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M/S. Viswas Promoter... v. The Assistant Commis...
Factual and Procedural Background
The opinion concerns multiple Tax Case Appeals by the assessee against orders of the Income Tax Appellate Tribunal (Chennai Bench) for assessment years 2004-05 through 2008-09 (Tax Case Appeal Nos. 1014 of 2009; 857 of 2010; 190, 191 and 192 of 2012). The assessee, engaged in the business of development and construction of flats, had four projects (Agrini, Vajra, Porkudam Phase I and Porkudam Phase II). In Agrini and Vajra the assessee constructed and sold flats both less than and greater than 1500 sq.ft. The assessee claimed deduction under Section 80IB(10) of the Income Tax Act on a proportionate basis for flats measuring less than 1500 sq.ft and did not claim deduction for flats exceeding 1500 sq.ft (32 flats in Agrini and 1 flat in Vajra).
The Assessing Officer issued a notice questioning the proportional claim under Section 80IB(10)(c). The AO disallowed the claim for the two projects Agrini and Vajra on the basis that the deduction was for the project as a whole and that the presence of units exceeding 1500 sq.ft meant the projects were not eligible. The assessee appealed to the Commissioner of Income Tax (Appeals), who allowed proportionate deduction for eligible units, relying on a decision of the Income Tax Appellate Tribunal, Calcutta Bench (Bengal Ambuja Housing Developments Ltd.). The Revenue appealed to the Income Tax Appellate Tribunal, which held that project approval is for the entire project and that blocks are parts of a project; therefore, non-compliance by one block would disqualify the entire project. The assessee appealed to this Court. A connected writ appeal (W.A No. 471 of 2010) challenging the dismissal of a rectification petition remains but was rendered infructuous by the decision in these Tax Case Appeals.
Legal Issues Presented
- Whether on the facts and circumstances of the case, the Appellate Tribunal was right in denying deduction under Section 80IB(10) in respect of projects Agrini and Vajra on a proportionate basis for flats less than 1500 sq.ft?
- Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that in a consolidated residential project containing flats both less than and more than 1500 sq.ft, proportionate deduction under Section 80IB(10) (and by analogy Section 80IB(1)(c) as framed in the question) cannot be allowed for flats less than 1500 sq.ft?
Arguments of the Parties
Assessee's Arguments
- The assessee contended that each block within the larger projects (Agrini and Vajra) had separate sanction from the competent planning authority and that each block is an identifiable independent project with its own plan and specifications.
- The assessee limited its claim to units with built-up area less than 1500 sq.ft and did not claim deduction for units exceeding 1500 sq.ft; hence there was no violation warranting disallowance of the deduction for eligible units.
- The assessee relied on prior decisions (including the Income Tax Appellate Tribunal, Calcutta Bench decision in Bengal Ambuja Housing Developments Ltd. v. CIT and subsequent confirmation by the Calcutta High Court) to support the principle of proportionate deduction for eligible units. The assessee also relied on this Court's earlier decisions in T.C Nos. 1348 and 1349 of 2007 dated 10.10.2012 and the Bombay High Court decision in CIT v. Brahma Associates to support proportionality.
Revenue's Arguments
- The Revenue relied on the Tribunal's view that project approval is for the entire project and cannot be granted piecemeal; blocks of residential units are parts of a single project and not independent projects.
- On that basis, the Revenue argued that if some units/blocks do not satisfy the conditions of Section 80IB(10), the entire project (including eligible units) should lose the relief.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bengal Ambuja Housing Developments Ltd. v. CIT, ITA No. 1595.Kol/2005 (Income Tax Appellate Tribunal, Calcutta Bench) dated 24.03.2006 | Principle that where a composite building project contains both eligible and ineligible units, proportionate deduction is available to eligible units. | The Commissioner of Income Tax (Appeals) relied on this decision to allow proportionate deduction for units satisfying the 1500 sq.ft condition; the Court referenced this as part of the factual history supporting the assessee's claim. |
| Confirmation by Calcutta High Court in ITA No. 458/2006 (order dated 05.01.2007) | Confirmation of the Calcutta Bench ITAT principle that proportionate deduction is permissible for eligible units. | The Court noted that the Calcutta High Court had confirmed the ITAT decision, bolstering the assessee's reliance on proportionate relief. |
| CIT v. Brahma Associates [2011] 333 ITR 289 (Bombay High Court) | Authority supporting the principle of proportionality in granting deduction under the relevant provisions to eligible units within a project containing ineligible units. | The Court applied the reasoning followed in its earlier decisions (T.C Nos. 1348 and 1349 of 2007 dated 10.10.2012) which in turn followed the Bombay High Court decision, and relied upon it to allow proportionate deduction. |
| CIT v. Vandana Properties [2012] 206 TAXMAN 584 (Bombay High Court) | Decision on similar facts supporting proportionate relief for eligible units within a larger project where some units are ineligible. | The Court expressed agreement with this decision, observing that it was decided on similar lines and using it to support the outcome in favour of the assessee. |
| T.C Nos. 1348 and 1349 of 2007 (this Court), dated 10.10.2012 | This Court's prior application of the principle of proportionality for granting relief under Section 80IB(10) to eligible units. | The Court relied on its earlier decision in these T.C. matters as binding and applied the same principle to allow proportionate relief in the present appeals. |
| Income Tax Appellate Tribunal (Chennai) — impugned Tribunal order | Held that project approval is for the entire project, not piecemeal; any non-compliance by a block causes loss of relief for the entire project. | The Court reviewed and rejected this view, concluding the Tribunal was incorrect to disallow the entire claim for Agrini and Vajra because some units exceeded 1500 sq.ft. |
Court's Reasoning and Analysis
The Court analysed the statutory language and the factual matrix step-by-step as follows:
- The Court noted there is no definition of "housing project" in Section 80IB itself, but the expression is defined under the Explanation to Section 80HHBA of the Income Tax Act to mean a project for the construction of "any building". The Court treated this explanatory definition as relevant to the understanding of "housing project" for Section 80IB purposes.
- The Court observed that Section 80IB deals specifically with deduction in respect of profits and gains from undertakings engaged in developing and constructing housing projects (distinct from Section 80IA which relates to infrastructure undertakings). The deduction under Section 80IB(10) is for profits derived from such a housing project if specified conditions are met.
- Applying the definition of "housing project" as the construction of "any building", the Court reasoned that each block within the larger Agrini and Vajra developments constituted an independent building and therefore could qualify as a separate housing project for the purpose of Section 80IB(10).
- The Court held that where a composite housing project contains both eligible and ineligible units (i.e., some units satisfy the built-up area requirement under Section 80IB(10)(c) and others do not), the assessee is entitled to claim deduction in respect of eligible units. Even within a block, the assessee may claim proportionate relief for units that meet the 1500 sq.ft requirement.
- On the admitted facts, Agrini had 32 flats in excess of 1500 sq.ft and Vajra had one such flat; the assessee had not claimed deduction for these larger flats. The Tribunal's view that the presence of these larger flats nullified the deduction for the entire projects was held to be incorrect.
- The Court applied its earlier decision in T.C Nos. 1348 and 1349 of 2007 (dated 10.10.2012) and followed decisions of the Bombay High Court in CIT v. Brahma Associates and CIT v. Vandana Properties, concluding that the principle of proportionality applies and proportionate deduction must be allowed for eligible units.
Holding and Implications
Core Ruling: THE TAX CASE APPEALS ARE ALLOWED.
Direct effect on the parties:
- The Court allowed the assessee's appeals for the assessment years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 and held that the assessee is entitled to claim deduction under Section 80IB(10) in respect of those blocks and units within blocks that satisfy the conditions under Section 80IB(10), on a proportionate basis.
- The Income Tax Appellate Tribunal's contrary view — that the presence of some flats exceeding 1500 sq.ft would disqualify the entire project — was set aside insofar as it denied proportionate relief for eligible units.
- As a consequence of allowing the Tax Case Appeals, the connected writ appeal (W.A No. 471 of 2010) filed by the assessee stood closed as nothing survived regarding the rectification matter. Connected miscellaneous petitions were also closed. The Court ordered no costs.
Broader implications: The Court applied and reaffirmed existing judicial authorities (including this Court's prior decisions and Bombay High Court decisions) supporting the principle of proportionality; the decision implements that principle on the facts before the Court. The opinion does not purport to create a novel legal principle beyond the applications of those precedents.
PRAYER: Tax Case Appeal No. 1014 of 2009 is filed under Section 260-A of the Income Tax Act, as against the order of the Income Tax Appellate Tribunal, Chennai Bench ‘B’ dated 13.10.2008 in ITA No. 1912.Mds/2007 in respect of the assessment year 2004-05.
Tax Case Appeal No. 857 of 2010 is filed under Section 260-A of the Income Tax Act, as against the order of the Income Tax Appellate Tribunal, Chennai Bench ‘B’ dated 17.09.2009 in ITA No. 1451.MDS/2008 in respect of the assessment year 2005-06.
Tax Case Appeal Nos. 190, 191 and 192 of 2012 are filed under Section 260-A of the Income Tax Act, as against the order of the Income Tax Appellate Tribunal, Chennai ‘A’ Bench dated 30.03.2012 in ITA Nos. 83, 84 and 85.Mds/2012 in respect of the assessment years 2006-07, 2007-08 and 2008-09 respectively.
W.A No. 471 of 2010 is filed under Clause 15 of the Letters Patent against the order dated 11.09.2009 made in W.P No. 3686 of 2009 on the file of the learned single Judge of this Court.
JUDGMENT
(Judgment of the Court was delivered by CHITRA VENKATARAMAN, J.)
The assessee is on appeal as against the order of the Tribunal relating to the assessment years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 in T.C No. 1014 of 2009, T.C No. 857 of 2010 and T.C Nos. 190, 191 and 192 of 2012 respectively. Although a composite question of law is raised in these Tax Cases, since the issues relate to the same transaction, the substantial questions of law framed in respect of the assessment year 2004-05 in T.C No. 1014 of 2009 extracted herein, fit in with the questions raised in the other cases too and hence, is apposite to other Tax Cases. The substantial questions of law raised in respect of assessment year 2004-05 read as under:
(i) Whether on the facts and circumstances of the case, the Appellate Tribunal is right in denying under Section 80IB(10) in respect of project Agrini and Vajra for flats less than 150 sq.ft on proportionate basis?
(ii) Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding that in a consolidated residential units having more than 1500 sq.ft And less than 1500 sq.ft, proportionate deduction under Section 80IB(1)(c) cannot be allowed for flats less than 1500 sq.ft?
2. The assessee herein is engaged in the business of development and construction of flats. There were four projects to its credit by name Agrini, Vajra, Porkudam Phase II and Porkudam Phase II. Of these four projects, in Agrini and Vajra, the assessee had constructed and sold flats measuring less than 1500 sq.ft as well as more than 1500 sq.ft The assessee claimed deduction under Section 80IB(10) of the Income Tax Act (hereinafter referred to as “the Act”) in respect of flats measuring less than 1500 sq.ft of built up area and did not claim deduction in respect of flats exceeding an extent of 1500 sq.ft, i.e, for 32 flats in Agrini and one flat in Vajra exceeding 1500 sq.ft
3. On a notice issued by the Officer as to why the claim of the assessee under Section 80IB of the Act on a proportionate basis should not be disallowed on account of the violation of the conditions laid down under Section 80IB(10)(c) of the Act, the assessee pointed out that it had claimed deduction only on a proportionate basis in respect of flats less than 1500 sq.ft of built-up area; that they were marking separate records for different units and that they had not violated the conditions. The Assessing Officer viewed that the deduction under the Section being for the project as a whole and all the residential units in the project must satisfy the conditions therein, namely, built up area to be less than 1500 sq.ft, on the admitted facts as to the units having built-up area more than 1500 sq.ft, the assessee was not eligible for deduction for the entire projects Agrini and Vajra, but was only eligible for deduction in respect of the other two projects namely, Porkudam Phase I and Porkudam Phase II, where there was no violation.
4. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), wherein it was specifically pointed out by the assessee that all these four independent projects were commenced at different points of time; each project was an identifiable independent project having separate plan. The assessee had not claimed any deduction in respect of the residential units having plinth area of more than 1500 sq.ft The assessee claimed that there was no violation to reject the claim of the assessee with reference to the Units satisfying the conditions under Section 80IB of the Act in respect of each block. The Commissioner of Income Tax (Appeals) pointed out that in respect of each of the projects, separate blocks are identifiable; out of the total built-up area of 2,81,900 sq.ft in the two housing projects, only an area of 50,610 sq.ft related to units in excess of 1500 sq.ft, which come to 19.36%. Referring to Section 80IB(10)(c) of the Act, he held that within the composite building project, if there were both eligible and ineligible Units, the assessee would be eligible to claim deduction in respect of eligible Units. Relying on the decision of the Income Tax Appellate Tribunal, Calcutta Bench, in the case of Bengal Ambuja Housing Developments Ltd. v. CIT Cir.X, Kolkata in ITA No. 1595.Kol/2005 dated 24.03.2006, the Commissioner of Income Tax (Appeals) pointed out that the assessee was entitled to succeed in respect of Units which satisfied the conditions of 1500 sq.ft as given under Section 80IB(10)(c) of the Act, that proportionate deduction was available to the eligible units.
5. Aggrieved by this, the Revenue went on appeal before the Income Tax Appellate Tribunal, which pointed out that the assessee had formulated four schemes, namely, Agrini, Vajra, Porkudam Phase II and Porkudam Phase II. These four schemes were approved by the local authorities. The Tribunal viewed that a project could not be approved in piecemeal; that the approval was for the entire project; and blocks of residential units were parts of a project and not project by itself. Since in respect of a block, the assessee did not comply with the conditions stipulated under Section 80IB(10) of the Act, all the blocks comprising in that particular project would lose the relief. Aggrieved by this, the assessee is on appeal before this Court.
6. Learned counsel appearing for the assessee placed before us the sanction given by the competent authority in respect of each of the blocks in each project and submitted that the consistent case of the assessee had been that each block is a project by itself and that the claim itself was restricted only to those Units which are less than 1500 sq.ft Thus the view of the Tribunal that each block of residential units could not be considered as a separate project, is erroneous in law. He further pointed out that a similar relief, as had been claimed by the assessee, was granted by the Income Tax Appellate Tribunal, Calcutta Bench, in the case of Bengal Ambuja Housing Developments Ltd. v. CIT in ITA No. 1595.Kol/2005 dated 24.03.2006, which was confirmed by the Calcutta High Court in ITA No. 458/2006 by order dated 05.01.2007 In the light of the decision of the Calcutta High Court, the Tribunal's order is wrong. Learned counsel pointed out that having regard to the decision of this Court in T.C Nos. 1348 and 1349 of 2007 dated 10.10.2012, the assessee has to succeed on the principle of proportionality to the extent of the units satisfying Section 80IB(10)(c) of the Act in the matter of granting deduction.
7. Per contra, learned Standing Counsel appearing for the Revenue countered the claim of the assessee and placed reliance on the decision of the Tribunal.
8. Heard learned counsel appearing on either side and perused the material placed on record.
9. It is seen from the narration of facts before the Commissioner of Income Tax (Appeals) as well as before the other authorities, that in the project under the name “Agrini”, separate blocks were there, the details of which read as follows:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Sector Name Plinth area(in sft) No. of Units Land area allocated
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Sector-I SREENIDHI 2140 48
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 04.65 acres
Sector-1A SREENIDHI 1690 4
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Sector-II VIMAL 1 1265 40 01.04 acres
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Sector-IIIA MITHRA 1050 160
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 03.08 acres
Sector-IIIB MITHRA DELUXE &
NIRMAL DELUXE 1095 36
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Sector-IV NIRMAL 875 240 03.53 acres
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Sector-V VAANYA 650 150 01.41 acres
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
10. It is not denied by the Revenue that as far as the project “Vajra” is concerned, as in the case of Agrini, there are six blocks consisting of 24 flats. The dispute in these cases herein is on an issue as to whether the assessee has to lose the deduction in respect the entirety of the projects “Vajra” and “Agrini”, solely by reason of the fact that one of the blocks developed by the appellant in this project, had flats exceeding 1500 sq.ft
11. It is an admitted fact that each one of blocks had separate sanction from the competent authority. Even though the larger area comprised in the name and style of “Agrini” and “Vajra” is stated to be the master plan of the project, it is not denied by the Revenue that each block in each of the projects has its own specification; hence, had gone for planning approval by the competent planning authority. In the background of this, the question that arises for consideration is as to whether the assessee would lose its claim for deduction in respect of those blocks which satisfied the conditions under Section 80IB(10) of the Act by reason of some of the stocks not satisfying the condition under Section 80IB(10) of the Act.
12. It is not denied by the Revenue that there is no definition of the expression “Housing project” under Section 80IB of the Act. The said expression is defined under Explanation to Section 80HHBA of the Income Tax Act, which reads as under:
“Section 80HHBA-DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM HOUSING PROJECTS IN CERTAIN CASES.
…
Explanation: For the purposes of this section, - (a) “Housing project” means a project for -(i) The construction of any building, road, bridge or other structure in any part of India”
13. Section 80IA of the Act is a specific provision which deals with deduction in respect of profits and gains from industrial undertakings or enterprises engaged in the development of infrastructural facilities such as roads, bridges and other structure as regards the grant of deduction in respect of development and construction of a housing project. Section 80IB is a specific provision in respect of profits and gains from undertakings engaged in developing and constructing housing projects other than infrastructure development undertakings. Thus, housing projects considered herein under Section 80IB refers to any building other than road, bridge or other structure. Thus, going by the definition of “housing project” to mean the construction of “any building” and the deduction under Section 80IB of the Act is hundred per cent of the profits derived in the previous year relevant to the assessment year from such housing project complying with the condition, each block in the larger project by name “Agrini” and “Vajra”, has to be taken as an independent building and hence a housing project, for the purpose of considering a claim of deduction. Section 80IB(10) begins by stating:
“(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,—
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1 day of October, 1998 and completes such construction,—
…”
Thus the undertaking qualifying for deduction under Section 80IB of the Act is an “undertaking developing and building housing projects” and the deduction is in respect of “profits and gains derived from” such housing project, satisfying the conditions stipulated in the clause therein. Thus, within a composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block, the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built-up area.
14. On the facts admitted by the Revenue, in the projects “Agrini” and “Vajra”, there are number of flats which are below 1500 sq.ft, and the relevant built-up area requirement is specified under Section 80IB(10)(c) of the Income Tax Act. Thus, the built-up area in some of the flats in both these projects are in excess of 1500 sq.ft, i.e, 32 flats in Agrini and only one flat in Vajra and that the assessee had not claimed any deduction on this. We hold that the Tribunal is not correct in its view, that by reason of these Units being in excess of 1500 sq.ft, the entire claim of the assessee in respect of these two projects would stand rejected under Section 80IB(10) of the Income Tax Act. Thus, going by the definition of “housing project” under Explanation to Section 80HHBA of the Act as referred to above as the construction of “any building” and the wordings in Section 80IB(10) of the Act, the question of rejection in entirety of the project on account of any one of the blocks not complying with the conditions, does not arise. Even in the case of each one of the blocks, wherever there are flats which satisfied the conditions particularly of the nature stated under Section 80IB(10)(c) of the Act, we have already upheld the case of the assessee in T.C Nos. 1348 and 1349 of 2007 dated 10.10.2012 for grant of relief under Section 80IB(10) of the Act on a proportionate basis, by following the decision of the Bombay High Court reported in [2011] 333 ITR 289 (CIT v. Brahma Associates). Thus applying the decision of this Court in T.C Nos. 1348 and 1349 of 2007 dated 10.10.2012, we hold that the assessee is entitled to succeed both on the principle of proportionality as well as by reason of the construction on the meaning of the expression “housing project” as referring to construction of any building and the wordings in Section 80IB(10) of the Act. In the circumstances, we hold that the mere fact that one of the blocks have units exceeding built-up area of 1500 sq.ft, per se, would not result in nullifying the claim of the assessee for the entire projects. Consequently, in respect of each of the blocks, the assessee is entitled to have the benefit of deduction in respect of residential units satisfying the requirement under Section 80IB(10)(c) of the Act. In so holding, we also agree with the decision of the Bombay High Court reported in [2012] 206 TAXMAN 584 (CIT v. Vandana Properties), which was decided by the Bombay High Court on similar lines as in the assessee's case before us.
15. In the light of the above reasoning, we have no hesitation in allowing the cases cases filed by the assessee in respect of assessment years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09, thereby answering the substantial questions of law in favour of the assessee, that the assessee is entitled to the claim of deduction in respect of all the blocks forming part of the projects called Agrini and Vajra, but to the extent of each of the blocks satisfying the conditions under Section 80IB(10) of the Act, the assessee would be entitled to the relief on a proportionate basis.
16. In the light of this Court allowing the Tax Case Appeals, nothing survives in the writ appeal filed by the assessee, viz., W.A No. 471 of 2010 as against the dismissal of the writ petition filed for rectification of the error in the order passed by the Tribunal. In the result, the Tax Case Appeals stand allowed and the Writ Appeal stands closed. Connected M.P Nos. 1, 1, 1, 2 and 2 of 2012 stand closed. No costs.
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