2015 (6) TMI 461 - HC - Income Tax

High Court rules pre-2005 projects qualify for tax deduction under Section 80IB(10) for residential/commercial areas

The High Court held that the project, approved before 1/4/2005, was eligible for deduction under Section 80IB(10) for both residential and commercial ... Eligibility of deduction u/s. 80IB(10) on housing project - ITAT allowed claim - whether the built up area of commercial units exceeded the limits of 2000 sq.ft. Prescribed in section 80IB(10) (d) of the Act and therefore, the assessee was not eligible for deduction under section 80IB(10) of the Act? - Held that:- Applying the law laid down in CIT Central Pune V/s M/s. Veena Developers [2015 (5) TMI 193 - SUPREME COURT] and CIT-I V/s. CHD Developers Limited [2014 (1) TMI 1542 - DELHI HIGH COURT] to the facts of the case on hand, it cannot be said that any error has been committed by the learned CIT(A) and the learned tribunal holding that the assessee shall be entitled to deduction under section 80IB(10) of the Act, with respect to the housing project which was approved by the local authority prior to 30/3/2005.3.04. It is required to be noted and it is not the case on behalf of the revenue that the commercial activity was permitted beyond the development rules and/or was in excess to the permissible commercial use. In the present case, however, the assessee alternatively claimed that deduction section 80IB(10) of the Act may be permitted proportionately with respect to the residential construction only and it came to be accepted by the learned CIT(A) and the learned tribunal and the assessee has been allowed deduction under section 80IB(10) of the Act proportionately with respect to the residential construction only and the same has been accepted by the assessee.3.05. At this stage it is required to be noted that as such the amendment in section 80IB(10) of the Act with respect to clause (d) is brought into effect w.e.f. 1/4/2005 which is held to be perspective and as held by the Hon'ble Supreme Court in the aforesaid decision, for the project approved prior to 30/5/2005, assessee shall be entitled to deduction under section 80IB(10) of the Act with respect to residential as well as commercial construction in housing project, however, subject to approval by the development authority in accordance with the Development Rules. - Decided in favour of assessee. Issues Involved:1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act.2. Applicability of amended provisions of Section 80IB(10)(d) effective from 1/4/2005.Detailed Analysis:1. Eligibility for Deduction under Section 80IB(10) of the Income Tax Act:The primary issue revolves around the eligibility of the assessee for deduction under Section 80IB(10) concerning a housing project approved before the amendment effective from 1/4/2005. The assessee filed a return for A.Y. 2007-2008, claiming a deduction of Rs. 54,53,349 under Section 80IB(10). The Assessing Officer (A.O.) disallowed this deduction, citing that the built-up area of the commercial units exceeded the permissible limit of 2000 sq.ft. prescribed under Section 80IB(10)(d). Additionally, the A.O. contended that the land was not in the name of the developer and that the commercial construction exceeded 5% of the total built-up area, thus breaching the conditions for the deduction.Upon appeal, the CIT(A) and the Income Tax Appellate Tribunal (ITAT) found that the project was approved before the amendment and that the assessee was the de facto owner, bearing all risks and costs. The CIT(A) and ITAT held that the commercial area was within permissible limits as per the old provisions, thus allowing the deduction proportionately for the residential area.2. Applicability of Amended Provisions of Section 80IB(10)(d) Effective from 1/4/2005:The second issue concerns whether the amended provisions of Section 80IB(10)(d), effective from 1/4/2005, apply to the assessee's project. The CIT(A) initially held that the new provisions were applicable, resulting in a breach of the condition that the commercial area should not exceed 2000 sq.ft. However, the ITAT relied on the Supreme Court's decision in CIT Vs. Radhe Developers, which clarified that the amendment is prospective and does not apply to projects approved before 1/4/2005.The High Court referenced the Delhi High Court's decision in CIT-I Vs. CHD Developers Limited and the Supreme Court's decision in CIT Central Pune Vs. M/s. Veena Developers, which affirmed that the amendment is prospective. Therefore, the assessee's project, approved before the amendment, is entitled to the deduction under the old provisions, provided the commercial area is within the permissible limits set by the local authority's development rules.Conclusion:The High Court concluded that no substantial questions of law arose, as the CIT(A) and ITAT correctly applied the law. The project, approved before 1/4/2005, was eligible for deduction under Section 80IB(10) for both residential and commercial areas, subject to the local authority's development rules. The appeal by the revenue was dismissed accordingly.