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[Cites 10, Cited by 3]

Gujarat High Court

Commissioner Of Income Tax-Iii vs Swastik Associates....Opponent(S) on 7 May, 2014

Author: Akil Kureshi

Bench: Akil Kureshi, Sonia Gokani

            O/TAXAP/348/2014                                 ORDER




            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                           TAX APPEAL NO. 348 of 2014

================================================================
               COMMISSIONER OF INCOME TAX-III....Appellant(s)
                                Versus
                   SWASTIK ASSOCIATES....Opponent(s)
================================================================
Appearance:
MRNITINKMEHTA, ADVOCATE for the Appellant(s) No. 1
================================================================

            CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
                   and
                   HONOURABLE MS JUSTICE SONIA GOKANI

                                Date : 07/05/2014


                                 ORAL ORDER

(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

 1. Revenue has challenged the judgement of the Income Tax  Appellate   Tribunal   ("the   tribunal"   for   short)   dated  13.9.2013 raising following questions of law :

"(A) Whether the tribunal is right in law and on facts to  delete the disallowance of deduction u/s.80IB(10) made by  the Assessing Officer?
(B) Whether   the   Tribunal   is   right   in   law   to   ignore   the  following material aspects in the present matter :
(i) The   assessee   is   not   the   owner   of   the   land   and  approval was not issued to it by the Local authority? 
     (ii)       The   assessee   entered   into   the   project   by   a 


                                    Page 1 of 11
       O/TAXAP/348/2014                                            ORDER



   Development   agreement   with   the   land   owner   and 
construction was done as per the agreement and hence the  assessee  is  merely  a work  contractor  for  the  purposes  of  construction of the project?
(iii) The Assessee has not sold any unit to the purchaser  but   the   landowners   have   executed   the   sale   deeds   as   a  seller and the assessee joined only as a confirming party to  the transaction?
(iv) The assessee has not any dominion control over the  project and merely a contractor/agent of the landowners?"

 2. Issue   pertains   to   deduction   claimed   by   the   respondent  assessee   under   section   80IB(10)   of   the   Act     for   having  constructed   and   developed   a   housing   project.   The  Assessing  Officer objected such claim on the ground  that  the assessee  was not the owner  of land and development  permission   was   also   not   granted   to   assessee   but   to   a  cooperative   housing   society   who   was   the   owner.,  Undoubtedly,  this issue is covered by the decision of this  Court in case of   Commissioner of Income­tax v. Radhe  Developers  reported  in (2012)  341  ITR 403(Guj),    that  is  how   the   tribunal   considered   the   issue   in   the   impugned  judgement   dated   13.9.2013   confirming   the   view   of   CIT  (Appeals).   In  Radhe   Developers  (supra),  this   Court  observed as under :

"3.   In   Tax   Appeal   No.546   of   2008   (M/s.   Radhe   Developers),   the  assessee had claimed deduction under Section 80IB(10) of the Income  Tax Act, 1961 ( " the Act" for short) of Rs.24,75,940/­ on the premise  that such income was derived from the business of the undertaking  developing   and   building   housing   project   approved   by   the   local  authority. To execute such housing project, the assessee had entered  into a development agreement with Vinodbhai Nathabhai Patel (HUF)  and others as party of the First Part and heirs of deceased Ambalal  Page 2 of 11 O/TAXAP/348/2014 ORDER Motibhai Patel as party of the Second Part. In the said development  agreement dated 18.5.2000, the assessee was referred as a party of the  Third Part. The party of the Second Part represented the land owners  and   party   of   the   First   Part   represented   those,   who   had   previously  entered   into   an   agreement   to   purchase   such   land.   Under   this  development   agreement,   the   assessee   agreed   to   develop   the   land  belonging to party of the Second Part on certain terms and conditions.  We would refer to relevant terms and conditions at a later stage. 

4. On the same day i.e. 18.5.2000, the land owners entered into an  agreement to sell the land in question to the assessee. The assessee  was described as purchaser and the original land owners i.e. the heirs  of   deceased   Ambalal   Motibhai   Patel   were   described   as   party   of   the  Second Part or the sellers.

5.   The   Assessing   Officer,   however,   rejected   the   assessee's   claim   for  deduction under Section 80IB(10) of the Act. The Assessing Officer was  of the opinion that the assessee firm was not the owner of the land.  Approval by the local authority as well as permission to develop the  project   and   permission   to   commence   construction   were   not   in   the  name   of   the   assessee   firm.   The   Assessing   Officer   was   also   of   the  opinion that the assessee had merely acted as an agent or a contractor  for construction of residential houses.

6. The assessee carried the matter in appeal. CIT(Appeals) vide order  dated   19.9.2006   rejected   the   assessee's   appeal.   CIT(Appeals)   put  considerable   stress   on   the   requirement   of   ownership   of   the   land   to  qualify for deduction under Section 80IB(10) of the Act. He was of the  opinion that the land is intrinsic and inalienable part of the housing  project.   No   assessee,   therefore,   could   carry   on   the   business   of  undertaking developing and building housing projects without owning  the land. 

7. The assessee carried the matter further in appeal before the Income  Tax Appellate Tribunal (" the Tribunal" for short). The Tribunal vide its  impugned judgment dated 29.6.2007 allowed the assessee's appeal and  reversed the orders passed by the Revenue authorities. The Tribunal  based its order on two aspects. Firstly, the Tribunal was of the opinion  that for deduction under Section 80IB (10) of the Act it is not necessary  that the assessee must be the owner of the land. Second aspect of the  Tribunal's judgment was that even otherwise 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. The Tribunal, accordingly, allowed the  Page 3 of 11 O/TAXAP/348/2014 ORDER assessee's   appeal   directing   the   Assessing   Officer   to   grant   deduction  under Section 80IB(10) of the Act. The Revenue is, therefore, in appeal  before this Court.

8. Second stream of appeals led by Tax Appeal No.733 of 2009 ( M/s.  Shakti Corporation) arises in the following background.

8.1 Here also the assessee had claimed deduction under Section 80IB  (10) of the Act on the ground that the income was derived from the  business of the undertaking developing and building housing projects  approved by the local authority. The Assessing Officer disallowed the  claim primarily on the ground that not being the owner of the land, the  assessee was not eligible for deduction under Section 80IB(10) of the  Act.

8.2 In appeal, CIT(Appeals) followed the decision of the Tribunal in case  of M/s. Radhe Developers, which was by then available. This decision  of   CIT(Appeals)   was   challenged   by   the   Revenue   before   the   Tribunal.  Revenue contended that the assessee's facts were different from those  involved in the case of M/s. Radhe Developers. The Revenue pressed in  service the decision of the Apex Court in the case of Faqir Chand Gulati  vs. Uppal Agencies Private Limited and another reported in (2008) 10  SCC 345 to contend that for an assessee to seek benefit under Section  80IB  (10)  of   the  Act,   he  must   show   his  ownership   over   the  land  in  question.

8.3 The Tribunal, though did not accept the Revenue's stand; in view of  the decision of the Apex Court in the case of Faqir Chand Gulati vs.  Uppal   Agencies   Private   Limited   and   another   (supra),   made   a   minor  departure from its own decision in the case of M/s. Radhe Developers.  The Tribunal confined its view in its judgment dated 7.11.2008 on the  aspect   of   the   ownership   of   the   land.   Considering   the   terms   and  conditions of development agreement and other documents on record,  the Tribunal was of the opinion that the benefit of section 80IB(10) of  the Act to the assessee could not be denied.

8.4 The Tribunal held that the assessee had acquired dominion over  the   land,   which   he   had   developed   by   constructing   housing   project  incurring   expenses   and   also   taking   risks.   The   Tribunal,   however,  observed that decision in the case of M/s. Radhe Developers would not  apply in cases, 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   owners.   In   such   a   case,  agreement between the assessee and the land owner would not permit  the assessee to claim the benefit. 

Page 4 of 11

O/TAXAP/348/2014 ORDER

9.   In   the   case   of   M/s.Shakti   Corporation,   since   the   assessee   had  produced   documents   on   record,   the   Tribunal   accepted   its   case   for  benefit under Section 80IB(10) of the Act. However, in group of other  cases,   which   the   Tribunal   was   disposing   off   by   the   said   common  judgment,   such   documents   were   not   readily   available.   The   Tribunal  remanded the proceedings to the Assessing Officer with a direction that  the Assessing Officer should look into the agreement entered into in  each case by the land owner and decide whether the assessee had in  fact purchased the land for a fixed consideration and had developed a  housing   project   at   its   own   cost   and   risk.   If   it   was   so   found,   the  Assessing Officer should allow the deduction under Section 80IB(10) of  the   Act.   On   the   other   hand,   if   the   Assessing   Officer   found   that   the  developer had acted on behalf of the land owner and received only a  fixed   consideration   for   developing   the   housing   project,   the   assessee  would not be eligible for deduction under Section 80IB (10) of the Act.  This common judgment in the case of M/s. Shakti Corporation is also  in appeal before us at the hands of the Revenue. We may record that  the assessees have accepted the judgment  and not carried the issue  further before us.

10. While admitting Tax Appeal No.546 of 2008, the Division Bench of  this Court had 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 end­users  was made by the landowner and not by the assessee?"

35. With respect to the question whether the assessee had acquired the  ownership of the land for the purposes of the Income Tax Act and, in  particular,  Section 80IB (10) of the Act and to examine the effect of  Explanation   to   Section   80IB(10)   introduced   with   retrospective   effect  from 1.4.2001, since several aspects overlap, it would be convenient to  discuss the same together.
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  Page 5 of 11 O/TAXAP/348/2014 ORDER 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 Sub­contractor 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 the full FSI as per the existing  rules   and   regulations.   However,   in   future,   rules   be   amended   and  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  Page 6 of 11 O/TAXAP/348/2014 ORDER 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.
41.   In   the   present   case,   we   find   that   the   assessee   had,   in   part  performance of the agreement to sell the land in question, was given  possession thereof and had also carried out the construction work for  development of the housing project. Combined reading of Section 2(47)
(v)  and Section  53A of  the Transfer of  Property  Act   would  lead to  a  situation where the land would be for the purpose of Income Tax Act  deemed to have been transferred to the assessee. In that view of the  matter,   for   the   purpose   of   income   derived   from   such   property,   the  assessee would be the owner of the land for the purpose of the said Act. 

It   is   true   that   the   title   in   the   land   had   not   yet   passed   on   to   the  assessee.   It   is   equally   true   that   such   title   would   pass   only   upon  execution   of   a   duly   registered   sale   deed.   However,   we   are,   for   the  limited purpose of these proceedings, not concerned with the question  of passing of the title of the property, but are only examining whether  for   the   purpose   of   benefit   under   Section   80IB   (10)   of   the   Act,   the  assessee could be considered as the owner of the land in question. As  held   by   the   Apex   Court   in   the   case   of   Mysore   Minerals   Ltd.   vs.  Commissioner of Income Tax (supra), and in the case of Commissioner  of   Income­Tax   vs.   Podar   Cement   Pvt.   Ltd.   and   others   (supra),   the  ownership has been understood differently in different context. For the  limited   purpose   of   deduction   under   Section   80IB(10)  of   the  Act,   the  assessee had satisfied the condition of ownership also; even if it was  necessary.

42.   In   the   case   of   Shakti   Corporation   similarly   the   assessee   had  entered into a development agreement with the land owners on similar  terms   and   conditions.   It   is   true   that   there   were   certain   minor  differences, however, in so far as all material aspects are concerned, we  see no significant or material difference. Here also assessee was given  full rights to develop the land by putting up the housing project at its  own risk and cost. Entire profit flowing therefrom was to be received by  the assessee. It is true that the agreement provided that the assessee  would   receive   remuneration.   However,   such   one   word   used   in   the  agreement cannot be interpreted in isolation out of context. When we  read   the   entire   document,   and   also   consider   that   in   form   of  "remuneration" the assessee had to bear the loss or as the case may be  take home the profits, it becomes abundantly clear that the project was  being developed by him at his own risk and cost and not that of the  land   owners.   Assessee   thus   was   not   working   as   a   works   contract. 

Page 7 of 11

O/TAXAP/348/2014 ORDER Introduction of the Explanation to Section 80IB(10) therefore in this  group of cases also will have no effect.

43. We may at this stage examine the ratio of different judgments cited  by the Revenue. The decision in case of Faqir Chand Gulati vs. Uppal  Agencies   Private   Limited   and   another   (supra)   was   rendered   in   the  background of the provisions of the Consumer Protection Act. In the  case   before   the   Apex   Court,   the   land   owner   had   entered   into   an  agreement   with   the   builder   requiring   him   to   construct   apartment  building on the land in question. Part of the constructed area was to be  retained by the owner of the land. In consideration of the land price  remaining area was free for the builder to sell. When the land owner  found   series   of   defects   in   the   construction,   he   approached   the  Consumer Protection Forum. It was in this background the Apex Court  was   considering   whether   the   land   owner   can   be   stated   to   be   a  consumer and the builder a service provider. It was in this background  that   the   Apex   Court   made   certain   observations.   Such   observations  cannot   be   seen   out   of   context   nor   can   the   same   be   applied   in   the  present case where we are concerned with the deduction under Section  80IB(10) of the Act.

44.   In   the   case   K.   Raheja   Development   Corporation   vs.   State   of  Karnataka   (supra),   the   Apex   Court   considered   whether   the   builder,  who was engaged in the development of property and for such purpose  had entered into an agreement with the land owner, can be stated to  have executed works contract. Such interpretation was rendered in the  background of the term "works contract" defined in Section 2(1)(v­i) of  the Karnataka Sales Tax Act, which reads as under:­ "12. Section 2(1)(v­i) is relevant. It defines a "works contract" as follows:

"2.(1)(v­i)   'works   contract'   includes   any   agreement   for   carrying  out for cash, deferred payment  or other  valuable  consideration,  the building, construction, manufacture, processing, fabrication,  erection,   installation,   fitting   out,   improvement,   modification,  repair or commissioning of any movable or immovable property;"

It is thus to be seen that under the Karnataka Sales Tax Act the  definition  of the words "works contract"  is very wide.  It is not  restricted to a "works contract" as commonly  understood  i.e. a  contract   to   do   some   work   on   behalf   of   somebody   else.   It   also  includes "any  agreement  for  carrying  out  either  for  cash  or  for  deferred  Page 8 of 11 O/TAXAP/348/2014 ORDER payment   or   for   any   other   valuable   consideration,   the   building  and   construction   of   any   movable   and   immovable   property".  (emphasis supplied) The definition would therefore take within its ambit any type of  agreement wherein construction of a building takes place either  for   cash   or   deferred   payment,   or  valuable   consideration.   To   be  also   noted   that   the   definition   does   not   lay   down   that   the  construction  must  be  on  behalf  of  an  owner  of  the  property  or  that  the   construction   cannot  be   by  the   owner   of  the   property.  Thus even if an owner  of property  enters into an agreement  to  construct for cash, deferred payment or valuable consideration a  building  or flats on behalf  of anybody else, it would be a works  contract within the meaning of the term as used under the said  Act."

It was in background of this definition provided by the statute that the  Apex Court concluded that the agreement was one of works contract.  The Apex Court observed that the term works contract contained in the  Act is inclusive definition and includes not merely the works contract  as normally understood but it is a wide definition which includes any  agreement for carrying out building or construction activity for cash,  deferred   payment   or   other   valuable   consideration.   Thus   the  interpretation   rendered   by   the   Apex   Court   in   the   said   decision   was  based on not the normal meaning of term "works contract" but on the  special meaning assigned to it under the Act itself, which provided for a  definition of the inclusive nature. 

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."

 3. Counsel   for   the   Revenue   however,   came   up   with   a  novel  contention   namely,   that   development   agreement   in   the  present case was vitally different from those considered by  this   Court   in   case   of  Radhe   Developers  (supra)  and  Commissioner of Income­tax v. M/s. Shakti Corporation  (Tax   Appeal   No.733/2009).   He   submitted   that  the  Page 9 of 11 O/TAXAP/348/2014 ORDER landowners in those cases were individuals. In the present  case,   land   was   owned   by   the   cooperative   society.   When  Radhe group of appeals were taken for hearing, we had a  fond hope that decision of this Court would give a quietus  to   large   number   of   issues   travelling   to   High   Court   and  hopefully   even   before   the   tribunal.   Such   hope   has   been  completely belied by litigious approach of the department.  Even   after   the   decision   of   this   Court   in   case   of  Radhe  developers(supra)   and   series   of   SLP   being   dismissed  against   the   group   of   appeals,   decided   in   the   said  judgement,   fresh   appeals   keep   coming   before   us   on   this  very issue.  Till the appeals  were pending  before  the High  Court   or   even   after   the   judgement   was   rendered,   the  department  was  further  contemplating  appeals  before  the  Supreme Court, we could still appreciate the stand of the  Assessing Officer to deny the benefits on the premise that  the   Revenue   has   not   accepted   the   finality   of   the   view.  However, when no further proceedings are available to the  Revenue,   Supreme   Court   having   finally   repelled   all   such  challenges,   it   is   rather   unfortunate   that   even   today   the  appeals   still   keep   travelling   before   us.   In   fact,   the  tribunal's   judgement   was   rendered   after   this   Court's  judgement  in  Radhe Developers  (supra).  This appeal was  filed long after the SLPs against such judgement came to  be   dismissed.   In   a   recent   judgement   in   case   of  Commissioner   of   Income­tax   v.   Excel   Industries   Ltd.  reported   in   (2013)   358   ITR   295(SC),   severely   criticising  such   litigious   approach   of   the   department,   for   wasting  public   time   and   money.   The   distinction   presented   by  counsel   for   the   Revenue   was   not   even   drawn   by   the  Assessing   Officer.   In   the   order   of   assessment   all   that   is  Page 10 of 11 O/TAXAP/348/2014 ORDER recorded is that the department  wishes  to keep the issue  open.  Quite  apart  from  not  being  convinced  by any such  distinction in law, the factual aspects which the Assessing  Officer has not relied upon would not be enough to draw a  distinction in a decided  issue. All parameters appearing on  record   are   identical   to   those   appearing   in  Radhe  Developers (supra). 

 4. In the result, tax appeal is dismissed.

(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 11 of 11