Income Tax Appellate Tribunal - Ahmedabad
Nikhil Associates, Ahmedabad vs Assessee on 25 May, 2005
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IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D" AHMEDABAD
Before S/Shri Mahavir Singh, JM and D.C.Agrawal, AM
ITA No.328/Ahd/2010
Asst. Year 2006-07
M/s Nikhil Associates, 4 t h Vs. Income-tax Officer, Ward
floor, Commerce House, 9(1), Ahmedabad.
Judges Bungalow Road,
Bodakdev, Ahmedabad.
(Appellant) (Respondent)
..
Appellant by :- Shri S. N. Soparkar, & P. M.
Mehta, ARs
Respondent by:- Shri Ravindra Kumar, CIT, DR
ORDER
Per D.C. Agrawal, Accountant Member.
This is an appeal filed by the assessee raising following grounds :-
(1) In law and in the facts and circumstances of the appellant's case, the order passed by CIT(A) is bad in law and deserves to be cancelled as she has passed an order without considering and appreciating the facts of case of appellant.
(2) In law and in the facts and circumstances of the appellant's case, the ld. CIT(A) has grossly erred in upholding the disallowance for deduction u/s 80IB910) of the Act for Rs.5,86,81,337/-. She ought to have allowed the claim of the appellant.
(3) In law and in the facts and circumstances of the appellant's case, the CIT(A) should have realized that as appellant has satisfied all the conditions laid down u/s 80IB (10) of the Act, deduction u/s 80IB cannot be denied.ITA No.328/Ahd/2010
Asst. Year 2006-07 (4) In law and in the facts and circumstances of the appellant's case, the CIT(A) ought to have appreciated that appellant has worked as developer and not contractor hence explanation inserted by Finance Act 2009 w.e.f. 1.4.2001 is not applicable in appellant's case.
(5) In the law and in the facts and circumstances of the case, the appellant denies his liability to pay interest.
(6) The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
2. The facts of the case are that the assessee is engaged in the business of construction and development of housing project. It filed return of income on 31.12.2006 declaring income of Rs. NIL claiming deduction of Rs.5,86,81,337/- u/s 80IB(10) by filing audit report in form No.10CCB. During the course of assessment proceedings the AO found that one Nayankunj Co-op. Housing Society Ltd. purchased the land and was given to the assessee for development of a housing project. On disposal of houses assessee showed a project receipt of Rs.17,04,27,035/-. The deduction under section 80IB(10) was claimed on the ground that assessee is a developer and it has developed housing project of the specific area fulfilling the conditions laid down under that section. The AO, however, was of the view that assessee is not entitled to such deduction because -
(1) Assessee has not taken any approval of the housing project from the local authority. Such original/revised approval was issued by AUDA on 10.3.2005 and 4.1.2006 to Nayankunj Co-op. Housing Society Ltd. which is entirely a separate entity in the eyes of law.
(2) Assessee has acted merely as an agent for Nayankunj Co-op.
Housing Society Ltd. (NCHCL for short).
2 ITA No.328/Ahd/2010Asst. Year 2006-07 (3) The AO examined various clauses in the development agreement dated 25.5.2005 and took the view that -
● The term 'developer and builder' would mean that the person who is eligible for the tax benefit would be the person who is involved in the project from the purchase of land to the sale of the final product, i.e. houses/flats.
● The assessee is not the owner of the land. ● It is further noticed that the assessee has not taken the approval of
the housing project from local authority. The original and revised approval of development is issued by AUDA on 10.03.2005 & 04.01.2006 respectively issued to NCHCL who is entirely separate entity in the eyes of law.
● Assessee firm has acted merely as an agent and contractor as it has entered into construction agreement with the landowner.
● The issue involved is whether an assessee, carrying on the activity of developing and building housing projects on a land which is not owned by him but by landowners with whom the assessee has entered into a development agreement, can be said to be entitled to deduction u/s 80IB(10) when the approval of the project is granted by the local authority to the landowner and not to the assessee.
(4) For getting benefit under section 80IB(10) this sub-section should be read along with sub-section (1). In fact sub-section (10) is only machinery section which specifies the amount of deduction whereas sub-section (1) provides as to who is entitled for deduction.
(5) Clause (ii) of the explanation below section 80IB(10) provides that date of completion of the housing project shall be taken to be the date on which the completion certificate is issued by the local authority. Since in this case completion certificate was not issued to the assessee it is not entitled to the deduction.
(6) Following conditions are required to be satisfied for claiming deduction under section 80IB(10) read with section 80IB(1).
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(i) The gross total income of the assessee should include the profits from the business of an undertaking developing and building housing projects.
(ii) The housing project should be approved by the local authority.
(iii) The project should be on a plot of land, which has a minimum area of one acre.
(iv) The residential units under the project should have a maximum built up area of 1000 sft. in Delhi or Mumbai and of 1500 sft. in any other place.
From this reading it is clear that there should be complete identity between assessee referred to in sub-section (1) and that referred to in sub-section (10).
(7) For claiming deduction, a separate report in prescribed form should accompany a copy of approval of the local authority for carrying on the business as a developer as referred to in sub-section (10).
(8) For claiming deduction u/s 80IB(10) assessee should be the owner of the land whereas present assessee has carried out the project as a contractor or as an agent of the land owner which in this case is NCHCL. He finally held that assessee has not acquired any dominant control over the land and it is only a constructing agent for the land owner.
3. When the matter went before the ld. CIT(A) she concurred with the AO. The reasons given by her are as under :-
(1) The two flats built by the assessee have the area exceeding the limit of 1500 sft. Additional constructions are visible from the ground where top floors of the four towers constructed by the assessee are viewed. They clearly show that area exceeds 1500 sft.
(2) Parking space allotted to each residential unit is part of flat and if they are combined in the built up area, it would exceed the prescribed limit of 1500 sft.4 ITA No.328/Ahd/2010
Asst. Year 2006-07 (3) The assessee did not co-operate for allowing the DVO for necessary inspection so as to enable him to satisfy that area of the flat did not exceed the prescribed limit of 1500 sft.
(4) Even though assessee claims that it has paid towards acquisition of cost of land but there is no agreement or document to support his claim. It is surprising as to how the huge amount of Rs.1,04,30,000/- was paid by the assessee without a mention in the development agreement.
(5) Development agreement refers to the project as a project of the society.
(6) Clause (8) of the development agreement states that the construction was to be made on the land of the society.
(7) Clause (2) of the agreement states that society has granted permission to the assessee under leave and licence basis for entering into said land for the purpose of doing work of development of the said land.
(8) Clause (10) of the development agreement states that the contractual lien of the assessee will continue till the completion of the project.
(9) Clause (14) of the development agreement states that whatever contribution the assessee collects from the members towards the cost of the flat, the same will be handed over or adjusted against the account of society maintained by the assessee.
(10) The case of the assessee is different from the facts in the case of Radhe Developer where assessee had purchased the land by virtue of 5 ITA No.328/Ahd/2010 Asst. Year 2006-07 development agreement but this is not the case here as there is no written document of any purchase of land or transfer of development rights.
(11) Since land ownership remained with the society and not with the assessee, therefore, cost of the land of residential units collected by the assessee would go to the society and not to the assessee.
(12) The assessee has, therefore, acted only as a contractor for the housing society NCHCL and the payments towards construction of residential units as made by the members of the society to the appellant had finally gone to the society. The assessee has in fact developed the society as a work-contract and not as a developer.
4. In respect of a few issues raised by the AO the ld. CIT(A) found facts contrary to the assertion of the AO. She found that -
(1) Necessary approval for the project has been obtained from the local authorities and, therefore, this reason for denying of deduction by the AO was rejected.;
(2) There is no dispute on the size of the plot as it is more than one acre;
(3) The built up area of the shops and other commercial establishments included in the housing project did not exceed 5% of the aggregated built up area or 2000 sft whichever is less.
5. Against this, the ld. AR for the assessee submitted detailed arguments. The gist of the arguments are as under :-
(1) The Society, NCHCL had transferred all the rights of development to the assessee and entire housing project has been developed by the assessee at its own cost and risk.6 ITA No.328/Ahd/2010
Asst. Year 2006-07 (2) There cannot be any estimate of area by merely looking from the ground at the top floor. The finding given by the ld. CIT(A) that area of the two flats is more than prescribed limit of 1500 sft. is based on vague and unverified facts and are rather fanciful. Without actual measurement of any flat it is not possible for any one to come to a conclusion that its area is more than 1500 sft.
(3) The ld. CIT(A) has given a finding that if parking space is included in the residential area than area of each flat would increase the prescribed limit of 1500 sft. This is legally incorrect and not acceptable because parking space cannot be for the habitation of human being and any area specifically made for parking vehicles cannot be part of residential area for the purpose of calculating prescribed limit under section 80IB(10). He submitted that it may be possible to park vehicle inside the habitable area but it is not possible for human to habitat in the parking space for the vehicles. A habitat space is one where human being can live, dine, sleep and do there day to day corus for living. Any other space which does not facilitate all the essential ingredients of living cannot be called space for habitation.
(4) The ld. A.R. submitted that in fact assessee has submitted all the details before the AO and the ld. CIT(A) about the development of the project such as following :-
(A) Vide letter dated 07.08.2009
1. Location plan.
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ITA No.328/Ahd/2010
Asst. Year 2006-07
2. Dimensioned layout plan as approved by local authority.
3. Copies of building plan as sanctioned with built-up area calculation of each category/residential unit.
4. Copy of building use permission (completion certificate) from local authority.
(B) Vide letter dated 15th September, 2009 -
1. Xerox copies of Typical Floor Plan of all -A, B, C & D Blocks.
2. Xerox copy of Terrace Buildings plant of 'D' block
3. Xerox copy of land purchase deed.
4. Justification of terrace area.
(C) Certificate of Architect mentioning built up area of housing units at each floor and separate working of built up area of each flat.
5. It is incorrect to make a charge against assessee that it did not allow inspection of the top floors to the D.V.O. It is because by that time all the flats had been disposed of and assessee had no control over any of those flats. All the keys were with the flat owners and even assessee if wanted, could not have an access to such flats. The department would have approached the flat owners for inspection and measurement or it could have approached the society for that purpose. After developing the project and handing over the possession to the flat owners, assessee had no say or control or access to any of the flats.
6. Much reliance has been placed on the requisition of letter of allotment wherein areas of the flats are mentioned. The ld. AR submitted that such reference to area is only of super- built-up area and not the built-up area as defined under section 80IB(10). The difference between super-built-up area 8 ITA No.328/Ahd/2010 Asst. Year 2006-07 and built-up area is that built-up area does not include common areas which included in super built up area, such as common areas, stare cabin, stare cases, elevator passages etc.
7. By Finance Act, 2004 w.e.f. 1.4.2005 built up area has been defined to include inner measurement of the residential unit at the floor levels, provision of balcony and thickness of walls but did not include common areas shared with other residential units and parking area open to air cannot form part of built up area as defined under section 80IB(10).
6. The ld. AR submitted that it is incorrect to say that there is no written document with the society for purchase of land for which sum of Rs.1,04,30,000/- was paid. The facts are that assessee had provided to the society a fund of Rs.50 lakhs in Asst. Year 2004-05 and thereafter also funds were provided to the society under the special arrangement by the assessee being developer. The total funds required by the society for the purposes of land were arranged or paid by the assessee being the developer firm. The assessee had acquired all the substantive development rights which included all other rights for a sum of Rs.1,04,30,000/-. Once it is not disputed that assessee has paid sum of Rs.1,04,30,000/- for land then it is not material whether there should be any written agreement for that purpose and once there is no dispute between the assessee and the society as to the cost of the land, paid by the assessee then it is incorrect to hold that the assessee was not the owner of the land. It is also mentioned by the ld. AR that assessee had to pay above sum to the society irrespective of the fact that any flat is sold by the assessee or not. Such payment was made even before the start of the construction work. Even in the books of the assessee the payment is 9 ITA No.328/Ahd/2010 Asst. Year 2006-07 shown to have been made for purchase of development rights. Once books are not rejected the entries in the books and their description also cannot be rejected.
7. He submitted that the Society has given all the powers including possession of the land to the assessee and it has empowered the assessee to develop the land and sell the units at assessee's own risk and cost. It is mentioned in the resolution passed by the Society that it had assigned all the powers, rights, responsibilities and liabilities including possessing right, development right, collection of fees/consideration from the prospective buyers as well as residential unit etc. to the assessee for a lump sum payment of Rs.1,04,30,000/-.
8. The ld. AR submitted that by virtue of development agreement the assessee has obtained the possession over the land together with the rights to develop and construct the project and such cost has been the part of the project cost debited in profit and loss account. By virtue of this agreement the assessee was able to transfer land to the ultimate consumer. The transfer of the land and flat by the assessee to the ultimate consumer has been lawful and valid and has not been challenged by any one so far in the court of law.
9. The ld. A.R. also submitted that the assessee developer had dominant over the land to the exclusion of others inasmuch as possession of the land has been given to the assessee by the land owners to carry out development activities of the aforesaid project. Once the possession of the land is handed over to the assessee and payment thereof is made to the seller then as per section 2(4) of the IT Act read with section 53A of the Transfer of Property Act, the said transaction is treated as transfer in relation to capital asset and assessee would be the owner of the land.
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10. There is in fact no material with the AO or the ld. CIT(A) to hold that assessee has acted only as a contractor and not as a developer. In fact the assessee has developed the housing project because of its expertise and specilization in this field to the exclusive dominant control over the land.
11. In addition to above, the ld. AR submitted following specific points in support of the arguments that he is only a developer and not a contractor :-
(i) AUDA vide its letter dated 30/12/2008 has clarified that the in the project, approval granted on 10/03/2005, developer is NIKHIL ASSOCIATES.
(ii) The developer has appointed the Architects, Engineers, Legal Advisors and such other professionals necessary for the purpose of implementation of such project and has borne the necessary expenditure. The developer has made all necessary arrangements with the aforesaid professionals for successful planning construction and development of the said project.
(iii) For the purpose of completing the project as planned and within stipulated period, developer has made all necessary applications, replies, statements, which are needed, in the Government Offices or Municipal Corporation Offices, etc.
(iv) The complete responsibility of the planning, and the total construction is rested upon the developer and during the time when the project was going on, the complete responsibility for whatever agreements executed under the project and whatever transactions taken place with third parties, the same was rested upon the developer and the society was not responsible.
(v) The appellant developer has created common amenities and other infrastructure like roads, garden, electricity, water, drainage, etc. for aforesaid project at their own cost thus, appellant has created a new product on the plot or land by performing aforesaid development work.11 ITA No.328/Ahd/2010
Asst. Year 2006-07
(vi) The firm has got printed brochure for advertisement of scheme at its own cost. Name of the firm only (without reference of the societies) has been reflected on the brochure.
(vii) The developer has accepted money from the persons to whom housing units are sold. The price to be charged to customers is solely determined by the appellant and thereby, receives entire consideration of sale from such parties. Entire sales value of a unit has been shown as income in the books of account of appellant. It is submitted that entire risk and responsibilities of sale is on Nikhil Developers and if there is loss in such transaction, it is on assessee.
The CIT(A) has failed to appreciate that even in sale deed executed, it has been unambiguously stated that developer of project is appellant firm and not society.
(viii) Obtaining the B.U. Permission was also the responsibility of appellant developer, Nikhil Associates. It can be seen from approved plan from AUDA issued on 21.02.2006, at the time of issuing B.U.Permission, wherein the name of the developer is mentioned as "Nikhil Associates" -which prove that entire development activity is carried out by appellant.
12. Finally the ld. AR pointed out that there is difference between developer and contractor. He submitted that the contractor would receive a fixed remuneration from the contractee and all the risks and benefits from the project would go to the contractee. In case of developer only the dominant control over the land is necessary. It is not necessary that developer should be actually the owner of the land. He should have dominant control over the land. All the risks and benefits attached with the project would belong to the developer and it would be his responsibility to dispose of the flats giving rise to profits and loss to the developer only. Once assessee satisfies these most important criteria it cannot be held that assessee is not the developer but was only a contractor.
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13. On the other hand, the ld. DR submitted that land on which housing project was constructed was never purchased by the assessee. The title of the land remained with the society. The assessee never produced any allotment or transfer letter indicating as to what was the area of each flat. In fact such transfer letters indicated that transfer of the flat was by the owner of the Society to the purchase of the flats. Similarly the allotment letters to the ultimate purchaser was issued by the society and not by the assessee. The ownership of the flats never came with the assessee. No evidence was produced to show that there was any transfer of flats to the ultimate purchaser. In Radhe Developers in which case assessee has relied, flats were in fact handed over by the developer to the ultimate consumer. The right over the flats never accrued to the assessee. The assessee did not produce any completion certificate in its name. In fact assessee was only a recommending authority and not the owning authority. Entire scheme was framed for evading Stamp duty. The assessee in fact had developed the society for the purposes of evading Stamp duty. Further title of the flats was never with the assessee. There was no legal right of assessee either over the land or over the flats. In fact even after completion assessee has not given any measurement of the flats. Unless the assessee desires, even the owners of the flat could not have been allowed any entry. Therefore, assessee was neither the owner of the land nor of the flats. It was only a contractor who built the flats for the society, handed over the de facto possession to the society which in fact sold the flats and realized the money.
14. Regarding parking space ld. DR submitted that parking space is integral part of residential unit. It is privately used like residential unit. It is an extension of residential portion where belongings of the assessee are kept. If belongings of the assessee are kept in the main house then for that 13 ITA No.328/Ahd/2010 Asst. Year 2006-07 reason the house does not ceased to be residential house. Similarly when car is parked in the parking space then it does not cease to be part of residential house. There is always specific parking space for the flats.
15. In reply to above submissions of ld. DR, the ld. AR submitted that assessee had complete domain over the land as well as building. It has all the rights to recover the dues from the flat owners. Even in AUDA record assessee is shown as developer. He drew our attention to pages 124 to 125 of the Paper Book in support of his arguments that assessee is shown as developer in AUDA record. Even building plans are in the name of assessee which are evident by pages, 115, 118, 123 of the Paper Book. In any case matter is covered by the decision of Tribunal, Ahmedabad Bench in the case of Radhe Developers and Shakti Corporation. So far as parking space is concerned it is not a space for animate living but only for storing inanimate objects like car. Further cost of the land is paid by the assessee and is accounted for. Sale proceeds of the flats are also taken into its account by the assessee. The expenditure incurred in construction of flats is debited in such accounts, and the balance is shown as profit of the assessee. Thus entire profit and risk is owned by the assessee and society has nothing to do with the profits or loss assessee would have incurred. Assessee could not be called to be contractor because it is not working on fixed amount of remuneration or fixed amount of project cost. The society has not borne any profit or risk attached with the development of the project. It is assessee which has selected the purchasers of the flats and recommended to the society and the society has issued the authority/membership letters to such purchasers. In fact it is merely a formality which the society has done on behalf of the assessee and for that reason alone assessee cannot be termed as contractor or it cannot be said that profits attached with the project belonged to the 14 ITA No.328/Ahd/2010 Asst. Year 2006-07 society. He drew our attention to pages 193 & 194 of the Paper Book showing a certificate from AUDA wherein the assessee is shown as a developer. Summarizing his arguments, ld. AR submitted that an assessee would be a developer if it has dominant control over the land even though legal ownership might not have passed to it and secondly all the benefits and risks associated with the project is borne by the assessee. A person would be a contractor if legal as well as dominance over the land is with other person and not with the assessee and right and responsibility are confined to constructing the project at a certain cost fixed as per agreement. The right of disposal of the project and associated profits and loss would belong to other person i.e. contractee. The profit of the contractor is confined to profit arising from construction and not from profit arising from sales of the flats.
16. In final sum up ld. DR submitted that -
(1) Condition laid down under clause (c) of section 80IB(10) is not satisfied.
(2) As per development agreement construction is to be made by the society, assessee has to act only on leave and licence basis, the collection made from members i.e. ultimate purchasers is to be handed over to the society or adjusted. It has developed the project only as a contractor of the society which is a separate entity.
(3) The assessee is not the owner of the land, it has never purchased the land.
(4) The society is in dominant control as it has purchased the land, it has appointed the assessee as a contractor as per agreement, it has issued allotment letter to the ultimate purchasers, the assessee has never transferred flats to the ultimate purchasers and finally that assessee has only acted as recommending authority.
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17. We have considered all these submissions and perused the material on record. In our considered view arguments of ld. DR and ld. CIT(A) are not tenable. It is quite apparent that assessee has made legal arrangements whereby society is only a vehicle for reducing the Stamp Duty on purchase of the land. We are informed that if land is purchased by the society it has to incur very low or nominal Stamp Duty whereas if assessee as such purchases the land it has to pay heavy Stamp Duty. Keeping all these aspects in mind we have to examine various events that have taken place including agreement between the assessee and the society and to see what is the de facto situation. It is undisputed fact that it is the assessee who has paid the money for purchase of land to the society which has on its part purchased the land in its name. It has entered into the agreement with the assessee for developing the project and handed over complete possession of the land to the assessee and hence also given authority to dispose of the flats to the prospective buyers, receive money from such buyers adjust it against the money given to the society for purchase of land, recommend names of the buyers to the society which in turn has issued membership letters. The society had in fact no funds of its own to purchase the land and no control over selection of the ultimate purchasers except acting on the recommendation of the society. The relevant clauses from the agreement between the society and the assessee dated 20th March, 2005 are referred to as under (in this agreement Nayankunj Co-operative Housing Society Ltd. is referred to a party of the one part and the assessee is referred to as party of the other part).
(2) The party of the other part, for the purpose of planning and executing of the said project on the said land, will get sanctioned the necessary plants, drawings, specifications and maps, etc. and will do the work of planning, construction and development of the 16 ITA No.328/Ahd/2010 Asst. Year 2006-07 said project and in this manner, the society grants permission to the party of the other part, under leave and license basis, for entering into the said land for the purpose of doing the work of development of the said land.
(3) In this manner, as stated above, for the purpose of planning, construction and development, both the parties have agreed to the below mentioned terms and conditions, as per which the party of the other part will do all the works as detailed below.
(1) To appoint/to get appointed through others, the Architects, Engineers, Legal Advisers and such other professionals, whose services are necessary for the purpose of implementing the said project, to decide their scope of work, to decide their fees, remuneration, etc; to bear all their necessary expenses, to execute the necessary agreements with them, for the purpose of successfully planning, construction and development of the said project.
(2) For implementing the said project, it will be entitled to give sub-contract, labour contract, etc. as per its own requirement and wishes but at the time of giving such appointments, it will have to bear in mind that the total responsibility for planning, construction and development of the said project will rest upon it i.e. the party of the other part.
3(A) The party of the other part will have to explain properly to the existing members of the society and by guiding them in a fair manner, and will have to obtain the necessary contribution from them. Besides, they will have to recommend to the society for enrolling of those persons, who are other than the existing members, and who wish to join the project and wish to obtain residential units and flats having area as per the plans. Before recommending the names of such persons, the party of the other part will have to inquire completely about such persons.
3(B) The persons desirous of enrolling in the project will be admitted on recommendation of the party of the other part in the manner as stated above and it will be the responsibility of the part of the other part to thoroughly explain the project of society to such persons.
3(C) The party of the other part will have to accept money from such persons enrolled in the project but in any circumstances, if the loan 17 ITA No.328/Ahd/2010 Asst. Year 2006-07 is received on the name of the society then in that case said amount will have to be paid by the party of the other part.
3(D) The party of the other part, in this manner, will have to keep a record of the persons -enrolled in the project.
3(E) The party of the other part will have to give the necessary information and proper guidance to the persons enrolled in the said project, for the purpose of getting loan against the residential unit.
3(F) The party of the other part will have to give to the persons enrolled in the project of society, the necessary information and proper guidance for the purpose of abiding by the rules and regulations and bye-laws of the society.
4. The below mentioned works and functions are also included in the responsibilities and duties of the party of the other part as the Developer of the said land, which the party of the other part hereby agrees and accepts to abide by:-
(1) To get the necessary permission for the purpose of development of the said land, from the competent officer and to prepare progress reports at each stage of progress; and to make applications.
(2) To appoint registered architects/engineers and structural designers and at every stage to get from them the certificates to the effect that for the purpose of designs and its construction, they have prepared the detailed drawings within the scope of and as per the provisions of General Development Control Regulations and to produce such certificates from time to time before the competent officer.
(3) To appoint a Registered Site Supervisor on the site of development project.
(4) To obtain from the Registered Site Supervisor, the guidelines for the purpose of obtaining quality of construction.
(5) To help to the maximum possible extent, the site supervisor in discharging his responsibilities.
(6) The developer will have to give certificates to the effect that the construction of the development project is made as per the designs, 18 ITA No.328/Ahd/2010 Asst. Year 2006-07 detailed drawings and specifications given by the Architect Engineer and Structural Engineer.
(7) To regularly produce before competent officer, the progress reports and necessary certificates.
(8) If in any circumstances the developer is retired from the agreement or if his appointment is suspended then in that case, it will have to be informed in writing to the competent officer of AUDA.
(9) If because of any reason, the registered experts are relieved from their jobs, then in that case, it will have to be informed in writing to the competent officer of AUDA.
(10) During the execution of the project, the developer shall not make or get made, any change in the sanctioned drawings of the project, which changes are against the instructions of Architects/Engineers, Site Supervisors, Clerk of Works of Structural Engineers and the Developer shall be held totally responsible in case any construction of the project or any of its part being utilized against instructions of specific permission for its use.
(11) Where ever the registered construction contractor or site supervisor is not appointed or there is no necessity of their appointment, then in those circumstances the developer will be responsible to discharge such functions.
(12) The developer will be entitled to publish the list of only registered experts on the site and save and except those, no names can be published by the developer on the site.
5. The Developer, party of the other part will be entitled and authorised, in case of necessity, to make temporary financial arrangements for the purpose of implementing the project including getting finance from any financial institution, bank or Shroff or private parties, to execute for and on behalf of the society any promisory notes, receipts, hundies, mortgage deeds and other negotiable instruments. And if needed, the society shall execute a power of attorney in favour of the party of the other part for the said purpose. The party of the other part will be solely responsible for repayment of the principal amount, interest and other relevant expenses for the loan taken by party of the other party.
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7. The party of the other part for the purpose of completing the said project as planned and within the stipulated period, will produce all applications, replies, statements or whatever forms and other proceedings, that are needed in the Government and Semi- government offices, Municipal Corporation offices and court of law and other places and the party of the other part shall be responsible for the same and for the said purpose, it is hereby being given the authority and power. In spite of this, if in future, any need arises of giving a specific power of attorney, then in that case, the society will have to give the same in favour of the party of the other party.
8. The said party of the other part will be authorised to recommend for allotment to the Member, whatever construction that is made on the land of the said society, as per the project and the said party of the other part shall also be authorised to recommend and allot for use, the land that remains open after deducting the construction made upon the total land of the society. In the same manner, as per the said project, the said party of the other part shall also be authorised to recommend and allot to any member, all the rights for usage of whatever terrace or open space that comes into existence in the project.
10. Party of the other part shall hold the physical possession with it, of the land as well as whatever construction is put up on the said land, till the completion of the project and further, till the agreement for the land as well as construction upon it is not completely executed, the contractual lien of the party of the other part will continue.
18. Thus reading of above clauses of the agreement clearly indicates that assessee has been made de facto owner of the entire land and project till it is handed over to the members after receipt of necessary sale amount and recommending their names to the society for issuing membership letters. It is not a case where society has entered into an agreement with the assessee to construct the project at a particular cost or at a particular rate with respect of area constructed having escalation clause, with or without penalty clause and retaining with it the rights to dispose of the flats, and enjoy the benefit of profit or loss. We are 20 ITA No.328/Ahd/2010 Asst. Year 2006-07 convinced that society is formed only as a special purpose vehicle for saving Stamp Duty or otherwise but so far as the control over the land, project and sales is concerned it remained with the assessee. Now under these facts it has to be examined whether assessee would be developer or a contractor. This issue has been elaborately discussed by the Tribunal, Ahmedabad Bench in Radhe Developers vs. ITO (2008) 23 SOT 420 (Ahmedabad). Para 30 thereof has clearly defined who should be the developer. It reads as under :-
"24. Further, the Memo contained in Finance Bill, 1999 has explained the provisions brought by the Legislature with effect from 1-4-2000 and the same reads as under:
"Tax Incentive for Promotion of Housing.--Liberalization of tax holiday to approved housing projects. Under section 80-IA of the Income-tax Act, profits of approved housing projects where the development and construction commences on or after 1-10-1998 and is completed by 31-3-2001 are fully deductible. The conditions necessary for claiming the benefit are that the approved housing project should be on minimum area of one acre and should have dwelling units with a maximum built-up area of 1,000 sq. ft. It is proposed to modify the existing benefits to provide that in areas other than those falling in and within 25 kms. from the municipal limits of Delhi and Mumbai, thebuilt-up area of dwelling units may be upto a maximum limit of 1,500 sq. ft. instead of 1,000 sq. ft. at present to make them entitled for benefit. The built-up area for areas falling in Delhi and Mumbai and within 25 kms. of the municipal limits of both, however, shall remain the same.
The proposed amendment will take effect from 1-4-2000, and will, accordingly, apply in relation to the assessment year 2000-01 and subsequent years."
25. The provisions of section 80-IB(10) thus are sought to provide that for approved housing project, the profits are fully deductible if the project has the built-up area for the cities of Delhi and Mumbai, and the area within 25 kms. from the municipal limit thereof does not exceed 1,000 sq. ft. and for other places the built up area of residential unit does not exceed 1,500 sq. ft. A provision is also made whereby any undertaking of an Indian company, which is entitled to deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger (a) 21 ITA No.328/Ahd/2010 Asst. Year 2006-07 no deduction to be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this section to apply to the amalgamated or resulting company as they would have applied to the amalgamating or demerged company as if the amalgamation or demerger had not taken place.
26. The sub-section (10) relating to housing project was amended from time to time. Firstly, by Finance Act, 2000, with effect from 1-4-2000 extending the outer limit for completion of the housing project on or before 31-3-2002 as against 31-3-2001 originally enacted. This sub- section was again amended by Finance Act, 2003 removing the time-limit for completion of the project meaning thereby that for the assessment years 2002-03, 2003-04 and 2004-05, the assessment years with which we are concerned, there was no outer time-limit for completion of the project. There have been certain further amendments in this section by Finance (No. 2) Act, 2004 with effect from 1-4-2005, but we are not concerned with these amendments insofar as all these appeals are concerned. Therefore, we are not dealing with the same.
27. A bare reading of these provisions of section 80-IB(10), as they stood in the years under consideration, the requirements for claiming deduction for housing projects are that (i) there must be an undertaking developing and building housing project; (ii) such housing project is approved by the local authority; (iii) the development and construction of housing project has commenced on or after 1-10-1998; (iv) the housing project is on a size of a plot of land which has minimum area of one acre; and (v) the residential unit developed and built has a built up area of 1,000 sq. ft. if it is situated in Delhi and Mumbai or within 25 kms of municipal limit of these cities and 1,500 sq. ft. at any other place. There is no other condition, which is to be complied by an assessee for claiming the deduction on profits of the housing project.
28. The contention of the revenue authorities that to claim deduction under section 80-IB(10), there is a condition precedent that the assessee must be owner of the land on which housing project is constructed has no force. We do not find any such condition as appearing in the provisions of the section extracted above. A plain reading of sub-section (10) of section 80-IB reveals and makes it evident that there must be an undertaking developing and building a housing project as approved by a local 22 ITA No.328/Ahd/2010 Asst. Year 2006-07 authority. It does not have any further condition that such development and building of the housing project should also be on a land owned by an assessee undertaking. It might be true that the land belongs to the person who has entered into an agreement with the assessee to develop and build housing project but on a perusal of the agreement as narrated above, it is evident that the development and building work has been carried out by the assessee in pursuance of a tripartite agreement and it is not by the land-owners. Therefore, the mere fact that the landowner and the undertaking developing and building housing project, are two different entities would not make any difference. The deduction would be eligible to the person who is developing and building housing project and not to the mere owner thereof.
29. It is also the case of the revenue that the assessee was a mere contractor developing and building housing project and, therefore, it could not be a developer. We fail to understand as to how such a situation could emerge. A person who enters into a contract with another person is no doubt a contractor. Having entered into agreements with landowners for development and building the housing project, assessee was obviously a contractor but it does not derogate the assessee for being a developer, as well. The term 'contractor' is not essentially contradictory to the term developer. As stated above, it is the undertaking that develops or builds the housing project that is entitled to deduction irrespective of the fact whether that it is the owner or not or whether it is the contractor thereof. The requirement for claiming deduction is that such an undertaking must develop and build housing project, be it on their own land or on the land of others and for which a tripartite agreement has been entered into for development and building housing project; or be the assessee a contractor for developing and building housing project or an owner of the land.
30. What is the meaning of the term develop, developer, developing, development, we can find the answer in certain dictionaries, including the Law Dictionary.
(a) The Webster's Encyclopedia Unabridged Dictionary of the English Language gives following meanings of the term 'developer' as :
"1. One who or that which develops;23 ITA No.328/Ahd/2010
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2. A person who invests in and develops the urban or suburban potentialities of real estate".
(b) Oxford Advanced Learners Dictionary of Current English Fourth Indian edition gives meaning of the term 'developer' as person or company that develops land.
(c) Random House Dictionary of the English Language, the following definitions can be found :
Develop :
(a) To bring out the capabilities or possibilities of; bring to a more advanced or effective state.
(b) To cause to grow or expand.
Developer :
(a) The act or process of developing; progress.
(b) Synonym: Expansion, elaboration, growth, evolution, unfolding, maturing, maturation.
(d) Webster Dictionary, the following definitions emerge :
(a) To realize the potential of;
(b) To aid in the growth of : strengthen, develop the biceps
(c) To bring into being : make active (develop a business)
(d) To convert ( a tract of land ) for specific purpose, as by building extensively
(e) Law Lexicon Dictionary, the following definitions could be seen : Development
(a) To act, process or result of development or growing or causing to grow; the state of being developed.
(b) Happening.
31. The Supreme Court in the case of Gujarat Industrial Development (supra), considering the meaning of 'developer' held that the word 'Development' appearing in the provisions should be understood in its wider sense and, therefore, granted exemption even though the Gujarat Industrial Development Corporation was engaged in the industrial development. The development means the realization of potentialities of land or territory by building or mining. Accordingly, it can be safely said that a person who undertakes to develop real estate by developing and constructing a housing project is an eligible undertaking; developing and building of housing projects within the 24 ITA No.328/Ahd/2010 Asst. Year 2006-07 meaning of section 80-IB(10) of the Act. In the present case in hand, the landowner has not made any conscious attempt to develop the property except ensuring their rights as landowner so that the sale value of the land could be realized to them as per the terms of 'Agreement to Sale' and the 'Development Agreement'. The landowners, no doubt, have not thrown themselves into development of property. It is only the assessee who is developing the property. Throwing itself into the business of development and building of housing projects by taking all risks associated with the business by engaging architects, structural consultants, designing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, approving plans, hiring machinery and equipments, hiring engineers, appointing contractors, etc. No doubt, the permission has been obtained in the name of the registered landowners, but the same have been obtained by the assessee-firm through its partners who are holding power of attorney of the respective landowners. It is a fact that the assessee is a 'developer' and not a 'contractor' as held by the lower authorities. The developer is not working on remuneration for the landowners, but developer is working for himself in order to exploit the potential of its business in his own interest and, therefore, opted for all business risks associated with the business of development of real estate including developing and building of housing projects. As per the provisions of section 2(1)(g) of Regulation of Employment and Conditions of Service Act (27 of 1996), the term 'Contractor' means a person who undertakes to produce a given result for any establishment, other than a mere supply of goods or articles of manufacture, by the employment of building workers or who supplies building workers for any work of the establishment; and includes a sub-contractor.
32. In these circumstances, in our opinion, the assessee is entitled to deduction under section 80-IB(10) as it had developed and built the housing project; it had started construction after 1-4-1998; the project is on the size of a plot of land which has a minimum area of one acre and the maximum built-up area of the residential units is not more than 1,500 sq. ft. the property being situated in Baroda, a city other than Delhi and Mumbai.
33. It may also be born in mind that deduction is not exclusively to an assessee but to an undertaking developing and building housing project, be it developed as a contractor or as an owner. This fact is evident on the 25 ITA No.328/Ahd/2010 Asst. Year 2006-07 bare reading of sub-section (1) of section 80-IB, sub-section (2) of section 80-IB, which provides that 'this section applies to an industrial undertaking which fulfils all the following conditions viz. . . .' and sub- section (12) which allows the deduction to the amended (sic) or resulting company in case of amalgamation or demerger of the original undertaking which had started developing and building the housing project. For the sake of convenience, sub-section (12) of section 80-IB is reproduced hereunder :
"(12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger.
(a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b ) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place."
34. Even if that is so required, the assessee in the present case can also be said to be the owner of the land as it had made part payment to the landowners during the financial years 2000-01 and 2001-02 for an amount of Rs.56 lakhs, and taken the possession of the land for development and building the housing project and satisfy that condition as well of being the owner of the land in view of provisions of section 2(47)(v) of the Act. When the assessee has taken on the possession of immovable property or retained it in part performance of a contract of a nature referred to in section 53A of the Transfer of Property Act, 1882 it amounts to transfer under section 2(47)(v), which reads as under :
"(47) 'transfer', in relation to a capital asset, includes,--
(i)to (iva)** ** **
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or"26 ITA No.328/Ahd/2010
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35. Section 53A of the Transfer of Property Act, 1882 referred to in the aforesaid section of the Income-tax Act, reads as under :
"53A. Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract :
Provided that nothing in this section shall affect the rights or a transferee for consideration who has no notice of the contract or of the part performance thereof."
36. In view of above provisions of the Transfer of Property Act, vis-a-vis, the Income-tax Act to get the correct import of section 80-IB(10) of the Act we have to read along with section 80-IB(1) of the Act which also does not provide for any condition that the assessee should be owner of the land. The relevant provisions of sub-section (1) of section 80-IB, read as under :
"80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development 27 ITA No.328/Ahd/2010 Asst. Year 2006-07 undertakings.--(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11) and (11A) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section."
19. Further who should be developer has been discussed by Hon. Supreme Court in Gujarat Industrial Development Corporation vs. CIT (1997) 229 ITR 414 (SC) where in para 7 thereof the issue has been discussed. The Tribunal in Radhe Developer's case has referred to that judgment and has observed as under :-
"31. The Supreme Court in the case of Gujarat Industrial Development (supra), considering the meaning of 'developer' held that the word 'Development' appearing in the provisions should be understood in its wider sense and, therefore, granted exemption even though the Gujarat Industrial Development Corporation was engaged in the industrial development. The development means the realization of potentialities of land or territory by building or mining. Accordingly, it can be safely said that a person who undertakes to develop real estate by developing and constructing a housing project is an eligible undertaking; developing and building of housing projects within the meaning of section 80-IB(10) of the Act. In the present case in hand, the landowner has not made any conscious attempt to develop the property except ensuring their rights as landowner so that the sale value of the land could be realized to them as per the terms of 'Agreement to Sale' and the 'Development Agreement'. The landowners, no doubt, have not thrown themselves into development of property. It is only the assessee who is developing the property. Throwing itself into the business of development and building of housing projects by taking all risks associated with the business by engaging architects, structural consultants, designing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, approving plans, hiring machinery and equipments, hiring engineers, appointing contractors, etc. No doubt, the permission has been obtained in the name 28 ITA No.328/Ahd/2010 Asst. Year 2006-07 of the registered landowners, but the same have been obtained by the assessee-firm through its partners who are holding power of attorney of the respective landowners. It is a fact that the assessee is a 'developer' and not a 'contractor' as held by the lower authorities. The developer is not working on remuneration for the landowners, but developer is working for himself in order to exploit the potential of its business in his own interest and, therefore, opted for all business risks associated with the business of development of real estate including developing and building of housing projects. As per the provisions of section 2(1)(g) of Regulation of Employment and Conditions of Service Act (27 of 1996), the term 'Contractor' means a person who undertakes to produce a given result for any establishment, other than a mere supply of goods or articles of manufacture, by the employment of building workers or who supplies building workers for any work of the establishment; and includes a sub-contractor."
20. While introducing section 80IB(10) by Finance Bill 1999 w.e.f. 1.4.2000 the Memorandum explained the provisions as under :-
"24. Further, the Memo contained in Finance Bill, 1999 has explained the provisions brought by the Legislature with effect from 1-4-2000 and the same reads as under:
"Tax Incentive for Promotion of Housing.--Liberalization of tax holiday to approved housing projects. Under section 80-IA of the Income-tax Act, profits of approved housing projects where the development and construction commences on or after 1-10-1998 and is completed by 31-3-2001 are fully deductible. The conditions necessary for claiming the benefit are that the approved housing project should be on minimum area of one acre and should have dwelling units with a maximum built-up area of 1,000 sq. ft. It is proposed to modify the existing benefits to provide that in areas other than those falling in and within 25 kms. from the municipal limits of Delhi and Mumbai, the built-up area of dwelling units may be upto a maximum limit of 1,500 sq. ft. instead of 1,000 sq. ft. at present to make them entitled for benefit. The built-up area for areas falling in Delhi and Mumbai and within 25 kms. of the municipal limits of both, however, shall remain the same.
The proposed amendment will take effect from 1-4-2000, and will, accordingly, apply in relation to the assessment year 2000-01 and subsequent years."
21. Sub-section (10) was amended from time to time. The last relevant amendment was made by Finance Act, 2004 w.e.f. 1.4.2005 which 29 ITA No.328/Ahd/2010 Asst. Year 2006-07 modified the definition of built-up area with which we are concerned and with whish we will deal subsequently. The conditions required to be satisfied for availing deduction under section 80IB(10) are -
"(i) there must be an undertaking developing and building housing project;
(ii) such housing project is approved by the local authority;
(iii) the development and construction of housing project has commenced on or after 1-10-1998;
(iv) the housing project is on a size of a plot of land which has minimum area of one acre; and
(v) the residential unit developed and built has a built up area of 1,000 sq. ft. if it is situated in Delhi and Mumbai or within 25 kms of municipal limit of these cities and 1,500 sq. ft. at any other place."
22. A plain reading of section 80IB(10) reveals that this deduction is available to an undertaking which is developing and building housing project as approved by a local authority. It does not lay down any further condition that such development of housing project should also be on the land owned by the assessee undertaking. In other words an assessee can develop a housing project even on the land belonging to another person if he enters into agreement with the assessee to develop and build such housing project. A perusal of the agreement of the society and NCHSL with the assessee clearly indicates that the society has entered into an agreement with the assessee to develop the housing project on the land in the name of the society to be handed over to the assessee for carrying out the development. The Tribunal, "A" Bench, Chennai in ACIT vs. C. Rajini [2011] 9 taxmann.com 115 (Chennai-ITAT) in ITA Nos. 1239/MDS/2008 AND 1666/MDS/2007 pronounced on December, 10, 2010 held that a developer and builder is not required to be owner of the land on record for the purpose of deduction under section 80IB(10). What is required to be seen is that assessee should be de facto owner of the 30 ITA No.328/Ahd/2010 Asst. Year 2006-07 land. The Tribunal, Chennai Bench in the case of C. Rajini (supra) observed in this regard as under :-
"7. From the above discussion, what is required is that if the assessee is a beneficial owner or to put it in a legal term if she is a de facto owner of the land, any developer becomes eligible for this deduction. It is not at all necessary that the developer should be a de jure owner of the land. It is quite possible to develop the property with consent of the owner. It transpires from the perusal of the records that assessee was de facto owner of the property when the entire allotment procedure was executed by her only. It was the assessee who incurred all the expenses connected with the developments of the property right from filing application for planning permission and paying necessary fees for the same. The marketing of the site was also done by the assessee through advertisement, etc. We have carefully perused the agreements and other relevant documents. We are convinced that this is not, at all, a works- contract."
23. Similar view was taken by the Tribunal, Chennai Bench in ACIT v. M/s Sashwath Constructions Pvt. Ltd. in I.T.A. No. 1069 (Mds.)/2008 for the assessment year 2005-06 dated 25 February, 2009, wherein it was held as follows:-
"In our opinion it is not since qua non for a developer to become the de jure owner of the land. It is quite possible to develop the property with the consent of the owner. It transpires from the perusal of the records that the assessee was the de facto owner of the property, as the entire allotment procedure was executed by the assessee company only. We have noted that the assessee did incur all the expenses connected with the development of the property. Application for planning permission was also made by the assessee. Necessary fee for the same was paid by it. Road formation was also done by the assessee. Besides, for marketing the flats the assessee did advertise the property also. We have perused the reasonings adduced by the Commissioner (Appeals) in the impugned order. In our opinion he took a correct view in the matter and his order calls for no interference on this count. Accordingly we uphold the same."
24. Now we refer to section 80IB(10) so as to find out whether the condition of legal ownership of the land is an essential ingredient under that section. Section 80IB(10) reads as under :-
[(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,--31 ITA No.328/Ahd/2010
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(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,--
(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;
(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority.
[(iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2004 [but not later than the 31st day of March, 2005], within five years from the end of the financial year in which the housing project is approved by the local authority.] Explanation.--For the purposes of this clause,--
(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;
(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;
(b) the project is on the size of a plot of land which has a minimum area of one acre:
Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;
(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; and
(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed [three per cent of the 32 ITA No.328/Ahd/2010 Asst. Year 2006-07 aggregate built-up area of the housing project or [five thousand square feet, whichever is higher];]
(e) not more than one residential unit in the housing project is allotted to any person not being an individual; and
(f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:-
(i) the individual or the spouse or the minor children of such individual,
(ii) the Hindu undivided family in which such individual is the karta.
(iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.] Explanation - For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).]
25. As observed above, only five conditions are necessary for claiming deductions under section 80IB(10). Apart from these five (a) to (e), one more condition has been laid down in this section. If assessee fulfills these conditions it becomes entitled for the deduction. In the present case, it is undisputed fact that money for purchase of land was given by the assessee to the society and thereafter land was hand over to the assessee for development of the project. Thus assessee is a de facto owner of the land and even as per provision of section 53A of the Transfer of Property Act assessee would be owner of the land as firstly it has paid the consideration and secondly it has the possession of the land. In any case, legal ownership over the land has never been any relevant criteria for allowing or not allowing deduction under section 80IB(10). What is necessary is that assessee should have complete control, dominance and right to carry on the project as sanctioned by the local authority, such as AUDA in the present case. Therefore, we reject the arguments of the 33 ITA No.328/Ahd/2010 Asst. Year 2006-07 Revenue that assessee is not entitled to deduction u/s 80IB(10) merely because assessee is not the legal owner of the land.
26. The other arguments of the department are that authority letters/membership letters were issued by the society and assessee had only contractual liability, sale proceeds were adjusted against the purchase price of the land; the assessee is acting only as a recommending authorities etc. are not relevant criteria. They are individual clauses of the agreement between the society and the assessee. Entire agreement has to be read as a whole and its effect has to be seen by reading all the clauses of the agreement together. In our considered view as stated above, society was nothing but a special purpose vehicle, a smoke screen, for reducing Stamp Duty burden over the assessee. The role of the society came to the hault after purchasing of the land and handing over the possession to the assessee. It revived after receiving the recommendation from the assessee for ultimate sale of the flats. In between these two events, the society was nothing but a silent spectator and assessee was in full and complete control over the project, its development and sale of the flats. It had enjoyed the profits arising from the sale of the flats. If the society would have been a contractee in the real term, meaning thereby that assessee was contractor, carrying out any work contract, society should have shown the sale proceeds as its own and shown the profits from such sale proceeds by debiting the payments made to the contractor against the sale proceeds of the flats. No such evidence has been produced by the Revenue. It is also not shown that society had filed any return of income showing any profit or loss from the project. At least, it is not ascertained that any notice under section 148(1) has been issued to the society asking it to file the return of income to declare the profit earned by it on this project. If entire financial arrangements from purchase of land till 34 ITA No.328/Ahd/2010 Asst. Year 2006-07 disposal of the flats remained under the control of the assessee and no part of the sale proceeds of the flats accrued to the society as profit, or at least no evidence has been put up in support of such claim we are unable to hold that assessee only acted as work contractor. In a case of work contractor there has to be some profit or loss to the contractee because ultimately the flats have been sold along with the rights over the land.
27. The next issue which has been taken up by ld. CIT(A) is that there is a violation of clause (c) of section 80IB(10). There are two aspects of this issue -one is that there are two flats at the top floor which when looked from the ground appeared to have larger size than 1500 sft and other is that if area of parking space is included then area of each flat will be more than specified limit of 1500 sft. In our considered view both the aspects are fallacious. Without actual measurement no one can come to the conclusion that area of the flat is more or less than the specified limit. Even standing at the door of the flat one cannot estimate correctly as to what is the area. Therefore, it is not acceptable that some body is standing at the ground and looking at the top of the multistoried building could conclude that area is more than 1500 sft. We have no hesitation to say that this reason is ridiculous. In fact Revenue ought to have identified the actual owners or purchasers of the flats, issued summon to them with a copy to the assessee and the society, carry with them the DVO and take the measurement of the flats. We agree with the arguments of the ld. AR of assessee that once possession of the flats are handed over to the ultimate purchasers, it has no right to enter into the flats, therefore, requirement of the Revenue cannot be complied with unless owners/possessors are also issued necessary notices/summons. Thus this argument of Revenue is rejected.
35 ITA No.328/Ahd/2010Asst. Year 2006-07
28. The second argument is that if parking space is included then total area would exceed specified limit. In our considered view this reasoning also cannot be accepted. Parking space cannot be part of human inhabitation. It is a space for storing inanimate objects such as car. It cannot be a space for sleeping, resting, dining/cooking enjoying TV/Radio or carrying out other necessary daily corus. Parking space is only an appendix to the flat i.e. residential unit and it cannot be its integral part. One may have a car and may purchase a car parking space along with flat. One may not have a car and he may not prefer to purchase car parking space. If he has a car, he may prefer to keep his vehicle on the road in violation of local laws. In any case it is not show that purchase of parking space as well as flat was a combined selling unit and no option was available to any purchaser either to purchase flat and not to purchase the parking space. Even where parking becomes integral part of sale proposition it cannot be equated with a residential unit. ITAT Mumbai Bench in ITO vs. Sasiklal N. Satra (2006) 280 ITR (AT) 0243 held that residence means a building or a part of the building one can drink, eat, and sleep. A parking space does not enable and it cannot enable a person to cook, eat, drink sleep and do other daily corus. Then it cannot be an integral part of residential unit. Therefore, we cannot accept this argument that area of the parking space should be combined with area of the residential unit so as to work out the total area for the purpose of finding out whether it exceeds specified limit. In any case what should be the built up area has already been defined in the Act. Therefore, concept of built-up area cannot be extended to other items not mentioned in the definition of built up area. Built up area has been defined in the Act under section 80IB(14) as under :-
36 ITA No.328/Ahd/2010Asst. Year 2006-07 Sec. 80IB(14) For the purposes 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 share with other residential units;] This clause was introduced by Finance Act (No.2) 2004 w.e.f. 1.4.2005. Thus it would be applicable to the facts of the present Asst. Year which is 2006-07. Impact of this amendment has been considered by ITAT Mumbai Bench in the case of ACIT vs. Sheth Developers (P) Ltd. (2009) 33 SOT 277 (Mum). It has been held therein that this amendment is effective from 1.4.2005 only. Relevant portion from that judgment is given as under :-
The definition of 'built-up area' says built-up area include projections and balconies. The accepted rules of interpretation for an inclusive definition as elucidated by the Apex Court in the case of CIT v. Taj Mahal Hotel AIR 1972 SC 168 is that if the word 'include' is used in an interpretation clause, it must be construed as comprehending not only such things as it signifies according to their nature and import, but also things which the interpretation clause declares that they shall include. So, normal meaning of built-up area, but for the definition including projections and balconies, would definitely exclude the latter. Even according to the Assessing Officer himself, built-up area as normally understood in common parlance means area enclosed within the external lines of the external walls. Therefore, there can be no doubt that prior to the introduction of the definition clause, aforesaid built-up area would not include projections and balconies as normally understood. The question as to whether the definition clause, mentioned above can be deemed as retrospective, was to be answered against the revenue. Number one, the enactment itself clearly specifies that clause will have effect from 1-4-2005. Number two, it is not a procedural section but a definition section, where an enlarged meaning is given to the term 'built-up area' and such enlarged meaning would not have been in the realm of understanding of any person prior to its introduction and the assessee would have gone ahead with its respective projects based on a common understanding of the term 'built-up area'. Thus, the enlarged meaning, if given a retrospective effect, will definitely affect the vested rights of an assessee. Therefore, the definition had only prospective effect from 1-4-2005. Even otherwise, the revenue was precluded from taking the plea that such definition was having retrospective effect for the simple reason that the Assessing Officer himself had accepted it to be only prospective.37 ITA No.328/Ahd/2010
Asst. Year 2006-07 Once this definition is exhaustive then no further items can be taken into account to work out built-up area. Thus built-up area would include following only :-
(1) Inner measurement of the residential unit at the floor level.
(2) Area projection and balconies.
(3) Thickness of the walls.
It excludes from measurement, common areas shared with other residential units. Therefore, nothing more such as parking space or common areas could be included to work out what is built up area. Since clause (a) of section 80IB(14) is a definition section then no further concept can be included except what is provided therein.
29. As a result, we hold that assessee is entitled to deduction under section 80IB(10) as a developer. Accordingly, the appeal filed by the assessee is allowed.
30. In the result, appeal filed by the assessee is allowed.
Order was pronounced in open Court on 25/3/11.
Sd/- Sd/-
(Mahavir Singh) (D.C. Agrawal)
Judicial Member Accountant Member
Ahmedabad,
Dated : 25/3/11.
Mahata/-
Pronounced in the open court.
Sd/- sd/-
(DCA) (BS)
AM JM
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ITA No.328/Ahd/2010
Asst. Year 2006-07
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
1.Date of dictation 1/2/2011
2.Date on which the typed draft is placed before the Dictating 21/2/ 2011/15/3/11 Member................Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S.............
4.Date on which the fair order is placed before the Dictating Member for pronouncement..............
5.Date on which the fair order comes back to the Sr.P.S./P.S...............
6.Date on which the file goes to the Bench Clerk...........
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................
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