Bunty Builders v. Income-tax Officer, Ward 2(2), Pune

Per Mukul Shrawat, Judicial Member. - This is an appeal at the behest of the assessee which has emanated from the order of CIT(A)-II, Pune dated 17-11-2005. Initially the grounds raised were not in accordance with the ITAT Rule 8 since issues set forth therein were not in concised form rather appeared to be argumentative as also narrative in nature. The appellant was directed to follow the said prescribed Rule. Accordingly the grounds were concised and this appeal is hereby decided as per the concised grounds of appeal as reproduced below:—

"(1) It may please be held that the entire income of Rs. 1,03,92,788.00 earned by the appellant during the relevant previous year from the housing project namely Laxmi Township II Scheme at S. No. 123/1 Kalas Pune is exempt under section 80-IB(10) of the Income-tax Act, 1961.

(2) It may please be held that an area of amenity space admeasuring about 690.70 sq. meters, compulsory required to be handed over to Pune Municipal Corporation by the appellant out of land at S.No. 123/1 Kalas Pune constitutes an integral part of the housing project and hence the same is required to be considered while calculating the area of plot of land of the housing project for the proposes of exemption under section 80-IB(10) of the Income-tax Act, 1961.

(3) The learned CIT(A) has erred in holding that the letter dated 14-9-2005 issued by the Assistant City Engineer (Planning & Development), Pune Municipal Corporation to the partner of the appellant firm constituted fresh evidence not entitled to be admitted. The said letter being of a calcinatory letter the same may please be admitted as evidence and on the basis of the said letter it may please be held that the amenity space admeasuring 690.70 sq. meters constitutes a part of the housing project.

(4) The various reasons given by both the lower authorities for holding that the appellant constructed the housing project on a plot of land admeasuring an area of less than one acre being arbitrary, preserve devoid of merits and being ill founded and contrary to the provisions of various applicable laws and rules the same may please be vacated and it may please be held that the appellant has constructed the housing project on a plot of land admeasuring more than one acre.

(5) In the facts and circumstances of the case and in law, it may please be held that the actual area of plot of land available on site as per demarcation certificate is to be considered while calculating the area of plot of land for the purposes of section 80-IB(10) of the Income-tax Act, 1961."

2. Facts in brief as emerged from the corresponding assessment order passed under section 143(3) dated 30-3-2005 were that the assessee-firm was carrying on the business of construction as a builder. The assessee has claimed a deduction under section 80-IB(10) of Rs. 1,03,92,788, so the return of income was filed at Nil income. It was noted by the Assessing Officer that the assessee-firm had carried out the construction activity and carried out the sale of residential flats, under a project namely Laxmi Township-II at survey number 123/1, Kalas. The Assessing Officer has pursued the layout plans and other documents and thereupon noticed that the land in question was purchased admeasuring 4600 sq. mts. It was further observed that the land in question was demarcated into 3 plots and the layout was sanctioned by PMC on 27-3-2000. The Assessing Officer has also observed that at the demarcated portion mentioned as plot No. 1 an area admeasuring 690.70 sq. mts. was reserved as an amenity space which was to be handed over to the PMC. It was also observed by the Assessing Officer that the said reserved portion of land was 15 per cent of the plot area. According to Assessing Officer the net area available for the project had become 3909 sq. mts. only. According to Assessing Officer the plot available for the project was thus less than 1 acre. On account of the said observation a show-cause notice was issued to explain as to why the deduction as claimed under section 80-IB(10) be not denied.

2.1 In reply the assessee has submitted that though the area as per 7/12 extract was 4600 sq. mts. but the area as per the demarcation was 5048.48 sq. mts. in support he has furnished layout plan and the approved plan to demonstrate that the assessee was under full control of the said demarcated area therefore the total area was in his exclusive use. On the basis of the above available area the claim of the assessee was that even after reducing the amenity space of 690.70 sq. mts. from the demarcated total area available to the assessee admeasuring 5048.48 sq. mts. the balance available area for the development was 4357.78 sq. mts. The assessee has therefore contested that the plot area was more than 1 acre therefore entitled for the claim of deduction under section 80-IB(10).

2.2 The Assessing Officer was not convinced and he has referred few more facts that the development rights purchased by the assessee were only in respect of 4600 sq. mts. of plot. He has also mentioned that the PMC has also approved the layout plan vide sanction dated 27-3-2000 only in respect of 4600 sq. mts. By referring clause (b) of section 80-IB(10) the Assessing Officer has mentioned that the size of the plot of land should be 1 acre on which the project had to be constructed to get the benefit of the deduction under the said section. He has also referred a certificate issued by an architect wherein the area of plot available for the construction was said to be 3344.24 sq. mts. which was admittedly less than the prescribed area of 1 acre. In addition to above, the Assessing Officer has also mentioned that on Form No. 10CCB the Auditor has once again mentioned the size as 3344.24 sq. mts. The Assessing Officer has also referred that the ownership of the land as described vide 7/12 extract was in respect of only 4600 sq. mts. and not in respect of 5048.48 sq. mts. He has also described that merely because of the demarcation the assessee was not eligible for the entire land in question. He was of the view that only that area of land is eligible for the project and also for the deduction which was owned by the assessee and for which the assessee has actually purchased the development rights. He has thereupon concluded that after reducing the area of 690.70 sq. mts. i.e., the amenity space, the remaining portion of the land had become less than 1 acre therefore the assessee was not entitled for the claim of deduction. Accordingly the profit of the construction business was held as taxable in the hands of the assessee. Being aggrieved, the assessee had gone in appeal.

3. The first appellate authority has discussed the issue at some length as well as he has called for a report from the Assessing Officer. The comments of the Assessing Officer has also been reproduced in the impugned order of Ld. CIT(A). Ld. CIT(A) has referred certain evidences which were as under:—

"7.1.2 A number of statements submitted by the appellant also show that net area available for building is much less than one acre. In this regard mention may be made of the following :

(1) As per location plan which is contained at page No. 29 of the paper book submitted by the appellant in this office on 11-10-2005 copy of which was given to the Assessing Officer for comments at the instance of that office, the net area available for building is 3344.24 sq. mts.

(2) At page No. 32 of the paper book submitted by the appellant in this Office on 11-10-2005 copy of which was given to the assessing officer for comments at the instance of this office, is the copy of the plan approved by Pune Municipal Corporation vide Commencement Certificate No. DPO/8433/H/17, dated 27-3-2000 which shows at sr. No. 10 that the net area available for building is 3344.21 sq. mtrs.

(3) At page 39 of the paper book submitted by the appellant in this Office on 11-10-2005 copy of which was given to the Assessing Officer for comments at the instance of this office is the detailed construction plan of the project which is signed by Building Inspection and Assistant Engineer, Pune Municipal Corporation (DP). As per this plan, the area of the plot is 3344.24 sq. m.

(4) As per page 43 of the paper book submitted by the appellant in this Office dated on 11-10-2005 copy of which was given to the Assessing Officer for comments at the instance of this Office is the plan for proposed residential complex at Sl. No. 123/1, Plot No. 3, Kalas, Tal.: Haveli. As per this plan, the area of the plot is 3344.24 sq. m."

4. Finally the action of the Assessing Officer was affirmed. Being aggrieved now the assessee is further in appeal.

5. From the side of the appellant Mr. Sunil Ganoo appeared and stated that he had basically two folds of arguments. One of the argument is in respect of 1 to 4 grounds and the second line of argument is in respect of ground No. 5. He has stated that if he will succeed in establishing the total area of plot in question as contested in ground No. 5 then the purpose would be served as the assessee shall get the benefit of deduction under section 80-IB(10). In this regard he has submitted that the plot of land in question was demarcated as 5048.48 sq. mts. This demarcation was always in the knowledge of the authorities who have approved the layout plan. By referring page No. 29 of the compila- tion he has mentioned that as per the area statement mentioned in the map of the layout the land area was demarcated as 5048.48 sq. mts. His next plank of argument was that it was immaterial that the area as per 7/12 extract was only 4600 sq. mts. He has cited a decision of T. Rajlu Naidu v. M.E.R. Malak AIR 1939 Nag. 197 in support of the argument that in case of discrepancy between dimensions and boundaries the area specified within the boundaries will pass, whether it be less or more than the quantity specified. He has also cited an observation, quote "in case of a discrepancy between dimensions and boundaries the rute is now well established that the area specified within the boundaries will pass whether it be less of more than the quantity specified," unquote. An another decision of the Hon’ble Privy Council reported as Palestine Kupat Am Bank Co-operative Society Ltd. v. Government of Palestine AIR (35) 1948 PC 207 was cited wherein Their Lordships have expressed that the description by boundaries is to be preferred. At that juncture a question was raised that whether these decisions are still applicable and in response Ld. AR has placed an another decision in the case of Chewag Dorjee Lama v. Lerap Dorjee Bhutia & Ors. AIR 2006 Sikkim 37 and also decision of Temple of Maruti v. Balkrishna Suryaji S. Kakodkar 1998 (3) Bom. CR 540. The emphasis was that all these decisions are regularly being applied for the proposition that the boundaries must prevail as against the measurements. In case of a discrepancy between dimensions and boundaries, the area specified within the boundaries will prevail whether it be less or more than the quantity specified. Before us he has placed a map to establish that a demarcation certificate was issued by the concerned authority and that demarcation being done by an authority has to be given due importance to determine the total area of plot of land under consideration. He has emphasized that the actual area available for the project was 5048.48 sq. mts. Therefore the granting of FSI on the basis of the 7/12 extract area had no consequence. He has also referred the Maharashtra Land Revenue (Boundaries and Boundary Marks) Rules, 1969 and drawn out attention on rule 13 for the argument that the boundaries are demarcated by the independent Government authority therefore such boundaries should be treated as correct measurement. He has mentioned that as per rule 13 on receipt of the application for the purpose of demarcation, the Collector shall cause the survey number to be measured by the District Inspector and get the boundary marks fixed in accordance with the provisions of these Rules. The demarcated boundaries were therefore available for the purpose of the project Ld. AR has concluded.

6. On the other hand from the side of the revenue Ld. CIT(DR) Mr. Mukulesh Dube appeared and strongly supported the view expressed by the authorities below. The main plank of the argument of the Ld. DR was that once the excessive area was not under the ownership of the assessee then how it can be said to be the plot available for the project of the assessee. He has placed reliance on certain documents which were also highlighted by Ld. CIT(A) as per the relevant para already reproduced above to establish that all the authorities have taken into account the area which was purchased by the assessee i.e., 4600 sq. mts. Rather Ld. CIT (DR) Mr. Mukulesh Dube has at the stage vehemently contested that even the said area was not under the project and the net area available for building the project was only 3344.24 sq. mts. He has placed reliance on a decision of ITAT Pune Bench in the case of Om Engineers & Builders v. ITO [2007] 109 ITD 235.

7. We have heard both the sides at length and also carefully perused the orders of the authorities below in the light of the compilation filed and the case laws cited. The undisputed facts as narrated by both the sides were that the appellant had constructed a housing project on a plot bearing Sl. No. 123/1, Kalas Pune. The area of the said plot as per the 7/12 extract was mentioned as 4600 sq. mts. There was a development agreement dated 25-11-1999 and therein as well the area was mentioned as 4600 sq mts. This is the preliminary controversy about the existence of actual area of the impugned plot of land which was claimed to be in possession of the appellant i.e., 5048.48 sq. mts. whether so held as part of the project for the purpose of eligibility of deduction under section 80-IB(10) of the Income-tax Act. This area was undisputedly verified as per the demarcation certificate placed refers us. There is no denial of the fact that there was excessive land which was more than the area of land documented in the Deed of Transfer. However, the basic question which is to be answered by us is whether the adjacent portion of land which was not the subject-matter of the development agreement and that which was not considered by the Land Development Authority for the purpose of working out the amenity space as well as for granting the FSI then in such a situation whether that excessive land could be taken into consideration to determine the 1 acre area as prescribed under the relevant provisions of the Act. Undisputedly the appellant had to take permission from the Pune Municipal Corporation for the development of the desired project. The appellant has placed in the compilation several such correspondence and the steps which were submitted for the said purpose. In all such correspond- dence the area of land as per demarcation was mentioned as 5048.48 sq. mts. But immediately thereafter the authorities have duly referred the area of land as per 7/12 extract admeasuring 4600 sq. mts. Adopting the base figure of 4600 sq. mts. the calculation for granting open space, amenity space, internal road had started. Therefore one thing is evident and also undisputed that the concerned authorities have made all the calculation for rest of the purposes starting with the area of 4600 sq. mts. Even this is also not in dispute that while calculating the 15 per cent amenity space the calculation was based upon 4600 sq. mts. and not 5048.48 sq. mts. The outcome of this discussion is that we have to give due credence to all such evidences through which the area in question was earmarked as 4600 sq. mts.

7.1 Reverting back to the legal aspect; presently we are dealing with a specific section which prescribes deduction to an undertaking engaged in developing and building of housing project. The section applicable to resolve this controversy is section 80-IB(10)(b) which reads as follows :

"(b)The project is on the size of a plot of land which has a minimum area of one acre;"

7.2 The language of the impugned section is such that the project has to be on the size of a plot of land which has a minimum area of 1 acre. The basic condition is that the project should be developed on 1 acre area of plot, if we see the series of documents and evidences as well as several sanctions granted by the concerned authorities, throughout, all have unanimously recognized the area mentioned on 7/12 extract i.e., 4600 sq. mts. All the calculations or specifications were based upon the said area, therefore the area of 4600 sq. mts. was always the start point for calculation of amenities as well as granting of FSI to this builder. Now the question is that whether for the purpose of such exemption can we get the area which was demarcated by the authority. We hereby express our inability to accept such a wide proposition. We have certain reasons for not excepting this proposition i.e., the project was not on that excessive land. That the said excessive land was never treated as a part of the project by any of the sanctioning authority. That the assessee has not paid the consideration in respect of the said excessive land. That the question of ownership might not be the condition precedent for claim of deduction under section 80-IB(10)(b) as argued by Ld. AR but the intention expressed by the Legislature is that the building of the housing project must be on the size of the plot which has minimum area of 1 acre. If we accept the argument of Ld. AR and also the vide proposition argued then it may result into an anomaly. There shall be thus an anomalous situation that a large chunk of land, above 1 acre would be purchased but project be made in one corner having area of less than 1 acre. The answer is simple that if the project is not to be made on the prescribed area of 1 acre then entitlement of benefit has to be denied. One has to demonstrate the existence of project vis-a-vis the size of plot. May in this case the appellant had got possession of some excessive land but that land was never been proposed as a part of the project and all the proposals were rather confined to the area of 4600 sq. mts.

7.3 The context under which the Hon’ble Courts have held that the boundaries must prevail as against the measurements were all together different. Those decisions pertained to the controversy between the dimensions and the boundaries and to resolve such disputes the Hon’ble Courts have pronounced that the description by boundaries is to be preferred. Naturally those controversies are civil disputes in nature and in such civil cases the question of easement rights or the right of possession has to be determined on the basis of the boundaries over which such rights are generally exercised and in those disputes the description/dimensions may or may not matches with the boundaries. Such nature of disputes can only be resolved on the basis of the actual existence of the availability of land at the site though the dimensions on paper might differ. To resolve those type of disputes and the conflict, the courts have thus held that the boundaries as existed at the site must prevail over the dimensions. Be that as it was, we are not on those issues as the controversy for our adjudication is altogether different. For the purpose of the applicability of the section 80-IB(10) one has to simply ascertain the size of plot available for the impugned housing project. Any other approach may lead to an inappropriate situation so as to allow the assessee to encroach the adjacent land and thereupon such an encroachment be claimed to be treated as part of the project on 1 acre land. Our interpretation of the language of the provisions is that the statute has not only specified the measurement but in a way also specified the boundaries hence the boundaries as also the measurement both should match with the minimum requirement of 1 acre. With these observations we are not inclined to accept this proposition of Ld. AR hence this ground i.e., ground No. 5 is hereby dismissed.

8. Grounds left for our disposal are ground Nos. 1 to 4 through which the common grievance was that while admeasuring the size of the plot whether the 15 per cent amenity space be held as part of the total project development on 1 acre land. On the basis of the records available on file we have gathered that a developer has to earmark 15 per cent area of that plot of land as amenity space. Thus documents have already demonstrated that though the builder sacrifies amenity space but he is ultimately not in disadvantageous position; reason being the development authorities sanction additional FSI on the space earmarked for amenity in the present case the undisputed position is that the appellant was granted FSI on the amenity space and the total area of flats constructed by the appellant was claimed to be worked out at 4139.94 sq. mts. (FSI) which consist of about 101 flats. Before us in the compilation on page 29 and on page 32 sanction layout plans were placed. On careful examination of the figures, we have noticed that the start point for calculation of open space, amenity space etc. was the area as per 7/12 extract i.e., 4600 sq. mts. and 15 per cent of the same was computed as 690.70 sq. mts. After reducing open space and amenity space the net area available for building was measured as 3344.24 sq. mts. for reference the said calculation is as below:-

8.1 As per the revenue authorities, both Assessing Officer and Ld. CIT(A), since the net area available for the purpose of con- struction was less than 1 acre therefore the assessee was not entitled for claim of deduction under section 80-IB(10). However, we are not in agreement with such an approach of the revenue authorities. To give strength to our reasons for such disagree- ment we hereby refer one of the point as explained in the CBDT circular cited in 276 ITR 170 (statute), wherein the guidelines issued were as follows :—

"Extension of the time-limit for obtaining approval of housing projects for the purpose of tax holiday under section 80-IB, and allowing deduction for re-development or reconstruction of existing building in slum areas.

This section does not specifically provide area limit for the garden, the development plan roads, internal means of access, etc., in the housing project. Therefore, the same should conform to the project plan approved by the local authority in accordance with the regulations in force. Also, the area limit of the plot has to be construed with reference to the area of the site on which the housing project is constructed and not with reference to the demarcation of land done by the land development authority."

9. This circular thus gives a clear indication that though the section do not specifically provide for the Development Plan Roads or grant of other facilities etc., in a housing project but the same should conform to the project plan approved by the local authority. Our next reasoning is on the basis of above discussion that the limit of the plot has to be construed with reference to the area available on the site on which the housing project is to be constructed and not with reference to the demarcation of land. Meaning thereby the housing project thus constitute Development Plan Roads and grant of other facilities, therefore those areas should exist within the prescribed limits and to be considered as part and parcel of the project. Even in the present case the facts have revealed that the plan would not have been approved if the assessee would not have made 15 per cent amenity space available to the corporation. Though amenity space was stated to be surrendered to the corporation but such sacrifice of the builder was duly recognised and compensated by granting additional FSI for the said project. If we accept the proposition of the revenue Department that the area which was directly under the building construction should only be held as the project for construction then a builder has to acquire a land more than 1 acre of land. Then only after the set-apart of the amenity space he could be left with the balance 1 acre for project development. But such a proposition was not intended in the Legislature. The language of the section did not prescribe such hypothecation. Therefore an another reasoning of our rejection of such a proposition of the revenue Department is that it would be illogical to expect from a builder to have excess land area than 1 acre, at least 15 per cent excessive area applicable for Pune Corporation, so that after setting apart 15 per cent area the balance should remain 1 acre for the purpose of construction. This suggestion or approach of interpretation of a statute is not idealistic because we cannot read beyond the scope of the statute. Normal rule of interpretation of statues is that the general words must receive a general construction unless there is something otherwise expressly provided in the statute. General words have ordinarily a general meaning then the first task in interpretation is to give the words their plain and ordinary meaning. This is what we have gathered from the books available on this subject with an attempt to subscribe a simple and realistic meaning to the clause (b) to section 80-IB(10) of Income-tax Act. Nothing more can be added hence we have to restrict the interpretation that the area of 1 acre should be available for the housing project inclusive of amenities required to be set apart as per the norms of a Corporation. Therefore a justifiable conclusion is that when there is no doubt more so it is not in dispute that a portion of the land, in the present case it is 15 per cent, to be earmarked or set-apart or reserved or segregated out of the total and in question, minimum 1 acre, meant for the purpose of project in terms of rules/regulation of a local body, i.e., Pune Municipal Corporation, and without that segregation the project could not be sanctioned then that portion being mandatory for amenity purposes has to be taken as a part and parcel of the land available for the project. In the present case since the area available for the housing project was 4600 sq. mtr. that is more than 1 acre (4046 sq. mtr.) therefore the appellant is entitled for the claim of deduction under section 80-IB(10)(b) on this portion of land. We hold accordingly.

10. In the result, the appeal filed by the assessee is partly allowed.