TaxTMI 
TaxTMI 
TaxTMI 
2014 (4) TMI 1042
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....nstructed was not owned by the assessees and the development permission by the local authority was given in the name of the landowners and not the assessees. On such grounds, the Assessing Officer declined to grant the benefit of deduction under section 80IB(10) of the Act, instead treating the assessees as a works contractors. Such issues reached the Income Tax Appellate Tribunal ('the Tribunal' for short). The Tribunal ruled in favour of the assessees. The Revenue thereupon filed further appeals before the High Court. In the case of CIT v. Radhe Developers, 341 ITR 403 (Guj.), this Court dismissed the Revenue's appeals and confirmed the view of the Tribunal. We would take note of the relevant portion of such judgment at a later stage. 2. The second issue also arises out of the assessees' claim for deduction under section 80IB(10) of the Act. The Assessing Officer in addition to raising objection to the entire claim of the assessees for deduction under section 80IB(10) of the Act further noticed that the assessees had not utililzed the full extent of the Floor Space Index (FSI for short) of the land in question. After putting the assessees to notice and eliciting their response, ....
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....ready noted, there is nothing under Section 80IB (10) of the Act requiring that ownership of the land must vest in the developer to be able to qualify for such deduction. Secondly, term developer has been understood in common parlance as well as in legal sense carrying a much wider connotation. The Tribunal itself in the impugned order has traced different meanings of term developer explained in different dictionaries, which read as under: " a. The Webster's Encyclopedia unabridged of the English Language gives Following meaning 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 persons or company that develops land. c. Random House Dictionary of the English Language, the following can be found. Develop: a. To bring out the capabilities or possibilities of; bring to a more advanced or effective state. b. To cause to grow or expand. Developer: a. The act or process of developing; progress. b. Synonym: Expansion, elaboration, grow....
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....sees and the land owners in case of Radhe Developers. We also noted the terms of the agreement of sale entered into between the parties. Such conditions would immediately reveal that the owner of the land had received part of sale consideration. In lieu thereof he had granted development permission to the assessee. He had also parted with the possession of the land. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. It was specified that the assessee would bring in technical knowledge and skill required for execution of such project. The assessee had to pay the fees to the Architects and Engineers. Additionally, assessee was also authorized to appoint any other Architect or Engineer, legal adviser and other professionals. He would appoint Subcontractor or labour contractor for execution of the work. The assessee was authorized to admit the persons willing to join the scheme. The assessee was authorised to receive the contributions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. In case, for some reason, th....
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....on can it be said that the assessee acted only as a works contractor. The terms works contractor has been receiving judicial attention in several cases. xxxxxx xxxxxx 41. In the present case, we find that the assessee had, in part performance 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 asses....
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....ner can be stated to be a consumer and the builder a service provider. It was in this background that the Apex Court made certain observations. Such observations cannot be seen out of context nor can the same be applied in the present case where we are concerned with the deduction under Section 80IB(10) of the Act. xxxxx xxxxx 45. Under the circumstances, we are of the opinion that the Tribunal committed no error in holding that the assessees were entitled to the benefit under Section 80IB(10) of the Act even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners." 4. Under the circumstances, in the present group of Tax Appeals also, such question is answered against the Revenue and in favour of the assessees. 5. This brings us to the second question, pertaining to sale of unutilized FSI. Facts are slightly different in each appeal. We may, however, record the facts as arising in Tax Appeal No.549 of 2008, which has been treated as lead matter. 6. For the assessment year 2003-04, the respondent assessee M/s.Moon Star Developers, Baroda, filed its return ....
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.... assessee, thus, carried out only partial construction out of the total available FSI for the land in question. Though as per the approved plan, construction had been carried out, there was balance FSI available on the plots of land which was not utilized. He was, therefore, of the opinion that the assessee could not claim deduction under section 80IB(10) of the Act for the profit relatable to sale of unutilized FSI. He, therefore, called upon the assessee to explain the same. 8. The assessee made a detailed representation contending that it had completed the development and construction of housing project fulfilling all conditions contained in section 80IB(10) of the Act. The project was constructed on 12000 sq. meters of land. As per the building regulations of the local authority, maximum permissible construction was 1.6 times of the land area. As per the building bylaws for development of housing project, 10% of the total land area was to be set apart for common purposes. Primarily, 30 to 35% of the land area was utilised for providing internal roads, effectively, therefore, only 60% of the ground floor area was available for development. As per the building regulations, the c....
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....see firm to derive profit from sale of unutilized FSI, although it may be seen to be an integral part of the housing unit itself. 12. In the context of the above discussion, it is observed that the assessee firm had not undertaken the completion of the project in its entirely as far as development and construction of the utilizable FSI is concerned. The assessee firm had total plot area of 9620 sq. mtrs for development after reduction on account of common plot and roads etc. Thus, it was eligible to construct super built up area of 15392.40 @ 1.6 FSI. The assessee had constructed a housing project by deploying construction of 3573.48 sq. mtrs of FSI. Thus, the FSI of 3573.48 sq. mtrs. Has been utilized for the construction of the same, out of permissible FSI of 15392.40 sq. mtrs. The profits ensuing from entire project for the year as per the profit and loss account, includes additional profit attributable to sale of unutilised FSI has also been booked by the assessee firm. Since the eligible profits for claim of deduction u/s.80IB(10) can only relate to those from the project of development and construction, the profits attributable to the sale of unutilised FSI not relating to d....
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....f 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 would also be impossible to construct any housing unit as per the provisions of Sec.80IB(10) by utilizing the maximum FSI. 64. The AO states further that in the approved lay out plan, the local authority had permitted to build residential unit of lesser area than the maximum permissible built up area on the land and therefore the assessee had carried out only partial construction of the available FSI visavis the entire plot of land available for development with the assessee. We find that the approved FSI in regard to the units constructed has been fully utililzed as per the approved plan of the local Authority, namely the FSI is fully utilized, the FSI actually passed and permitted by the authorities for each project. 65. The AO observes assessee has sold unutilized FSI without involving any process of development and construction, which is the primary criterion required to be satisfied for the purpose of the claim of deduction under section 80IB of the Act have no force; that the assessees have claim....
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....eduction under section 80IB(10) of the Act was to make residential units for middle income group citizens at affordable cost. Various conditions contained in the said section would bring out this purpose. Granting benefits of section 80IB of the Act in the present case would frustrate such purpose. 14. Counsel further contended that the profit relatable to sale of unused FSI cannot be stated to have been derived from the assessee's activity of development and construction of housing project. For such purpose, he relied on the following decisions: (1) In the case of CIT v. Sterling Foods, 237 ITR 579. (2) In the case of Pandian Chemicals Ltd. v. CIT, 262 ITR 278. (3) In the case of Liberty India v. CIT, 317 ITR 218 (SC). 15. Learned counsel Shri M.R.Bhatt who appeared at our request contended that the sale of unutilized FSI cannot be considered as a part of development of a housing project. Profit relatable to such activity, therefore, must be excluded for the purpose of deduction under section 80IB(10) of the Act. He relied on a decision of this Court in the case of CIT v. Gautam Sarabhai Trust in 173 ITR 216 in which in the context of exemption under section 47 of the Act fro....
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....urchasers carried out further extensive construction soon after the sale of the units. 19. Counsel contended that being an exemption scheme aimed at encouraging the activity of construction of residential units, the same should be liberally construed. For such purpose, he relied on the following decisions: (1) In the case of CIT, Amritsar vs. Strawboard Mfg. Co. Ld. 177 ITR 431 (SC). (2) In the case of Bajaj Tempo Ltd. v. CIT, 196 ITR 188 (SC). 20. He contended that even if the scheme was to be strictly construed, once the assessee was covered within the scheme, the terms of the scheme for exclusion should be liberally constructed. In this context, he relied on decision in the case of Commissioner of Central Excise, Surat I v. Favourite Industries, 2012 (278) ELT 145 (SC). 21. He lastly contended that the entire profit arose out of development of housing project and sale of residential units so constructed. He drew our attention to the decision of this Court in the case of Nirma Industries Ltd. v. Deputy CIT, 283 ITR 402 (Guj.) in which the assessee had received interest from trade debtors towards late payment of sale consideration. It was held that such interest would be incl....
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....to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government)." In the notes on clauses explaining the introduction of section 80IB of the Act, in the context of subsection (10) thereof, it was stated as under: "The provision also seeks to provide that for approved housing projects the profits of which are fully deductible, the builtup area in regions other than outside twentyfive kms. of municipal limits of Delhi and Mumbai, the builtup area of the residential units does not exceed one thousand fiver hundred square feet." 24. In the budget speech for the financial year 1999-2000, the Finance Minister in the context of tax benefits under section 80IA of the Act on housing projects, while increasing the maximum limit of the builtup area of the units from 1000 sq. ft. to 1500 sq. ft. at all locations except Mumbai and Delhi, stated as under: "98.The second element of this incentive package relates to the scheme for housing projects for enjoying a tax holiday under Section 80IA of the Income Tax Act. The existing provision, interalia, requires that the built-up are of dwelling units should not exceed 100....
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....king commenced development and construction of the housing project after a specified date; (c) that the project is on the size and plot of land which is of minimum of one acre; (d) That each residential unit has a maximum built up area of 1500 sq. feet barring cities of Mumbai and Delhi and within a radius of 25 km of municipal units of such cities where such area should not exceed 1000 sq. ft. Further conditions were later on added which included restriction of not allotting more than one residential unit to any person who is not an individual. In case of allotment of residential unit to an individual, it was further provided that no other residential unit in such housing project be alloted to such individual or his/her spouse, minor children or Hindu undivided family if such individual is a karta and 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. 27. At the relevant time, these later conditions were not in operation. Nevertheless, what can be seen from the conditions which prevailed at the relevant time is that deduction was aimed at providing 100% tax exemption ....
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....ble to a maximum of 65.81%. In majority of the cases, the assessees have covered barely about onefourth or onethird of the permissible FSI. 30. For any commercial activity of construction, be it residential or commercial complex maximum utilization of FSI is of great importance to the developer. Ordinarily, therefore, it would be imprudent for a developer to underutilize available FSI. Sale price of constructed properties is decided on the built up area. It can thus be seen that given the rate of constructed area remaining same, nonutilization of available FSI would reduce the profit margin of the developer. When a developer therefore utilizes only say 25% of FSI and sells the unit leaving 75% FSI still available for construction, he obviously works out the sale price bearing in mind this special feature. Let us compare two instances. In the same area two residential schemes are developed. Both have residential units of 1500 sq. feet. In one scheme 100% FSI is used in another 25% FSI is used and 75% is passed on to the buyer of the unit. Price of the unit in the later scheme would for apparent reason be considerably higher than the former because the buyer there gets not only a re....
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.... the purpose of granting deduction on the income from development of housing projects envisaged thereunder, bifurcation of such profits arising out of such activity and that arising out of the net sell of FSI must be resorted to. In the present case, none of the assessees have made any special ground for nonutilization of the FSI. 32. The contention of the counsel for the assessee that as long as there has been 100% utilization of the maximum permissible area on the ground floor, deduction under section 80IB(10) of the Act cannot be declined, cannot be accepted. As noted earlier, in case of M/s.Moon Star Developers and many other assesses, such full utilization of the ground floor area available for construction resulted into barely 20% to 25% of the FSI being used, remaining more than 75% being left unused. 33. What is available for deduction under section 80IB(10) of the Act is the profit of an undertaking derived from developing and building a housing project. Mere sale of open land or unused FSI as part of the housing project where utilization of the FSI is way short of permissible limits cannot be said to have been derived from such housing project. Terms "derived from", "ar....