Income Tax Appellate Tribunal - Ahmedabad
Jay Jalaram Developers,, Baroda vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before Shri H.L. KARWA, JUDICIAL MEMBER and
Shri N.S. SAINI, ACCOUNTANT MEMBER
Date of hearing : 7.09.09 Drafted on: 9.09.09
ITA No.2850/AHD/2004
Assessment Year : 2001-02
Income Tax Officer, Vs. Jai Jalaram Developers,
th
Ward-5(2), 5 Floor, RBG Complex, Bahucharaji
Ayarkar Bhavan, Race Road, Karelibaug, Baroda.
Course, Baroda.
PAN/GIR No. : AACFJ2499I
(APPELLANT) .. (RESPONDENT)
Appellant by : M.C.Pandit Sr. D.R.
Respondent by: None
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
This appeal is filed by the Revenue against the order of the ld.CIT(Appeals)-V, Baroda dated 2.07.2004.
2. The sole issue involve in this appeal is that the Learned Commissioner of Income Tax(Appeals) erred in allowing deduction under section 80IB(10) of the Act.
3. The brief facts of the case are that the firm is doing the business as a developer and builder for the housing project. The Assessee has filed return of income for Assessment Year 2001-02 on 31.10.2001. The Assessing Officer has observed that the firm is doing business as a contractor who do not have their own land but carry out their work as a contractor on behalf of the owner of land & buyer. Therefore, the firm is not entitled for deduction under section 80IB(10).
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4. In appeal before the Learned Commissioner of Income Tax(Appeals), the assessee submitted that the firm is not doing the work as a contractor but has worked as a builder and developer for the construction of housing project and the firm has undertaken so many responsibilities and risks for developing the housing projects. So the assessee officer was not justified by taking the view as a contractor and refusing the claim under section 80IB(10) of the I.T.Act.
5. The Learned Commissioner of Income Tax (Appeals) after considering the submissions of the assessee observed as under:-
"3.20. I have considered the submissions made as well as arguments put forth by the learned Counsel for the appellant. The argument of the Learned Assessing Officer are also considered. The decision relied upon by the Learned Authorised Representative is carefully considered. The appellant had entered into an agreement with the landowners which gives right and empowers the assessee to develop and construct the residential units of project. The approval from BMC for the said project and plot areas as well as built up area fulfill the prescribed conditions laid down under section 80IB(10) of the Act. The assessee has incurred all expenses to develop/construct the said units of the project and debited the same in the final accounts including cost of cement, sand, labour, architect fee etc. The income arising from such activity has been claimed as exempt by claiming deduction under section 82IB(10) including commercial units which the Learned Assessing Officer has denied. The amount received from purchasers of these units have been shown as income of the assessee except land value which, according to the terms of agreement is the income of landowners and landowners are liable to account for Rs.8 per Sq. Ft. as per terms of agreement as income from sale of land pursuant to the aforesaid agreement. It can be clearly seen that the entire profit from development and construction of the project is repainted by the assessee as a developer and builder. 3.21 The contention of the counsel that provisions granting incentives were required to be interpreted liberally and certainly not hyper-technically is found to be convincing. What the provision envisaged was exemption of profit derived from the business of an undertaking developing and building housing projects approved by a local authority. Since, the terms of agreement clearly establish that the assessee is developer and builder of project and profit earned thereon is retained by the assessee from construction activity and not passed on to the land owners, the intention of legislature is fully satisfied which gives exemption on income arising from developing housing projects of residential units for the public in large. 3.22 The Learned Assessing Officer has stated that the developer and builder of any project is a person who first purchases a land and thereafter engages architects, structural consultants, obtains permissions for construction from the competent ITA No.2850/Ahd/2004 M/s. Jai Jalaram Developers, Asst.Year -2001-02 -3- authorities and thereafter carried out the work of construction either himself or through other contractors. IN the assessee's case instead of purchasing land, a development agreement is entered into. It is always seen that in typical Indian conditions where heavy stamp duty and registration charges prevail, the land is not transferred in the name of developer/builders. Rest other part such as engaging architects, structural consultants, obtaining permissions for construction from the competent authorities and then carrying out the work of construction either himself or through other contractors is fully complied by the assessee, which are not disputed by the Learned Assessing Officer.
3.23 The findings of CIT(A)-XV Ahmedabad in case of Shri Mukesh Rampurhuttam wherein in the similar facts, the deduction has been allowed, if very much relevant to cite. In the assessee order dated 24.03.2003, for Assessment Year 1999-00, on page 7 it has been observed as under-
"The agreement under which sole-proprietary business of the appellant concern had been appointed as the Developer cum Building Contractors was fairly elaborate clearly showing the nature of rights, duties and responsibilities thereunder and so also those of the societies. The AO's summary conclusion, that the projects has been developed and constructed by the societies themselves and all that the appellant have done is mere supervision, is too simplistic and has been made in total disregard of the fact that in the typical Indian conditions where heavy stamp duty and registration charges prevail, construction schemes are invariably implemented by restoring to the legal structure of a Non-Trading Corporation or a co-operative Housing Society (neither of whom has the resources to implement any such projects by themselves) with the real entrepreneurs doing the actual development and construction work including assumption of the risk involved, which is what had happened in the present case in which the appellant had acted as the Developer cum Builder and actually received remuneration for acting as such pursuant to an elaborate written agreement in that behalf and at rates which were as high as 15% of the selling price of the residential units and 8% of the construction cost respectively for development and supervision work."
3.24 On page 11, the CIT(A)-VX, Ahmedabad in the above referred appellate order has further held as under:-
".................The activity of assessee was of the category of supervision only. It is important to consider here that the development and construction of the housing project is not denied. What is objected is that the appellant is not the developer and contractor. He is merely a supervisor. But the terms of agreement with the NTC lays down the activity and power of the appellant in such a wide term that the appellant is the real developer and constructor of the project. The appellant is responsible for the appointment of architects, engineers, legal advisors and similar other professional whose services may be required for the successful implementation of the projects, significantly, the fees and expenses payable to such parties were to be borne by the assessee. Further, the appellant appoints, sub-contractors, labour Contractors etc. subject to the condition that the entire responsibility of implementing the project was that of the assessee. To borrow funds required for the ITA No.2850/Ahd/2004 M/s. Jai Jalaram Developers, Asst.Year -2001-02 -4- implementation of the project and execute documents that may be required in that behalf, be it from a financial institution, bank of a shroff or a private party. Considering the agreement with the housing societies, it is quite clear that the activity of the appellant is that of a developer and contractor."
3.25 Coming to the Assessee's case, the terms of agreement reveal that the appellant is entirely responsible to develop and construct the Project. The appellant is therefore, is a developer and contractor and hence, eligible for deduction under section 80IB(10) of the Act. The Hon'ble Supreme Court in the case of CIT Vs. Strawboard Manufacturing Co.Ltd. 177 ITR 431 (SC) has observed that the provision for rebate has been made for the purpose of encouraging the setting up of new industries and the industries are those described in the relevant Schedules, a liberal construction should be put upon the language of the statue ..............The residential units are all required in out country to a public in large and to enlarge the same, the provision has been made in the Act so to encourage housing projects by inserting section 80IB(10) which gives deduction from profits earned from development of housing projects fulfilling conditions laid down under the said provisions. It would be utterly injudicious to deny the exemption for which the impugned provision categorically provides in order that this country may have more and more residential units for its purpose.
3.26 Considering the facts and after taking into accounts the terms of contracts entered into with the landowners, I am inclined to accept the contention of the appellant that the appellant is developer and builder and eligible for deduction under section 80IB(10) of the Act. The AO is directed to allow the same as claimed on residential units of the project."
6. The Learned Departmental Representative supported the order of the Learned Assessing Officer.
7. Notice was sent to the Respondent assessee through the Departmental representative on 30.7.09 but when the case was called for hearing non was present on behalf of the assessee and neither any adjournment application was filed. Therefore the case was heard ex-parte qua the Respondent assessee and decided after considering the submissions of the Learned Departmental Representative and the materials available on record.
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8. We have heard the Learned Departmental Representative and perused the orders of the lower authorities and the materials available on record. In the case of Income Tax Officer, Ward-3(4), Surat Room No.207, Aaykar Bhavan, Mazura Gate, Surat Vs. M/s.Nutan Organisors, in ITA No.2038/Ahd/2009 & CO No.171/Ahd/2009 Assessment Year:2003-04 order dated 3.07.2008 has held that:
"2. At the outset, Ld. Counsel for the assessee fairly stated that the issue is squarely covered by the decision of this Tribunal in the case of M/s. Radhya Developers & Otrs. in ITA No.2482/Ahd/2006 and others dated 29-06-2007. We referred to the following paras of the Tribunal, wherein the Tribunal has considered the issue in great detail and allowed eligibility u/s.80IB(10) by following observations:-
"32 In these circumstances, in our opinion, the assessee is entitled to deduction u/s. 80IB(10) as it had developed and built the housing project; it had started construction after 1st day of April 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 are not more than 1500 Sq. ft., the property being situated in Baroda, a city other than Delhi and Mumbai."
Further, he referred to the various paras of the Tribunal's order and stated that the Tribunal has considered various cases laws and pertinent as observations read as under:-
"43 In view of decision of the Supreme Court in the case of Mysore Minerals Ltd.(supra), wherein the term "owned" in section 32 has been given a wider meaning by holding that if an assessee was in possession of a property and had acquired dominion over it to the exclusion of others, he would be entitled depreciation u/s.32 irrespective of the legal title. In the present case the 'Development Agreement' and 'Agreement to Sale' the undertaking developing and building housing projects and claiming deduction of profits from such housing project, there is, definitely, a dominion of the Developer over the land to the exclusion of others inasmuch as possession of the land is given to the Developer by the land-owners to carry out the construction activity of the housing project. The Assessee-Developer has complied with all the conditions as provided u/s.80-IB (10) of the Act, so as to claim deduction. The assessee has also passed on the part consideration for acquiring the land through an 'Agreement to Sale' and in view of the provisions of Section 2(47) read with section 53-A of the Transfer of Property Act, 1882, the assessee has completely performed his part of the contract and developed the housing project and transferred the flats/tenements to the buyers in view of 'Agreement to Sale' as well as 'Development Agreement'. It shows that the assessee was in full possession of the land for the Development of ITA No.2850/Ahd/2004 M/s. Jai Jalaram Developers, Asst.Year -2001-02 -6- Housing Project and has carried out all the activities of a complete housing project by taking all risks associated with this business. The assessee is engaged in complete infrastructure including engaging architects, structural consultants, designing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, on behalf of the land owners, got the plans approved, hiring of machinery and equipments, hiring engineers, appointing contractors, etc. 44 As discussed above and in view of the case-law of the Supreme Court in the case of Mysore Minerals Ltd (supra), wherein it has been categorically observed as regards to ownership that anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title might not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. In the present case before us, by virtue of 'Agreement to Sale' and 'Development Agreement', the assessee has acquired dominion over the land to the exclusion of others and he has completed the project in terms and conditions laid down u/s.80-IB(10) of the Act, to claim deduction on the profit derived from construction and development of residential housing project. There is no explicit condition enumerated in section 80-IB(10) of the Act as regards to requirement of ownership for the claim of deduction. In view of above facts and circumstances of the case as well as legal proposition laid down by the Supreme Court in the case of Mysore Minerals Ltd.(supra), we hold that the assessee is entitled for claim of deduction on the profit derived from Construction and Development of Residential Housing Project."
In view of the above, the Ld. counsel for the assessee also contended that the issue is squarely covered in favour of the assessee and against the Revenue.
3. On the other hand, the Ld. Departmental Representative submitted the ratio laid down in the case of Radhe Developers and others is not applicable to the facts of the impugned case. The salient features of the fact as existed in the case of Radhe Developers's decisions are as under:-
1. There was an agreement to sale in favour of assessee developer and possession was given by the land owner. Sale consideration was also paid.
2. All approvals / permissions were obtained by Power of Attorney of land owner i.e. assessee.
3. Right to take / peruse all govt. / Quasi govt. proceedings rested with the assessee developer by an agreement.ITA No.2850/Ahd/2004
M/s. Jai Jalaram Developers, Asst.Year -2001-02 -7-
4. For all these bundles of rights the assessee developer had paid consideration to land owner and obtained all rights including ownership rights Further the Ld. DR drawn our attention to the findings of the ITAT order in para-18, which is the foundation of the decision and which reads as under:-
"... .... From the clauses of the Development and Construction Agreements as well a Agreement for sale, both dated 18.05.2000, extracted above we observe that these two Agreements effectively transfer to the assessee-firm all the rights of development and construction and to deal with the land for consideration payable within a stipulated time; that the assessee had been put in possession of the land of the terms and conditions as mentioned in these two Agreements; that the assessee-firm ha also paid consideration of Rs.56 lacs during the two F.Yrs. i.e. 2000-01 and 201-02; that the assessee-firm has to obtain necessary approvals from the local authorities; i.e., BMC on behalf of the land owners and all the expenses for such purposes are to be incurred by the assessee; that the assessee-firm has engaged the firm of Architect and also incurred expenses towards the charges payable to Corporation, etc., for obtaining the approvals; that even from the books of account, it is noticed that for obtaining the approval, the assessee-firm has paid the development charges to various regulating agencies i.e. AUDA, BMC and GEB(Gujarat Electricity Board), etc. and that these expenses are incurred by the assessee- firm and the Assessing officer has brought out the complete details year-wise in his assessment orders at page No.5 reading as under:- ......................."
The Ld. DR further stated that the Bench was kind-enough to appreciate that the decision imparted in the case of Radhe Developers is based on facts discussed in that case. Needless to say that the Apex Court time and again had held that a ratio becomes a binding precedent in the context of given facts, not in isolation of acts. The facts of the impugned appeal are not similar with the facts of the said case discussed as above. On the contrary, it leads adverse inference against the assessee and deserves rejection of assessee's claim u/s.80IB on the facts of the case of Radhe Developers etc. The Ld. DR also referred to the principals laid down in the recent case of Hon'ble Apex court in the case of Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd. & Anr. (Civil Appeal No.3302 of 2005) dated 10-07-2008 and stated that the following issues were raised:-
i) A development agreement is one where the land-holder provides the land. The Builder puts up a building. Thereafter, the land owner and builder share the constructed area. The builder delivers the 'owner's share' to the land-holder and retains the 'builder's share'. The land-holder sells / transfers undivided share/s in the land corresponding to the Builder's share of the building to the builder or his nominees. The land-holder will have no say or control in the construction of have any say as to whom and at what cost the builder's share of apartments are to be dealt with or disposed of. Such an ITA No.2850/Ahd/2004 M/s. Jai Jalaram Developers, Asst.Year -2001-02 -8- agreement is not a "joint venture" in the legal sense. It is a contract for "services".
ii) On the other hand, an agreement between the owner of a land and a builder, for construction of apartments and sale of those of apartments so as to share the profits in a particular ratio may be a joint venture, if the agreement discloses an intent that both parties shall exercise joint control over the construction / development and be accountable to each other for their respective acts with reference to the project.
iii) The title of the documents is not determinative of the nature and character of the document, though the name may usually give some indication of the nature of the document. The use of the words "joint venture" or "collaboration" in the agreement will not make the transaction a joint venture, if there are no provisions for shared control and losses.
In view of these arguments, the Ld. DR stated that neither the Assessing officer nor the CIT(A) has gone into the agreements and Builders Development Agreement, from where it can be inferred that the assessee is a developer or a contractor. Accordingly, he requested the Bench to set aside the issue for verification of different agreements and documents in the light of the judgment of Hon'ble' Apex Court in the case of Faqir Chand Gulati (supra).
4. We have heard the Ld. DR and gone through the facts and circumstances of the case. We have also perused the case laws cited by both the sides and also gone through the assessment order as well as the order of CITIA). It is noticed from the orders of the lower authorities that they have not gone into the builder agreement or joint venture agreements. They have not ascertained whether the assessee is a developer or a contractor. In the absence of these findings, we are of the view that the issue needs re-verification in the light of Hon'ble Apex Court judgment in the case of Faqir Chand Gulati (supra). Similarly, the Ahmedabad Tribunal in another cases have also laid down certain principles in the light of Hon'ble Apex Court judgment in the case of Faqir Chand Gulati (supra) and A.O is also request to consider the case law of this Tribunal in the case of ITO & Otrs. v.Shakti Corporation Baroda and Otrs. in ITA No.1503/Ahd/2008 dated 07-11-2008. The Tribunal in these cases has held as under:-
"16.The facts involved in the case of the assessee are similar to the facts in the case of Radhe Developers (supra) and accordingly we are of the view that the assessee has acquired the dominant over the land and has developed the housing project by incurring all the expenses and taking all t he risks involved ther ein. We may mention here t hat, in our opinion, the decision in the case of Radhe Developers (supra) will not apply in a case where the assessee has entered into the agreement for ITA No.2850/Ahd/2004 M/s. Jai Jalaram Developers, Asst.Year -2001-02 -9- a fixed r emunerat ion merely as a contractor to construct or develop the housing project on behalf of the landowner. The agreement entered into in that case will not entit le the Developer to have the dominant control over the project and all the risks involved t herein will vest with the landowner only. The inter est of the Developer will be restricted only for the fixed rem uneration for which he would be rendering the services. The decision in the case of Radhe Developers (supra) has not dealt w ith such situat ion. The proposition of law laid down in the case of Radhe Developers cannot be applied universally without looking into the development agreement entered into by the Developer along with the landowner. In the case of Shakt i Cor porat ion since the assessee has f iled copy of t he development agr eement and crux of the agreement is that the assessee has purchased the land and has developed t he housing project at its own, theref ore, we are of the view that the assessee will be ent itled for the deduct ion u/s 80I B( 10). The decision of the Hon'ble Supreme Court in the case of Faqir Chand Gulati (supra) will not assist the Revenue, as the agreement is not sharing of the constructed area. In other cases the copy of agreement since has not been submitted before us, if submitted , the terms and conditions of the agr eement wer e not specifically ar gued befor e and placed before us, we theref ore, in the interest of just ice and fair play to both the parties set aside the order of the CIT(A) and restore all other appeals to the file of the AO wit h t he direct ion that the AO shall look into the agreement entered into by each of the assessees wit h the landowner and decide whether the assessee has in fact purchased the land for a fixed consideration from the landowner and has developed the housing project at its own cost and r isks involved in t he project. In case t he AO finds that practically the land has been bought by the Developer and Developer has all dominant control over the pr oject and has developed t he land at his own cost and r isks, the AO should allow the deduction t o the assessee u/s 80IB(10). In case the AO finds that the Developer has act ed on behalf of the landowner and has got the fixed consideration from the landowner for the development of the housing projects, the assessee should not be allowed deduct ion u/ s 80IB(10) to the assessee. "
5. In view of the above facts and circumstances, we set aside this appeal to the file of the Assessing officer with a direction that he will consider the principles laid down by the Hon'ble Apex Court in the case of Faqir Chand Gulati (Supra) as well as by this Tribunal in the case of Shakti Corporation Baroda (supra) and decide this issue afresh in accordance with law and in the lights of facts and circumstances of the case."
9. We find that the above decision of the Tribunal quoted above as well as the decision of the Hon'ble Supreme in the case of Faqir Chand Gulati was not ITA No.2850/Ahd/2004 M/s. Jai Jalaram Developers, Asst.Year -2001-02
- 10 -
available to the Learned Assessing Officer and Learned Commissioner of Income Tax(Appeals). As the facts in the present appeal are similar to the facts of the case which were before the tribunal in the above quoted decision we set aside the orders of the lower authorities and restore the issue back to the file of the Assessing officer with a direction that he will consider the principles laid down by the Hon'ble Apex Court in the case of Faqir Chand Gulati (Supra) as well as by this Tribunal in the case of Shakti Corporation Baroda (supra) and decide this issue afresh in accordance with law and in the lights of facts and circumstances of the case.
10. In the result, the appeal of the Revenue is allowed for statistical purpose.
Order and pronounced in the Court on 11/09/2009.
Sd/- Sd/-
( H.L. KARWA ) ( N.S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 11/09/2009
Paras#
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-V, Baroda.
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad