2015 (6) TMI 798 - AT - Income Tax

Amended tax law not retroactive for approved projects pre-2005

M/s. Sun Enterprise Versus The Assistant Commissioner of Income Tax, Baroda

The Tribunal held that the amended provisions of Section 80IB(10) would not apply retrospectively to projects approved before 1-4-2005. The Tribunal ... Rejection of the claim u/s. 80IB(10) - assessee failed to satisfy the conditions laid in the Act - Held that:- The issue under consideration is squarely covered by the decision of the Hon’ble jurisdictional High Court in the case of Manan Corporation vs. ACIT [2012 (9) TMI 700 - Gujarat High Court] wherein held Section 80IB(10) originally indicated 100% deduction on the profits derived from housing projects approved by local authority subject to certain conditions set out in the provision. By virtue of the amendment having come into effect from 1.4.2005, deduction is permissible to housing project having residential units with commercial units to the extent permitted therein. There was no criteria for making commercial construction prior to the amendment of the section and the plans were approved as housing projects by the local authority for both the projects of the assessee. Permission for construction of shops had been allowed by the local authority in accordance with rules and regulations, keeping in mind presumably the requirement of large townships. However, the projects essentially remained residential housing projects and that was also quite apparent from the certificates issued by the local authority and, therefore, neither the absence of such provision of commercial shops nor on account of such commercial construction having exceeded the area contemplated in the prospective amendment could the deduction be denied to the assessee whose plans were sanctioned according to the prevalent rules. The assessee was entitled to deduction under section 80-IB (10). We following the above decision are of the view that clause (d) to section 80 IB (10) which has been inserted w.e.f. 1-4-2005 will not be applicable in the instant case where the project was approved on 31-7- 2002. We therefore, set aside the order of the CIT (A) on this issue. As the issue of allowability under section 80 IB (10) has been restored by the CIT (A) to the file of the A.O. with certain direction against which no appeal has been filed by both the parties. Therefore, those directions remained and A.O. is directed to consider the issue in light of the said directions of the CIT (A). - Decided in favour of assessee. Issues Involved:1. Rejection of the claim of deduction under Section 80IB(10) of the Income Tax Act.2. Applicability of amended provisions of Section 80IB(10) to projects approved before 1-4-2005.3. Ownership and development rights of the land.4. Role of the assessee as a developer or merely as an agent/contractor.5. Approval of the project not being in the name of the assessee firm.Issue-wise Detailed Analysis:1. Rejection of the claim of deduction under Section 80IB(10) of the Income Tax Act:The CIT (A) erred in confirming the rejection of the claim of the assessee under Section 80IB(10) on the grounds that the assessee failed to satisfy the conditions laid in the Act. The Assessing Officer disallowed the claim for various assessment years due to non-compliance with the prescribed conditions, including the built-up area of commercial establishments exceeding the specified limit and the project approval not being in the name of the assessee firm.2. Applicability of amended provisions of Section 80IB(10) to projects approved before 1-4-2005:The CIT (A) held that the commercial area exceeded 5% of the aggregate built-up area, thus violating Clause (d) of Section 80IB(10). However, the assessee argued that the amendment introduced by the Finance Act, 2004, effective from 1-4-2005, should not apply to projects approved before this date. The Tribunal relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. M/s. Veena Developers & Others, which stated that Clause (d) is prospective and not retrospective. Additionally, the jurisdictional High Court in Manan Corporation vs. ACIT held that the amendment could not be applied retrospectively and should not discriminate against those following the project completion method.3. Ownership and development rights of the land:The Assessing Officer contended that the land was not in the name of the assessee firm and that ownership of the land is essential for claiming the deduction. The assessee argued that they had possession of the land through an agreement dated 26-7-2002 and had developed the project accordingly. The Tribunal did not find this argument sufficient to deny the deduction, as the primary condition was the development and construction of the housing project.4. Role of the assessee as a developer or merely as an agent/contractor:The Assessing Officer claimed that the assessee acted merely as an agent for collecting land consideration on behalf of the landowner and as a contractor for constructing houses on behalf of unit holders. The Tribunal, however, focused on the fact that the assessee had developed the project and offered profits from the sale of commercial portions for taxation, thereby fulfilling the role of a developer.5. Approval of the project not being in the name of the assessee firm:The Assessing Officer noted that the project approval was not in the name of the assessee firm, which was considered a violation of the conditions for claiming the deduction. The Tribunal, however, emphasized that the approval and development of the project were carried out by the assessee, and the conditions laid down in the Act were satisfied, except for the commercial area condition, which was addressed by the prospective application of Clause (d).Conclusion:The Tribunal concluded that Clause (d) of Section 80IB(10) introduced w.e.f. 1-4-2005 would not apply to projects approved before this date. The Tribunal set aside the order of the CIT (A) and directed the Assessing Officer to consider the issue in light of the directions of the CIT (A) regarding the allowability of the deduction under Section 80IB(10). The appeals were allowed, and the order was pronounced on 19th June 2015 at Ahmedabad.