Income Tax Appellate Tribunal - Chennai
Sri Mahalakshmi Housing, Chennai vs Assessee on 29 January, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'A'
BEFORE SHRI PRADEEP PARIKH, VICE-PRESIDENT
AND SHRI GEORGE MATHAN, JUDICIAL MEMBER
I.T.A. Nos.259 & 260/Mds/2010
Assessment Years : 2005-06 & 2006-07
Sanghvi and Doshi Enterprise The Income-tax Officer
No.560, 3H Century Plaza Vs. Business Ward XV(3)
Annasalai, Teynampet, Chennai.
Chennai - 18.
PAN - AAYFS 0257 P
(Appellant) (Respondent)
I.T.A. Nos.261 & 262/Mds/2010
Assessment Years : 2005-06 & 2006-07
Sri Mahalakshmi Housing The Income-tax Officer
3H Century Plaza Vs. Business Ward XV(3)
No.560, Annasalai Chennai.
Teynampet, Chennai - 18.
PAN - AAZFS 0513 M
(Appellant) (Respondent)
I.T.A. Nos.263/Mds/2010
Assessment Year : 2006-07
Sri Mahalakshmi Builders The Income-tax Officer
3H Century Plaza Vs. Business Ward XV(3)
No.560, Annasalai Chennai.
Teynampet, Chennai - 18.
PAN - AAYFS 6887 P
(Appellant) (Respondent)
Assessees by : Shri T.Banusekar
Respondent by : Shri K.R.Meena,CIT-DR
ORDER
PER PRADEEP PARIKH, V.P.
In all these are five appeals by three different
assessees. All the appeals are against five different orders of
the ld. CIT (A), all dated 29.1.2010. In the case of first two
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assessees they are for assessment years 2005-06 and 2006-
07. In the case of third assessee, it is for assessment year
2006-07. Since common issues are involved in all the five
appeals, they are being disposed of together by this
combined order for the sake of convenience. The appeals of
M/s. Sanghvi and Doshi Enterprise are taken up first for
consideration.
2. The main ground in these two appeals is against the
decision of the authorities below that the assessee is not a
builder and developer but merely a building contractor and
hence, is not eligible for deduction under sec.80IB(10) of the
Income-tax Act, 1961 (the Act). The remaining grounds are
against the decision that even otherwise, the assessee is not
eligible for the said deduction as it has not fulfilled all the
conditions required to claim such deduction.
3. The assessee firm is engaged in the business of
construction. In assessment year 2005-06, the assessee
computed a profit of Rs.2,02,65,109/- following the
percentage completion method and the entire amount was
claimed as deduction under sec.80IB(10) of the Act. In
assessment year 2006-07, the assessee computed a profit of
Rs.2,96,02,224/- on the same basis as in the earlier year
and claimed deduction of Rs.2,93,00,835/- under
sec.80IB(10) of the Act. In both the years, the profit was
derived from a housing project named as "Vimalachal" at
No.1088, PH Road, Vepery, Chennai. The said project was
constructed on a land owned by Hotel Mullai Pvt. Ltd.
(HMPL).
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4. The Assessing Officer considered the agreement dated
28.4.2003 entered into between HMPL and the assessee. He
observed that HMPL as the owner of the land decided to
develop the project for which the assessee was nominated as
its builder for construction. The other observations of the
Assessing Officer can be summarised as follows:
a) The permissive possession of the land given to the
assessee did not amount to delivery of possession as a part
performance of the contract under sec.53A of the Transfer of
Property Act (TP Act) or under sec.2 (47) of the Income-tax
Act.
b) All the necessary permissions required to be obtained
from Chennai Metropolitan Development Authority (CMDA),
Corporation of Chennai (Corporation for short), Airport
Authority of India (AAI) etc. were obtained by HMPL and not
the assessee.
c) There was no outright purchase of land on payment by
the assessee from HMPL.
d) The order of the DCTO described the assessee's nature of
business as works contract.
e) The assessee had sub-contracted the civil work of the
project to GK Shetty Builders Pvt. Ltd. (GKSB) and that the
assessee's status is similar to that of GKSB and it cannot be
better.
The Assessing Officer was of the view that development
includes many aspects and construction is only one of it.
Based on the above facts and the provisions of sec.80IB
(10), the Assessing Officer concluded that the assessee has
assisted the owner, i.e. HMPL in construction only and all
other developmental aspects have been done by HMPL.
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Accordingly, it was held that the assessee is not eligible for
deduction under sec.80IB of the Act.
5. Besides the above, the Assessing Officer noticed that
certain other conditions in order to claim the deduction were
violated. They are as follows:
a) The built-up area of certain flats exceeded the statutory
limit of 1500 sq.ft.
b) In some cases, two flats were combined to make a single
dwelling unit with a single entrance and hence, the built-up
area of the combined flats worked out to be more than 1500
sq.ft.
c) In one case, the purchaser of the flat had an exclusive
right over the terrace and if the built-up area of the terrace
was included in the built-up area of the flat, the
measurement would exceed 1500 sq.ft.
d) According to the Assessing Officer, the project had to be
completed on or before 31.3.2008. Since the assessee did
not furnish the completion certificate, the assessee was not
eligible for deduction.
The above details were on the basis of the report of the
valuation officer of the department. In respect of all the
above objections, the assessee submitted its explanation in
detail. However, they did not find favour with the Assessing
Officer and hence, the deduction was denied. The total
income for assessment year 2005-06 was computed at
Rs.2,02,65,109/-. For the same reasons, the impugned
deduction was denied in assessment year 2006-07 also and
the total income was computed at Rs.2,96,02,224/-.
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6. The CIT (A) confirmed the order of the Assessing
Officer in toto in both the years for the same reasons as
mentioned by the Assessing Officer.
7. The ld. counsel for the assessee, first submitted his
arguments on the question whether the assessee is a
developer-builder or not. He took us through the agreement
between the assessee and HMPL dated 28.4.2003. It was
pointed out that the assessee has been described as a
builder in the said agreement and moreover, it is also the
finding of the CIT (A) in paragraph 8.6 of his order that the
assessee is a builder which finding is contradictory to the
finding of the Assessing Officer that the assessee is a
contractor. Next, his submission was that sec.80IB (10)
nowhere requires the assessee to be the owner of the land.
Elaborating on this submission, the ld. counsel referred to
the extracts from the Memorandum explaining the Finance
Bill, 2009 through which an Explanation was added to
sec.80IB (10) with retrospective effect from 1.4.2001. The
emphasis was that the objective of the tax concession is to
provide tax benefit to the person undertaking the investment
risk i.e. the actual developer. In this connection, our
attention was drawn to clauses 7, 8 & 9 of the agreement
dated 28.4.2003 to show that it was the assessee who has to
fix the rate per sq.ft. for the constructed area, that assessee
was entitled to receive the entire sales consideration on its
own behalf and that HMPL had no claim on such amounts. It
was also pointed out that the rate for sale of proportionate
undivided share of land was fixed at Rs.600/- per sq.ft. as
per clause 4 of the agreement. It was emphatically stated
that HMPL was entitled to this amount only which constituted
the rate for sale of land and describing it on per sq.ft. basis
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was only a mode of determining the amount payable to
HMPL. It did not in any way indicate that HMPL had any
share in the sale consideration of the built-up areas.
Therefore, the argument was that it was the assessee who
had undertaken all the investment risks and if any purchaser
failed to make the payment, it was the assessee's loss only.
It was contended that even if some flats are not sold, it was
the assessee's risk and since it had taken the risk of
development, the assessee was a developer and builder.
8. The ld. counsel took up the next objection of the
revenue authorities. It was observed by the authorities that
two flats though sold separately to two different persons,
they were combined together to make one dwelling unit.
Together, it measured more than 1500 sq.ft. and hence, one
of the conditions to claim deduction was violated. The
contention of the ld. counsel was that the assessee had sold
two flats separately under two separate agreements. It was
the allottees of the two flats that combined the flats together
over which the assessee had no control. In support of this
contention, the ld. counsel drew our attention to the
confirmation letter given by the two purchasers of the flats
stating that they had combined the two flats after taking
possession for their own convenience. Thus, according to the
ld. counsel the assessee had not violated this condition.
9. The next objection of the revenue was that the
purchaser of the flat on the top floor had an exclusive right
over the terrace and hence it should form part of the built-up
area. This objection was countered by the ld. counsel by
stating that though the top floor occupant had paid for the
exclusive right of the terrace, the occupant did not have such
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a right. Only thing was that the access to the terrace was
through the flat only and there was no independent access.
Alternatively, it was contended that if after adding terrace to
the built-up area, the total area exceeded 1500 sq.ft., then
pro rata deduction should be given. For this alternative
contention reliance was placed on the decision of the Special
Bench of the Tribunal in the case of Brahma Associates vs.
JCIT (30 SOT 155) and on several other decisions of the
Tribunal. These decisions, it was contended, were based on
the decision of the Calcutta High Court in the case of Bengal
Ambuja Housing Development Ltd. in I.T. Appeal No.453 of
2006 dated 5.1.2007.
10. The next objection of the revenue is with regard to
certain flats measuring more than 1500 sq.ft. In this
connection, the ld. counsel drew our attention to the
certificate given by the registered valuer as per which the
concerned flats measured less than 1500 sq.ft. However, he
had no objection if the matter was remitted for verification
and it was stated that let both the valuers take measurement
together for which the assessee will extend its co-operation.
11. The last objection of the revenue was that the project
was not completed within the stipulated time of four years
and hence, deduction was not available. It was pointed out
that though the assessee had applied to obtain completion
certificate from CMDA in time, for certain reasons it was
rejected. The assessee then approached the High Court and
the Court directed CMDA to issue the certificate. Ultimately
CMDA did issue the completion certificate, albeit late by
about three months. Nonetheless, it was submitted that the
Corporation of Chennai has issued a certificate dated
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28.12.2007 stating that the building was inspected on
23.11.2007 and it is found that it satisfies the approved
building permit conditions. The fact that Corporation is the
local authority to approve the construction is supported by
the decision of the Chennai Bench of the Tribunal in the case
of Jain Housing & Constructions Ltd. in ITA
No.1369/Mds/2009 dated 5.2.2010. The certificate of the
Corporation is sought to be filed as additional evidence.
Thus, finally the ld. counsel wound up his arguments by
stating that the assessee was a developer-builder, that no
conditions prescribed under sec.80IB (10) were violated and
hence, was eligible for the impugned deduction.
12. The ld. D.R. first drew our attention to the provisions in
sec.80IB (10) to point out that an undertaking claiming
deduction under this provision should be both, a developer
as well as a builder. If the undertaking is only one of them, it
will not be entitled to the deduction. He then referred to the
order of the CIT (A) in which was extracted certain portions
of the assessment order which stated that it was HMPL who
decided to develop the project, nominated the assessee as
its builder for construction and that the land handed over to
the assessee was not towards part performance of the
contract under sec.53A of the Transfer of Property Act or
under sec.2 (47) of the Act. The ld. D.R. drew our attention
to the remand report obtained by the CIT (A). As per the
said report, the finding was that the payment to be made by
the assessee to HMPL was on sq. foot basis which made it
obvious that the payment was not a consideration for land
alone. The agreement also nowhere stated that HMPL would
jointly develop the property along with the assessee.
According to him, the decision of the Chennai Bench of the
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Tribunal in the case of Sashwat Constructions Pvt. Ltd. in ITA
No.1828/Mds/2007 dated 27.2.2009 was squarely applicable
and the same should be followed. The ld. D.R. next referred
to the agreement dated 28.4.2003 entered into between
HMPL and the assessee. From the agreement it was pointed
out that the construction was to be carried out as per the
specifications given by HMPL and that the assessee as the
builder could not deviate from it. The quality of construction
was to be as per the standards set by HMPL's architects. He
also referred to the other agreements viz., one between
HMPL and the purchaser of flat for sale of undivided share in
the land. The next was the construction agreement between
the assessee and the purchaser of the flat and the third was
also a construction agreement between the assessee and the
purchaser of flat for sale of common areas. The thrust of his
arguments by referring to these agreements was that HMPL
had applied and obtained all the necessary permissions from
CMDA and the Corporation, that the deed of sale in respect
of flats was to be registered in favour of the purchaser only
after the entire consideration was paid up and hence, there
was no risk on the part of the builder. It was also pointed out
that the allottees of the flats had requested HMPL to arrange
for the builder. The builder was to receive monies in advance
from the allottees and hence, on that count also the builder
has no investment risk. The construction agreement
specifically mentioned that the builder was not to incur any
liability if the latter was unable to deliver possession within
the stipulated period. On the other hand, if there was a delay
in payment by the allottees, the builder was entitled to
interest. It was emphatically repeated that all the procedures
to obtain all the necessary permissions were obtained by
HMPL and hence, unquestionably HMPL was the developer.
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The ld. D.R. relied on the judgment of the Supreme Court in
the case of K. Raheja Development Corporation vs. State of
Karnataka reported in 2005 AIR (SC) 2350 and also in 141
STC 298. With regard to the violation of other conditions, the
ld. D.R. relied on the orders of the lower authorities. He
objected to the admission of additional evidence in the form
of the completion certificate obtained from the Corporation of
Chennai. It was contended that since the main permission
was from CMDA, the completion certificate also should have
been obtained from the said authority within the stipulated
period. He also objected to the alternate contention of the
assessee with regard to pro rata deduction in cases where
the flats measured more than 1500 sq.ft.
13. In his counter reply, the ld. counsel made several
submissions. Against the revenue's contention that assessee
was not the owner of the land, it was contended that there
was no such condition in sec.80IB (10) to claim the
deduction. With regard to the contention that the payment to
HMPL was on sq. foot basis, it was submitted that it was only
the manner to determine the consideration for sale of
undivided share of land. With regard to the contention that
building permission was in the name of HMPL, it was
submitted that under the local laws it was only the legal
owner who could make application and hence the procedures
were undertaken by HMPL. With regard to the completion
certificate obtained from Corporation, it was contended that
CMDA approves only the structure but the construction is
approved by the Corporation and hence completion
certificate given by it is to be treated as due compliance
under sec.80IB (10). With regard to the argument about the
involvement of HMPL's architect, the ld. counsel drew our
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attention to clause (1) in the construction agreement dated
14.11.2003 which stated that the areas computed by the
architect of the assessee was to be final and binding on all
the parties. As regards the decision in the case of Sashwat
Construction (supra), it was submitted that the order relied
upon by the ld. D.R. was dated 27.2.2009 and was in respect
of assessment year 2004-05. The ld. counsel furnished a
copy of the order of the Tribunal dated 25.2.2009 in the case
of the same assessee for assessment year 2005-06 in which
the claim of the assessee was upheld by the Tribunal.
Therefore, the contention was that the order for assessment
year 2004-05 was itself erroneous in so far as that it did not
follow the order for assessment year 2005-06 and hence the
same cannot be relied upon. Again, it was submitted that in
the case of Sashwat Construction (supra), in its order for
assessment year 2004-05 the Tribunal had followed the
judgment of the Supreme Court in the case of Faqir Chand
Gulati v. Uppal Agencies Pvt. Ltd. (C.A.No.3302 of 2005). It
was contended that this judgment of the Supreme Court was
under Consumer Protection Act to answer the question
whether a land owner who enters into an agreement with a
builder is a consumer entitled to maintain a complaint
against the builder as a service provider under the Consumer
Protection Act. Therefore, for that reason also, the decision
given in the case of Sashwat Construction for assessment
year 2004-05 cannot be relied upon. Next, it was contended
that HMPL has not objected to the claim of the assessee of it
being a developer and has also not claimed any deduction
under sec.80IB of the Act. Therefore, when the parties are
not disputing each other's status, the intentions of the
parties should be carried out. As regards the contention that
HMPL incurred all the charges for various approvals, it was
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contended that the assessee reimbursed all the charges and
the same have been allowed as deduction by the
department. With regard to investment risks it was
contended that irrespective of the amount collected by the
assessee, it had to make over ` 600/- per sq. foot to HMPL.
If prices of building materials were to go up, the assessee
had to bear the same. If the assessee borrowed monies for
construction, it was its liability to repay the same. Therefore,
full risk was involved on the part of the assessee. The
contention of the ld. D.R. that the assessee had no liability
for delayed possession was negatived by the ld. counsel by
stating that it was only a force majeure clause of the
agreement. Collection of money from the allottees in
advance was the prerogative of the assessee and once the
assessee proceeded to construct the building, the risk was
totally his. Referring to the judgment in the case of K. Raheja
(supra), it was submitted that under the Sales-tax Act
extended meaning was given to the term "works contract"
and as per the said definition the assessee was a works
contractor but only for the purpose of sales-tax. With regard
to other objections, the ld. counsel reiterated his earlier
contentions. Thus, the ld. counsel concluded his arguments
by making a fervent plea that the assessee should be held to
be a developer and builder and hence entitled to deduction
under sec.80IB (10) of the Act.
14. We have duly considered the rival contentions and the
material on record. It is an interesting situation. The
assessee claims to be the developer of land but the revenue
is not agreeable to it. HMPL does not claim to be the
developer but the revenue wants to thrust that status on it.
Admittedly, neither of the party says that there was a third
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entity who developed the property. In fact, one of the
arguments of the ld. D.R., as mentioned in paragraph 12
above, was that the property is not developed jointly by
HMPL and the assessee. Fortunately, one undisputed fact
remains that the property has been developed. No one
doubts this factual aspect. The only question to be answered
is as to who developed it. Certainly it is not any providential
hand. It is either HMPL or the assessee.
15. Before we go into the facts of the case, it would be
appropriate to understand certain expressions which may be
relevant to appreciate the purport of sec.80IB(10).
(a) Builder : A builder is one who builds, or whose occupation
is that of building; specifically, one who controls or directs
the work of building construction in any capacity. A person
whose business is to construct buildings, vessels, bridges,
canals, or railroads, by contract.
(b) Builder, Artisan, Architect: In the practice of civil
architecture the builder comes between the architect who
designs the work and the artisans who execute it.
(c) Builder and Contractor: The word "builder" has been used
by lawyers, judges, and courts as synonymous with
"contractor" when used in connection with building contracts.
(d) Contractor: Person who makes a contract, especially a
builder who works by contract.
(e) Development of Land: The expression "development"
means the realisation of the potentialities of land or territory
by building or mining.
The above meanings/explanations of the various expressions
are as per Law Lexicon by P.Ramanatha Aiyar (2nd Edition -
2009). From the above it can be seen that the meanings of
different expressions at times overlaps each other and in
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particular, the distinction between a "builder", "developer"
and "contractor" is quite blurred. As a matter of fact,
different persons often use the expressions interchangeably
and according to their own perceptions. As a result, the
agreements entered into by the persons involved in these
activities are also quite often blurred and lacking clarity
leading to avoidable litigation. Be that as it may, let us try to
ascertain the status of the assessee from amidst the different
hues that the expressions described above radiate.
16. One of the major objections of the revenue is that the
assessee is not the owner of the land and as the preamble of
the agreement dated 28.4.2003 goes, it was HMPL who
decided to develop the project. In our view, nothing turns on
it. It is very obvious that the first step, i.e. to develop a piece
of land always rests with the owner of the land and no other
person is expected to be in picture at the time of making this
decision. The question is not who decided to develop the land
but the question is who actually developed the land.
17. Having decided to develop the land, HMPL approached
the assessee. They jointly evolved the scheme for
development. This is evident from clause 1 of the agreement.
In other words, the owner and the builder jointly evolved the
scheme. At this juncture, we may hasten to add that they
jointly only evolved the scheme. They did not jointly develop
the scheme. Having jointly decided upon the scheme, the
next step was to obtain the necessary permissions.
Obviously, since the land is owned by HMPL, permissions
have to be in its name only. Obtaining permissions in one's
name does not ipso facto make that person a developer.
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Again, this too does not answer the question as to who
developed the land or who carried out the development.
18. Having evolved the scheme and having obtained the
necessary permissions, the builder, i.e. the assessee actually
entered the scene to execute the scheme and the plans.
Firstly, the assessee was handed over the possession of the
land. Unless the possession is actually handed over to the
assessee, the latter cannot proceed further. Therefore,
clause 5 of the agreement states about handing over the
possession of the land. It is to be noted that the land is not
sold to the assessee and this is made clear in clause 5 itself
that the possession is not given as a part performance of a
contract as contemplated u/s.53A of the T.P. Act. However,
this has been one of the attacking points of the revenue that
since the land does not belong to the assessee, the latter
cannot develop it. The argument is too far-fetched to be
accepted. If a land owner wants to exploit unused land to his
advantage, he may hand it over to a builder to develop the
same without parting with the ownership. There may be
several reasons not to part with the ownership despite the
fact that he will be parting with a substantial portion of the
land for development purpose. The owner may want to retain
the ownership of the remaining land and division of the land
into two portions may not be feasible. In that case, the
owner will have to retain the ownership of the entire land.
The legislature must have kept such situations in mind while
providing for the deduction. And again, when Explanation
was added to sec.80IB(10) by Finance Bill,2009, the
Memorandum explaining the provisions emphasized about
the investment risk which may be taken either by the owner
or the builder or jointly by both. In the instant case, who has
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actually taken the risk, we shall see later. For the present,
suffice it to say that ownership of the land will not be the
criterion to decide the status of a developer as such.
19. The builder then actually starts the development work.
As per the agreement, the builder has the exclusive right to
sell the flats to the persons of his choice. He has the
exclusive right to determine the sale price of the flats. He
has the exclusive right to collect the entire sales
consideration of the flats. Out of the total sales consideration
received by him, he has to make over only the cost of
undivided share of land to the owner which is fixed at ` 600
per sq.ft. of the super built-up area. At this juncture, we may
deal with one of the arguments of the revenue that since the
price to be paid to the owner is based on built-up area, it
automatically proves that the owner is the developer. We are
not inclined to buy this argument. Apparently it may seem to
be so. But then, one has to interpret the document as may
have been intended by the parties. The owner is entitled to
receive only the cost of land. It has no interest in what cost
the builder incurs for construction and also has no interest in
what sale price per flat the builder receives. Further, only
that part of the land is to be transferred which is utilised for
construction. Therefore, the best way to describe the owner's
consideration of land is to determine it on the basis of super
built-up area. Considering the discussion in this paragraph,
one is lead to frame an opinion that the assessee is not only
a builder but is also a developer. However, this is not the end
of the story and after all, it is said that opinion may be
stronger than impression, but not as strong as a belief. There
are other dimensions also to the aspect of builder and
developer which we shall examine now.
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20. We take up the most important dimension which
relates to the investment risk involved. In paragraph 15
above we have given the meaning of the expression
"development" which means the realisation of the
potentialities of land or territory by building or mining. In
the present case, undoubtedly, HMPL as the owner of the
land has ventured to realise the potentialities of the land. It
has indeed realised the potentialities, not by developing the
land but by handing over the land for development to the
builder. This is evident from the fact that HMPL is to receive
only the cost of the undivided share of land. It is not that
HMPL had purchased the land with a view to put up the
present project. It had purchased the land way back in 1970
and it was only in 2003 that it decided to exploit its
potentialities. Further, HMPL will undoubtedly receive the
cost of land irrespective of the fact whether the builder is
able to sell the flats or not. Thus, HMPL is merely encashing
part of the investment made more than three decades ago.
On the other hand, the builder on its part would be investing
in material and labour now and the recoupment of this
investment is uncertain. Whether all the flats are booked or
not, the builder will have to construct the entire building.
This is so because if a person has booked a flat on 4th floor
and the flat on 3rd floor is not booked, he will have to hand
over the possession of the 4th floor flat for which necessarily
he will have to construct the 3rd floor. Thus, he would be
investing in the 3rd floor without any certainty of it being
sold. In other words, the builder will have to pump in the
funds to build the entire project the realisation from which is
quite uncertain. As against this, what is the risk of HMPL. At
worst, the builder may defer the payment for a while. But
once the construction of the project is over, HMPL would
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certainly demand its pound of flesh. Thus, the risk of HMPL is
many times lesser than that of the builder. The opinion which
we had formed in paragraph 19 above that the builder is also
the developer gets strengthened with these facts. We may
still go further.
21. There is a construction agreement between the
assessee as the builder and the purchaser of each flat. The
overall implication of such an agreement will be examined
later. At the moment we deal only with certain important
clauses of the agreement. Firstly, the preamble to the
agreement gives complete rights to the builder to enter into
builder's agreement for allotment and construction of built-
up area directly with the parties. The price for each flat is
fixed by the builder and the purchaser and HMPL is nowhere
in picture. The builder has to purchase all the required
materials and supply labour. One of the important rights
given to the builder is that as per clause 30 of the
construction agreement, builder has the right to raise
additional storeys and make additions in the proposed blocks
to be constructed. HMPL is in no way interested in this right
of the builder. As per clause 25 of the agreement, the builder
will always have the option and right to maintain all common
services like security arrangement, maintenance of lifts,
common passage and lobbies etc. As per clause 52 of the
agreement the builder has the right to change the usage of
certain areas on the ground floor from generator room, air
conditioning plant room, garbage room etc. on the one hand
to gymnasium, health club, community room etc. on the
other hand. In all such matters, HMPL has no role to play. As
per clause 27 of the agreement, the builder has the right to
collect maintenance expenses in advance from the purchaser
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of the flat. All these facts go to show that it is the builder
who is responsible to develop the property, maintain it and
satisfy the purchasers. We reiterate, HMPL is nowhere in the
picture. This further strengthens our view that the assessee
is a builder as well as a developer. Let us now have a holistic
view of the entire arrangement.
22. As per sec.80IB(10), the deduction is available to an
undertaking which is engaged in the developing and building
housing projects. In other words, the undertaking should be
both, a builder as well as a developer. In paragraph 15 we
have given the meanings of certain expressions as per Law
Lexicon. As per the meanings given, a builder is one who
builds or whose occupation is that of building. In the instant
case, by the revenue's own admission, the assessee is a
builder. The meaning goes further to state that a builder is
specifically one who controls or directs the work of building in
any capacity. In the present case, the facts go to show that
the assessee has been engaged as a builder and it is the
assessee who will control and direct the work of building
construction. Next, as per Law Lexicon, a contractor is a
person who makes a contract, especially a builder who works
by contract. Now here the real distinction needs to be drawn
between the expressions "developer and builder" and
"builder and contractor". If a person is a contractor only,
then, his job would be merely to construct the building as
per the designs provided by the owner and hand over the
constructed building to the owner. His job will not include
designing the project, selling the flats in the project, entering
into agreements with the purchasers of the flat of the type
they are entered into in this case. He will not be running
after the buyers to sell the flats or realise the money for the
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sold flats. He would not be maintaining the property after the
project is completed. He would not be having any right to
extend the height of the building. He would not be having
any right to convert any area for a different usage. All these
rights have been discussed in paragraph 21 above. Thus, the
assessee is not a contractor simpliciter, he is not a builder
simpliciter, he is not a developer simpliciter. He is all rolled
into one i.e. he is a developer, a builder and also a
contractor. It is because of this practical situation which is
quite common, Law Lexicon says that the word "builder" has
been used by lawyers, judges and courts as synonymous
with "contractor" when used in connection with building
contracts. In the beginning of paragraph 21 we have
referred to the construction agreement entered into by the
assessee with the purchaser of the flat and it is mentioned
that the implication of this agreement, we shall see later.
The time to see this implication has now come. It has been in
the argument of the revenue that since the assessee has
entered into a construction agreement with the purchaser of
the flat, it makes the assessee a contractor and not a
developer. At the outset, it needs to be reminded that as per
the agreement between HMPL and assessee, the former had
nominated the latter as a builder and as per clause 1 of the
agreement the project was jointly evolved by HMPL and the
assessee. In other words, they jointly decided upon the
project but the job of actually developing the land, building
and constructing the project was the exclusive domain of the
assessee. Thus, it is not that the purchasers of the flats have
engaged the services of the assessee as a contractor. The
question may arise, then why such an agreement. Well, it is
merely to define the rights and liabilities of the assessee vis-
a-vis the purchasers of the flats. We may examine some of
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the important rights and responsibilities. The agreement
decides the sale price of the flat, it decides the terms of
payment, it decides upon the time schedule for delivering the
flat, it decides upon the consequences for default on either
side, it prevents the purchaser to make any structural
changes in the flat, it defines the defects which the assessee
will have to remove and those which he is not liable to
remove and so on. It also gives the assessee the option and
right to maintain all common services in the project and to
collect maintenance charges. The point is that if the assessee
is not the developer, why should he take upon himself the
responsibilities of providing security arrangement,
maintenance of common services, providing with a captive
source of water and so on. In short, the construction
agreement in the present case is not one by which the
assessee is engaged as a contractor by the purchasers of the
flats but having been appointed as a builder and a joint
developer, the agreement has been entered into only to
define the rights and liabilities vis-a-vis of the purchasers of
the flats. It is because of this complex arrangement coupled
with the terms loosely used in the agreements, that made us
say in paragraph 15 that the distinction between a "builder",
"developer" and "contractor" is quite blurred. It is in order to
remove this haziness we have gone in detail into various
agreements to find out the exact status of the assessee. Our
conclusion is that the assessee is a developer, a builder and
a contractor, all rolled into one. On the other hand, HMPL is
only a developer and not a builder. Even though, the
assessee and HMPL are joint developers, in our view, the roll
of the assessee as a developer is greater than the roll of
HMPL as developer. To reiterate briefly, HMPL is a developer
because it has jointly evolved the entire scheme along with
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the builder and has attempted to realise the potentialities of
the land owned by it. However, this realisation of the
potentialities is merely by way of encashing a past
investment made three decades ago. There is no risk
involved so far as HMPL is concerned, in the present project.
On the other hand, the assessee is a developer because it
has jointly evolved the project along with HMPL and will
realise the potentialities of the land by risking his finances
today. Whereas HMPL is sure to realise its money, for
assessee, the realisation remains uncertain, or at best one
may say, it is not as certain as in the case of HMPL. In the
final analysis, we conclude that the assessee is a builder and
a developer entitled to deduction under sec.80IB(10) subject
to fulfilment of other conditions mentioned in the section.
23. We now take up certain other objections raised by the
Assessing Officer on account of which also the deduction is
denied. One of the objections is that in some cases, two flats
have been combined to make a single dwelling unit as a
result of which the total built-up area of the combined flat
exceeds 1500 sq.ft. In this connection, the assessee has
placed on record the confirmation given by the purchasers of
the flats stating that they had combined the two flats after
taking possession for their own convenience. In our opinion,
once the flats which are sold separately under two separate
agreements, the builder has no control unless the joining of
the flats entails structural changes. Nothing is brought on
record to evidence such structural changes. Therefore, it is
quite clear that the two flat owners have themselves
combined the flats whereby the area has exceeded 1500
sq.ft. The project as a whole and the assessee cannot be
faulted for the same. Moreover, clauses (e) & (f) of sec.
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80IB(10) are effective from 1.4.2010 and they are not
retrospective in operation. Therefore, they do not apply to
the present case which pertains to the years prior to
1.4.2010. Accordingly, we do not see any force in this
objection and the deduction cannot be denied on this ground.
24. Next objection of the Assessing Officer is that the
project had to be completed on or before 31.3.2008 and
since the assessee did not furnish the completion certificate,
the assessee is not eligible for deduction. The objection is to
the effect that the completion certificate from CMDA is dated
13.6.2008, i.e. three months after the due date for
completing the project. In this connection, it has to be noted
that the completion certificate is to be issued by the local
authority. The question is, whether CMDA can be considered
to be a local authority or not. This issue had come up before
the Chennai Bench of the Tribunal in the case of Jain Housing
& Constructions Ltd. in ITA No.1369/Mds/2009 dated
5.2.2010. In that case, assessee was denied deduction in the
absence of completion certificate by the CMDA but
completion certificate issued by the Corporation of Chennai
was placed on record. The Tribunal in paragraph 3.5 of its
order stated that the project layout plan may be required to
be approved by the CMDA but as far as the construction of
the building is concerned, the local authority, i.e. the
Corporation of Chennai is the appropriate authority to
regulate the construction as per the building bye-laws and
sanction plans. When it is not disputed that the Corporation
is the local authority, certificate issued by it cannot be
disregarded. The assessee has placed on record the
completion certificate issued by the Corporation by way of
additional evidence. Since the allowability of the entire
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deduction depends on all the conditions being fulfilled, we
admit this additional evidence. The certificate clearly
mentions that the building was inspected on 23.11.2007 and
that it is found to be satisfied the building permit conditions.
We may also mention that the role of CMDA is quite distinct
from that of the Corporation. CMDA looks at the plans from
the perspective of the development and urbanisation of the
city as a whole. On the other hand, the role of the
Corporation while issuing completion certificate is to see that
the unit is habitable in all respects like civic amenities and so
on. Even for the sake of argument if the CMDA certificate is
to be considered, then in that case, the assessee did apply
for the completion certificate to CMDA on 13.3.2006. It is a
different matter that CMDA raised certain objections and the
matter went upto the Hon'ble High Court also. However, the
fact remains that the project was completed much before the
due date, may be with certain defects. Also, it has to be
noted that the CMDA certificate is dated 13.6.2008, i.e. only
two months and thirteen days beyond the due date. It is
inconceivable that the type of defects which were pointed out
by the CMDA could have been rectified in such a short
period. Be that as it may, the Hon'ble High Court also ratified
the deviations and directed the CMDA to consider the
explanation of the assessee. All these facts go to point that
the project was indeed completed before the 31.3.2008.
Thus, this ground also has no force to deny the assessee the
impugned deduction.
25. The next objection of the Assessing Officer is that
certain flats in the project measure more than 1500 sq.ft.
According to the ld. counsel, as per the measurement taken
by the registered valuer appointed by the assessee, the said
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flats measured less than 1500 sq.ft. However, he had no
objection if the matter was remitted for verification.
Accordingly, we restore this issue to the file of the Assessing
Officer with the direction that the flats which are allegedly
more than 1500 sq.ft. in area be measured again and the
departmental valuer as well as the assessee's valuer, both
should remain present. The assessee is directed to extend its
fullest co-operation. If on measuring the flats, they are found
to be of more than 1500 sq.ft., the Assessing Officer is then
directed to allow deduction only in respect of the profits
arising from the sale of those flats which measure less than
1500 sq.ft. In other words, flats measuring more than 1500
sq.ft. should be left out. At the same time, we make it clear
that the deduction should be allowed only if the built-up area
of flats measuring more than 1500 sq.ft. do not exceed 10%
of the total built-up area.
26. The last objection of the revenue is that the purchaser
of the flat on the top floor had an exclusive right over the
terrace and hence it should form part of the built-up area. If
the total built-up area including the terrace is considered, the
said flat would measure more than 1500 sq.ft. The
expression "built-up area" has been defined in clause (a) of
sec.80IB(14). It is meant to be 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. It is not disputed that the terrace
which is the subject matter of dispute is adjoining to the
dwelling unit. In other words, it has to be considered as a
projection of the dwelling unit itself. It is also not disputed
that it is only the owner of the top floor who has access to
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the said terrace and no other occupant of the building has
access to it. Though the ld. counsel vehemently argued that
it has to be considered as a part of common area, we cannot
accept the said argument. Accordingly, the area of the
terrace will have to be included in the built-up area. In
paragraph 25 we have restored the matter relating to certain
flats allegedly having area exceeding 1500 sq.ft. for
verification. Along with those flats, the flats with exclusive
terrace rights also be measured again to find out whether the
built-up area exceeds 1500 sq.ft. or not. If any or all of them
are found to be in excess of 1500 sq.ft., then the same
direction as mentioned in paragraph 25 will apply. It is
clarified that the built-up area of the flats without terrace
rights and the flats with terrace rights, both put together
should not exceed 10% of the total built-up area. To make it
abundantly clear it is reiterated that separate limits of 10%
should not be worked out for the two categories of the flats
but both put together should not exceed 10% of the total
built-up area. Also, deduction should be computed only in
respect of flats which do not exceed 1500 sq.ft. In other
words, flats which exceed 1500 sq.ft. should be totally
ignored for the purpose of deduction. If the built-up area of
the flats exceeding 1500 sq.ft.(flats with and without terrace
rights put together) is more than 10% of the total built-up
area of the project, then the assessee will lose deduction on
the entire project.
27. Before finally concluding, it may not be out of place to
explain the genesis of our direction given in paragraphs 25 &
26 above. In giving the said direction, we have relied on the
decision of the Special Bench of the Tribunal in the case of
Brahma Associates v. JCIT reported in 122 TTJ 433. In that
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case, the assessee developed a housing project, which not
only comprised of residential housing units but also
commercial establishments. Clause (d) of sec.80IB(10) which
permits certain percentage of commercial establishments in
the housing project was not on the statute book for the year
with which the Special Bench was concerned. Therefore, the
question before the Special Bench was whether deduction
under sec.80IB(10) is admissible in case of a housing project
comprising residential housing units and commercial
establishments. After a detailed discussion, at paragraph 75,
the Special Bench observed that a plain reading of
sec.80IB(10) makes it clear that this section is aimed at
promoting construction of housing projects so as to address
the problem of shortage of dwelling units. At paragraph 76,
the Bench observed that the tax incentive by way of
deduction under sec.80IB(10) is predominantly for the
purpose of augmenting affordable dwelling units, and it must
be interpreted in that light. The Bench also considered
numerous judicial pronouncements and ultimately came to
the conclusion that if the commercial built-up area is not
more than 10% of the total built-up area, the assessee
should not lose the entire benefit of sec.80IB(10). The Bench
also considered the claim of the assessee for pro rata
deduction. However, the Bench ruled out the claim on the
ground that the deduction is available only in respect of the
profit of the housing project. One of the several authorities
referred to by the Bench, and which according to us is most
relevant for the present case is the case of Kammins
Ballrooms Company Ltd. v. Zenith Investments (Torquay)
Ltd., (1971) AC 850. In this case, Lord Diplock approved of
what he called "a purposive approach to statutory
interpretation". A brief discussion on this is found in
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paragraph 98 of the Special Bench order. According to Lord
Diplock, the purposive approach would enjoin a judge to
impute to Parliament an intention not to impose a prohibition
inconsistent with the objects which the statute was designed
to achieve, though the draftsman has omitted to incorporate
in express words any reference to that intention. The
essence of the purposive approach, according to Lord
Diplock, is for the judge to answer a series of questions;
"What is the subject-matter of the Act (or part of the Act)
being interpreted? What object in relation to that subject-
matter Parliament intended to achieve by the Act? And lastly,
what part in the achievement of that object the section under
construction was intended to play?" The particular section
will then be interpreted according to the object which the
court deems the legislation is intended to serve. This
operates even if Parliament has failed to incorporate the
intention which the judge believes that the section
possesses. Lord Diplock re-emphasised the importance of
making a purposive approach in Reg. Vs. Nat. Ins. Commr.:
Ex parte Hudson (1972) AC 944 at p.1005 : (1972) 2 WLR
210, 251 (HL) thus :
"Meticulous linguistic analysis of words and
phrases used in different contexts in particular
sections of the Act should be subordinate to this
purposive approach. It should not distract your
Lordships from it."
28. Taking inspiration from the above, and addressing to
ourselves the questions suggested by Lord Diplock, what
answers do we get. The provision which we are interpreting
pertains to housing projects. The object of the provision as
mentioned earlier and as discussed at length in the Special
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Bench order, is to augment affordable dwelling units. Can it
be said that by having only very insignificant number of flats
exceeding 1500 sq.ft., has the assessee failed to augment
affordable dwelling units. The reply to this question has to be
in the negative. However, as observed in paragraph 94 of the
Special Bench order, we have to draw up some lakshman
rekha nonetheless so as to ensure that the basic character of
the project continues to remain in harmony with the object
of the tax incentive i.e. augmenting affordable dwelling units.
Further, it needs to be emphatically stated that pro rata
deduction has to be ruled out because if that is permitted,
some assessee may construct substantial number of flats
exceeding 1500 sq.ft. and may claim deduction without
serving the purpose of the legislation. Likewise, the flats
which exceed 1500 sq.ft. also have to be left out of the
purview of the deduction. On the other hand, in the present
case if the aforesaid lakshman rekha is drawn, and if the
assessee is within that limit, giving deduction to him will
serve the purpose of the legislation. Therefore, we have
drawn the limit of 10% and have also held that if it exceeds
the limit of 10%, then the assessee will lose entire
deduction. This explains our directions given in paragraphs
25 and 26.
29. Besides the inspiration and guidance we have from the
decision in the case of Brahma Associates(supra), we also
have the judgment of the Calcutta High Court in the case of
CIT vs Bengal Ambuja Housing Development Ltd in
I.T.A.No.458 of 2006 dated 5.1.2007 and which is placed on
record before us. In this case, the High Court was
considering the decision of the Kolkata Bench of the Tribunal
in the same case in I.T.A.Nos. 1595 and 1735/Kol/2005
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dated 24.3.2006. In this case, the assessee had constructed
smaller as well as larger residential units. The assessee had
claimed deduction only on account of smaller residential
units which were fulfilling all the conditions contained in
section 80IB(10). The Tribunal allowed the claim of the
aassessee. The High Court, dealing with the same case,
dismissed the appeal filed by the department holding that no
substantial question of law is involved in this matter. The
question is whether this decision of the High Court is binding
or not when it has come to the conclusion that no substantial
question of law arises. The Gujarat High Court in the case of
Nirma Industries Ltd vs DCIT (283 ITR 402) has held that in
a case where the High Court comes to the conclusion that no
substantial question of law arises on a particular issue, it
could not be stated that when the appeal is dismissed by the
High Court, the subject matter of the controversy between
the parties has not been dealt with by the High Court. It is
further stated that the effect of dismissal is that the order of
the Tribunal on the issue which was agitated before the High
Court stands merged in the order of the High Court, and for
all intents and purposes, it is the decision of the High Court
which is operating and which is capable of being given effect
to. It is not open to any person to contend that there is no
decision of the High Court and the subordinate forum is
entitled to take a contrary view than the one adopted in the
earlier proceedings which have been affirmed by the High
Court by a process of dismissal of the appeal simpliciter.
30. The above issue and the judgment of the Gujarat High
Court were considered by the Special Bench of the Tribunal
in the case of Medicare Investments Ltd. vs JCIT (114 ITD
34). The Special Bench held that such a decision where the
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ITA 259 to 263 /10
High Court has dismissed the appeal on the ground that no
substantial question of law arises, is binding on the
subordinate forums. Thus, it is clear that in absence of any
decision of the jurisdictional High Court to the contrary, not
only the decision of the Special Bench in the case of Brahma
Associates (supra) but also the decision of the Calcutta High
Court in the case of Bengal Ambuja (supra) are binding
precedents on the issue that even if the assessee has
constructed residential houses of larger area, deduction
under sec. 80IB(10) will still be available but will be
restricted to the profits arising from the sale of smaller
residential units. Accordingly, the Assessing Officer is
directed to follow our directions in paragraphs 25 and 26
above.
31. In the result, the two appeals in the case of M/s.
Sanghvi & Doshi Enterprises (ITA Nos.259 & 260/Mds/10)
are partly allowed for statistical purposes.
Sri Mahalakshmi Housing (I.T.A.Nos.261 & 262/Mds/2010)
32. In the case of this assessee, the two appeals relate to
assessment years 2005-06 and 2006-07. In both the
assessment years, the main issue is whether the assessee is
a builder and developer or not and hence, entitled to
deduction under sec. 80IB(10) or not. It is admitted by both
the parties that the facts are similar to those in the case of
M/s Sanghvi and Doshi Enterprise dealt with above.
Therefore, following our above order, it is held that the
assessee is a builder and developer and hence, entitled to
deduction under sec. 80IB(10). Another common issue in
both the years is whether the area of private terrace has to
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be included in the built-up area or not. In this regard, as in
the above case, the flats with exclusive terrace rights be
measured again after including the private terrace and then
follow the directions given in paragraphs 25 and 26 above.
33. In assessment year 2006-07, there is one more issue
which pertains to the area of commercial part constructed by
the assessee. On perusal of the order of the CIT(A), it
appears that the assessee is not agreeing with the manner in
which the department has computed the area. Therefore,
the matter is restored to the file of the Assessing Officer for
the limited purpose of measuring the commercial area and
then decide about the deduction in accordance with law.
34. In the result, both the appeals of the assessee are
partly allowed for statistical purposes.
Sri Mahalakshmi Builders (I.T.A.No.263/Mds/2010)
35. This appeal pertains to assessment year 2006-07. In
this appeal also, the main issue is whether the assessee is a
builder and developer or not. Admittedly, the facts are
identical to the facts in the case of Sanghvi and Doshi
Enterprise and accordingly, following our order above, it is
held that the assesee is a builder and developer entitled to
deduction under sec. 80IB(10).
36. The only other dispute relates to the inclusion of
private terrace in the built-up area. It is directed that the
flats with exclusive terrace rights be measured again and
then our directions in paragraphs 25 and 26 be followed.
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37. In the result, the appeal of the assessee is partly
allowed for statistical purposes.
38. Summarizing the result of this order, all the five
appeals in respect of the three assessees are partly allowed
for statistical purposes.
The order was pronounced in the court on
Separate order Sd/-
(GEORGE MATHAN) (PRADEEP PARIKH)
JUDICIAL MEMBER VICE-PRESIDENT
Chennai,
Dated the 17th Sept., 2010
mpo*
Copy to : Appellant/Respondent/CIT/CIT(A)/DR
34
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PER GEORGE MATHAN, JUDICIAL MEMBER :
39. I have perused the order of my learned brother, Hon'ble Vice President and I am unable to convince myself to agree with all the findings as arrived at by him. Consequently, I hereby pass my order on the issues in the appeal wherein the issues of specific difference is also brought out .
40. The facts as recorded by my learned brother, Hon'ble Vice President are accepted as correct and adopted.
41. Indisputably the issues in the appeal revolve around 5 issues being,
(i) Whether the assessee is a contractor or a builder or a developer?
(ii) Whether the completion certificate which has been obtained after the due date but for which the application has been given before the due date should be considered as due compliance?
(iii) Whether the undertaking, developing and building the housing project should be the owner of the size of the plot of land having area of one acre?
(iv) Whether the private terrace is to be considered as part of the built up area of the flat for computing the built up area of 1500 s.ft. as per section 80-IB(14) of the Income-tax Act, 1961?
(v) Whether the built up area if it exceeds 1500 s.ft. the assessee would be entitled to the deduction u/s. 80-IB (10) of the Income- tax Act, 1961 on pro rata basis? 35 ITA 259 to 263 /10 A perusal of the section 80-IB(10)(b) of the Income Tax Act, 1961 provides that the project is to be on the size of a plot of land which has a minimum area of one acre. One should remember here that the wordings are that "the project is on the size of the plot of land". The wordings are not that the undertaking developing and building the housing project should be owner of a plot of land having a size of minimum area of one acre. Thus as long as the land on which the project is completed is having a minimum area of one acre the undertaking developing and building such housing projects on such lands would be entitled to the deduction u/s. 80IB(10) subject to the other conditions being fulfilled. In the present case the land is owned by one person and the assessee has undertaken the development and building of the housing project on the said land. Indisputably, the project is on a land exceeding one acre. Even assuming that the undivided interest in the land has been sold by the land owners to the various purchasers of the flats, still the plot of land on which the housing project is being developed and built by the assessee remains more than one acre and thus complies with the requirements of section 80-IB(10)(b) of the Act. Thus there is no violation in respect of the provisions of section 80-IB(10)(b) of the Act. Therefore, the issue No. (iii) is to be held in favour of the assessee.
42. A perusal of the terms of the contract shows that the assessee herein is basically doing the business of developing land and building flats which are nothing but housing projects. For the purpose of avoiding service tax the assessee, it is true, has entered into agreements with the individual purchasers of the flats undertaking to do the construction of their flats on behalf of them. These are but just jugglery of wordings in 36 ITA 259 to 263 /10 the contract. The actual fact remains that the assessee is doing the business of developing and building housing projects. Just because the plan sanction, plan approval etc. have been taken in the name of the land owner it would not deny the assessee the benefit of being treated as an undertaking developing and building the housing projects insofar as it is the assessee, through the power of attorney specifically taken from the land owner, that the plans have been drawn, approval obtained, sanction taken and the building constructed. Thus it would have to be held as an undertaking which has done the business of developing and building housing projects on the said land measuring minimum of one acre. Therefore the issue that the assessee is liable to be held as an undertaking which has done the business of developing and building housing projects would have to be held in favour of the assessee. Consequently, issue No. (i) is decided in favour of the assessee.
43. Coming to the issue as to whether the private terrace is to be included in the computation of built up area, it is noticed that the term "built up area" has been defined in sec. 80-IB(14)(a) to include the projections and the balconies. Thus the private terrace is nothing but the projection of the flat. It can also be termed as an open balcony. The learned authorised representative has specifically agreed that the access to the private terrace is only through the specified flat. A perusal of the agreement in respect of the flats which have the private terrace clearly shows that the private terrace is for the exclusive use of the purchaser. Once the private terrace is for the exclusive use of the purchaser of the flat then, obviously, the said private terrace does not fall within the common areas shared with the other residential units and consequently would have to be included in the 37 ITA 259 to 263 /10 measurement for arriving at the " built up area". The terrace talked about here is not the roof top terrace. It is the terrace, the access to which is through the flat of the purchaser and which is at the floor level and is the terrace of the immediately lower flat. The regular terrace is considered as part of the common area. The terrace that is sold and that is attached to the flat and which is having exclusive access is separate from the regular terrace. Section 80IA(14)(a) uses the words "inner measurements of the residential unit at the floor level". Therefore if the terrace is part of the inner measurement at the floor level, then it is to be included in the computation of "built up area". The assessee has also not placed before us the floor plan of the flat having the private terrace to show that the private terrace is in fact not part of the projection to the flat or that it is not at the floor level and that there is any method by which such private terrace can be accessed, without hindrance, by the other flat owners in any way other than through the flat with which the private terrace is attached and sold. Consequently, the issue No. (iv) as to whether the private terrace is to be considered as part of the built up area of the flat for computing the built up area of 1500 s.ft. is held against the assessee holding that the private terrace is to be considered as part of the built up area of the flat for computing the built up area of 1500 s.ft.
44. In respect of the issue of the completion certificate it is noticed that the assessee has completed the building and has made the application for the completion certificate on 13-3-2006. Though initially the CMDA had not granted the completion certificate, subsequently after the direction from the Hon'ble Madras High Court the CMDA has given the completion certificate on 13-6-208 and the compliance certificate has also been issued by the 38 ITA 259 to 263 /10 Corporation of Chennai in December, 2007. Here one should remember that when sanction is given normally the sanction would contain a date. In the present case the certificate issued is a completion certificate that is a certificate accepting the claim of the assessee that the project has been completed, i.e. the certificate is issued on an application given by the assessee. The assessee can give an application for completion certificate only when the completion of the project is done. Thus the grant of a completion certificate after verification by the competent authority even on a subsequent date would revert back to the date on which the application is made. Thus the completion certificate having been issued by the CMDA on 13.6.2008 would in fact be a certificate accepting the claim of the assessee that the project has been completed as made in its application on 13.3.2006. Thus I am of the view that the grant of this completion certificate reverts back to the date of the application for certificate as the completion certificate has been applied for before the due date and the completion certificate having been issued by the competent authority without any qualifications, the project should be deemed to have been completed as mentioned in the application, i.e. before the due date and consequently the assessee should be held to have complied with the provisions of section 80-IB(10)(a)(ii) of the Act. Therefore, in regard to the issue as to whether the completion certificate which has been obtained after the due date but for which the application has been given before the due date should be considered as due compliance, I am in agreement with my learned brother. Accordingly, the issue No. (ii) as to whether the completion certificate which has been obtained after the due date but for which the 39 ITA 259 to 263 /10 application had been given before the due date should be considered as due compliance is held in favour of the assessee.
45. Here I may specifically mention that in regard to issue No. (i) as to whether the assessee is a contractor, builder or developer, I agree with the finding as given by my learned brother.
46. In regard to the issue as to whether the undertaking, developing and building the housing project should be the owner of the size of a plot of land having the minimum area of one acre, even though my learned brother has not specifically given any finding on the same but he has touched upon the issue when deciding the issue No.(i) as to whether the assessee is a contractor, builder or developer.
47. In regard to the issue as to whether the private terrace is to be considered as part of the built up area of the flat for computing the built up area of 1500 s.ft, I am in agreement with my learned brother.
48. There is an issue in regard to two of the flats being Flat Nos. 501 and 502 having been combined by the purchaser after the purchase, for which certificates have also been issued by the purchasers themselves which clearly show that the flats have been combined by the purchasers themselves. The combination of the flats have not been done by the assessee and the assessee has sold only two flats separately and the combining of the flats by the purchasers after the purchase cannot be held to the detriment of the assessee. On this ground also I am in agreement with the finding of my learned brother.
40ITA 259 to 263 /10
49. My learned brother has also directed that in regard to the flats which are having the private terrace as also the objection of the Assessing Officer that certain flats in the project measure more than 1500 s.ft., the issue has been restored to the file of the Assessing Officer with the direction that the said flats which are alleged to be more than 1500 s.ft. area be measured again and the departmental valuer as well as the assessee's valuer both should remain present and the assessee is to extend its fullest co-operation. To this extent of re-measuring the flats by restoration of the issue before the Assessing Officer I am in full agreement with my learned brother.
50. In regard to the issue as to whether the built up area if it exceeds 1500 s.ft. in respect of any flats, the assessee would be entitled to the deduction under section 80-IB(10) on pro rata basis, my learned brother has relied upon the decision of the Hon'ble Special Bench of the Tribunal in the case of Brahma Associates v. JCIT reported in 122 TTJ 433 as also the decision of the Hon'ble Calcutta High Court in the case of CIT v. Bengal Ambuja Housing Development Ltd. in ITA No. 458 of 2006 dated 5-1-2007 wherein the Hon'ble High Court had considered the decision of the Calcutta Bench of this Tribunal in the same case in ITA Nos.1595/Kol/2005 and 1735/Kol/2005 dated 24-3-2006 as also the decision of the decision of the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. v. DCIT reported in 283 ITR 402. In effect, my learned brother has held that if the violations in respect of the built up area of 1500 s.ft. per flat exceeds the limit of 10% of the total built up area of the project, then the assessee would lose the deduction on the entire project. It is these portions of the order which I am unable to subscribe to.
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51. A perusal of the paper book as filed by the assessee shows flat No. 1501 to have 1308 s.ft. but as per the sale agreement and the letter of the purchaser the area is 1230 s.ft. Similarly, flat No. 502 has been shown to have an area of 1285 s.ft. as per page 19 of the paper book of the assessee. But as per the letter of the purchaser and the sale agreement the area is 1157 s.ft. Similarly, flat No. 402 is mentioned as 1495 s.ft. but the assessee has claimed the same to be 1397 s.ft. in the letter to the Assessing Officer which finds mentioned in page 6 of the order of the CIT(A). Similarly, Flat No. 501 in Block-I shows 1495 s.ft. in the letter at page 19 of the paper book and the claim of the assessee is 1397 s.ft. before the Assessing Officer. Similarly, Flat No.1105 in Block-II has been mentioned to be 1333 s.ft. in the letter at page 19 of the paper book and this flat is said to include open terrace whereas the sale agreement shows the area of the flat to be 1210 s.ft. and open terrace of 700 s.ft. Thus what is evident is that as per the agreement the assessee is showing a specified area as mentioned in the agreement but as per the actuals the area is far higher. This far higher area has been shown by the assessee itself as per the measurements made by the assessee's registered valuer. Therefore it does not lie in the mouth of the assessee to say that the higher measurement has been arrived at by the Revenue. It is to be kept in mind that as per section 80-IB(14)(a) of the Act the "built up area" is specified and defined. It is not the ordinary "plinth area" calculation nor is it the "built up" area as defined for local authority purposes. The definition of "built up area" for income-tax purposes is different from the definition under the local laws and the method of calculation is also different. For example, under the plinth area calculation, the balcony, washing area, etc. are taken at ½ the actual area and in 42 ITA 259 to 263 /10 respect of the parabolic balcony only 1/3, whereas for income-tax purposes the same would be treated as projections and balconies and its area in full taken. The Assessing Officer has also specifically made a statement that the plans submitted by the assessee further points out that the flats are vertically placed above one another on successive floors are of equal dimension which lead to the conclusion that the flats claimed to be of 1397 s.ft. of flat area are, in fact, above 1500 sq.ft. of built up area and based on the same there are many flats which are having a built up area exceeding 1500 s.ft. In the circumstances, the Assessing Officer challenged the built up area calculation of all the flats in the project.
52. Here it would also be worthwhile to mention that page No. 19 of the paper book which is the area calculation of various flats as done by the registered valuer of the assessee shows that the registered valuer has adopted "plinth area" method. As mentioned in the earlier portion, the plinth area calculation would not be the same as the built up area calculation provided under the Income-tax Act. In any case, this issue of measurement of the flats in dispute has been restored to the file of the Assessing Officer for de novo measurement by the departmental valuer after granting the assessee adequate opportunity to co-operate in the proceedings.
53. One of the basic principles of judicial discipline is that a Division Bench cannot disregard the decision of another Division Bench of equal strength. If at all such a situation is to arise, what is required under judicial discipline is to refer the issue to a Special Bench or a Larger Bench. Similarly, a Division Bench is bound by the decision of the Larger Bench. A 43 ITA 259 to 263 /10 decision by a Division Bench contrary to the decision of a Larger Bench cannot have a binding force. This view of mine is supported by the decision of the co-ordinate Bench of this Tribunal in the case of Assistant Commissioner of Income-tax v. MSS India (P) Ltd. 123 TTJ (Pune) 657.
54. In the case of Brahma Associates reported in 119 ITD 255 in paras 113 and 114 the Hon'ble Special Bench has held as follows:
"113. The next question is whether or not the deduction under section 80-IB(10) is to be granted in respect of only of such profits as are attributable to the residential units.
114. There is not much of a dispute on this aspect also. Learned representatives agree that there are no enabling provisions so far as allocation of profits into profits relatable to residential units and commercial units are concerned. We have noted that section 80-IB(10) categorically refers to the "profits derived in the previous year, relevant to any assessment year, from such housing project". What is deductible is 'profit of the housing project', and not the profit attributable to the residential units". Once, therefore, we hold that the project in question is a housing project, entire profits of the housing project are deductible under section 80-IB(10). The question of proportionate deduction is, therefore, not at all relevant in this context."44
ITA 259 to 263 /10
In the said decision, the Hon'ble Special Bench has not given a finding that pro rata deduction in respect of the flats which are having an area of 1500 s.ft. specified in section 80-IB(10)(c) can be given. In fact, an in-depth reading of the said decision shows to the contrary.
55. The provisions of section 80-IB(10) do not recognize a pro rata deduction. It is not as if the Legislature did not recognize pro rata deduction. When the Legislature desired to give such pro rata deduction, it specifically provided for it. For e.g. sections 54, 54(2), 54B(2), 80HHC etc. Further a perusal of the section 80-IB(10) shows that the word used at the end of sub-clause (c) is "and" and not "or" nor is it just a coma. The term "and" means that all the conditions in Sec. 80-IB(10) must be complied with individually and cumulatively. Violation of any one of the sub-clauses of section 80-IB(10) as are available for the relevant assessment years leads to the loss of the eligibility of deduction u/s. 80-IB(10) in toto. The wordings of sec. 80-IB(10) of the Income Tax Act, 1961 are "in the case of an undertaking developing and building housing projects". It is not "undertaking developing and building houses or flats". It is the project as a whole that has to be considered. This view draws support from the decision of the Hon'ble Special Bench in the case of Brahma Associates, cited supra. The floor of one flat is the roof of another. The outer walls of two flats would be common.
56. The Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT reported in 196 ITR 188 has categorically held that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth 45 ITA 259 to 263 /10 has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it.
57. The Hon'ble Supreme Court in the case of Federation of Andhra Pradesh Chambers of Commerce And Industry And Others v. State of Andhra Pradesh And Others reported in 247 ITR 36 riterated the basic principle that "it is trite law that a taxing statute has to be strictly construed and nothing can be read into it. ................In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used." The Hon'ble Supreme Court further went on to hold that "the courts in interpreting a taxing statute will not be justified in adding words thereto so as to make out some presumed object of the Legislature........... If the Legislature has failed to clarify its meaning by the use of appropriate language, the benefit thereof must go to the taxpayer. It is settled law that in case of doubt, that interpretation of a taxing statute which is beneficial to the taxpayer must be adopted."
58. A reading of section 80-IB(10) shows that the said provision is unambiguous. The Legislature clearly did not want to grant exemption to a housing project wherein the "built up area" of a residential unit exceeded the area specified in section 80-IB(10)(c). The wordings of sec. 80-IB(10) are not the deduction .....100% of the profits derived in the previous year relevant to any assessment year from such housing projects in respect of residential units having a maximum built up area of 1500 s.ft. The wordings used are "the amount of deduction.........shall be hundred per cent of the 46 ITA 259 to 263 /10 profits derived in the previous year relevant to any assessment year from such housing projects if,-
(emphasis supplied by me)
(a) ***********************
(b) ***********************
(c) the residential unit has a maximum built-up area of ............."
The word "if" denotes the intention in its clarity of the Legislature.
59. Coming to the issue of the granting of the deduction only if the built up area of the flats measuring more than 1500 s.ft. does not exceed 10% of the total built up area, reliance has been placed on the decision of the Hon'ble Special Bench of the Tribunal in the case of Brahma Associates, referred to supra. I have already mentioned earlier that an in-depth reading of the decision of the Special Bench in the case of Brahma Associates shows that the Hon'ble Special Bench has not given any approval in regard to the pro rata deduction in such situation. Further why 10%? The decision of the Calcutta Bench of this Tribunal in the case of Bengal Ambuja Housing Development Ltd. referred to supra which has approved pro rata deduction and the appeal by the Revenue from which has been dismissed by the Hon'ble Calcutta High Court holding that no substantial question of law arises, shows that in that case the assessee therein had put up 261 residential units in the housing project and out of which only 150 units were having the individual built up area of less than 1500 s.ft., i.e. only 57% of the housing project therein complied with the conditions in section 80- 47 ITA 259 to 263 /10 IB(10) and 43% failed. The said decision itself would be contrary to the decision of the Hon'ble Special Bench in the case of Brahma Associates, wherein the Hon'ble Special Bench has said categorically that it is the housing project which is to be considered and not the individual units. In any case, the Hon'ble Calcutta High Court having dismissed the appeal filed by the Revenue against the said decision of the Calcutta Bench of the Tribunal by holding that no substantial question of law arose should not be the 'Lakshman Rekha" be drawn at 47% and not 10%. Would this not lead to doing violence to the provisions of section 80-IB(10) to the extent of frustrating the said provision? When the wordings of the provisions of sec. 80-IB(10) are clear and ambiguous and the Hon'ble Supreme Court has also laid down the principles in regard to the interpretation of the taxing statute, as already referred to supra in the case of Federation of Andhra Pradesh Chambers of Commerce And Industry And Others (247 ITR 36) (S.C.) as also in the case of Bajaj Tempo Ltd. (196 ITR 188) (S.C.) an appellate authority should not, cannot, must not and shall not tinker with the provisions of the Act in such a manner as to cause violations to the provisions of the statute. Had the assessee constructed two different blocks and had maintained separate books of accounts and one of the blocks did not comply with the provisions of sec. 80-IB(10) and one did, then the deduction in respect of the block which complied with the provisions of section 80-IB(10) could be granted as has been held by the Mumbai Bench of this Tribunal in the case of Saroj Sales Organization reported in 115 TTJ (Mum) 485. However, this is not the case here.
60. When the assessee made its plan for construction of the housing projects, the assessee very well knew that the housing project included flats 48 ITA 259 to 263 /10 which were having areas exceeding 1500 s.ft. This is evident from the clause 51 of the sale agreements entered into by the assessee with the purchasers of the flats wherein the assessee has recognized that the buildings would have pent houses having areas in excess of 2000 s.ft. Thus knowing fully well that the housing project of the assessee did contain flats exceeding the prescribed maximum built up area provided u/s. 80-IB(10), the assessee still decided to take its chance in claiming the deduction u/s 80-IB(10). The assessee also very well knew this position when it had its flats measured by its registered valuer and obtained the certificate on 5-12- 2009 that some of its flats did exceed the 1500 s.ft. limit. Interestingly, the registered valuer of the assessee instead of taking the "built up area" as specified in the provisions of section 80-IB(14) decided to talk of only the "plinth area" and that too by specifically excluding the exclusive open terrace.
61. In such a situation can it be said that the decision of the Calcutta Bench of this Tribunal as also the decision of the Hon'ble Calcutta High Court rejecting the Revenue's appeal holding that no substantial question of law would have a binding precedence? The Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. v. Deputy Commissioner of Income-tax reported in 283 ITR 402 has held 'Yes'.
62. However, the co-ordinate Bench of this Tribunal at Chennai itself has in the case of Assistant Commissioner of Income-tax vs. Viswas Promoters (P) Ltd. in ITA No. 1912/Mds/2007 dated 13-10-2008 answered the identical question in respect of the issue as to whether the deduction u/s. 80-IB(10) was available even if some of the flats in the housing project exceeded the 49 ITA 259 to 263 /10 maximum specified area in sec. 80-IB(10)(c). The co-ordinate Bench has held that the restriction is applicable on the entire project. If some of the residential units of the project comprised area exceeding the prescribed limit, the benefit as per the language of the section cannot be extended to the project. In interpreting the provisions, the co-ordinate Bench had placed reliance on the decision of the Hon'ble Supreme Court in the case of Padmasundara Rao (decd.) and Others v. State of Tamil Nadu and Others reported in 255 ITR 147 (SC) as also the decision of the Hon'ble Supreme Court in the case of Britannia Industries Ltd. v. CIT reported in 278 ITR 546 (SC). This order of the co-ordinate Bench of the Tribunal was the subject matter of a miscellaneous petition in MP No. 379/Mds/2009, wherein the same counsel, as in the present case, had represented. It was claimed that an error had crept in the order inasmuch as the Tribunal had not considered the decision of the Calcutta Bench of the Tribunal in the case of Bengal Ambuja Housing Development Ltd. The Miscellaneous Petition had been dismissed vide order dt. 30-01-2009. Against this order, the assessee had filed a writ petition before the Hon'ble High Court of Madras reported in 323 ITR 114 wherein the Hon'ble jurisdictional High Court had categorically held that a decision of the High Court of a different jurisdiction is not binding on the Tribunal which is not under its jurisdiction and the rectification sought for on that basis under section 254(2) was not valid. In the said decision the Hon'ble jurisdictional High Court had also laid down the principles of judicial discipline wherein it had also been held that where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions. The Hon'ble jurisdictional High Court in the said decision had also 50 ITA 259 to 263 /10 considered the issue of deduction u/s. 80-IB(10) though no specific finding had been given in regard to the finding of the Tribunal in the appeal.
63. In the circumstances, with utmost obedience to the decision of the Hon'ble jurisdictional High Court in the case of Viswas Promoters (P) Ltd. reported in 323 ITR 114 , as it is noticed that the decision of the co-ordinate Bench of this Tribunal in the case of Assistant Commissioner of Income-tax v. M/s. Viswas Promoters P. Ltd. in ITA No. 1912/Mds/20067 dated 13-10- 2008 is subsequent to the decision of the Calcutta Bench of this Tribunal in the case of Bengal Ambuja Housing Developments Ltd. which is passed on 24-03-2006 and as it is noticed that the co-ordinate Bench of this Tribunal in the case of Viswas Promoters (P) Ltd. has considered all the issues and has arrived at its decision after full consideration of the principles as considered in the case of Bengal Ambuja Housing Development Ltd. as also on account of the fact that the decision of the Calcutta Bench of this Tribunal does not reflect the correct position of law, relying upon the decision of the Hon'ble jurisdictional High Court in the case of Hitech Arai reported in 321 ITR 477 (Mad) I follow the decision of the co-ordinate Bench of this Tribunal in the case of M/s. Viswas Promotors P. Ltd. in ITA No. 1912/Mds/2007 dated 13- 10-2008 as also the decision of the jurisdictional High Court in the case of Visvas Promoters (P) Ltd. reported in 323 ITR 114 (Mad), and hold that if there is any violation in respect of any of the conditions specified in section 80-IB(10) of the Income-tax Act, 1961 in respect of any of the residential units in the housing project on which the claim of deduction under section 80-IB(10) has been made, the assessee shall be disentitled to the deduction u/s. 80-IB(10) in respect of the total project. In the circumstances, the issue No. (v) being whether the built up area if it exceeds 1500 s.ft. the 51 ITA 259 to 263 /10 assessee would be entitled to the deduction u/s. 80-IB(10) of the Act on pro rata basis, is held against the assessee. In the circumstances I am of the view that the Income-tax Act, 1961 does not recognize a Lakshman Rekha being drawn by an appellate authority. Further I am of the view that even if one of the flats in the housing project violates any of the conditions as specified in Section 80-IB(10) of the Income-tax Act, 1961, as is applicable for the relevant assessment year, the assessees shall not be entitled to any deduction under section 80-IB(10) in respect of such housing projects in which there has been such violation.
64. In result, all the appeals of the assessees are partly allowed for statistical purposes.
Sd/-
(George Mathan) Judicial Member Chennai, Dated the 15th September, 2010.
H. 52 ITA 259 to 263 /10 THE INCOME TAX APPELLATE TRIBUNAL BENCH 'A', CHENNAI BEFORE Dr. O.K.NARAYANAN, VICE-PRESIDENT THIRD MEMBER I.T.A.Nos.259 & 260(Mad)/2010 Assessment Years : 2005-06 & 2006-07 Sanghvi and Doshi Enterprise, The Income-tax Officer, No.560, 3H Century Plaza, Vs. Business Ward XV(3), Anna Salai, Teynampet, Chennai.
Chennai - 600 018.
(Respsondent) PAN - AAYFS 0257 P. (Appellant) I.T.A.Nos.261 & 262(Mad)/2010 53 ITA 259 to 263 /10 Assessment Years : 2005-06 & 2006-07 Sri Mahalakshmi Housing, The Income-tax Officer, No.560, 3H Century Plaza, Vs. Business Ward XV(3), Anna Salai, Teynampet, Chennai.
Chennai - 600 018.
(Respsondent) PAN - AAZFS 0513M.
(Appellant) AND I.T.A.No.263(Mad)2010 Assessment Year : 2006-07 Sri Mahalakshmi Builders, The Income-tax Officer, No.560, 3H Century Plaza, Vs. Business Ward XV(3), 54 ITA 259 to 263 /10 Anna Salai, Teynampet, Chennai.
Chennai - 600 018.
(Respsondent) PAN - AAYFS 6887 P. (Appellant) Assessees by : Shri T. Banusekar, F.C.A. Department by : Shri Shaji P. Jacob, I.R.S. ORDER PER Dr.O.K.NARAYANAN, VICE-PRESIDENT This is a bunch of five appeals. The appeals are filed by assessees, who are three in numbers. The relevant assessment years are 2005-06 and 2006-07.
2. All the three assessees are firms engaged in construction business. The assessee firms, in addition to their traditional contract business, also ventured into development of building projects. The assessees having engaged in the construction of such projects of residential 55 ITA 259 to 263 /10 buildings, claimed deduction provided under section 80IB(10) of the Income-tax Act, 1961. The assessees have accounted income from the projects for the impugned assessment years computing on the basis of project completion method.
3. But the claim of deduction made by the assessees under section 80IB(10) has been denied by the assessing authority and later confirmed by the Commissioner of Income-tax(Appeals). The claim has been denied on various grounds, such as:
(i) that the assessees are not builders and developers but only building contractors and therefore not entitled for deduction under section 80IB(10);
(ii) that the assessees cannot be considered as builders as lawful possession of the land was not handed over to them and the assessees were given only permission to construct the residential buildings; 56 ITA 259 to 263 /10
(iii) that the statutory permits from different agencies like Chennai Metropolitan development Authority (CMDA), Chennai Corporation, Airport Authority of India (AAI) were obtained by the land owners and not obtained in the names of the assessees themselves;
(iv) that the construction work has been sub-
contracted to others;
(v) that the built up area of certain flats exceeded the statutory limit of 1500 sft.
Provided in section 80IB(10);
(vi) that in certain cases two flats were combined to make a single dwelling unit with a single entrance and in such cases again the combined area exceeded the statutory limit of 1500 sft.
(vii) that in certain cases the purchasers of the flats have exclusive rights over the terrace area and in such cases the extent of 57 ITA 259 to 263 /10 the built up area will be more than 1500 sft. if the terrace is also treated as part of the built up area; and (viii that the assessees have not furnished completion certificates to prove completion of the projects before the specified dates.
4. In the light of the above reasons stated by the assessing authority to deny the claim of deduction made by the assessees, which has been confirmed in first appeals, the assessees have raised six issues in the second appeals filed before the Tribunal. These six issues reflected in various grounds raised in these appeals may be short listed as below:-
(i) Whether the assessees are builders/developers and therefore eligible for deduction under section 80IB(10)?
(ii) Where the purchasers of flats have combined two flats together thereby exceeding the limit of the built up area of 1500 sft. can be considered as compliance 58 ITA 259 to 263 /10 of the stipulation provided in section 80IB(10) that the built up area should not exceed 1500 sft. and hence eligible for deduction under section 80IB(10)?
(iii) Whether the assessees have furnished project completion certificates on or before 31st March, 2008 and whether entitled for deduction or not?
(iv) Where in certain cases the built up area of a single flat is more than 1500 sft., whether the assessees are eligible for deduction or not?
(v) Whether the private terrace should also be included in the built up area of the flats for the purpose of working out the statutory extent of the built up area?
(vi) Whether deduction should be allowed even though some of the flats of the projects exceeded the built up area of 1500 sft.?
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5. These issues were considered by the Regular Bench of the Tribunal in the hearing concluded on 9th July, 2010. The Bench was constituted of the learned Vice- President and the learned Judicial Member. The learned Vice-President authored the order on 9th September, 2010. The learned Judicial Member passed a separate order on 15th September, 2010, because of difference of opinion with the learned Vice-president on certain issues.
6. The dissent was not on all the points of decision arrived at by the learned Vice-president. On the first issue as to whether the assessees are builders/developers entitled for deduction under section 80IB(10), the Bench agreed that the assessees are builders and developers as construed in section 80IB(10) and therefore entitled for deduction under that section. The issue whether two flats in a project when combined together could be eligible for deduction, even if the combined extent of the built up area exceeded 1500 sft. was also decided by the Bench unanimously by holding that deduction should not be denied on the ground that two flats were combined by the purchasers of the flats. The Bench held that this is because 60 ITA 259 to 263 /10 the flats were purchased by the buyers as single units not exceeding a built up area of 1500 sft. each. The flats were combined only after the purchase of those flats and after taking possession of them. In such cases the flats concerned are to be treated as constructed and sold as independent flats with built up area not exceeding 1500 sft., each. Regarding the question of project completion certificates, the Bench again unanimously held that even though the certificates are dated beyond 31st March, 2008, inspections of the properties were carried out by the concerned agencies well before 31st March, 2008 and the certificates were issued on the basis of such inspections and therefore the certificates relate back to the dates on which the applications for the certificates were made by the assessees.
7. The next question as to when the built up area of certain flats measured more than 1500 sft., whether they are entitled for deduction has been restored by the Bench to the files of the Assessing Officer with a direction to measure the flats in the presence of the departmental valuation officer as well as the registered valuers appointed by the 61 ITA 259 to 263 /10 assessees, if any. There was no dissent on this issue as well.
8. All the above four issues have been decided by the Bench in favour of the assessees without any dissent.
9. The fifth issue as to whether the private terrace area should also be included in the built up area of the flat for the purpose of determining the limit of 1500 sft. has been unanimously decided by the Bench against the assessee by holding that the area of private terrace should be included in the built up area of the flat.
10. As far as the sixth issue as to whether deduction should be allowed even though some units exceeded the built up area of 1500 sft., the Bench could not arrive at an unanimous decision. The learned Vice- president and the learned Judicial Member have come to different views on the issue. The Hon'ble Vice president held that deduction should be allowed in the case of flats having built up area not exceeding 1500 sft., even though some of the flats are exceeding 1500 sft. He held that deduction should be denied in the case of flats having built 62 ITA 259 to 263 /10 up area in excess of 1500 sft. The learned Vice-president also held that the assessees are to be allowed deduction under section 80IB(10) in respect of flats satisfying all conditions, only if the total built up area of all the flats measuring more than 1500 sft. does not exceed 10% of the total built up area of the project.
11. The learned Judicial Member on the other hand held that even if one of the flats in the project violates any specified condition, the assessees are not entitled for the deduction. The learned Judicial Member held that deduction under section 80IB(10) cannot be allowed on a pro rata basis. The learned Judicial Member also expressed his dissenting view on the ten percent cap suggested by the learned Vice-president.
12. To sum up, the learned Vice-president and the learned Judicial Member agreed on five issues raised before their Bench and unanimously adjudicated four issues in favour of the assessees and one issue against the assessees. The difference of opinion has in fact cropped up only in respect of a single issue as to whether deduction 63 ITA 259 to 263 /10 should be allowed to the assessees even if some of the units exceeded the built up area of 1500 sft.
13. The point of difference was referred to the Hon'ble President, Income-tax Appellate Tribunal through the question framed by the Bench under section 255(4) of the Income-tax Act, 1961, which reads as:
"In the facts and circumstances of the case, is the Assessee entitled to deduction under section 80IB(10) of the Income-tax Act, 1961 if there is violation even in respect of a single residential unit in the project?"
14 The Hon'ble President of the Income-tax Appellate Tribunal nominated me as the Third Member through his honour's proceedings dated 22nd February, 2011 and it is how this matter has been placed before me.
15. The issue of granting deduction under section 80IB(10) in respect of flats having built up area exceeding 64 ITA 259 to 263 /10 1500 sft., has been considered by the Hon'ble Vice- president in paragraph 25 of his order. The said paragraph is reproduced below:
"25. The next objection of the Assessing Officer is that certain flats in the project measure more than1500 sft. According to the ld. Counsel, as per the measurement taken by the registered valuer appointed by the assessee, the said flats measured less than 1500 sft. However, he had no objection if the matter was remitted for verification. Accordingly, we restore this issue to the file of the Assessing Officer with a direction that the flats which are allegedly more than 1500 sft. in area be measured again and the departmental valuer as well as the assessee's valuer, both should remain present. The assessee is directed to extend its fullest co-operation. If on measuring the flats, they are found to be more than 1500 sft., 65 ITA 259 to 263 /10 the Assessing Officer is then directed to allow deduction only in respect of the profits arising from the sale of those flats which measure less than 1500 sft. In other words, flats measuring more than 1500 sft. should be left out. At the same time, we make it clear that the deduction should be allowed only if the built up area of flats measuring more than 1500 sft. do not exceed 10% of the total built up area."
16. In the above said paragraph two issues have been adjudicated by the learned Vice-president. The first point is the question of ascertaining whether certain flats are exceeding the prescribed built up area of 1500 sft. or not. The physical aspect of exceeding the built up area of 1500 sft. has been remitted back to the Assessing Officer for fresh verification. The second issue, which is relevant for the present, is the question whether in a case where flats are exceeding a built up area of 1500 sft. whether the deduction can be given or not. The learned Vice-president 66 ITA 259 to 263 /10 has stated that deduction should be given where the built up area is not more than 1500 sft.
17. In the last part of the said paragraph the learned Vice-president has also made it clear that the deduction should be allowed only if the built up area of flats measuring more than 1500 sft. does not exceed 10% of the total built up area.
18. In short the findings of the learned Vice- president are as follows:
(i) Flats having a built up area of not more than 1500 sft. are entitled for the deduction under section 80IB(10);
(ii) Flats having built up area exceeding 1500 sft. are not entitled for the above deduction.
(iii) The deduction is subject to the condition that the area of flats having built up area of more than 1500 sft. put together does not exceed 10% of the total built up area of the project.67
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19. The learned Vice-president has explained the grounds of his decision in paragraphs 27, 28, 29 and 30 of his order. In paragraph 27 the learned Vice-president has relied on the decision of the Special Bench of the Pune Tribunal in the case Brahma Associates v. JCIT, reported in 122 TTJ 433, to support his view that proportionate deduction is permissible as section 80IB(10) is a beneficial section and the overall limit of 10% of the built up area is a fair restriction. In paragraph 29 the learned Vice-president has relied on the judgment of the Hon'ble Calcutta High Court in the case of CIT vs. Bengal Ambuja Housing Development Ltd. in ITA No.458 of 2006 dated 5-1-2007. In that case the High Court has confirmed the finding of the Kolkata Bench of the Tribunal that deduction under section 80IB(10) is permissible on a pro rata basis. In fact the Calcutta High Court has dismissed the appeal filed by the Revenue against the order of the Kolkata Bench of the Tribunal stating that no question of law arose out of the order passed by the Appellate Tribunal. The learned Vice- president has relied on the judgment of the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. vs. DCIT, 283 ITR402, wherein it has been held that in a case where 68 ITA 259 to 263 /10 the High Court comes to the conclusion that no substantial question of law arises on a particular issue, it could not be stated that when the appeal is dismissed by the High Court, the subject matter of the controversy between the parties has not been dealt with by the High Court. It is further stated that the effect of dismissal is that the order of the Tribunal on the issue which was agitated before the High Court stands merged in the order of the High Court and for all intents and purposes it is the decision of the High Court which is operating and which is capable of being given effect to. Relying on the above judgment of the Hon'ble Gujarat High Court, the learned Vice-president held that the decision of the Hon'ble High Court is squarely applicable to the issue considered by the Bench. He also relied on a Special Bench decision of the Delhi Tribunal in the case of Medicare Investments Ltd. vs. JCIT, 114 ITD 34, where the Bench has adopted the view expressed in the judgment delivered by the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. vs. DCIT, 283 ITR 402. In the light of the above judicial pronouncements, the learned Vice- president came to the conclusion that in the absence of any decision of the jurisdictional High Court to the contrary, not 69 ITA 259 to 263 /10 only the decision of the Special Bench of the Tribunal in the case of Brahma Associates but also the decision of the Calcutta High Court in the case of Bengal Ambuja Housing development Ltd. are binding precedents and therefore it is to be held that even if the assessee has constructed residential houses of larger area, deduction under section 80IB(10) will still be available but will be restricted to the profits arising from the sale of smaller residential units.
20. The learned Judicial Member's dissenting view discussed the statutory provisions of the deduction available under section 80IB(10) in paragraph 55 of the order asunder:-
"55.The provisions of section 80IB(10) do not recognize a pro rata deduction. It is not as if the Legislature did not recognize pro rata deduction. When the Legislature desired to give such pro rata deduction, it specifically provided for it. For e.g. sections 54, 54(2), 54B(2), 80HHC etc. Further a perusal of the section 80IB(10) shows that the 70 ITA 259 to 263 /10 word used at the end of sub-clause(c) is "and" and not "or" nor is it just a coma.
The term "and" means that all the conditions in Sec. 80IB(10) must be complied with individually and cumulatively. Violation of any one of the sub-clauses of section 80IB(10) as are available for the relevant assessment years leads to the loss of the eligibility of deduction u/s 80IB(10) in toto. The wordings of sec. 80IB(10) are "in the case of an undertaking developing and building housing projects". It is not "undertaking developing and building houses or flats". It is the project as a whole that has to be considered. This view draws support from the decision of the Hon'ble Special Bench in the case of Brahma Associates, cited supra. The floor of one flat is the roof of another. 71 ITA 259 to 263 /10
The outer walls of two flats would be common."
21. The learned Judicial Member has further elucidated the statutory provision of deduction as under in para 58 of his order:-
"58. A reading of section 80IB(10) shows that the said provision is unambiguous.
The Legislature clearly did not want to grant exemption to a housing project wherein the "built up area" of a residential unit exceeded the area specified in section 80IB(10)(c). The wordings of sec. 80IB(10) are not the deduction.......100% of the profits derived in the previous year relevant to any assessment year from such housing projects in respect of residential units having a maximum built up area of 1500 sft. The wordings used are "the amount of deduction.........shall be hundred per cent of the profits derived in the previous 72 ITA 259 to 263 /10 year relevant to any assessment year from such housing projects if,- (emphasis supplied by me)
(a) *************************
(b) *************************
(c) the residential unit has a maximum built-up areaof......"
The word "if" denotes the intention in its clarity of the Legislature."
22. The learned Judicial Member thereafter examined the generally accepted rules of binding precedence arising out of the decisions of higher Courts, Special Benches and coordinate Benches. Relying on the decision of the Special Bench of the Tribunal in the case of ACIT vs. MSS India(P) Ltd., 123 TTJ (Pune) 657, the learned Judicial Member held that in the absence of any other direct decision on the issue, the earlier decision of the coordinate Bench is binding on the subsequent Bench. He held that the decision of the Special Bench in the case of Brahma Associates, 119 ITD 255, relied upon by the 73 ITA 259 to 263 /10 learned Vice-president, in fact supports the proposition that deduction should not be given on a pro rata basis. He observed that the said decision in fact supports the arguments of the Revenue on the issue. The learned Judicial Member thereafter observed that a coordinate Bench of the Chennai Tribunal itself has decided the very same issue in the case of ACIT vs. Viswas Promoters (P) Ltd. in ITA No.1912(Mds)/2007 dated13-10-2008 and held that the restriction imposed by the statute is applicable on the entire project and therefore if some of the residential units of the project are exceeding the prescribed limit of built up area, the benefit of deduction under section 80IB(10) cannot be granted to the entire project. He further observed that the above decision of the coordinate Bench of the Chennai Tribunal was the subject matter of a miscellaneous petition in M.P. No.379(Mds)/2009, wherein it was claimed that an error had crept in the order inasmuch as theTribunal had not considered the decision of the Calcutta Bench of the Tribunal in the case of Bengal Ambuja Housing Developments Ltd. The miscellaneous petition has been dismissed vide order dated 30-1-2009. He further observed that against the above order of the Tribunal, the 74 ITA 259 to 263 /10 assessee had filed a Writ Petition before the Hon'ble Madras High Court reported in 323ITR 114, wherein the Hon'ble jurisdictional High Court has categorically held that the decision of the High Court of a different jurisdiction is not binding on the Tribunal, which is not under its jurisdiction and the rectification sought for on that basis under section 254(2) was not valid. In the said decision the Hon'ble jurisdictional High Court had also laid down the principles of judicial discipline wherein it had also been held that where there are conflicting decisions of courts of coordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions.
23. In the light of the above observations the learned Judicial Member, relying on the judgment of the Hon'ble Madras High Court in the case of Viswas Promotors (P) Ltd., 323 ITR 114, held that the decision of the coordinate Bench of the Chennai Tribunal in the case of ACIT vs. Viswas Promotors P. Ltd. in ITA No.1912(Mds)/2007 dated 13-10-2008 is subsequent to the decision of the Calcutta Bench of the Tribunal in the case of Bengal Ambuja Housing Development Ltd., which was passed on 24-3- 75 ITA 259 to 263 /10 2006 and therefore as the co-ordinate Bench of the Chennai Tribunal in the case of Viswas Promotors (P) Ltd. has considered all the earlier decisions and has arrived at its finding after full consideration of the principles as considered in the case of Bengal Ambuja Housing Development Ltd., the said decision applies to the present case. Again, relying on the judgment of the Hon'ble Madras High Court in the case of Hitech Arai, reported in 321 ITR 477, the learned Judicial Member followed the decision of the Chennai Bench of the Tribunal in the case of Viswas Promotors P. Ltd. and held that if there is any violation in respect of any of the conditions specified in section 80IB(10) of the Income-tax Act, 1961 in respect of any of the residential units in the housing project on which the claim of deduction under section 80IB(10) has been made, the assessee shall not be entitled to the deduction under section 80IB(10) in respect of the total project. He held that the entire project should be denied the benefit of deduction available under section 80IB(10) of the Act.
24. I heard both sides at length and considered the issue in detail.
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25. The learned Vice-president and the learned Judicial Member have extensively discussed the grounds of their decisions before arriving at their respective conclusions. Both of them have discussed in detail the decisions governing the question of judicial precedence in the light of a number of judicial pronouncements.
26. As the Third Member in these appeals, I am not here to make any critical appraisal of their thought process and its reflections. That is not my domain as I am not competent to do so. That is the domain of constitutional courts. The duty cast on me is to examine the facts of the case in the light of the statutory provisions and the relevant judicial pronouncements and to agree with one of the views. Therefore I am confining myself to the skeleton task of zeroing down the view to which I may agree.
27. The observations of the Hon'ble Vice-president are as follows:-
(i)As held by the Special Bench of the Tribunal in case of Brahma Associates vs. JCIT, 122 TTJ 433 (Pune) (SB), section 80IB(10) is aimed at promoting 77 ITA 259 to 263 /10 construction of housing projects so as to address the problem of shortage of dwelling units and it must be interpreted in that light and deduction under section 80IB(10) should be given to those flats whose built up area does not exceed 1500 sft. and that deduction should be denied only to those flats whose built up area exceeds the prescribed limit of 1500 sft.
28. On the other hand the learned Judicial Member has held that the Special Bench in the case of Brahma Associates vs. JCIT, 122 TTJ 433(Pune)(SB) has not given a finding that pro rata deduction in respect of the flats which are having area of not exceeding 1500 sft. specified in section 80IB(10) can be given. Such a proposition is contrary to the findings of the said Special Bench of the Tribunal. The provisions of section 80IB(10) do not recognize a pro rata deduction. Violation of any of the conditions in section 80IB(10) would result in loss of eligibility of deduction under section 80IB(10) as a whole. After the decision of the Calcutta High Court in the case of 78 ITA 259 to 263 /10 CIT vs. Bengal Ambuja Housing development Ltd. in ITA No.458(Mds)/2006 , the coordinate Bench of this Tribunal in ACIT vs. Viswas Promotors Pvt. Ltd.in 126 ITD 263 has held that if some of the flats in the housing project exceeded the maximum specified area provided in section 80IB(10) the benefit cannot be extended to the project and following the decision of the coordinate Bench it is necessary to hold that even if a single flat exceeded 1500 sft. in its built up area, deduction will not be available to the entire project.
29. The Chennai Bench-B of the Tribunal in the case of ACIT vs. Viswas Promotors(P) Ltd., 126 ITD 263 has held that approval is accorded to the entire project and blocks of residential units are parts of a project and not project by itself and hence a block of residential units cannot be construed to be a separate project and therefore the assessee is not entitled for the deduction under section 80IB(10). In that case the assessee had completed four housing projects out of which in two projects the assessee constructed flats exceeding 1500 sft. and also flats of less than 1500 sft. in area and claimed deduction under section 80IB(10) in respect of flats which have area measuring less 79 ITA 259 to 263 /10 than 1500 sft. The above order was passed by the Chennai Bench on 13th October, 2008.
30. The Calcutta C-Bench of the Tribunal has considered the very same issue in the case of Bengal Ambuja Housing Development Ltd. vs. DCIT in their order dated 24th March, 2006 passed in ITA No.1595(Kol)2005 and ITA No.1735(Kol)/2005.
31. The above order of the Calcutta Bench of the Tribunal in the case of Bengal Ambuja Housing Development Ltd. was taken in appeal before the Hon'ble Calcutta High Court by the Revenue. The appeal filed by the Revenue under section 260A in IA No.458/2006 has been dismissed by the Hon'ble High Court through judgment of their Lordships dated 5-1-2007. The copies of the judgment were made available on 28-3-2007. The court dismissed the appeal filed by the Revenue on the ground that no substantial question of law was involved in the matter.
32. Likewise the decision of the Chennai Bench of the Tribunal in the case of ACIT vs. Viswas Promotors was also taken before the Hon'ble Madras High Court in writ 80 ITA 259 to 263 /10 petition, in another context. The assessee in that case after the appeal filed by the Revenue was allowed by the Tribunal, had filed a Miscellaneous Petition in M.P. No.379(Mds)/2008, which was dismissed by the Tribunal through its order dated 13-1-2009. The Writ Petition was filed against the said order of the Tribunal, dismissing the Miscellaneous Petition. The Madras High Court while dismissing the writ petition had observed that the Tribunal has explicitly taken note of the substance of the issue decided by the Calcutta Tribunal in Bengal Ambuja Housing Development Ltd. and therefore on the allegation that it was not considered, no mistake could be noticed in the order of the Tribunal. In the course of disposal of the said writ petition, the Hon'ble High Court also discussed certain propositions relating to the binding nature of decisions of High Courts. While laying down those propositions, the High Court also held that where there are conflicting decisions of court of coordinate jurisdiction, the later decision is to be preferred being reached after full consideration of the earlier decisions. The court also observed that the decision of one High Court is neither 81 ITA 259 to 263 /10 binding precedent for another High Court nor for courts or Tribunals outside its own territorial jurisdiction.
33. It is on the basis of the above observations made by the Hon'ble Madras High Court in the writ petition filed by Viswas Promotors (P) Ltd. that the learned Judicial Member has decided to rely on the decision of the Chennai coordinate Bench delivered in the case of ACIT vs. Viswas Promotors(P) Ltd., 126 ITD 263.
34. On the other hand it is on the basis of the judgment of the Hon'ble Calcutta High Court in the case of Bengal Ambuja Housing Development Ltd. that the learned Vice-president has held in favour of the assessee that pro rata deduction is available under section 80IB(10).
35. Incidentally the present Third Member was a party to the order of the Tribunal, B-Bench, Chennai in the case of CIT vs. Viswas Promotors (P) Ltd.,126 ITD 263. In that case the Commissioner of Income-tax(Appeals) had accepted the contention of the assessee on the basis of the decision of the Calcutta Bench of the Tribunal in the case of Bengal Ambuja Housing Development Ltd. vs. DCIT. The said order of the Commissioner(Appeals) was reversed by 82 ITA 259 to 263 /10 the Tribunal and held that pro rata deduction is not available under section 80IB(10). But as a matter of fact it is to be brought on record that the Tribunal while disposing of that appeal in the case of Viswas Promotors (P) Ltd. has not discussed anything about either the order of the Calcutta Bench of the Tribunal in the case of Bengal Ambuja Housing Development Ltd. in ITA No.1735(Kol)/2005 dated 24-3-2006 or the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Bengal Ambuja Housing Development Ltd. in ITA No.458 of 2006 dated 5-1-2007. Even though the Tribunal has considered the matter in detail in the light of the principles of statutory interpretation discussed by the Hon'ble Supreme Court in the case of Padmasundara Rao(decd.) & Others vs. State of Tamil Nadu & Others, 255 ITR 147, the Tribunal has not considered or discussed the decision of the Calcutta Tribunal or the Hon'ble Calcutta High Court which are directly on the point. It was only while disposing of the Miscellaneous Petition filed by the assessee that the Tribunal has made a mention about the decision of the Calcutta Tribunal to make it clear that the said decision was also considered by the Tribunal while passing the earlier 83 ITA 259 to 263 /10 order. It may be because of this subsequent observation that the Hon'ble Madras High Court has observed in its order dismissing the writ petition filed by the assessee that the Tribunal has explicitly taken note of the substance of the issue decided by the Calcutta Tribunal in Bengal Ambuja Housing Development Ltd.
36. But as a matter of fact it is to be seen from the order of the Chennai Bench of the Tribunal in the case of Viswas Promotors(P) Ltd. that the Tribunal has not effectively considered the order of the Calcutta Tribunal and the judgment of the Hon'ble Calcutta High Court. Therefore the argument that all the earlier decisions on the subject were considered by the Chennai Bench of the Tribunal in the case of Viswas Promotors(P) Ltd. is not a correct statement of fact.
37. It is also not correct to argue that the said order of the Tribunal Chennai Bench in the case of Viswas Promotors(P) Ltd. has been confirmed by the Hon'ble Madras High Court. The Hon'ble 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 84 ITA 259 to 263 /10 Miscellaneous Petition filed by the assessee. The Hon'ble court has specifically mentioned that the writ petition was misconceived and therefore liable to be dismissed. The ratio laid down by the Hon'ble High Court in the said case was that writ petition against order under section 254(2) cannot be rejected on the ground of availability of alternate remedy. The Hon'ble Madras High Court has not considered anything concerning the merit of the issue that whether in the circumstances stated above the assessee could claim deduction under section 80IB(10) or not. The Hon'ble Court clarified that it was still open for the assessee to appeal against the finding of the Tribunal on merits of the issue in appeal before the Hon'ble High Court permitted under section 260A. Therefore it is premature to hold that the order of the Tribunal, Chennai Bench in the case of ACIT vs. Viswas Promotors(P) Ltd., 126 ITD263 has been upheld by the Hon'ble jurisdictional High Court.
38. Therefore I find that the premises relied on by the learned Judicial Member in the light of the order of the coordinate Bench and the judgment of the jurisdictional High Court are not in the correct perspective. 85 ITA 259 to 263 /10
39. As already stated, the Tribunal has not considered either the order of the Calcutta Tribunal or the judgment of the Hon'ble Calcutta High Court in the case of Bengal Ambuja Housing Development Ltd., even though the said order and the judgment were delivered prior to the order of the Chennai Bench of the Tribunal in the case of Viswas Promotors (P) Ltd. Therefore it is to be seen that the judgment of the Hon'ble Calcutta High Court in the case of CIT vs. Bengal Ambuja Housing Development Ltd. dated 5-1-2007 rendered in ITA No.3458/2006 has not been considered by the Chennai Bench while passing its order in the case of ACIT vs.Viswas Promotors (P) Ltd. on 13-10- 2008 (126 ITD 263).
40. Now the question is, in the above circumstances where there is no direct decision of the jurisdictional High Court on the subject and where there is already an existing decision of the Calcutta High Court on the subject, which decision is to be followed to decide the issue at hand, whether the decision of the Chennai co-ordinate Bench or the judgment of the Hon'ble Calcutta High Court? 86 ITA 259 to 263 /10
41. Now, when coming to the finding that the issue has been adjudicated by the Hon'ble Calcutta High Court in the case of Bengal Ambuja Housing development Ltd., it is also necessary to examine the fact of dismissal of an appeal by the High Court holding that no substantial question of law arises. The Delhi Bench of the Tribunal in the case of Medicare Investments Ltd. vs. JCIT, 114 ITD 34(Delhi)(SB) has considered this question in an elaborate manner in its order. Relying on the judgment of the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. vs. DCIT, 283 ITR 402, the Hon'ble Special Bench held as follows:-
"The effect of dismissal of appeal by the High Court holding that no substantial question of law arises is that the order of the Tribunal on the issue which was agitated by the appellant before the High Court stands merged in the order of the High Court and for all intents and purposes, it is the decision of the High Court which is operative and which is capable of being given effect to."87
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42 The Hon'ble Special Bench held that 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 decision of the High Court is a decision on merits confirming the findings arrived at by the Tribunal and it is not possible to argue that the High Court has not considered the merits of the issue decided by the Tribunal. Where the High Court dismisses the appeal stating that no question of law arises from the order passed by the Tribunal it means that the Hon'ble High Court has considered the merits of the issue discussed and decided by the Tribunal in the light of the relevant law and the High Court is in agreement with the views of the Tribunal and it is not required to repeat all those issues again. What the High Court is stating in short is that the appeal is dismissed as no question of law arises. On this we cannot presume that a High Court has not considered the merits of the issue decided by the Tribunal. An appeal always raises question arising out of the merits of an issue. Whether the Hon'ble High Court discusses a case in very many words or dismisses the appeal shortly stating that no question of law arises, the judicial result is the same that the High Court has 88 ITA 259 to 263 /10 upheld the reasonings and findings given by the Tribunal in its order.
43. Therefore, in the light of the judgment of the Hon'ble Gujarat High Court in the case of Nirma IndustriesLtd. Vs.DCIT, 283 ITR 402 and the order of the Hon'ble Special Bench of the Tribunal in the case of Medicare Investments Ltd. vs. JCIT, 114 ITD 34, I find that the judgment of the Hon'ble Calcutta High Court rendered in the case of CIT vs. Bengal Ambuja Housing Dev. Ltd. in ITA No.458 of 2006 dated 5-1-2007 is a judgment directly on the issue upholding the view of the Calcutta C-Bench of the Tribunal that a pro rata deduction is permissible under section 80IB(10). As I have stated above, the judgment of the Hon'ble Madras High Court rendered in the case of Viswas Promoters Pvt. Ltd. v. ITAT & Another, 323 ITR 114 is not on the issue agitated in this case. The said judgment concerned only with the question that whether there is a mistake in the order of the Tribunal or not. The right of the assessee to file an appeal under section 260A before the Hon'ble Madras High Court still survives and till date the Hon'ble Madras High Court has not decided the issue on its 89 ITA 259 to 263 /10 merits. Therefore, the only judgment of a High Court available on the subject, is the judgment of the Hon'ble Calcutta High Court in the case of Bengal Ambuja Housing Development Ltd.
44. Again, I may repeat that the question is whether I should follow the order of the coordinate Bench of the Tribunal in the case of ACIT vs. Viswas Promotors(P) Ltd., 126 ITD 263 or the judgment of the Hon'ble Calcutta High Court in the case of CIT vs. Bengal Ambuja Housing Dev. Ltd.
45. The Hon'ble Bombay High Court in the case of CIT vs. Smt. Godavaridevi Saraf, 113 ITR 589 has held that Income-tax Appellate Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question. The Hon'ble Bombay High Court again the case of CIT vs. Thana Electricity Supply Ltd., 206 ITR 727, has held that the decision of another High Court does have persuasive value on subordinate Courts and Tribunals outside its jurisdiction.
90ITA 259 to 263 /10
46. Further the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., 88 ITR 192, has held that if in a case of taxing provision two interpretations are possible, the interpretation which favours the assessee must be adopted. The same view is reflected again in the decision of the Hon'ble Supremew Court in the case of CIT vs. Kulu Valley Transport Co., 77 ITR 518.
47. Therefore, it is to be stated that the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Bengal Ambuja Housing development Ltd. alone is available directly on the subject matter as the judgment of a constitutional Court. Two decisions, including the decision in the case of Viswas Promoters (P) Ltd., have been rendered by co-ordinate Benches of the Tribunal, Chennai against the assessee. But it is to be seen that a co-ordinate Bench of the very same Tribunal (Chennai Bench-A) has taken a view in favour of the assessee in the case of Arun Excello Foundations(P) Ltd. vs. ACIT, 108 TTJ 71 inspite of the fact that contrary decisions of co-ordinate Benches were available. I do not wish to make it a point of controversy now.
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48. I am only concerned of the binding effect of the judgment of the Hon'ble Calcutta High Court in the case of CIT vs. Bengal Ambuja Housing Development Ltd. In the light of the discussion made above, I am of the considered opinion that I should be lead by the judgment of the Hon'ble Calcutta High Court, which is a constitutional and a court of law. As there is no direct decision of the jurisdictional High Court still available on the subject,I find it my duty to follow the judgment of the Hon'ble Calcutta High Court. I do not think it as a good judicial behavior to dwell upon the technicalities of jurisdiction and ignore the judgment of a competent constitutional Court. So long as there is no decision by my jurisdictional High Court, I am immediately bound by the judgment of any other High Court available to me, directly on the subject. Therefore, I hold that the controversy placed before me as a Third Member is covered by the judgment of the Hon'ble Calcutta High Court rendered in the case of CIT vs. Bengal Ambuja Housing Development Ltd. in ITA No.458 of 2006 dated 5-1-2007. In the light of the findings arrived at above, I agree with the view taken by the Hon'ble Vice President, where he has held that the assessees are entitled for deduction under 92 ITA 259 to 263 /10 section 80IB(10) in respect of flats having built up area not exceeding 1500 sft. and not entitled for deduction in respect of those flats having their built up area exceeding 1500 sft.
49. The learned Judicial Member has also expressed his dissenting view on the 10% cap (Lakshman Rekha) proposed by the learned Vice President. The learned Vice-President has relied on the order of the Hon'ble Special Bench of the Tribunal in the case of Brahma Associates v. JCIT, 122 TTJ 433 (Pune)(SB) to arrive at a Lakshman Rekha of 10%. In the appeal filed against the order of the Special Bench, the Hon'ble Bombay High Court in the case of CIT vs. Brahma Associates vs. JCIT in ITA No.1194 of 2010 dated 22-2-2011 has held that it was not open to the Tribunal to fix such a limit. Therefore the basis of the finding of the learned Vice President on that issue does not hold good any more. Therefore on the issue of Lakshman Rekha, I agree with the learned Judicial Member that there is no need of any such stipulation.
50. In fact the question referred to the Third Member does not contain anything about the 10% Lakshman Rekha.
But I thought to refer that issue to avoid 93 ITA 259 to 263 /10 confusion/controversy that may surface before the regular Division Bench while disposing the impugned appeals in accordance with the majority view.
51. Now these files will be placed before the regular Bench for passing orders, to finally dispose the appeals.
Sd/-
(Dr.O.K.Narayanan) Vice-President THIRD MEMBER Chennai, Dated the 19th May, 2011.
V.A.P. Copy to: (1) Appellant (2) Respondent (3) CIT(A) (4) CIT (5) D.R. (6) Guard file 94 ITA 259 to 263 /10 IN THE INCOME TAX APPELLATE TRIBUNAL BENCH "A" CHENNAI (Before Shri Abraham P. George, Accountant Member and Shri George Mathan, Judicial Member) .....
I.T.A. Nos. 259 & 260/Mds/2010
Assessment Years : 2005-06 & 2006-07
M/s Sanghvi and Doshi
Enterprise, The Income Tax Officer,
No.560, 3H Century Plaza, v. Business Ward XV(3),
Anna Salai, Teynampet, Chennai - 600 034.
Chennai - 600 018.
PAN : AAYFS0257P
(Appellant) (Respondent)
I.T.A. Nos. 261 & 262/Mds/2010
Assessment Years : 2005-06 & 2006-07
M/s Sri Mahalakshmi Housing,
No.560, 3H Century Plaza, The Income Tax Officer,
Anna Salai, Teynampet, v. Business Ward XV(3),
Chennai - 600 018. Chennai - 600 034.
95
ITA 259 to 263 /10
PAN : AAZFS0513M
(Appellant) (Respondent)
I.T.A. No. 263/Mds/2010
Assessment Year : 2006-07
M/s Sri Mahalakshmi Builders,
No.560, 3H Century Plaza, The Income Tax Officer,
Anna Salai, Teynampet, v. Business Ward XV(3),
Chennai - 600 018. Chennai - 600 034.
PAN : AAYFS6887P
(Appellant) (Respondent)
Appellants by : Shri T. Banusekar
Respondent by : Shri R. Srinivas
ORDER GIVING EFFECT
PER BENCH :
In all these appeals there arose difference of opinion between Members of the Division Bench, hearing the appeals. Therefore, the matter was referred to Third 96 ITA 259 to 263 /10 Member. Hon'ble Vice President acting as Third Member has given his opinion on the matter referred to him.
2. Grounds raised by the assessees in these appeals were as follows:-
1. For that the order of the Commissioner of Income Tax (Appeals) is without jurisdiction, contrary to law, facts and circumstances of the case and at any rate is opposed to the principles of equity, natural justice and fair play.
2. For that the order of the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant is eligible for deduction u/s 80-IB(10).
3. For that the order of the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant has satisfied all the conditions in Section 80-IB(10)
4. For that the order of the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant was a builder and developer and not merely a building contractor.
5. For that the order of the Commissioner of Income Tax (Appeals) erred in concluding that the appellant had built flats exceeding the permissible limit of 1500 sq. ft and had therefore violated the provisions of Section 80IB (10)(c).
6. For that the order of the Commissioner of Income Tax (Appeals) failed to appreciate that the measurement of flats had been made incorrectly by the Assessing Officer.
7. Without prejudice to the above, for that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant was at least eligible for proportionate deduction in respect of those units where the permissible limit of 1500 sq ft had been exceeded.97
ITA 259 to 263 /10
8. For that the order of the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had completed the project within the time required u/s 80IB(10) and that the delay in obtaining completion certificate was more due to procedural delays in the office of the local authority than any lapse on the part of the appellant.
9. For these grounds and such other grounds that may be adduce before or during the hearing of this appeal with the leave of the Hon'ble Tribunal, it is prayed that a. deduction u/s 80IB(10) be allowed as claimed by the appellant b. such other orders may be passed as the Hon'ble Tribunal may deem fit.
2. Hon'ble Vice President, sitting as Third Member, had succinctly, formulated the questions raised through these grounds on page 5 of his order, as under:-
(i) Whether the assessees are builders/developers and therefore eligible for deduction under Section 80IB(10)?
(ii) Where the purchasers of flats have combined two flats together thereby exceeding the limit of the built-up area of 1500 sq. ft. can be considered as compliance of the stipulation provided in Section 80IB(10) that the built-up area should not exceed 1500 sq. ft. and hence eligible for deduction under Section 80IB(10)?
(iii) Whether the assessees have furnished project completion certificates on or before 31st March, 2008 and whether entitled for deduction or not?
(iv) Whether in certain cases the built-up area of a single flat is more than 1500 sq. ft., 98 ITA 259 to 263 /10 whether the assessees are eligible for deduction or not?
(v) Whether the private terrace should also be included in the built-up area of the flats for the purpose of working out the statutory extent of the built-up area?
(vi) Whether deduction should be allowed even though some of the flats of the projects exceeded the built-up area of 1500 sq. ft.?
3. Based on the decision of Hon'ble Vice President sitting as Third Member on the matters where there were difference of opinion, and on other points based on the unanimous view of the Division Bench, we hold that -
(i) Assessees were builders/developers and therefore eligible for deduction under Section 80IB(10).
(ii) Even where the purchasers of the flats combined two flats together thereby exceeding the limit of the built-up area of 1500 sq. ft., it could still be considered as proper compliance of the stipulation provided in Section 80IB(10) that the built- up area should not exceed 1500 sq. ft.
and therefore, assessees are eligible for deduction under Section 80IB(10).
(iii) Even though assessees had furnished project completion certificates which are dated before 31st March, 2008, these certificates related back to date on which the applications for such certificates were made by the assessees and therefore, 99 ITA 259 to 263 /10 assessees are entitled for deduction under Section 80IB(10).
(iv) In so far as the issue whether built-up area of certain flats measuring more than 1500 sq. ft. is concerned, it is restored to the files of the Assessing Officer with a direction to measure a flat in the presence of DVO as well as Registered Valuation Officer appointed by the assessee.
(v) Private terrace area should be included in the built-up area of the flats for the purpose of working out statutory extent of the built-up area; and
(vi) Based on majority view, deduction should be allowed to the assessees under Section 80IB(10) in respect of flat having built-up area not exceeding 1500 sq. ft.
are not entitled for deduction in respect of these flats having built-up area exceeding 1500 sq. ft.
4. There was one more issue on which there was a difference of opinion between the Members of the Division Bench, which though not specifically referred to the Hon'ble Vice President sitting as Third Member, was answered by him. This was regarding 10% cap (Lakshman Rekha) for flats having built-up area exceeding 1500 sq. ft. Hon'ble Vice President has agreed with the view of Ld. Judicial Member that there was no need for any such stipulation of 100 ITA 259 to 263 /10 limit. Therefore, based on the majority view, we hold that there need not be any cap of 10% for flats having built-up area exceeding 1500 sq. ft., with regard to a claim for deduction under Section 80IB(10) of the Act.
5. In the result, appeals of assessees are treated as partly allowed.
The order was pronounced in the Court on 17th June, 2011.
sd/- sd/-
(George Mathan) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 17th June, 2011.
Kri.
Copy to:
Appellant/Respondent/CIT(A)/CIT/D.R./Guard file