Land ownership not required for housing project deduction, but profits tied to unutilised FSI were excluded

Deduction under section 80IB(10) was held not to depend on ownership of the land, because the provision requires an undertaking to develop and build an approved housing project and does not add land ownership as a statutory condition. Where the development agreements gave the assessee full control, risk, and profit-and-loss exposure, the activity was treated as development and construction rather than a works contract. However, full deduction was not available for profits linked to substantial unutilised FSI, because that component lacked the direct nexus required by the expression "derived from". Deduction was therefore confined to profits actually derived from development and construction.

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Issues: (i) Whether deduction under section 80IB(10) of the Income-tax Act, 1961 could be denied on the ground that the assessee did not own the land and the development permission stood in the landowner's name; (ii) Whether full deduction under section 80IB(10) was available where the housing project used only a portion of the permissible FSI and the profit relatable to unutilised FSI was sought to be excluded.

Issue (i): Whether deduction under section 80IB(10) of the Income-tax Act, 1961 could be denied on the ground that the assessee did not own the land and the development permission stood in the landowner's name.

Analysis: Section 80IB(10) grants deduction to an undertaking developing and building an approved housing project and does not prescribe ownership of land as a condition precedent. A taxing provision cannot be extended by implication to add a requirement not enacted by the Legislature. Where the development agreements vested full control, responsibility, risk, and profit and loss in the assessee, the activity was that of development and construction and not merely execution of a works contract. Even for the limited purpose of the provision, the assessee could be regarded as having satisfied ownership-related considerations where possession and part performance had effectively transferred control.

Conclusion: The issue was decided against the Revenue and in favour of the assessees.

Issue (ii): Whether full deduction under section 80IB(10) was available where the housing project used only a portion of the permissible FSI and the profit relatable to unutilised FSI was sought to be excluded.

Analysis: The deduction is confined to profits derived from developing and building a housing project. Although the provision does not expressly require utilisation of 100% FSI, substantial underutilisation of available FSI may show that part of the profit is attributable not to development and construction, but to the value of the unused development potential passing with the units sold. Where the assessees used only a small part of the permissible FSI without any special justification, the profit relatable to the sale of unutilised FSI lacked the direct nexus required by the expression "derived from". The assessee's claim that full ground-floor coverage was sufficient was rejected.

Conclusion: The issue was decided in favour of the Revenue and against the assessees.

Final Conclusion: The appeals succeeded on the FSI issue but failed on the land-ownership issue, leaving the assessees entitled to deduction under section 80IB(10) only to the extent of profits actually derived from development and construction, excluding the component attributable to unutilised FSI.

Ratio Decidendi: For deduction under section 80IB(10), ownership of the land is not a statutory precondition, but profits not having a direct nexus with development and construction of the housing project, including profits attributable to substantial unutilised FSI, are not eligible for deduction.

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