TMI Blog2018 (5) TMI 1159X X X X Extracts X X X X X X X X Extracts X X X X ..... Dated:- 5-3-2018 - MR. AKIL KURESHI AND MR. B.N. KARIA, JJ. For The Petitioner : Mr.Varun K.Patel And Mrs Mauna M Bhatt For The Respondent : Rule Not Recd Back ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These appeals arise in similar common background. We may treat Tax Appeal No. 577 of 2014 as the lead matter. Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 08.11.2013. Tax Appeals were admitted for consideration of following substantial questions of law: ( i) Whether in the facts and circumstances of the case, the has erred in law in allowing the assessee deduction u/s 80IB(10) r.w.s. 80IB(1) of the Income Tax Act on profits derived from sale of unutilized FSI not being element of profit derived from the business activity of development and construction of housing project? ( ii) Whether on facts and in circumstances of the case, the learned ITAT has erred in law in ignoring the fact that by nonutilization of available FSI on the approved plot of land, the pre-condition for the development of minimum one acre of land had not been fulfilled and hence assessee was not eligible for clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being a developer or not. With respect to the construction carried out by the assessee, the Tribunal was of the opinion that there was no mandatory requirement under the law that the assessee must fully utilize the permissible FSI. Mainly on these grounds the appeal of the assessee was allowed. The materials on record would suggest that the assessee had put up housing project on a land admeasuring 3786 sq.mtrs. Permissible FSI was 1.8. Maximum construction that could have been carried out on such plot of land therefore was 13294.8 sq.mtrs. As against that, as recorded by the DVO, the assessee had carried out a total construction of 4037.76 sq.mtrs which was less than 1/3rd of the total permissible construction area. The question is, can the profit derived from sale of such unused FSI be stated to be out of the assessee's business of development of housing project? This issue is no longer res integra . This Court in case of Commissioner of Income Tax vs. Moon Star Developers reported in [2014] 367 ITR 621 (Guj.) had considered such a case in following manner: 29. In this context, we may examine, whether the decision of the Assessing Officer to treat the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en that given the rate of constructed area remaining same, nonutilization of available FSI would reduce the profit margin of the developer. When a developer therefore utilizes only say 25% of FSI and sells the unit leaving 75% FSI still available for construction, he obviously works out the sale price bearing in mind this special feature. Let us compare two instances. In the same area two residential schemes are developed. Both have residential units of 1500 sq. feet. In one scheme 100% FSI is used in another 25% FSI is used and 75% is passed on to the buyer of the unit. Price of the unit in the later scheme would for apparent reason be considerably higher than the former because the buyer there gets not only a residential unit of 1500 sq. feet, he also gets the right to build further construction of 4500 sq. feet. Whether this includes open land or not is not important. In terms of construction business, it is equivalent to sale of land. Thus, therefore, when a developer constructs residential unit occupying a fourth or half of usable FSI and sells it, his profits from the activity of development and construction of residential units and from sale of unused FSI are distinct and se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea on the ground floor, deduction under section 80IB(10) of the Act cannot be declined, cannot be accepted. As noted earlier, in case of M/s.Moon Star Developers and many other assesses, such full utilization of the ground floor area available for construction resulted into barely 20% to 25% of the FSI being used, remaining more than 75% being left unused. 34. What is available for deduction under section 80IB(10) of the Act is the profit of an undertaking derived from developing and building a housing project. Mere sale of open land or unused FSI as part of the housing project where utilization of the FSI is way short of permissible limits cannot be said to have been derived from such housing project. Terms derived from , arising out of and attributable to are often times used in the context of income tax in different connotation. In the case of Sterling Foods (supra), the assessee was engaged in processing prawns and other sea food which it exported. In the process, the assessee earned import entitlements to use itself or sell the same to others. During the year under consideration, the assessee included such sale proceeds for claiming relief under section 80HH of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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