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ĚTO, Wd-9 (2) , Ahmedabad Versus M/s Hariom Corporation

2016 (5) TMI 574 - ITAT AHMEDABAD

Eligibility of deduction u/s.80IB(10) - Held that:- Respectfully following the decision of Hon. Jurisdictional High Court in the case of CIT vs. Radhe Developers (2011 (12) TMI 248 - GUJARAT HIGH COURT) and applying the ratio of the decision to the facts of the case before us, we are of the considered opinion that assessee is a developer of the project and not merely a works contractor and is eligible for deduction u/s 80IB(10) of the Act - Decided in favour of assessee. - ITA No. 3152 /Ahd/2011 .....

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ome-tax (Appeals)-XV, Ahmedabad has erred in law and on facts in directing the Assessing Officer to allow the Assessee's claim for deduction of ₹ 95,56,580/- u/s. 80IB(10) of the l.T. Act. 2). The Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad has erred in holding that the Assessee fulfills the conditions laid down for claiming deduction u/s.80IB(10) even when the land was in the name of Parth Bunglows (nana chiloda) Co-op. Housing Society Ltd., which is a seperate legal entity .....

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s ' and not a developer. 3). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad ought to have upheld the order of the Assessing Officer. 4). It is therefore, prayed that the order of the Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad may be set-aside and that of the Assessing Officer be restored. 2. Briefly stated facts as culled out from the records are that assessee is a partnership firm engaged in the business of developme .....

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. Assessee is- not a developer because the assessee did not conceptualize and own the project in as much as the assessee is not the owner of the land and the approval was not issued to it by the Local authority. 2. The assessee has not undertaken any investment risk in the project. The risk taken is principally by the Society. The Assessee entered into the project by a Development Agreement with the land owner and construction was done as per the agreement and hence the assessee is merely a cont .....

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y person includes the Parth Bunglows (Nana Chiloda) Co-op. Housing society Ltd. which is a legal entitity. As a result, income was assessed at ₹ 95,56,579/-. 3. Aggrieved, assessee went in appeal before ld. CIT(A), who on the basis of his examination of development agreement between the land owner(s) and the assessee adjudicated the issue and held that assessee is a developer and not a mere works contractor and further relying on the decision of the co-ordinate bench in the case of Shakti .....

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eive the housing project and also formed co-operative housing society for smooth administration post completion of housing project. Investment in the land, NOC. Charges, plan passing expenses and all other incidental expenses of the housing project were borne by the assessee firm and worked as deemed owner by virtue of right of possession over the land and structure developed on it as per development agreement entered into between the housing society and the assessee. Ld. AR further submitted th .....

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ession letters and all the documents and has fixed the consideration/price with the proposed buyers/customers for the actual users and, therefore, assessee firm cannot be termed just as a civil contractor but in all fairness assessee is a developer of residential housing project and eligible for deduction u/s 80IB(10) of the Act. Ld. CIT(A) has rightly deleted the addition. 7. We have heard the rival contentions and perused the material on record. Revenue has raised various grounds of appeal but .....

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th the society and assessee is merely a contractor and not a developer. From going through the record, we observe that the land bearing Plot No.7/TP scheme no.99 - Nana Chiloda having an area of 8,317 sq. mtrs. was purchased by Parth Bunglows (Nana Chiloda) Co-op. Housing Society Ltd. and on this land previous owner was accorded permission by local authority for development and construction of the project during Financial Year 2005-06 on 2nd June, 2005 and thereafter the assessee entered into a .....

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ssessee is a developer, we observe that assessee has carried out various activities right from the inception of the project till the sale of last residential unit and the same are enumerated below :- Sr. No. Title As a Developer 1. Initiation Conception The partners of the assessee firm have taken initiative and had designed & conceived the housing project and floated it. 2 Formation Co-op. Hsg. So, formed for smooth administration subsequently on completion of the housing project. 3 Relatio .....

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red in the brochure for booking or information of the housing project is floated. 7 Preparation of plans The assessee firm has prepared the plan/got it approved from local authority, engaged architect/structural engineers and made follow ups to complete the housing project in a fair way. 8 Approval of the plans Solely responsible to get the construction lay out plans approved as designed by it. 9 Execution of Civil work Solely responsible as per development agreement 10 Advertisement The assesse .....

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vance money received from the proposed buyer/ booker/to enroll as subsequent member of the housing project. 14 Agreement Development agreement proved that it has entered into to develop the housing project, as a whole including all necessary amenities/roads/streetlights /maintenance of the development site up to possession of the housing project as a whole to all the residential unit buyers/customers. 15 Control Domain control on the whole of the land of the project. 16 Price fixation The assess .....

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e assessee firm s developmental work includes civil construction work. 20 Meaning Developer is wider terms. Means developer can be said to be a contractor but cannot vice a versa 21 Connection The assessee firm was directly connected to the actual users/customers/members/ brokers. They do not know the land owner society. 22 Keeping books of account etc. The assessee firm has kept the books of account/getting it audited/filed return of income regularly. 23 Possession On completion of the housing .....

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see was appointed as a builder firm :- 3. It is agreed by both the parties that the construction and development work shall be in accordance with the approved plan. However, a separate agreement between the proposed/prospective buyers/purchaser/customer and the builder-firm shall be executed. The party of the first part shall not be held responsible for any delay in work and / or quality of the work. Each buyer wilt free to inspect the quality of the work and on satisfaction only, the builder-fi .....

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se on the developmental work of the Housing Project shall belong to M/S. HARIOM CORPORATION. 6. The party of the first part does not retain the right to terminate this agreement prior to the satisfaction of the terms hereof. Upon the occurrence of any breach or default by M/S. HARIOM CORPORATION of any type of the terms, obligations and covenant contained in this agreement, if it occurs, it should be resolved by mutual discussion only. The party of the other part will free in selecting the archi .....

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r :- 6. The AO has not disputed any of the conditions stipulated from clause (a) to clause (d) of section 80IB(10) with respect to time limit of permissions, time limit of completion, area of land, built-up area limit prescribed for the residential units, and percentage of commercial construction which can be undertaken. His objection is that the appellant is not a developer because it is not the owner of the land on which the residential units were constructed. According to him the appellant is .....

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ent. This objection of the AO has to be seen in the light of the tests laid down by Hon'ble ITAT Bench A Ahmedabad decision dated 7.11.2008 in the case of M/s. Shakti Corporation, Baroda in ITA No.i503/Ahd/2008 in AY 2005-06 wherein Hon'ble ITAT has held that where the appellant is found having practically purchased the land and has borne the risk of development deduction should be allowed. 7. The submission of the appellant dated 2.5.2011 in which it rated that the funds to the Cooperat .....

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have paid cash of ₹ 52,000 on 1Z4.2005 and ₹ 3,50,000 (Rs.1,50,000 + ₹ 1,50,000) on 11.5.2005 i.e. the date of purchase of land on which project is developed." After going through rival submissions it is seen that in the remand report the AO has not disputed the land funding argument of the appellant therefore the appellant is found meeting the test of having practically purchased the land, set forth in Hon'ble ITAT decision in the case of Shakti Corporation. 9. Furthe .....

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be referred to for concluding whether the appellant is in the dominant control of the land or not and whether the project is developed at its cost and risk. Hon'ble ITAT has held that where the appellant is found having practically purchased the land and has borne the risk of development deduction should be allowed. In this case following clauses of the Development Agreement dated 2.6.2005 show dominant control of the appellant. (2) Parth Bunglows (Nana Chiloda) Co.Op. Hsg. Society Ltd. the .....

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arty of the first part shall not be held responsible for any delay in work and/or quality of the work. Each buyer will free to inspect the quality of tfie work and on satisfaction only, the builder-firm shall be entitled for the consideration of the work executed. All the risk and control over the housing project would be that of M/s HARIOM CORPORATION. (5) Except, as provided in this agreement, M/s HARIOM CORPORATION is and at all times will be independent builder cum developer. M/s HARIOM CORP .....

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gress of eh construction work carried out for the prospective buyers. A separate agreement shall be executed between the appointee builder-firm and the proposed/prospective buyers containing the charges/rate of construction to be paid to the builder-firm. " 10. Violation by the appellant of any of the conditions of section 80IB(10) stipulated from clause (a) to clause (d) is not under dispute and the appellant has been found fulfilling the tests laid down by Hon ble ITAT Bench A Ahmedabad d .....

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tions given. The AO is directed to delete the addition made u/s.80IB(10). 10. From going through the above discussion, we are of the view that assessee has carried on activities as a developer and not a merely works contractor. However, as regards the question that the assessee was not the owner of the land then how he will be eligible to claim deduction u/s 80IB(10) of the Act . The reply to this question specifically lies in the decision of the co-ordinate bench in the case of Shakti Corporati .....

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n. High Court has observed as under :- 39. We may now move on to the question of ownership of the land. 40. Relevant portion of Section 2(47) reads as under:- 2(47): transfer , in relation to a capital asset, includes,- (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882(4 of 1882); or Section 53A of the Transfer of Property A .....

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urtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken .....

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. Combined reading of Section 2(47)(v) and Section 53A of the HC-NIC Page 37 of 42 Created On Tue May 10 11:53:01 IST 2016 TAXAP/546/2008 38/42 JUDGMENT Transfer of Property Act would lead to a situation where the land would be for the purpose of Income Tax Act deemed to have been transferred to the assessee. In that view of the matter, for the purpose of income derived from such property, the assessee would be the owner of the land for the purpose of the said Act. It is true that the title in t .....

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ls Ltd. vs. Commissioner of Income Tax (supra), and in the case of Commissioner of Income-Tax vs. Podar Cement Pvt. Ltd. and others (supra), the ownership has been understood differently in different context. For the limited purpose of deduction under Section 80IB(10) of the Act, the assessee had satisfied the condition of ownership also; even if it was necessary. 42. In the case of Shakti Corporation similarly the assessee had entered into a development agreement with the land owners on similar .....

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that the assessee would receive remuneration. However, such one word used in the agreement cannot be interpreted in isolation out of context. When we read the entire document, and also consider that in form of remuneration the assessee had to bear the loss or as the case may be take home the profits, it becomes abundantly clear that the project was being developed by him at his own risk and cost and not that of the land owners. Assessee thus was not working as a works contract. Introduction of t .....

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ing on the land in HC-NIC Page 39 of 42 Created On Tue May 10 11:53:01 IST 2016 TAXAP/546/2008 40/42 JUDGMENT question. Part of the constructed area was to be retained by the owner of the land. In consideration of the land price remaining area was free for the builder to sell. When the land owner found series of defects in the construction, he approached the Consumer Protection Forum. It was in this background the Apex Court was considering whether the land owner can be stated to be a consumer a .....

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reement with the land owner, can be stated to have executed works contract. Such interpretation was rendered in the background of the term works contract defined in Section 2(1)(v-i) of the Karnataka Sales Tax Act, which reads as under:- 12. Section 2(1)(v-i) is relevant. It defines a works contract as follows: 2.(1)(v-i) 'works contract' includes any agreement for carrying out for cash, deferred payment or other valuable consideration, HC-NIC Page 40 of 42 Created On Tue May 10 11:53:01 .....

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ment for carrying out either for cash or for deferred payment or for any other valuable consideration, the building and construction of any movable and immovable property . (emphasis supplied) The definition would therefore take within its ambit any type of agreement wherein construction of a building takes place either for cash or deferred payment, or valuable consideration. To be also noted that the definition does not lay down that the construction must be on behalf of an owner of the propert .....

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