Liberal construction of slum-redevelopment deduction and genuine rent expense upheld under the income-tax law.

A beneficial proviso to section 80-IB(10) for slum-redevelopment housing projects was construed liberally, so a project undertaken under the Slum Rehabilitation Authority scheme remained eligible despite the area being under one acre and despite a later CBDT notification. The later notification was treated as clarificatory and not as a restriction capable of curtailing the statutory proviso; the approval became operative once the project satisfied the scheme conditions and the commencement certificate was issued. On rent expenditure, documentary support and the absence of contrary material showed the expense was genuine and for business purposes, so the disallowance was not sustainable.

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Issues: (i) Whether the assessee was entitled to deduction under section 80-IB(10) of the Income-tax Act, 1961 in respect of a slum-redevelopment housing project despite the project area being less than one acre and despite the CBDT notification prescribing a later approval date. (ii) Whether the disallowance of rent expenditure was justified.

Issue (i): Whether the assessee was entitled to deduction under section 80-IB(10) of the Income-tax Act, 1961 in respect of a slum-redevelopment housing project despite the project area being less than one acre and despite the CBDT notification prescribing a later approval date.

Analysis: The proviso to section 80-IB(10) carved out an exception for housing projects carried out in accordance with a Central or State Government scheme for reconstruction or redevelopment of slum areas, subject to notification by the Board. The project was undertaken under the Slum Rehabilitation Authority scheme and the CBDT subsequently notified the relevant scheme. The later clarificatory notification was treated as applicable from assessment year 2005-06 onwards. The amendment was viewed as intended to remove hardship in slum redevelopment, and the time restriction introduced by the notification was held not to control or curtail the operation of the proviso. The Tribunal also noted that the commencement certificate issued after fulfilment of conditions made the approval operative for the project.

Conclusion: The assessee was eligible for deduction under section 80-IB(10) of the Income-tax Act, 1961.

Issue (ii): Whether the disallowance of rent expenditure was justified.

Analysis: The rent payments were supported by documentary material before the lower authorities and no contrary material was brought to show that the expenditure was not genuine or was not incurred for business purposes. The Tribunal found no infirmity in the factual appreciation made by the Commissioner (Appeals).

Conclusion: The disallowance of rent expenditure was not sustainable.

Final Conclusion: The Revenue's appeals failed on both issues, and the assessee's claims were sustained.

Ratio Decidendi: A beneficial proviso inserted to relax the conditions for slum-redevelopment housing projects under section 80-IB(10) must receive liberal construction, and a subordinate notification cannot restrict the statutory benefit by imposing a time limit not found in the parent provision.

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