2008 (11) TMI 436 - AT - Income Tax

Developer treated as effective land purchaser may get deduction under s.80-IB(10); AO to re-examine agreements

ITAT held that the assessee, for practical purposes, acquired dominant rights over the land and developed the housing project at its own cost and risk, ... Deduction u/s 80-IB(10) - Ownership of land - Profits and gains from industrial undertakings other than infrastructure development undertakings - meaning of the term develop, developer, developing, development - terms 'own', 'ownership', 'owned' - HELD THAT:- For whole practical purpose the assessee acquired dominant right over the land and he can deal with the land in the manner in which he may like. Thus, the terms and conditions entered into, in our opinion, give all dominant control and rights over the land to the assessee. The assessee, in our opinion, will be constructing the building at its own cost and will remain the owner of the building at its own without any interference from the landowner. The landowner does not have any right to share the buildings. The agreement does not envisage that the assessee will be working as a contractor or agent on behalf of the landowner. The agreement cannot be regarded to be the joint-venture or collaboration agreement. It is, in our opinion, the agreement for the sale of the land for a determined consideration under which the assessee is entitled to develop the project on the said land at its own cost in the manner in which he may decide. 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 the risks involved therein. We, therefore, in the interest of justice 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 Assessing Officer with the direction that the Assessing Officer shall look into the agreement entered into by each of the assessees with 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 risks involved in the project. In case, the Assessing Officer finds that practically the land has been bought by the Developer and Developer has all dominant control over the project and has developed the land at his own cost and risks, the Assessing Officer should allow the deduction to the assessee under section 80-IB(10). In case, the Assessing Officer finds that the Developer has acted 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 deduction under section 80-IB(10) to the assessee. In the result, all these appeals are allowed for statistical purposes. Issues Involved1. Deduction under section 80-IB(10) and ownership of land.2. Interpretation of agreements and whether the assessee is a developer or contractor.3. Applicability of the Supreme Court's decision in Fakir Chand Gulati v. Uppal Agencies (P.) Ltd.4. Precedent and applicability of the Radhe Developers case.5. Legal interpretation of ownership and control over the land.6. Assessment of the nature of agreements between the assessee and landowners.Detailed Analysis1. Deduction under section 80-IB(10) and Ownership of LandThe primary issue in these appeals is whether the assessee is entitled to a deduction under section 80-IB(10) despite not being the owner of the land. The CIT(A) allowed the deduction based on the precedent set by the Tribunal in Radhe Developers v. ITO, which held that ownership of the land is not a prerequisite for claiming the deduction under section 80-IB(10). The Tribunal reaffirmed that section 80-IB(10) does not explicitly require the assessee to own the land. The deduction is available to the entity developing and building the housing project, irrespective of land ownership.2. Interpretation of Agreements and Whether the Assessee is a Developer or ContractorThe Tribunal examined the nature of the agreements between the assessee and the landowners to determine if the assessee acted as a developer or merely as a contractor. The Tribunal emphasized that the agreements must be interpreted based on their terms and conditions, not merely their titles. The Tribunal concluded that the assessee had dominant control over the land and bore all risks and expenses associated with the development, thus qualifying as a developer rather than a contractor.3. Applicability of the Supreme Court's Decision in Fakir Chand Gulati v. Uppal Agencies (P.) Ltd.The revenue argued that the Supreme Court's decision in Fakir Chand Gulati should apply, which dealt with the nature of agreements and whether they constituted a joint venture or a service contract. The Tribunal distinguished the facts of the current case from Fakir Chand Gulati, noting that the latter involved a collaboration agreement with shared construction. In contrast, the assessee in the present case had full control and responsibility for the development. The Tribunal held that Fakir Chand Gulati was not applicable as the agreements in the current case did not involve shared construction or joint venture elements.4. Precedent and Applicability of the Radhe Developers CaseThe Tribunal heavily relied on its earlier decision in Radhe Developers, which established that the developer does not need to own the land to claim deductions under section 80-IB(10). The Tribunal reiterated that the assessee's role as a developer, taking on all risks and responsibilities, was crucial. The Tribunal also noted that the Radhe Developers case would not apply if the assessee acted merely as a contractor for a fixed remuneration without assuming the risks and responsibilities of development.5. Legal Interpretation of Ownership and Control over the LandThe Tribunal discussed the broader interpretation of ownership, referencing the Supreme Court's decision in Mysore Minerals Ltd., which defined ownership in terms of dominion and control rather than formal title. The Tribunal concluded that the assessee had acquired dominion over the land through the agreements, fulfilling the conditions for claiming deductions under section 80-IB(10).6. Assessment of the Nature of Agreements Between the Assessee and LandownersThe Tribunal examined the specific terms of the agreements to determine the nature of the relationship between the assessee and the landowners. It found that the agreements transferred all development rights and responsibilities to the assessee, who bore the risks and costs of the project. This confirmed the assessee's role as a developer, entitled to deductions under section 80-IB(10).ConclusionThe Tribunal upheld the CIT(A)'s decision to allow deductions under section 80-IB(10) to the assessee, emphasizing that the ownership of land is not a requirement for claiming the deduction. The Tribunal distinguished the current case from Fakir Chand Gulati and reaffirmed the principles established in Radhe Developers. The Tribunal directed the Assessing Officer to verify the nature of agreements in other cases to ensure consistent application of the law.