TaxTMI 
TaxTMI 
2011 (3) TMI 1042
X X X X Extracts X X X X
X X X X Extracts X X X X
....er section 80-IB(10) of the Act, deduction under section 80-IB cannot be denied. (4) In law and in the facts and circumstances of the appellant's case, the CIT(A) ought to have appreciated that appellant has worked as developer and not contractor hence explanation inserted by Finance Act, 2009 w.e.f. 1-4-2001 is not applicable in appellant's case. (5) In the law and in the facts and circumstances of the case, the appellant denies his liability to pay interest. (6) The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. 2. The facts of the case are that the assessee is engaged in the business of construction and development of housing project. It filed return of income on 31-12-2006 declaring income of Rs. NIL claiming deduction of Rs. 5,86,81,337 under section 80-IB(10) by filing audit report in Form No.10CCB. During the course of assessment proceedings the AO found that one Nayankunj Co-op. Housing Society Ltd. purchased the land and was given to the assessee for development of a housing project. On disposal of houses assessee showed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 80-IB(10) provides that, date of completion of the housing project shall be taken to be the, date on which the completion certificate is issued by the local authority. Since in this case completion certificate was not issued to the assessee it is not entitled to the deduction. (6) Following conditions are required to be satisfied for claiming deduction under section 80-IB(10) read with section 80-IB(1). (i) The gross total income of the assessee should include the profits from the business of an undertaking developing and building housing projects. (ii) The housing project should be approved by the local authority. (iii) The project should be on a plot of land, which has a minimum area of one acre. (iv) The residential units under the project should have a maximum built up area of 1000 sq. ft. in Delhi or Mumbai and of 1500 sq. ft. in any other place. From this reading it is clear that there should be complete identity between assessee referred to in sub-section (1) and that referred to in sub-section (10). (7) For claiming deduction, a separate rep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ill be handed over or adjusted against the account of society maintained by the assessee. (10) The case of the assessee is different from the facts in the case of Radhe Developer where assessee had purchased the land by virtue of development agreement but this is not the case here as there is no written document of any purchase of land or transfer of development rights. (11) Since land ownership remained with the society and not with the assessee, therefore, cost of the land of residential units collected by the assessee would go to the society and not to the assessee. (12) The assessee has, therefore, acted only as a contractor for the housing society NCHCL and the payments towards construction of residential units as made by the members of the society to the appellant had finally gone to the society. The assessee has in fact developed the society as a work-contract and not as a developer. 4. In respect of a few issues raised by the AO the ld. CIT(A) found facts contrary to the assertion of the AO. She found that - (1) Necessary approval for the project has been obtained from the local authorities and, therefore, this reason for denying of deduction by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uilding use permission (completion certificate) from local authority. (B) Vide letter, dated 15th September, 2009 - 1. Xerox copies of Typical Floor Plan of all -A, B, C & D Blocks. 2. Xerox copy of Terrace Buildings plant of 'D' Block 3. Xerox copy of land purchase deed. 4. Justification of terrace area. (C) Certificate of Architect mentioning built up area of housing units at each floor and separate working of built up area of each flat. (5) It is incorrect to make a charge against assessee that it did not allow inspection of the top floors to the D.V.O. It is because by that time all the flats had been disposed of and assessee had no control over any of those flats. All the keys were with the flat owners and even assessee if wanted, could not have an access to such flats. The department would have approached the flat owners for inspection and measurement or it could have approached the society for that purpose. After developing the project and handing over the possession to the flat owners, assessee had no say or control or access to any of the fla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he land to the assessee and it has empowered the assessee to develop the land and sell the units at assessee's own risk and cost. It is mentioned in the resolution passed by the Society that it had assigned all the powers, rights, responsibilities and liabilities including possessing right, development right, collection of fees/consideration from the prospective buyers as well as residential unit etc. to the assessee for a lump sum payment of Rs. 1,04,30,000. 8. The ld. AR submitted that by virtue of development agreement the assessee has obtained the possession over the land together with the rights to develop and construct the project and such cost has been the part of the project cost debited in profit and loss account. By virtue of this agreement the assessee was able to transfer land to the ultimate consumer. The transfer of the land and flat by the assessee to the ultimate consumer has been lawful and valid and has not been challenged by any one so far in the court of law. 9. The ld. A.R. also submitted that the assessee developer had dominant over the land to the exclusion of others inasmuch as possession of the land has been given to the assessee by the land owners to....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... firm only (without reference of the societies) has been reflected on the brochure. (vii) The developer has accepted money from the persons to whom housing units are sold. The price to be charged to customers is solely determined by the appellant and thereby, receives entire consideration of sale from such parties. Entire sales value of a unit has been shown as income in the books of account of appellant. It is submitted that entire risk and responsibilities of sale is on Nikhil Developers and if there is loss in such transaction, it is on assessee. The CIT(A) has failed to appreciate that even in sale deed executed, it has been unambiguously stated that developer of project is appellant firm and not society. (viii) Obtaining the B.U. Permission was also the responsibility of appellant developer, Nikhil Associates. It can be seen from approved plan from AUDA issued on 21-2-2006, at the time of issuing B.U. Permission, wherein the name of the developer is mentioned as "Nikhil Associates" - which prove that entire development activity is carried out by appellant. 12. Finally the ld. AR pointed out that there is difference between....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts and realized the money. 14. Regarding parking space ld. DR submitted that parking space is integral part of residential unit. It is privately used like residential unit. It is an extension of residential portion where belongings of the assessee are kept. If belongings of the assessee are kept in the main house then for that reason the house does not ceased to be residential house. Similarly when car is parked in the parking space then it does not cease to be part of residential house. There is always specific parking space for the flats. 15. In reply to above submissions of ld. DR, the ld. AR submitted that assessee had complete domain over the land as well as building. It has all the rights to recover the dues from the flat owners. Even in AUDA record assessee is shown as developer. He drew our attention to pages 124 to 125 of the Paper Book in support of his arguments that assessee is shown as developer in AUDA record. Even building plans are in the name of assessee which are evident by pages, 115, 118, 123 of the Paper Book. In any case matter is covered by the decision of Tribunal, Ahmedabad Bench in the case of Radhe Developers v. ITO [2008] 23 SOT 420 and ITO v. Shak....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lection made from members i.e. ultimate purchasers is to be handed over to the society or adjusted. It has developed the project only as a contractor of the society which is a separate entity. (3) The assessee is not the owner of the land, it has never purchased the land. (4) The society is in dominant control as it has purchased the land, it has appointed the assessee as a contractor as per agreement, it has issued allotment letter to the ultimate purchasers, the assessee has never transferred flats to the ultimate purchasers and finally that assessee has only acted as recommending authority. 17. We have considered all these submissions and perused the material on record. In our considered view arguments of ld. DR and ld. CIT(A) are not tenable. It is quite apparent that assessee has made legal arrangements whereby society is only a vehicle for reducing the Stamp Duty on purchase of the land. We are informed that if land is purchased by the society it has to incur very low or nominal Stamp Duty whereas if assessee as such purchases the land it has to pay heavy Stamp Duty. Keeping all these aspects in mind we have to examine various events that have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l be entitled to give sub-contract, labour contract, etc. as per its own requirement and wishes but at the time of giving such appointments, it will have to bear in mind that the total responsibility for planning, construction and development of the said project will rest upon it i.e. the party of the other part. 3(A) The party of the other part will have to explain properly to the existing members of the society and by guiding them in a fair manner, and will have to obtain the necessary contribution from them. Besides, they will have to recommend to the society for enrolling of those persons, who are other than the existing members, and who wish to join the project and wish to obtain residential units and flats having area as per the plans. Before recommending the names of such persons, the party of the other part will have to inquire completely about such persons. 3(B) The persons desirous of enrolling in the project will be admitted on recommendation of the party of the other part in the manner as stated above and it will be the responsibility of the part of the other part to thoroughly explain the project of society to such persons. 3(C) The party of the other part wil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cumstances the developer is retired from the agreement or if his appointment is suspended then in that case, it will have to be informed in writing to the competent officer of AUDA. (9) If because of any reason, the registered experts are relieved from their jobs, then in that case, it will have to be informed in writing to the competent officer of AUDA. (10) During the execution of the project, the developer shall not make or get made, any change in the sanctioned drawings of the project, which changes are against the instructions of Architects/Engineers, Site Supervisors, Clerk of Works of Structural Engineers and the Developer shall be held totally responsible in case any construction of the project or any of its part being utilized against instructions of specific permission for its use. (11) Where ever the registered construction contractor or site supervisor is not appointed or there is no necessity of their appointment, then in those circumstances the developer will be responsible to discharge such functions. (12) The developer will be entitled to publish the list of only registered experts on the site and save and except those, no names can be publis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 18. Thus reading of above clauses of the agreement clearly indicates that assessee has been made de facto owner of the entire land and project till it is handed over to the members after receipt of necessary sale amount and recommending their names to the society for issuing membership letters. It is not a case where society has entered into an agreement with the assessee to construct the project at a particular cost or at a particular rate with respect of area constructed having escalation clause, with or without penalty clause and retaining with it the rights to dispose of the flats, and enjoy the benefit of profit or loss. We are convinced that society is formed only as a special purpose vehicle for saving Stamp Duty or otherwise but so far as the control over the land, project and sales is concerned it remained with the assessee. Now under these facts it has to be examined whether assessee would be developer or a contractor. This issue has been elaborately discussed by the Tribunal, Ahmedabad Bench in Radhe Developers (supra). Para 30 thereof has clearly defined who should be the developer. It reads as under :- "24. Further, the Memo contained in Finance Bill, 1999 has e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m 1-4-2000 extending the outer limit for completion of the housing project on or before 31-3-2002 as against 31-3-2001 originally enacted. This sub-section was again amended by Finance Act, 2003 removing the time-limit for completion of the project meaning thereby that for the assessment years 2002-03, 2003-04 and 2004-05, the assessment years with which we are concerned, there was no outer time-limit for completion of the project. There have been certain further amendments in this section by Finance (No. 2) Act, 2004 with effect from 1-4-2005, but we are not concerned with these amendments insofar as all these appeals are concerned. Therefore, we are not dealing with the same. 27. A bare reading of these provisions of section 80-IB(10), as they stood in the years under consideration, the requirements for claiming deduction for housing projects are that (i) there must be an undertaking developing and building housing project; (ii) such housing project is approved by the local authority; (iii) the development and construction of housing project has commenced on or after 1-10-1998; (iv) the housing project is on a size of a plot of land which has minimum area of one acre; and (v) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at 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. 30. What is the meaning of the term develop, developer, developing, development, we can find the answer in certain dictionaries, including the Law Dictionary. (a) The Webster's Encyclopedia Unabridged Dictionary of the English Language gives following meanings of the term 'developer' as : "1. One who or that which develops; 2. A person who invests in and develops the urban or suburban potentialities of real estate". (b) Oxford Advanced Learners Dictionary of Current English Fourth Indian edition gives meaning of the term 'developer' as person or company that develops land. (c) Random House Dictionary of the English Language, the following definitions can be found : &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, approving plans, hiring machinery and equipments, hiring engineers, appointing contractors, etc. No doubt, the permission has been obtained in the name of the registered landowners, but the same have been obtained by the assessee-firm through its partners who are holding power of attorney of the respective landowners. It is a fact that the assessee is a 'developer' and not a 'contractor' as held by the lower authorities. The developer is not working on remuneration for the landowners, but developer is working for himself in order to exploit the potential of its business in his own interest and, therefore, opted for all business risks associated with the business of development of real estate including developing and building of housing projects. As per the provisions of section 2(1)(g) of Regulation of Employment and Conditions of Service Act (27 of 1996), the term 'Contractor' means a person who undertakes to produce a given result for any establishment, other than a mere supply of goods or articles of manufacture, by the employment of building workers or who supplies building....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen 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), which reads as under : "(47) 'transfer', in relation to a capital asset, includes,- (i) to (iva)** ** ** (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or" 35. Section 53A of the Transfer of Property Act, 1882 referred to in the aforesaid section of the Income-tax Act, reads as under : "53A. Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 development of property. It is only the assessee who is developing the property. Throwing itself into the business of development and building of housing projects by taking all risks associated with the business by engaging architects, structural consultants, designing and planning of the housing schemes, pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. " 21. Sub-section (10) was amended from time to time. The last relevant amendment was made by Finance Act, 2004 w.e.f. 1-4-2005 which modified the definition of built-up area with which we are concerned and with whish we will deal subsequently. The conditions required to be satisfied for availing deduction under section 80-IB(10) are - "(i) there must be an undertaking developing and building housing project; (ii) such housing project is approved by the local authority; (iii) the development and construction of housing project has commenced on or after 1-10-1998; (iv) the housing project is on a size of a plot of land which has minimum area of one acre; and (v) the residential unit developed and built has a built up area of 1,000 sq. ft. if. it is situated in Delhi and Mumbai or within 25 kms. of municipal limit of these cities and 1,500 sq. ft. at any other ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ebruary, 2009, wherein it was held as follows:- "In our opinion it is not sine qua non for a developer to become the de jure owner of the land. It is quite possible to develop the property with the consent of the owner. It transpires from the perusal of the records that the assessee was the de facto owner of the property, as the entire allotment procedure was executed by the assessee company only. We have noted that the assessee did incur all the expenses connected with the development of the property. Application for planning permission was also made by the assessee. Necessary fee for the same was paid by it. Road formation was also done by the assessee. Besides, for marketing the flats the assessee did advertise the property also. We have perused the reasoning adduced by the Commissioner (Appeals) in the impugned order. In our opinion he took a correct view in the matter and his order calls for no interference on this count. Accordingly we uphold the same." 24. Now we refer to section 80-IB(10) so as to find out whether the condition of legal ownership of the land is an essential ingredient under that section. Section 80-IB(10) reads as under :- [(10) The amount of deduc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hin the city 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; and (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed [three per cent of the aggregate built-up area of the housing project or [five thousand square feet, whichever is higher];] (e) not more than one residential unit in the housing project is allotted to any person not being an individual; and (f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:- (i) the individual or the spouse or the minor children of such individual, (ii) the Hindu undivided family in which such individual is the karta. (iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.] Explanation - For the removal of doubts, it is h....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... spectator and assessee was in full and complete control over the project, its development and sale of the flats. It had enjoyed the profits arising from the sale of the flats. If the society would have been a contractee in the real term, meaning thereby that assessee was contractor, carrying out any work contract, society should have shown the sale proceeds as its own and shown the profits from such sale proceeds by debiting the payments made to the contractor against the sale proceeds of the flats. No such evidence has been produced by the Revenue. It is also not shown that society had filed any return of income showing any profit or loss from the project. At least, it is not ascertained that any notice under section 148(1) has been issued to the society asking it to file the return of income to declare the profit earned by it on this project. If entire financial arrangements from purchase of land till disposal of the flats remained under the control of the assessee and no part of the sale proceeds of the flats accrued to the society as profit, or at least no evidence has been put up in support of such claim we are unable to hold that assessee only acted as work contractor. In a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In any case it is not show that purchase of parking space as well as flat was a combined selling unit and no option was available to any purchaser either to purchase flat and not to purchase the parking space. Even where parking becomes integral part of sale proposition it cannot be equated with a residential unit. ITAT Mumbai Bench in ITO v. Rasiklal N. Satra [2006] 98 ITD 335 held that 'residence' means a building or a part of the building one can drink, eat, and sleep. A parking space does not enable and it cannot enable a person to cook, eat, drink sleep and do other daily corus. Then it cannot be an integral part of residential unit. Therefore, we cannot accept this argument that area of the parking space should be combined with area of the residential unit so as to work out the total area for the purpose of finding out whether it exceeds specified limit. In any case what should be the built up area has already been defined in the Act. Therefore, concept of built-up area cannot be extended to other items not mentioned in the definition of built up area. Built up area has been defined in the Act under section 80-IB(14) as under :- Section 80-IB(14) For the purposes of th....