TaxTMI 
TaxTMI 
TaxTMI 
2014 (12) TMI 483
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....nd continue to hold land in its name even after the members being sold the super structure?" [C] "Whether after the latest Supreme Court decision in case of Larsen & Toubro vs. State of Karnataka [(2014) 1 SCC 708], can the case of Radhe Developers [329 ITR 01 (Guj)] be applied on the facts of the present case and the contract with the Assessee not be termed as works contract?" The assessment year is 2007-08 and the relevant accounting period is the financial year 2006-07. 2. The facts stated briefly are that land bearing various survey numbers and block numbers totally admeasuring 50,800 square metres came to be purchased by Satellite Ambli Co-operative Housing Society Limited (hereinafter referred to as "the Society") on 13th December, 2004 for a consideration of Rs. 47,32,000/-. Pursuant to the application and plan filed by the society, the local authority accorded permission for development and construction of the project to the Society and Sapna Ambli Co-operative Housing Society Limited on 27th April, 2005 and 4th January, 2006. The assessee entered into a Development Agreement with the above referred Societies on 17th February, 2006 and in terms of the ....
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....ance Act, 2009, a works contractor who executes the work awarded by any person is not eligible for deduction under section 80IB of the Act and that the expression "any person" would include the above referred two societies which are separate legal entities. The Assessing Officer, accordingly, held that the assessee did not fulfil the conditions laid down under section 80IB(10) of the Act. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) who allowed the claim of the assessee after considering the terms and conditions of the agreement between the societies and the assessee. Revenue went in appeal before the Tribunal but did not succeed. 3. Mr. Nitin Mehta, learned senior standing counsel for the appellant strenuously argued that the Tribunal has failed to consider 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 of the Act 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, (....
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....he appeal deserves to be admitted on the questions of law as proposed or as may be deemed fit by this court. 4. Vehemently opposing the appeal, Mr. R.K. Patel, learned counsel for the respondent-assessee submitted that the decision of this court in the case of Commissioner of Income-tax v. Radhe Developers (supra) would be squarely applicable to the facts of the present case. On the merits of the case, it was submitted that the core conditions as laid down under section 80IB(10) of the Act are duly satisfied in the facts of the present case. It was pointed out that the assessee firm had paid the land cost to the society and had also entered into a Development Agreement with the society and had acquired the dominant control over the land from the date of acquisition of the land and had built and developed the residential housing project in the name and style of Vraj Homes by incurring all the expenses of construction, development and administration, taking all risks involved therein. It was submitted that the Development Agreement also makes it clear that it is the assessee-developer who is responsible for the profit or loss in respect of the development of the housing project and ....
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....er has concurred with the findings of fact recorded by the Commissioner (Appeals) and has found that as per the Development Agreement and facts of the case, the assessee had taken full responsibility for execution of the development project. The assessee had been given full authority for execution of the said development project, including development of the land and construction of residential units. The assessee had engaged professionals such as architect for designing architectural work and had also enrolled members and collected the consideration from the buyers of the residential units. The assessee had also paid the cost of the land to the Societies including stamp duty and had taken possession of the land for construction of the project. The Tribunal observed that as per the decision of this court in the case of Radhe Developers (supra), a legal title was not required for getting benefits under section 80IB(10) of the Act and that the assessee was the deemed owner of the land under section 2(47) of the Act. Having regard to the fact that the assessee had borne the entire cost of construction, including materials, and the receipt was not fixed for the contractor and the asses....
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....ll 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 not entitled to the benefit thereof. It has also been submitted on behalf of the appellant, that the present case relates to assessment year 2007-08 whereas the Explanation to sub-section (10) of section 80IB of the Act came to be inserted with effect from 1st April, 2001 and hence, the present case would be governed by the Explanation and the work in question being in the nature of a "works contract", the provisions of section 80IB(10) of the Act would not be attracted. It is the case of the appellant that the Commissioner (Appeals) as well as the Tribunal, have failed to consider the above referred aspect. 9. Before adverting to the merits of the case, it may be germane to refer to the decisions on which reliance had been placed by the learned counsel for the respective parties. Since the Tribunal has upheld the order passed by the Commissioner (Appeals) on the basis of the decision of this court in the case....
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.... 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 potential of; b. To aid in the growth of Strength, develop the biceps, c. To bring into being: make active (develop a business) d. To convert (a tract of land) for specific purpose, as by building extensively. e. Law lexicon Dictionary: The following definitions could be seen: Development &n....
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....e 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 or engineer, legal adviser and other professionals. He would appoint sub-contractor or labour contractor for execution of the work. The assessee was authorised 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, the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the ....
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....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 constitutes one for work or is a contract of sale, it is the dominant interest and object of the parties in entering into the contract, as evinced by the terms of the contract, the circumstances of the contract and the custom of the trade that provide a guiding indicator. The object of the parties is of necessity to be deduced from the terms of the contract. In order to elucidate the distinction which has been made, it would be necessary to turn to some of the authorities on the subject. While dealing with the authorities, it would be necessary to note that some of the decided cases deal with issues under the sales tax legislation and m....
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.... 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 contract in question involved supply and printing of question papers to universities. The assessee entered into those contracts for printing and the question involved was whether the taxable turnover for the purpose of the Tamil Nadu General Sales Tax Act, 1959 would include the printing and block making charges. The Supreme Court held that the contract in question was a contract of work, having regard to the nature of the job to be done and the confidence reposed in the contractor for work to be rendered. The supply of paper was merely incidental. More recently, in State of A.P. v. Kone Elevators (India) Ltd. [2005] 3 SCC 389; [2005] 140 STC 22, the assessee wa....
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....rd 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 the form, which has to be looked into. The court may form an opinion that the contract is one whose main object is transfer of property in a chattel as a chattel to the buyer, though some work may be required to be done under the contract as ancillary or incidental to the sale, then it is a sale. If the primary object of the contract is the carrying out of work by bestowal of labour and services and materials are incidentally used in execution of such work then the contract is one for work and labour. (3) If the thing to be delivered has only individual existence before the delivery as the sole property of t....
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....e 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 (page 26 of 140 STC): "5. It can be treated as well settled that there is no standard formula by which one can distinguish a 'contract for sale' from a 'works-contract'. The question is largely one of fact depending upon the terms of the contract including the nature of the obligations to be discharged thereunder and the surrounding circumstances. If the intention is to transfer for a price a chattel in which the 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 judg....
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.... 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:- "2(47) 'transfer', in relation to a capital asset, includes--... (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 42. Section 53A of the Transfer of Property Act reads as under:- 53A. Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his beha....
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....ar 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 material aspects are concerned, we see no significant or material difference. Here also assessee was given full rights to develop the land by putting up the housing project at its own risk and cost. Entire profit flowing therefrom was to be received by the assessee. It is true that the agreement provided that the assessee would receive remuneration. However, such one word used in the agreement cannot be interpreted in isolation out of context. When we read the entire document, and also consider that in form of "remuneration" the assessee had to bear the loss or as the case may be take home the profits, it becomes abundantly clear that the project was being develop....
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....tion 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. 11. In Larsen and Toubro v. State of Karnataka (supra), the Supreme Court once again was dealing with a case under the Karnataka Sales Tax Act as well as the Maharashtra Value Added Tax Act, 2002. The court was called upon to examine as to whether the ratio of the judgment of the Supreme Court in Raheja Development Corporation (supra) was correct. The court observed that a transfer of property in goods under clause (29-A)(b) of Article 366 of the Constitution is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom the transfer is made. It was further observed that as a result of the Fortysixth Amendment, the contract which was single and indivisible has been alter....
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....he 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 labour and services alone. Parliament had all genre of works contract in view when clause (29-A) was inserted in Article 366. 109. In Article 366(29-A)(b) the term "works contract" covers all genre of works contract and it is not limited to one specie of the contract. In Raheja Development1 the definition of "works contract" in the KST Act was under consideration. That definition of "works contract" is inclusive and refers to building contracts and diverse construction activities for monetary consideration viz. for cash, deferred payment or other valuable consideration as works contract. Having regard to the factual position, inter a....
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....48/2014 had referred to the decision of the Supreme Court in the case of K. Raheja Development Corporation v. State of Karnataka (supra) which held that the interpretation of the expression "works contract" was rendered in the background of the term "works contract" defined in Section 2(1)(v-i) of the Karnataka Sales Tax Act and it was in that backdrop that the Supreme Court concluded that the agreement was one of works contract. The court was of the view that the interpretation rendered by the apex court in the said decision was based 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. 14. 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....