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2015 (3) TMI 941 - DELHI HIGH COURT

2015 (3) TMI 941 - DELHI HIGH COURT - [2015] 375 ITR 414 (Del) - Entitlement to deduction under Section 80-IB(10) - AO declined the claim as assessee company did not develop and build any housing project of its own but merely executed the contract work awarded to it by the principals, i.e DDA and IRWO - ITAT allowed the assessee’s claim - Held that:- In the facts of this case, it is evident that the assessee was awarded both contracts as turnkey projects. The conceptualization, overall planning .....

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s the margin of income or profit; not to expect this treatment would render one who develops an infrastructure facility project, unable to realise its cost. If the infrastructure facility is, after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore, the mere circumstance that the Indian Railways or DDA paid for development of a housing project carried out by the assessee, did not mean that the assessee did not develop the residential com .....

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as unwarranted. - Decided in favour of assessee. - ITA No. 2069/2010, ITA No. 318/2014, ITA No. 320/2014 - Dated:- 18-3-2015 - S. Ravindra Bhat And R. K. Gauba,JJ. For the Appellant : Ms. Suruchi Aggarwal, Advocate For the Respondent : Ms. Padma Priya, Advocate JUDGMENT Mr. Justice S. Ravindra Bhat (Open Court) 1. The following substantial question of law arises for consideration in these appeals under Section 260-A of the Income Tax Act, 1961 (hereafter "the Act"):- Whether the Income .....

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iness of building and developing of housing projects. In its return of Income, the assessee claimed deduction under Section 80-IB(10) which was declined by the Assessing Officer ( AO ) in the course of assessment under Section 143(3). The AO observed that the assessee company had been undertaking construction activity since 1996-97. The company had been allotted in FY 2001-02 a housing project worth ₹ 12,53,65,692/- for constructing housing units measuring 450 sq. ft. each on more than one .....

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tion disclosed was ₹ 5,47,85,200/-. The profit from this contract receipt was shown at ₹ 48,40,725/-. Of this, ₹ 47,03,714/- was claimed as tax exempt income by virtue of Section 80-IB(10) of the Act. 3. The AO, upon a textual analysis of Section 80IB (10) was of the view that profit derived only from developing and building housing projects which are approved by local authority is eligible for deductions u/s 80IB. According to him, these conditions had to necessarily be fulfil .....

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to IRWO & DDA. The assessee company did not develop and build any housing project of its own but merely executed the contract work awarded to it by the principals, i.e DDA and IRWO. There was consequently no development of building of housing project of the assessee. 4. The assessee was asked to file copies of its proposals to Noida Authority (as it was a local authority) as well as DDA and the copies of approval granted to it by these local authorities for developing and building housing p .....

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road, pavements, drains, underground water tank etc. at the rates provided in the schedule. The letter of DDA dated 17.09.2005 to the ITO, W.17(1), explained that the rate contract on which the work was awarded was ₹ 22,82,96,800/- and the work was completed as per specifications given. The AO declined the claim of the assessee under Section 80IB(10), by observing that assessee is only a contractor and not a developer. He also observed that in its support, the assessee company had relied u .....

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the assessee was a contractor and not a developer. The CIT(A) allowed the assessee's claim. Aggrieved, the revenue unavailingly appealed to the ITAT. 5. From the record, the ITAT found that the assessee company was mostly engaged in the business of building and developing housing projects together with infrastructure. During the years under consideration, it had developed and executed two housing projects for DDA and IRWO. The profits derived from these projects were claimed as tax exempt un .....

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nalyse the facts before it, to see whether the assessee had worked as a contractor or as a developer and builder of housing projects. 6. The ITAT, after considering the contracts which the assessee had entered into and had executed, held that: "In the instant case before us, the project undertaken by the assessee company was undisputedly approved prior to 03.03.2008. There is also no dispute to the fact that assessee has commenced construction of housing project after 01.10.1998. The copies .....

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lauses Act, we can take the dictionary meaning. As per Chambers 21st Century Dictionary (Revised Edition), contractor means a person or fiem that undertakes work on contract, specially connected with building, installation of equipment or the transportation of goods . The word developer has been defined as someone who builds on land or improves and increases the value of building . It is crystal clear from the above definition that scope of work of developer is wider than the contractor insofar .....

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gone through the agreement executed by the assessee and the complete scope of work assigned to the assessee in terms of the agreement and which has actually been undertaken by the assessee for performance of the work undertaken by it. In terms of the agreement so executed by the assessee, following is the scope of work assigned to the assessee :- Terms and Conditions (i) The scope of work, as stated in the NIT to the executed on Turnkey basis includes planning, designing, soil testing, earth fil .....

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the date of recorded completion. This scope of work given in the NIT is only indicative and not exhaustive. The agency shall be responsible for execution of all items required for completing these houses in all respects to make these units habitable and ready for occupation as well as functioning of all services, making environment fit for habitation without any additional cost, complete as per direction of the Engineer-in-charge. (ii) The facts will be maintained till these are handed over to t .....

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hting arrangements, approved from the Delhi Fire Service before execution of the water supply scheme. 22. It is crystal clear from the scope of work as enumerated above and which has been undertaken by the assessee, that the assessee has worked as a builder and developer of housing project as a whole and for this purpose he has undertaken work of planning, designing of layout plan and architectural/structural drawing of complete housing project as approved by the DDA. It has also carried out sur .....

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y arrangements for supply of water through dual pipe system, planning, designing, earth filling, civil works including its electrification, infrastructure services like street lighting, sewerage, water supply, drainage, roads etc. As a developer, the assessee company has also undertaken horticulture, landscaping, provisions for dual water supply, rains water harvesting and also construction of community hall, shopping centre, electric sub-station installation of transformer and equipment in it a .....

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e assessee, it can safely be concluded that on the facts of the case, the assessee has worked as a developer and not merely as a work contractor. Accordingly, we do not find any merit in the action of the AO for declining claim of deduction u/s 80IB(10) of IT Act. With regard to AO s observation that the project should be owned by the assessee for claim of exemption u/s 80IB(10) is misplaced insofar as there is no condition in Section 80IB that the project undertaken by the assessee as a develop .....

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ble for claim of deduction u/s 80IB. In this regard, it is pertinent to mention here that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view, which the assessee might taken of his rights, nor can the existence or absence of entries in his books of account or observation in the tax audit report will be of much relevance. Particulars in the tax audit report are not restricting the status of the assessee as to t .....

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e proper principles of accountancy, concealed profit or showed loss and the entries made by him cannot be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profits or loss to the assessee.... In view of these judicial pronouncements, mere mention by the assessee in TAR will not detract him from the legal rights which he is entitled to under Section 80IB of the Act. Similarly, since ownershi .....

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contract - i.e the IRWO and DDA, which are infrastructure developers and not the assessee. He relied on the conclusions of the AO that for an enterprise - to claim deduction under Section 80-IA- should own such infrastructure facility, and that the enterprise should enter into agreement with the Government or local authority for (i) development or (ii) maintaining and operating or (iii) developing, maintaining or operating a new infrastructure facility; should transfer such infrastructure facil .....

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e development. To qualify for exemption, the enterprise should carry on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating an infrastructure facility. Counsel also compared Section 80-IA(4A) introduced by Finance Act, 1995 with the provisions of Section 80-IA(10), to highlight the similarity in scope and content. Counsel lastly urged that the distinction between a works contract and an infrastructure development is the element of risk wh .....

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of residential houses and given the intention behind Section 80-IB (10) i.e to boost private participation in housing, ownership of lands cannot be an added condition when the plain terms of the provision do not enact such pre-condition. Analysis and Conclusions 10. Section 80-IA was introduced by the Finance Act, 1995 w.e.f. 1st April, 1996. It exempted an enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. To be eligible for deduction, an .....

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siness of any one of the said three types of activities, and also when the assessee carries on the activity of only developing. Section 80-IB reads as follows: 80IB.Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.- (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to(11), (11A) and (11B) (such business being hereinafter referred .....

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already in existence : Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produc .....

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clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of .....

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nt of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with; (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. .....

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ip business [Section 80 IB (6)]; hotel [Section 80 IB (7)] business of multiplex theatre [Section 80 IB (7A)] convention centre business [Section 80 IB (7B)]; company carrying on scientific research [Section 80IB (8) and (8A)]. The Section then goes on and enacts as follows: (9) The amount of deduction to an undertaking shall be hundred per cent of the profits for a period of seven consecutive assessment years, including the initial assessment year, if such undertaking fulfils any of the followi .....

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ndia vide Resolution No. O-19018/22/95-ONG.DO.VL, dated the 10th February, 1999 or in pursuance of any law for the time being in force or by the Central or a State Government in any other manner; (This proviso was inserted in by the Finance Act, 2011, w.e.f. 1-4-2012). (iii) is engaged in refining of mineral oil and begins such refining on or after the 1st day of October, 1998 but not later than the 31st day of March, 2012; (iv) is engaged in commercial production of natural gas in blocks licens .....

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ethane blocks and begins commercial production of natural gas on or after the 1st day of April, 2009. Explanation.-For the purposes of claiming deduction under this sub-section, all blocks licensed under a single contract, which has been awarded under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated 10th February, 1999 or has been awarded in pursuance of any law for the time being in force or has been awarded by the Cent .....

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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 on or after the 1st day of April, 2004 but not later than the 31st day of March, 2005, within four years from the end of the financial year in which the housing project is approved by the local .....

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ousing project is first approved by the local authority; (ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority; (b) the project is on the size of a plot of land which has a minimum area of one acre: Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central .....

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et at any other place; (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate built-up area of the housing project or five thousand square feet, whichever is higher; (e) not more than one residential unit in the housing project is allotted to any person not being an individual; and (f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other resid .....

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-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government). 12. It is plain that textually, Section 801B(10) deduction can be availed by an undertaking developing and building housing projects- approved before 31.03.2008 by the local authority. Such undertaking should have embarked on construction of the housing project on or after 01-10-1998. 100% deduction can be availed of the profits derived .....

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Bom) to decide the permissibility of deduction in a case where the assessee had to develop and construct a block of residential flats. The Court held that: …the expression "housing project" in common parlance would mean constructing a building or group of buildings consisting of several residential units. In fact, the Explanation in section 80-IB(10) supports the contention of the assessee that the approval granted to a building plan constitutes approval granted to a housing pro .....

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"vacant plot of land" ? 26. The object of section 80-IB(10) in granting deduction equal to one hundred per cent. of the profits of an undertaking arising from developing and constructing a housing project is with a view to boost the stock of houses for lower and middle income groups subject to fulfilling the specified conditions. The fact that the maximum size of the residential unit in a housing project situated within the city of Mumbai and Delhi is restricted to 1000 square feet cl .....

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ted on a plot of land having minimum area of one acre would be eligible for section 80-IB(10) deduction. If the construction of section 80-IB(10) put forth by the Revenue is accepted, it would mean that if on a vacant plot of land, one housing project fulfilling all conditions is undertaken, then deduction would be available to that housing project and if thereafter several other housing projects are undertaken on the very same plot of land, the deduction would not be available to those housing .....

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f one acre and it is immaterial as to whether any other housing projects are existing on the said plot of land or not. In these circumstances, construing the provisions of section 80-IB(10) by adding words to the statute is wholly unwarranted and such a construction which defeats the object with which the section was enacted must be rejected. 14. Likewise, in Commissioner of Income Tax v G.R. Developer 2013 (353) ITR 01 (Karn) the Karnataka High Court had the occasion to consider whether the pro .....

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statute does contain a statement to the effect that the amendment is clarificatory or declaratory, that is not the end of the matter. The court has to analyse the nature of the amendment to come to a conclusion whether it is in reality a clarificatory or declaratory provision. Therefore, the date from which the amendment is made operative does not conclusively decide the question. The court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determ .....

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el at various stages, etc. was with the assessee. In almost similar circumstances, the Gujarat High Court in Katira Construction Co Ltd v Union of India 2013 (352) ITR 513 held the assessee to have engaged in the development and construction of a housing project: 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 sk .....

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