TaxTMI 
TaxTMI 
2011 (5) TMI 960
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....essing Officer that built up area of residential unit for the purpose of section 80IB (10) includes open terrace. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) erred in observing that appellant firm has developed and constructed residential project on lands having survey numbers which do not form part of the development agreement. The Ld. CIT(A) ought to have appreciated that entire development of housing project was carried out strictly and exclusively on the survey numbers which form part of relevant agreement with societies." 2. The facts noted in the impugned order are that the assessee firm is engaged in the business of construction and consist of the following partners: (i) Safal Infrastructure Pvt. Ltd. 50% (ii) Safal Constructions Pvt. Ltd. 25% (iii) Rajesh Brahmbhatt 12.5% (iv) Rupesh Brahmbhatt 12.5% It was informed that this was the first year of claim of deduction u/s 80 IB(10)of the IT Act. It was stated that the deduction had been claimed on the project named "Safal Parivesh", situated at mouje village Vejalpur, Taluka City, District Ahmedabad on the land admeasuring 17938 SQM of area. It was informed that there we....
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.... of ₹ 9,73,02,426 u/s. 80IB (10). Perusal of the assessment order shows that as per reasons summarized in Para 3.37 of the assessment order the AO denied the deduction on the ground that the appellant was not both a developer and a builder. That it was not the owner of the land as approvals for construction etc. were not granted by AUDA to it. That it was merely a contractor who did construction work as per the agreements with the land owners - the societies. That the assessee had not sold any unit to the purchaser but the Societies had executed the sale deeds. That the assessee was merely a works contractor. In support of disallowance on the ground that the assessee is a works contractor the AO has relied upon Hon'ble Supreme Court decisions mentioned below: 1. HAL Ltd. vs. State of Orissa (SC) 55 STC 327 2. Tamilnadu vs. Anandam Vishwanatham 1 SCC 613 Most importantly the first reason which has been mentioned for disallowance by the AO is that the assessee exceeded 1500 sq. ft. built-up area limit for which reference was drawn by the AO to Para 3.12 of the assessment order. 6. Through written submission dated 20.7.2010 it was stated that the appellant had obtain....
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....ety Ltd. was furnished in the appellate proceedings when asked the ld. ARs stated that the word used in the Development Permission is Jai Vaishnodevi Cooperative Housing Society Ltd. Vibhag-6 and other. According to them this word 'other' included Sherin Cooperative Housing Society Ltd. In my opinion this explanation does not suffice specially when the original Jai Vaishnodevi Cooperative Housing Society Ltd. had been sub-divided into several parts and it is with part - 6 that the appellant is dealing (please refer to the comments in para 3.3 of the assessment order. There is part-7 also. Sherin Cooperative Housing Society Ltd. is an independent society the whereabouts of which had not been explained. The Development permission is not in Sherin's name, and common sense interpretation of this word 'other' in the permissions is that it might include the other parts of Jai Vaishnodevi Cooperative Housing Society Ltd. The point is should the development agreement entered with Sherin Cooperative Housing Society Ltd. be treated as a valid agreement when this society's name does not appear neither in development permission nor in BU permission. 8. Interestingly BU permission dated....
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....rmission had been taken not for 1/5th part of this land but for full 937) 938 794/1, 779, 896, 885 /1, 935, 807, 817, 895, 794/2 803 /1/3, and 957 /1 . 11. Though Development permission shows revenue survey number 933 but no BU permission has been given with respect to construction on this 933. Development permission is for 937 but BU permission is for 1/5th part of 937 only. 12. From para 8 and 9 above it is clear that revenue survey numbers of land which had been entered into by the appellant through two Development agreements do not mention following survey numbers of land on which the appellant had constructed residential units and has claimed 801B deduction: 1 There is no Development Agreement with respect to land Survey No, 896. 2 There is no Development Agreement with respect to land Survey No.885 /1. 3 There is no Development Agreement with respect to land Survey Number 935, 4 There is no Development Agreement with respect to land Survey Number 807. 5 There is no Development Agreement with respect to land Survey Number 895. 6 and there is no Development Agreement with respect to land Survey Number 794/2. 13. Further in Survey No, 95....
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....ind mention even in the two development agreements. (This point has been elaborated from para 25 to 28 below). 17. Now let us see whether the condition stipulated in clause (c) of Section 80IB(10) is fulfilled by the appellant. Clause (c) states that the residential unit should have a maximum built-up area of 1500 sq.ft. This section was introduced for the benefit of lower income group to facilitate them to own small houses / flats which they could afford. 18. The AO has observed in para 3.8 of the assessment order that the assessee has violated this condition - 80lB(10)(c) - because on 12th floor in Block numbers A, B, C & D flat numbers 1201 in each block had additional space in the form of independent terrace. The AO noted that the assessee has sold exclusive terrace rights to the members through the sale deeds. According to the AO the additional space provided was actually in the nature of balconies for exclusive use of the buyers of the flat number 1201 in block numbers A, B, C & D. 19. For the purpose of verification the case was referred to the DVO u/s.131 (1)(d) through this office letter dated 11.8.2010. After several reminders the DVO (Shri A.K. Silekar) responded t....
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....project it is clear that flat numbers 1201 in various blocks (A, B, C and D) exceeded 1500 sq.ft. built-up area limit. The measurements in square feet lifted from the DVO's annexure enclosed as Annexure 3 of this order are reproduced below: "AREA STATAMENT OF PRIVATE TERRACES ATTACHED TO THE FUVT NO. 1201 ("SAFAL PARIVESH" AHMEDABAD) Built-up area of flat No. 1201 in sq.ft. as per measurement s. No Flat No. Biock No. Floor Level Flat area Additional extended Private open terrace Total area (surrounded by 3 feet high parapet wall and 6 inch ^thick) 1 1201 I A I I Twelfth 1453.11 326.59 1115.31 2895.01 Sq.ft 2 1201 B Twelfth 1453.11 326.59 1115.31 2895.01 sq.ft. 3 1201 C Twelfth 1453.11 141.67 1300.23 2895.01 Sq.ft 4 1201 D Twelfth 1453.11 326.59 1115.31 2895.01Sq.ft Sd/- (Er.A.K. Silekar) District Valuation Officer Income tax Department, Ahmedabad." 23. Also in my opinion the definition of built-up area given in the section 80IB(10) includes "balconies and projections" in the built-up area and therefore a private terrace which is at the floor level of the apartment and has been sold by the appellan....
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.... Hon'ble ITAT held that the Development Agreement should be referred to and where it is found that the assessee had practically purchased the land and acquired dominant control the deduction should be allowed. This is of course subject to the fulfillment of the conditions stipulated in the statute in section 80IB(10). In this case the appellant is not found fulfilling the condition stipulated in clause (a) of section 80IB(10) as it carried out construction on land with respect to which it had not entered into any agreement with the two housing cooperative societies. The land revenue survey numbers are: 957/1 93715 Paiki, 896 885/1 935 807 895 794 12 It would be not out of place to mention that the then DVO vide his letter dated 13.9.2010 required the appellant to mark plot measurements on the lay out plan on which the residential units had been constructed, but no such plan was given to the DVO or to this office which showed clear cut survey number for the various blocks or units constructed in the project. The appellant is also found violating the condition stipulated in clause (c) of section 80IB(10) with respect to 1500 sq.ft. built-up area limit as obvious from the....
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....tion by them along with copy of the bank statement of the assessee for payments made for development rights referred to above and the bank statements of the societies for receipt of such amount vide PB 160 to 173. Therefore, the assessee has taken over all the risks and rewards associated with for development of the housing project and purchase of substantive development rights including land cost. The learned Counsel for the assessee referred to the clauses from the development agreements entered with the societies according to which the land is described in the schedule and the assessee had undertaken the entire development of the housing project for the purpose of which it was to appoint architect and contractors for execution of the work and to make contracts with them, to obtain permission from the competent authorities and all the cost including labour and materials have to be incurred by the assessee. The assessee through the said development agreements was to provide funds to the societies for purchase of the developed land. The assessee is declared as developer in the agreements which will have rights to develop the building and sell the same. All the developments in the b....
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....ome, therefore, non-mention of name in the certificate of use would not be relevant. He has further submitted that price to be charged from the customer is solely determined by the assessee and all sale considerations have been received by the assessee which has been shown as income in the books of accounts of the assessee. In the present case the assessee developer is alone responsible for profits/gains/surplus/loss if any arising out of the said housing project. The assessee has acquired dominant right over the land and developing housing project taking all risks and the land has been practically purchased by the assessee as per the decision in the case of Shakti Corporation and became owner of the land and was not merely work contractor. He has submitted that the facts of the assessee are squarely covered by the recent decision of ITAT Ahmedabad Bench in the case of M/s. Amaltas Associates Vs ITO in ITA No.2401/Ahd/2010 dated 21-01-2011. Copy of the same is filed at PB-307. He has further submitted that built-up area of the residential units as per the 4 sale deeds PB- 181 to 269 at page 196, 218, 239 and 262 of the paper book is below 1500 sq. ft. which is supported by possessi....
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.... housing project, the assessee has received building use permission on 14-5-2008 (PB-105) for 324 residential units developed by the assessee. In the building use permission, it has been categorically mentioned that the development work is as per the terms and conditions stipulated in the development permission. He has further submitted that the assessee has developed housing project on survey Nos. 794/1, 957/p, 938 of JVCHSL and on survey Nos. 779, 937/p, 888/p, 817 and 803/1/3 of SCHSL and other survey Numbers mentioned in the development permission issued by AUDA are not belonging to the societies referred to above but belong to other societies to which the assessee has not concern and even no development agreement or agreement to sell was entered with the other societies. He has clarified that instead of survey No.937/p inadvertently it is written as 933. A detailed synopsis with regard to the discrepancy in the survey numbers is filed through which it is clarified that the development agreements contain the schedule of property/survey numbers (PB-91 and PB-103A) which match with the original sanction plan (PB-118). He has further submitted that original development permission ....
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....refore, the assessee would not be entitled for deduction even on pro rata basis. He has submitted that liberal interpretation of the provisions of law can be applied where there is a doubt about the language of the Statute and relied upon the decision in the case of Pandian Chemicals Ltd. Vs CIT 262 ITR 27. He has also relied upon the order of the ITAT Chennai Bench in the case of ACIT Vs Viswas Promoters (P) Ltd. 126 ITD 263. The learned DR further submitted that since built up area of 4 flats was extended beyond 1500 sq. ft., therefore, the assessee was rightly denied exemption u/s 80 IB (10) of the IT Act. The learned DR submitted that the discrepancy in the survey number which is explained now may be referred to the AO for further verification. 6. We have considered the rival submissions and material available on record. We find that all the issues now raised in the present appeal are already taken into consideration and decided by ITAT Ahmedabad Bench in the case of M/s. Amaltas Associates Vs ITO (supra) in which earlier decisions of this Bench in the cases of M/s. Radhe Developers and Shakti Corporation (supra) decided by ITAT Ahmedabad Bench had already been taken into cons....
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....lot of land which has a minimum area of one acre : Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf ; (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities 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 five per cent. of the aggregate built-up area of the housing project or two thousand square feet, whichever is less." xxxxxx Explanation.- For the removal of doubts, it is hereby declared that nothing contained in this subsection shall apply to any undertaking which executes the housing project as a works contract awarded by any person (i....
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....ndition that such development and building of the housing project should also be on a land owned by an assessee undertaking. It might be true that the land belongs to the person who has entered into an agreement with the assessee to develop and build housing project but on a perusal of the agreement as narrated above, it is evident that the development and building work has been carried out by the assessee in pursuance of a tripartite agreement and it is not by the land-owners. Therefore, the mere fact that the landowner and the undertaking developing and building housing project, are two different entities would not make any difference. The deduction would be eligible to the person who is developing and building housing project and not to the mere owner thereof. A person who enters into a contract with another person is no doubt a contractor. Having entered into agreements with landowners for development and building the housing project, assessee was obviously a contractor but it does not derogate the assessee for being a developer, as well. The term contractor is not essentially contradictory to the term developer. As stated above, it is the undertaking that develops or builds t....
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.... 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 workers for any work of the establishment; and includes a subcontractor. In those circumstances, the assessee is entitled to deduction under s. 80-IB(10) as it had developed and built the housing project; it had started construction after 1 day of April 1998; the project is on the size of a plot of land which has a minimum area of one acre and the maximum built-up area of the residential units is not more than 1,500 sq. ft. It may also be born in mind that deduction is not exclusively to an assessee but to an undertaking developing and building housing project, be it developed by a contractor or by an owner. The assessee, in the instant case, can also be said to be the owner of the land as it had made part payment to the landowners during the financial years 2000-01 and 2001-02 for an amount of ₹ 56 lacs, and taken the possession of the land for development and building the housing project and sa....
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.... s. 80-IB(10) of the Act, to claim deduction on the profit derived from construction and development of residential housing project. There is no explicit condition enumerated in s. 80-IB(10) of the Act as regards to requirement of ownership for the claim of deduction. In view of above facts and circumstances of the case as well as legal proposition laid down by the Supreme Court in the case of Mysore Minerals Ltd. (supra), we hold that the assessee is entitled for claim of deduction on the profits derived from construction and development of residential housing project." 8. In the case of Shakti Corporation (supra), the assessee claimed the deduction under Section 80IB(10). The AO disallowed the assessee's claim on the ground that it was not the owner of the property; that the permission was not granted in the assessee's name and the approval from the Municipal Corporation was in the name of the original land owner and not in the name of the assessee. The Tribunal considered the averment and the material on record and allowed the claim of the assessee and it was held as under: "In the instant case, there was no agreement to share the constructed area. This agreement relates only....
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.... all the risks involved therein. We may mention here that, in our opinion, the decision in the case of Radhe Developers & Ors. (supra) will not apply in a case where the assessee has entered into the agreement for a fixed remuneration merely as a contractor to construct or develop the housing project on behalf of the landowner. The agreement entered into in that case will not entitle the developer to have the dominant control over the project and all the risks involved therein will vest with the landowner only. The interest of the developer will be restricted only for the fixed remuneration for which he would be rendering the services. The decision in the case of Radhe Developers & Ors. (supra) has not dealt with such situation. The proposition of law laid down in the case of Radhe Developers & Ors. (supra) cannot be applied universally without looking into the development agreement entered into by the developer along with the landowner. In the case of the assessee, since it had filed copy of the development agreement and crux of the agreement was that the assessee had purchased the land and had developed the housing project at its own, the assessee would be entitled to the deducti....
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....of sale consideration of ₹ 3 lakhs is transferred in a sum of ₹ 2.50 lakhs and ₹ 50,000/- from the assessee and was received by the society in their account. It would therefore prove that the assessee made the payment of sale consideration of the property in question through banking channel. The details of the amount received as a sale proceeds from the members/proposed buyer is also filed to support the contention of the assessee that the assessee received entire sale proceeds in its books of accounts with all rights to use profit and loss. PB-130 is the reply filed before the learned CIT(A) to explain the above position that the assessee paid sale consideration to the society. The learned counsel for the assessee also referred to the queries raised by the CIT(A) in this regard which is properly explained by the assessee. The above facts would prove that the assessee entered into an agreement to sell with the society for consideration. All the responsibilities for carrying out the construction, permission and development of the project lie with the assessee. The real owner of the land was only to coITA operate with the assessee in carrying out the development and....
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.... the objection of the authorities below that the assessee constructed more facts is not sustainable in law. The above facts, if considered in light of decision of the ITAT, Ahmedabad Benches, in the case of Radhe Developers and the Shakti Corporation, we are of the view that the issue is now covered by the above decision of the Tribunal in favour of the assessee, because, the assessee has acquired dominion right over the land and has developed the housing project by incurring all the expenses and taking all the risk involved therein. The crux of the matter would be that the assessee has purchased the land and has developed the housing project at its own cost, therefore, we are of the view that the assessee will be entitled for deduction under Section 80IB(10) of the Act. 10. The assessee filed details of built up area of all 110 units of the residential flats at page no.52 and 53 of the PB to show that the built up area was less than 1500 sq.feets. However, the DVO reported in his report (PB- 46) that considering the open terrace in front of penthouse room at 6th floor which is analogous to balcony/verandah, then built-up area in this manner will measure more than 2500 sq.feet to ....
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....ecision of the Kolkata Bench of the Tribunal in the case of Bengal Ambuja Housing Development Ltd. v. Dy. CIT (IT Appeal No. 1595 (Kol) of 2005, dated 24-3-2006], which was squarely applicable to the instant case, it was to be held that if the assessee had developed a housing project wherein the majority of the residential units had a built-up area of less than 1500 sq. ft., i.e., the limit prescribed by section 80-IB(10) and only a few residential traits were exceeding the built-up area of 1500 sq. ft., there would be no justification to disallow the entire deduction under section 80- IB(10). It would be /air and reasonable to allow the deduction on a proportionate basis, i.e. on the profit derived from the construction of the residential unit which had a built-up area of less than 12500 sq. ft., i.e. the limit prescribed under section 80IB(10). In view of the above, the AO was to be directed that if it was found that the built-up area of some of the residential units was exceeding 1500 sq.ft., he would allow the proportionate deduction under section 80-IB(10). Accordingly, the appeal of the revenue was to be dismissed and cross-objection of the assessee was deemed to be partly al....
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....oduced in the assessment order as well as in the statement of facts filed before the Tribunal. The development agreements entered into by the assessee was over and above the agreement to sell to acquire the aforesaid 4 rights and domain over the land in question. According to the development agreements it was the responsibility of the assessee for planning, sanction of the building plan, work of construction, development of the housing projects along with all expenditure to be incurred by the assessee for development of the property in question. The assessee is also entitled to receive the sale consideration and shall accept all the payments from the buyers. The details of the same are filed on record to show that even in the sale deeds the name of the assessee is mentioned along with history as to how the property has been developed by the assessee as a developer and that the entire sale consideration is received by the assessee. The learned Counsel for the assessee also submitted that AUDA has granted permission to construct 324 residential units in 65310.22 sq. m. of land and in the permission for development the name of one of the societies and others and Safal Engineering Asso....
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.... was carried out by the assessee. The motives of the societies were not to develop, construct or carrying out any business as a builder or developer and practically nothing was left with them. For all intent and purposes, the assessee has acquired dominant rights over the land and the assessee can deal in the land in the manner in which the assessee might have liked. The terms and conditions entered into between the assessee and the societies as per the development agreements provided all the dominant control and rights over the land to the assessee and the assessee developed and constructed the housing project at its own cost and would remain owner of the building without any interference from the societies. The development agreements in question did not provide that the assessee would be working as a contractor or agent on behalf of the societies. The agreements in question would not be regarded to be the joint venture or collaboration agreement. It was the agreements under which the assessee was entitled to develop the housing project on the land on its own cost and in the manner in which the assessee might have decided. The authorities below rejected the claim of the assessee b....
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....t in 17938 sq. m. of area for 324 residential units only. The survey numbers of the land in question match with the development agreements etc. as is clarified by the learned Counsel for the assessee. In brief, the same are mentioned at PB-91, 95 and PB- 103A. Since the approval of the development was granted for 324 residential units and on the same basis Building Use permission is granted for 324 residential units developed by the assessee which were as per the terms and conditions stipulated in the development permission and that there was no objection from the side of the societies, we do not find any discrepancy for any survey number for construction of the property in question. We may also note here that the competent authorities would never grant permission to raise construction without verifying the survey numbers/plot numbers of the property in question. The competent authorities always verify the area of the property along with their title number before granting permission for raising construction in the property. Moreover, the AO has not made out any case if the assessee raised construction in other's property. Even if, the contention of the Deptt. is accepted that the a....