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M/s. Malles Rajarajeswari Versus The Income-tax Officer, Business Ward-I (3) , Chennai. and M/s. Malles AV Gardens Versus The Assistant Commissioner of, Income-tax, Business Ward-I (3) , Chennai

2016 (3) TMI 725 - ITAT CHENNAI

Entitlement to deduction under sec.80IB - Held that:- The assessee entered into construction agreement with the prospective buyers, who has no choice of giving the construction to another builder and thereafter, the assessee constructed the building as per the approved plan and provided various amenities common to all people. Therefore, looking into the entire transaction, as such, it is a development of housing project by the assessee itself and no one awarded any work to the assessee. Even if, .....

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re assumed by a developer, then the assessee was entitled to deduction under sec.80IB of the Act. - Decided in favour of assessee. - ITA Nos. 1109 & 1113/Mds/2014 - Dated:- 5-2-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Shri A.S.Sriraman, Advocate For The Respondent : Shri A.V.Sreekanth, JCIT PER CHANDRA POOJARI, ACCOUNTANT MEMBER These appeals by different assessees are directed against different orders of the C.I.T.(Appeals) date .....

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e AO as under: "3(a) Shri U.Chandraprakasam & Smt. U. Nagamalleswari wlo Sri U Chandraprakasam, have purchased the piece and parcel of vacant land of an extent of 44627 sq.ft comprised of Plot Ns.1-6, 19-24, 25-33 and 36 to 43 in Survey Nos 33/283 and 3/284 1 50 24 in ''AV Gardens" Mugalivakkam, Chennai-116 forming part of an approved layout, layout having been granted by the CMOA vide PPOILON0.41/2006 dated 12/04/2006 by an absolute deed of sale dated 8/2/2007. The origina .....

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vided share of a plot/ or entire plot in the already approved layout ranging from a minimum of 750 sq.ft. to 1590 sq.ft. and also undivided share in common area to the extent of 140 sq.ft. to 161 sq.ft. together with share of luxury amenities to the extent of 50 sq.ft. to number of buyers. The luxury amenities such as swimming pool, community hall etc, are common to the layout owned by M/s. Malees Rajarajeswari and other separate adjacent layout owned by another firm called M/s. A.V.Gardens. 3(d .....

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e hall for both A.V.Gardens & Malles Rajarajeswari. Further, as far as the swimming pool is concerned it is built on Plot Nos.23 & 24 in the other adjacent layout Malles AV Gardens. As per the assessee s own words, We have just utilized the empty land which we have converted as a swimming pool. Since the area being controlled by Panchayat, no separate plan approval is required for swimming pool. 3(e) Later the firm M/s. Malles Rajarajeswari enters into a separate construction agreement w .....

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endent duplex house. In those cases the built up area exceeds 1500 sq.ft. 3 (f) The assessee was requested to file a copy of approval granted by the concerned authority for the project and completion certificate of the project. In response the assessee filed a copy of approval obtained for a residential house in a plot No.26 /5.No3/2B3 & 3/284. The same was obtained on 07/3/2007. The assessee further informed that he has obtained as much building plan approvals as the number of plots Sold. A .....

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sed within one compound wall gate and independent water tank superbly serves you even in dry weather . The above amply gives clear picture of its activity . 2.1 According to the Assessing Officer, the partners of the assessee after purchase of land as well as after getting approval for housing project from the competent authority formed the partnership, which in turn entered into construction agreements with the purchasers of independent/twin houses forming part of the said housing project. Acco .....

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d as integrated housing project. As the project involved sale of plots of land only and construction of the houses thereon as per the construction agreements signed by the buyers of the plots. There was registration of sale of plots of land only. There was no registration of sale of house in favour of the buyers. The houses were constructed as per the construction agreements signed by the buyers of the plots and were merely handed over to them on completion certificate. Further, there was no app .....

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that the assessee failed to demonstrate that the activity carried out by it comes under developing and building of housing projects and the financial risk. Thus, he opined that the activity carried out by the assessee will be that of a works contract and thereby confirmed the finding of the A.O. Against this, the assessee is in appeal before us. 4. The ld. AR submitted that the assessee is a partnership firm engaged in the business of property development and for the Assessment Year under consid .....

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ng Officer wrongly concluded that the assessee had not developed a housing project as understood in the provisions granting the relief under the Act. 4.1 The ld. AR. also submitted that the partners of the assessee after purchase of the land as well as after getting the approval for developing a housing project from the competent authority formed the partnership which in turn entered into construction agreements with the purchasers of independent/ twin houses forming part of the said housing pro .....

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be rejected as not sustainable in law. 4.3 Further, according to the Revenue authorities, the approvals obtained separately for each of the houses comprised in the said housing project could not be construed as a project developed in one acre of land inasmuch as the authorities construed the each of the houses in view of the independent approvals obtained in relation thereto as separate and not a cumulative and a single project. The said approach of the authorities in rejecting the claim of the .....

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houses comprised in the housing project under consideration is not a bar to claim such deduction in the computation of taxable total income. The Tribunal in the case of Asst. v. C. Rajini(Smt.) reported in 9 ITR 808 (Trib), wherein the Bench had rejected the approach of the authorities. In the present case in considering multiple approvals obtained for various houses comprised in the housing project is not bar to claim such deduction in the computation of taxable total income as held by the Tri .....

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the reasoning that VAO was not an authority for issuing a certificate of approval. In any case paras reproduced above, from the letter of Dy. Director, Town Planning would show that such approval was for construction in the plots. 4.6 It is also submitted that applicant got sanction for building from local panchayat. Pursuant to this, the individual owners to whom plots were given had obtained sanction for constructing the units, and constructions carried out by the assessee. The approved layou .....

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make the said claim of deduction. 4.7 Further, the ld. AR submitted that the completion certificate was not mandatorily required/to be issued in view of the execution of the housing project as an ordinary building category with ground floor plus one. The housing project under consideration was executed in a different manner and the individual houses/twin houses were offered and sold to the various customers after obtaining individual approvals from the competent authority. According to the ld. .....

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estricted to the profits earned from the houses constructed and sold complying with the conditions prescribed in section 80 IB (10) of the Act which formed part of the eligible housing project while excluding the profits relatable to those houses having exceeded the maximum built-up area of 1500 sq.ft. in the revised return of income. However, the Assessing Officer in view of the violation of the said condition in some of the houses comprised in the eligible project had rejected the entire claim .....

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ered by the Chennai Bench of the Tribunal in the case of Viswas Promoters (P) Ltd. is not a correct statement of fact. It is also correct to argue that the said order of the Tribunal Chennai Bench in the case of Viswas Promoters (P) Ltd. has been confirmed by the Madras High Court. The Madras High Court in its writ order has dealt with only the writ application filed by the assessee against the order of the Tribunal dismissing the Miscellaneous Petition filed by the assessee. The Court has speci .....

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till open for the assessee to appeal against the finding of the Tribunal on merits of the issue in appeal before the High Court permitted under s. 260A. Therefore, it is premature to hold that the order of the Tribunal, Chennai Bench in the case of Asstt. CIT vs. Viswas Promotors (P) Ltd. has been upheld by the Jurisdictional High Court. Where the Jurisdictional High Court has dismissed the appeal against the order of the Tribunal holding that no substantial question of law arises, the said deci .....

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nd findings given by the Tribunal in its order. The judgment of the Calcutta High Court rendered in the case of CIT vs. Bengal Ambuja Housing Dev. Ltd. in IT Appeal No.4S8 of 2006, dt. 5th Jan., 2007 is a judgment directly on the issue upholding the view of the Calcutta 'C' Bench of the Tribunal that a proceedings rata deduction is permissible under s. 80-IB(10). As there is no direct decision of the Jurisdictional High Court still available on the subject, the judgment of the Calcutta H .....

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rks contract and not as a developer on the strength of the retrospectively inserted explanation below the section 80 I B (10) of the Act. Further, the ld. AR submitted that the developer is totally different from the works contractor inasmuch as the distinguishing features ought to have been noticed before applying the said explanation to the facts of the case. The developer having taken a financial risk in executing a housing project should not be compared with the person who executes a works c .....

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d the housing project. According to ld. DR, the land is not owned by the assessee-firm. It is seen from the facts that Shri U. Chandraprakasam & Smt. U. Nagamalleswari formed partnership on 28.3.2007 under the name and style of M/s. Malles Rajarajaeswari . Before the formation of this firm, the above two partners purchased the vacant land measuring 44627 sq.ft. on 28.2.2007 situated at Plot Nos.1-6, 19/24, 25-33 and 36 to 43 in Survey Nos.33/283 and 3/284 1 50 24 in AV Gardens Mugalivakkam, .....

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re common to the layout owned by M/s. Malees Rajarajeswari and other separate adjacent layout owned by another firm called M/s. A.V.Gardens. 6.1 The so called, luxury amenities such a swimming pool, community hall etc. are common to the layout owned by Malles Rajarajeswari and other separate adjacent layout called Av Gardens. The club house having facilities such as Gym, Indoor Games & Multipurpose hall is located in Plot No.1 in Malles Rajarajeswari. Where approval has been obtained as twin .....

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separate plan approval is required for swimming pool. 6.3 Later the assessee-firm M/s. Malles Rajarajeswari enters into a separate construction agreement with the persons who have already arranged for buying the plot of land in the layout- AV GARDENS (Phase I) from the owners of plots Shri U.Chandraprakasam & Smt.U.Nagamalleswari. The construction agreement is for semi Independent Duplex House comprised of Ground floor with super built up area which varies according to the extent of plot of .....

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plot No.26 /5.No3/2B3 & 3/284. The same was obtained on 07/3/2007. The assessee further informed that it has obtained as much building plan approvals as the number of plots sold. As far as the completion certificate, the assessee informed that the project is ordinary building category with Ground Floor plus 1 for which completion certificate is not mandatory. 6.5 As the project involved sale of plots of land and subsequent construction of the houses thereon as per construction agreements si .....

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eeds of the plots of land and the construction agreements signed by the buyers of the plots of land, it is seen that the partners of the firm sold the plots separately and thereafter, the assessee firm undertaken construction of the houses in those plots after obtaining building plan approved in the name of individual plot owners. 6.7 Thus, the landed property, in this case is owned by the partners of M/s. Malles Rajarajeswari, and there was duly approved lay out in their names. After formation .....

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construct the building and thereafter forming the partnership, the assessee has constructed the building as per the agreed terms of the construction as per the approved plan and handed over the physical possession of the property to the prospective buyers. The assessee has constructed buildings as per the approved plan and created infrastructure facilities like parking area, drainage facility, drinking water facility, fire extinguishment, lift swimming pool etc. These facilities cannot be provid .....

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e assessee. When the purchasers have no choice of selecting the builders for construction on a project being developed by the assessee, we are of the opinion that the purchaser cannot award any work to the assessee. Therefore, the contention of the ld. DR has no merit. It is appropriate to mention the judgment of the Kerala High Court in the case of Kerala Builders Forum v. State of Kerala (2009) (4) KLT 658, wherein it was held that it is the responsibility of the builder / land owner to comple .....

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ers has to enter into an agreement for purchase of undivided share of land and simultaneously has to enter into construction of flat also. The contention of the State Government was that when the builders sold the fully constructed flats then stamp duty has to be paid for the land as well as the flat. And to avoid stamp duty on the value of the building, the individuals, who purchased the flat entered into an agreement of sale of undivided share of land and simultaneously entered into an agreeme .....

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t with the prospective buyers, who has no choice of giving the construction to another builder and thereafter, the assessee constructed the building as per the approved plan and provided various amenities common to all people. Therefore, looking into the entire transaction, as such, it is a development of housing project by the assessee itself and no one awarded any work to the assessee. Even if, there is an enabling clause in the partnership deed to do the works contract, that cannot be a reaso .....

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rtion is as follows : 16. The Hon'ble Madras High Court, in the case of CIT vs. Sanghvi & Doshi Enterprise reported in (2013) 50 (I) ITCL 303 (Mad-HC) held that where the assessee entered into a joint development agreement to build up a housing project on land owned by some other person and assumed all risks that are assumed by a developer, then the assessee was entitled to deduction under sec. 80IB(10) of the Act in respect of profits derived from the housing project. The relevant porti .....

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e 6th floor and 11th floor were sold even as early as 2003, flats in first floor with Nos. 104 and 103 were sold in the year 2009. So too, some of the flats in second floor and third floor were sold in the years 2007, 2006 and 2005. The flat in 12th floor was sold on 15-10-2063 valid in the 9th floor on 5-11-2003. The flats in the first floor with Nos. 101 and 102 were sold on 17-6-2009. Apart from this, there were still some flats left unsold. [Para 29] In the background of these facts, the ris .....

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nt with the proposed purchaser and it is open to the builder to fix such rate per square foot for construction of the area as it deems fit, over which the owner has no claim at all. The builder has to pay the specified cost of the land on the undivided share of sale in favour of the purchaser to the owner, pro rata to the built-up area. A reading of the agreement of sale with the purchasers further points out that the builder's agreement was entered on the very same day with the assessee. Th .....

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ction contemplated therein is oriented towards the project and not with reference to an assessee. It is no doubt true that the project has to be done by the assessee, but then, when the deduction is specific enough as regards the particular activity, one fails to see how one should assume any significance in the matter of considering a deduction. 17. The Hon'ble Madras High Court, in the case of CIT vs. Subba Reddy (HUF) (2015) 121 DTR 115 (Mad.), held that for claiming deduction under sec. .....

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ea of 1,500 sq.ft. to claim deduction. Even in the definition under s. 80IB(14)(a), which came into effect from 1st April, 2005, built-up area was defined as inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls, meaning thereby the actual residential portion of the property. It, however, clearly states that it will not include common area shared with other residential units. Hence, the definition under .....

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