TaxTMI 
TaxTMI 
2011 (12) TMI 248
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....APPEAL No. 1986 of 2009 ,TAX APPEAL No. 1989 of 2009 ,TAX APPEAL No. 1982 of 2009 ,TAX APPEAL No. 272 of 2010 ,TAX APPEAL No. 307 of 2010 ,TAX APPEAL No. 1995 of 2009 ,TAX APPEAL No. 1990 of 2009 ,TAX APPEAL No. 1689 of 2009 ,TAX APPEAL No. 1631 of 2009 ,TAX APPEAL No. 271 of 2010 ,TAX APPEAL No. 295 of 2010 ,TAX APPEAL No. 1586 of 2009 ,TAX APPEAL No. 1748 of 2009 ,TAX APPEAL No. 1472 of 2009 ,TAX APPEAL No. 1444 of 2009 ,TAX APPEAL No. 1473 of 2009 ,TAX APPEAL No. 1628 of 2009 Akil Kureshi and Ms. Sonia Gokani, JJ. JUDGMENT Akil Kureshi, J - These appeals arise in similar factual background leading to a common question of law debated before us. These appeals are, therefore, being disposed of by this common judgment. 2. Since certain facts in two streams of cases are slightly different, we would record such facts in both sets of appeals. 3. In Tax Appeal No.546 of 2008 (M/s. Radhe Developers), the assessee had claimed deduction under Section 80IB(10) of the Income Tax Act, 1961 ("the Act" for short) of Rs.24,75,940/- on the premise that such income was derived from the business of the undertaking developing and building housing project approved by the local autho....
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....f the opinion that for deduction under Section 80IB (10) of the Act it is not necessary that the assessee must be the owner of the land. Second aspect of the Tribunal's judgment was that even otherwise looking to the provisions contained in Section 2(47) of the Act, read with Section 53A of the Transfer of Property Act, by virtue of the development agreement and the agreement to sell, the assessee had, for the purpose of Income Tax, become the owner of the land. The Tribunal, accordingly, allowed the assessee's appeal directing the Assessing Officer to grant deduction under Section 80IB(10) of the Act. The Revenue is, therefore, in appeal before this Court. 8. Second stream of appeals led by Tax Appeal No.733 of 2009 (M/s. Shakti Corporation) arises in the following background. 8.1 Here also the assessee had claimed deduction under Section 80IB (10) of the Act on the ground that the income was derived from the business of the undertaking developing and building housing projects approved by the local authority. The Assessing Officer disallowed the claim primarily on the ground that not being the owner of the land, the assessee was not eligible for deduction under Secti....
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....land for a fixed consideration and had developed a housing project at its own cost and risk. If it was so found, the Assessing Officer should allow the deduction under Section 80IB(10) of the Act. On the other hand, if the Assessing Officer found that the developer had acted on behalf of the land owner and received only a fixed consideration for developing the housing project, the assessee would not be eligible for deduction under Section 80IB (10) of the Act. This common judgment in the case of M/s. Shakti Corporation is also in appeal before us at the hands of the Revenue. We may record that the assessees have accepted the judgment and not carried the issue further before us. 10. While admitting Tax Appeal No.546 of 2008, the Division Bench of this Court had framed following substantial question of law:- "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing deduction u/s.80IB(10) r.w.s. 80IB(1) to the assessee when the approval by the local authority as well as completion certificate was not granted to the assessee but to the landowner and the rights and the obligations under the said approval were not transferable,....
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....lodge a complaint before the Consumer Forum with respect to deficiency in the construction carried out. (2) Counsel also relied on the decision in the case of K. Raheja Development Corporation v. State of Karnataka reported in [2005] 5 SCC 162, wherein the Apex Court, in the background of the Karnataka Sales Tax Act, in view of the development agreement between the developers and the land owners held that such agreement was in the nature of the works contract as defined under the Karnataka Sales Tax Act. Counsel also relied on the decision of Commissioner of Income-Tax v. Glenmark Pharmaceuticals Ltd. reported in [2010] 324 ITR 199 (Bom) to highlight distinction between the contract of sale and works contract. 16. Learned counsel Mr. Ketan Parikh for the Revenue also made similar submissions contending that the Tribunal had gravely erred in holding that for deduction under Section 80IB (10) of the Act, ownership of the land is not necessary and further that by virtue of agreements between the parties, the assessee had acquired ownership rights over the land in question. 17. On the other hand, learned Senior Counsel Mr. Saurabh Soparkar appearing for the assessees contended....
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.... Cement Pvt. Ltd. and others reported in [1997] 226 ITR 625, wherein also the Apex Court had occasion to touch on the aspect of ownership in the context of Section 22 of the Act. The Apex Court was of the opinion that the owner is a person who is entitled to receive income in his own right and Section 22 does not require registration of sale deed. (3) In the case of Commissioner of Income-Tax v. Gwalior Rayon Silk Manufacturing Co. Ltd. (and other appeals) reported in 196 ITR 149 to contend that provisions for deduction and exemption should be construed reasonably. He also relied on the decision of the Apex Court in the case of Bajaj Tempo Ltd. v. Commissioner of Income-Tax reported in 196 ITR 188, wherein the Apex Court observed that provisions contained for growth and development in the taxing statute should be interpreted liberally and such provision should be construed so as to advance objective of such provisions and not to frustrate them. Counsel also relied on the decision of the Apex Court in the case of Commissioner of Income-Tax v. Hindustan Bulk Carriers reported in [2003] 259 ITR 449, wherein the Apex Court observed that construction which reduces the statute to futi....
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....purchased by the Party of the Third Part. 6. In fact in The Party of the First and Second Part confirming party have no necessary technical knowledge and skill pass through the said scheme to arrange for constructing residential houses having area less than 1500 sq.ft. for the middle class society and also have no finance to invest as per the size of scheme and to register the members for that required alertness and skill being absent they themselves are not in a position to place a project or scheme on the land mentioned in schedule in such circumstances to The Party of the Third part over and above the right to purchase the rights of Agreement of Sale on dt.18-05-2000 they have also decided to give all rights along with constructing and developing on the said land mentioned in schedule by this Agreement dt.18-05-2000. 7.** ** ** 8. On the land described in Schedule below the housing scheme is/shall be performed by the said Developer cum Building Contractor, that Scheme is to be named as "Mit Bunglows" that name shall remain permanent. 9. The said Developer cum Building Contractor by doing discussions with The Party of the First and Second Part co....
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....ing a legal notice and in this manner as per the notice of the Developer cum Building Contractor to the member admitted in scheme not paying the amount out of the deposit by deducting damages/loss remaining amount shall be returned and to delete the name of that admitted member the authority shall remain with the Developer Cum Building Contractor. Regarding this whatever decision that it shall be taken by the Developer Cum Building Contractor shall be agreeable and binding on the Party of the First Part. (5) As stated above when the name of admitted member is deleted the respective vacant place can be filled up by the new member or at the place of deleted member to admit a new member the said the Developer Cum Building Contractor is authorized. (6) The said the Developer cum Building Contractor as per the scheme whatever the changes he would do thereafter in nature of final scheme, the terrace, open land, ladder and common amenities shall be received by the member entering/admitting in the scheme as per the agreement he shall receive the property and the decision of the Developer cum Building Contractor of allotment of property to the respective person shall be fi....
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....he respective member and also out of this land deducting the constructed land and deducting the land of margin and passage whatever excess land that shall remain then Developer cum Building Contractor shall have right to allot that land. (12) That by the said the Party of the First and Second Part have given all the authorities to Developer cum Building Contractor, for completing the scheme of constructing residential houses and incidental work there to and therefore the said Developer cum Building Contractor has to complete this scheme as per his own talents, whatever he deems proper as per his discretion and decisions. The accounts right from the implementation of this Agreement up to the completion of the project, Developer cum Building Contractor has to maintain in his office in his books of accounts and it is the liability and responsibility of Developer cum Building Contractor the Party of the Third part to fully recover the consideration from the members. (13) As per this scheme Developer cum Building Contractor has given incidental lump sum estimate of price for the residential houses to be constructed but as per the step-stage wise development of the sche....
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.... (19) Regarding the land, house and common facilities necessary deeds in favour of the persons purchasing the houses in the scheme are to be executed by all the three parties jointly. (20) to (23)** ** ** (24) The amount of total collection received from person becoming member in this scheme out of that the amount shall become payable to The Party of the First that is paid to Second Part by them and to The Party of the First shall be entitled to receive consideration as per the Agreement dt.18-5-2000 and after deducting that remaining all amount shall be received by The Party of Third Part as his remuneration." 26. As already noted, the assessee also entered into an agreement to purchase the same land on the same date i.e. on 18.5.2000. Under such agreement, the land owners agreed to follow important conditions:- "7. For taking care of the above mentioned land, or for development you the party of the First Part is entitled to put fencing and/or put board showing your scheme at your cost. 8. For construction of the said land you party of First Part is entitled to put up revised maps prepared through your architect or engineer bef....
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....ve and the entire expenses for the same is to be incurred by the Party of the Second part of its own and there will not be any responsibility of the party of the First Part in respect of the said amount of expenses. (6) That the Developer can engage labour contract, building contractor or any other agency for making construction 01: the scheme organized over the aforesaid property and the party of the Second part is completely authorized to make separate agreements with them for all such activities. That on the basis of present Agreement, if the party of the Second Part Developers will organize any scheme or project over the aforesaid property, in which may accept the complete amounts as stated in this agreement for shops, offices, flats etc. will be constructed for which we shall execute the Sale Deed in favour of members as and when you may intimate and cause registration and witnessing etc. on the sale deeds in the office of the Sub Registrar by presenting the same. However, the stamp, registration charges and other expenses for the same shall be borne by you, the Party of the Second Part or the purchasers of the said offices, shops, flats, houses etc. (7) That....
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....nce to the party of the Second part. (14) ** ** ** (15) That the physical possession of the said land for performing development activity over the land is handed over by the Party of the First part herein to the Party of the Second Part herein" 28. From the above documents on record and the statutory provisions brought to our notice, it is necessary for us to examine whether the Tribunal was justified in granting benefit to the assessees under Section 80IB(10) of the Act. As already noted, the Tribunal in the case of M/s. Radhe Developers proceeded on the footing that Section 80IB (10) does not require that the developer must also be an owner of the land and further that in any case, the assessee by virtue of agreement with the land owners, should be deemed to have acquired ownership of the land in view of the provisions contained in Section 2(47) of the Act and Section 53A of the Transfer of Property Act. Taking into account the first limb of the Tribunal's decision, we notice that erstwhile Section 80IA of the Act was bifurcated with effect from 1.4.2000. The provision for deduction of income derived from development of housing project was introd....
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....rently, such provision would be aimed at giving encouragement to providing housing units in the urban and semi-urban areas, where there is perennial and acute shortage of housing, particularly, for the middle income group citizens. To ensure that the benefit reaches the people, certain conditions were provided in sub-Section(10) such as specifying date by which the undertaking must commence the developing and construction work as also providing for the minimum area of plot of land on which such project would be put up as well as maximum built up area of each of the residential units to be located thereon. The provisions nowhere required that only those developers who themselves own the land would receive the deduction under Section 80IB(10) of the Act. 31. Neither the provisions of Section 80IB nor any other provisions contained in other related statutes were brought to our notice to demonstrate that ownership of the land would be a condition precedent for developing the housing project. It was perhaps not even the case of the Revenue that under the other laws governing construction in urban and semi-urban areas, there was any such restriction. It is, however, the thrust of the ....
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....ed by the assessee seeking such deductions. 33. It is well settled that while interpreting the statute, particularly, the taxing statute, nothing can be read into the provisions which has not been provided by the Legislature. The condition which is not made part of Section 80IB(10) of the Act, namely that of owning the land, which the assessee develops, cannot be supplied by any purported legislative intent. 34. We have reproduced relevant terms of development agreements in both the sets of cases. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects. Under the agreements, the assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work. Assessee would enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence. 35. With respect to the question whether the assessee had acquired ....
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....ilable, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use as agreed between the parties. The assessee had full authority and also responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. Most significantly, the risk element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed to pay off the land owner first before appropriating any part of the sale c....
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....erty in the goods so used passes to the other party. However, the contractor who undertakes to do the work will not necessarily be deemed on that account to sell the materials. The Supreme Court noted that a contract for work in the execution of which goods are used may take one of three forms. Those three forms were elaborated as follows (page 1404 of AIR 1965 SC and page 255 of 16 STC): "The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price: it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work: or it may be a contract for work and use or supply of materials though not accessory to the execution of the contract is voluntary or gratuitous. In the last class there is no sale because though property passes it does not pass for a price. Whether a contract is of the first or the second class must depend upon the circumstances: if it is of the first: it is a composite contract for work and sale of goods: where it is of the second category, it is a contract for execution of work not involving sale of goods." 16. In a subsequent decision in the....
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....transferee had no previous property, then the contract is a contract for sale. Ultimately, the true effect of an accretion made pursuant to a contract has to be judged not by artificial rules but from the intention of the parties to the contract. In a 'contract of sale', the main object is the transfer of property and delivery of possession of the property, whereas the main object in a 'contract for work' is not the transfer of the property but it is one for work and labour. Another test often to be applied is: when and how the property of the dealer in such a transaction passes to the customer: is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a 'sale'; if it is the latter, it is a 'works contract'. Therefore, in judging whether the contract is for 'sale' or for 'work and labour', the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade....
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.... falls within one or the other category depends upon the object and intent of the parties, as evidenced by the terms of the contract, the circumstances in which it was entered into and the custom of the trade. The substance of the matter and not the form is what is of importance. If a contract involves the sale of movable property as movable property, it would constitute a contract for sale. On the other hand, if the contract primarily involves carrying on of work involving labour and service and the use of materials is incidental to the execution of the work, the contract would constitute a contract of work and labour. One of the circumstances which is of relevance is whether the article which has to be delivered has an identifiable existence prior to its delivery to the purchaser upon the payment of a price. If the article has an identifiable existence prior to its delivery to the purchaser, and when the title to the property vests with the purchaser only upon delivery, that is important indicator to suggest that the contract is a contract for sale and not a contract for work. In India, the distinction between the two categories is elucidated by the Sales of Goods Act, 1930. Sub-....
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.... has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a 'sale' or a 'works-contract'. Essentially, the question is of interpretation of the 'contract'. It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. No definite rule can be formulated to determine the question as to whether a particular given contract is a contract for sale of goods or is a works-contract. Ultimately, the terms of a given contract would be determinative of the nature of the transaction, whether it is a "sale" or a "works-contract". Therefore, this question has to be ascertained on facts of each case, on proper construction of terms and conditions of the contract between the parties." 38. In the present case, as already held the assessee had undertaken the development of housing project at its own risk and cost. The land owner had accepted only the full price of the land and nothing further. The entire risk of investment and expenditure was that of the assessee. Resultantly, profit an....
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....nce of the agreement to sell the land in question, was given possession thereof and had also carried out the construction work for development of the housing project. Combined reading of Section 2(47)(v) and Section 53A of the Transfer of Property Act would lead to a situation where the land would be for the purpose of Income Tax Act deemed to have been transferred to the assessee. In that view of the matter, for the purpose of income derived from such property, the assessee would be the owner of the land for the purpose of the said Act. It is true that the title in the land had not yet passed on to the assessee. It is equally true that such title would pass only upon execution of a duly registered sale deed. However, we are, for the limited purpose of these proceedings, not concerned with the question of passing of the title of the property, but are only examining whether for the purpose of benefit under Section 80IB (10) of the Act, the assessee could be considered as the owner of the land in question. As held by the Apex Court in the case of Mysore Minerals Ltd. v. Commissioner of Income Tax (supra), and in the case of Commissioner of Income-Tax v. Podar Cement Pvt. Ltd. and oth....
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.... where we are concerned with the deduction under Section 80IB(10) of the Act. 44. In the case K. Raheja Development Corporation v. State of Karnataka (supra), the Apex Court considered whether the builder, who was engaged in the development of property and for such purpose had entered into an agreement with the land owner, can be stated to have executed works contract. Such interpretation was rendered in the background of the term "works contract" defined in Section 2(1)(v-i) of the Karnataka Sales Tax Act, which reads as under:- "12. Section 2(1)(v-i) is relevant. It defines a "works contract" as follows: "2.(1)(v-i) 'works contract' includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;" It is thus to be seen that under the Karnataka Sales Tax Act the definition of the words "works contract" is very wide. It is not restricted to a "works contract" as commonly understood i.e. a contract to do some work on behalf of somebody else....