2012 (3) TMI 500 - AT - Income Tax

Tribunal allows deduction under section 80IB(10) for residential project

The Tribunal upheld the CIT(A)'s decision, allowing the appellant's claim for deduction under section 80IB(10) for the assessment years 2005-06, 2006-07, ... Eligibility for deduction under section 80IB(10) - segregation of commercial component for purpose of housing project deduction - effect of transfer of development rights and prior taxation on admissibility of deduction - housing project containing residential and commercial user-treatment under pre-amendment law - prospective application of amendment to section 80IB(10) w.e.f. 01.04.2005 - treatment of independent blocks/units within a single sanctioned planSegregation of commercial component for purpose of housing project deduction - effect of transfer of development rights and prior taxation on admissibility of deduction - Whether the area allotted for commercial development that was sold by the assessee (development rights transferred and consideration taxed earlier) must be segregated from the assessee's project for determining entitlement to deduction under section 80IB(10). - HELD THAT: - The Tribunal accepted that the assessee transferred development rights in respect of 777 sq. mtrs (10% of the allotment) to a separate concern and that the sale consideration was offered to tax in the earlier assessment year. Once the commercial component has been divested and taxed separately, that portion stands segregated for the purpose of computing entitlement under section 80IB(10). The residential development on the balance area therefore constitutes a housing project for section 80IB(10) purposes and the per-unit area calculation must exclude the segregated commercial area. The Tribunal relied on precedents holding that independent units/blocks under a common sanction plan may be taken separately and that ineligible blocks cannot be included to deny relief to eligible blocks. [Paras 7]The commercial area sold and taxed earlier is to be segregated; the balance constitutes a housing project and the assessee is entitled to deduction under section 80IB(10) for that residential development.Housing project containing residential and commercial user-treatment under pre-amendment law - treatment of independent blocks/units within a single sanctioned plan - Whether a project approved as residential-cum-commercial can qualify for deduction under section 80IB(10) for the residential component where commercial user is within limits permitted by local development regulations and the project commenced before 01.04.2005. - HELD THAT: - The Tribunal applied the decision of the jurisdictional High Court which held that, up to 31.03.2005, housing projects approved by local authorities that include commercial user within limits permitted by development control regulations are eligible for deduction under section 80IB(10), and that the deduction is on profits from the housing project approved as a whole. The Tribunal further observed that independent residential blocks within a sanctioned plan may be considered separately for eligibility, so that the presence of a permitted commercial component does not automatically defeat the claim for the residential portion under the pre-amendment law. [Paras 7]A residential project containing a commercial component permitted by local regulations remains eligible for deduction under section 80IB(10) under the law as it stood prior to the amendment, and the residential component may be considered for the deduction.Prospective application of amendment to section 80IB(10) w.e.f. 01.04.2005 - eligibility for deduction under section 80IB(10) - Whether the amendment to section 80IB(10)(d) effective from 01.04.2005 applies to projects which commenced before that date, thereby denying the assessee the pre-amendment benefit for the assessment years in question. - HELD THAT: - The Tribunal found on the record that the assessee's project commenced prior to 01.04.2005 (allotment and commencement certificates pre-dating the amendment). Relying on High Court authority and consistent Tribunal decisions, the Tribunal held that the clause inserted by the Finance Act, 2005 is prospective and not retrospective; consequently projects commenced before 01.04.2005 remain governed by the law as it existed prior to the amendment and retain the benefit accordingly. Several precedents were cited to support the non-application of the amendment to already commenced projects. [Paras 7]The amendment to section 80IB(10)(d) w.e.f. 01.04.2005 is prospective; the assessee's project commenced before that date and the amendment does not apply to deny the pre-amendment benefit.Final Conclusion: The departmental appeals are dismissed: the commercial portion transferred and taxed earlier is to be segregated from the assessee's project, the balance constitutes an eligible housing project under the law prevailing before 01.04.2005, and the amendment w.e.f. 01.04.2005 does not apply to projects commenced prior to that date; accordingly the assessee is entitled to deduction under section 80IB(10) for the relevant assessment years. Issues Involved:1. Disallowance of claim of deduction under section 80IB(10).2. Eligibility for deduction under section 80IB(10) for projects with commercial units.3. Applicability of the decision in Brahma Associates vs. JCIT for different assessment years.4. Segregation of commercial and residential units for deduction purposes.Detailed Analysis:Issue 1: Disallowance of Claim of Deduction under Section 80IB(10)The department appealed against the CIT(A)'s order allowing the deduction under section 80IB(10) for the assessment years 2005-06, 2006-07, and 2007-08. The appellant, a partnership firm engaged in developing housing projects, claimed a deduction under section 80IB(10) for the project 'Neel Siddhi Splendour.' The Assessing Officer disallowed this deduction, arguing that the project included commercial units, which made it ineligible under section 80IB(10).Issue 2: Eligibility for Deduction under Section 80IB(10) for Projects with Commercial UnitsThe appellant firm was allotted land by CIDCO Ltd. for developing residential and commercial units. A portion of the land (777 sq. mtrs) meant for commercial use was sold to another firm, 'M/s. Thakkar Enterprises.' The Assessing Officer argued that the entire project, including the commercial area, constituted a single integrated project, thereby disqualifying it from the deduction under section 80IB(10). The CIT(A) disagreed, stating that the commercial area developed by 'M/s. Thakkar Enterprises' was not part of the appellant's project, making the appellant eligible for the deduction.Issue 3: Applicability of the Decision in Brahma Associates vs. JCIT for Different Assessment YearsThe department contended that the decision in Brahma Associates vs. JCIT, which allowed deductions under section 80IB(10) for projects with commercial units, was applicable only for assessment years before 2005-06. However, the CIT(A) and the Tribunal found that since the project commenced before the amendment to section 80IB(10)(d) effective from 01.04.2005, the decision in Brahma Associates was applicable. The Tribunal cited multiple decisions, including the Bombay High Court's ruling in CIT vs. Brahma Associates, affirming that projects approved before the amendment are eligible for the deduction.Issue 4: Segregation of Commercial and Residential Units for Deduction PurposesThe Tribunal agreed with the CIT(A) that the commercial area sold to 'M/s. Thakkar Enterprises' should be segregated from the residential project. Consequently, the remaining residential project developed by the appellant was eligible for the deduction under section 80IB(10). The Tribunal referenced the ITAT Mumbai Bench decision in Saroj Sales Organisation vs. ITO, which allowed for the segregation of eligible and ineligible units under a single sanction plan.Conclusion:The Tribunal upheld the CIT(A)'s decision, allowing the appellant's claim for deduction under section 80IB(10) for the assessment years 2005-06, 2006-07, and 2007-08. It concluded that the commercial area developed by 'M/s. Thakkar Enterprises' was a separate project, making the appellant's residential project eligible for the deduction. The Tribunal dismissed the department's appeals, affirming that the amendment to section 80IB(10)(d) effective from 01.04.2005 did not apply to projects commenced before this date.