2006 (7) TMI 534 - AT - Income Tax

Project Denied Tax Deduction: ITAT Rules Against 'Housing Project' Status Due to Mixed Use u/s 80-IB(10.

The ITAT dismissed the appeal, ruling that the assessee's project did not qualify as a 'Housing Project' under section 80-IB(10) of the Income-tax Act, ... Deductions u/s 80-IB(10) - Profits from business of Developing and Construction of houses - measurement of distance of 25 kms. from Mumbai city and the six residential units of more than 1,000 sq. ft. built-up area constructed - whether the building project of the assessee at village is a 'housing project' - HELD THAT:- The fact that the assessee’s site fall under the residential zone, is not decisive of the issue. In view of the above findings, it is clear that the provisions of section 80-IB(10) of the Income-tax Act is not applicable to the facts of the case of the assessee for the relevant year as the building project of the assessee was not a 'Housing Project' and accordingly does not qualify for deduction u/s 80-IB(10) of the Act. In view of our finding that the building project of the assessee was not a 'Housing Project' and, therefore, the assessee’s case does not qualify for deduction u/s 80-IB(10) of the Act, we hold that all the conditions specified u/s 80-IB(10) are not satisfied by the assessee and accordingly the assessee is not entitled to any deduction u/s 80-IB(10) of the Act on this ground alone. This is a factual issue and in case the road way distance from the outer limits of Municipal Corporation of BMC is more than 25 kms. from the assessee’s site, the assessee’s construction of six residential units of built-up area of more than 1,000 sq. ft. (less than 1,500 sq. ft.), shall not be violative of condition mentioned in section 80-IB(10)(c) of the Act, subject to verification in this regard. As we have already held that since the assessee’s building project is not a 'Housing Project' within the meaning of section 80-IB(10) of the Act and, therefore, the assessee is not entitled to any exemption claimed u/s 80-IB(10) of the Act, the above discussion regarding the measurement of 25 kms. distance from the assessee’s site to the limits of Mumbai city is of academic interest only. Accordingly, the issue in the present appeal before us is decided in favour of the Revenue and the grounds of appeal of the assessee are dismissed. In the result, the appeal of the assessee is dismissed. Issues Involved:1. Validity of deduction under section 80-IB(10) of the Income-tax Act, 1961.2. Definition and scope of 'Housing Project' under section 80-IB(10).3. Measurement of distance for the purpose of section 80-IB(10)(c).Detailed Analysis:1. Validity of Deduction under Section 80-IB(10):The primary issue in this appeal is the validity of the deduction claimed by the assessee under section 80-IB(10) of the Income-tax Act, 1961, for profits derived from a housing project located at village Gajbandhan, Dombivali. The assessee, a partnership firm engaged in developing and constructing houses, filed its return of income, claiming a deduction of Rs. 8,74,331 under section 80-IB(10). The Assessing Officer rejected this claim on two grounds: the project included a commercial area of 3,143 sq. feet, and it was within 25 kms of Mumbai, with six residential units exceeding 1,000 sq. feet in built-up area.2. Definition and Scope of 'Housing Project':The assessee argued that the project was approved by the Kalyan Dombivali Municipal Corporation (KDMC), a local authority, and that the term 'Housing Project' was not defined under section 80-IB(10). The counsel for the assessee cited various court decisions and a CBDT clarification to support the inclusion of commercial areas within housing projects. The Departmental Representative countered that the project was approved as a 'residential as well as commercial project' and not solely as a 'housing project,' thus disqualifying it from the deduction. The Tribunal held that the construction of shops or commercial places cannot be considered a 'Housing Project' under section 80-IB(10). The Tribunal emphasized that the provision aims to promote residential housing projects with specified built-up areas and that the inclusion of commercial establishments would defeat this purpose.3. Measurement of Distance for Section 80-IB(10)(c):The second issue was whether the project was within 25 kms of Mumbai city and whether the six residential units exceeding 1,000 sq. feet violated section 80-IB(10)(c). The Tribunal considered whether the distance should be measured from the municipal limits of Mumbai city or the outer limits of the Municipal Corporation of Greater Mumbai (BMC). The Tribunal referred to the decision of the Pune Tribunal in Mangalam Inorganics (P.) Ltd., which held that the distance should be measured by road distance, not as the crow flies. The Tribunal concluded that the distance should be measured from the outer municipal limits of BMC by road. However, since the project was not a 'Housing Project,' this issue was deemed of academic interest only.Conclusion:The Tribunal dismissed the appeal, holding that the assessee's project did not qualify as a 'Housing Project' under section 80-IB(10) due to the inclusion of commercial areas and the nature of the project approval. Consequently, the assessee was not entitled to the claimed deduction. The Tribunal's decision emphasizes the strict interpretation of the conditions under section 80-IB(10) to ensure the provision's objective of promoting residential housing is met.