TaxTMI 
TaxTMI 
2011 (1) TMI 934
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....pur, Ahmedabad. Return of income showing total income of Rs. 5,15,340 was filed on 31-12-2006 claiming deduction of Rs. 4,33,79,124 under section 80-IB(10). In the assessment order passed under section 143(3) on 29-12-2008 this section 80-IB(10) deduction claimed has been disallowed and assessment has been framed at total income of Rs. 4,38,94,463. Perusal of the assessment order shows that the Assessing Officer was of the view that the permissions and approvals by the local authorities were not in the name of the assessee but in the name of Kanji Maharaj Cooperative Housing Society Ltd., that the land on which the flats were constructed was owned by the aforementioned society and not by the assessee. In the Assessing Officer's view if the land is not owned by the assessee, it constructed flats on the land only as an agent of the cooperative housing society. The Assessing Officer has cited the Development Agreement in which the cooperative housing society engages the services of the assessee for development of the property and implementation of the scheme (para 3.9 of the assessment order). The Assessing Officer has reproduced in the assessment order clauses 8, 9 and 15 of the Deve....
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....spect to 110 units. The BU permission for 110 units was given against revised development permission dated 5-8-2004 wherein usable area in square meters of built-up construction was mentioned as 17794 sq. mtrs., whereas the Development Agreement mentioned that the assessee had to construct 94 units with usable area in square meters of 12260.41 sq. mtrs. of the built-up construction. 10. Vide order sheet noting and hearing dated 9-6-2010 the ld. AR was asked to clarify the above point. It was clarified vide note sheet dated 9-6-2010 by the AR that the Development permission dated 1-10-2003 for 94 units was for usable area in square meters (12260.41 sq., mtrs.) of built up construction, which was revised vide development permission dated 16-3-2004 for 88 units for usable area in square meters (16575 sq. mtrs.) of built up construction, however, finally revised development permission was given vide letter dated 5-8-2004 by AUDA for 110 residential units usable area in square meters (17794 sq. mtrs.) of built up construction. It was however confirmed by the learned AR that the first development permission was for 94 units dated 1-10-2003. That BU permission dated 3-8-2004 was with r....
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....ructed residential units and is thus not entitled to deduction is a point of legal controversy raised by the Assessing Officer and has been dealt from Paras 28 to 32 below. 14. The second condition stipulated in clause (b) of section 80-IB(10) is : The project is on the size of plot of land which has a minimum area of 1 acre. The third condition stipulated in clause (c) of section 80-IB(10) is : The residential unit has a maximum built up area of 1500 square feet. 15. For better clarity vide this office letter dated 13-8-2009 reference under section 131(1) was made to the Departmental Valuation Officer to make verification and inform if two conditions mentioned in clauses (b) and (c) above are found fulfilled. It may be mentioned here that there was correspondence between the appellant and the DVO on various points raised by the DVO while making the verifications. The appellant was also requested by this office time and again to cooperate with the DVO in making the necessary documents and facilitating inspection to him. 16. Finally vide letter dated 22-4-2010 the DVO sent his report which is enclosed as Annexure 2 of this order. Letter of DVO consists of Annexu....
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.... the arguments given by the ld. AR with respect to report dated 22-4-2010 alone are material. 19. With respect to the point of DVO that terrace in front of penthouse to be included in the built-up area of the flat, vide submission dated 2-6-2010 it was stated as under : 'the argument is based on presumption and in total disregard of the fact that the terrace referred to by the DVO is open to sky and not balcony or verandah. It appears that the DVO is trying to create confusion and to create prejudice against the appellant. It is submitted that there is no such provisions in the Act to consider the terrace area which open to sky as part of built-up area. NO such presumption can be relied upon.' 20. After going through rival submissions on the point, I am of the view that as per definition of 'built-up area' given in the Income-tax Act, the built-up area of balconies and projections has to be included in the built-up area of a residential unit. It is known of all that balconies are open to sky also, and therefore this argument of the appellant holds no water because first the terrace in front of penthouse even if open to sky becomes a balcony which has to be counted in the b....
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....Annexure 3 of this order) to confuse 'common parking area' heading has been put, though it is exclusive car parking area allotted to each flat owner. In this view car parking has been included in the 'super built-up, area incorrectly by the appellant though its built-up area allotted exclusively to each flat owner and is different from the common area like staircase which is used in common by flat owners along with other flat owners. 24. During the course of appellate proceedings it was argued by the ld. AR that parking space was not sold, that it was common area. But perusal of one of the allotment letters for selling one of the flats (C-53) furnished during the course of the appellate proceedings, shows that the appellant had mentioned composite super built-up area 232 sq. yards sold by it. One square yard = 9 square feet therefore it comes to 2088 sq. ft., whereas in the Table (Annexure 3 of this order) given by the appellant total super built up area has been mentioned against C 53 flat as 2021.39 sq. ft. only. As per DVO's opinion if in the built-up area of C 53 flat given by the appellant at 1422.27 sq. ft. is taken and to it car parking area allotted to it 450.22 sq. ft. ....
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....-up area limit prescribed in clause (c) of section 80-IB(10). 28. Now to come to the legal controversy whether section 80-IB(10) can be denied to an assessee on the logic taken by the Assessing Officer that he is not the owner of the land but acted merely as an agent of the cooperative Housing Society. It was stated in the statement by the appellant that as per development agreement society had given possession of said land to the developer for the purpose of development. That by virtue of the development agreement the appellant had obtained the land possession together with the rights to develop and construct the project. That it was covered by Hon'ble Tribunal Ahmedabad decision in the case of Radhe Developers and Shakti Corporation. Vide submission furnished on 4-6-2010 hearing it was stated that the appellant purchased all substantive land development rights which include all other rights for Rs. 3,00,000 and same is nothing but land and other costs incurred by the society. It was informed that cheque from Kalupur Commercial Cooperative Bank account of Rs. 2,50,000 dated 1-4-2005 and Rs. 50,000 dated 8-9-2005 was issued in this regard. 29. This point has to be exami....
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....nt itself, but this is not the case here, there is no written document of any purchase of land or development rights neither any mention in the development agreement. 3. The appellant did not act as a Contractor of the housing society, as is proved by following clauses of the development agreement dated 14-8-2003 signed between the appellant and Kanji Maharaj Cooperative Housing Society Ltd. Clause A of the Development Agreement states that the Society has purchased the land at Vejalpur and the said Society is of its absolute independent ownership. Clause B states that the said Society intends to construct low rise buildings consisting of flats for dwelling. Clause C states that the Society has decided to appoint the appellant for the purpose of planning, execution, construction and completion of the scheme because the appellant is having the experts, experience and efficiency for the same. Clause 9 of the Development agreement stats that the appellant has given an approximate lump sum estimate in relation to construction of residential units of the project, as shown in the plans but if any member wishes to put up any construction, changes over and above the stipulat....
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....sessee. He also referred to the permission for development for 94 units dated 1-10-2003 (PB-85) and further referred to PB-93 dated 16-3-2004, through which permission to construct the property in question was modified to 88 units and also referred to PB 101 dated 6-8-2004 which is the permission for development of 110 units under FSI on payment. He has also referred to PB-118 dated 3-2-2005 through which building use permission was granted for 110 units developed and constructed by the assessee. The learned counsel for the assessee explaining the contents of the above agreement in question and necessary permissions for construction, development and permission to use, emphasized that the assessee has owned development rights and also the profits and loss shall have to be borne by the assessee and that the entire sale consideration shall be used by the assessee only. He has referred to other pages in the paper book. The permission to construct and development the property was granted as per the limits prescribed under section 80-IB(10) of the Act and the assessee constructed and developed the residential units within the prescribed limit. The learned counsel for the assessee also fi....
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....can be modified by the oral agreement by conduct by the parties. He has submitted that since the assessee enrolled member for the society and incurred entire development and construction expenses and also received entire consideration, the assessee fulfilled the requirement of section 80-IB(10) of the Income-tax Act. He has submitted that the definition of section 80-IB(14) provides the definition of "built-up area" which could not be included for open terrace because the open terrace is not balcony as noted by the learned CIT(A). The terrace is not covered as it is open to sky. He has referred to PB 46 which is the report of the DVO to show that DVO took the above open terrace as considered in front of pent house at 6th floor would be analogous to balcony and verandah and would be included in the covered area. He has submitted that the report of the DVO is incorrect and he has referred to several dictionary definitions for the purpose of explaining the word "balcony", which we would be referring to in later part of this order. He has submitted that the details of the built-up area have been given at PB-52 and 53 to show that "built-up area" developed by the assessee was within 150....
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.... at large and that the same would not apply to the big property. The learned DR submitted that the facts in the case of Radhe Developers (supra) and the Shakti Corpn.'s case (supra) are different and in the case of the assessee no agreement and no details of the payment have been made, therefore, the assessee would not be entitled for any deduction. 6. We have considered rival submissions and material available on record. Section 80-IB(10) reads 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(3) to (11), (11A) and (11B) (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. (10) The amount of deduction in the case of an undertaking developing ....
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....gate built-up area of the housing project or two thousand square feet, whichever is less. Explanation.-For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government)." 7. The definition of "built-up area" is provided in section 80-IB(14)(a) of the Act, which means "the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units." Before proceeding further, it would be relevant to mention the facts considered in the cases of Radhe Developers & Shakti Corpn. (supra) decided by the ITAT, Ahmedabad Benches. In the case of Radhe Developers (supra), the assessee claimed deduction under section 80-IB(10). However, the Assessing Officer disallowed the claim on the ground that (i) the assessee was not the owner of the land, and (ii) each approval was also not in the name of the assessee and it had acted merely as an agent/contractor for construction....
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....or. Having entered into agreements with landowners for development and building the housing project, assessee was obviously a contractor but it does not derogate the assessee for being a developer, as well. The term contractor is not essentially contradictory to the term developer. As stated above, it is the undertaking that develops or builds the housing project that is entitled to deduction irrespective of the fact whether that it is the owner or not or whether it is the contractor thereof. The requirement for claiming deduction is that such an undertaking must develop and build housing project, be it on their own land or on the land of others and for which a tripartite agreement has been entered into for development and building housing project; or be the assessee a contractor for developing and building housing project or an owner of the land. The word '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 ....
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....ing project, be it developed by a contractor or by an owner. The assessee, in the instant 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 lacs, and taken the possession of the land for development and building the housing project and satisfy that condition as well of being the owner of the land in view of provisions of section 2(47)(v). When the assessee has taken on the possession of immovable property or retained it in part performance of a contract of a nature referred to in section 53A of the Transfer of Property Act, 1882 it amounts to transfer under section 2(47)(v). In the instant case there was, definitely, a dominion of the developer over the land to the exclusion of others inasmuch as possession of the land is given to the developer by the land owners to carry out the construction activity of the housing project. The assessee developer has complied with all the conditions as provided under section 80-IB(10) of the Act, so as to claim deduction. The assessee has also passed on the part consideration for acquiring the land through an 'Agreement to sa....
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....that the permission was not granted in the assessee's name and the approval from the Municipal Corporation was in the name of the original land owner and not in the name of the assessee. The Tribunal considered the averment and the material on record and allowed the claim of the assessee and it was held as under : "In the instant case, there was no agreement to share the constructed area. This agreement relates only to purchase part of the land from the landowner by the assessee for a predetermined consideration. All the responsibilities for carrying out the construction, permission, NA, NOC, legal proceedings and the results of the development lies with the assessee. The first party is only to co-operate the assessee in carrying out the development and also to execute the documents whenever it is required by the developer. The assessee has also handed over the physical possession to the builder for carrying out the development of the project. The landowner does not have any right, interest, title in the development so carried out except to the extent he has to receive the consideration from the assessee. The assessee is entitled to publicize the project, print brochures, etc., ....
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....velopers (supra) cannot be applied universally without looking into the development agreement entered into by the developer along with the landowner In the case of the assessee, since it had filed copy of the development agreement and crux of the agreement was that the assessee had purchased the land and had developed the housing project at its own, the assessee would be entitled to the deduction under section 80-IB(10)." 9. The learned counsel for the assessee referred to the terms of the agreement for housing project (PB 62). According to which, the responsibility of the assessee have been analyzed in such manner that the planning, sanction of plan, work of construction, development of the property, labour engagement shall have to be done by the assessee in respect of the development of the property in question. It is further provided that the assessee shall provide parties/members to whom sale is to be made by enrolling the members. The assessee shall accept all the payments from the members/buyers. The learned counsel for the assessee filed details of the sale proceeds received from the parties of 110 units in the assessment years 2005-06 and 2006-07. It would support the ca....
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....rly explained by the assessee. The above facts would prove that the assessee entered into an agreement to sell with the society for consideration. All the responsibilities for carrying out the construction, permission and development of the project lie with the assessee. The real owner of the land was only to co-operate with the assessee in carrying out the development and also to execute necessary documents whenever required by the assessee as a developer. The real owner has also handed over the physical possession to the society as a builder for carrying out the development of the project. The land owner did not left with any right, interest or title in development which was carried out by the assessee. The assessee was entitled to enroll the members for selling the units within its own rights. All the expenses have to be incurred by the assessee for carrying out the construction etc. The motive of the real owner was not to develop, construct or carrying out any business as a builder or developer and practically no right in the hands of the real owner in this behalf. With all intents and purposes, the assessee has acquired dominant right over the land and the assessee could deal ....
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.... details of built up area of all 110 units of the residential flats at page Nos. 52 and 53 of the PB to show that the built up area was less than 1500 sq. feets. However, the DVO reported in his report (PB-46) that considering the open terrace in front of pent-house room at 6th floor which is analogous to balcony/verandah, then built-up area in this manner will measure more than 2500 sq. feet to 2600 sq. feet approximately. It is therefore a case set up against the assessee that the open terrace is analogous to balcony/verandah and if it is included in the definition of built-up area, then it would exceed the prescribed limit. The definition of built-up area means inner measurement of the residential unit at the floor level including the projections and balconies as increased by the thickness of the walls but does not include the common areas shared with other residential units. The learned counsel for the assessee provided from different dictionaries the definition of "balcony" which reads as under : 1. (Arch.) A platform projecting from the wall of a building, usually resting on brackets or consoles, and enclosed by a parapet; as a balcony in front of a wind....