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Commissioner of Income Tax-VI And Others Versus VRM India Ltd. And Others

2015 (3) TMI 941 - DELHI HIGH COURT

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 and execution, oversight of entire execution, deployment of perso .....

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uld 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 complex. If the revenue’s interpretation is accepted, no enterprise, .....

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010, 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 Tax Appellate Tribunal was right in view of the contracts in que .....

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rn 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 acre of land at Sector-62, Noida by the Indian Railway Welfare O .....

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ntract 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 fulfilled: (i) a proposal for developing and building housing from the .....

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d 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 projects. The assessee company filed a letter dated 10.01.2002 of .....

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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 upon the decision of ITAT Delhi Bench D order in ITA No. 430 & .....

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owed 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 under Section 80IB(10). The revenue contended that the assessee was .....

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d 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 of approval of the projects from the local authorities were also .....

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1st 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 as contractor only undertakes works connected with the building, .....

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ete 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 filling, civil works, including its electrification, services like s .....

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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 the Engineer-in-charge in good conditions are free from all defect .....

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xecution 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 survey of the site, also prepared layout plan within the development .....

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ning, 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 and also lying of HT cables etc. Had the assessee undertaken the h .....

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ase, 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 developer and builder should be owned by the assessee. The only conditio .....

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ent 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 the contractors only. Even admission of the assessee is held to be .....

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ss 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 ownership of the project is not provided as a precondition for the claim .....

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pers 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 facility to the Government or local authority and that such enterprise .....

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rry 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 which necessarily always is with the owner. In the absence of that .....

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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 assessee had to carry out all the three activities, i.e., (i) to .....

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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 to as the eligible business), there shall, in accordance with and .....

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ly 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 produces any article or thing, not being any article or thing specified .....

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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 such machinery or plant has been allowed or is allowable under t .....

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ess, 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. 11. Subsequently, Section 80-IB enacts by various provisions spe .....

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ss 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 following, namely:- (i) is located in North-Eastern Region and has begun .....

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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 licensed under the VIII Round of bidding for award of exploration contr .....

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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 Central or a State Government in any other manner, shall be treated a .....

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) 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 authority; (iii) in a case where a housing project has been appr .....

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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 Government or a State Government for reconstruction or redevelop .....

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er 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 residential unit in such housing project is allotted to any of the fol .....

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g 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 from construction of such housing projects. The explanation to S .....

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e 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 project. Therefore, it is clear that construction of even one buildi .....

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B(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 clearly shows that the intention of the Legislature is to make avai .....

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igible 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 projects as the plot ceases to be a vacant plot after the constru .....

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rojects 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 provision which required project approval before 2005 applied for ol .....

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t 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 determine whether the amendment is clarificatory or substantive." .....

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ar 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 skill required for execution of such project. The assessee had to p .....

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