2024 (7) TMI 1234 - HC - Income Tax

Assessee wins Section 80IB(10) housing deduction case as retrospective built-up area definition rejected for pre-2005 projects

The Principal Commissioner of Income Tax-5 Versus G.K. Developers

The Bombay HC ruled in favor of the assessee regarding deduction under Section 80IB(10) for housing projects. The court held that for projects approved ... Deduction u/s. 80IB (10) - deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March by a local authority - scope of definition of 'built-up area' - non considering the DVO’s report available on record wherein violation relating to two row houses having area more than 1500 sq.ft. was shown - HELD THAT:- Similar question of law as raised would stand covered by the decision of Sarkar Builders [2015 (5) TMI 555 - SUPREME COURT] wherein while examining the scheme of Section 80-IB of the Act, held that insofar the position prior to 1 April, 2005 was concerned, on the basis of the plans as approved by the Planning Authority, it was legitimate and permissible for the assessee to claim deduction u/s 801B (10), as for such period (prior to 1 April, 2005), the concept of built-up area as inserted by clause (a) in Section 80IB (14), which included inner measurement of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls, but excluding the common areas, shared with other residential units, cannot be the consideration. It was held that in the absence of applying such parameters to the constructions approved prior to 1 April, 2005, it would be to absurd results, as it could not have been expected from an assessee to comply with such conditions, that was not part of the statute when housing project was approved. Admittedly insofar as the facts of the present appeals are concerned, the project “Roseland Residence” was sanctioned prior to 1 April, 2005. As decided in Tinnwala Industries [2014 (7) TMI 90 - BOMBAY HIGH COURT] the expression ‘built up area’ introduced with effect from 1 April, 2005 could not be applied retrospectively and the Tribunal was justified in holding upto 1 April, 2005, the expression ‘built up area’ would exclude the balcony area. Decided in favour of the assessee. Issues Involved:1. Justification of the Tribunal in granting deduction under Section 80IB (10) without considering the DVO's report indicating violation related to two row houses exceeding 1500 sq.ft.Detailed Analysis:Issue 1: Justification of the Tribunal in Granting Deduction Under Section 80IB (10)1. Background of Appeals: The revenue filed three appeals challenging a common order dated 9 August 2017 by the Income-tax Appellate Tribunal, Pune Bench, which upheld the CIT(A)'s order dated 5 May 2015. The assessment years in question were 2006-07, 2007-08, and 2008-09.2. Question of Law: The appeals were admitted on the common question of law:- 'Whether on the facts and circumstances of the case and in law, the Hon'ble Tribunal was justified in granting deduction u/s. 80IB (10) without considering the DVO's report available on record wherein violation relating to two row houses having area more than 1500 sq.ft. was shownRs.'3. Supreme Court Precedent: The court noted that the issue was covered by the Supreme Court decision in Commissioner of Income-tax vs. Sarkar Builders [2015] 375 ITR 392 (SC). The Supreme Court had held that for housing projects approved before 1 April 2005, the concept of built-up area as defined in Section 80IB (14) (a) could not be applied retrospectively. The relevant observations included:- The built-up area definition, including projections and balconies, was introduced only from 1 April 2005.- The conditions in clause (d) of Section 80IB (10) were linked to the approval and construction of the housing project, and compliance could not be expected for conditions not part of the statute at the time of approval.4. Special Features Noted:- The approval of the housing project was based on relevant DC Rules.- The law and rights accrued prior to the Finance Act, 2004, were irreversible.- Section 80IB (10) included dates for project approval and completion, which were crucial for developers' planning.- The objective was to encourage housing projects for weaker sections, with specific built-up area limits for residential units.- Interpretation should avoid absurd results.- Clause (d) was to be applied prospectively, not retrospectively.5. Facts of the Present Appeals: The project 'Roseland Residence' was sanctioned before 1 April 2005.6. Reference to Tinnwala Industries Case: The court referred to a co-ordinate Bench decision in The Commissioner of Income Tax-15, Mumbai vs. Tinnwala Industries, which held that the definition of 'built-up area' introduced from 1 April 2005 could not be applied retrospectively. The Supreme Court had confirmed this decision in Commissioner of Income-tax vs. Veena Developers 2015 SCC OnLine SC 1959.7. Conclusion: Based on the Supreme Court's precedent and the facts, the court answered the question of law in favor of the assessee and against the revenue.8. Judgment: The appeals were dismissed, and no costs were awarded.This summary encapsulates the detailed legal reasoning and references pivotal to the judgment while preserving the critical terminology and significant phrases from the original text.