Income Tax Appellate Tribunal - Ahmedabad
Rachna Corporation, Ahmedabad vs Department Of Income Tax on 29 June, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'बी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" B " BENCH, AHMEDABAD
BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER And
SHRI KUL BHARAT, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No.1178/Ahd/2012
( नधा रण वष / Assessment Year : 2008-09)
The ITO बनाम/ M/s.Rachna Corporation
Ward-9(1) Vs. Laxmi Bunglows
Ahmedabad Nr.Sarjan Bunglows
Krishna Nagar
Nava Naroda
Ahmedabad
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAIFR 8531 P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से /Appellant by : Shri Rajdeep Singh, Sr.DR
यथ क ओर से/Respondent by : Shri Anil Brahmkshatriya, AR
ु वाई क तार ख /
सन Date of Hearing 28/06/2016
घोषणा क तार ख /Date of Pronounce ment 29/06/2016
आदे श / O R D E R
PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER :
This appeal by the Revenue is directed against the order of the Commissioner of Income Tax(Appeals)-XV, Ahmedabad dated 29/03/2012 for the Assessment Year 2008-09.
2. The relevant facts as culled out from the materials on record are as under:-
ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09 -2- 2.2. Assessee is a partnership-firm stated to be engaged in the business of construction. Assessee electronically filed its return of income for AY 2008-09 on 05/07/2008 declaring total income at Rs.NIL after claiming deduction of Rs.88,72,527/- u/s.80IB(10) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The case was selected for scrutiny and thereafter assessment was framed u/s.143(3) of the Act vide order dated 02/11/2010 and the total income was determined at Rs.88,72,527/-
by denying the claim of deduction u/s.80IB(10) of the Act. Aggrieved by the order of the Assessing Officer (AO), assessee carried the matter before the ld.CIT(A), who decided the appeal in favour of assessee vide order dated 29/03/2012 (in Appeal No. CIT(A)-XV/ITO/9(1)202/10-11). Aggrieved by the order of the ld.CIT(A), Revenue is in appeal before us and has raised the following grounds:-
1). The Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad has erred in law and on facts in directing the Assessing Officer to allow the Assessee's claim for deduction of Rs.88,72,527/- u/s. 80IB(10) of the I.T. Act.
2). The Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad has erred in holding that the Assessee fulfills the conditions laid down for claiming deduction u/s.80IB(10) even when the land was in the name of Shailbhadra (Satellite) Co.-Operative Housing Society Ltd., which is a separate legal entity in the eye of law and the Assessee entered into the project by a development agreement with the Society.
The entire responsibility to execute the housing project and abide by the terms and conditions of its approval right from the inception of the project till its completion rests with the Society. The local Authority had granted permission for development to the Society. Assessee was just a ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09 -3- contractor of the land owners constructing residential units and not a developer.
3. Before us, it is submitted that the solitary issue is with respect to deduction u/s.80IB(10) of the Act.
4. During the course of assessment proceedings, AO noticed that assessee had constructed the Housing Project and is stated to have earned Net Profit of Rs.88,72,527/- which was claimed as deduction u/s.80IB(10) of the Act. AO after perusing the details filed by the assessee concluded that assessee is not eligible for deduction u/s.80IB(10) of the Act as assessee is not a "Developer" because he did not conceptualize the project, was not the owner of the land and the approval of construction was not issued to him by the local authorities. He also noticed that assessee had entered into a Development Agreement with the land owners and the construction was done as per the agreement and thus the assessee was merely a "Contractor" for the purpose of construction of project. AO also noticed that assessee had not sold any Unit to the purchasers, but Society had executed the sale-deed as a seller and assessee had joined as a confirming party to the transaction. He therefore concluded that assessee had failed to satisfy the conditions laid down u/s.80IB(10) of the Act and therefore not eligible for deduction and accordingly denied the claim of deduction u/s.80IB(10) of the Act. Aggrieved by the order of the ld.CIT(A), assessee carried the matter ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09 -4- before the ld.CIT(A), who decided the appeal in favour of the assessee by observing as under:-
"13. I have considered the facts and contentions of both A.O. as well as of appellant and I have perused various details so submitted by the appellant to support the contention. Considering the facts and reliance by the appellant on the judgement of Hon'ble Gujarat High Court in the case of CIT vs. Radhe Developers, I am inclined to accept the contentions of the appellant.
14. (A) Hon'ble Gujarat High Court in its landmark judgement dated 13.12.2011 in the case of Radhe Developers, Shakti Corporation and Others vs. CIT at Para 4 and Para 5 illustrate the basic facts of the case of M/s. Radhe Developers. At para 7, Hon'ble ITAT's order dated 29.6.2007 was summarized wherein it was held that firstly for deduction u/s.80IB(10) of the Act it is not necessary that the assessee must be the owner of the land and secondly looking to the provisions contained in Section 2(47) of the Act read with Section 53A of the Transfer of Property Act, by virtue of the development agreement and the agreement to sell, the assessee had, for the purpose of Income tax, become the owner of the land.
(B) At Para 8.3 & 8.4., it considered Hon'ble ITAT Order dated 7.11.2008 in the case of M/s.Shakti Corporation wherein Hon'ble ITAT differently (different than M/s.Radhe Developers case) held that considering the terms and conditions of development agreement and other documents on record, the assessee had acquired dominion over the land, which he had developed by constructing housing project incurring expenses and also taking risks. It was held further by Hon'ble ITAT that deduction u/s.80IB(10) of the Act are not to be granted following ratio of order of M/s.Radhe Developers where the assessee had entered into an agreement for a fixed remuneration and worked merely as contractor to construct the housing project on behalf of the land owner.
ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09 -5- (C) On the basis of facts of above two cases and other similar cases, the Hon'ble Gujarat High Court framed following substantial question of law:
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing deduction u/s.80IB(10) r.w.s. 80IB(1) to the assessee when the approval by the local authority as well as completion certificate was not granted to the assessee but to the landowner and the rights and the obligations under the said approval were not transferable, and when the transfer of dwelling units in favour of the end-users was made by the landowner and not by the assessee?"
(D) At para 25, Hon'ble High Court considered various provisions of the tripartite agreement dated 18.5.2000 in the case of M/s.Radhe Developers. Out of such provisions, following clauses of the agreement are important:
Clause-4. With the consent of The Party of the First (i.e. land owner) and Second Part (i.e. Society) The Party of the Third Part (i.e. assessee) as a developer and builder wants to do a project /scheme of constructing residential houses having area less than 1500 sq.ft. For the middle class society.
Clause-5. The Party of the First and The Party of the Third Part have executed one Agreement of Sale on 18-05-2000 accordingly on that basis the rights of agreement of Sale dated 7-9-91 at the rate of Rs.100/- per Sq.ft. Subject to other conditions written therein are decided to be purchased by the Party of the Third Part.
Clause-6. In fact in The Party of the First and Second Part confirming party have no necessary technical knowledge and skill pass through the said scheme to arrange for constructing residential houses having area less than 1500 sq.ft. for the middle class society and also have no finance to invest as per the size of scheme and to register the members for that required alertness and skill being absent they themselves are not in a position to place a project or scheme on the land mentioned in ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09 -6- schedule in such circumstances to The Party of the Third part over and above the right to purchase the rights of Agreement of Sale on dt. 18-05-2000 they have also decided to give all rights along with constructing and developing on the said land mentioned in schedule by this Agreement dt. 18-05-2000.
Clause 11(3) : The said Developer cum Building Contractor is authorized to admit the persons who are willing to join in the scheme to get the houses of fixed area and in this manner to admit the respective member in the scheme or at the time of admission of such member as per the scheme the fixed amount of contribution of construction and other amounts and incidental expenses that the admitting members shall have to pay as admission fees the receipt of deposit or a clear receipt of amount contribution shall have to be given, moreover the Developer cum Building Contractor has given full right and authority also to decide the price of houses of this scheme and to execute necessary agreements with the purchasers of houses.
Clause 11(11): That the said Developer cum Building Contractor as per this scheme, whatever construction he shall do on the land described in Schedule shall be authorized to allot to the respective member and also out of this land deducting the constructed land and deducting the land of margin and passage whatever excess land that shall remain then Developer cum Building Contractor shall have right to allot that land.
Clause 11(13): As per this scheme Developer cum Building Contractor has given incidental lump sum estimate of price for the residential houses to be constructed but as per the step-stage wise development of the scheme and as per the changes Developer cum ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09 -7- Building Contractor is authorized to revise the estimate and that shall always be agreeable and binding to the members.
Clause 11(16): The Party of the First and Second Part have handed over all the responsibilities of the scheme to the Developer cum Building Contractor so at present to the party of the first part as per rules and regulations he is getting F.S.I, but in future if changes take place in rules and regulation of F.S.I in such circumstances other than the present scheme on the land if Special construction is allowed then for such additional work other than total construction made, as per rules and regulations by getting passed the Plans from VMC.
Vadodara to do the construction all the rights and Authorities shall be with Developer cum Building Contractor and thereafter also whatever F.S.I. Rights shall remain that also as per this agreement shall be with the party of the third part.
(E) At para 27 Hon'ble High Court considered various provisions of development agreement in the case of M/s.Shakti Corporation. Out of such provisions, following clauses of the agreement are important:
"Clause -1: That the party of the Second Part ( Assessee) shall upon obtaining all necessary permissions over the said land such as NA, NOC, Development Permission, Rajachiththi, permission for passing plans, Title Clearance, etc. for making the construction and erect an apartment in the same, can organize shops, offices, flats and tenement society and can engage architect if required, can prepare plans and obtain the occupation Certificate, Completion Certificate, can get the revised maps prepared and for which the complete powers are given to the party of the Second Part.
Clause-4: The party of the Second Part Developers can register the members for the new construction that may be made over the said land/property, can issue receipt to the members, can issue allotment letter to the members, can execute the Agreement to sale, can hand over the possession, can execute ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09 -8- Tripartite Agreement, but the entire responsibility for the same shall be that of the party of the Second Part.
Cluase-7: That for the houses, shops flats, etc. that are to be constructed over the said land for which the party of the Second Part is to register them as members and can upon executing Agreement to Sale etc. accept the money and issue receipts to the members. Same way, you can remove all obstructions that may come during the period of making the develop it.
Clause-10: From the date of this Agreement, you, the Party of the Second Part is bound to pay tax, land revenue, special cess etc. in the offices of the Vadodara Municipal Corporation, Government, Semi Government and whatever tax, land revenue, education cess, special cess, etc. are outstanding prior to be the date of this Agreement, the same are and shall be paid by us, the party of the First part as a land owner."
(F) After considering the provisions of section 80IB(1) and 80IB(10) in respect of question of ownership of land being an essential condition for deduction u/s.80IB(10) of the Act, Hon'ble Gujarat High Court at para 30 held that -
"30. The essence of sub-Section (10) of Section 80IB, therefore, requires involvement of an undertaking in developing and building housing projects approved by the local authority. Apparently, such provision would be aimed at giving encouragement to providing housing units in the urban and semiurban areas, where there is perennial and acute shortage of housing, particularly, for the middle income group citizens. To ensure that the benefit reaches the people, certain conditions were provided in sub-Section(l0) such as specifying date by which the undertaking must commence the developing and construction work as also providing for the minimum area of plot of land on which such project would be put up as well as maximum built up area of each of the residential units to be located thereon. The provisions nowhere required that only those developers who themselves own the land would receive the deduction under Section 80IB(10) of the Act."
(G) Further considering various clauses, terms and conditions of development agreement in both the leading cases viz. M/s.Radhe Developers and M/s.Shakti Corporation, Hon'ble Gujarat High Court at para 34 held that-
ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09 -9- "34. We have reproduced relevant terms of development agreements in both the sets of cases. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects. Under the agreements, the assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work. Assessee would enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence."
(H) At para 36, the Hon'ble High Court examined the effect of Explanation of Section 80IB(10) introduced with retrospective effect from 1.4.2001 and held that-
"36. We have noted at some length, the relevant terms and conditions of the development agreements between the assessees and the land owners in case of Radhe Developers. We also noted the terms of the agreement of sale entered into between the parties. Such conditions would immediately reveal that the owner of the land had received part of sale consideration. In lieu thereof he had granted development permission to the assessee. He had also parted with the possession of the land. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. It was specified that the assessee would bring in technical knowledge and skill required for execution of such project. The assessee had to pay the fees to the Architects and Engineers. Additionally, assessee was also authorized to appoint any other Architect or Engineer, legal adviser and other professionals. He would appoint Sub-contractor or labour contractor for execution of the work. The assessee was authorized to admit the persons willing to join the scheme. The assessee was authorised to receive the contributions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. In case, for some reason, the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the full FSI as per the existing rules and regulations. However, in future, rules be amended and ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09
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additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use as agreed between the parties. The assessee had full authority and also responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. Most significantly, the risk element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed to pay off the land owner first before appropriating any part of the sale consideration of the housing units for his benefit. In short, assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk."
(I) After considering the Hon'ble Bombay High Court judgement in the case of CIT vs. Glenmark Pharmaceutical Ltd. (2010) 324 ITR 199 under the head "Contract of work or a contract of sale" and Hon'ble Supreme Court judgement in the case of State of Andhra Pradesh vs. M/s. Kone Elevators
(l)Ltd. AIR 2005 SC 1581, the Hon'ble Gujarat High Court at para 38 held that-
"38. In the present case, as already held the assessee had undertaken the development of housing project at its own risk and cost. The land owner had accepted only the full price of the land and nothing further. The entire risk of investment and expenditure was that of the assessee. Resultantly, profit and loss also would accrue to the assessee alone. In that view of the matter, the addition of the Explanation to Section 80IB with retrospective effect of 1.4.2001 would have no material bearing in the cases on hand. We may recall that the said Explanation introduced by Finance (No.2)Act, 2009 provided as under:-
[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 ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09
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as a works contract awarded by any person (including the Central or State Government)]."
(J) Finally after considering the ratio of various case laws relied on by Revenue, at para 45 and 46 Hon'ble Gujarat High Court concluded that-
"45. Under the circumstances, we are of the opinion that the Tribunal committed no error in holding that the assessees were entitled to the benefit under Section 80IB(10) of the Act even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners.
46. We find that it is not even the case of the Revenue that other conditions of Section 80IB of the Act were not fulfilled. We, therefore, answer the question in favour of the assessee and against the Revenue and dispose of all appeals accordingly."
15. The facts of the appellant are identical with the cases dealt by Hon'ble Gujarat High Court. Even the contention raised by the AO along with reliance of various judicial authorities are identical. Therefore following the ratio of Hon'ble Gujarat High Court in this case, the disallowance and thereby additions made by the AO in the case of the appellant are not justified and directed to be deleted. Appellant gets relief of Rs. 88,72,527."
5. Before us, ld.Sr.DR supported the order of AO. Ld.AR, on the other hand, reiterated the submissions made before the AO and the ld.CIT(A) and submitted that the ld.CIT(A) after considering the decision rendered by the Hon'ble Gujart High Court in the case of CIT vs. Radhe Developers (Tax appeal No.546 of 2008) and Shakti Corporation and Others vs. CIT, has allowed the claim of assessee. He thus supported the order of ld.CIT(A).
ITA No.1178/;Ahd/2012 ITO vs. M/s.Rachna Corporation Asst.Year -2008-09
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6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue in the present case is with respect to deduction u/s.80IB(10) of the Act. AO denied the claim of deduction u/s.80IB(10) of the Act for the reason that assessee was not the owner of the land, the permission was not received by the assessee and according to AO assessee was mere a "Contractor" who had entered into a development agreement with the land owners for the construction of the housing project. We find that the ld.CIT(A) after considering the development agreement and the decisions rendered in the case of Radhe Developers (supra) has given a finding that the facts in the present case of the assessee are identical to the case dealt with by the Hon'ble Gujarat High Court and he therefore relying on the decision cited in his order has allowed the claim of assessee. Before us, Revenue has not placed any contrary binding decision in its support. In view of the aforesaid facts, we see no reason to interfere with the order of the ld.CIT(A) and thus the ground of the Revenue is dismissed.
7. In the result, Revenue's appeal stands dismissed.
This Order pronounced in Open Court on 29/06/2016
Sd/- Sd/-
( KUL BHARAT ) ( ANIL CHATURVEDI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 29/ 06 /2016
ट .सी.नायर, व.(न.स./T.C. NAIR, Sr. PS
ITA No.1178/;Ahd/2012
ITO vs. M/s.Rachna Corporation
Asst.Year -2008-09
- 13 -
आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं*धत आयकर आयु,त / Concerned CIT
4. आयकर आयु,त(अपील) / The CIT(A)-XV, Ahmedabad
5. /वभागीय (त(न*ध, आयकर अपील य अ*धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड5 फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या/पत (त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 28.6.16 (dictation-pad 9+pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ... 28.6.16/29.6.16
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......29.6.16
7. Date on which the file goes to the Bench Clerk.....................29.6.16
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................