2011 (11) TMI 689 - AT - Income Tax

Assessee entitled to deduction for housing project with commercial units under section 80IB(10)

The Tribunal upheld the assessee's entitlement to deduction u/s.80IB(10) for a housing project with commercial units for the assessment year 2006-07. The ... - ISSUES PRESENTED AND CONSIDERED 1. Whether a housing project approved by local authorities as residential-cum-commercial (containing shops/commercial area) is eligible for deduction under section 80IB(10) where the project approval predates 1.4.2005. 2. Whether the amendment to section 80IB(10) effected by the Finance Act, 2004 (inserting clause (d) w.e.f. 1.4.2005) restricting permissible commercial built-up area applies to projects approved before 1.4.2005. 3. Whether the existence of commercial units in a predominantly residential project (exceeding specified square-foot limits) automatically disentitles the entire project from deduction under section 80IB(10) for assessment years beginning on or after 1.4.2005. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility for s.80IB(10) deduction where project approval predates 1.4.2005 Legal framework: Section 80IB(10) grants deduction to specified housing projects as per statutory conditions. The Finance Act, 2004 inserted clause (d) to s.80IB(10) effective 1.4.2005, prescribing limits on commercial user (five percent or 2,000 sq.ft., later amended by Finance Act, 2010). Precedent Treatment: The Special Bench decision held that projects approved as residential-cum-commercial under local/DC Rules are still housing projects for the purposes of s.80IB(10) up to 31.3.2005, and the Bombay High Court affirmed that view. Interpretation and reasoning: Where a project was approved by the local authority prior to 1.4.2005 as residential-cum-commercial (i.e., with commercial user permitted under DC Rules), the legislative restriction introduced w.e.f. 1.4.2005 does not apply retrospectively to such pre-existing approvals. The Court reasons that the amendment's temporal operation is prospective and the Parliament's imposition of limits from 1.4.2005 cannot be applied to projects already approved before that date. Ratio vs. Obiter: Ratio - the amendment to s.80IB(10) by Finance Act, 2004 is not applicable to projects approved prior to 1.4.2005; such projects remain eligible for s.80IB(10) deduction notwithstanding inclusion of commercial user permitted by pre-1.4.2005 approvals. This follows the authoritative Special Bench view confirmed by the High Court. Conclusion: The project approved before 1.4.2005 qualifies for deduction under s.80IB(10) even though it contains commercial units; the appellate authority's allowance of the deduction is upheld. Issue 2 - Applicability of clause (d) (commercial-user limits) to pre-1.4.2005 approvals Legal framework: Clause (d) to s.80IB(10) (inserted w.e.f. 1.4.2005) explicitly limits commercial user in a housing project for deduction eligibility. Precedent Treatment: The Special Bench and the High Court interpreted clause (d) as clarifying that, from 1.4.2005, deduction would be subject to the newly prescribed commercial-user restrictions; they also held that these restrictions were not intended to redefine projects approved earlier. Interpretation and reasoning: Clause (d) uses the term 'included' indicating commercial user is part of a housing project; the legislature thereby clarified that w.e.f. 1.4.2005 deduction is conditional upon the commercial-user threshold. However, applying the clause to projects approved prior to its effective date would amount to retrospective application of a statutory restriction, which the court declines absent clear legislative intent. Ratio vs. Obiter: Ratio - clause (d) is prospective in operation; it does not disturb eligibility of housing projects approved prior to 1.4.2005 even if such projects include commercial user as permitted under prevailing local/DC Rules. Conclusion: Clause (d) and its commercial-user limits govern projects approved on or after 1.4.2005; they do not invalidate s.80IB(10) claims for projects approved before that date. Issue 3 - Effect of commercial area exceeding statutory square-foot limits for AYs commencing on/after 1.4.2005 Legal framework: Post-amendment, s.80IB(10) subjects housing-project deductions to quantifiable limits on commercial built-up area (initially 5% or 2,000 sq.ft., later amended to 3% or 5,000 sq.ft.). Precedent Treatment: Coordinate Benches have taken the view that the amendment applies only to projects with approval after 1.4.2005; projects approved earlier are governed by pre-amendment law. The Special Bench and High Court upheld that legislative restriction is not to be applied retroactively. Interpretation and reasoning: The Revenue's contention that the post-1.4.2005 restriction should apply to the assessment year in question (2006-07) irrespective of approval date is rejected where the project approval predates 1.4.2005. The Tribunal reasons that the critical datum is date of project approval by local authority, not merely the assessment year; statutory amendment cannot be read to affect rights accrued under earlier approvals unless expressly made retrospective. Ratio vs. Obiter: Ratio - exceeding the commercial-area limit prescribed by clause (d) disentitles a project only if the project is subject to clause (d) (i.e., approved on or after 1.4.2005). For projects approved before that date, the existence of commercial area beyond the post-amendment thresholds does not, by itself, bar s.80IB(10) deduction. Conclusion: Where project approval predates 1.4.2005, commercial area in excess of the later statutory limits does not result in denial of s.80IB(10) deduction for the assessment year in question; the disallowance by the assessing officer on that sole ground is overturned. Ancillary reasoning and cross-references 1. The Court cross-references the Special Bench's analysis that DC Rules permitting commercial user as part of a housing project do not transform the project into a non-housing project for s.80IB(10) purposes prior to the legislative restriction; legislative imposition of limits is the proper mechanism to restrict eligibility. 2. The decision affirms that the determining criterion is the date of project approval by local authority; coordinate decisions supporting prospective application of the amendment (to post-1.4.2005 approvals) are followed. 3. The Tribunal finds no other grounds advanced by the Assessing Officer to deny deduction; absence of any additional infirmity makes the allowance under s.80IB(10) mandatory in the facts before the Court.