TaxTMI 
TaxTMI 
2007 (6) TMI 316
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....roject, particularly when the land is not registered in assessee's name and whether the ownership is a pre-condition to claim of deduction under section 80-IB(10) of the Act? 3. The briefly stated facts are that the assessee had developed and built a housing project on a land at Revenue Survey No. 648 belonging to one Shri Ghanshyambhap A. Patel and others, through power of attorney holder, Mahendrabhai A. Patel, who are the owners of the land. The assessee-firm had entered into a development and construction agreement with (1) Shri Vinodbhai Nathabhai Patel, HUF, (2) Shri Bhailalbhai Nathabhai Patel, HUF, (3) Harishbhai Nathabhai Patel, HUF and (4) Shri Hashmukhbhai Nathabhai Patel through their partner, Shri Chetankumar Rameshbhai Jogi. The development and construction agreement and Banakhat agreement are both dated 18-5-2000. There was a tri-party development agreement revealing that the landowners agreed to get the land developed through the assessee-firm and also agreed that the assessee-firm would make the members i.e., prospective buyers and collect the land consideration at the rate mentioned in the agreement. The project was approved by the local authority, Baroda Municip....
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....bhai Mali and not in the name of the appellant firm. Further, the approval given by the local authority was not in the name of the appellant-firm but in the name of original landowner. Further, the appellant-firm has acted merely as a contractor as it has entered into construction agreements with the unit holders. The landowners have sold the pieces of land to the unit holders directly and the appellant has merely acted as a confirming party. There is no dispute that the appellant-firm has fulfilled the remaining conditions for claiming the deduction under section 80-IB(10) of the Income-tax Act, 1961. It has been pointed out by the appellant's representative that as per the development agreement dated 29-12-2000, the appellant has to perform the following work: (i )To pay a consideration determined at Rs. 20 per sq. mtr. (clause 1) (ii )To obtain all the permissions from the competent authority and to pay the necessary development charges and other charges to the local authority. (clause 2) (iii)To advertise the development of the project and to enroll the members/customers in the housing project, to receive money from them, to issue receipts to them and for that purpose to ent....
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....ng the deduction under section 80-IB(10), ownership of land is an essential element and that the approval of the housing project by a local authority should be in the name of the person developing and building the same. As pointed out by the appellant in construing the benevolent provisions, the Court should adopt the construction which advances, fulfils and furthers the object of the Act rather than one which would defeat the same and render the provision illusory. Further, the Court cannot go to the extent of reading something that is not stated in the provision. As pointed but by the appellant's representative the appellant as per the development agreement had obtained the actual possession of the land for execution of the agreement and had independent and exclusive right to enjoy the said land. The appellant-firm had undertaken the entire development of the housing project. For the execution of the scheme it was to appoint the architect. The appellant-firm was to appoint contractors for the execution of work and to make contracts with them. Further, it was the appellant who was required to obtain all the permissions from the competent auth- ority. The appellant was responsible ....
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....ken us to the legislative history of the provisions including the provisions of section 80-IA(4F) of the Act, where initially the deduction was allowed to an undertaking engaged in developing and building housing project approved by a local authority prior to 1-4-2000. He also submitted that the existing provisions of section 80-IB(10) relevant for the relevant assessment year nowhere speaks about the ownership of land for an undertaking engaged in developing and building housing projects. The learned counsel for the assessee also relied on the various case law of the Supreme Court, High Courts and also of the Tribunal, namely, Arun Excello Foundations (P.) Ltd. v. Asstt. CIT [2007] 108 TTJ (Chennai) 71, the Supreme Court decision in the case of CIT v. Vadilal Lallubhai [1972] 86 ITR2 (SC) and in the case of Federation of Andhra Pradesh Chambers of Commerce and Industry v. State of Andhra Pradesh [2001] 247 ITR 36 (SC), decision of Lucknow Bench, of the Tribunal in the case of Sir Padampat Singhania through LR v. Dy. CIT [2004] 89 TTJ (Luck.) 646, decision of Hyderabad Bench 'A' in the case of Ocean Sparkle Ltd. v. Dy. CIT [2006] 155 Taxman 133 (Mag.), Pune Bench decision of Tribun....
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....nt agreement is not a transfer of ownership much less a transfer of approval. It gives possession not as a prelude to, or in connection with transfer of the title, but, for the limited purposes to carry out development and construction work. The learned Departmental Representative relied on the decision of the Supreme Court in the case of V.S.M.R. Jagadishchandran v. CIT [1997] 227 ITR 2401 and decision in the case of Gujarat Industrial Development Corpn. v. CIT [1997] 227 ITR 4142 (SC) in support of his submissions. He also referred to the decision of Tribunal Pune Bench in Om Engineers & Builders v. ITO [2006] 104 TTJ (Pune) 604 and also referred to the decision of Tribunal Pune Bench Nirmiti Construction's case (supra). 8. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also gone through the orders of lower authorities as well as the paper book filed by the learned counsel for the assessee. 9. In the most common mode of development of real estate by the developers, the owners of land do not desire to develop the land and they sell the land to a developer. It is the obligation of the developer to develop the land, and if nec....
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....f the city of Baroda and around it, is declared as urban development area within the meaning of section 2(xxix) of the GTP & UDA and the constructions carried out in and around Vadodara are governed by the provisions of the GTP & UDA. The provisions of section 26 of the GTP & UDA restrict everyone from carrying on development/construction over any land without the permission of the appropriate authority. i.e., Vadodara Urban Development Authority (VUDA), section 27 prescribes that an application for development is to be made, importantly, such application, can be made by 'any person.....intending to carry out any development.... in or over any land ....'. It does not refer only to an owner of the land. That apart, the definition of the term 'owner' as given in section 2(xviii) of the GTP & UDA clearly says that anyone, who develops the land on his own account or for the benefit of any other person or as a joint trustee, guardian, manager, etc., is to be treated as an owner. Section 29 of GTP & UDA authorizes VUDA to grant or refuse permission for development. In terms of the powers prescribed under section 118 of GTP & UDA, the State Government has notified rules, viz., Gujarat Tow....
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.... the land. But, on perusal of the development and construction agreement it is very clear that the landowners have agreed to get their land developed through the assessee-firm for construction of housing project. From the translated copy of approval of local authority, i.e. BMC, dated 17-7-2000, we find that it is in the name of Shri Ghanshyambhap A. Patel and others through power of attorney holder Mahendrabhai A. Patel and in this approval letter, landowner is shown as the applicant. The relevant clause Nos. 1 and 2 of the 'Agreement to sell', may now be looked into to find out what is the exact nature of the transaction. The relevant clause reads as under: "1. The above-referred land in schedule is agreed to be sold by us, party of the third part to party of the first part at the rate of per sq. ft. at Rs. 100 and today and you party of the first part has jointly paid to party of the third part Rs. 11,000 (Rupees eleven thousands only) by cash, Subhanpura, Baroda. 2. The above-said amount paid as referred in para 1, you party of the first part has to pay to party of the third part in four monthly instalments within eighteen months. During this period at the time of paying mone....
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....ed therein. Accordingly, the party of the first part as decided full consideration price is paid to the second part the confirming party i.e. to landlords and, therefore, landlords registered sale deed/the first part or nominee/s of the party of the first part are in actual possession of the land described. 3. The Party of the third part are connected with the construction of business since many years and have experience of constructing residential houses. 4. With the consent of the party of the first and second parts, the party of the third part as a developer and builder wants to do a project/scheme of constructing residential houses having area less than 1,500 sq. ft. for the middle class society." 15. On perusal of clause 11 of these agreements we find that with the consent of the party of the first and second parts, the rights and authorities are given to the third party, as a developer-cum-builder. The sub-clauses (8) and (9 ) to clause 11 elaborate that the developer-cum-builder has to take all the proceedings at Government, semi-Government, Municipal Corporation office and in legal Court and at other places on behalf of the party of the first and second parts. All necess....
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....er-cum-building contractor so at present to the party of the first part as per rules and regulations he is getting FSI, but, in future if changes take place in rules and regulations of FSI in such circumstances other than the present scheme on the land if special construction is allowed then for such additional work other than total construction made, as per rules and regulations by getting passed the plans from V.M.C., Vadodara to do the construction all the rights and authorities shall be with developer-cum-building contractor and, thereafter, also whatever F.S.I, rights shall remain that also as per this agreement shall be with the party of the third part." 18. From the clauses of the development and construction agreements as well as agreement for sale, both dated 18-5-2000, extracted above, we observe that these two agreements effectively transfer to the assessee firm all the rights of development and construction and to deal with the land for a consideration payable within a stipulated time; that the assessee had been put in possession of the land on the terms and conditions as mentioned in these two agreements; that the assessee firm has also paid consideration of Rs. 56 la....
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.... and gains of such undertaking. The said section 80-IA(4F) reads as under : "(4F) This section applies to an undertaking, engaged in developing and building housing projects approved by a local authority subject to the condition that the size of the plot of land has a minimum area of one acre, and the residential unit has a built up area not exceeding one thousand square feet: Provided that the undertaking commences development and construction of the housing project on or after the 1st day of October, 1998 and completes the same before the 31st day of March, 2001." 21. On a close reading of this provision, it would be apparent that it applied to an undertaking which was engaged in developing and building housing projects approved by a local authority and the deduction was subject to the conditions that (i) the size of the plot of land was a minimum area of one acre, and the residential unit has a built up area not exceeding 1,000 sq. ft; and (ii) the undertaking commenced development and construction of the housing project on or after 1-10-1998, and completed the same before 31-3-2001. 22. Section 80-IA was later split into and spread in two sections 80-IA and 80-IB by the Fin....
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....y the existing benefits to provide that in areas other than those falling in and within 25 kms. from the municipal limits of Delhi and Mumbai, the built-up area of dwelling units may be upto a maximum limit of 1,500 sq. ft. instead of 1,000 sq. ft. at present to make them entitled for benefit. The built-up area for areas falling in Delhi and Mumbai and within 25 kms. of the municipal limits of both, however, shall remain the same. The proposed amendment will take effect from 1-4-2000, and will, accordingly, apply in relation to the assessment year 2000-01 and subsequent years." 25. The provisions of section 80-IB(10) thus are sought to provide that for approved housing project, the profits are fully deductible if the project has the built-up area for the cities of Delhi and Mumbai, and the area within 25 kms. from the municipal limit thereof does not exceed 1,000 sq. ft. and for other places the built up area of residential unit does not exceed 1,500 sq. ft. A provision is also made whereby any undertaking of an Indian company, which is entitled to deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in ....
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....d above. A plain reading of sub-section (10) of section 80-IB reveals and makes it evident that there must be an undertaking developing and building a housing project as approved by a local authority. It does not have any further condition that such development and building of the housing project should also be on a land owned by an assessee undertaking. It might be true that the land belongs to the person who has entered into an agreement with the assessee to develop and build housing project but on a perusal of the agreement as narrated above, it is evident that the development and building work has been carried out by the assessee in pursuance of a tripartite agreement and it is not by the land-owners. Therefore, the mere fact that the landowner and the undertaking developing and building housing project, are two different entities would not make any difference. The deduction would be eligible to the person who is developing and building housing project and not to the mere owner thereof. 29. It is also the case of the revenue that the assessee was a mere contractor developing and building housing project and, therefore, it could not be a developer. We fail to understand as to h....
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....the state of being developed. (b)Happening. 31. The Supreme Court in the case of Gujarat Industrial Development (supra), considering the meaning of 'developer' held that the word 'Development' appearing in the provisions should be understood in its wider sense and, therefore, granted exemption even though the Gujarat Industrial Development Corporation was engaged in the industrial development. The development means the realization of potentialities of land or territory by building or mining. Accordingly, it can be safely said that a person who undertakes to develop real estate by developing and constructing a housing project is an eligible undertaking; developing and building of housing projects within the meaning of section 80-IB(10) of the Act. In the present case in hand, the landowner has not made any conscious attempt to develop the property except ensuring their rights as landowner so that the sale value of the land could be realized to them as per the terms of 'Agreement to Sale' and the 'Development Agreement'. The landowners, no doubt, have not thrown themselves into develop-pment of property. It is only the assessee who is developing the property. Throwing itself into t....
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....any in case of amalgamation or demerger of the original undertaking which had started developing and building the housing project. For the sake of convenience, sub-section (12) of section 80-IB is reproduced hereunder : "(12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger. (a )no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b)the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place." 34. Even if that is so required, the assessee in the present case can also be said to be the owner of the land as it had made part payment to the landowners during the financial years 2000-01 and 2001-02 for an amount of Rs. 56 lakhs, and taken the possession of the land for development and building the housing pro....
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....ot provide for any condition that the assessee should be owner of the land. The relevant provisions of sub-section (1) of section 80-IB, read as under: "80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.-(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11) and (11A) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section." 37. The learned Departmental Representative relied on the decision of the Supreme Court in the case of V.S.M.R. Jagadishchandran ( supra), observing at page No. 243 that 'It has been held that where a mortgage was created by the previous owner during his time and the same was subsisting on the date of his death, the successor obtains only the mortgagor's interest in the property and by disc....
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....to any income of an authority constituted by or under any enacted law. This first limb of the clause is squarely available to the corporation as it has been constituted under the Gujarat Act. The second limb of the clause consists of two alternatives, of which the first is that the authority constituted by law should be for dealing with the need to provide housing accommodation. That alternative is obviously not available to the appellant corporation as nobody has a case that the appellant corporation has anything to do with the obligation to provide housing accommodation. It is the second alternative in the clause under which the appellant seeks shelter to be absolved from the liability to pay income-tax. As per that alternative, if the authority is constituted for the purpose of planning or development or improvement of any city or town or village or a combination of them, the income of such authority is not exigible to income-tax." 40. In the case of Tamil Nadu Civil Supplies Corpn. Ltd. v. CIT [2001] 249 ITR 2141 (SC) referred to by the learned Departmental Representative, the Supreme Court has considered the issue as under : "The assessee before it had purchased certain hou....
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....revented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has the right to dispose of the property, but the term also includes one having a possessory right to land or the person occupying or cultivating it. The term 'owner' is used to indicate a person in whom one or more interests are vested for his own benefit...." In the same dictionary, the term 'ownership' has been defined to mean, inter alia, a 'collection of rights to use and enjoy property, including right to transmit it to others.... The right of one or more persons to possess and use a thing to the exclusion of others. The right by which a thing belongs to someone in particular to the exclusion of all other persons. The exclusive right of possession, enjoyment and disposal; involving as an essential attribute the right to control, handle and dispose.' Dias on Jurisprudence (4th edition, at p. 400) states : 'The position, therefore, seems to be that the idea....
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....ying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, 'to tax the income', we are of the view, 'owner' is a person who is entitled to receive income from the property in his own right. In R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC), it was held for the purpose of section 9 of the Indian Income-tax Act, 1922, that the owner must be the person who can exercise the rights of the owner, not on behalf of the owner but in his own right. We may usefully extract and reproduce the following classic statement of law from Perry v. Clissold [1907] AC 73 (PC) quoted with approval in Nair Service Society Ltd. v. K.C. Alexander AIR 1968 SC 1165 : 'It cannot be disputed that a person in possession of land in the assumed character of owner and exercising peaceably the ordinary rights of ownership has a perfectly good title against all the world but the rightful owner. And if the rightful owner does not come forward and assert his title by the process of law within the period prescri....
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....uction. The assessee has also passed on the part consideration for acquiring the land through an 'Agreement to sale' and in view of the provisions of section 2(47) read with section 53A of the Transfer of Property Act, 1882, the assessee has completely performed his part of the contract and developed the housing project and transferred the flats/tenements to the buyers in view of 'Agreement to sale' as well as 'Development agreement'. It shows that the assessee was in full possession of the land for the development of housing project and has carried out all the activities of a complete housing project by taking all risks associated with this business. The assessee is engaged in complete infrastructure including engaging architects, structural consultants, designing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, on behalf of the landowners, got the plans approved, hiring of machinery and equipments, hiring engineers, appointing contractors, etc. 44. As discussed above and in view of the case law of the Supreme Court in the case of Mysore Minerals Ltd. (supra), wherein it has been categorically observed as regards to ownership t....
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....Federation of Andhra Pradesh Chambers of Commerce & Industry (supra), observed as under : "We are in no doubt whatever, therefore, that it is only land which is actually in use for an industrial purpose as defined in the said Act that can be assessed to non-agricultural assessment at the rate specified for land used for industrial purposes. The wider meaning given to the word 'used' in the judgment under challenge is untenable. Having regard to the fact that the said Act is a taxing statute, no Court is justified in imputing to the Legislature an intention that it has not clearly expressed in the language it has employed." 49. In this case also, the Supreme Court has very clearly held that no Court is justified in imputing Legislature an intention that it has not clearly expressed in the language it has employed. In the present case, there is no such condition as regards to ownership and this case also applies in favour of assessee. 50. The Tribunal, Lucknow Bench, in the case of Sir Padampat Singhania (supra) has observed that the conditions as enunciated in a particular provision are to be interpreted strictly as per the provisions of law. 51. The Tribunal, Hyderabad Bench 'A....
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....held that the specified authority was eligible for deduction under section 80-IA of the Act. In the present case also, the developer is claiming deduction in view of the development agreement entered with the landowners as well as the prospective buyers. 53. The Tribunal, Pune Bench, in the case of Nirmiti Construction ( supra) held that 'The deduction under section 80-IB(10) was admissible to those undertakings which commenced the development and construction of housing project on or after 1-10-1998. In the instant case, it is the contention of the assessee that the development and construction of housing project was commenced after 1-10-1998. However, the depart- ment took the stand that in this case the development commenced with the development agreement and acquiring irrevocable power of attorney and more so, when layouts were furnished to the Municipal Corporation for preliminary sanction on 6-6-1998. It is clear that the assessee had not made any material change as far as the land is concerned. Admittedly, construction work was commenced after building permission (Bandhkam Parwangi) was sanctioned by the Municipal Corporation on 23-7-1999. The only debits prior to 1-10-1998....
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....iming deduction under section 80-IB(10). Accordingly, the Assessing Officer is directed to allow the deduction to the assessee.' It can be seen that in this case nothing was done by the assessee to hold it as a developer. The facts are entirely different and the issue before the Bench was also entirely different which does not relate to the present issue in hand. 54. The Supreme Court in the case of South Arcot District Co-operative Marketing Society Ltd. (supra) dealt with the concept of liberal construction for granting deduction under section 80P of the Act. It held that a liberal interpretation should be given to the language of the provision while dealing with the exemption provisions. It is stated that having regard to the object with which the provision has been enacted, it is apparent that a liberal construction should be given to the language of the provision. As in the present case, there is no condition as regards to ownership in the provisions of section 80-IB(10) of the Act, we feel that taking a liberal construction of the provision, the assessee is eligible for deduction under section 80-IB(10) of the Act. 55. The Supreme Court in the case of CIT v. U.P. Co-operati....
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....s not take away its ordinary meaning. An interpretation clause is not meant to prevent the word receiving its ordinary, popular and natural sense whenever that would be properly applicable, but to enable the word as used in the Act, when there is nothing in the context or the subject-matter to the contrary, to be applied to something to which it would not ordinarily be applicable.' It further observed that even if both the interpretations-one put by the learned counsel for the company and the other by the learned counsel for the Department-are taken to be correct, it is the principle of interpretation that the interpretation which is favourable to the subject should be adopted and that which is favourable to the Department should be discarded. In case that principle is applied to the present case, the interpretation which supports the assessee has to be accepted. We need not go that far as in our opinion, on a plain reading of the agreements and the provisions of law, the assessee is entitled to the deduction clearly. 61. The Kerala High Court in the case of N.P. Mathew (supra) also observed that if another view is possible, the well known principle in taxation is that if two view....
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....r that the assessee had made this sale deed for sale of plot of land. Further, on verification of development agreement with the landowner, we find that here also the reference is with respect to land area only. In both the documents assessee had not acquired rights and has not relinquished rights with reference to FSI. Further, on verification of approved map for each unit is with reference to built-up area only. Under the circumstances, the assessee has never dealt with FSI, both in terms of acquiring rights in the land and for relinquishment of such rights in the land. The calculation given in approved plan is of maximum permissible FSI and by giving such calculation it is not made mandatory by any provision of any Act to make construction to the fullest extent of maximum permissible FSI. The utilization of FSI by the builder developer depends on many factors like situation of plot, the type of locality and the type of buyers' affordability. It is the market force, which determines the average size of the residential unit - a commercial decision, which prevails for the purpose of carrying out the business and for making residential units and not the permissible maximum FSI. It w....
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....nutilized FSI sold is imaginary and based on surmises and conjunctures. 66. In the case of Ashirwad Enterprises [IT Appeal No. 2527 (Ahd.) of 2006], the assessee's second dispute is against the non-adjudication of a ground in respect of disallowance of Rs. 48,042 made by the Assessing Officer under section 40A(3) of the Act. On verification of the records, it seems that the CIT(A) has not adjudicated this ground. We, accordingly, remit the matter back to the file of the CIT(A) for deciding the matter in accordance with law, after affording adequate opportunity of being heard to the assessee. 67. In the case of Darshan Developers [IT Appeal No. 2528 (Ahd.) of 2006], the assessee's contention was that the CIT(A) has not adjudicated the ground in respect of telephone expenses, office expenses and site expenses totalling to Rs. 31,190. In this case also, we remit the matter back to the file of the CIT(A) for deciding the matter in accordance with law, after affording adequate opportunity of being heard to the assessee. 68. In case of Shyamal Builders [IT Appeal No. 2876 (Ahd.) of 2006], the assessee's another dispute was against the addition of Rs. 2,46,486 on account of interest ch....