TaxTMI 
TaxTMI 
TaxTMI 
2011 (2) TMI 373
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....mercial area up to 10% of the project is eligible for deduction on the entire profits of the project u/s.80IB(10) up to 1/4/2005 ? (iii) Whether on the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in holding that the projects wherein the commercial area is more than 10% of the project and the profits from the residential dwelling units in that project can be worked out separately then, subject to fulfilling other conditions, deduction on the profits relatable to the residential part of the project would be eligible for deduction under Section 80IB(10) ? (iv) Whether on the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in holding that the limit on commercial use of built up area as prescribed by clause (d) of section 80IB(10) has no retrospective application and it applies only w.e.f. the assessment year 2005-06 ? 2. The assessment year involved herein is AY 2003-04. 3. The respondent ("assessee" for the easy reference) carries out business as builders, promoters, contractors and dealers in Real Estate. 4. The assessee had undertaken a construc....
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....B(10) would be allowable on the profits of the entire project; (b) where the project is approved as residential plus commercial, the deduction under Section 80IB (10) would be allowable only if the total Built-up area used for residential units in the project is 90% or more; (c) Where the commercial user is more than 10% of the total built-up area and the profits of the residential units can be worked out on stand alone basis, then deduction under Section 80IB(10) would be allowable only on the residential units; Challenging the aforesaid decision of the Special Bench, the present appeal is filed by the Revenue. 7. We have heard Mr. Gupta and Mr. Ahuja, learned counsel for the revenue and Mr. Tralshawala, learned counsel for the respondents. We have also heard Mr. Inamdar, Mr. Pardiwala, learned senior Advocates and Mr. Jitendra Jain, Dr. K.Shivram, Mr. A.K.Jasani and Ms. Madhavi Tavanandi, learned advocates for intervenors. 8. The arguments advanced by the counsel for the Revenue can be summarised thus:- (a) Section 80IB(10) as originally enacted allowed 100% deduction on the profits derived from the housing projects approved by a local authority s....
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....the housing projects with the commercial units to the extent permissible under the respective development Control Rules cannot be a ground to hold that the legislature under Section 80IB(10) intended to extend the deduction to housing projects having commercial units. However, it is conceded by counsel for the revenue before the ITAT and also before this Court that where the projects are approved by the local authorities as 'housing project' with residential units and commercial units to the extent permissible under the Rules, then, deduction under Section 80IB(10) would be allowable on the entire project and where the project is approved as 'residential plus commercial', then deduction under Section 80IB(10) would not be allowable. As an alternative argument, it is contended that a project approved with residential units and convenient shopping may be considered a housing project, but a project approved as residential plus commercial cannot be considered as a housing project. (e) Decision of the Tribunal that a project where 90% or more of the area is used for residential purposes and the commercial user is not more than 10% of the total area of the plot would constitute a....
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....xclusively meant for commercial purposes. Though the commercial user in the project Brahma Estate exceeds 10% of the total area of the plot, the Tribunal has allowed deduction under Section 80IB(10) by treating the 15 residential buildings as a independent housing project because profits from the 15 residential buildings could be ascertained and computed on stand alone basis. Being satisfied with the relief givento 15 buildings the assessee has chosen not to file any appeal claiming deduction on the entire project. 10. Dealing with the merits of the case, counsel for the assessee / intervenors contend that Section 80IB(10) does not define the expression 'housing project' but provides deduction to a housing project approved by a local authority. Therefore, if any local authority approves a project to be a housing project with commercial units to the extent permitted, then it would not be open to the income tax authorities to hold that such a project is not a housing project for the purposes of Section 80IB(10). Referring to Section 22, 54, 54F of the Income Tax Act and Section 2(ea) of the Wealth Tax Act, 1957 it is contended that if the term 'house property' could include p....
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....tion of the dispute, we quote hereinbelow relevant portion of Section 80IB(10) as it stood before 1/4/2005 and as modified with effect from 1/4/2005:-. Section 80IB(10) [as it stood prior to 1/4/2005] " (10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March, 2005 by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to any assessment year from such housing project if, -- (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998; (b) the project is on the size of a plot of land which has a minimum area of one acre; and (c) 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 kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place. " Section 80IB(10) [after amendment with effect from 1/4/2005] " 10 The amount of deduction in the case of an undertaking developi....
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....ed by the local authorities. Therefore, which project would qualify to be called as a housing project has to be gathered from the Rules / Regulation framed by the local authority. 18. In Mumbai, Municipal Corporation for Greater Mumbai is the local authority and the development projects in Mumbai are approved by the Municipal Corporation as per the Development Control Regulation of Greater Mumbai, 1991 ('DC Regulation Mumbai' for short). Similarly, in Pune, the Pune Municipal Corporation is the local authority and the development projects at Pune are approved as per the Development Control Rules for Pune Municipal Corporation, Pune, 1982 ('DC Rules Pune' for short). 19. Rule 2.56.1 of DC Rules Pune defines the expression 'Residential Buildings' as follows:- " Residential Buildings - These shall include any building in which sleeping accommodation is provided for normal residential purposes with or without cooking or dining or both facilities. It includes one or two or multi-family dwellings, lodging or rooming houses, hostels, dormitories, apartment houses and flats, residential hotels and private garages . " Thus, the DC Rules Pune permits commercial user ....
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....tted under the DC Rules. 22. It is not in dispute that where a project is approved as a housing project without or with commercial user to the extent permitted under the Rules / Regulations, then, deduction under Section 80IB(10) would be allowable. In other words, if a project could be approved as a housing project having residential units with permissible commercial user, then it is not open to the income tax authorities to contend that the expression 'housing project' in Section 80IB(10) is applicable to projects having only residential units. 23. Once it is held that the local authorities could approve a project to be housing project without or with the commercial user to the extent permitted under the DC Rules, then the project approved with the permissible commercial user would be eligible for Section 80IB(10) deduction irrespective of the fact that the project is approved as 'housing project' or approved as 'residential plus commercial'. In other words, where a project fulfills the criteria for being approved as a housing project, then deduction cannot be denied under Section 80IB(10) merely because the project is approved as 'residential plus commercial'. &n....
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....re, the argument of the revenue that with effect from 1/4/2005 the legislature for the first time allowed Section 80IB(10) deduction to housing projects having commercial user cannot be accepted. 26. The alternative argument of the revenue is that the projects with convenient shopping could be considered as housing projects under Section 80IB(10) upto 1/4/2005. That argument is also without any merit, because, so long as the DC Rules permit convenient shopping as also other commercial user in a housing project, it would not be open to the income tax authorities to contend that the projects with convenient shopping alone could be considered as housing projects. In the present case, it is not in dispute that the project is approved for residential and commercial buildings as per the DC Rules, Pune. The fact that the residential buildings under the DC Rules can have commercial user upto 50% of the built-up area of the plot cannot be a ground to hold that the project is not a housing project. It is for the legislature to impose restrictions on commercial user in a project for the purposes of availing Section 80IB(10) deduction and that has been done by inserting clause (d) to S....
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.... while holding that in law, the assessee was entitled to Section 80IB(10) deduction on the profits of the entire project, in the facts of the present case, since the assessee has not challenged the decision of the Tribunal, we are not inclined to disturb the decision of the Tribunal in restricting the Section 80IB(10) deduction only in respect of the profits derived from 15 residential buildings. 29. Lastly, the argument of the revenue that Section 80IB(10) as amended by inserting clause (d) with effect from 1/4/2005 should be applied retrospectively is also without any merit, because, firstly, clause (d) is specifically inserted with effect from 1/4/2005 and, therefore, that clause cannot be applied for the period prior to 1/4/2005. Secondly, clause (d) seeks deny Section 80IB(10) deduction to projects having commercial user beyond the limit prescribed under clause (d), even though such commercial user is approved by the local authority. Therefore, the restriction imposed under the Act for the first time with effect from 1/4/2005 cannot be applied restrospectively. Thirdly, it is not open to the revenue to contend on the one hand that Section 80IB(10) as it stood prior to ....