilitate 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 be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use as agreed between the parties. The assessee had full authority and also responsibility to develop the housing project by not only putting up the constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slation, 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. 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 and property in the goods so used passes to the other party. However, the contractor who undertakes to do the work will not necessarily be deemed on that account to sell the materials. The Supreme Court noted that a contract for work in the execution of which goods are used may take one of three forms. Those three forms were elaborated as follows (page 1404 of AIR 1965 SC and page 255 of 16 STC): 'The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price: it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work: or it may be a contract for work and use or supply of materials though not accessory to the executio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. 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 (pages 26 and 27 of 140 STC): 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 work and labour. However, the test is not decisive...' A contract for sale has hence to be distinguished from a contract of work. Whether a particular agreement falls within one or the other category depends upon the object and intent of the parties, as evidenced by the terms of the contract, the circumstances in which it was entered into and the custom of the trade. The substance of the matter and not the form is what is of importance. If a contract involves the sale of movable property as movable property, it would constitute a contract for sale. On the other hand, if the contract primarily involves carrying on of work involving labour and service and the use of materials is incidental to the execution of the work, the contract would constitute a contract of work and labour. One of the circumstances which is of relevance is whether the article which has to be delivered has an identifiable existence prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a 'sale' or a 'workscontract'. Essentially, the question is of interpretation of the 'contract'. It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. No definite rule can be formulated to determine the question as to whether a particular given contract is a contract for sale of goods or is a works contract. Ultimately, the terms of a given contract would be determinative of the nature of the transaction, whether it is a 'sale' or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 43. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 present case where we are concerned with the deduction under section 80-IB(10) of the Act. 10. In K. Raheja Development Corporation v. State of Karnataka, (2005) 141 STC 298 , the Supreme Court was dealing with a case under the Karnataka Sales Tax Act, 1957. The court taking into consideration the definition of works contract as defined under section 2(1)(v-i) of the said Act, observed that the definition of the words works contract is very wide and it is not restricted to a works contract as commonly understood i.e. a contract to do some work on behalf of somebody else. The court held that the definition of works cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the other for supply of labour and services. The court further observed that there is no doubt that to attract Article 366(29-A)(b), there has to be a works contract but then what is its meaning. The term works contract needs to be understood in a manner that Parliament had in its view at the time of the Forty-sixth Amendment and which is more appropriate to Article 366(29-A)(b). The court was of the opinion that the term works contract in Article 366(29-A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of works contract in its view at the time of the Forth-sixth Amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expression tax on sale or purchase of goods and overcome Gannon Dunkerley [AIR 1958 SC 560]. The court further held thus: 72. Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) as well as in K. Raheja Development Corporation (supra) were rendered in the backdrop of the Karnataka Sales Tax Act and the Maharashtra Value Added Tax Act. While construing the meaning of the term works contract , what the Supreme Court had in mind was Article 366(29-A)(b) of the Constitution. By Article 366(29-A)(b), a legal fiction had been introduced into a contract which was divisible into one for sale of goods and the other for supply of labour. The Supreme Court while dealing with the above cases had understood the term works contract in the manner that Parliament had in its view at the time of the Forty-sixth Amendment which was more than appropriate to Article 366(29-A)(b) and which was not restricted to works contract as commonly understood i.e. a contract to do some work on behalf of somebody else. The ordinary meaning of the term works contract means a contract to do some work on behalf of somebody else whereas in the above decisions, the Supreme Court having regard to the provisions of Article 366(29-A)(b) has adopted a wider meaning of the expression works contract . In the opinion of this court, while construing the provisions of the Income Tax Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r construction can be stated to be a works contract and in the process when the materials used in the execution of such contracts can be exigible to Sales Tax/VAT. The Division Bench after considering both the above referred decisions of the Supreme Court did not find any reason to deviate from the case of Radhe Developers (supra) 15. The above referred decision in the case of Commissioner of Income Tax-I v. Archan Enterprises would be squarely applicable to the facts of the present case. Under the circumstances, when the Tribunal has recorded concurrent findings of fact to the effect that the decision of this court in the case of Radhe Developers (supra) would be squarely applicable to the facts of the present case, in the absence of any perversity being pointed out in the findings of fact recorded by the Tribunal, there is no warrant for interference. The decision of the Supreme Court in the case of Larsen and Toubro Limited (supra) having been rendered in the context of the Karnataka Sales Tax Act and the Maharashtra Value Added Tax Act, would not be applicable to the facts of the present case and the meaning assigned to the expression works contract in the said decisions c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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