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TMI Blog2021 (2) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... n 28.07.2005. As the owners of the land, the firm entered into a joint development agreement with M/s. Narendra Properties Ltd., the developer, on 16.08.2005. By virtue of the agreement, the assessee- owner had transferred/assigned 50% of the land holding to the developer, M/s. Narendra Properties Ltd., who in turn made an investment by way of constructing all the flats and both of them held 50% of rights in all the aspects of flat promotion in terms of built-up area, undivided share of land and open terrace area etc. The assessee claimed 100% deduction u/s. 80IB(10) ie on its entire net profit. The AO examined the assessee's claim and held , inter alia, that the assessee firm is neither a builder nor a developer in order to claim the deduction u/s. 80IB(10) for the reasons , inter alia, that the assessee had not independently developed/completed the project. Since, the assessee transferred/assigned 50% of the property to the developer, the assessee owned only 25 cents or half acre as against one acre as per the condition laid down in section 80IB(10), the assessee's P &L a/c shown that on the gross sale value of Rs. 4,07,53,750/-, only bank charges of Rs. 1,625/- was debited. Sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... develop the land belonging to the land owner on certain terms and conditions. On the same day, the land owners entered into agreements to sell the land in acquisition to the assessees. The assessees were described as purchasers and the land owners were described as the sellers, the profit and loss from the project was to be the assessees. In some cases, the assessees were to receive fixed remuneration for the development. The A O rejected the assessees' claim for deduction u/s. 80-IB(10) on the ground that the assessees were not the owners of the land, that approval by the local authority and permission to develop the project and commence the construction were not in the name of assessees and that the assessees had merely acted as agents or contractors for construction of residential houses. The Tribunal was of the opinion that for deduction under Section 80IB (10), it is not necessary that the assessee must be the owner of the land. Even otherwise, looking to the provisions contained in Section 2(47) of the Act, read with Section 53A of the Transfer of Property Act, by virtue of the development agreement and the agreement to sell, the assessee had, for the purpose of Income Tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regulations. However, in future, rules be amended and additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use as agreed between the parties. The assessee had full authority and also responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. Most significantly, the risk element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see for the reason that the housing project was carried out by M/s. Purvankara Projects Ltd., and the assessee has not developed and built the housing project on its own. The Commissioner of Income Tax (Appeals) held that the assessee is not entitled for deduction. The Tribunal held that the assessee not only obtained the permission/sanction for the construction but also has done the work of making the land useful for the apartment construction, providing roads, supervising the construction activity along with Purvankara Projects Ltd. Therefore, the assessee is an integral part of the development and construction activities. The assessee is not merely the land owner who had agreed to part with the land. Normally, once the land is transferred to the developer, the developer does the entire activity, whereas in the instant case, the assessee as mentioned above , has also done additional activities, which are integral parts of developling the project. Therefore, the Tribunal held that the assessee is entitled to the benefit of tax under the aforesaid provisions. The Revenue appealed before the Hon'ble High Court and the relevant portion of the judgment is extracted as under: " 7. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the revenue that the assessee did not undertake any developmental or building activity and therefore, he cannot individually claim the benefit has no substance. That is not the requirement of law. Keeping in mind, the object with which this provision is introduced when all persons who have made investments in this housing project which is for the benefit of middle and lower class people and, when they have complied with all the conditions prescribed under the aforesaid provision, both of them are entitled to hundred percent benefit of tax deduction as provided under the said provision. ......................................" 6.3 The third case law relied on by the assessee is the Jurisdictional High Court's decision in the case of CIT, Business ward XV(3) vs Sanghvi and Doshi Enterprise, 214 Taxman 463, in which the essential facts are that the assessee, Sanghvi and Doshi Enterprise, as a builder entered into an agreement with owner of the property, 'Hotel Mullai Pvt Ltd, (H), on 28.04.2003 for joint development of a property. The terms of agreement stated that the assessee had agreed to build an extent of 1,91,990 sq.ft. super built-up area on the said property. The own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was not the owner would not disentitle the assessee from claiming relief under section 80IB(10) of the Income Tax Act. It further pointed out that the builder on its part had invested on materials and labour as and when the construction progressed and the recoupment of the investment was uncertain. Thus, irrespective of whether all the flats were booked or not, the builder would have to construct the entire building and even if there was a booking for a flat in the fourth floor and the third floor remained unbooked, the assessee nevertheless would have to go ahead with the construction of the third floor and hand over the possession of the fourth floor to the person, who had paid for the undivided share in the land. In this, the tribunal pointed out that the risk of the assessee was multifold in contrast to the owner, who had no risk involved at all. After perusing the agreement, the tribunal held that the assessee had the responsibility to develop and construct the housing project and the owner of the land is nowhere in the picture. Thus, the assessee was entitled to the relief under section 80IB of the Income Tax Act and the absence of ownership would not disentitle the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o enter into a builder agreement 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. Thus, seen in the background of the data available as regards the date of sale, the clause in the agreement between the owner of the land and the assessee and the sale agreement with the prospective purchasers, it is evident that what the assessee had undertaken is not a mere construction, but developing and constructing of a project, which qualifies for a deduction under Section 80IB of the Income Tax Act. As rightly pointed out by learned Senior Counsel appearing for the assessee, a bare reading of Section 80IB of the Income Tax Act shows that the deduction contemplated therein is oriented towards the project and not with reference to an assessee. It is no doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developing and building housing projects approved by the local authority etc. The relevant portion of the order of the AO is extracted as under to indicate the salient features of the agreement and the conclusion drawn by the A O : "The agreement is between M/s. Anjali Foundations, described as "Owners" and M/s. Narendra Properties Limited, a company represented by its Managing Director Mr. Narendra C Maher, described as "Developers". Whereas the Developers herein approached the owners herein with a proposal to undertake the construction of an Residential complex thereon" "Whereas the Owners assured the Developers that they would sell, transfer, convey and assign 50% undivided share of interest over the land comprised in Schedule "A" in favor of the Developers or its nominee(s) in consideration of the developers constructing and delivering to the owners 50% of the super built up area of the building to be constructed on the schedule "A" property. - Page 2 of the Agreement. The party of the first part shall allow the party of the second part to construct a multistoried residential complex at property/vacant lands situated in No. 15, Sholinganallur village, Saidapet Taluk, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .............. ........... ................................................... Even otherwise a perusal of the assessee firm's profit and loss account show that, no expenses on account of construction of the project/flats were claimed by the assessee for the AY 2010-11. Only bank charges of Rs. 1,627.00 was debited on the gross sale value of Rs. 4,07,53,750.00. For the AY 2009-10 also no expenses were claimed towards construction of the flats. The assessee firm only owned certain area, fifty percent of which was transferred to another entity, and the other entity had only constructed the flats. In the "Agreement for sale" document entered between the assessee and the buyers, the assessee firm is quoted as "Vendors", whereas the other entity is quoted as "Builders". All the above documents goes to prove that the assessee firm is not a builder or developer in order to be eligible for claiming deduction u/s. 80IB(10), and has only owned certain area of land. " 9. Thus, it is clear that the assessee is the owner of the land , as a owner of the land all that it was entitled to on the terms of the agreement between the parties was for the undivided share of the land measured in term ..... X X X X Extracts X X X X X X X X Extracts X X X X
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