Income Tax Appellate Tribunal - Bangalore
M/S Vaswani Estates Developers Private ... vs Assessee on 20 March, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
ITA No. 882/Bang/2011
Assessment year : 2006-07
M/s. Vaswani Estates Vs. The Assistant Commissioner of
Developers Pvt. Ltd., Income Tax,
# 52, Vittal Mallya Road, Circle 12(5),
Bangalore - 560 001. Bangalore.
PAN : AABCV 1065C
APPELLANT RESPONDENT
ITA No. 1058/Bang/2011
Assessment year : 2006-07
The Deputy Commissioner of Vs. M/s. Vaswani Estates
Income Tax, Developers Pvt. Ltd.,
Circle 12(5), # 52, Vittal Mallya Road,
Bangalore. Bangalore - 560 001.
PAN : AABCV 1065C
APPELLANT RESPONDENT
Assessee by : Shri V. Srinivasan, C.A.
Respondent by : Shri S.K. Ambastha, CIT-I(DR)
Date of hearing : 20.03.2013
Date of Pronouncement : 28.03.2013
ITA Nos.881 & 1058/Bang/2011
Page 2 of 17
ORDER
Per N.V. Vasudevan, Judicial Member
ITA 1058/B/11 is an appeal by the revenue and ITA 882/B/11 is the assessee's appeal. Both these appeals are directed against the orders dated 25.08.2011 of CIT(Appeals)-III, Bangalore relating to A.Y. 2006-07.
2. The assessee is a company, which is engaged in the development of properties. In the return of income filed for the A.Y. 2006-07, the assessee claimed deduction u/s. 80IB(10) of the Income Tax Act, 1961 (the Act) of a sum of Rs.2,42,91,930 being the profits derived by the assessee from development of housing project by name "Vaswani Tranquil". The assessee had filed the return of income on 24.10.2006.
3. According to the AO, one of the conditions for allowing deduction u/s. 80IB(10) of the Act was that the built-up area of each of the residential unit in the project should not exceed 1500 sq.ft. To verify whether each of the residential unit in the project does not exceed 1500 sq.ft., the AO conducted a survey u/s. 133A of the Act on 25.02.2008 in the office premises of the Assessee. The AO also visited the project site of Vaswani Tranquil on 12.03.2008 and measured the various flats. He noticed that there were duplex flats (one unit each in two floors) which had internal staircase connected from one floor to another. The area of both the flats put together was in excess of 1500 sq.ft. The details in this regard were as follows:-
ITA Nos.881 & 1058/Bang/2011 Page 3 of 17 Flat No.201 & 201A = 2177 sq.ft.
(1088.5 + 1088.5)
Flat No.204 & 204A = 2252 sq.ft.
(1126 + 1126)
Flat No.205 & 205A = 2262 sq.ft.
(1131 + 1131)
Flat No.206 & 206A = 2427 sq.ft.
(1213.5 + 1213.5)
Flat No.208 & 208A = 2438 sq.ft.
(1219 + 1219)
Flat No.210 & 210A = 2343 sq.ft.
(1171.5 + 1171.5)
It is not in dispute that both the units were owned by one and the same person, but there were different agreement and sale deeds, except one of the flats which was owned by two members of the same family.
4. Besides the above, the AO also noticed that the built-up area of the following flats was in excess of 1500 sq.ft.
Flat No.207 = 1651 sq.ft.
Flat No.211 = 1647 sq.ft.
Flat No.302 = 1651 sq.ft.
5. The AO confronted the assessee as to why the deduction u/s. 80IB(10) of the Act should not be rejected for the reason that some of the residential units in the project exceed 1500 sq.ft. In reply, the assessee pointed out that the duplex flats were two distinct units as per the sanctioned plan. The customer who purchased the said units under two different sale deeds took possession of the separate units and made certain internal modification to enjoy the different units located on different floors as a single duplex unit. The assessee emphasized that it had sold ITA Nos.881 & 1058/Bang/2011 Page 4 of 17 two units under two different sale deeds and the built-up area of each of the unit was less than 1500 sq.ft. The assessee also pointed out that in respect of Flat 204 & 204A, the two units were purchased by different persons, but members of the same family. In respect of other units viz., 201 & 201A, 205 & 205-A, 206 & 206-A. 208 & 208-A, 210 & 210A, both the units were purchased by the same person. The assessee also pointed out that there was an external staircase for access to the units located in the lower floor and upper floor. It was argued that had the intention of the assessee been to sell the two units as duplex apartments, such external staircase would not have been constructed.
6. The AO, however, did not allow the claim of the assessee for deduction u/s. 80IB(10) of the Act by observing as follows:-
"6.8 I have considered the over all facts of the case and reply of the assessee and I find it totally untenable and baseless. During the inspection of the units it was clearly noticed that without proper preplanning, it was not possible to construct the above said flats in custom-built way, so that they can reunite and make it as duplex. Even if it is assumed that these flats were re- constructed or modified later by the customers, but in respect of the other flats, which are not in nature of duplex are also measuring more than 1500 Sq.ft. again which makes the assessee not liable for claiming deduction u/s. 80IB.
Considering the facts of the case, the claim of the assessee in respect of 80IB is rejected."
7. Aggrieved by the order of the AO, the assessee preferred appeal before the CIT(A). The contentions of the assessee before the CIT(Appeals) were as follows:-
ITA Nos.881 & 1058/Bang/2011 Page 5 of 17
(a) Even assuming that duplex flats exceed the built-up area of 1500 sq.ft., it was not possible to reject the claim for deduction u/s.
80IB(10) of the Act in its entirety. The assessee argued that to the extent the built-up area of the units in the project are less than 1500 sq.ft., the assessee should be entitled to the deduction u/s. 80IB(10) of the Act.
(b) In respect of the duplex flats, the assessee submitted that the AO should not aggregate the built-up area of two separate units because the assessee conceived and promoted the project as two different and distinct units and it was only the purchaser who converted two independent units located on two different floors by constructing a internal staircase between the floor and thereby converting the two units as one duplex flat. It was argued that as far as the assessee is concerned, he cannot be held responsible for the same.
(c) As far as three units viz., 207, 211 & 302 which were stated by the AO to be having a built-up area of 1651, 1647 & 1651 sq.ft., the assessee submitted that the AO has considered the super built-up area as per the sale deed and that what has to be considered as built-up area is in terms of Explanation in clause (a) of sub-section (14) of section 80IB(10) of the Act. The assessee submitted that if the built-up area is construed in the light of the aforesaid definition, then the area of the aforesaid flats would be less than 1500 sq.ft.
ITA Nos.881 & 1058/Bang/2011 Page 6 of 17 The assessee thus argued that the entire claim for deduction u/s. 80IB(10) of the Act ought to have been allowed.
8. The CIT(Appeals) rejected the contention of the assessee with regard to the points (b) & (c) referred to above by holding as follows:-
"5.1 With regard to the main contention of the appellant that it has not violated the conditions mentioned u/s. 80IB(10) of the Act, I find that the AO has given two instances where certain flats have exceeded the built-up area of 1500 sq.ft. Firstly, the AO has referred to 3 flats viz., Flat 207, 211 and 302. In so far as the observations of the AO that in respect of these 3 flats viz., 207, 211 and 302 are concerned, the built-up area as per the sale deeds was in excess of 1500 sft. However, the appellant has explained that in respect of these flats, the AO has considered the super-built area as per the sale deeds and what is to be considered is the built-up area in terms of the explanation in clause (a) of sub-section 14 of Section 80IB(10) of the Act. If the built-up area is considered, the area of these flats is less than 1500 sft. only. This contention of the appellant is not acceptable especially due to the fact that the AO has conducted survey and has duly verified that the area of these flats exceed the prescribed limit of 1500 sft. Further, from the observations of the AO in the assessment order it reveals that the appellant has constructed 6 flats viz., Flat 201 and 201A, Flat 204 and 204A, Flat 205 and 205A, Flat 206 and 206A, Flat 208 and 208A and Flat 210 and Flat 210A, which are in the nature of duplex apartments. Here, there is no dispute on the fact that the combined areas of the aforesaid flats are more than 1500 sft. From a perusal of the sale deeds in respect of the above 6 flats, it is seen that the same have been sold to the same person or family members. When the case is such that the 6 flats have been purchased by the same person, it is not unreasonable to assume that the said flats were purchased with the intention of holding the same as one residential unit. This is all the more so when the flats are stated to be duplex apartments with internal connection. This goes against the assertion of the appellant that it has executed separate documents conveying the property to its customers. That may be so but one cannot ignore the reality which was also observed at the time of survey. It was observed at the time of survey that the flats are constructed as a duplex and it would not be possible without proper preplanning. The Assessing Officer has rightly held that for the 6 flats there is a violation of the conditions laid down in ITA Nos.881 & 1058/Bang/2011 Page 7 of 17 section 80IB(10) in as much as the built area of each of these flats exceeds 1500 sft. Hence, the appellant's contentions in this regard are rejected. Therefore the appellant fails on this point."
9. The alternative submission made by the assessee before the CIT(A) was that at least deduction u/s. 80IB(10) on the profits in respect of residential units where the built-up area is less than 1500 sq.ft. should be allowed. The assessee relied on the decisions of the Bangalore Bench of the Tribunal in the case of Brigade Enterprises in ITA No.1198/B/07 dated 29.08.08 and SJR Builders in ITA No.1192/B/08 dated 21.08.09. In the aforesaid decisions, the Tribunal has taken the view that deduction u/s. 80IB(10) of the Act can be denied only in respect of profits derived with reference to area of the flats whose built-up area is more than the prescribed limit of 1500 sq.ft. The CIT(Appeals), following the aforesaid decisions, directed the AO to allow deduction u/s. 80IB(10) of the Act proportionately observing as follows:-
"6.5 Following the binding precedent of Hon'ble ITAT Bangalore Bench, I hold that the restriction for deduction u/s. 80IB of Income-tax Act, 1961 is to be made only with reference to area of those flats where built up area is more than the prescribed limit of 1500 sq.ft as held by the AO. Accordingly, I direct the Assessing Officer to proportionately calculate the disallowance to be made u/s. 80IB for in proportion to the area of those flats and restrict the disallowance u/s. 80IB of Income-tax Act, 1961 only to the same. For the balance area, the appellant would be entitled to the deduction u/s. 80IB of Income-tax Act, 1961."
10. Aggrieved by the above direction of the CIT(A) to allow deduction u/s. 80IB(10) of the Act in respect of the profits derived from the residential ITA Nos.881 & 1058/Bang/2011 Page 8 of 17 units whose built-up area is less than 1500 sq.ft., the revenue has preferred the present appeal before the Tribunal. The assessee has preferred the appeal before the Tribunal aggrieved by the order of the CIT(A) in not allowing deduction in respect of the duplex flats as well as the three flats whose built-up area was more than 1500 sq.ft.
11. We have heard the rival submissions. As far as the appeal of the revenue is concerned, we are of the view that the question as to whether deduction u/s. 80IB(10) of the Act has to be allowed proportionate to the profits derived from sale of residential units whose built-up area is less than 1500 sq.ft., even though some of the residential units in the very same project exceeds the built-up area of 1500 sq.ft., the same has been decided by the Hon'ble High Court of Karnataka in the case of CIT v. SJR Builders in ITA No.32 of 2010 dated 19.03.12. The Hon'ble High Court has taken the view confirming the order of the Tribunal, by holding that where residential units exceed the built-up area of 1500 sq.ft., such units may be excluded for deduction, but the assessee will not lose the benefit of deduction u/s. 80IB(10) in its entirety. It is only with reference to the flats which is more than the prescribed area that the assessee will lose the benefit of deduction. The Tribunal in its decision had followed the ruling of the Special Bench of the Tribunal in the case of Brahmos Associates v. JCIT (313 ITR (AT) 268 (Pune) (SB). In view of the aforesaid decision of the Hon'ble High Court of Karnataka, we are of the view that there is no merit in the appeal of the revenue.
ITA Nos.881 & 1058/Bang/2011 Page 9 of 17
12. As far as the appeal of the assessee is concerned, we will first deal with the issue as to whether the assessee will be entitled to the benefits of deduction u/s. 80IB(10) of the Act in respect of the duplex flats, for which the built-up area, admittedly, on a combined measurement of the two units was in excess of 1500 sq.ft. On the above issue, the ld. counsel for the assessee placed strong reliance on the decision of the Hon'ble High Court of Karnataka in the case of GR Developers in ITA No.355 of 2009 dated 29.02.2012. In the aforesaid decision, the facts were that the assessee constructed a residential housing project. One of the disputes was that out of total 84 units some of the units in the third floor, had a room constructed on the terrace. The measurement of the said flat after including the room constructed on the terrace was in excess of 1500 sq.ft. The assessee had contended that the room on the 3rd floor was constructed by the purchasers and therefore the same should not be the basis on which the assessee should be denied deduction u/s. 80IB(10). The question before the Hon'ble High Court was as follows:-
"(i) Whether the Tribunal was correct in holding that the Assessing Officer had failed to prove that the residential flats exceeded built-up area of 1500 sq. feet each and penthouse flats and other flats which were specially built contrary to the sanctioned plan was built by the assessee or by the owners had not been proved by the Assessing Officer by shifting the burden when allowing deduction u/s. 80-IB(10) of the Act?"
13. The Hon'ble High Court on the above question, held as follows:-
ITA Nos.881 & 1058/Bang/2011 Page 10 of 17 "3. FIRST SUBSTANTIAL QUESTION OF LAW:
From the aforesaid material, it is clear that the assessee obtained approval for building housing project on 14.6.2002 and has built 84 flats in an area, which is in excess of one acre of land. The construction is completed within the period stipulated. 84 flats, according to the assessee is within the 1,500 sq. ft. The material on record discloses that a head room is constructed. The head room is not included in the sale deed. The local authority, after construction of the building, inspected the same and has granted occupancy certificate. Therefore, the construction put up by the assessee prima facie can be said to be as per the sanctioned plan.
If after issue of occupancy certificate and after sale of these residential flats, if the owners of these flats on the top floor decided to put up a head room and engaged the very same contractor and the engineer may have put up the identical structures, it cannot be said that the assessee has put up the said construction and thus, contravened the requirement of Section 80- IB. The material on record does not disclose that the assessee put up the said construction prior to the sale of those flats and excluded the said construction in the sale deed with an intention of getting benefit of Section 80-IB(10)."
14. The Hon'ble High Court accordingly accepted the contention of the assessee. Our attention was drawn to another decision of the Hon'ble High Court of Karnataka in the case of CIT v. Pramod & Others, ITA No.231 of 2010 dated 29.02.2012. In the aforesaid case, the facts were identical in which the terrace portion and projections above the flat if taken into consideration, the built-up area of the residential flat was in excess of 1500 sq.ft. The question before the Hon'ble Court was as under:-
(ii) Whether the Tribunal was correct in holding that the main flat and the pent house/projected area are different units and the same cannot be treated as one unit without taking into consideration that the construction has been carried out as a single unit and there was no provision for others to utilize the projected area/pent house except the occupants of the main flat?"
ITA Nos.881 & 1058/Bang/2011 Page 11 of 17
15. The Hon'ble High Court held as follows:-
"9. In a construction of 121 residential units, if there or five units, which are on the top floor, do not confirm strictly to this requirement of 1,500 sq.ft. built-up area, that is not a justification to deny the benefit of exemption from payment of income-tax under this provision. In fact, the evidence on record is very clear that purchasers of the flats have put up the construction after the sale for which the assessee cannot be held responsible. Merely because the assessee had made the provision which enable the purchaser to put-up the construction, is no ground to deny the benefit which is granted under the Act, when the object of housing scheme in substance is implemented strictly in accordance with law."
16. Similar decisions of the Hon'ble High Court of Karnataka in the case of CIT v. C. Gopalan Enterprises in ITA No.235 of 2010 dated 29.02.2012 and ITA No.228 of 2010 dated 29.02.2012 were also brought to our notice.
17. The ld. DR drew our attention to the sanctioned plan of the 2nd floor in which some of the units in the 2nd floor has an internal staircase to the 3rd floor. It was his submission that the assessee had the idea of selling the two units located in the 2nd floor & 3rd floor as a duplex flat and that is the reason why even in the sanctioned plan there is an internal staircase connecting the 2nd & 3rd floors. This fact has not been noticed by the lower authorities and has been pointed out by the ld. DR for the first time before us. In the light of the sanctioned plan, which clearly evidences the fact that the assessee intended to sell 2nd & 3rd floor units as a duplex flat, the ld.
ITA Nos.881 & 1058/Bang/2011 Page 12 of 17 DR submitted that deduction in respect of the duplex flats should not be allowed.
18. We have considered the rival submissions. We have also seen the sanctioned plan which was produced before us by the ld. DR. It is clear from the sanctioned plan that the assessee while conceiving the plan for the building had intended to put up a duplex flat and this is evident from the fact that the unit in the 2nd floor has an internal staircase to the 3rd floor. From the mere fact that the units in the 2nd floor & 3rd floor had been sold under different sale deeds and different agreements and the fact that their built-up area taken individually is less than 1500 sq.ft., it cannot be the basis to hold that the assessee should be allowed deduction u/s. 80IB(10) of the Act in respect of those flats. As we have already seen, the decisions rendered by the Hon'ble High Court of Karnataka are on the basis of the fact that the extra construction or joining of the two units and converting as one unit was done by the purchaser and not by the developer. In the present case, however, we find that the developer had conceived and built duplex flats to be sold as one unit. On the facts of the present case, we are of the view that the revenue authorities were justified in denying the benefit of deduction u/s. 80IB(10) of the Act in respect of the duplex flats.
19. As far as the deduction in respect of three flats in which the built-up area was more than 1500 sq.ft., it was pointed out by the ld. counsel for the assessee that building plan of the assessee was approved prior to 01.04.2005. He brought to our notice that there was no definition of built-
ITA Nos.881 & 1058/Bang/2011 Page 13 of 17 up area in section 80IB(10) of the Act and Finance Act, 2004 w.e.f. 01.04.2005 inserted a definition of built-up area in section 80IB(14)(a) of the Act. As per the amended definition, built-up area means 'the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units'.
20. The ld. counsel for the assessee further pointed out that the Hon'ble High Court of Karnataka in the case of GR Developers (supra) examined the aforesaid amended provisions and held that those provisions were applicable only in respect of housing projects which are approved subsequent to 01.04.2005. The Hon'ble High Court further held that prior to the aforesaid amendment, built-up area did not include the projections and balconies as per the National Building Code, Building Industry Practices and also according to the building bye-laws. It was the submission of the ld. counsel for the assessee that if the projections and balconies are excluded, then the three units which are claimed by the revenue to be in excess of the built-up area of 1500 sq.ft., will be less than 1500 sq.ft. and in respect of those three flats, the assessee should be allowed benefit of deduction u/s. 80IB(10) of the Act.
21. We have considered the rival submissions. The Hon'ble High Court of Karnataka in the case of GR Developers (supra) dealt with the following substantial question of law:-
"(ii) Whether the Tribunal was correct in holding that the definition of "built up area" inserted by Finance No. 2 Act of 2004 w.e.f. 01.04.2005 to Section 80-IB(10) of the Act cannot be ITA Nos.881 & 1058/Bang/2011 Page 14 of 17 applicable to the current assessment year as the same is not clarifictory and would have to be read prospectively?
22. The Hon'ble High court held as follows:-
4. SECOND SUBSTANTIAL QUESTION OF LAW:
The question is whether the definition of "built-up area" as inserted by Finance (No.2) Act of 2004 with effect from 01.04.2005 is prospective or retrospective in nature.
The said provision reads as under:-
"Section 80IB (14)(a):
For the purpose of this Section,-
(a) "built-up area" means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units"
5. Prior to the insertion of this definition in the aforesaid section, built-up area did not include projections and balconies as per the National Building Code, Building Industry Practice and also according to the Building by-laws. Probably taking advantage of this fact, the builders provided these balconies and projections which made these residential units bigger than 1,500 sq. ft. and thus, had the benefit of this prevision on the one hand. Whereas the object, with which this provision was made in reality was defeated as probably such residential units would be beyond the each of the common man.
6. It is in this background, this amendment was brought to law by way of insertion making it clear that the said projection and balconies constitute common area shared with other residential units and they have to be included in the definition of built-up area and then such premises should satisfy the requirement of 1,500 sq. ft. Therefore, notwithstanding the law governing the construction of the building, for the purpose of getting a benefit under the Act, they have to bring the construction within the requirement prescribed under this Act. Then only, they would be entitled to the benefit of tax exemption under Section 80-IB. Normally, when an amendment is effected by way of insertion, the effect is that the earlier section which is ITA Nos.881 & 1058/Bang/2011 Page 15 of 17 substituted by this section is wiped out and in its place, this substituted section is inserted, as if the said section was in the statute book from the day, the enactment was passed. Therefore, it is retrospective in nature. But it is not an invariable rule. ........
........
.......
8. From the aforesaid provision, it is clear that the first condition to be satisfied for application of this provision is that the housing project requires to be approved by a local authority. Before an approval is sought for, the assessee has to get the plan prepared. If the assessee wants to have the benefit of the aforesaid section, notwithstanding the law contained in the building by-laws, the said plan also should be in conformity with the aforesaid provision under the Act. After preparing the plan, obtaining approval, he has to commence the construction and complete it within the period stipulated in the said provision. In the substituted provision, the legislature has consciously bifurcated such construction of housing project into three cases. The first case deals with the approval obtained by the local authority before the 1st day of April 2004; in the second case, after 1st day of April 2004 and before the 31st day of March 2005 and in the third case, approvals obtained after the 1st day of April 2005.
9. In respect of approvals obtained prior to 01.04.2005, if sub-section 14(a) of Section 80-IB is held to be applicable, then, the assessee has to necessarily seek for a modified plan. Otherwise, if he proceeds with the construction without obtaining the sanction of the modified plan, he would not be eligible for benefit of tax exemption under Section 80-IB(10). Similarly, if a valid approval is obtained and the building is constructed in all respects prior to 01.04.2005 and if the said substituted provision is held to be applicable retrospectively, the assessee would not be entitled to the benefit of tax exemption, if he effects sales subsequent to 01.04.2005. Such an interpretation not only would be absurd but have disastrous consequences so far as the assessee is concerned. Therefore, it cannot be said that, that was the intention of the legislature while bringing in the substitution. So we should keep in mind the object behind enacting this provision, namely to bring in investments and to encourage the infrastructure development of middle income housing projects. If the aforesaid provision is held to be retrospective in nature, it ITA Nos.881 & 1058/Bang/2011 Page 16 of 17 would negate the object of the said provision. It is settled law that the Courts have to harmonize these provisions and interpret the same in a manner to achieve the object of the legislature than to distress the said object. In that view of the matter, the definition of built-up area as inserted in sub-Section 14(a) of Section 80-IB by Finance No.2 Act of 2004, which came into effect from 01.04.2005 cannot be held to be retrospective; it applies only to such housing projects, which are approved subsequent to 01.04.2005. In that view of the matter, the assessee, in the instant case, is entitled to the benefit of the aforesaid provision and hence the said substantial question of law is answered in favour of the assessee and against the revenue.
(emphasis supplied)
23. We are of the view that in the light of the aforesaid decision of the Hon'ble High Court of Karnataka, the built-up area of the impugned three flats need to be verified by the AO afresh. In case the AO after considering the aforesaid decision finds that the built-up area is less than 1500 sq.ft., then the assessee should be given the benefit of deduction u/s. 80IB(10) of the Act in respect of those flats. We hold accordingly.
24. In the result, the appeal by the assessee is partly allowed and the appeal by the revenue is dismissed.
Pronounced in the open court on this 28th day of March, 2013.
Sd/- Sd/-
( N. BARATHVAJA SANKAR ) ( N.V. VASUDEVAN )
Vice President Judicial Member
Bangalore,
Dated, the 28th March, 2013.
Ds/-
ITA Nos.881 & 1058/Bang/2011
Page 17 of 17
Copy to:
1. Appellant 2. Respondent 3. CIT 4. CIT(A)
5. DR, ITAT, Bangalore. 6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.