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2015 (12) TMI 826 - ITAT CHENNAI

2015 (12) TMI 826 - ITAT CHENNAI - [2015] 44 ITR (Trib) 120 (ITAT [Chen]) - Non-granting of deduction under sec.80IB - Held that:- The assessee is engaged in the construction work of buildings as a contractor and when the assessee’s job includes only controlling and directing the work of building construction as per plan and design by the land lord and hand over the constructed flats on behalf of the land lord to the eligible flat owners who have got registered undivided right in the property. I .....

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6-07. Since we have observed that the assessee is a contractor, there is no question of going to the merits of the case, as non-production of completion certificate of the project. The assessee is not eligible for deduction u/s.80IB(10) of the Act. - Decided against assessee. - ITA No. 933/Mds/2013 - Dated:- 23-9-2015 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For The Appellant : Shri K. Ravi, Advocate For The Respondent : Dr. B. Nischal, JCIT ORDE .....

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itting total income as NIL after claiming deduction of ₹ 3,86,83,668/- u/s.80IB of the Act. The Assessing Officer denied the deduction claimed u/s.80IB by observing that the assessee is not a developer of housing project but it works as a contractor. Aggrieved by this, the assessee went in appeal before the Commissioner of Income-tax(Appeals), who confirmed the order of the Assessing Officer. Against this, the assessee is in appeal before us. 4. The ld. AR submitted that similar deduction .....

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ed. He also drew our attention to the Joint Development Agreement(JDA) entered into between the assessee and M/s. Prime Textiles Ltd. dated 17.1.2005. He took us to various clauses of Joint Development Agreement, which reads as follows: a. Taking statutory approval As per clause 2, page 2 of JDA, the development shall be on the basis of a plan to be drawn by the Architect identified by the Developer and approval by Tirupur Municipal Council and such other related authorities. The fees related to .....

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ty of Developer for advertisement and sales and will have responsibility of collection of sale proceeds from the buyers. Developers spend for broachers, creation of art work theme designing, advertisement and publicity, hoarding expenses and all advertisement expenses. d. Inventory carrying cost with Developer Developer shall construct the un sold flats also, After construction, Developer will have responsibility to bear the carrying cost of the inventory of un sold flats. 4.1 The ld. AR submitt .....

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the assessee even after considering the JDA which is the master agreement and has failed to understand that the assessee is a developer and not merely a contractor. 4.2 According to the ld. AR, the CIT(Appeals) has erred in considering that the owner of the property Prime Textiles Ltd. had secured the requisite sanctions and approvals from Tiruppur Muncipal Corporation and concerned public authorities on the ground that no Power of Attorney was executed by the owner to the assessee. The ld. AR .....

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f Attorney" may be defined as a formal instrument by which one person empowers another to represent him or act in his stead for certain purposes. The expression Power of attorney is defined as an authority whereby one is set in the turn, stead or place of another to act for him. According to Longman American Dictionary at pg. 1126 the words Power of attorney means the legal right to do things for another person in their personal or business life, or a document giving this right. 4.4 Further .....

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r person. A deed of power of attorney is executed by the principal in favour or the grant. The agent derives a right to use his name and all acts, deeds and things done by him subject to the limitations contained in the said deed, the same shall be read as if done by the donor. A power of attorney is. as is well known. a document convenience. 52. Execution of a power of attorney in terms of the provisions of the Contract act as also the Power of Attorney act is valid. A power of attorney, we hav .....

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and donee." 4.5 The ld. AR submitted that from the above paragraphs it is clear that a Power of Attorney is a document of convenience and the developer for the purpose of applying to the statutory authorities for the grant of permission for the project enters into this agreement. According to him, in the case, the owner of the property holds the majority share in the assessee firm and hence there was no need for a power of attorney to be given to the assessee. The ld. AR further submitted t .....

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or. Thus, according to the ld. AR, the assessee is a developer who has undertaken construction of flats with various owners though the assessee is not an owner of the land. Further, he relied on the following judgments: (i) CIT vs. Radhe Developers (2012) 341 ITR 403(Guj) (ii) CIT vs. Sanghvi and Doshi Enterprise (2013) 214 Taxman 463 (Mad.) (iii) CIT vs. Mahalakshmi Housing 2012-TIOL-951-HCMAD- IT. (iv) CIT v. Ceebros Property Development (P) Ltd.(2012) 83 CCH 98 (Madras HC) (v) CIT vs. Moon St .....

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s undertaken by the assessee. Further, the ld. DR, submitted that the assessee was undertaken works contract and not developed the housing project. The project was conceived and executed by the land-lord and not by the assessee and the flat was sold to independent prospective purchasers by the land lord. According to the ld. DR, Explanation to sec.80IB(10) introduced w.r.e.f. 1.4.2001 is applicable, as the assessee is only undertaking works contract and not entitled for deduction u/s.80IB(10) of .....

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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 on or after the 1st day of April, 2004 13but not later than the 31st day of March, 2005, within four years from the e .....

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e deemed to have been approved on the date on which the building plan of such housing 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 .....

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from the municipal limits of these cities and one thousand and five hundred square feet at any other place ; [and] (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed 13[three per cent.] of the aggregate built-up area of the housing project or 13 [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 whe .....

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e karta; Explanation - For the removal of doubts, it is hereby declared that nothing contained in this sub-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). 6.1 The contention of the ld. AR is that the assessee is a developer and not mere a contractor and being so, the assessee is entitled to deduction u/s.80IB(10) of the Act. Now, we have to examine as to whether the assessee can be ca .....

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he contract. According to the ld. AR, the assessee has undertaken all risks involved in the project including technological inputs, entrepreneurial inputs etc. Besides, there is heavy financial involvement in terms of deployment of man and machine as well as all materials. At this point, it is pertinent to note that the judgment of the Supreme Court in the case of HAL Ltd. vs. State of Orissa 55 STC 327 (SC) in which it has been observed that in a contract for work, the person producing has no p .....

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e contractor undertaking the work will not necessarily be deemed, on that account, to sell the material. It was, therefore, argued that the developer is a person who brings in additional resources by way of investment and technical expertise for developing the infrastructure facilities. Since the assessee had simply done a part of work of civil construction relating to the housing project, he stated that it is not eligible for deduction. 6.2 We find that the words developer and contractor have n .....

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th before us by the rival parties from other legislations, be they State or Central enactments, cannot be automatically applied in the present context. In order to ascertain the meaning of a word not defined in the Act, a useful reference can be made to the General Clauses Act, 1897. If a particular word is not defined in the relevant statute but has been defined in the General Clauses Act, such definition throws ample light for guidance and adoption in the former enactment. According to s. 3 of .....

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ion is that wherefrom to find the meaning of such words. There is no need to wander here and there in search of an answer which has been aptly given by the Supreme Court in the case of CWT vs. Officer-In-Charge (Court of Wards), Paigah 1976 CTR (SC) 404 : (1976) 105 ITR 133 (SC) in which it was held that the ordinary dictionary meaning of a word cannot be disregarded. 6.3 Coming back to our point of ascertaining the meaning of the words contractor as well as developer , which have neither been d .....

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nt. Now chiefly spec. a person or firm that undertakes work by contract, especially for building to specified plans". In the light of the meaning ascribed to these words by the dictionaries it is observed that the developer is a person who designs and creates new products. He is the one who conceives the project. He may execute the entire project himself or assign some parts of it to others. On the contrary the contractor is the one who is assigned a particular job to be accomplished on the .....

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n to whom the job of construction is assigned, becomes the contractor. The role of developer is much larger than that of the contractor. It is no doubt that in certain circumstances a developer may also do the work of a contractor but a mere contractor per se can never be called as a developer, who undertakes to do work according to the predecided plan. 6.4 So, in order to be eligible for deduction, the development should be that of housing project as a whole and not a particular part of it, as .....

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esidential complex. The main terms of the agreement are reproduced as under:- i) In consideration of mutual covenants herein contained, the developer shall have the sole and exclusive right to develop the site described hereunder (scheduled property) into Residential Complex and apartments and providing suitable amenities. (ii) The Development shall be on the basis of a plan to be drawn by the Architect identified by the developer and approved by the Tirupur Municipal Council and such other rela .....

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Conveyance for sale of fractional interest in favour of the parties procured by the developer according to the terms and conditions stipulated by the DEVELOPER and deliver joint possession to the said parties with a right to have a residential villa/apartment/building constructed by the developer. v) The OWNER and the developer mutually agree on contracted price for each square feet towards undivided co-ownership rights and on parking slots(s) purchased by each of the persons identified by the .....

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n of the residential apartments. The plan was approved on 3.5.2005. After obtaining the approval, the owner of the land sold the undivided co-ownership right in the property to various purchasers vide registered sale deeds. Clause 'H in the sale deed reads as under : "The purchaser has evinced Interest in purchasing an undivided co-ownership right in scheduled;property which, undivided share is more fully described in schedule. B hereto (hereinafter) referred to as schedule B property i .....

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onstruction Agreement entered into on this the 20th day of' August, Two thousand Eight. AND BETWEEN PRIME DEVELOPERS; a partnership firm registered and having its place of business at 110, Avinashi Road, Gandhinagar, P.O.,, Tirupur 641 603 (Tamilnadu) represented by its partner Mr. Purusottam Das Patodia and the purchaser. A The property more fully described in SCHEDULE A hereto belongs to Prime Textiles Ltd. (hereinafter referred to as the OWNER) B. The OWNER with the intention of developin .....

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struction of Residential Complex thereon to be known as PRIME ENCLAVE as per the plans approved by the Tirupur Municipality vide Planning Permission No.F2/51/05 dt.25.5.2005 available with the OWNERS. Copy of permission and approved layout plan from Tirupur Municipal Corporation is annexed hereto as Annexure "A". D. The owner has obtained the requisite commencement certificate dated 1.6.2005 from Mls Sankar & associates Architects & Planners of the project for the development o .....

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space. NOW THIS AGREEMENT BETWEEEN THE DEVELOPERS AND THE PURCHASER ENTERED INTO WITNESSES AS FOLLOWS:- The PURCHASER hereby appoints the DEVELOPER as the contractor and the DEVELOPER accepts the appointment to construct or cause to be constructed for the PURCHASER an Apartment on SCHEDULE A PROPERTY as described in SCHEDULE-C hereto and according to. the specifications given in SCHEDULE-D hereto and as per the approved, plan i for the agreed consideration of ₹ 26,24,214/- (Rupees Twenty s .....

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ment, it is clear that the owner has secured the requisite sanctions and approvals from Tirupur Municipal Corporation and concerned Public authorities for the layout of the SCHEDULE A property and Building Plans for the construction of Residential Complex therein. The owner has also obtained the requisite commencement certificate dated 1.6.2005. It is noteworthy to mention here that the developer has not got any Power of Attorney from the owner i.e. M/s. Prime Textiles Limited. 7.4 Coming to the .....

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elopment agreement without making any reference to the construction agreements entered into with various buyers of the undivided co-ownership right in the property. The land owner i.e. M/s Prime Textiles Ltd., sold undivided co-ownership right in the property to various individuals and these individuals in turn entered into the construction agreement with the assessee, M/s. Prime Developers on various dates. Entity - A 8. The owner of the land i.e. A was earlier owner of the ATL Textiles Ltd. wh .....

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me Textiles. Entity - B M/s. Prime Developers though called developer is only a contractor according to the Assessing 0ffiicer. The issue to be decided is whether M/s. Prime Developers is a contractor or a developer entitled to claim under Section 80lB of the Income-tax Act. However, the flat owners have purchased land from "A" and have entered into a construction agreement with B i.e. Prime Developers. 9. From the above recitals of the construction agreement, it is very clear even tho .....

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bility for deduction under sec. 801B(10) of the Act, as the main revenue earned by the assessee was in the nature of works contractor by virtue of the written agreements entered into with various owners of undivided co-ownership right in property. It is relevant to mention here that on similar facts the Tribunal, Indore Bench in the case of M/s Sky Builders & Developers vs. I.T.O, Ward 1(1), Bhopal 14 Taxman 78 (2011) clearly held that where the assessee sold plots to respective customers by .....

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he purchaser in turn entered into agreement with the assessee as a contractor. The recitals in the construction agreement clearly proves that the assessee is a works contractor. 10. A perusal of the above recital indicates the real intention of the assessee. The assessee has entered into only a construction agreement with the flat owners which legally indicates that it is only acting as a contractor. The assessee can produce this agreement before the Central Excise/Service Tax Authority to show .....

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and claims deduction u/s.80IB as not being a contractor but as a developer. This jugglery of words and interpretation of the construction agreement has far reaching implications for the Revenue. 11. For the sake of clarity in holding that the assessee is only a contractor and not a developer, we reiterate the following point: The assessee was not denied the benefit of 80IB by the Assessing Officer not solely because of the fact that he was not the owner of the land. The AO has given his reasons .....

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