Tax Deduction Allowed for Mixed-Use Housing Projects: Commercial Use Must Be Under 10% for Full Benefits.

Brahma Associates. Versus Joint Commissioner Of Income-tax., Dhareshwar Promoters and Builders, Tushar Developers vs ITO and Kumar Behary Rathi and Raviraj Kothari Punjabi Associates vs DCIT

Brahma Associates. Versus Joint Commissioner Of Income-tax., Dhareshwar Promoters and Builders, Tushar Developers vs ITO and Kumar Behary Rathi and ... Issues Involved:
1. Eligibility of deduction under Section 80-IB(10) for housing projects comprising residential housing units and commercial establishments.
2. Proportionate deduction for residential units if the project includes commercial establishments.
3. Applicability of the limit prescribed by clause (d) of Section 80-IB(10).

Issue-wise Detailed Analysis:

1. Eligibility of Deduction under Section 80-IB(10) for Housing Projects Comprising Residential Housing Units and Commercial Establishments:
The Tribunal considered whether a housing project with both residential and commercial units qualifies for deduction under Section 80-IB(10). It was noted that the term "housing project" is not defined in the Act, leading to divergent views. The Tribunal concluded that the deduction is indeed admissible for such projects, provided the project is approved by the local authority as a housing project or if 90% or more of the total built-up area is used for residential units. The Tribunal emphasized that the primary objective of Section 80-IB(10) is to augment affordable dwelling units, and the presence of commercial units does not vitiate the character of the housing project as long as the residential component predominates.

2. Proportionate Deduction for Residential Units if the Project Includes Commercial Establishments:
The Tribunal addressed whether proportionate deduction should be allowed for profits attributable to residential units. It was clarified that Section 80-IB(10) allows deduction for the entire profits of the housing project and not just the portion attributable to residential units. However, if the commercial use exceeds 10% of the total built-up area, the deduction should be confined to the profits from the residential segment of the project, provided the residential segment independently meets the conditions of Section 80-IB(10).

3. Applicability of the Limit Prescribed by Clause (d) of Section 80-IB(10):
The Tribunal examined whether the limit on commercial use of built-up area prescribed by clause (d) of Section 80-IB(10) applies retrospectively. It was concluded that this limit is not retrospective and applies only from the assessment year 2005-06 onwards. The Tribunal emphasized that prior to this amendment, there was no explicit statutory limit on commercial use in housing projects, and such a restriction cannot be inferred retrospectively.

Conclusion:
The Tribunal held that:
- Deduction under Section 80-IB(10) is admissible for housing projects with both residential and commercial units if approved by the local authority as a housing project or if 90% or more of the built-up area is for residential units.
- Deduction applies to the entire profits of the housing project, not just the residential portion, except when commercial use exceeds 10%, in which case it is limited to profits from the residential segment.
- The limit on commercial use prescribed by clause (d) of Section 80-IB(10) is not retrospective and applies only from the assessment year 2005-06.