TMI Blog2011 (6) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07 Rs.49,38,710/- 2007-08 Rs.67,78,990/- The AO noticed that the assessee had two housing projects; the first one is that of New Naklank Co-operative Housing Society Ltd. and the second one is Rajshila. Co-operative Housing Society Ltd. The A.O. has stated that the AUDA authorities had approved the project by giving permission to Babubhai Popatbhai Vasani being power of attorney holder of different persons in both the cases. The AO noticed that the land was registered in the name of respective societies and permission for development was also given in the name of societies. He has noticed that in respect of Rajshila Co-operative Housing Society Ltd. 60 units were to be developed and in the case New Naklank Co-operative Housing Society Ltd. 50 units were to be developed. The assessee had shown the work in progress in the profit loss accounts as also direct and indirect expenses along with the profit in the profit loss account of the respective years. The AO has rejected the claim of assessee for deduction u/s. 80 1B (10) of the IT Act on the following grounds: (a) The project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereunder: Sr. No. Conditions specifics for deduction u/s. 80IB Fulfillment of conditions of deduction u/s. 80IB A Rajshila Co Operative Housing Society limited 1 Housing project should be approved before 31/03/2007 23/07/2003 Approved by AUDA 2 Undertaking commence or commences development and construction of housing project on or after 1/10/1998 and approved by local authority before 1/4/2004 and completes such construction on or before 31/3/2008 BU permission is received on 21/08/2007 3 Size of the plot of land having a minimum one acre 8094 square meters 4 Maximum built up area of 1500 Sq feet for each residential unit Each residential unit is having built up area of less than 1500 Sq. Ft. 5 Location of the project should be .within Municipal Corporation Limits Project is within such limits. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e development was carried out by the assessee at its responsibility and risk. There was no fixed income by way of percentage of collection etc. earned by the assessee, but it was profit on development work which was earned. The functions which as developer to be carried out are described as under: (A) The developer for the purpose of planning and executing the housing project has sanctioned necessary plans, drawings, specifications and maps, etc., and has done the work of planning, construction and development of the said project. (B) The developer has appointed the Architects, Engineers, Legal Advisors and such other professionals necessary for the purpose of implementation of such project and has born the necessary expenditure. The developer has made all necessary arrangements with the aforesaid professionals for successful planning, construction and development of the said project. (C) The approval from local authority was obtained with the efforts of the assessee developer as stated in earlier Para. (D) The developer has accepted money from the persons enrolled in the project. The price to be charged to customers is solely determined by the assessee and thereby, col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip of land is not precondition for the purpose of claiming deduction u/s. 80 IB (10) of the IT Act. It was submitted that the assessee was in full possession of land for development of the project. With reference to the AO's observation that the land had not been sold, it was again submitted that the price to be charged from the respective members was to be determined and collected by the assessee and the society was bound to enter such persons as members. As such the decision for sale of units was that of the assessee firm and not of the society. It was further submitted that even collection of funds from the members was by the assessee as a developer. It was also stated that no separate amount is collected for land and construction but the amount is received for sale of each unit. With reference to the AO's observation that the assessee had not shown income from sale of flats, It was further submitted by the assessee that as it follows percentage completion method of accounting, the profit is shown with reference to work in progress i. e. project work carried out during the year though the project is not completed/still pending and the units are not sold. It was pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and as per the agreement they have carried out the development work. Thus, appellant in present case has acquired dominant control over the land and as per banakhat agreement entered with societies; developer was bound to pay amount for acquiring the land irrespective of the fact whether it is able to sell the units. Possession of the land was also given to appellant developer and risks associated with housing project were on it. The appellant is not earning remuneration at fixed rate. The appellant submitted that they are following percentage completion method of accounting and thus the profit/loss in respect of the project was shown on year to year basis and it was not correct to say that the appellant had not shown any income on sale of units. It is also seen from the agreement for development as well as the banakhat agreement that the risk for development including cost is to be borne by the appellant. It is noticed that appellant is following percentage completion method of accounting and profit is shown with reference to work in i. e. project work carried out during the year. Other conditions of section 80 IB (10) are not disputed by the AO and assessee has furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Copy of the profit loss account is filed in support of the contention to show that the assessee acted as a builder/developer of the housing project with all dominant control over the project and all profits have been booked by the assessee in its books of accounts. He, therefore, submitted that the revenue s appeals have no merits and may be dismissed. 6. We have considered the rival submissions and the material available on record. We find that the issues now raised in the present appeals are already taken into consideration and decided by ITAT Ahmedabad Bench in the case of Amaltas Associates Vs ITO (supra) in which earlier decision of this Bench in the cases of M/s. Radhe Developers and Shakti Corporation (supra) had already been taken into consideration. Copy of the same is placed on record. The findings of the Tribunal in the case of M/s. Amaltas Associates (supra from Para 6 to 12 are reproduced as under: 6. We have considered rival submissions and material available on record. Section 80IB (10) reads as under: 80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.--(1) Where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this behalf; (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 kilometers 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 five per cent. of the aggregate built-up area of the housing project or two thousand square feet, whichever is less. xxxxxx Explanation.- For the removal of doubts, it is hereby declared that nothing contained in this subsection shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government). 7. The definition of built-up area is provided in section 80IB(14) (a) of the Act, which means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units. Before proceeding further, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in pursuance of a tripartite agreement and it is not by the land-owners. Therefore, the mere fact that the landowner and the undertaking developing and building housing project, are two different entities would not make any difference. The deduction would be eligible to the person who is developing and building housing project and not to the mere owner thereof. A person who enters into a contract with another person is no doubt a contractor. Having entered into agreements with landowners for development and building the housing project, assessee was obviously a contractor but it does not derogate the assessee for being a developer, as well. The term contractor is not essentially contradictory to the term developer. As stated above, it is the undertaking that develops or builds the housing project that is entitled to deduction irrespective of the fact whether that it is the owner or not or whether it is the contractor thereof. The requirement for claiming deduction is that such an undertaking must develop and build housing project, be it on their own land or on the land of others and for which a tripartite agreement has been entered into for development and building ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to deduction under s. 80-IB(10) as it had developed and built the housing project; it had started construction after 1 day of April 1998; the project is on the size of a plot of land which has a minimum area of one acre and the maximum built-up area of the residential units is not more than 1,500 sq. ft. It may also be born in mind that deduction is not exclusively to an assessee but to an undertaking developing and building housing project, be it developed by a contractor or by an owner. The assessee, in the instant case, can also be said to be the owner of the land as it had made part payment to the landowners during the financial years 2000-01 and 2001-02 for an amount of ₹ 56 lacs, and taken the possession of the land for development and building the housing project and satisfy that condition as well of being the owner of the land in view of provisions of s. 2(47)(v). When the assessee has taken on the possession of immovable property or retained it in part performance of a contract of a nature referred to in s. 53A of the Transfer of Property Act, 1882 it amounts to transfer under s. 2(47)(v). In the instant case there was, definitely, a dominion of the dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Mysore Minerals Ltd. (supra), we hold that the assessee is entitled for claim of deduction on the profits derived from construction and development of residential housing project. 8. In the case of Shakti Corporation (supra), the assessee claimed the deduction under Section 80IB(10). The AO disallowed the assessee s claim on the ground that it was not the owner of the property; that the permission was not granted in the assessee s name and the approval from the Municipal Corporation was in the name of the original land owner and not in the name of the assessee. The Tribunal considered the averment and the material on record and allowed the claim of the assessee and it was held as under: In the instant case, there was no agreement to share the constructed area. This agreement relates only to purchase part of the land from the landowner by the assessee for a predetermined consideration. All the responsibilities for carrying out the construction, permission, NA, NOC, legal proceedings and the results of the development lies with the assessee. The first party is only to cooperate the assessee in carrying out the development and also to execute the documents whenever i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le the developer to have the dominant control over the project and all the risks involved therein will vest with the landowner only. The interest of the developer will be restricted only for the fixed remuneration for which he would be rendering the services. The decision in the case of Radhe Developers Ors. (supra) has not dealt with such situation. The proposition of law laid down in the case of Radhe Developers Ors. (supra) cannot be applied universally without looking into the development agreement entered into by the developer along with the landowner. In the case of the assessee, since it had filed copy of the development agreement and crux of the agreement was that the assessee had purchased the land and had developed the housing project at its own, the assessee would be entitled to the deduction under section 80IB(10). 9. The learned counsel for the assessee referred to the terms of the agreement for housing project (PB 62). According to which, the responsibility of the assessee have been analyzed in such manner that the planning, sanction of plan, work of construction, development of the property, labour engagement shall have to be done by the assessee in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed buyer is also filed to support the contention of the assessee that the assessee received entire sale proceeds in its books of accounts with all rights to use profit and loss. PB-130 is the reply filed before the learned CIT(A) to explain the above position that the assessee paid sale consideration to the society. The learned counsel for the assessee also referred to the queries raised by the CIT(A) in this regard which is properly explained by the assessee. The above facts would prove that the assessee entered into an agreement to sell with the society for consideration. All the responsibilities for carrying out the construction, permission and development of the project lie with the assessee. The real owner of the land was only to cooperate with the assessee in carrying out the development and also to execute necessary documents whenever required by the assessee as a developer. The real owner has also handed over the physical possession to the society as a builder for carrying out the development of the project. The land owner did not left with any right, interest or title in development which was carried out by the assessee. The assessee was entitled to enroll the member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has acquired dominion right over the land and has developed the housing project by incurring all the expenses and taking all the risk involved therein. The crux of the matter would be that the assessee has purchased the land and has developed the housing project at its own cost, therefore, we are of the view that the assessee will be entitled for deduction under Section 80IB(10) of the Act. 10. The assessee filed details of built up area of all 110 units of the residential flats at page no.52 and 53 of the PB to show that the built up area was less than 1500 sq. feet. However, the DVO reported in his report (PB-46) that considering the open terrace in front of pent-house room at 6th floor which is analogous to balcony/verandah, then built-up area in this manner will measure more than 2500 sq. feet to 2600 sq. feet approximately. It is therefore a case set up against the assessee that the open terrace is analogous to balcony/verandah and if it is included in the definition of built-up area, then it would exceed the prescribed limit. The definition of built-up area means inner measurement of the residential unit at the floor level including the projections and balconies as incre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 500 sq. ft., i.e., the limit prescribed by section 80-IB(10) and only a few residential traits were exceeding the built-up area of 1500 sq. ft., there would be no justification to disallow the entire deduction under section 80- IB(10). It would be /air and reasonable to allow the deduction on a proportionate basis, i.e. on the profit derived from the construction of the residential unit which had a built-up area of less than 12500 sq. ft., i.e. the limit prescribed under section 80IB(10). In view of the above, the AO was to be directed that if it was found that the built-up area of some of the residential units was exceeding 1500 sq. ft., he would allow the proportionate deduction under section 80-IB(10). Accordingly, the appeal of the revenue was to be dismissed and cross-objection of the assessee was deemed to be partly allowed. Therefore, in the light of the decision of the ITAT, Nagpur Bench, the authorities below should not have rejected the claim of the assessee at least on alternate contention that the assessee would be entitled for deduction under Section 80IB(10) on pro-rata basis. No other point was considered against the assessee for refusing relief under Section 80IB(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were to be borne by the assessee. The clauses of the development agreements also support the contention of the assessee. Since, the assessee paid the entire consideration of the property in question to the society and possession is given to the assessee, therefore, for all intents and purposes the assessee became the owner of the property in question with all rights, title and interests therein. The assessee was entitled to charge and collect the money on transfer and sale of the housing projects from the members. It was found that the assessee was following percentage completion method of accounting and profit is shown with reference to work in progress i.e. project work carried out during the year though the project was not completed/pending and the units were not sold. It was explained by the assessee that if it had not shown income from the sale of the flats, there would not have been any profit/loss from the housing project in the year under consideration. The learned Counsel for the assessee filed a copy of the profit loss account for the financial year 2007-08 (assessment year 2008-09) to show that the project income of the assessee on completion of the housing project wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property in question to the societies. The assessee recorded all the sale proceeds in its books of accounts as is demonstrated by the learned Counsel for the assessee. The above facts would prove that the assessee entered into agreements to sell and development agreements with the societies for consideration. All the responsibilities for carrying out the construction, permission and development of the housing project lie with the assessee. The real owners of the land were only to cooperate with the assessee developer in carrying out development and also to execute documents whenever required by the assessee as developer. The real owners have also handed over physical possession of the property in question to the assessee as a builder for carrying out the development project. Thus, the land owners were not left with any right, title or interest in the development which was carried out solely by the assessee. The motive of the real owners of the land in question was not to develop; construct or carrying out any business as a builder or developer of project and no right is left in this behalf. For all intent and purposes, the assessee has acquired dominant right over the land and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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