TaxTMI 
TaxTMI 
2014 (12) TMI 19
X X X X Extracts X X X X
X X X X Extracts X X X X
....80IB(1) claimed by the assessee without appreciating that the nature of agreement between the assessee and the unit purchasers shows that it was only a "works contract", in so much that the agreement was entered into before the construction was completed and not after the flat or unit is sold and also the assessee has not borne any risk through this agreement?" Since the controversy involved in all the three appeals is common and the parties are also common, the same were taken up for hearing together and are disposed of by this common judgment. 2. Mr. Ketan Parikh, learned senior standing counsel for the appellant in each of the appeals submitted that the Tribunal while holding that the respondent-assessee is entitled to deduction under section 80IB(10) of the Act has seriously erred in not considering the Explanation to section 80IB(10) of the Act. According to the learned counsel, the work in question was a works contract and hence, the provisions of sub-section (10) of section 80IB would not be attracted in the facts of the present case. Strong reliance was placed upon the decision of the Supreme Court in the case of Larsen and Toubro Limited v. State of Karnataka, (2014)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appeals deserve to be admitted on the questions of law as proposed or as may be deemed fit by this court. 3. Opposing the appeals, Mr. Vijay Ranjan, learned advocate for the respondent in each of the appeals submitted that the present case stands squarely covered by the decision of this court in the case of Radhe Developers (supra). It was pointed out that the Division Bench in the said decision has duly considered the Explanation to section 80IB(10) of the Act, to submit that such observations made by the Division Bench are not obiter. It was submitted that the issue of "works contract" had been raised before this court in the case of Radhe Developers (supra) and had been dealt with. The attention of the court was invited to the findings recorded by this High Court in the case of Radhe Developers (supra) to point out that the court had considered the decision of the Supreme Court in the case of K. Raheja Development Corporation v. State of Karnataka, (2005) 141 Sales Tax Cases 298, and had found that the said decision had been rendered in the background of the definition of "works contract" as defined under the Karnataka Sales Tax Act. It was submitted that thus, the court had ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Sales Tax enactments cannot be imported while construing the provisions of the Income Tax Act. In conclusion, it was submitted that the question proposed in the appeals already stands answered against the revenue by several decisions of this court, and as such, the appeals do not give rise to any question of law so as to call for interference by this court. 4. This court has considered the submissions advanced by the learned advocates for the respective parties and has perused the decisions cited at the bar as well as the impugned order passed by the Tribunal and the orders passed by the lower authorities. 5. As can be seen from the order passed by the Commissioner (Appeals), he, upon appreciation of the evidence on record, has found that the assessee had constructed a housing project namely "Aum Nagar". The residential housing project was executed by entering into a development agreement with the land owners. Further, the development agreement is an agreement under which the land owner hands over the possession to the developer, which entitled the developer to develop the property entirely at his choice, convenience and discretion. By such development agreement, the price ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the learned counsel for the appellant is that in view of the decision of the Supreme Court in the case of Larsen and Toubro v. State of Karnataka (supra), the test of dominant control over the land is no longer applicable, inasmuch as, the work carried out by the respondent-assessee remains to be in the nature of a 'works contract' and, therefore, the assessee is not entitled to deduction under section 80IB(10) of the Act. According to the learned counsel for the appellant, in the light of the above decision of the Supreme Court which construes the expression "works contract" in general terms and not in terms of the relevant Sales Tax Act, the same would be applicable to the facts of the present case and the assessee being engaged in executing a works contract, would in view of the explanation to sub-section (10) of section 80IB of the Act, which says that nothing contained in the sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person including the Central or the State Government, the present case does not fall within the ambit of sub-section (10) of section 80IB of the Act and as such, the assessee is no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; 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, growth, evolution, unfolding, maturing, maturation. d. Webster Dictionary, the following definitions emerge: a. To realize the pot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come-tax Act and, in particular, section 80-IB (10) of the Act and to examine the effect of the Explanation to section 80-IB(10) introduced with retrospective effect from April 1, 2001, since several aspects overlap, it would be convenient to discuss the same together. 36. We have noted at some length, the relevant terms and conditions of the development agreements between the assessees 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, the assessee was also authorized to appoint any other architect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e housing units for his benefit. In short, the assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. The land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk. 37. By no stretch of imagination 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 In the case of CIT v. Glenmark Pharmaceuticals Ltd. [2010] 324 ITR 199 (Bom.), the Bombay High Court observed as under (page 207): "Contract of work or a contract of sale The question as to whether a contract is a contract of work or a contract of sale is the subject-matter of precedents on the subject. The principles, as decided cases would show, are well defined but the application of those principles to individual cases often poses a difficulty. The consistent line of thinking that emerges from the decided cases is that essentially, in determining as to whether a contract const....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it is a contract for execution of work not involving sale of goods.' In a subsequent decision in the State of Punjab and Haryana v. Associated Hotels of India Ltd., AIR 1972 SC 1131; 29 STC 474, the Supreme Court held that a contract for sale is one whose main object is the transfer of property in, and the delivery of the possession of a chattel as a chattel to the buyer. Where the principal object of the work undertaken by the payee of the price is not the transfer of a chattel, the contract is one of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of material, nor the value of the skill and labour as compared with the value of the material, is conclusive, though these circumstances may be taken into consideration in deciding whether a subsisting contract is a contract of work and labour or contract for a sale of a chattel. In Sentinel Rolling Shutters and Engineering Co. Pvt. Ltd. v. CST, AIR 1978 SC 1747; 42 STC 409 this principle was reiterated by the Supreme Court. In State of Tamil Nadu v. Anandam Viswanathan, AIR 1989 SC 962; 73 STC 1, the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provide 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." In Hindustan Shipyard Ltd. v. State of Andhra Pradesh [2000] 119 STC 533 =, the Supreme Court enunciated certain principles which were deduced from the decided cases on the distinction between the two concepts. The second, third and fourth principles laid down in the judgment of the Supreme Court, read thus (page 545): '(2) Transfer of property of goods for a price is the linchpin of the definition of "sale". Whether a particular contract is one of sale of goods or for work and labour depends upon the main object of the parties found out from an overview of the terms of the contract, the circumstances of the transaction and the custom of the trade. It is the substance of the contract document/s and not merely ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Sale of Goods Act, 1930. Sub-section (1) of section 4 provides that a contract of the sale of goods is a contract, whereby a seller transfers or agrees to transfer the property in goods to the buyer for a price. Where under a contract of sale, the property in goods in transferred from the seller to the buyer, the contract is that of sale, but where transfer of property in the goods is to take place at a future time, or subject to some condition thereafter to be fulfilled, the contract is not a sale but is an agreement to sell. A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of the offer. Under section 5(1) the contract may provide for immediate delivery of the goods or immediate payment of the price or postponement of delivery or payment of the price by instalments." 38. In the case of State of A.P. v. Kone Elevators (India) Ltd. [2005] 140 STC 22 (SC), apex court observed as under....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of terms and conditions of the contract between the parties." 39. In the present case, as already held the assessee had undertaken the development of a 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 and loss also would accrue to the assessee alone. In that view of the matter, the addition of the Explanation to Section 80-IB(10) with retrospective effect from April 1, 2001, would have no material bearing in the cases on hand. We may recall that the said Explanation introduced by the Finance (No.2) Act, 2009, provided as under:- "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)." 40. We may now move on to the question of ownership of the land. 41. The relevant portion of section 2(47) reads as under:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 80-IB(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. CIT [1999] 239 ITR 775 (SC), and in the case of CIT v. Podar Cement Pvt. Ltd. [1997[ 226 ITR 625 (SC), the ownership has been understood differently in different context. For the limited purpose of deduction under section 80-IB(10) of the Act, the assessee had satisfied the condition of ownership also; even if it was necessary. 44. In the case of Shakti Corporation similarly the assessee had entered into a development agreement with the land owners on similar terms and conditions. It is true that there were certain minor differences, however, in so far as all materi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted to a "works contract" as commonly understood i.e. a contract to do some work on behalf of somebody else. The court held that the definition of works contract was a wide one which includes any agreement for carrying out building or construction activity for cash, deferred payment or other valuable consideration. The definition does not make a distinction based on who carries on the construction activity. Thus, even an owner of the property may also be said to be carrying on a works contract if he enters into an agreement to construct for cash, deferred payment or other valuable consideration. The court, accordingly, did not find the need to go into the question whether the appellants therein were owners as even if the appellants were owners, to the extent that they had entered into agreement to carry out construction activity on behalf of somebody else for cash, deferred payment or other valuable consideration, they would be carrying out works contract and would be liable to pay turnover tax on the transfer of property in the case involving such works contract. 10. In Larsen and Toubro v. State of Karnataka (supra), the Supreme Court once again was dealing with a case under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....... ... ... Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term "works contract". Nothing in Article 366(29-A)(b) limits the term "works contract" to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term "works contract" cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some "works". We are also in agreement with the submission of Mr. K.N. Bhat that the term "works contract" in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... decisions, the Supreme Court having regard to the provisions of Article 366(29-A)(b) has adopted a wider meaning of the expression "works contract". 12. Prior to the Forty-sixth Amendment in the Constitution, levy of sales tax on the sale of goods involved in the execution of the works contract was held to be unconstitutional in Gannon Dunkerley (supra). The problems connected with powers of the States to levy tax, inter alia, on goods involved in execution of works contract following Gannon Dunkerley (supra) were elaborately examined by the Law Commission of India. In its 61st Report the Law Commission specifically examined the taxability of works contract. The Law Commission noted the essential nature and features of the building contracts and the difference between contract of works and contract for sale. It examined the question whether the power to tax indivisible contracts of works should be conferred on the States. The Law Commission suggested three alternatives (a) amendment in the State List Entry 54, or (b) adding a fresh entry in the State List, or (c) insertion in Article 366 a wide definition of "sale" so as to include works contract. It preferred the last one, as,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not on the normal meaning of the term "works contract" but on the special meaning assigned to it under the Act itself, which provided for a definition of inclusive nature. The court was, accordingly, of the view that the Tribunal did not commit any error in holding that the assessees were entitled to the benefit under section 80IB of the Act even where the title of the lands had not passed on the assessees and under some cases the development permissions also have been obtained in the name of the original owners. 15. In Commissioner of Income Tax-I v. Archan Enterprises rendered on 18th March, 2014 in Tax Appeal No.171/2014, a Division Bench of this court had the occasion to consider the decision of the Supreme Court in the case of Larsen and Toubro Ltd. v. State of Karnataka (supra) and Raheja Development Corporation (supra) in the context of the provisions of section 80IB(10) of the Act. The court held that the decision in the case of Raheja Development Corporation (supra) was rendered in the background of the definition of the term "works contract" contained in the Karnataka Sales Tax Act and even the decision in the case of Larsen and Toubro Limited (supra) was rendered in....