Section 80IB(10)(d) applies only to housing projects approved after April 1, 2005, not earlier ones

The SC held that Section 80IB(10)(d) of the Income Tax Act, 1961, which restricts the built-up area of commercial establishments in housing projects, applies prospectively and not retrospectively. For housing projects approved before 31.03.2005 but completed on or after 01.04.2005, the amended commercial area restrictions do not apply. The court emphasized that the provision aims to encourage affordable housing and that the legislative amendments effective from 01.04.2005 cannot be imposed on projects sanctioned and commenced prior to that date. Consequently, the HC was upheld in granting the deduction under Section 80IB(10) to the assessee, as the project met the conditions applicable at the time of its approval and commencement.

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ISSUES:

Whether Section 80IB(10)(d) of the Income Tax Act applies to housing projects approved before 31.03.2005 but completed on or after 01.04.2005.Whether the amendment introducing clause (d) to Section 80IB(10) is prospective or retrospective in operation.Whether a housing project containing commercial establishments approved by local authorities qualifies for deduction under Section 80IB(10) prior to 01.04.2005.Whether the principle that the law in force in the assessment year applies is absolute or subject to exceptions in the context of Section 80IB(10) amendments.Whether vested rights accrued under earlier provisions can be taken away by subsequent amendments to Section 80IB(10).

RULINGS / HOLDINGS:

Section 80IB(10)(d) does not apply to housing projects approved before 31.03.2005, even if completed on or after 01.04.2005, as the clause was inserted by an amendment effective from 01.04.2005 and is prospective in nature.The amendment introducing clause (d) to Section 80IB(10) is "prospective and not retrospective" and cannot be applied to projects sanctioned and commenced prior to 01.04.2005.Prior to 01.04.2005, a housing project approved by local authorities, including those with commercial establishments permitted under Development Control Rules, qualifies for deduction under Section 80IB(10) without limitation on the commercial area.The principle that the law in force in the assessment year applies is qualified by exceptions where such application is excluded "expressly or by necessary implication"; thus, it is not absolute in the context of Section 80IB(10) amendments.Vested rights accrued under the law prior to the amendment cannot be taken away by the amendment, as the rights are saved unless expressly or impliedly taken away by the repealing or amending statute.

RATIONALE:

The Court applied statutory interpretation of Section 80IB(10) of the Income Tax Act, considering the legislative history and amendments introduced by the Finance Act, 1999, Finance Act, 2003, and Finance (No.2) Act, 2004 effective from 01.04.2005.The Court relied on prior judicial precedents affirming that a "housing project" includes projects approved by local authorities with permissible commercial use under Development Control Rules, as held in the Bombay High Court judgment upheld by this Court.The Court distinguished between "prospective" and "retrospective" operation of statutes, holding that clause (d) is prospective, as expressly stated, and cannot be applied to projects sanctioned before its effective date.The Court recognized the principle of vested rights under Section 6 of the General Clauses Act, 1897, and relevant Supreme Court precedents, that accrued rights survive amendments unless expressly or by necessary implication extinguished.The Court noted that applying the amended clause (d) retrospectively would lead to absurd and harsh results, such as requiring demolition or alteration of already sanctioned and constructed commercial areas, which is practically impossible and contrary to legislative intent.The Court emphasized that the deduction under Section 80IB(10) is "inextricably linked" to the date of approval of the housing project and not to the year in which profits are offered to tax, rejecting the Revenue's argument that the law prevailing in the assessment year governs applicability.The Court confirmed that the amendment aimed to restrict commercial area in housing projects prospectively, reflecting a policy decision to balance commercial use with affordable housing objectives.

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