TaxTMI 
TaxTMI 
2013 (11) TMI 1745
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.... land measuring about 14.75 acres by developing the land with basic infrastructure like roads, parks, street lights, children play area, etc. The assessee filed his return of income for the year under consideration by declaring total income of Rs. . 8,32,052/- after claiming deduction under section 80IB(10) of the Income Tax Act. The Assessing Officer has rejected the claim of the assessee on the following reasons: 1. The project was not a housing project as envisaged under section 80-IB(10). 2. The project was of the nature of works contract and the assessee undertook contract risk and not investment risk. 3. The conditions pertaining to dates of approval, dates of completion and area of project had not been adhered to. 4. The condition with respect to built up area had not been adhered to. 3. With regard to whether the project is a housing project or not as per section 80IB(10), the Assessing Officer has observed that as per section 80IB(10), there are two categories viz. (i) apartments and (ii) row house/ Villas. According to him, single approval for the project as a whole was given by the CMDA. The buyer of t....
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....eed of the land takes place few days after the construction agreement. The assessee constructs independent houses on independent plots of land. The assessee had started work on construction of the houses only after entering into construction agreement with the customers. He had received payments from the customers after which he had commenced construction work. The assessee had obtained building plan approval from the Pallikaranai Panchayat and then only started the construction. The assessee received payment from the customers on various dates as the house construction progresses. The Assessing Officer has noted that the buyer/customer is the owner of the land on which the construction of the house is being made, which shows that the assessee merely takes contract risk and not investment risk. The assessee's job is in the nature of works contract. Moreover, many of the lands were not in the name of the assessee at any point of time. It was either in the name of the original owner or the customer to whom the house was sold later. Therefore, the housing scheme of the assessee is of the nature of a works contract and accordingly, the Assessing Officer has denied the claim of dedu....
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....ould be taken as the date of approval of the project. In the instant case, there is no single approval for the entire project. The assessee has taken different approvals and therefore, the assessee has not satisfied the conditions laid out under section 80IB(10) with respect to the housing project approvals, date of approval and completion dates and denied the claim of deduction under section 80-IB(10). 8. The Assessing Officer has examined the entire aspect as to whether the condition with respect to built up area is adhered to by the assessee or not. In the assessment order, the Assessing Officer has observed that the issue of built up area has been discussed by placing strong reliance on the decision of the ITAT in the case of Sanghvi and Doshi Enterprise v. ITO. While considering Tribunal's decision in the case of Sanghvi and Doshi Enterprise (supra), the Assessing Officer has observed that the "Private terrace area" should be included in the built-up area and stressed on the fact that exclusive access to the terrace was available to only one of the buyers and hence, the terrace area should be considered as part of the built up area. In the above cited case, the Tribunal has....
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.... submitted before the ld. CIT(Appeals) that the land was initially acquired by the assessee to an extent of 7.11 acres and approval was taken for prototype houses and therefore the project area is more than 1 acre and therefore, the assessee is eligible for deduction under section 80IB(10) of the Act. * So far as approval and completion of the project, it was submitted that initial approval for 3 prototype units were obtained on 06.05.2005 from the local authority i.e. Pallikaranai Panchayat and the last approval was obtained on 29.03.2007 i.e. well before 31.03.2008 as required by section 80IB(10) and the project was completed and certificate obtained from local authority was on 03.03.2011, well before 31.03.2011 as required by clause (a) of section 80IB(10) of the Act. * So far as whether the assessee is a developer or works contractor, it was submitted that the assessee paid advance money to the land owners and to develop the land, the assessee had incurred expenditure of Rs. . 79.27 lakhs and entered into sale and construction agreement with the prospective buyers and construction was completed. It was also submitted that even as on date, the maintenance....
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....understood; the expression 'housing project' in common parlance would mean constructing a single building or a group of buildings consisting of several residential units. The legislature has introduced the provisions of section 80-IB(10) to encourage residential housing projects with a cap that the individual units should not exceed specified limit of built up area. Any undertaking has to fulfill all the conditions laid down under the beneficial provisions of section 80-IB(10) of the Act to avail deduction under this section. In the case of the appellant, it is seen from the records submitted, the building plan of the residential units have been approved by the local authority as mandated by section 80-IB (10) and the AO has not disputed regarding the building plan approval by the local authority. In my opinion the reasons cited by the AO for denying the deduction is merely a presumption. Plain reading of section 80-IB(10) reveals that deduction is available to an undertaking which is developing and building housing projects as approved by the local authority, The section does not lay down any further conditions as presumed by the AO. ....
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....ppellant case is that he has entered into an agreement dated 15/06/2004 with the land owners for purchase of plots in an approved layout covering an extent of 7.11 acres. Similarly in respect of the subsequent agreements dated 27/09/2005 and 31/08/2006 entered with the land owners, the appellant had acquired rights to develop further extent of 7.64 acres and in all to the extent of 14.75 acres. The appellant has paid Rs. 1.31 crore as advance money to the original owners apart from spending Rs. 79.20 lacs on laying out the basic infrastructure for the housing project and thus invested an amount of nearly Rs. 2.00 crores upfront before generating any revenue and in turn the appellant had obtained possession of the lands and also the rights to develop and resell the land to the prospective clients. At one stage about 70 of the approved plots were registered in the name of the appellant after making entire purchase consideration. As per the appellant, all the activities connected with the development of land, approval, preparation of scheme drawings, submission of plans to the local authority and payment of development fees to the concerned authority have all bee....
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....s name but having possession of the land. As per the income tax proceedings, the transfer as envisaged by section 2(47) of the Act stands completed, once the assessee entered into an agreement and taken over possession of the property irrespective of the fact that the consideration is passed or not. In any case legal ownership over the land ha~ never been any relevant criteria for allowing or not allowing deduction u/s 80-IB (10) of the Act. What is important is that the undertaking should have complete control, dominance and right to carry on the project as sanctioned by the local authority. In the present case, since the contrary had not been made out by the AO, it can be safely assumed that the appellant had full control and dominance over the property or he could not have completed the project within the stipulated time as envisaged by the section 80-IB(10) of the Act. The AO's contention that the appellant undertook the contract work on behalf of the final buyers of the residential units does not go well when the records and documents are perused. What the appellant did was, he sold the finished product to the buyer (in this case residential unit) by executing a sale deed ....
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....e project executed by the appellant was not of the nature of works contract and the appellant undertook investment risk and not contract risk." 13. The third issue raised before the ld. CIT(Appeals) is whether the conditions pertaining to dates of approval, dates of completion and area of project had been adhered to: "The case of the appellant is that he has executed the housing projects in an area of measuring 14.75 acres and whereas the minimum requirement of land area as per the clause (b) of section 80-IB(10) of the Act is one acre of land. The appellant after developing the land with the basic infrastructure for the housing projects like roads, parks street lights children's play area etc., has obtained building plan approval for 3 prototype houses on the said date and built the model housing units and subsequently obtained plan approval for the remaining housing units in a phased manner and completed the construction of all the remaining units within the stipulated time as prescribed in the said section. The case of the AO is that, the appellant has obtained building plan approval only for three houses comprising of 598....
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....0). Further, explanation (i) to clause (a) of section 80-IB (10) is very clear about the building plan approval and not the layout approval in this regard. Hence, finding of the AO that the date of first layout approval should be taken as the date of approval has no relevance to the issue under consideration. It is to be noted that the AO has failed to understand that the conditions laid down in section 80-IB (10) are specific conditions and their satisfaction must be very strict. Since the conditions are very specific, there is no reason to interpret their meaning. Once it is seen that the conditions are satisfied, the deduction is available to the assessee automatically. Therefore, referring sale of divided share of rand or FSI or that the dwelling unit of same built up area should have the same undivided share of land and should be sold at the same price and dwelling units constructed by the appellant are not multi-storey buildings by the AO are not acceptable. As far as compliance of clause (a) of section 80-18 (10) is concerned, it clearly states in each of its sub-clauses that the building plan has to tie approved by the local authority. I....
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....mpleted and completion certificate from the local authority were obtained well before 31.03.2011 as required by clause (a) of section 80IB(10). Similar view has been upheld recently by the Hon'ble High court of Bombay in the case of CIT Vs. Vandana properties (2010) 19 Taxxman.com 316(Bombay). Therefore I am of the view that the conditions pertaining to dates of approval, dates of completion and area of project had been adhered to by the appellant." 14. The fourth issue raised before the ld. CIT(Appeals) is whether the condition with respect to built up areas is adhere to?: "As far as the size of the dwelling unit is concerned, the AO has concluded that all the units in the housing project except one unit exceeded the built up area limit of 1500 sq.ft. as stipulated in section 80-IB(10) of the Act. In this regard, the AO has concluded that all the space within the compound wall of each housing unit is a private space and if all that private spaces are included then all the units exceeded 1500 sq.ft of built up area. The AO has further contended that open terrace area is to be included in the built up area....
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....fied by the competent authority viz in this case, the local authority; which is within the prescribed limit of 1500 sq.ft. u/s 80-IB(10) of the IT Act and the competent authority is also an approved authority prescribed u/s 80 IB of the IT Act. The AR of the appellant in this regard has submitted drawings of ground and first floor of one independent unit (Unit NO.15 of the housing project) with the following built up area computation: GROUND FLOOR living + verandah (9" + 14'3" + 9 + 4'4 ½ ") x (9" + 12'0") = 256.59 Dining + Sit out (9" + 14'3" + 9" + 4'4 ½ ") x (9" + 13'0") = 276.72 Kitchen + Toilet + Bed (9"+8'0"+4½ "+ 4'0"+ 4½"+10'0"+9") x (9"+12'0"+9") = 327.38 = 860.69 sq.ft. FIRST FLOOR ....
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....s or consoles, and enclosed by a parapet; as a balcony in front of a window. Also, a projecting gallery in places of amusements; as, the balcony in a theater. Sources : Webster's Revised Unabridged Dictionary (1913). Definition of a balcony as per CMDA Development Control rules & Regulations; Balcony: A cantilever projection, with a handrail or balustrade or a parapet, to serve as a sitting out place. By reading of the above definitions I meaning of the term Balcony I am convinced beyond doubt that the open terrace talked about in the appellant's case is neither a Balcony nor a projection. I am also of the considered view that the private car parking, private washing space, private sit out and other private open spaces within the compound wall of each housing unit cannot be included in a blanket fashion without specific provisions in this respect. If there is nothing built and it is an open space, such space cannot be included in the meaning of built up area without a specific provision in that regard. The AR of the appellant has also placed reliance on the following cases in support thei....
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....ant." 15. Aggrieved, the Revenue is in appeal before the Tribunal. 16. The ld. DR has submitted that the project of the assessee was not approved as per CMDA guidelines. Therefore, the assessee is not eligible for deduction under section 80IB(10). He also pointed out that the assessee was keeping in adding to the original project and therefore, the assessee is not eligible for the deduction. During the course of hearing, the ld. DR has argued that as per section 80IB(10), the project should be on the size of plot of land having an area of minimum one acre. When the assessee initially submitted for approval from local authority for 3 prototype houses, it was not one acre of land and therefore, the assessee is not eligible for deduction under section 80IB(10). Further, the ld. DR has argued that the project of the assessee is of works contract and therefore, not eligible for deduction under section 80IB(10) of the Act. The ld. DR has further argued that the assessee has failed to adhered to in respect of built up area and submitted that the open terrace area should be included in the built up area and if that is the case, the flats construct....
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....nt houses to the extent of 3.675 acres by obtaining approval for 3 prototype houses on 06.05.2005 from the local authority i.e. Pallikaranai Panchayat; the land was sold in the name of the buyers and the assessee also undertook construction of houses. Subsequently, some of other land owners approached the assessee for development of land and accordingly, the assessee has obtained right for development the land and entered into an agreement dated 27.09.2005 and 31.08.2006 for the development the housing project for further extent of 7.54 acres and carried out the project in the same lines. The entire project was executed in a total area of 14.75 acres consisting of 162 independent houses covering an area of approved plots totally measuring an extent of 8.18 acres of land. The last building plan approval was obtained from the local authority by 29.03.2007 and completed the project by 03.03.2011 i.e. well before 31.03.2011. 19. The assessee, who is claiming benefit under section 80IB(10) of the Act, following conditions are to be satisfied: (i) allowed to all assessees; (ii) it is allowed on account of housing project which is approved by a local authority b....
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....rst point for our consideration is whether the building project of the assessee is an housing project or not for the purpose of section 80IB(10) of the Act. The word 'housing project' is neither defined in section 2 of the Income Tax Act nor in section 80IB(10) of the said Act. It has to be understood in common parlance, the expression 'housing project' means "constructing single building or a group of buildings consisting of several residential units". In this case, the assessee had conceived project for development and construction of independent houses. Accordingly, he entered into an agreement with the land owners as well as prospective buyers and constructed 162 independent houses. Therefore, in our opinion, the assessee's project is an housing project, which is within the ambit of section 80IB(10) of the Act. The ld. CIT(Appeals) has considered the issue elaborately in his order [page 28 and 29]. Therefore, we do not find any infirmity in the order of the ld. CIT(Appeals) on this issue and the ground raised by the Revenue stands dismissed. 21. The second issue for our consideration is whether the approval of the project and completion date is a per section 80IB(10) o....
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....rned, in response to Assessing Officer's letter, vide letter No. M2/21841/2011 dated 26.12.2011 [paper book page No. 185 & 186], the Assessing Officer has received a letter from the Member-Secretary, CMDA, wherein it was expressed an opinion that if a housing project is made in a already CMDA approved lay out, than in such case, the Competent Authority for issue of planning permission and building permit for independent buildings in each plot under ordinary building category is Pallikaranai Town Panchayat previously and Chennai Corporation now. In the case of the assessee, the assessee had entered into an agreement with the land owners and paid an advance and developed the land and after negotiation with prospective buyers, he has sold the plots and constructed independent houses. Therefore, in our opinion, the approving authority is local authority i.e. Pallikaranai Panchayat. Hence, no separate CMDA approval is required. In the assessment order the Assessing Officer has raised one more objections that the date on which the lay out approved has to be taken into consideration for the purpose of approval of the project. We find no reason to take layout approval date for approval of ....
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....ocal authority. For example, in respect of a housing project, the assessee may seek amendment of the building plan at several stages of the construction and the same may be approved. In such a case, the Explanation provides that for the purposes of section 80IB(10) the housing project shall be deemed to have been approved on the date on which the first approval was granted by the local authority. Thus, the Explanation to section 80IB(10)(a) refers to approval granted to the same housing project more than once and the said Explanation would not apply where the approval is granted to different housing projects". In the present case, at the cost of repetition, we have to state that the so called initial approval on 06.05.2005 was, in fact, obtained in respect of 3 prototype units. It will be misleading, if we say that the said approval of the prototype units cover the entire units of the project and the said approval should be taken at the approval for the whole project. Such a conclusion will be a travesty of truth. It is on the basis of the approval of the prototype units that the assessee had finalized its project and commenced negotiations with potential customers. When the assess....
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....s) on this issue and the ground raised by the Revenue is dismissed. 24. In the assessment order, one of the objections raised by the Assessing Officer is that the sale deed was not registered in the name of the assessee and therefore, the assessee was not owner of the land and not eligible for deduction under section 80IB(10). The ld. DR has also raised this objection at the time of hearing. This aspect was considered by the Bombay Bench of ITAT in the case of Essem Capital Markets Ltd. v. ITO [2011] TIOL 196 (ITAT Mum), wherein the Tribunal has held that deduction under section 80IB(10) cannot be denied on the ground that the assessee is not the owner of the property, which he undertakes to develop nor can it be denied on the ground that the development agreement is not registered. In another case CIT v. Radhe Developers [2012] 341 ITR 403 (Guj), wherein the Hon'ble Gujarat High Court has observed that section 80IB(10) allows deduction to an undertaking engaged in the business of developing and constructing housing projects, there is no requirement that the land must be owned by the assessee seeking the deduction. Further, as the assessee was in part performance of the ag....
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....isdictional High Court in the case of Sanghvi and Doshi Enterprise 255 CTR (Mad) 156, wherein the Hon'ble High Court has observed that open terrace area could not be the subject matter of inclusion as a built up area to deny the benefit under section 80IB(10) of the Act. Further, the Hon'ble Jurisdictional High Court in another case CIT v. Mahalakshmi Housing (supra), the Hon'ble High Court has observed that "as per the issue in respect of inclusion of open terrace area within the built up area is concerned, the Court has already held the issue against the Revenue and the decision rendered in T.C.A No. 581 of 2008, 1186 of 2008 and 136 of 2009 in the case of M/s. Ceebros Hotels Private Limited v. DCIT dated 19.10.2012 and accordingly, the order of the Tribunal on this issue is set aside. The assessee's appeal viz. T.C.A. No. 318 of 2012 stands allowed holding that open terrace area cannot form part of built up area and the assessee would be entitled to deduction under section 80IB(10) of the Act. Keeping in view of the facts and circumstances and the decision of the Hon'ble Jurisdictional High Court and respectfully following the same, the open terrace area could not be included in....