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Issues: (i) Whether the assessee was acting as a works contractor so as to be denied deduction under section 80IB(10) of the Income-tax Act, 1961. (ii) Whether profit arising from sale of unutilized FSI formed part of profit derived from developing and constructing a housing project and was eligible for deduction under section 80IB(10) of the Income-tax Act, 1961.
Issue (i): Whether the assessee was acting as a works contractor so as to be denied deduction under section 80IB(10) of the Income-tax Act, 1961.
Analysis: The assessee had entered into an agreement for development, taken possession in part performance, and carried out construction at its own risk and cost. For the limited purpose of section 80IB(10), read with section 2(47)(v) of the Income-tax Act, 1961 and section 53A of the Transfer of Property Act, 1882, the land was treated as having been transferred to the assessee. The assessee was therefore regarded as the owner for claiming the housing project deduction, and the arrangement was not treated as a mere works contract.
Conclusion: The issue was answered in favour of the assessee.
Issue (ii): Whether profit arising from sale of unutilized FSI formed part of profit derived from developing and constructing a housing project and was eligible for deduction under section 80IB(10) of the Income-tax Act, 1961.
Analysis: The Court distinguished cases where there was heavy underutilization of FSI and held that the question depends on the extent of utilization and the facts of the project. Here, the underutilization was only marginal, around 25% to 30%, and no special reason was shown for the shortfall. In such circumstances, the entire profit could still be regarded as arising from the housing project and the sale of unused FSI was not separately excluded.
Conclusion: The issue was answered in favour of the assessee.
Final Conclusion: The Revenue's challenge failed and the deduction under section 80IB(10) was sustained in respect of both issues.
Ratio Decidendi: For deduction under section 80IB(10) of the Income-tax Act, 1961, a developer who has taken possession and developed the project at its own risk may be treated as the owner for the limited statutory purpose, and sale proceeds from unused FSI are not excluded where the underutilization is only marginal and no special justification for the shortfall is shown.
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