Section 80IB(10) relief and unused FSI profits: developer status upheld, but separate FSI gains excluded from deduction.

Section 80IB(10) relief is not confined to a developer holding legal title to the land where the assessee undertakes the housing project at its own risk, controls construction and sales, and the arrangement gives rise to deemed transfer by part performance; on that basis, the assessee can be treated as the developer for deduction purposes. However, profit attributable to sale of unutilized floor space index is not profit derived from development and construction of the housing project when the available FSI is substantially underused, because that receipt has a separate commercial character and does not form part of housing-project profits.

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Issues: (i) Whether deduction under Section 80IB(10) of the Income-tax Act, 1961 was available when approval and completion certificate stood in the name of the landowner and the assessee did not hold legal title to the land. (ii) Whether profit arising from sale of unutilized floor space index formed part of profits derived from development and construction of the housing project for the purpose of Section 80IB(10) of the Income-tax Act, 1961.

Issue (i): Whether deduction under Section 80IB(10) of the Income-tax Act, 1961 was available when approval and completion certificate stood in the name of the landowner and the assessee did not hold legal title to the land.

Analysis: The deduction provisions did not require the developer to be the legal owner of the land. The assessee had undertaken the project at its own risk, with control over development, construction, enrolment of members, and sale of units, while the landowner received a fixed price and bore no development risk. In part performance of the arrangement, possession had also been given to the assessee, attracting the legal effect of deemed transfer for income-tax purposes. The assessee was therefore treated as the developer of the housing project and, for the limited purpose of the deduction, as satisfying the ownership condition even if ownership were assumed to be necessary.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (ii): Whether profit arising from sale of unutilized floor space index formed part of profits derived from development and construction of the housing project for the purpose of Section 80IB(10) of the Income-tax Act, 1961.

Analysis: The statutory deduction was intended for profits derived from developing and building housing projects. Where the permissible FSI was substantially underutilized and the assessee sold the benefit of unused construction potential along with the built units, the consideration attributable to such unused FSI was not directly derived from the housing project itself. The Court held that this part of the receipts had a distinct commercial character and could not be treated as housing-project profit for the deduction, especially in the absence of any special circumstance justifying the underutilization.

Conclusion: The issue was answered in favour of the Revenue and against the assessee.

Final Conclusion: The appeals succeeded only to the extent of excluding profit attributable to sale of unutilized FSI from deduction, while the eligibility of the assessee as a developer for Section 80IB(10) relief was upheld.

Ratio Decidendi: For Section 80IB(10) deduction, legal ownership of the land is not indispensable where the assessee is the developer carrying the project at its own risk, but profits attributable to sale of unused development potential are not profits derived from the housing project when the FSI is substantially underutilized.

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