2015 (4) TMI 6 - AT - Income Tax

Tribunal rules on commercial area restrictions & built-up area definitions for residential projects

The Tribunal ruled in favor of the assessee, holding that the restriction on commercial area and the definition of 'built-up area' do not apply ... Deduction under section 80-IB(10) - housing project as approved by local authority - prospective effect of amendment (clause (d) to section 80-IB(10)) - definition of 'built-up area' and its temporal applicability - inclusion/exclusion of balconies, terraces and car parking in built-up area - proportionate deduction where part of project/unit does not satisfy conditionsDeduction under section 80-IB(10) - housing project as approved by local authority - prospective effect of amendment (clause (d) to section 80-IB(10)) - Whether presence of commercial area in DSK Vishwa III disentitles the assessee to deduction under section 80-IB(10) for the assessment years 2004-05 and 2005-06 - HELD THAT: - The Tribunal held that clause (d) to section 80-IB(10), inserting a ceiling on shops/commercial area, was introduced with effect from 01.04.2005 and is prospective. For projects commenced prior to 01.04.2005, the restriction in clause (d) cannot be invoked to deny deduction. The expression 'housing project' is to be understood with reference to approval by the local authority; where the local authority had approved the project as 'residential-cum-commercial' and the project commenced and was completed before 31.03.2005, the amended restriction could not be applied. Applying this principle to DSK Vishwa III (commenced 13.10.2000 and completed 31.12.2004), the Tribunal held that the Revenue could not rely on clause (d) to disallow the deduction for A.Y. 2004-05, and similarly for A.Y. 2005-06 the newly inserted clause could not be invoked as the project had commenced prior to 01.04.2005. [Paras 8, 10, 11]Deduction under section 80-IB(10) allowable for DSK Vishwa III for A.Y. 2004-05 and 2005-06; clause (d) not applicable to projects commenced before 01.04.2005 where local authority approved the project as residential-cum-commercial.Definition of 'built-up area' and its temporal applicability - inclusion/exclusion of balconies, terraces and car parking in built-up area - proportionate deduction where part of project/unit does not satisfy conditions - Whether the built-up area for DSK Frangipani (project commenced 12.12.2003) should include balconies, terraces and car parking for determining compliance with clause (c) to section 80-IB(10), and whether denial of deduction for non-compliant units requires rejection of deduction for entire project - HELD THAT: - The Tribunal held that the statutory definition of 'built-up area' inserted by Finance (No.2) Act, 2004 (effective 01.04.2005) is not applicable to projects commenced prior to that date. For projects begun before 01.04.2005, 'built-up area' is to be ascertained in accordance with the Development Control Rules of the approving local authority. Under the Pune DCR, areas falling within Rule 15.4.2 (stilt parking) are excluded from 'built-up area', and therefore car parking area cannot be included. Likewise, balconies and open terraces are not includible where the local rules so provide. The Assessing Officer's factual finding that two adjoining flats on the 11th floor were combined into single units (no separate kitchen) and hence must be treated as combined units was not disproved; those combined units therefore exceed the prescribed limit and fail clause (c). Following precedents the Tribunal further held that where only some units violate clause (c), the assessee is entitled to proportionate deduction in respect of profits attributable to eligible units rather than losing the exemption for the entire project. [Paras 18, 19, 21, 22, 23]For DSK Frangipani (A.Ys. 2004-05 and 2005-06) balconies/terraces and parking are not to be included in 'built-up area' for a project commenced before 01.04.2005; combined 11th-floor units correctly treated as single larger units and excluded from benefit; deduction under section 80-IB(10) allowed on a proportionate basis for units meeting clause (c).Final Conclusion: The Tribunal partly allowed the appeals: deduction under section 80-IB(10) was upheld for DSK Vishwa III for A.Y. 2004-05 and 2005-06 (clause (d) not applicable to projects commenced before 01.04.2005), and for DSK Frangipani deduction was allowed on a proportionate basis after excluding units that do not meet clause (c); the Assessing Officer was directed to recompute deduction accordingly. Issues Involved:1. Eligibility for deduction under section 80-IB(10) of the Income-tax Act, 1961, for housing projects with commercial areas.2. Applicability of the definition of 'built-up area' for projects commenced before 1.4.2005.3. Proportionate deduction for projects with some non-eligible residential units.Detailed Analysis:1. Eligibility for Deduction Under Section 80-IB(10):The primary issue revolves around the eligibility of the assessee for deductions under section 80-IB(10) of the Income-tax Act, 1961, for two housing projects: DSK Vishwa III and DSK Frangipani. The deductions were denied by the Assessing Officer (AO) on the grounds that the projects did not meet the conditions prescribed under section 80-IB(10).For DSK Vishwa III, the AO noted that the project included commercial areas (6132 sq.ft.), which exceeded the limits prescribed by clause (d) of section 80-IB(10). The assessee argued that the amendment introducing this restriction was effective from 1.4.2005 and should not apply retrospectively to their project, which commenced on 13.10.2000. The Tribunal upheld this view, citing the Bombay High Court's decision in CIT v Brahma Associates, which held that the amendment is prospective and not applicable to projects commenced before 1.4.2005.For DSK Frangipani, the AO's objection was that the built-up area of some flats exceeded the 1500 sq.ft. limit prescribed in clause (c) of section 80-IB(10). The Tribunal found that the AO included balconies, terraces, and car parking areas in the built-up area calculation, which was incorrect for projects commenced before 1.4.2005. The Tribunal referred to the Development Control Rules of the local authority, which did not include these areas in the built-up area, and thus ruled in favor of the assessee.2. Applicability of the Definition of 'Built-Up Area':The Tribunal addressed the issue of whether the definition of 'built-up area,' which includes balconies and terraces and was introduced by the Finance (No.2) Act, 2004, effective from 1.4.2005, applies to projects commenced before this date. The Tribunal concluded that this definition does not apply retrospectively. For projects like DSK Frangipani, which commenced on 12.12.2003, the built-up area should be calculated according to the Development Control Rules of the local authority, which exclude balconies and terraces.3. Proportionate Deduction for Projects with Some Non-Eligible Residential Units:The Tribunal also considered whether the presence of some non-eligible residential units (those exceeding 1500 sq.ft. in built-up area) in a project should result in the denial of the entire deduction under section 80-IB(10). The Tribunal ruled that the deduction should be proportionate, allowing for eligible units while denying it for non-eligible ones. This decision was based on precedents, including the Mumbai Bench's ruling in M/s. Ekta Housing Pvt. Ltd., which allowed for proportionate deductions in similar circumstances.Conclusion:The Tribunal ruled in favor of the assessee on several grounds:- The restriction on commercial area introduced by the Finance (No.2) Act, 2004, does not apply retrospectively to projects commenced before 1.4.2005.- The definition of 'built-up area' including balconies and terraces, applicable from 1.4.2005, does not apply to projects commenced before this date.- Proportionate deductions under section 80-IB(10) should be allowed for eligible residential units, even if some units exceed the prescribed built-up area limits.The Tribunal directed the AO to re-compute the deduction allowable to the assessee under section 80-IB(10) based on these findings. The appeals of the assessee were partly allowed.