Proportionate tax deduction for consolidated residential projects upheld despite some flats exceeding the built-up threshold; relief allowed.

Eligibility for proportionate deduction under the relevant tax provision was upheld for a consolidated residential project containing some flats above and some below the 1500 sq.ft built-up threshold. The court applied the principle of proportionality and a purposive construction of the term housing project to hold that the presence of larger units in one block does not nullify deduction claims for the entire project; consequence: the assessee's claim was allowed on both proportionality and statutory construction grounds. A prior high-court precedent was followed in reaching this result.

---

---

Issues Involved:
1. Denial of deduction under Section 80IB(10) for flats less than 1500 sq.ft. on a proportionate basis.
2. Eligibility for proportionate deduction under Section 80IB(10)(c) for consolidated residential units with varying sizes.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80IB(10) for Flats Less Than 1500 sq.ft. on a Proportionate Basis:

The assessee, engaged in the development and construction of flats, claimed deductions under Section 80IB(10) of the Income Tax Act for flats measuring less than 1500 sq.ft. in the projects Agrini and Vajra. The Assessing Officer disallowed the claim on the ground that the deduction under Section 80IB(10) is for the project as a whole, and since some units exceeded 1500 sq.ft., the entire project did not qualify for the deduction. The Commissioner of Income Tax (Appeals) reversed this decision, stating that the assessee was entitled to proportionate deduction for units less than 1500 sq.ft. The Tribunal, however, upheld the Assessing Officer's view, leading to the current appeal.

2. Eligibility for Proportionate Deduction under Section 80IB(10)(c) for Consolidated Residential Units with Varying Sizes:

The Tribunal's decision was based on the interpretation that a housing project must be considered in its entirety, and if any units within the project exceeded 1500 sq.ft., the entire project would lose eligibility for deduction. The assessee argued that each block should be treated as an independent project, and deductions should be allowed proportionately for units meeting the size criteria. The Tribunal's view was challenged, citing the decision of the Calcutta High Court in the case of Bengal Ambuja Housing Developments Ltd., which allowed proportionate deductions.

Judgment Analysis:

1. Proportionate Deduction for Flats Less Than 1500 sq.ft.:

The High Court analyzed the facts and found that the assessee had indeed maintained separate records and claimed deductions only for units less than 1500 sq.ft. The court noted that the term "housing project" was not defined under Section 80IB, but referred to the definition under Section 80HHBA, which includes the construction of any building. The court held that each block within a larger project could be considered an independent building, thus qualifying as a separate housing project for the purpose of Section 80IB(10).

2. Eligibility for Proportionate Deduction:

The court emphasized that the deduction under Section 80IB(10) is for profits derived from housing projects that meet specific conditions, including the size of the units. The court ruled that within a composite housing project, the assessee could claim deductions for eligible units, even if some units did not meet the size criteria. The court cited its earlier decision in T.C. Nos. 1348 and 1349 of 2007, which upheld the principle of proportionality in granting deductions.

The court also referred to the Bombay High Court's decision in CIT v. Vandana Properties, which supported the view that deductions could be claimed proportionately for eligible units within a housing project.

Conclusion:

The High Court allowed the appeals, holding that the assessee was entitled to proportionate deductions under Section 80IB(10) for the eligible units in the projects Agrini and Vajra. The court ruled that the presence of some units exceeding 1500 sq.ft. did not disqualify the entire project from claiming deductions. The writ appeal filed by the assessee was closed, and the connected miscellaneous petitions were also closed. The substantial questions of law were answered in favor of the assessee, affirming their entitlement to deductions on a proportionate basis for units meeting the conditions under Section 80IB(10).

---