2014 (4) TMI 76 - HC - Income Tax

Assessee eligible for deduction under section 80IB(10)/80IB(1) despite approvals issued to landowner; FSI sale profits not deductible

HC held that assessees were entitled to deduction under section 80IB(10) read with 80IB(1) even where development approvals and completion certificates ... Deduction u/s 80IB(10) r.w. Section 80IB(1) of the Act – Approval and completion certificate granted to landowner - Whether the Tribunal was right in law in allowing deduction u/s 80IB(10) r.w.s. 80IB(1) to the assessee when the approval by local authority as well as completion certificate was not granted to the assessee but to the landowner – Held that:- The decision in Commissioner of Income tax v. Radhe Developers 2011 (12) TMI 248 - GUJARAT HIGH COURT] followed - While interpreting the statute nothing can be read into the provisions which has not been provided by the Legislature - The condition which is not made part of Section 80IB(10) of the Act, namely that of owning the land, which the assessee develops, cannot be supplied by any purported legislative intent – the title in the land had not yet passed on to the assessee - It is equally true that such title would pass only upon execution of a duly registered sale deed - the ownership has been understood differently in different context - For the limited purpose of deduction u/s 80IB(10) of the Act, the assessee had satisfied the condition of ownership also, even if it was necessary - the Tribunal committed no error in holding that the assessees were entitled to the benefit u/s 80IB(10) of the Act even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners – Decided against Revenue. Profit derived from sale of unutilized FSI - Whether the Tribunal was right in law in allowing deduction u/s 80IB(10) r.w.s. 80IB(1) to the assessee on profit derived from sale of unutilized FSI not being the element of profits derived from the business activity of development and construction of the housing project relating to the sale of tenements – Held that:- What is available for deduction under section 80IB(10) of the Act is the profit of an undertaking derived from developing and building a housing project. Mere sale of open land or unused FSI as part of the housing project where utilization of the FSI is way short of permissible limits cannot be said to have been derived from such housing project. Terms derived from, arising out of and attributable to are often times used in the context of income tax in different connotation – Decided in favor of revenue. Issues Involved:1. Deduction under Section 80IB(10) when approval and completion certificate are granted to the landowner.2. Deduction under Section 80IB(10) on profit derived from the sale of unutilized Floor Space Index (FSI).Detailed Analysis:Issue 1: Deduction under Section 80IB(10) when approval and completion certificate are granted to the landownerJudgment Summary: The court addressed whether the assessee could claim deductions under Section 80IB(10) when the approval and completion certificate were granted to the landowner and not to the assessee. The court referred to the case of Commissioner of Income-tax v. Radhe Developers, which established that ownership of the land is not a condition precedent for developing a housing project under Section 80IB(10). The court emphasized that the term 'developer' has a broad meaning and does not necessitate land ownership by the developer. The court noted:'It does not provide that the land must be owned by the assessee seeking such deductions.'The court further elaborated that the assessee had full control over the land and was responsible for the entire development project, including enrolling members, collecting charges, and bearing the risks associated with the project. The court stated:'The assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work.'Thus, the court concluded that the assessee qualified for the deduction under Section 80IB(10) even if the land was not owned by them and the approval and completion certificate were in the name of the landowner. The court held:'The Tribunal committed no error in holding that the assessees were entitled to the benefit under Section 80IB(10) of the Act even where the title of the lands had not passed on to the assessees.'Conclusion: Question no.1 was answered in favor of the assessee and against the Revenue.Issue 2: Deduction under Section 80IB(10) on profit derived from the sale of unutilized Floor Space Index (FSI)Judgment Summary: The court examined whether the profit derived from the sale of unutilized FSI in the course of developing and constructing a housing project qualifies for deduction under Section 80IB(10). The court observed that the respondents-assessees were engaged in developing housing projects but utilized only a small portion of the available FSI, leaving a significant portion unused. The court noted:'From the figures recorded in the earlier portion of the judgment, we can gather that such utilization of the FSI by the assessees ranges from the minimum of 11.14% of the full FSI available to a maximum of 65.81%.'The court emphasized that the deduction under Section 80IB(10) is intended to encourage the development of housing projects to address the housing shortage for middle-income groups in urban and semi-urban areas. The court stated:'Deduction under section 80IB(10) of the Act was granted to give fillip to the construction of residential units for persons of middle income group in urban and semiurban areas.'The court reasoned that selling units with significant unutilized FSI does not align with the objective of Section 80IB(10), as it does not constitute the development of a housing project. The court stated:'Mere sale of open land or unused FSI as part of the housing project where utilization of the FSI is way short of permissible limits cannot be said to have been derived from such housing project.'Therefore, the court concluded that the profit from the sale of unutilized FSI does not qualify for deduction under Section 80IB(10). The court held:'Judgement of the tribunal stands reversed to that extent. Appeals are allowed in part and disposed of.'Conclusion: Question no.2 was answered in favor of the Revenue.Final Outcome:The appeals were allowed in part. The judgment was in favor of the assessee for the first issue and in favor of the Revenue for the second issue.