2007 (2) TMI 264 - AT - Income Tax

Finance Act 2004 Amendment Held Prospective; Pro Rata Deduction for Residential Units Directed u/s 80-IB(10.

Arun Excello Foundations (P) Limited. Versus Assistant Commissioner Of Income-Tax.

The ITAT concluded that the amendment by the Finance (No. 2) Act, 2004, was prospective, not affecting the assessment years 2003-04 and 2004-05. It ... Deduction under s. 80-IB(10) - Ceiling On Commercial Area - Whether the amendment brought out by the Finance (No. 2) Act, 2004 w.e.f. 1st April, 2005 will apply prospectively or retrospectively - HELD THAT:- In view of the case law of the Hon'ble apex Court in R. Rajagopal Reddy vs. Padmini Chandrasekharan[1995 (1) TMI 67 - SUPREME COURT], the principle laid down is regarding retrospective or prospective of the legislation depending upon its curative in nature or its explanatory or it will take effect from a particular date. Here, in the Notes on Clause and memo explaining provisions in Finance (No. 2) Act, 2004 it has been very categorically stated that these amendments will take effect from the AY 2005-06 and subsequent years. In view of this, the first issue whether cl. (d) as brought in the statute book w.e.f. 1st April, 2005 by the Finance (No. 2) Act, 2004 is only prospective and not retrospective and in view of these facts and circumstances, we decide this issue in favour of the assessee. The provisions of s. 80-IB(10) are very clear. The three conditions laid down in the provisions are-(1) such undertaking has commenced or commences development and construction of housing project on or after 1st day of October, 1998; (2) the project is on the size of a plot of land which has a minimum area of one acre; and (3) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place. Here the assessee has complied with all the three conditions as is apparent from the orders of the lower authorities. The assessee has used 9.31 per cent of the total construction area for commercial construction. The ld AR of the assessee has already raised alternative plea in this regard that the deduction u/s 80IB(10) on the residential ,units constructed by the assessee be given on pro rata basis. Here, we agree with the plea taken by the assessee and accordingly we direct the AO to allow the claim of the assessee on the residential units constructed on pro rata basis. The assessee is not eligible for deduction u/s 80-IB(10) on the commercial area constructed in the project i.e. to the extent of 9.31 per cent of the total constructed area. This fact is not in dispute. In view of this, this issue of the assessee is allowed in favour of the assessee. In the result, both the appeals filed by the assessee stand allowed partly. Issues Involved:1. Eligibility for deduction under Section 80-IB(10) of the Income Tax Act, 1961.2. Applicability of the amendment brought by the Finance (No. 2) Act, 2004, w.e.f. 1st April 2005, prospectively or retrospectively.3. Pro rata allowance of deduction under Section 80-IB(10) for residential units.Detailed Analysis:1. Eligibility for Deduction under Section 80-IB(10):The primary issue in these appeals was whether the assessee was eligible for deduction under Section 80-IB(10) of the Income Tax Act, 1961. The assessee had claimed this deduction for two projects, 'Raagamalika Phase-I' and 'Raagamalika Phase-II.' A survey under Section 133A revealed that the assessee had developed three projects, including Raagamalika-I, Raagamalika-II, and Raagamalika-III. The Assessing Officer (AO) found that the commercial area constructed in Raagamalika-I was 9,790 sq. ft., which exceeded the permissible limit as per the amended provisions of Section 80-IB(10). The AO disallowed the deduction, stating that the commercial area exceeded the permitted limit and was sold to persons related to the managing director of the assessee company.2. Applicability of the Amendment by Finance (No. 2) Act, 2004:The assessee argued that the amendment brought by the Finance (No. 2) Act, 2004, which imposed restrictions on the commercial area in housing projects, was applicable only from 1st April 2005 and should not apply retrospectively to the assessment years 2003-04 and 2004-05. The Tribunal agreed with the assessee, stating that the amendment was clearly intended to be prospective, as indicated by the Notes on Clauses and the memorandum explaining the provisions. The Tribunal cited the Supreme Court's decision in R. Rajagopal Reddy vs. Padmini Chandrasekharan, which held that amendments creating new rights or obligations are not retrospective unless explicitly stated.3. Pro Rata Allowance of Deduction:The Tribunal considered the assessee's alternative plea for a pro rata allowance of deduction under Section 80-IB(10) for the residential units. The Tribunal noted that the assessee had complied with the three conditions laid down in Section 80-IB(10) for residential units, and the only dispute was the extent of the commercial area. The Tribunal directed the AO to allow the deduction on a pro rata basis for the residential units, excluding the commercial area, which constituted 9.31% of the total constructed area.Conclusion:The Tribunal concluded that the amendment brought by the Finance (No. 2) Act, 2004, was prospective and not applicable to the assessment years 2003-04 and 2004-05. The Tribunal directed the AO to allow the deduction under Section 80-IB(10) on a pro rata basis for the residential units, excluding the commercial area. The appeals filed by the assessee were partly allowed.