TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 247
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....ing deduction of Rs. 6,03,739/- u/s 80IB(I0) r.w.s. 80IB(1) to the assessee on profit derived from sale of unutilized FSI not being the element of profits derived from the business activity of development and construction of the housing project. 2. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored. 3. Briefly stated facts of the case are that assessee is a partnership firm engaged in the business of land development and construction of housing projects. Nil return was filed on 30th October, 2002 which was processed u/s 143(1) of the Act. Thereafter the case was reopened and notice u/s 148 of the Act was issued on 3.1.2005 and duly served upon the assessee on 2.2.2005. Assessee has claimed deduction u/s 80IB(10) of the Act at Rs. 12,55,093/- towards income earned towards profit from the project of development and construction of residential houses. Assessment was framed by taking two alternatives; as per which in the first alternative total deduction claimed u/s 80IB(10) of the Act was denied as the....
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....e matter relating to claim for deduction u/s 80IB(10) of the Act to the file for deciding the issue afresh. Ld. CIT(A) deleted the addition made by ld. Assessing Officer in both the alternatives by observing as under :- 4.1. I have considered the submission of the learned Authorized Representative and the order of the Assessing Officer, in the light of the directions given by the Hon'ble ITAT. The decision of the Hon'ble ITAT in the case of M/s. Radhe Developers (as confirmed by Hon'ble Gujarat High Court) and M/s Shakti Corporation and Others and the guidelines laid down therein have also been considered. 4.2. The Assessing Officer, after due verification, has allowed deduction u/s 80(IB)(IO) for AY 2005-06 and 2006-07 in assessee's own case where the facts are identical. From the assessment orders of these years it is seen that the Assessing Officer is satisfied that for all practical purposes the assessee has acquired dominant right over the land and no right in the land remained with the landowner. He has also stated that the assessee is responsible for the risk and costs involved in this project. Hence the conditions prescribed in the Shakti Corporation case ....
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....e of Rs. 6,03,739/- made u/s 80IB(10) r.w.s 80IB(1) of the Act towards profit earned on sale of unutilized FSI. We observe that at the time of assessment ld. Assessing Officer made addition taking two alternatives as per of which in the first alternative total deduction u/s 80IB(10) was disallowed with the observation that assessee was not the owner of the land. However, this addition was deleted by ld. CIT(A) and Revenue is not in appeal against this deletion. In the second alternative ld. Assessing Officer has observed that assessee had made construction on only 40% (approx) of the total space available for construction as approved by the local authority and the remaining 60% of the unutilized FSI was sold to the buyers of constructed portion and since eligible for claim of deduction u/s 80IB(10) of the Act only relates to those profits which are earned from the development and construction of housing project the profit earned on sale of unutilized FSI was not eligible for the same. Accordingly ld. Assessing Officer after giving relevant figures of the total permissible FSI available at 1423.7 sq.m. subtracted 571.81 sq.m. on FSI utilized leaving behind 851.89 sq.m. FSI unutilize....
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....sing project if (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998, (b) the project is on the size of a plot of land which has a minimum area of one acre, and (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 kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place." We may notice that subsequently an explanation came to be added at the end of the said sub-section by Finance Act of 2009 but with effect from 1.4.2001 which explanation read 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)." In the notes on clauses explaining the introduction of section 80-IB of the Act, in the context' of subsection (10) thereof, it was stated as under: "The provision also seeks to provide that for ....
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....truction 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 80-13(10) of the Act." 26. It can thus be seen that deduction under section 80-13(10 ) of the Act was granted to give fillip to the construction of residential units for persons of middle income group in urban and semi-urban areas of large cities and even small towns where there would be dearth of supply of such residential units. Some of the essential conditions for claiming such deduction are : (a) that the housing project should be approved by the local authority before a specified date (which was extended from time to time); (b) that the undertaking 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 k....
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....maximum construction permissible on such land, is referred to as floor space index (FSI for short). It is this FSI which will decide the maximum area of construction that can be carried out on any given piece of land. It is, therefore, not difficult to appreciate that besides several other factors of situational and other advantages and disadvantages, FSI permissible for the land in question would be an important factor in the context of development of the land. Given all other factors same, higher the FSI, the greater the value of the land. 29. It is in this context, we have to appreciate the under-utilization of the FSI by the assessees in different housing projects under consideration. From the figures recorded in the earlier portion of the judgment, we can gather that such utilization of the FSI by the assessees ranges from the minimum of 11.14% of the full FSI available to a maximum of 65.81%. In majority of the cases, the assessees have covered barely about one-fourth or one-third 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, the....
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....l cases, the assessee must utilize the full FSI and any shortage in such utilization would invite wrath of the claim under section 80-IB(10), being rejected. The question is where does one draw the line. In our opinion, the issue has to be seen from case to case basis. Marginal under-utilization of FSI certainly cannot be a ground for rejecting the claim under section 80-18(10) of the Act. Even if there has been considerable under-utilization, if the assessee can point out any special grounds why the FSI could not be fully utilized, such as, height restriction because of special zone/passing of high tension electric wires overhead, or any such similar grounds to justify under-utilization, the case may stand on a different footing. However, in cases where the utilization of FSI is way short of the permissible area of construction, looking to the scheme of section 80-IB(10) of the Act and the purpose of granting deduction on the income from development of housing projects envisaged there-under, 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....
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....dia (supra), the assessee was engaged in infrastructure development and claimed deduction under section 80-1, 80-IA and 80-IB, etc. on the drawback receir - and DEPB benefits. The Court held that such income cannot be stated to be derived from ihe industrial undertaking. 36. The case of Nirma Industries Ltd (supra) rested on different facts. It was a case where the assessee had claimed deduction under section 80-IA of the Act. Such claim included the interest received from trade debtors towards late payment of sale consideration. This became a matter of dispute between the assessee and the Revenue. The Court held in favour of the assessee holding that such additional consideration can also be stated to be derived from the business. It was observed that when the purchaser pays a higher sale price, if it delays payment of sale proceeds, there is a converse situation to offering of cash, discount. In principle, thus; the transaction remains the same and there is no distinction as to the source. 37. In view of the above discussion, the question is answered in favour of the Revenue. All Tax Appeals to this extent are allowed. Respective decisions of the Tribunal are reversed to that e....
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....FSI would not be eligible for deduction under section 80IB (10) of the Act. It was in this background of such unutilized FSI, the Court was persuaded to adopt such course. It was held and observed as under :- "28. In this context, we may examine, whether the decision of the Assessing Officer to treat the income of the assessees from sale of FSI separate and excludable from the purview of section 80IB(10) of the Act? The concept of FSI, is a well-known one. Local authorities, such as Corporations, Municipalities and Panchayats, frame regulations for regulating activities of development of lands within their local areas. Such regulations are popularly referred to General Development Control Regulations (GDCR). In addition to providing different zones controlling development activities in different areas for regulated and orderly development of urban areas, these regulations also provide for various other details such as maximum height up to" which the construction can be carried out, maximum area on the ground floor or on other floors which can be covered under construction, margin to be left on sides, parking facilities to be provided depending on the nature of building and most im....
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.... terms of construction business, it is equivalent to sale of land. Thus, therefore, when a developer constructs residential unit occupying a fourth or half of usable FSI and sells it, his profits from the activity of development and construction of residential units and from sale of unused FSI are distinct and separate and rightly segregated by the Assessing Officer. 31. It is true that section 80IB(10) of the Act does not provide that for deduction, the undertaking must utilize 100% of the FSI available. The question however is, can an undertaking utilize only a small portion of the available area for construction, sell the property leaving ample scope for the purchaser to carry on further construction on his own and claim full deduction under section 80IB(10) of the Act on the profit earned on sale of the property? If this concept is accepted, in a given case, an assessee may put up construction of only 100 sq. ft. on the entire area of one acre of plot and sell the same to a single purchaser and claim full deduction on the profit arising out of such sale under section 80IB(10) of the Act. Surely, this cannot be stated to be development of a housing project qualifying for deduct....
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....ee was engaged in processing prawns and other sea food which it exported. In the process, the assessee earned import entitlements to use itself or sell the same to others. During the year under consideration, the assessee included such sale proceeds for claiming relief under section 80HH of the Act, in case of any profit or gain derived from an industrial undertaking in backward areas. In this context, the Apex Court held that the import entitlements cannot be said to be derived from the industrial undertaking of the assessee. For the application of the words "derived from", there must be a direct nexus between the profits and gains and the industrial undertaking and in the case on hand, the nexus was not direct but only incidental." 4. In the present case, the facts are somewhat different. The assessee, in the process of developing two Housing projects, had utilized 9595.64 sq.m of build-able area against the maximum permissible area of 13004 sq.m and in other cases, put up construction of 5997.28 sq.m against maximum permissible construction on 8127.75 sq.m. Under utilization, if at all was in the marginal range of 25% to 30%. As held by this Court in case of Moon Star Developer....