Income Tax Appellate Tribunal - Chennai
Vignesh Flat Housing Promoters, Trichy vs Department Of Income Tax on 18 August, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'C ' BENCH, CHENNAI
[BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND
SHRI HARI OM MARATHA, JUDICIAL MEMBER]
I.T.A Nos.458 to 461/Mds/2011
(Assessment years : 2004-05, 2005-06 and 2006-07 )
The ACIT vs M/s Vignesh Flat Housing
Central Circle I Promoters
Tiruchirappalli No.100-C, Gandhi Road
Srirangam - 620 006
[PAN - AACFV5502C ]
(Appellant) (Respondent)
Appellant by : Dr.I.Vijayakumar, CIT/DR
Respondent by : Shri S.Sridhar, Advocate
Date of Hearing : 18-08-2011
Date of Pronouncement : 14-09-2011
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
These are four appeals of the Revenue- two appeals relate to assessment year 2004-05 and other two relate to assessment years 2005-06 and 2006-07. Since the facts of all these cases are entwined and almost identical issues are involved therein, for the sake of brevity and convenience, we proceed to decide them by a common order. :- 2 -: ITA 458 to 461/11 I.T.A.No. 458/Mds/2011 - A.Y 2004-05
2. This appeal of the Revenue is directed against the order of the ld. CIT(A),Tiruchirapalli, dated 15.12.2010 passed u/s 143(3) r.w.s 153A of the Act.
3. Briefly stated, the facts of the case are that the assessee-firm is engaged in developing and constructing housing projects. It filed its return of income for assessment year 2004-05 on 1.11.2004 admitting a total income of ` 31,14,102/- after claiming a deduction of ` 5,95,97,288/- u/s 80IB(10) of the Act. Initially, the return was processed u/s 143(1). Later on, regular assessment u/s 143(3) was made. The assessee-firm was developing two types of housing projects viz. 'Vignesh Mantralaya' and 'Vignesh Empire' which are christened by the assessee as major projects and other two projects which fall under the minor category are 'Vignesh Keerthana' and 'Vignesh Abinaya' for assessment year 2004-05. In the major projects, the assessee firm has claimed exemption of ` 5,15,48,600/- u/s 80IB(10) in 'Vignesh Mantralaya' project and ` 16,90,744/- in 'Vignesh Empire' . The Assessing Officer scrutinized the required conditions of section 80IB(1) and thereafter with regard to 'Vignesh Empire' it was found that the project was conceived by one person named ShriVenkatesan, Managing :- 3 -: ITA 458 to 461/11 Partner of Ramakrishna Mills, Trichy. He owned the land alongwith his family members and also obtained the approval for constructing three blocks of residential accommodation of T.S.No.19/2, 20/2 and 21/2, where the present 'Vignesh Empire' is located. Subsequently, due to certain constraints, Shri Venkatesan gave this opportunity to M/s Ramakrishna Builders (P) Ltd., Chennai in which he and his wife are two Directors. This company took up the project under the name 'Sudharama' which consisted of three blocks by name, Raka, Ramaa and Ramya, which are presently constructed by this assessee marked as Blocks A,B and C of 'Vignesh Empire'. M/s Ramakrishna Builders developed the land and constructed the skeleton work including the foundation and columns and beams for all the floors of the two blocks namely, Raka and Ramaa. The constructed area measures 97000 plus sq ft. This company also could not continue to execute this project and at this stage, a tripartite agreement with Shri Venkaresan and M/s Ramakrishna builders (P) Ltd. In relation to assessee's claim u/s 80IB(10), the Assessing Officer sought explanation regarding the following points:
"1. You did not get approval from the local authority as required by the section .
2. You did not develop the land and constructed the project.
3. You have just taken over the project midway and concluded the project.:- 4 -: ITA 458 to 461/11
4. There is no approval and construction permit from the local authority in your name."
4. After considering the explanation of the assessee, the Assessing Officer has sought to disallow this claim of the assessee mainly on the grounds that the assessee had not obtained approval from the local authority and had not developed and constructed the project from its very inception. The case of the assessee is that approval of the project is not necessarily to be obtained by the assessee (himself or itself). But the section speaks about the date on or after which, approval has to be obtained. The assessee further explained that ownership of the land is not relevant for claiming this deduction. It was further explained that the pre-condition for deduction u/s 80IB(10) is 'project-centric' and not 'assessee-centric'. Regarding taking over of the project midway, and not from its very inception, it was submitted that this provision, also does not require that the project must be developed and constructed by the assessee on a clear plot of land but only talks about the extent of the plot on which construction is to be done, should exceed 1 Acre. So, as per the assessee, there is no embargo on the transfer of the project midway as it has happened in this case. Finally, it was submitted that the deduction under this section has been envisaged by the Act to promote infrastructure development :- 5 -: ITA 458 to 461/11 and it has got a social objective of providing shelter and therefore, in view of the decision of Hon'ble Apex Court given in the case of CIT vs Bajaj Tempo Ltd, 196 ITR 188, this section has a social relevance and such sections are to be interpreted liberally to confer the benefits and not to forfeit them. In view of the above, it was prayed that the deduction u/s 80IB may be granted as has been claimed. But the Assessing Officer was of the opinion that this deduction is available to an undertaking who has developed and build a housing project. He has opined that the assessee is required to obtain the necessary approval from the local authority within the time limit prescribed by this section. It was further epilogued that the expression 'development' used in this section includes land development like - leveling, laying of flats etc., besides actual construction. So, according to the Assessing Officer, the expression 'development' used in the section includes and means total work starting from Bhoomipujan to the handing over to the flats to the owners. Therefore, after discussing various other aspects, he has come to a conclusion that the assessee has not developed the project at all and so he has denied this deduction. Aggrieved, the assessee went in appeal and pleaded that the Assessing Officer has wrongly interpreted section 80IB(10) as no condition regarding development and construction of the project from start to finish has been laid down :- 6 -: ITA 458 to 461/11 therein and all that is required is only the compliance of the conditions laid down in this section. To support this contention it was submitted that in the event of an 'amalgamation' or 'demerger', this deduction shall be available to the 'resulting-company' or the 'amalgamated company' as per sub-section 12 of section 80IB and hence, this sub- section makes it amply clear that the provisions of section 80IB admits and alsopermits transfer of the project midway. It was argued that the assessee has fulfilled all the conditions laid down in this section. The ld. CIT(A) has allowed the claim by holding that the assessee has fulfilled all the conditions laid down in this section, after discussing threadbare the provisions of section 80IB. The ld. CIT(A) has also decided similar issue raised in assessment year 2005-06 by the same order. The Revenue is now aggrieved and has raised the following grounds:
"1.a. On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the assessee is eligible for deduction u/s 80IB(10) amounting to ` 16,90, 744.
1. b The learned CIT(A) has failed to note that a plain reading of section 80IB(10) with 80IB(1) and rule 18BB( 4) stipulates that deduction U/S 80IB(10) can be allowed only when the land is owned by the developer and approval from local authority is in the name of the developer.
1.c The learned CIT(A) has failed to note that the ratio of the decisions of the Supreme Court in Liberty India vs CIT 317 ITR 218 and Bajaj Tempo Ltd vs CIT 196 ITR 188 are not applicable in this case and that when the wordings in the provision are clear, the benefits which are not available under the relevant provision cannot be conferred by ignoring or misinterpreting the :- 7 -: ITA 458 to 461/11 words in the provision defeating the very object of an enactment.
1.d The learned CIT(A) has failed to note that if the developer does not possess the land, it cannot sell the 'dwelling unit' to the end user and accordingly the activity of developing lands and constructing building without possession of land or approval in the name of developer has to be considered only as a 'works contract'.
1.e The learned CIT(A) has erred in stating that "M/s Ramakrishna Builders P Ltd had sold primarily only the land with marginal constructions" since no such transfer of land or building has taken place and there was only a tripartite agreement by the assessee with Sri.Venkatesan and M/s Ramakrishna Builders P Ltd for the limited purpose of carrying out development and construction work.
1.f The learned CIT(A) has failed to consider the explanation to section 80IB(10)(f) introduced with retrospective effect from 01-04-2001.
2 The appellant craves leave to, add to amend or alter the above grounds of appeal as may be deemed necessary. "
5. We have considered the rival submissions and have perused the entire material available on record. We have noticed that the assessee is a promoter of residential flats. The Assessing Officer has accepted the assessee as a 'developer of housing project' as is evident from Column No.10 of the assessment order dated 26.12.2006. The opening sentence of the assessment order says "The assessee-firm is engaged in developing of housing projects." Therefore, there is no doubt that the assessee-firm is not a developer of housing projects. This firm was searched on 29.8.2007 u/s 132 of the Act and consequent :- 8 -: ITA 458 to 461/11 upon this, assessment orders u/s 153A r.w.s 143(3) were completed for assessment years, 2002-03 to 2008-09. The assessee filed appeal in I.T.A.No. 542/2006-07 against the order passed u/s 143(3) for assessment year 2004-05 dated 26.12.2006 and also filed appeal in I.T.A.No. 234/2009-10 against assessment order passed u/s 153A dated 30.12.2009 for the same assessment year. The assessee was aggrieved by the orders of the Assessing Officer passed for assessment years 2004-05 to 2008-09 and filed appeals for all these years. The issues involved in assessment years 2004-05 and 2005-06 are identical which is regarding disallowance of deduction claimed by the assessee u/s 80IB(1) in respect of profits derived from housing project called 'Vignesh Empire'. There is no dispute regarding the facts stated above in the earlier portion of this order. There is also no dispute on the satisfaction of the various conditions prescribed u/s 80IB(10) regarding extent of land, plinth area of the flats and the time limit for commencing and completion of the construction. The main ticklish issue involved revolves around the fact finding by the Assessing Officer that the approval for construction of the flats has not been obtained by the assessee but it has been obtained by the previous owner and the assessee-firm did not commence the project. On this very main reason :- 9 -: ITA 458 to 461/11 he has denied this deduction to the assessee. Let us examine this section in detail. Section 80IB(10) of the Act reads as under:
"[(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,-
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,-
(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;
(ii) in a case where a housing project has been, or, is approved by the local authority on or before the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority.
[(iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2004 [but not later than the 31st day of March, 2005], within five years from the end of the financial year in which the housing project is approved by the local authority.] Explanation.- For the purpose of this clause,-
(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority.
(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority.
(b) the project is on the size of a plot of land which has a minimum area of one Acre::- 10 -: ITA 458 to 461/11
Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;
(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-
five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place; and
(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed [three per cent of the aggregate built-up area of the housing project or [five thousand square feet, whichever is higher];]
(e) not more than one residential unit in the housing project is allotted to any person not being an individual; and
(f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely;-
(i) the individual or the spouse or the minor
children of such individual.
(ii) The Hindu undivided family in which such
individual is the karta.
(iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.] Explanation - For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).]"
6. From the perusal of the above provision, it becomes clear that the ownership of land is not sine qua non for claiming the :- 11 -: ITA 458 to 461/11 deduction. The requisite approval from the local authority is to be obtained for the project and the section does not mandate that the concerned assessee who claims the deduction must obtain the same.
The provision talks about a specific date for obtaining the approval and as to who should obtain this approval is not relevant. It is undisputed fact that the transferor company had construction only skeleton. The Assessing Officer has tried to draw analogy with section 80HHC(1) and 80HHC(1A) of the Act but this sort of analysis of the Assessing Officer does not seem to be compatible with the provisions of section 80IB(12) vis-à-vis 80IB(10). Section 80IB(12) speaks about the extension of this benefit even to amalgamated companies. In that view of the matter, the law laid down by the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd (supra) would definitely apply. In the case of ITO vs Shakti Corporation, 32 SOT 438(Ahd), it has been held by the Tribunal that ownership of the land is not the criterion for deduction u/s 80IB(10) The ld. CIT(A) has examined the analysis given by the Editors of Current Tax Reporter regarding claim of deduction u/s 80IB in connection with developing and completing the housing projects in which it has been mentioned that section 80IB provides for a deduction from the gross total income of assessee where the gross total income includes profits and gains derived from a business referred to in sub-:- 12 -: ITA 458 to 461/11
sections (3) to (11A) of section 80IB. Whereas section 80IB(10) provides for deduction being available in respect of the profits of an undertaking developing and building housing projects approved before
31.3.2007 provided the following conditions are satisfied:
"1. The construction should be completed within four years from the end of the financial year in which the local authority approved the project. If more than one approval is needed, the reference point for the above time limit of four years shall be the date of first approval by the local authority.
2. The plot size should be minimum one Acre. This condition is not applicable for projects carried out in accordance with the scheme framed by the Central or the State Government for reconstruction of existing buildings.
3. The residential unit has a maximum built up area of 1000 sq ft in cities of Delhi or Mumbai or within 25 kms from the municipal limits of these cities and 1500 sq ft for any other place.
4. The built up area of the shops and other commercial establishments included in the housing projects shall not exceed 5 per cent of the aggregate built-up area of the project or 2000 sq ft whichever is lesser. 'Built-up area' means the inner measurement of the residential unit at floor level including the projections and balconies, as increased by the thickness of the wall, but does not include common areas shared with other residential units.
5. The deduction that is allowed will be 100 percent of the profits of the undertaking carrying on the housing development activity.:- 13 -: ITA 458 to 461/11
7. Let us examine as to what conditions are required to be fulfilled for making a claim u/s 80IB(10). This section requires that housing projects should be carried on plot size of which should be either 1 Acre or more. The plot size in the given case exceeds 1 Acre.
Regarding approval from the local authority, it has been obtained before 31.3.2007. The section does not speak of who should take the approval. To move one step further, this section even does not speak the assessee should be owner of the land on which the housing project is being developed. Thus, one can infer from this that even if the assessee does not own the land, the benefit of deduction to the extent of 100% of the profits derived from activity of developing a housing project is available to it. But in this case, the assessee-firm is the real owner of the property although it has not been registered in the courts in its name because the assessee has paid the entire amount for the land etc. and taken the possession. The transfer as envisaged u/s 2(47) of the Act is complete. In this regard, the following decisions of Hon'ble Supreme Court are relevant:
CIT vs Podar Cement(P) Ltd 226 ITR 625
Mysore Minerals Ltd vs CIT 239 ITR 775
Dalmia Cement (Bharat) Ltd vs CIT 247 ITR 267
8. Undisputedly, possession was handed over by the land owner to this firm after receiving full consideration, this will amount to transfer :- 14 -: ITA 458 to 461/11 u/s 2(47) of the Act and capital gain would arise in the hands of the land owners at that time. Undoubtedly, section 80IB gives an incentive as discussed above, therefore, ownership cannot be a relevant consideration as has been argued by the Assessing Officer. The Act provides for two types of tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VIA provides for incentives in the form of tax deductions essentially belong to the category of 'profit linked incentives', hence, section 80IA/80IB refer to profits derived from eligible business. It is not the ownership of that business which attracts the incentives. What is relevant is the generation of profits (operational profits), hence, ownership of the land per se does not attract deduction u/s 80IB(10) as the deduction is linked to profits derived from the operational profits. This is the difference between the profit linked tax incentives and investment linked tax incentives. Each of the eligible business constitute a stand alone item in the matter of computation of profits and that is the reason why the concept of 'segment reporting' stands introduced in the Indian Accounting Standards (IAS) by the Institute of Chartered Accountants of India. Thus, a housing project to be eligible for deduction u/s 80IB(10) must be developed on an area of land exceeding 1 Acre; and must have residential units each of plinth area of less than 1500 sq ft since it is :- 15 -: ITA 458 to 461/11 developed in a city other than Delhi or Mumbai. It should be completed before 31.3.2008 as the approval had been obtained before 31.3.2004 and it is required to be completed within four years. All the conditions are satisfied in this case and it is not the case of the Assessing Officer that there has been any deviation of these conditions. So, as long as the assessee generates profit from an activity it is entitled to the deduction. The assessee-firm has generated profits from the housing project and has also satisfied the conditions of eligibility of the project and the earlier owner of the land has not claimed any deduction u/s 80IB(10). The cumulative effect of all these is that the assessee is entitled to deduction u/s 80IB(10) in the present scenario. We have also found that the assessee-firm did not borrow funds to complete the project and applied its own funds in the project. There is no agreement with the company for sale of flats except getting approval of all work including finance was done/executed by the assessee. So, effectively, the assessee is a developer and it has done development work. The ld.AR has tried to draw support from the decision of this very Bench rendered in the case of ACIT vs Smt. C.Rajini in I.T.A.No. 1239/Mds/2009 and 1666/Mds/2007, order dated 10.12.2010. We reproduce herein below its paras 4 to 11 for reference::- 16 -: ITA 458 to 461/11
"4. Before we go into the controversy as to whether deduction under section 80-IB(10) of the Act is admissible to the assessee or not, let us state that there is no dispute with regard to the fact that the assessee has constructed the building in question; there is no dispute with regard to the fact that entire consideration of the land was handed over to the owner of the land and the possession was taken by the assessee thereof; there is no dispute with regard to the fact that other activities connected with selling, like, advertising, marketing, etc. were done by her. It is also undeniable fact that all the activities connected with development of the project were done by the assessee and the owner of the land has done nothing except for signing the purchase agreements and receiving the consideration. It is also an undeniable fact that the land owner has not shown the income from both developing and construction in his hands. The owner of the land has been taxed only for capital gains and this assessee has shown income from business. Having stated the above undeniable and undisputed facts, we now try to analyse the requisite conditions to avail deduction under section 80-IB(10) of the Act specifically with reference to the newly appended Explanation thereto. Section 80-IB(1 0) reads as under:-
"[(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,-
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,-
(iii) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;
(iv) in a case where a housing project has been, or, is approved by the local authority on or before the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority.
[(iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2004 [but not later than the 31st day of March, 2005], within five years from the end of the financial year in which the housing project is approved by the local authority.] :- 17 -: ITA 458 to 461/11 Explanation.- For the purpose of this clause,-
(iii) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority.
(iv) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority.
(g) the project is on the size of a plot of land which has a minimum area of one Acre:
Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under
any law for the time being in force and such scheme is notified by the Board in this behalf;
(h) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-
five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place; and
(i) the built-up area of the shops and other commercial establishments included in the housing project does not exceed [three per cent of the aggregate built-up area of the housing project or [five thousand square feet, whichever is higher];]
(j) not more than one residential unit in the housing project is allotted to any person not being an individual; and
(k) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely;-
(i) the individual or the spouse or the minor children of such individual.
(ii) The Hindu undivided family in which such individual is the karta.
:- 18 -: ITA 458 to 461/11
(iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.] Explanation - For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).]"
5. The reading of the above provision evinces that for claiming deduction with regard to a housing project, the following main conditions have to be fulfilled:
(1) There should be an undertaking for developing and building a house project;
(2) Such housing project has to be approved by the local authority;
(3) The development and construction of housing project has to be commenced on or before 1st day of October, 1998;
(4) The housing project should be made on a plot size of one Acre minimum in area;
(5) The residential unit developed and built has to be a builtup area of 1000 sq. fit. If it is situated in the city of Delhi and Mumbai or Delhi or within 25 kms from the municipal limits of these cities and 1500 sq. fit at any other place.
executes the housing project as a works contract awarded by any person (including the Central or State Government)". Obviously, if any housing project has the works contract so awarded by any person, including Central or State Government, the same would not be eligible for this deduction. In the light of the facts of this case stated herein as above, we are of the considered opinion that the assessee has not been awarded(emphasis supplied) any such works-contract by any person (including Central or State Government). The terms "works contract awarded" has very specific connotation in this explanation. First, let us see the assessee in this case is only a constructor/builder and not a developer or otherwise. The assessee has highlighted and admitted in its profit and loss account the entire purchase consideration and sale consideration :- 19 -: ITA 458 to 461/11 received on account of sale of land as a sale receipt. After execution of Power of attorney when she had paid in full and final consideration of the land to the land owner and took the vacant possession of the land as per the sale agreement dated 29.08.2003, and the possession of entire property of 69 grounds was handed over to her, as per the income-tax proceedings, the 'transfer' as envisaged in section 2(47) of the Act stands completed, even if, it was through a Power of attorney and, thereafter, the assessee had to develop the project even though the approval was to be taken formally in the name of the owner of the land Shri K.L. Choudhury. Now, let us see whether for claiming such a deduction, the assessee is required to be the owner of the land or not. In the book of Sampath Iyengar "Law of Income-tax" VoIA.1 0 edition at page 5784 it has been explained -
"It is true that an entrepreneur undertaking development and construction in a housing project, may not have any interest in land. But the sub-section does not require that he should be the owner of the land. A promoter should qualify for deduction because he runs an undertaking for developing and constructing a housing project, so that the conditions for relief are satisfied. If he were not the owner, plan approval also may not be in his own name, since local government usually insists on granting such approval only to the title holder. This by itself does not give right to owner to claim deduction under section 80-IB(10) nor does it forfeit the right of the developer to it". As per the Oxford Advance Learner's Dictionary, a developer is a person or company that buys land or building in order to build new houses, shops/stores, etc. or improves the old ones and makes a profit from doing this. As per Mozley & Whiteley's Law Dictionary, "development"
means "with certain exceptions, the carrying out of building, engineering, mining or other operations in, on, over or under land, or the making of any material change in the use of any buildings or other land".
7. From the above discussion, what is required is that if the assessee is a beneficial owner or to put it in a legal term if she is a de facto owner of the land, any developer becomes eligible for this deduction. It is not at all necessary that the developer should be a de jure owner of the land. It is quite possible to develop the property with consent of the owner. It transpires from the perusal of the records that assessee was de facto owner of the property when the entire allotment procedure was executed by her only. It was the assessee who incurred all the expenses connected with the developments of the property right from filing application for planning permission and paying necessary fees for the same. The marketing of the site was also done by the assessee through advertisement, etc. We have carefully perused the agreements :- 20 -: ITA 458 to 461/11 and other relevant documents. We are convinced that this is not, at all, a workscontract.
8. Our above conclusion is also fortified by the decision of Chennai Bench rendered in the case of ACIT v. Mis Sashwath Constructions Pvt. Ltd. in I.T.A. No. 1069(Mds)/2008 for the assessment year 2005-06 dated 25th February, 2009, wherein it was held as follows:
"In our opinion it is not sine qua non for a developer to become the de jure owner of the land. It is quite possible to develop the property with the consent of the owner. It transpires from the perusal of the records that the assessee was the de facto owner of the property, as the entire allotment procedure was executed by the assessee company only. We have noted that the assessee did incur all the expenses connected with the development of the property. Application for planning permission was also made by the assessee. Necessary fee for the same was paid by it. Road formation was also done by the assessee. Besides, for marketing the flats the assessee did advertise the property also. We have perused the reasonings adduced by the Commissioner (Appeals) in the impugned order. In our opinion he took a correct view in the matter and his order calls for no interference on this count. Accordingly we uphold the same."
9. In an another case, the Ahmedabad Bench of ITAT in I.T.A.No. 2482/2006 dated 29.06.2007 in the case of M/s Radhe Developers vs ITO for the assessment year 2002-03 decided the case as under:
"After perusing the agreement entered into between the assessee and the landowners, the Tribunal noted that the agreement effectively transferred to the assessee firm all the rights of development and construction and to deal with the land for a consideration payable within a stipulated time and the assessee had also been put in possession of the land. The Tribunal further noted that the assessee firm was required to obtain necessary approvals from the local authorities on behalf of the land owners and all the expenses for such purposes were to be incurred by the assessee. It was also noted that the size of the plot on which the project was developed was also in :- 21 -: ITA 458 to 461/11 excess of one Acre and the size of each residential house was less than 155 sq.fit."
Referring to the provisions of s.80-IB(1O) including its legislative history it noted that it was the undertaking that develops or builds the housing project that was entitled to deduction irrespective of the fact whether it was the owner or not, or whether it was the contractor thereof. The requirement of claiming deduction was that such an undertaking must develop and build housing project be it on their own land or on the land of others.
In the present case, the Tribunal noted that the landowners had not made any conscious attempt to develop the property except ensuring their rights as landowner, so that the sale value of the land could be realized to them as per the terms of 'agreement to sale'. In view of the facts and circumstances of the case as well as the legal proposition laid down by the Supreme Court in the case of Mysore Minerals Ltd., it was held that the assessee was entitled for deduction u/s 80-IB(1O) on the profit derived from construction and development of residential housing project."
10. From the above discussion, it becomes evidently clear that the assessee is not required to be the owner on record for claiming such a deduction under section 80-IB(10) of the Act. In so far as execution of Power of attorney by the land owner after the receipt of full consideration and when the assessee has taken possession of the land and developed the same is concerned, she fulfills all the conditions laid down in section 80-IB(10) of the Act and Explanation appended thereto.
11. The submission of learned D.R. that the assessee is simply a works-contractor in this case is not found to be correct fact as per the record. We are also not in agreement to the submission that in view of the Explanation appended to this section with effect from 1.4.2009 by the Finance (No.2) Act, 2009, the assessee is not entitled to this deduction. Reliance was placed on the decision of Chennai Bench of ITAT in the case of ACIT v. M/s Sashwat Constructions (P) Ltd. for the assessment year 2004-05 in I.T.A. No. 1828/Mds/2007. Actually the Bench was considering a different aspect of this issue from a different angle. The finding of the Bench was that for claiming deduction under section 80-IB(1 0) of the Act, a person has to be both a developer as well as a builder. It was held that if the assessee is only either one of the two, then it is very clear that it is not eligible :- 22 -: ITA 458 to 461/11 for deduction. In that case, the assessee was engaged by the buyers of the land for doing construction work as contractors. If we go through page Nos.5 and 6 of that order dated 2ih February, 2009, it becomes clear that the facts in the present case and the facts of the case in M/s Sashwat Constructions (P) Ltd., are entirely different and not identical. For ready reference, we extract the above portion herein as below:-
"From the aforementioned analysis of the documents and discussions thereon, what emerges is listed as below:-
1. Sashwath Foundations develops the land. Gets the project approved by the local authority, and sells the undivided share of the property to the buyers.
2. The assessee company Sashwath Constructions Pvt.
Ltd. enters into a builders agreement with the buyer, which is more or less akin to being a Contractor, for executing the construction work.
However, as per the provisions of 80-IB(1O), a person has to be both a developer as well as the bui Ider, as the provisions clearly stipulate that there should be an undertaking, developing and building housing projects, and not developing or building housing projects, and then only the profits from the undertaking are eligible for deduction. If the assessee is only either one of the two, then it is very clear that it is not eligible for the deduction. In the instant case, the developing activity has been entirely undertaken by M/s Sashwath Foundations limited and the buyers of land have merely engaged the assessee company only for construction work as contractors. Again as per the provisions of section 80-IB(10), the income has to be derived from the activity of developing and building of a housing project. It does not speak of the income of a contractor who constructs the houses or any other agency involved in the construction of houses, interior designers, civil contractor, architects, landscape designers, vaastu experts etc. Hence it is held that the assessee is not eligible for deduction u/s 80-IB(10)."
The ld. CIT(A) has relied on para 2.7 at page 14 of the order in which it has been found that the assessee was not both developer and builder of the housing project. This difference will be highlighted by the grounds taken in that case which are :- 23 -: ITA 458 to 461/11 reproduced, in para 2.5 at page 11 of the order. We are extracting the same for ready reference:
• The Commissioner of Income Tax (Appeals) has failed to note that the assessee company should be both developer and builder. In the present case, the development activities were carried out by the legal owner of the land, M/s Sashwath Foundations (firm) and the assessee company entered into agreement with the buyer of the land to construct a flat in the said building complex as 'CONTRACTOR'. The cost of the land was met out by the firm M/s Sashwath Foundations which further developed the land and the plan approval was in the name of the firm only and not in the name of the assessee company. Thus there are two different entities i.e. the assessee company the builder and the firm M/s Sashwath Foundations, the developer.
• The Commissioner of Income Tax (Appeals) is not correct in holding that since the assessee company itself is undertaking construction of the entire project it can definitely be held to be both developer and builder.
• The Commissioner of Income Tax (Appeals) failed to note that the assessee company collects the entire consideration from the flat buyers that is both for the land cost and the construction cost and passes on the land cost to the owner i.e. to the firm M/s Sashwath Foundations and thus the assessee acts only as a contractor or builder and is not undertaking a project.
The above noted grounds clearly make out the difference between the facts of these two cases. Therefore, this decision of the Tribunal in the case of M/s Sashwat Constructions(P) Ltd dated 27th February, 2009 is entirely on different facts and hence of no help to the Revenue. The learned DR has further relied on the decision of Hon'ble Supreme Court in the case of M/s K.Raheja Development corporation, a copy of which was filed on record. We are afraid, the circumspection of this decision, clearly shows that this case does not support the case of the Revenue at all rather, it supports the case of the assessee. This decision was rendered in a different context when the Hon'ble Court was dealing with the Karnataka Ownership Flats (Regulation of :- 24 -: ITA 458 to 461/11 Promotion of Construction, Sales, Management and Transfer) Act, 1974; and in that case the question for consideration for their Lordships was whether the appellants were dealers and were liable to pay turnover tax under the Karnataka Sales Tax Act. Ostensibly, this decision cannot apply to the facts of the case because the Income-tax Act is a fiscal law wherein certain sections give incentives to certain class of assessee in order to earn more revenue and somewhere the definition as is taken in legal parlance in the sale of goods and regarding transfer is not adopted in the same manner as it is done in other enactments. In income-tax, if the assessee takes possession of the land after paying full consideration, the definition of the term 'transfer', as defined in section 2(47) of the Act, becomes complete. With the help of this decision, learned D.R. has tried to convince us that in this case it was works-contract and not that of 'developers'. In the last para of the High Court's decision, it has been held that the term "works contract" in that Act is an inclusive definition. It does not include merely a works contract as normally understood. It has a wide definition which includes "any agreement" for carrying out building or construction activity for cash, deferred payment or other valuable consideration. The definition as given in that Act does not make any distinction based on as to who carries on the construction activity. Thus under that Act, even the owner of the land can be treated as carrying on a works contract if he enters into an agreement to construct for cash, deferred payment or other valuable consideration. Therefore, the ratio of that decision cannot at all be applied to the facts of the given case which is under Income-tax Act. Rather this decision supports the case of the assessee in which the decisions of the Hon'ble Supreme Court in the cases of CIT v. Podar Cement Ltd. reported in (1992) 5 SCC 482 and Mysore Minerals Ltd. v. CIT reported in (1999) 7 SCC 106, have been discussed and in which it has been held that in the context of Incometax Act it has to be held that even though there is no formal conveyance, the concerned party could be considered to be the beneficial owner. We have also seen the construction agreement placed before us for our perusal. We have carefully circumspected the true character of all these agreements and have found that the assessee is not only a builder but is also developer of the property in question and thus, she has fulfilled all the conditions laid down in section 80-IB(1 0) of the Act. The definition of any term or word given in other enactments cannot be imported which dealing with Income Tax matters. No parallels can be drawn, unless, it is so specifically provided in the I.T. Act itself. The assessee was not 'awarded' any works contract either by any party or State or Central Government. The term used in the Explanation is 'awarded' which has a entirely different connotation. Therefore, the explanation appended to section 80-IB(10) is also not attracted at all. The :- 25 -: ITA 458 to 461/11 development done in this case is not on account of a works- contract. In our considered opinion the finding of the Id. CIT(Appeals) does not deserve any interference at our end. The decision of Chennai Bench and Ahmedabad Bench fully support the case of the assessee, as similar questions arising out of identical facts are involved therein. The other decision of Chennai Bench and that of Supreme Court's decision in the case of M/s K. Raheja Development Corporation relied on by the learned D.R. are definitely rendered in entirely different context and facts are distinguishable. Consequently, we uphold the finding of the CIT(Appeals) in this regard and dismiss grounds No.2.1,2.2, 2.3 and 2.4."
9. The above finding of the same very Bench, further fortifies our above decision. Consequently, we cannot allow this appeal of the Revenue and dismiss the same.
10. Same is the fate of I.T.A.No.459/Mds/2011 for assessment year 2004-05. Hence, the same stands dismissed.
11. I.T.A.No. 460/Mds/2011, for assessment year 2005-06 is directed against the order of the ld. CIT(A) dated 15.12.2010. In this year, the same issue regarding allowability of deduction u/s 80IB(10) is involved. With similar reasoning, we decide this issue in favour of the assessee and against the Revenue. Accordingly, we confirm the appellate order and dismiss the Revenue's appeal.:- 26 -: ITA 458 to 461/11
12. I.T.A.No. 461/Mds/2011, for assessment year 2006-07, is directed against the order of the ld. CIT(A), dated 15.12.2010.
13. In this appeal, the Assessing Officer has disallowed deduction of ` 1,58,07,434/- ['Vignesh Empire'] and of ` 37,74,353/- [Vignesh Paradise] u/s 80IB(10). One more addition was made of ` 6.30,400/-
on account of unexplained investment in property at Thillainagar. The disallowance u/s 10IB(10) in respect of 'Vignesh Empire' flows from the earlier two years as discussed above and facts have been discussed but the disallowance of deduction u/s 80IB(10) in respect of 'Vignesh Paradise' has been made for the first time in this assessment year. The facts leading to the said disallowance will be discussed later. Before that, we would like to mention that the facts, evidence, circumstances and all other related things are exactly identical to earlier assessment years, therefore, with similar reasonings, we confirm the impugned deletion made in respect of 'Vignesh Empire' of ` 1,58,07,434/-.
14. The facts of disallowance of ` 37,74,353/- in connection with 'Vignesh Paradise' are that the assessee had developed an integrated housing project on a plot of land measuring more than 1 Acre at Srirangam, Trichy. This project comprised of three phases- six blocks :- 27 -: ITA 458 to 461/11 of flats, one block of duplex houses and one block of individual houses. All these phases/types of houses had been approved under a single building by the Municipal authorities. They were separately marked and mentioned in the approved plans. The flats and duplex houses measured less than 1500 sq ft per unit whereas the individual houses measure more than the stipulated plinth area. These facts are not disputed either by the Assessing Officer or by the assessee . The assessee has claimed deduction u/s 80IB(10). With regard to houses having more than 1500 sq ft per unit plinth area, it was explained that each house had two floors and each floor was less than 1500 sq ft per and were sold through two separate deeds to different persons. In the alternative, it was pleaded that deduction may be denied in respect of these two independent houses if the Assessing Officer is not satisfied. The Assessing Officer, however, disallowed the claim for proportionate deduction. The ld. CIT(A) has directed the Assessing Officer to allow deduction in respect of profits and gains resulting from the development of flats and duplex houses but has restricted the disallowance to the profits generated out of sales of individual houses as a block. In our considered opinion, we do not find any infirmity in the appellate order in this regard and confirm the same. :- 28 -: ITA 458 to 461/11
15. The last issue of this appeal is in relation to telescoping of unaccounted cash payment for purchase of land for the project 'Vignesh Plaza' amounting to ` 6,30,400/- with the sale of agricultural land on 7.4.2005. It was explained by the assessee that the investment came from income earned out of sale of lands by the partners. This investment was not admitted in the return originally filed but was admitted in the return filed u/s 153A of the Act. This investment was sought to be telescoped to the additional income offered in that year which has been denied by the Assessing Officer. The ld. CIT(A) has, however, found substantial force in this claim of the assessee on the reasoning that additional income that has been offered for assessment and a claim has been placed by the assessee that investment found during search was funded by such additional income offered in the same year and there being no proof that there had been other investments and/or expenditure to say that this very money was not available with the assessee-firm. In such circumstances, telescoping benefit was granted to the assessee. Before us also, the Revenue could not bring any such evidence which could contradict the finding of the ld. CIT(A). In our opinion, the telescoping granted by the ld. CIT(A) is proper and in order. Consequently, this ground of appeal stands dismissed.
:- 29 -: ITA 458 to 461/11
16. To summarize the result, all the four appeals of the Revenue stand dismissed.
Order pronounced in the open court on 14.09.2011.
Sd/- Sd/-
(DR. O.K. NARAYANAN) (HARI OM MARATHA)
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 14th September, 2011
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR