2015 (12) TMI 826 - AT - Income Tax

Appeal denied for Section 80IB(10) deduction as assessee classified as contractor, not developer.

M/s. Prime Developers Versus The Income-tax Officer, Ward – I (4), Tirupur.

M/s. Prime Developers Versus The Income-tax Officer, Ward – I (4), Tirupur. - [2015] 44 ITR (Trib) 120 (ITAT [Chen]) Issues Involved:1. Non-granting of deduction under Section 80IB of the Income Tax Act, 1961.Detailed Analysis:1. Non-granting of Deduction under Section 80IB of the Income Tax Act, 1961:The primary issue in this appeal is the non-granting of deduction under Section 80IB(10) of the Income Tax Act, 1961. The assessee firm, engaged in property development, claimed a deduction of Rs. 3,86,83,668/- under Section 80IB in its return for the assessment year 2009-10, which was denied by the Assessing Officer (AO) on the grounds that the assessee was not a developer of a housing project but operated as a contractor. This decision was upheld by the Commissioner of Income-tax (Appeals) [CIT(A)], prompting the assessee to appeal before the ITAT.The assessee's representative (AR) argued that similar deductions were granted in previous years, invoking the principle of consistency. The AR emphasized that the assessee was engaged in property development, not merely executing a works contract, and referred to the Joint Development Agreement (JDA) with Prime Textiles Ltd. The AR highlighted various clauses in the JDA, such as responsibilities for statutory approvals, arranging loans, marketing, and bearing inventory costs, to substantiate the claim that the assessee acted as a developer.The AR also contended that the CIT(A) erred in concluding that the owner, Prime Textiles Ltd., secured the necessary approvals without a Power of Attorney executed in favor of the assessee. The AR argued that since Prime Textiles Ltd. held a 50% share in the assessee firm, there was no need for a Power of Attorney. The AR cited several judicial precedents to support the claim that the assessee was a developer and not a contractor.Conversely, the Departmental Representative (DR) maintained that the assessee was not the landowner, and the project plan was not in the assessee's name. The DR argued that the assessee merely undertook a works contract and was not the developer of the housing project, thus not entitled to the deduction under Section 80IB(10). The DR pointed to the Explanation to Section 80IB(10), applicable to works contractors, to support this stance.Upon review, the ITAT examined the provisions of Section 80IB(10) and the definitions of 'developer' and 'contractor.' The tribunal referred to dictionary meanings and judicial interpretations to distinguish between a developer, who designs and creates new projects, and a contractor, who executes pre-decided plans. The ITAT noted that the assessee entered into a JDA with the landowner, Prime Textiles Ltd., but the landowner sold undivided co-ownership rights to various purchasers, who then entered into construction agreements with the assessee.The ITAT concluded that the assessee acted as a contractor, not a developer, as the primary revenue was from construction agreements with individual purchasers. The tribunal observed that the assessee's role was limited to construction as per the landowner's plans and did not involve designing or selling the project. The ITAT referenced a similar case, M/s Sky Builders & Developers vs. ITO, where the assessee was deemed a contractor and not eligible for the deduction under Section 80IB(10).The ITAT dismissed the appeal, affirming that the assessee was not entitled to the deduction under Section 80IB(10) as it functioned as a contractor rather than a developer.Conclusion:The appeal was dismissed, and the assessee was denied the deduction under Section 80IB(10) as it was determined to be a contractor and not a developer. The tribunal emphasized the distinction between a developer and a contractor and upheld the findings of the lower authorities based on the nature of agreements and the role played by the assessee in the housing project.