Permissible commercial use and prospective built-up area definition shape deduction eligibility for approved housing projects.

Permissible commercial use within local development limits did not, by itself, disqualify an approved housing project from deduction under section 80IB(10), so the claim was allowed on that ground. The later inserted definition of "built-up area" in section 80IB(14)(a) was treated as a substantive, prospective amendment from 01.04.2005 and was not applied retrospectively to projects approved earlier for testing the residential unit size limit. The built-up area and verandah controversy was therefore sent back for fresh consideration in light of that prospective interpretation.

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Issues: (i) Whether deduction under section 80IB(10) of the Income-tax Act, 1961 was allowable to an approved housing project having commercial area within the limits permitted by law. (ii) Whether the definition of "built-up area" inserted in section 80IB(14)(a) of the Income-tax Act, 1961 applied retrospectively so as to include verandah area for the purpose of testing the residential unit size limit under section 80IB(10).

Issue (i): Whether deduction under section 80IB(10) of the Income-tax Act, 1961 was allowable to an approved housing project having commercial area within the limits permitted by law.

Analysis: The housing project had been approved by the local authority as a housing project, and the statutory restriction on commercial user introduced later could not be read as excluding all projects with permissible commercial area. The reasoning followed the principle that, where the local development rules permitted limited commercial use, deduction was not denied merely because the project contained such user.

Conclusion: Deduction could not be denied on the ground of permitted commercial area, and this issue was decided in favour of the assessee.

Issue (ii): Whether the definition of "built-up area" inserted in section 80IB(14)(a) of the Income-tax Act, 1961 applied retrospectively so as to include verandah area for the purpose of testing the residential unit size limit under section 80IB(10).

Analysis: The insertion of the definition of "built-up area" was treated as a substantive amendment operating prospectively from 01.04.2005. It was therefore not applied to housing projects approved prior to that date for measuring the 1,500 sq. ft. limit by including verandah area. On the facts, the related built-up area controversy was restored for fresh consideration in accordance with that view.

Conclusion: The amendment was prospective, and the issue concerning verandah and built-up area was remanded for reconsideration.

Final Conclusion: The revenue succeeded only on the limited built-up area issue, while the assessee succeeded on the issue of commercial area in the housing project; the matter was thus disposed of partly in favour of both sides.

Ratio Decidendi: For housing projects approved before the relevant amendment, permissible commercial user under local development rules does not by itself disentitle deduction under section 80IB(10), and a later inserted definition altering the test of "built-up area" operates prospectively unless the statute clearly indicates retrospectivity.

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