Housing project deduction: developer status and business-linked receipts can sustain section 80IB(10) relief.
Deduction under section 80IB(10) was upheld for a housing project developer where the assessee executed the project on its own cost and control, received a share of built-up area, and was not treated as a mere contractor. Absence of a completion certificate for the year was not decisive because the project had been approved before 1-4-2004 and the assessee followed the percentage completion method; the provision was read so as not to defeat the incentive. Receipts such as chit dividend, scrap sales and material discount were treated as business-linked profits eligible for deduction, while rent from a vacant flat and interest on deposits were held ineligible.
Issues: (i) whether the assessee was entitled to deduction under section 80IB(10) of the Income-tax Act, 1961 notwithstanding the absence of a completion certificate and the alleged deviation from the sanctioned plan, and whether it was a developer or only a contractor; (ii) whether chit dividend, scrap sales and material discount credited as other income formed part of business income eligible for deduction under section 80IB(10).
Issue (i): whether the assessee was entitled to deduction under section 80IB(10) of the Income-tax Act, 1961 notwithstanding the absence of a completion certificate and the alleged deviation from the sanctioned plan, and whether it was a developer or only a contractor.
Analysis: The claim for deduction turned on whether the assessee had and built the housing project as a developer, and not as a mere contractor. The development agreement showed that the assessee undertook construction at its own cost, received 60% of the built-up area, and had control over the project, which distinguished it from a contractor. The absence of a completion certificate for the year under appeal was not treated as decisive, because the project had been approved before 1-4-2004 and the assessee was following the percentage completion method. The completion certificate requirement was read in a manner that would not frustrate the incentive provision, and the Board's clarification supported year-to-year deduction subject to later withdrawal if the project was not completed within the prescribed time. The objection based on deviation from the sanctioned number of flats did not displace the assessee's entitlement to deduction on the facts as found.
Conclusion: The assessee was held entitled to deduction under section 80IB(10) on this issue.
Issue (ii): whether chit dividend, scrap sales and material discount credited as other income formed part of business income eligible for deduction under section 80IB(10).
Analysis: The character of the receipts depended on whether they were connected with the business of the eligible undertaking. Chit dividend, scrap sales and discount on materials were treated as business-linked receipts forming part of the profits of the undertaking, whereas rent from a vacant flat and interest on deposits were not considered to be derived from the housing project.
Conclusion: The issue was partly decided in favour of the assessee, with chit dividend, scrap sales and material discount held eligible, but rent and interest held ineligible.
Final Conclusion: The appeal succeeded in part, with the assessee obtaining deduction under section 80IB(10) and partial relief on the treatment of other income, while one ancillary issue was remitted for fresh adjudication.
Ratio Decidendi: For a housing project deduction, a developer following the percentage completion method cannot be denied relief merely because the completion certificate is obtained at project completion, and receipts integrally connected with the business of the eligible undertaking may form part of eligible profits.