2011 (8) TMI 1294 - AT - Income Tax

ITAT Upholds Deduction under Section 80-IB(10) for Housing Project Developers

The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeals, upholding the CIT (A)'s decision to allow the deduction under section 80-IB(10) ... Deduction under section 80IB(10) for developers of housing projects - ownership of land as prerequisite for deduction - developer's dominant control, cost and risk test - contractor versus developer distinction - treatment of profits from sale of unutilized FSI under section 80IB(10)Deduction under section 80IB(10) for developers of housing projects - ownership of land as prerequisite for deduction - developer's dominant control, cost and risk test - contractor versus developer distinction - Whether the assessee is eligible for deduction under section 80IB(10) despite the development approvals and completion certificates being in the name of the original landowner and the assessee not being the registered owner of the land. - HELD THAT: - The Assessing Officer denied deduction on the ground that approvals were not in the assessee's name and the assessee was not the owner of the land. The Tribunal held, following the coordinate Bench in Radhe Developers, that the statutory scheme does not make ownership of the land a pre-condition for claiming deduction under section 80IB(10); what is material is that an undertaking has developed and built a housing project. The Tribunal explained that an undertaking which has dominant control over the project, incurs the cost and bears the risks of development, and performs the development activities is entitled to the deduction even if the land belongs to others. The decision distinguished cases where the developer acts merely as a contractor for fixed remuneration (in which case the developer lacks dominant control and risk exposure), and clarified that the test is factual: whether the developer has in effect purchased or assumed dominant control and borne the costs and risks of the project. Applying these principles to the facts (which are pari materia with the coordinate decisions), the Tribunal sustained the CIT(A)'s allowance of the deduction. [Paras 5, 7, 8]Deduction under section 80IB(10) allowed to the assessee as the ownership of land is not a prerequisite where the developer has dominant control and bears cost and risk; the Assessing Officer's denial on ownership/approval ground is not sustainable.Treatment of profits from sale of unutilized FSI under section 80IB(10) - deduction under section 80IB(10) for developers of housing projects - Whether profits attributable to sale of unutilized FSI fall outside the scope of deduction under section 80IB(10). - HELD THAT: - The Assessing Officer treated profit from sale of unutilized FSI as not being profits 'derived from' developing and building housing projects and therefore outside section 80IB(10). The Tribunal, following the coordinate Bench, held that the provision does not require full utilization of permissible FSI and contains no condition linked to utilisation of maximum FSI. The Tribunal observed that approved plans show maximum permissible FSI but market and commercial considerations determine actual utilization; the assessee had not dealt with FSI separately in terms of acquisition or relinquishment of rights. Consequently, sale proceeds attributable to unutilized FSI were not automatically excluded from the ambit of profits derivable from development activity under section 80IB(10). [Paras 6, 7]Profit on sale of unutilized FSI is not per se excluded from deduction under section 80IB(10); the disallowance by the Assessing Officer is not sustained.Final Conclusion: Following coordinate Bench decisions, the Tribunal confirmed the CIT(A)'s allowance of deduction under section 80IB(10) for the years under appeal and dismissed both Revenue appeals; the Assessing Officer's findings on ownership/approval and exclusion of proceeds from unutilized FSI were held unsustainable. Issues involved: Appeals filed by Revenue against orders of CIT (A) for Assessment Years 2004-05 and 2005-06 regarding deduction u/s 80-IB(10) and sale of unutilized FSI.Deduction u/s 80-IB(10): The Assessing Officer disallowed deduction claimed by the assessee under section 80-IB(10) due to ownership and approval issues. CIT (A) allowed the deduction based on a Co-ordinate Bench decision in the case of Radhe Developers. ITAT Ahmedabad held that ownership of land is not a prerequisite for claiming deduction under section 80-IB(10). The ITAT emphasized that the entity developing and building the housing project is entitled to the deduction, regardless of land ownership. The ITAT also clarified that being a contractor does not disqualify an entity from being considered a developer. The decision in another case, ITO and Others vs. Shakti Corporation Baroda, supported the view that the developer must have dominant control over the project and bear the risks involved to qualify for the deduction. The ITAT upheld CIT (A)'s decision to allow the deduction u/s 80-IB(10) for both years.Sale of Unutilized FSI: The Assessing Officer disallowed the deduction on the sale of unutilized FSI, stating it was not profit derived from development and construction activities. However, the ITAT clarified that there is no requirement to fully utilize permissible FSI under section 80-IB(10). The ITAT highlighted that the profitability is not based on FSI and the market factors influence the construction decisions. The ITAT emphasized that the sale of unused FSI does not disqualify the entity from claiming the deduction under section 80-IB(10).Conclusion: The ITAT dismissed both appeals of the Revenue, confirming CIT (A)'s decision to allow the deduction u/s 80-IB(10) and rejecting the disallowance of deduction on the sale of unutilized FSI. The decisions were based on the principles established in previous cases and the interpretation of relevant legal provisions.