Rajasthan High Court - Jaipur
Principal Commissioner Of It Jaipur-2 vs M/S Ashiana Manglam Developers on 14 November, 2017
Author: K.S. Jhaveri
Bench: K.S. Jhaveri
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT
JAIPUR
D.B. Income Tax Appeal No. 67 / 2017
Principal Commissioner of Income Tax, Jaipur-2, Jaipur.
----Appellant
Versus
M/s. Ashiana Mangalam Developers, 401, 3rd Floor, Apex Mall, Lal
Kothi, Tonk Road, Jaipur.
----Respondent
Connected With D.B. Income Tax Appeal No. 73 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur
----Appellant Versus M/s. Ashiana Mangalam Developers, 401, 3rd Floor, Apex Mall, Lal Kothi, Tonk Road, Jaipur
----Respondent D.B. Income Tax Appeal No. 166 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur
----Appellant Versus M/s Ashiana Mangalam Developers, 401, 3rd Floor, Apex Mall, Lal Kothi, Tonk Road, Jaipur
----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. Prateek Kedawat For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment (2 of 16) [ ITA-67/2017] 14/11/2017
1. In all these appeals common question of law and facts are involved hence they are decided by this common judgment.
2. By way of these appeals, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed the appeal of the department and confirmed the order of CIT(A) and reversed the view taken by AO.
3. This court while admitting the appeals framed following substantial question of law:-
3.1 Appeal No.67/2017 admitted on 21.4.2017 "1. Whether on the facts and in the circumstances of the case and in law the ITAT was justified law in upholding the order of CIT(A) in deleting the addition of Rs. 22360725/- made by the Assessing Officer on account of disallowance of claim of deduction u/s. 80IB(10) without appreciating the fact that the 'built up area' of the villas constructed by the assessee is 1772.81 Sq. Ft. that exceeds the limit of 1500 Sq. Ft. thereby ignoring the definition as given in section 80IB(14)
(a) of the IT Act 1961."
3.2 Appeal No.73/2017 admitted on 21.4.2017 "Whether on the facts and in the circumstances of the case and in law the ITAT was justified law in upholding the order of CIT(A) in deleting the addition of Rs.71377130/- made by the Assessing Officer on account of disallowance of claim of deduction under section 80IB(10) without appreciating the fact that the 'built up area' of the villas constructed by the assessee is 1772.81 Sq. Ft. that exceeds the limit of 1500 Sq. Ft. thereby ignoring (3 of 16) [ ITA-67/2017] the definition as given in section 80IB(14)
(a) of the Income Tax Act, 1961?"
3.3 Appeal No.166/2017 admitted on 16.8.2017 "Whether on the facts and in the circumstances of the case and in law the ITAT was justified law in upholding the order of CIT(A) in deleting the addition of Rs.10043117/- made by the Assessing Officer on account of disallowance of claim of deduction under section 80IB(10) without appreciating the fact that the 'built up area' of the villas constructed by the assessee is 1620.81 Sq. Ft. that exceeds the limit of 1500 Sq. Ft. thereby ignoring the definition as given in section 80IB(14)
(a) of the Income Tax Act, 1961?"
4. The facts of the case are that the assessee was picked up for scrutiny and the assessment was framed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) vide order dated 25.03.2013. While framing the assessment, the AO rejected the claim of deduction under section 80IB(10) of the Act, on the ground that the assessee has not fulfilled the basic eligibility condition for deduction u/s 80IB(10) as there is violation of clause (c). The assessee aggrieved by this order, preferred appeal before ld. CIT (A), who after considering the submissions of the assessee allowed the appeal of the assessee and held that the assessee is eligible for deduction under section 80IB(10) of the Act.
5. Counsel for the appellant Mr. Mathur has taken us to the definition of Section 80IB (10) (iii) of the Income Tax Act, 1961 which reads as under:-
(4 of 16) [ ITA-67/2017] 80IB(10)(iii) of the Income Tax Act, 1961 "in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority."
5.1 He has also taken us to the definition of Built up area u/s 80IB(10)(14)(a) which reads as under:-
"For the purposes of this section,-- 1 [(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;"
5.2 He contended that in view of dictionary meaning of "Terrace"
appearing in Oxford Dictionary, it is an open gallery, a colonnade, a portico; a balcony, later, a raised platform or balcony in a theater, Auditorium etc. 5.3 He has relied upon the decision of Supreme Court in Commissioner of Income Tax-19, Mumbai vs. Sarkar Builders (2015) 7 SCC 579 wherein it has been held as under:-
"23. Thereafter, significant amendment, with which we are directly concerned, was carried out by Finance (No. 2) Act, 2004 with effect from 1.4.2005. This amendment has already been noted above. The Legislature made substantial changes in Sub-section (10). Several new conditions were incorporated for the first time, including the condition (5 of 16) [ ITA-67/2017] mentioned in Clause (d). This condition/restriction was not on the statute book earlier when all these projects were sanctioned. Another important amendment was made by this Act to Sub-section (14) of Section 80IB with effect from 1.4.2005 and for the first time Under Clause (a) thereof the words 'built-up area' were defined. Section 80IB(14)(a) reads as under:
"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 shared with other residential units;
24. Prior to insertion of Section 80IB(14)(a), in many of the rules and Regulations of the local authority approving the housing project "built-up area" did not include projections and balconies. Probably, taking advantage of this fact, builders provided large balconies and projections making the residential units far bigger than as stipulated in Section 80IB(10), and yet claimed the deduction under the said provision. To plug this lacuna, Clause (a) was inserted in Section 80IB(14) defining the words "built-up area" to mean 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 did not include the common areas shared with other residential units."
5.4 He contended that decision taken by the tribunal is contrary to law.
5.5 He also argued that the decision of Madras High Court in Commissioner of Income Tax, Chennai vs. M/s. Ceebros Property Development (P) Ltd. T.C. (A) No.1366/2008 decided on 2.11.2012 will not apply in the facts of the case.
(6 of 16) [ ITA-67/2017] 5.6 Mr. Mathur has contended that in view of provisions of Section 14A, "Terrace" is equivalent to "balcony" since it is attached to room, therefore, it can be included in the built up area and no benefit can be granted.
7. Counsel for the respondent Mr. Jhanwar has relied on the following decisions:-
7.1 In Commissioner of Income Tax-IV vs. Amaltas Associates [2016] 389 ITR 175 (Gujarat), it has been held as under :-
8. Section 80(14) of the Act contains definitions for the purpose of the said section. Clause-(a) thereof provides that 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. Thus, the built-
up area would include inner measurements of a residential unit on the floor level added by thickness of a wall as also projections and balconies. This would however, exclude the common areas shared with other residential units. This exclusion clause of the common areas shared by other units cannot be applied in the reverse. In other words, the moment a certain area is not shared but is exclusively assigned for the use of a particular residential unit holder, would not mean that such area would automatically be included in the built-up area. In order to be part of the built-up area, the same must be part of the inner measurements of a residential unit or projection or balcony. The open terrace space on the top floor of a building would not satisfy this description. It will also not be covered in the expression balcony. Term 'balcony' has been explained in Webster's Third International Dictionary (Unabridged) as unroofed platform projecting from the wall of a building, enclosed by a parapet or railing, and usually resting on brackets or consoles. It is often used as (7 of 16) [ ITA-67/2017] synonyms to gallery, loggia, veranda, piazza, porch, portico, stoop etc. In the context of residential or even commercial complexes, term 'balcony' has gained a definite common parlance meaning. It usually consists of a projection from a building covered by a parapet or railing and may or may not but usually is covered from the top. This term 'balcony' certainly would not include an open terrace adjoining a bedroom or any other constructed area of a penthouse. The terrace is not a projection.
7.2 In Commissioner of Income Tax vs. Mahalakshmi Housing [2014] 222 Taxmann 356 (Madras), it has been held as under :-
6. As far as the issue in respect of inclusion of open terrace area with the built up area is concerned, we had already held the said issue against the Revenue in our decision rendered in T.C. Nos. 581, 1186 of 2008 and 136 of 2009 - Ceebros Hotels Pvt. Ltd. v. Deputy Commissioner of Income Tax dated 19.10.2012 and accordingly, the order the Tribunal is set aside. The assessee's appeal viz., T.C. (A). No. 318 of 2012 stands allowed holding that the open terrace area cannot form part of the built up area, in the result, the assessee would be entitled to deduction under Section 80-IB(10) of the Act. No costs.
7.3 In Commonwealth Developers vs. Assistant Commissioner of Income Tax [2015] 370 ITR 265 (Bombay), it has been held as under :-
On going through the said provisions, in order to avail of the deduction the built-up area of the residential unit cannot exceed 1,500 sq. ft. Having regard to the rival contentions the only aspect to be examined is whether the area of the rear courtyard which is open to the sky and appurtenant to the residential unit is to be included to compute the built-up area as provided under s. 80-IB(10) of the said Act. In order to examine the situation at loco we called upon (8 of 16) [ ITA-67/2017] the appellant and the respondent to produce the photographs with regard to such courtyard area and we have noted that such area is an open piece of land though enclosed by a compound wall but without any masonary construction therein. It is also contended by the appellant that such area has not been transferred in favour of the owner of the residential unit. In fact, a copy of the agreement was even produced before the learned Tribunal to show that the built-up area mentioned in the agreement in respect of each villa is 134.83 sq. mtrs, as computed by the architect. In this background, we shall proceed to examine the rival contentions. The built-up area is the carpet area plus the thickness of outer walls and balcony. The carpet area of a property is defined as net usable area from the inner side of one wall to another. The carpet area comprises of carpet area of the demised premises, toilet areas within such demised premises. Thus, it can be seen that to meet the requirement of an area to be treated as a 'built-up area' some construction has to be in existence in such area. The meaning of the words 'building' and 'built-up' as per the Oxford Dictionary reads thus:
'Building': A structure with a roof and walls. The process or trade of building houses and other structures.
'Built-up': (of an area) densely covered by buildings. Increased in height by the addition of parts.
8. We have heard counsel for the parties.
9. Before proceeding with the matter, it will not be out of place to mention that the tribunal being the last fact finding authority has observed as under:-
"3.4. From the decisions of the Madras High Court, Bombay High Court and the ITAT Ahmedabad, discussed above in para 3.3 above, it is seen that the area under consideration cannot be included in the 'built up area' if it is uncovered, open to sky, and without any construction on it, (9 of 16) [ ITA-67/2017] notwithstanding the fact that it is a private, exclusive area of the owner, accessible only through the dwelling unit (bed room) and adjoining to it. In this case, the area under consideration is the roof of the ground floor, is uncovered, open to sky, and without any construction on it although it is accessible exclusively to the owner through the bedroom (and not a part of the common area). Therefore, following the above case laws (discussed in pafra 3.3, above), this private, open terrace, cannot be included in the 'built up area' of the residential unit, as defined in Sec 80IB(14)(a). Therefore, the built up area of the residential units is less than 1500 sq. ft. and consequently, the assessee is eligible for deduction u/s 80IB(10). These grounds are allowed."
There is no dispute with regard to the fact that the AO rejected the claim of deduction under section 80IB(10) only on the ground that a terrace is an entirely open and large space on the top most level of a building, whereas balconies are relatively smaller areas affixed to a room of the house. He further observed that balconies are accessible only through the room that they are attached with and terraces will usually have independent entrances. The assessee has demonstrated from the pictures of the building that the area is a terrace as it is completely open and is a roof of a room underneath. Merely because the first floor rooms of villa has an opening on the terrace, in our considered view would not make the terrace as a balcony as the balcony normally is attached with the rooms and covered by enclosure but it is not supported by the walls of the room underneath. We find that the Coordinate Bench under the identical facts in ITA No. 12/Kol/2014 in the case of M/s. Ashina Amar Developers vs. ITO after considering the case law and provisions of section 80IB has decided the issue by observing as under :-
"4.2.1. We find that the Learned AO during the course of assessment proceedings asked the assessee inter alia to submit before him the copies of brochure issued by the assessee to the prospective buyers for effecting the sale of residential units during (10 of 16) [ ITA-67/2017] the asst year under appeal. The assessee duly made available the copies of the brochure issued in order to attract prospective buyers and also copies of original sale deeds before the Learned AO which were duly returned by the Learned AO after verification. We find that the Learned AO calculated the super built up area of each building based on the brochures by including the area of open terrace and therefrom estimated the built up area by taking 90% of the super built up area of each building as built up area. We find that the Learned AO brushed aside the argument of the assessee that the brochures are only indicative in nature and the actuals may vary from what is stated in the brochures. The assessee also tried to explain that as per the sale deed which was registered with Registrar for stamp duty purposes, the total built up area of each building was below the maximum area specified in section 80IB(10) of the Act. The Learned AO simply ignored the sale deeds that were produced before him and placed reliance on the brochures issued by the assessee to attract prospective buyers and estimated the built up area by including the terrace area. We find that the actual built up area of residential building should not exceed the maximum area specified in the Act and there is no scope for making the assumptions and estimates.
4.2.2. Reliance is placed on the co-ordinate bench decision of Mumbai Tribunal in the case of ACIT vs Sheth Developers reported in 33 SOT 277 (Mum)wherein it was held that the built up area has to be calculated on an actual basis and not on the basis of estimates. In that case, the AO relied on a ratio worked out from the map attached with the occupancy certificate, for arriving at the built up area from the carpet area which was turned down by the Tribunal.
4.2.3. We also find lot of force in the alternative arguments of the Learned AR that the term 'terrace' is not defined in the Act. However the word 'terrace' originates from a French term and is known as terrasse, terrazzo in Italian and spelled as terraza in Spanish. This is an outdoor extension that can be occupied by lots of people and is (11 of 16) [ ITA-67/2017] beyond ground level. A terrace has more space and with an open-top. We find that the definition of built up area means inner measurement 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. Hence it could be concluded that the open terrace is not covered within the meaning of built up area as it is open to sky and would not be part of the inner measurement of the residential floor at any floor level. Reliance in this regard is made on the decision of the co- ordinate bench of Ahmedabad Tribunal in the case of Amaltas Associates vs ITO reported in 131 ITD 142 (AHD.) wherein it was held that the definition of built up area is inclusive of balcony but not open terrace. It further held that DVO has considered the open terrace as analogous to balcony/ verandah without any basis. Therefore, it took the view that the authorities below were not justified in taking the open terrace as balcony / verandah rejecting the claim of the assessee. 4.2.4. Reliance in this regard is placed on the decision of Hon'ble Madras High Court in the case of CIT vs M/s Mahalakshmi Housing in Tax Case (Appeal) Nos. 583 & 584 of 2011 and 316 & 317 of 2012 dated 2.11.2012, wherein the questions raised before their Lordships and the decision rendered thereon are as under:-
Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding that the private terrace area should be included in the built up area of the flats for the purpose of making out statutory extent of built up area as per Clause (a) of Section 80IB(14) of the Income Tax Act ? Held:
5. It is seen from the facts narrated herein that the assessee is engaged in the business of construction. The assessee entered into an agreement of sale with one Ashok Kumar for joint development of the property. The assessee's claim for deduction under Section 80IB(10) of the Income Tax Act is rejected on the ground that the assessee was not the owner of the land. Aggrieved by the same, (12 of 16) [ ITA-67/2017] the assessee went on appeal before the Commissioner of Income Tax (Appeals), who dismissed the appeal. Aggrieved by the same, the assessee went on further appeal before the Income Tax Appellate Tribunal.
6. The Tribunal considered the assessee's appeal along with two other assessees' appeals involving similar questions of law and passed a common order. One such assessee's case came up for consideration in T.C.Nos.581, 1186 of 2008 and 136 of 2009 in the case of Ceebros Hotels P\It. Ltd. Vs. Deputy Commissioner of Income "Tax. 8y judgment dated 19.10.2012, this Court allowed the assessee's appeal, holding that the open terrace area cannot form part of the built up area; in the result, the assessee would be entitled to deduction under Section 80-IB(10) of the Act and that the assessee would be entitled to proportionate relief as regards the units having built up area not more than 1500 sq.ft.
7. Even though learned standing counsel for the Revenue raised additional grounds regarding the principle of proportionality for grant of relief, yet, we find by reason of exclusion of open terrace are from the built up area, application of proportionality theory does not arise. In the circumstances, we find no justifiable ground to accept the plea of the Revenue on this aspect.
8. As far as the Revenue's contention that for the purpose of Section 80-IB(10} deduction, the assessee should have owned the property is concerned, the same is liable to be rejected by reason of our decision rendered in T.C.Nos. 581, 1186 of 2008 and 136 of 2009 - CEEBROS HOTELS PVT LTD v.
DEPUTY COMMISSIONER OF INCOME TAX dated 19,10.2012. Hence, the appeals filed by the Revenue viz., T.C. (A). Nos. 583 and 584 of 2011 stands dismissed and this portion of the Tribunal's order stands confirmed. The assessee's appeals in T.C.Nos.316 and 317 of 2012 stand allowed, holding that the terrace area . No costs." 4.2.5. Reliance is also placed on the decision of the co-ordinate bench decision of Pune Tribunal in the case of Shri Naresh T. (13 of 16) [ ITA-67/2017] Wadhwani vs DCIT in ITA No.s 18, 19 & 20 /PN/2013 for Asst Years 2007-08,2008-09 & 2009-10 dated 28.10.2014, wherein it was held that :-"
18. A bare perusal of the aforesaid question of law before the Hon'ble Madras High Court would reveal that the issue related to whether open space of the terrace would fall within the expression 'built-up area'. The facts before the Hon'ble High Court were that assessee had constructed various apartment blocks and each block had 64 apartments. The apartments located at first to sixth floor were of areas less than 1500 sq.ft.. However, the flats located on the 7th floor had the advantage of exclusive open terrace. While considering the relief u/s 801B(10) of the Act, the Assessing Officer took into consideration the area of such exclusive/private open terrace as a part of the built-up area of the units located at the 7th floor. After considering the above aspect, the built-up area of the flats located at the 7th floor exceeded 1500 sq.ft. and hence the Assessing Officer held that the condition prescribed in clause (c) of section 8018(10) of the Act was not fulfilled. The said position taken by the Assessing Officer was upheld right up to the Tribunal. However, the Hon'ble High Court disagreed with the stand of the Revenue and held that such open terrace would not be includible in the calculation of 'built-up area' for the purpose of examining the condition prescribed in clause (c) of section 8018(10) of the Act. In this view of the matter, the aforesaid judgement of the Hon'ble Madras High Court and which has been further affirmed in a subsequent decision in the case of Sanghvi and Doshi Enterprise (supra), covers the issue before us.
19. However, in the course of hearing, the learned CIT -OR attempted to distinguish the judgement of the Hon'ble High Court by pointing out that the same related to assessment year 2003-04, a period during which the definition of 'builtup area' contained in section 801B(14)(a) of the Act was not on the statute and also the fact that the housing project under consideration of the Hon'ble High Court was approved by the (14 of 16) [ ITA-67/2017] concerned local authority prior to 01.04.2005 i.e. prior to the date when the definition of 'built-up area' was brought on the statute by way of section 80IB(14)(a) of the Act.
20. We have carefully perused the judgement of the Hon'ble Madras High Court and find that though the Hon'ble High Court was considering a project approved prior to 01.04.2005 yet it has taken into consideration the definition of 'built-up area' contained in section 801B(14)(a) of the Act, which was inserted w.e.f. 01.04.2005. As per the Hon'ble High Court even after assuming that such definition was to be retrospectively applied yet the area of open terrace would not fall within the meaning of the expression 'built-up area'. The Hon'ble High Court referred to the Indian Standard Method of Measurement of Plinth, Carpet and Rentable Areas of Buildings as issued of Bureau of Indian Standards and also the meaning of the aforesaid expression assigned as per the rules and regulations of the local authority and concluded that an open terrace could not be equated to a 'projection' or 'balcony' referred to in section 80IB(14)(a) of the Act.
21. Notably, the Hon'ble High Court also considered an argument from the side of the Revenue to the effect that the sale of the area of open terrace by the assessee to the respective purchaser would justify the inclusion of such terrace area into the calculation of 'built-up area'. Before us also, the learned CIT-DR has raised the said issue though she has fairly conceded that such a finding was not emerging from the orders of the lower authorities. Be that as it may, the Hon'ble High Court has noted and dealt with the said argument in the following words ;- '29. Thus, in the face of terrace being an open area, not being a projection and hence, not included in the plinth area, the question herein is as to whether the Tribunal is justified in confirming the order of assessment to include the terrace area into the built-up area solely by reason of the fact that the assessee had sold it to purchasers of the 7th floor as a private terrace.
(15 of 16) [ ITA-67/2017]
30. We do not think, the Tribunal is justified in taking the view that open terrace would form part of the built-up area for the purpose of sub-clause (c) of section 80-IB(10). As already seen in the preceding paragraphs, an assessee having an Approved Plan project alone has the right to claim deduction under section 80-IB. Any project undertaken not approved by the Local Authority is outside the purview of the Act. Thus, when a Local Authority, endowed with the jurisdiction to grant the approval is guided in its approval by Regulation as to what constitutes the plinth area, which is the built-up area, it is difficult for us to agree with the contention of the Revenue as well as the reasoning of the Tribunal that for the purpose of considering the claim under section 80-IB, the built-up area would be different from what has been given approval by the Local Authority, on a building project. Given the fact that during 2003-04 there was no definition at all on what a built-up area is, the understanding of the Revenue, which is evidently contrary to the approval of the Local Authority based on the Rules and Regulations could not be sustained. Consequently, we have no hesitation in agreeing with the assessee's contention that open terrace area, even if be private terrace cannot form part of the built- up area"
22. As per the Hon'ble High Court, terrace area would not form part of the built-up area by the reason of the fact that assessee sold it to the purchaser as a private terrace. At this stage, we may also point out that there is nothing in section 80IB(14)(a) of the Act to suggest that the factum of the terrace being available for exclusive use of the respective unit owner is a ground to consider it as a part of 'built-up area' for the purposes of clause (c) of section 80IB(10) of the Act. Thus, the argument of the learned CIT-OR is hereby rejected.
23. In view of the aforesaid judgement of the Hon'ble Madras High Court, we are unable to uphold the stand of the Assessing Officer to include area of terrace as a part of the 'built- up area' in a case where such terrace is a projection attached to the residential unit and there being no room under such terrace, (16 of 16) [ ITA-67/2017] even if the same is available exclusively for use of the respective unit- holders."
10. Even the judgment of Gujarat High Court in Amaltas Associates (supra) is very clear and in our considered opinion even after amendment the legislature has included the balcony and projection but not the "Terrace".
11. In our considered opinion, the terrace is to cover the room which is available on the ground floor therefore, terrace is different then balcony which is provided in addition to the facilities whereas terrace goes with the projection of the room.
12. Taking into consideration the aforesaid, the issue is required to be answered in favour of the assessee and against the department.
13. The appeals stand dismissed.
(VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. Bmg 81-83.