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Commissioner of Income Tax-19, Mumbai Versus M/s. Sarkar Builders

2015 (5) TMI 555 - SUPREME COURT

Entitlement to deduction under Section 80IB(10) - Whether Section 80IB(10)(d) of the Income Tax Act, 1961 applies to a housing project approved before 31.03.2005 but completed on or after 01.04.2005? - Held that:- In the present case, the approval of the housing project, its scope, definition and conditions, all are decided and dependent by the provisions of the relevant DC Rules. In contrast, the judgment in M/s. Reliance Jute and Industries Ltd. [1979 (10) TMI 2 - SUPREME Court] was concerned .....

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velopers to arrange their affairs in such a manner that the housing project is started and finished within those stipulated dates. This planning, in the context of facts in these appeals, had to be much before 01.04.2005.

(d) The basic objective behind Section 80IB(10) is to encourage developers to undertake housing projects for weaker section of the society, inasmuch as to qualify for deduction under this provision, it is an essential condition that the residential unit be constructe .....

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the said provision was inserted, they wanted to limit the built up area of shops and establishments to 5% of the aggregate built up area or 2000 sq.ft., whichever is less. However, the Legislature itself felt that this much commercial space would not meet the requirements of the residents. Therefore, in the year 2010, the Parliament has further amended this provision by providing that it should not exceed 3% of the aggregate built up area of the housing project or 5000 sq.ft., whichever is high .....

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rlier was 5% or 2000 sq.ft., 'whichever is less'.

(g) From this provision, therefor, it is clear that the housing project contemplated under sub-section (10) of Section 80IB includes commercial establishments or shops also. Now, by way of an amendment in the form of Clause (d), an attempt is made to restrict the size of the said shops and/or commercial establishments. Therefore, by necessary implication, the said provision has to be read prospectively and not retrospectively. As is cl .....

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using projects which had been sanctioned and started earlier even if they finished after 01.04.2005 as that of assessee. - Decided in favour of assessee. - Civil Appeal No. 4476 to 4493 of 2015 (Arising Out of SLP (C) No. 24330 of 2011) - Dated:- 15-5-2015 - A. K. Sikri And Rohinton Fali Nariman,JJ. For the Petitioner : Mr. B. V. Balaram Das For the Respondent : Mr. Kamal Mohan Gupta JUDGMENT A. K. Sikri, J. Leave granted. 2) No doubt the assessees/respondents in all these appeals are different .....

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r deduction of 100% of profits in the case of an undertaking developing and building housing projects when such profits are derived in the previous year relevant to any assessment year from such housing projects, provided the conditions contained in the said sub-section are satisfied. High Courts have taken the same view holding that these assessees would be entitled to the deduction under Section 80IB(10) of the Act. We may also point out at this stage itself that though Section 80IB has been o .....

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ects were sanctioned much before the said amendment but have been completed after 01.04.2005 when amended provision has come into operation. It is also not in dispute that the amendment is prospective in nature. Interestingly, when the housing project was approved by a local authority, which is the requirement under sub-section (10) of Section 80IB, as on that date, the conditions stipulated in the said sub-section were met by the assessees. However, condition in clause (d) which was laid down f .....

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f the Income Tax Act, 1961 applies to a housing project approved before 31.03.2005 but completed on or after 01.04.2005? 3) As pointed out above, sub-section (10) stipulates certain conditions which are to be satisfied in order to avail the benefit of the said provision. Further, it is also clear that the benefit is available to those undertakings which are developing and building 'housing projects' approved by a local authority. Thus, this Section is applicable in respect of housing pro .....

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be noticed later, the extent to which such commercial area could be constructed was as per the local laws under which local authority gave the sanction to the housing project. However, vide clause (d), which was inserted by the aforesaid amendment and made effective from 01.04.2005, it was stipulated that the built-up area of the shops and other commercial establishments in the housing projects would not exceed 5% of the aggregate built-up area of the housing project or 2000 sq. feet, whichever .....

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sfied. All the High Courts have held that since this amendment is prospective and has come into effect from 01.04.2005, this condition would not apply to those housing projects which had been sanctioned and started earlier even if they finished after 01.04.2005. 4) As there is a commonality of issue and the judgments of the various High Courts have spoken in one voice which are questioned on identical grounds by the appellant Revenue, all these appeals were heard analogously and by this judgment .....

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9; prior to 01.04.2005 because of the reason that there was no clause (d) earlier and there is no express provision in this sub-section dealing with the consequence of having a commercial establishment within a housing project. One of the requirements contained in sub-section (10) is that in order to be entitled to have the deduction under this provision, housing project is to be approved by a local authority. It is a matter of common knowledge that there are Municipal Acts of specific Local Act .....

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housing project is developed. Such local laws, while sanctioning the housing projects, also permit use of certain area in the housing projects in a specified manner for shopping and commercial purposes as well. The question that had arisen was - whether deduction under Section 80IB(10) would be admissible when commercial establishment is constructed in a housing project? That is, whether it would still retain the character of housing project within the meaning of this provision. The Bombay High .....

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on for claiming the deduction under this provision. When the local authority has approved a housing project, whether 'residential' or 'residential cum commercial' the assessee is entitled to a deduction on the entire profit including the commercial establishments portion. We would also like to point out that following this judgment of the Bombay High Court, or independently, other High Courts had also taken similar view. Against the aforesaid judgments, special leave petitions we .....

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he High Courts have taken identical view in all these cases holding that the deduction under the aforesaid provision would be admissible to a housing project . All the assessees had undertaken construction projects which were approved by the municipal authorities/local authorities as housing projects. On that basis, they claimed deduction under Section 80IB(10) of the Act. This provision as it stood at that time, i.e., prior to 01.04.2005 reads as under: - Section 80IB(10) [as it stood prior to .....

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ch has a minimum area of one crore; 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 kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place. However, the income tax authorities rejected the claim of deduction on the ground that the projects were not housing project inasmuch as some commercial activity .....

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roject is approved by a local authority, once the project is approved by the local authority it is to be treated as the housing project. We may also point out that the High Court had made observations in the context of Development Control Regulations (hereinafter referred to as 'DCRs' in short) under which the local authority sanctions the housing projects and noted that in these DCRs itself, an element of commercial activity is provided but the total project is still treated as housing .....

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s framed by the respective local authority. b) In such a case, where the commercial user permitted by the local authority is within the limits prescribed under the DC Rules/ Regulation, the deduction under Section 80IB(10) upto 31/3/2005 would be allowable irrespective of the fact that the project is approved as 'housing project' or 'residential plus commercial'. c) In the absence of any provisions under the Income Tax Act, the Tribunal was not justified in holding that upto 31/3 .....

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accepted the decision of the Tribunal in allowing Section 80IB(10) deduction to a part of the project, we do not disturb the findings of the Tribunal in that behalf. e) Clause (d) inserted to Section 80IB(10) with effect from 1/4/2005 is prospective and not retrospective and hence cannot be applied for the period prior to ¼/2005. We are in agreement with the aforesaid answers given by the High Court to the various issues. We may only clarify that insofar as answer at para (a) is concerned .....

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ety and particularly the first sentence thereof, we find that commercial user which is permitted is in the residential units and that too, as per DCR. Examples given before us by the learned counsel for the assessee was that such commercial user to some extent is permitted to the professionals like Doctors, Chartered Accountants, Advocates, etc., in the DCRs itself. Therefore, we clarify that direction (b) is to be read in that context where the project is predominantly housing/residential proje .....

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had no bearing. Thus, irrespective of the said of area where shops and commercial establishments were permitted by the local authority in a housing project, it was still treated as housing project and further that while granting 100% deductions, the area covered by shops and commercial establishments was also includible. This position has changed with the insertion of clause (d) to sub-section (10). As per the amendment carried out and made effective from 01.04.2005, even if the local authority .....

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nature and, therefore, it operates from 01.04.2005. We have also mentioned that in the instant appeals, all these assessees had got the housing projects sanctioned prior to 01.04.2005 and the construction of the said housing project also started before 01.04.2005. All other conditions mentioned namely the date by which approval was to be given and the dates by which the projects were to be completed as on the date when the project was sanctioned, are also met by the assessees. Notwithstanding th .....

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sessee in a particular assessment year, it is that assessment year which would be the determinative factor and the law prevailing on the date relevant to the assessment year will have to be applied. On that basis, it was argued that since the assessment years are post 01.04.2005, clause (d) of sub-section (10) of Section 80IB of the Act gets attracted. In support of this plea, he referred to the judgment of this Court in Commissioner of Income Tax I, Ahmedabad v. Gold Coin Health Food Private Li .....

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the return. It is of relevance to note that when any loss is returned in any return it need not necessarily be the loss of the previous year concerned. It may also include carried-forward loss which is required to be set up against future income under Section 72 of the Act. Therefore, the applicable law on the date of filing of the return cannot be confined only to the losses of the previous accouting years. 8) He also referred to the decision in the case of The Karimtharuvi Tea Estate Ltd. v. .....

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the objective of the amendment in mind which would clearly evince that the conditions in clause (d) could not be applied in respect of those projects which had been sanctioned and commenced prior to 01.04.2005. He further argued that vested rights had accrued in favour of such persons which could not be taken away by the amendment. He also advanced various reasons, as would be noted later, necessitating the approach as to why the principle of tax law that the law in force in the Assessment Year .....

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n by the High Courts in the impugned judgments and supporting those reasons. 10) We have given our due consideration to the respective submissions. 11) As pointed out above, the judgment pronounced by the Bombay High Court in Brahma Associates case has already been upheld by this Court on the interpretation given to the expression 'housing project' occurring in sub-section (10) of Section 80IB of the Act. Interestingly, in the batch of appeals decided by the High Court in that very judgm .....

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discussion contained in the High Court judgment, which has some bearing on the issue at hand, runs as under: 21. Thus, on the date on which the legislature introduced 100% deduction under the Income Tax Act, 1961 on the profits derived from housing projects approved by a local authority, it was known that the local authorities could approve the projects as houding projects with commercial user to the extent permitted under the DC Rules framed by the respective local authority. In other words, i .....

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ld approve a project to be a housing project with or without the commercial user, it is evident that the legislature intended to allow Section 80IB(10) deduction to all the housing projects approved by a local authority without or with commercial user to the extent permitted under the DC Rules. 22. It is not in dispute that where a project is approved as a housing project without or with commercial user to the extent permitted under the Rules/Regulations, then, deduction under Section 80IB(10) w .....

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s, then the project approved with the permissible commercial user would be eligible for Section 80IB(10) deduction irrespective of the fact that the project is approved as 'housing project' or approved as 'residential plus commercial'. In other words, where a project fulfills the criteria for being approved as a housing project, then deduction cannot be denied under Section 80IB(10) merely because the project is approved as 'residential plus commercial'. 24. The fact that .....

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mmon man and not with a view to deny commercial user in residential buildings. In other words, the restriction under Section 80IB(10) regarding the size of the residential unit would in no way curtail the powers of the local authority to approve a project with commercial user to the extent permitted under the DC Rules/Regulations. Therefore, the argument of the Revenue that the restriction on the size of the residential unit in Section 80IB(10) as it stood prior to 1.4.2005 is suggestive of the .....

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xceed five per cent of the aggregate built-up area of the housing project or two thousand square feet whichever is lower. By Finance Act, 2010, clause (d) is amended to the effect that the commercial user should not exceed three percent 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 housing project. Thus, by inserting clause (d) .....

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ion to housing projects having commercial user cannot be accepted. xx xx xx 29. Lastly, the argument of the revenue that Section 80IB(10) as amended by inserting clause (d) with effect from 1.4.2005 should be applied retrospectively is also without any merit, because, firstly, clause (d) specifically inserted with effect from 1.4.2005, and therefore, that clause cannot be applied for the period prior to 1.4.2005. Secondly, clause (d) seeks to deny Section 80IB(10) deduction to projects having co .....

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uced with effect from 1.4.2005 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 80IB(10) with effect from 1.4.2005 is prospective and not retrospective and hence cannot be applied to the period prior to 1.4.2005. 12) The issues dealt with from paras 21 to 25 by the High Court already stands approved by this Court. In para 29, the .....

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on of their income from such projects under Section 80IB of the Act. Their projects were sanctioned much before 01.04.2005. As per the permissible commercial user on which the project was sanctioned, they started the projects and the date of commencing such projects is also before 01.04.2005. All these assessees were made known of the provision by which these projects are to be completed as those dates have been specified from time to time by successive Finance Acts in the same provision Section .....

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The said developer started with its project much prior to 01.04.2005 with the aforesaid permissible use and the construction was at a very advanced stage as on 01.04.2005. Can it be argued by that Revenue that he is to demolish the extra coverage meant for commercial purpose and bring the same within the limits prescribed by the new provision if he wanted to avail the benefit of deduction under Section 80IB(10) of the Act, only because of the reason that the project was not complete as on 01.04 .....

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which is almost impossible 13) In M/s. Reliance Jute and Industries Ltd. v. C.I.T., West Bengal, Calcutta (1980) 1 SCC 139, this Court had, no doubt, pointed out the cardinal principle of tax law that the law to be applied has to be the law in force in the assessment year. However, this is qualified by the exception when it is provided otherwise expressly or by necessary implication, as is clear from the following observations: 6. The assessee claims a vested right under Section 24(2)(iii), as i .....

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aimed 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'. Thus, it clearly follows that though normally the law which is in force in the assessment year would prevail, but this is not an absolute principle as the Court itself carved out exceptions thereto by making it clear that such exception can be either express or implied by necessary implication. Even the principle which is mentioned is .....

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sence of this provision. For the purpose of discussing this particular issue, it is required to be noted that with effect from 01.04.2001, Section 80IB(10) stipulated that any housing project approved by the local authority before 31.03.2001 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, provided - (i) the construction/development of the said housing project commenced on or after 1.10.1998 and was .....

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proval, namely, that approval had to be accorded to the housing project by the local authority before 31.03.2001. Before this amendment there was no date prescribed for the approval being granted by the local authority to the housing project. Prior to this amendment, as long as the development/construction commenced on or after 1.10.1998 and was completed before 31.03.2001, the assessee was entitled to the deduction. Also by this amendment, the date of completion was changed from 31.03.2001 to 3 .....

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ment and construction of the housing project on or after the 1st day of October 1998; (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 kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place. 16) As can be seen from .....

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eafter, significant amendment, with which we are directly concerned, was carried out by Finance (No.2) Act, 2004 with effect from 1.4.2005. This amendment has already been noted above. The Legislature made substantial changes in sub-section (10). Several new conditions were incorporated for the first time, including the condition mentioned in clause (d). This condition/restriction was not on the statute book earlier when all these projects were sanctioned. Another important amendment was made by .....

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ior to insertion of Section 80IB(14)(a), in many of the rules and regulations of the local authority approving the housing project built-up area did not include projections and balconies. Probably, taking advantage of this fact, builders provided large balconies and projections making the residential units far bigger than as stipulated in Section 80IB(10), and yet claimed the deduction under the said provision. To plug this lacuna, clause (a) was inserted in Section 80IB(14) defining the words b .....

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ition that was not a part of the statute when the housing project was approved. We, thus, find that the only way to resolve the issue would be to hold that clause (d) is to be treated as inextricably linked with the approval and construction of the housing project and an assessee cannot be called upon to comply with the said condition when it was not in contemplation either of the assessee or even the Legislature, when the housing project was accorded approval by the local authorities. 20) Havin .....

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y when the position becomes irreversible. (c) The provisions of Section 80IB(10) mention not only a particular date before which such a housing project is to be approved by the local authority, even a date by which the housing project is to be completed, is fixed. These dates have a specific purpose which gives time to the developers to arrange their affairs in such a manner that the housing project is started and finished within those stipulated dates. This planning, in the context of facts in .....

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d 1500 sq.ft. at any other place. (e) It is the cardinal principle of interpretation that a construction resulting in unreasonably harsh and absurd results must be avoided. (f) Clause (d) makes it clear that a housing project includes shops and commercial establishments also. But from the day the said provision was inserted, they wanted to limit the built up area of shops and establishments to 5% of the aggregate built up area or 2000 sq.ft., whichever is less. However, the Legislature itself fe .....

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t. to 5000 sq.ft. On the other hand, though the aggregate built up area for such shops and establishment is reduced from 5% to 3%, what is significant is that it permits the builders to have 5000 sq.ft. or 3% of the aggregate built up area, 'whichever is higher'. In contrast, the provision earlier was 5% or 2000 sq.ft., 'whichever is less'. (g) From this provision, therefor, it is clear that the housing project contemplated under sub-section (10) of Section 80IB includes commerci .....

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.04.2005 and completed by the stipulated date, though such stipulated date is after 01.04.2005. 21) These aspects are dealt with by various High Courts elaborately and convincingly in their judgments. It is not necessary to go into the detailed reasoning given by these High Courts. However, we would like to extract the following discussion from the judgment dated 25.07.2014 of the Bombay High Court in ITA Nos. 201 and 308 of 2012, where this very aspect is answered in the following manner: 36. T .....

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nditions of section 80-IB(10) as it stood then, the Assessee would be disentitled to the entire deduction claimed in respect of such housing project merely because he offered his profits to tax in the A.Y. 2005-06. In contrast, if the same Assessee had followed the work-in-progress method of accounting, he would have been entitled to the deduction under section 80-IB(10) upto the A.Y. 2004-05, and denied the same from A.Y. 2005-06 and thereafter. It could never have been the intention of the Leg .....

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ably 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 Apri, 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 pro .....

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h such a condition only if it is on the statute-book on the date of the approval of the housing project and it has nothing to do with the year in which the profits are brought to tax by the Assessee. We have come to this conclusion only because we find that clause (d) of section 80-IB(10) is inextricably linked to the date of the approval of the housing project and the subsequent development/construction of the same, and has nothing to do with the profits derived therefrom. We may hasten to add .....

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he fact that the profits of the said housing project are brought to tax after the said provision was brought into force. 22) At this juncture, we would like to quote the following passage from Commissioner of Income Tax, U.P. v. M/s. Shah Sadiq and Sons (1987) 3 SCC 516: 14. Under the Income Tax Act of 1922, the assessee was entitled to carry forward the losses of the speculation business and set off such losses against profits made from that business in future years. The right of carrying forwa .....

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