2019 (2) TMI 906 - HC - Income Tax

High Court allows appeal, restores deduction under Section 80IB(10) of Income Tax Act.

M/s. Bashyam Constructions P Ltd. Versus The Deputy Commissioner of Income Tax

M/s. Bashyam Constructions P Ltd. Versus The Deputy Commissioner of Income Tax - [2020] 422 ITR 346 (Mad) Issues Involved:1. Deduction under Section 80IB(10) of the Income Tax Act, 1961 for real estate developers.2. Impact of Joint Development Agreement on eligibility for deduction under Section 80IB(10).3. Tribunal's disregard for prior decisions of co-ordinate benches.Issue-wise Detailed Analysis:1. Deduction under Section 80IB(10) of the Income Tax Act, 1961 for real estate developers:The appeal concerns the assessee's claim for deduction under Section 80IB(10) of the Income Tax Act, 1961, which was disallowed by the Assessing Officer on the grounds that the assessee did not execute or develop a housing project directly but contributed land to another company, M/s. ETA Properties & Investments P Ltd., in exchange for flats. The CIT(A) allowed the appeal, directing the Assessing Officer to re-work the eligibility for deduction, but the Tribunal reversed this decision, stating that the assessee could not be considered a developer as it did not take any investment risk or incur construction expenses.The High Court, referencing multiple precedents, concluded that the assessee, by contributing land and undertaking developmental activities, fulfilled the conditions for deduction under Section 80IB(10). The court cited the Karnataka High Court's decision in CIT vs. Shravanee Constructions and the Madras High Court's decisions in CIT vs. Sanghvi and Doshi Enterprise and CIT vs. Ceebros Property Development (P.) Ltd., which supported the view that the developer need not own the land to claim the deduction. The court emphasized that the deduction is oriented towards the project rather than the entity, and the developer's role in developing and building the housing project qualifies for the deduction.2. Impact of Joint Development Agreement on eligibility for deduction under Section 80IB(10):The Tribunal had held that the Joint Development Agreement (JDA) between the assessee and M/s. ETA could not be considered a joint venture for the purpose of claiming deduction under Section 80IB(10). The High Court disagreed, stating that the JDA, where the assessee contributed land and undertook development activities while M/s. ETA handled construction, qualified as a joint undertaking for developing a housing project.The court referred to the terms of the JDA, which outlined the mutual obligations and contributions of both parties, demonstrating that the assessee was actively involved in the development process. The court also noted that the CIT(A) had considered the expenses incurred by the assessee, such as architect fees and reclassification charges, which were sufficient to establish the assessee's role in the project. The Tribunal's observation that these expenses were not reflected in the P & L account was dismissed by the court, as the CIT(A) had already addressed this issue.3. Tribunal's disregard for prior decisions of co-ordinate benches:The Tribunal's decision to reverse the CIT(A)'s order was criticized for not considering the consistent judicial precedents that supported the assessee's claim. The High Court highlighted that the Tribunal failed to provide a reasoned basis for disregarding the CIT(A)'s detailed findings and the established legal principles from previous cases.The court reiterated the importance of adhering to judicial consistency and the binding nature of precedents, particularly when the facts and legal issues are similar. The Tribunal's failure to do so was deemed an error, leading to the reinstatement of the CIT(A)'s order.Conclusion:The High Court allowed the appeal, setting aside the Tribunal's order and restoring the CIT(A)'s decision. The court affirmed that the assessee was entitled to the deduction under Section 80IB(10) of the Income Tax Act, 1961, as the JDA constituted a joint undertaking for developing a housing project, and the assessee fulfilled the necessary conditions for the deduction. The court also dismissed the Revenue's contention regarding double deduction, as no such finding was made by the Tribunal. The substantial questions of law were answered in favor of the assessee.