ORDER
G.E. VEERABHADRAPPA, VICE PRESIDENT :
This is an appeal filed fey the assessee arising out of the order dt. 28th March, 2007 of the CIT(A), Mumbai, for the asst. yr. 2005-06.
2. The assessee is a partnership firm engaged in the business as builder and developer. The only dispute in this appeal relates to the disallowance of deduction claimed under s. 80-IB(10) of the IT Act.
3. The facts of the case are found by the authorities are that M/s A.W. Pereira were the owners of certain plots of land in village Kandivali, Borivali Taluka, Mumbai. M/s Conwood Agencies (P) Ltd., (hereinafter referred to as the 'principal developer') acquired the development rights of this plot of land from the said owners. On the basis of the application, the Mumbai Municipal Corporation sanctioned a building plan to the said principal developer for construction of one building consisting of 11 wings i.e. wings, A, B, C, D, E, F, G, F1, A1, B1 and B2. The principal developer in pursuance of the sanctioned plan itself constructed only two wings, viz. wing A and wing B of this building and granted sub-development rights for the remaining 9 wings of this building to the assessee firm by an agreement dt. 29th May, 2000.
4. The assessee obtained such rights of development by an agreement dt. 29th May, 2000 in respect of 6,845 sq. mtrs. from the principal developer. As per this agreement, (1) the assessee was entitled to construct 6 wings of the aforesaid building being wings C, D, E, F, G and F1 covering a built-up area of 1,72,185 sq. ft. out of which it was required to deliver 99,573 sq. ft. to the principal developer as a consideration for grant of sub-development rights to it. Subsequently, the assessee entered into a MoU dt. 29th Jan., 2001 in terms of which the assessee would retain the entire built-up area in respect of the aforesaid 6 wings and the principal developer would be compensated by the monetary payment of Rs. 12,47,56,800. In terms of these two agreements, the assessee constructed 6 wings i.e. wings C, D, E, F, G and Fl and the block of these 6 wings was named as 'Nisarg'. The assessee entered into a third agreement dt. 9th Sept., 2002 with the principal developer for acquiring the development right of another 4,200 sq. mtrs. In terms of this agreement, the assessee was entitled to construct 3 other wings of this building, viz. wings A1, B1 and B2 which was named as "Breezy Corner'.
5. The assessee completed construction of six wings in the block 'Nisarg' from which it earned an income of Rs. 8,95,64,050 which was subject to the claim of deduction under s. 80-IB(10) of the Act in its return for the asst. yr. 2005-06. The AO rejected the claim for mainly on the following grounds :
(i)
Only one building having 11 wings was approved by the municipality, the construction of 6 wings of the same building of the assessee cannot be treated as a separate independent housing project. The assessee also constructed another 3 wings of the same building 'Breezy Corner', the entire construction by the assessee consisting of total 9 wings, according to the AO, should be treated as a single project and if the two blocks (Nisarg and Breezy Corner) are treated as one project, the built-up area of some of the flats in 'Breezy Comer' is more than 1,000 sq. ft. and therefore, it violated the condition prescribed in s. 80-IB(10)(c) of the Act. He referred to some brochures issued by the assessee for sale of the flats in the block 'Breezy Corner' to say that the two blocks 'Nisarg' and 'Breezy Corner' are a combined project and some of the flats in 'Breezy Corner' have a built-up area of more than 1,000 sq. ft., the assessee is not entitled to get deduction under s. 80-IB(10) of the Act.
(ii)
According to s. 80-IB(10)(d) of the IT Act, the permissible shopping area is only 5 per cent of the built-up area or 2,000 sq. ft. whichever is less whereas the shopping area of 'Nisarg' is about 7.60 per cent of built-up area of this block and if both the blocks are taken together, the total shopping area is 22.39 per cent of the total built-up area which also exceeded 5 per cent limit prescribed in s. 80-IB(10)(d) of the Act.
(iii)
Yet another objection for denying the relief under s. 80-IB is that the assessee has not received the completion certificate of the housing project from the municipality as required under s. 80-IB(10)(a) of the Act.
6. The CIT(A) agreed with the findings of the AO in denying the relief under s. 80-IB(10) of the IT Act. The assessee is now in appeal before us.
7. We have heard both the sides. The learned counsel for the assessee contended that the AO was not justified in holding that the two blocks 'Nisarg' and 'Breezy Corner' as one housing project. The assessee obtained the sub-development rights in 'Nisarg' which consisted of 6 wings was obtained by the assessee by two agreements dt. 29th May, 2000 and 29th Jan., 2001, whereas the sub-development right of block 'Breezy Corner' was obtained by a third agreement dt. 9th Feb., 2002, which is almost after two years. It was explained by the assessee that the construction and design of the two blocks were totally different. Separate books of account for the construction of two blocks were maintained by the assessee. The AO was totally not justified in holding that these two blocks constituted one housing project only to reject the claim for deduction under s. 80-IB(10) of the Act. The assessee further pointed out that in respect of the second block, i.e. 'Breezy Corner', the assessee has not even claimed deduction under s. 80-IB(10) of the Act from the income from such blocks. The learned counsel for the assessee further pointed out that one housing co-operative society for maintaining the affairs of 'Nisarg' has already been formed and separate housing society was proposed for 'Breezy Corner'. There were separate entrances for 'Nisarg' and 'Breezy Corner'. The infra-structural facilities and amenities including the foundation, design which are agreed to be provided for two projects are entirely different. The assessee has maintained separate books of account and identified the expenditure in relation to each of the projects separately. Separate sets of contractors, RCC consultants, architects were engaged for two blocks in a different manner. The design for the two blocks are differently made. The built-up area of the flats in the block 'Nisarg' comprised of 6 wings consisting of flats of less than 1,000 sq. ft. mainly to cater to lower strata of society. The AO has not given a specific finding on this issue. In fact the municipal corporation has approved the construction of different wings in which the approval was granted only for construction of the flats below 1,000 sq. ft. There is no dispute that each of the flat in different wings in 'Nisarg' are less than 1,000 sq. ft. The assessee admitted that 'Breezy Corner' being a separate project and having a flat area exceeding 1,000 sq. ft., the income from this block is not eligible for deduction under s. 80-IB(10) of the Act. It also estimated the income of Rs. 12 crores from this project and paid the advance-tax thereon to establish the bona fides of the claim from the very beginning of the project.
8. The learned counsel for the assessee has placed reliance on the decision of the Tribunal, Kolkata Bench in the case of Bengal Ambuja Housing Development Ltd. v. Dy. CIT, ITA Nos. 1594 and 1737/Kol/2005 dt. 24th April, 2006. wherein identical issue was involved and the Tribunal accepted the claim of the assessee under almost identical circumstances. In fact, the Department filed an appeal against the order of the Tribunal before the Hon'ble Kolkata High Court. The Kolkata High Court rejected the appeal filed by the Revenue. In other words, the Kolkata High Court has put a seal of approval on the order of the Tribunal which fits into the facts and circumstances of the present case.
9. Now coming to the objection that the area of shopping complex exceeded 5 per cent of the limit prescribed, it is pointed out that this sub-section was amended by the Finance (No. 2) Act, 2004 w.e.f. 1st April, 2005. Prior to its substitution the section granting 100 per cent deduction of income arising from housing projects, it did not contain any restriction on the area of shopping complex included in the housing projects that were approved prior to 31st March, 2005. The substituted section extended the benefit of 100 per cent deduction of income derived from housing projects approved upto 31st March, 2007, but simultaneously imposed a restriction on the area of shopping complex included in the housing project. There is no dispute that the housing project of 'Nisarg' was approved prior to 31st March, 2005 and therefore, there is no restriction of area of shopping complex. The learned counsel for the assessee pointed out that the exemption acquired under s. 80-IB(10) under the pre-substituted provision cannot be taken away by way of retrospective amendment by the Finance (No. 2) Act even if it were taken technically so. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Govindas v. ITO 1976 CTR (SC) 192 : (1976) 103 ITR 123 , 132 (SC) and also the decision of K.M Sharma v. Income Tax Officer, Ward 13(7), New Delhi (2002) 174 CTR (SC) 210: (2002) 254 ITR 772 (SC) .
10. The learned Departmental Representative, on the other hand, strongly supported the findings of the AO. According to him the AO has dealt with every aspect of the matter. The learned Departmental Representative vehemently reiterated that the two blocks 'Nisarg' and 'Breezy Corner' are in fact one housing project and admittedly the assessee is not entitled for any relief under s. 80-IB(10) of the Act as some of the flats have more than 1,000 sq. ft. area, which was the prescribed maximum area by the statute. Having found the aggregate area of shopping complex far exceeded the 5 per cent limit prescribed by the statute, the Revenue has rightly denied the relief under s. 80-IB(10) of the Act.
11. We have carefully considered the rival contentions in the light of elaborate discussion of the issue both by the AO and the CIT(A) and gone through the records. The provisions of s. 80-IB(10) of the Act prior to substitution by the Finance (No. 2) Act, 2004 and the provisions after 1st April, 2005 are reproduced below :
Prior to 1st April, 2005
"The amount of deduction in case of an undertaking developing and building housing projects approved before the 31st March, 2005 by a local authority, shall be hundred per cent of the profits derived in any 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 1st Oct., 1998;
(b)
the project is on the size of a plot of land which has 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.
After 1st April 2005
"The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st 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 1st Oct., 1998 and completes such construction,—
(i)
in a case where a housing project has been approved by the local authority before the 1st April, 2004, on or before the 31st March, 2008,
(ii)
in a case where a housing project has been, or, is approved by the local authority on or after the 1st April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority.
Explanation—For the purposes of this clause—
(i)
in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;
(ii)
the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;
(b)
the project is on the size of a plot of land which has a minimum area of one acre;
Provided that nothing contained in cl. (a) or cl. (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 city 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; 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."
The comparative provision before 1st April, 2005 and after 1st April, 2005 will emerge to the following position of law.
| Before 1.4.2005 |
After 1.4.2005 |
Remarks |
| Housing projects approved before the 31st day of March, 2005 |
Housing projects approved before the 31st day of March, 2007 |
Cut off date of approval till March, 2007 after amendment |
| Has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998. |
Has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998. |
Date of commencement is same |
|
Completes such construction—
(i)
in a case where a housing project has been approved by the local authority before the 1st day of April, 2004 on or before the 31st day of March, 2008. (ii) in a case where a housing project has been or is approved by the local authority on or after the 1st day of April, 2004 within four years from the end of the financial year in which the housing project is approved by the local authority.
|
No completion requirement before 1.4.2005 |
|
In a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority. |
No such stipulation before 1.4.2005 |
|
The date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority. |
No such requirement before 1.4.2005 |
| The project is on the size of a plot of land which has a minimum area of one acre. |
The project is on the size of a plot of land which has a minimum area of one acre. |
Same in both |
|
Nothing contained in cl. (a) or cl. (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 |
No such provision before 1.4.2005 |
| 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. |
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. |
Same in both |
|
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. |
No such stipulation before 1.4.2005 |
12. There is no dispute that the housing project in the case of 'Nisarg' is approved before 31st March, 2005. The substituted section extended the benefit of 100 per cent deduction of income derived from housing projects approved upto 31st March, 2007 but simultaneously imposed a, restriction on the area of shopping complex that is permissible to be Included in the housing project by inserting the sub-s. 80-IB(10)(d) w.e.f. 1st April, 2005. The legislature nowhere provided the definition of a housing project either in the section or anywhere in the IT Act. Is it open for the Revenue to consider all the housing activities undertaken by the assessee as one project or different projects ? The Concise Oxford Dictionary (9th Edition) defines a 'project' as "a plan, a scheme, a planned undertaking, a usually long-term task undertaken by a student to be submitted for assessment. The commencement certificates in respect of building No. 1 were received by the principal developer on 7th March, 2001 and 30th March, 2001 respectively. But the commencement certificates for various wings were approved by the municipality as per the details given below :
| Wing-C |
on 10.9.2001 |
| Wing-E |
on 11.9.2001 |
| Wings-C, D, E, F & G |
on 27.3.2002 |
| Wings-F & G |
on 7.5.2002 |
| Wing-F1 |
on 23.9.2003 |
All the above wings are part of 'Nisarg' block and independently satisfies the necessary approval of a housing project. It really makes no difference whether M/s Conwood Agencies had applied for or the assessee had applied to the municipal corporation to make any difference in deciding the assessee's claim for deduction under s. 80-IB(10) of the Act. It must be appreciated that the main developer was M/s Conwood Agencies (P) Ltd. The sanction plan have only approved the construction of the dwelling units of less than 1,000 sq. ft. in all the wings of the said project. There is no dispute that all the flats in these wings contain the eligible units. It is not open to the Revenue to conclude the next project as part of the earlier housing project just to deny the statutory relief which the assessee is entitled in respect of the eligible housing project. In that way the legislative intention to give a relief to the assessee who are undertaking the low housing projects will get defeated. 'Breezy Corner' project which was meant for higher strata of the society. The assessee has segregated the same and in no way mixed in these projects either in the design or in the structural manipulation or in the provision of amenities and the assessee has not claimed any relief in respect of project which admittedly does not admit the test laid down under s. 80-IB(10) of the Act. In our view, combining these two projects into one will lead to a result which manifestly will be unjust and absurd and defeat the very provisions of deduction sections. Unless there is a clear intention of the legislature the Revenue cannot be permitted to do so. After all the assessee have obtained different commencement certificates and started on different periods of time. They are separate by time, space and statutory approvals and even in designs, maintenance of separate books of account. The Revenue, in our view, is not right in treating both the projects as one and integrated without the facts warranting for such conclusion. In identical situation in the case of Bengal Ambuja Housing Development Ltd. (supra), the assessee was having a housing project which consisted of 261 residential units and the individual flat size varied between 800 sq. ft. to 3,000 sq. ft. and the total built-up area of that housing project was 3,46,599 sq. ft. The said project contained 150 residential units with a built-up area of individual unit of less than 1,500 sq. ft. aggregating to 1,59,005 sq. ft. The remaining built-up area of 1,87,593 sq. ft. was consumed by other residential units wherein the size of individual unit exceeded 1,500 sq. ft. of built-up area. The AO on the basis of these facts was of the view that since the units comprised in the housing project of the assessee was more than 1,500 sq. ft., the assessee's claim for deduction under s. 80-IB(10) was not entertained. The Tribunal after appreciating the clear provisions of s. 80-IB(10), which does not speak regarding such denial of deduction in case of profit from a housing complex containing both the small and large residential units and since the assessee has only claimed deduction on account of smaller qualifying units by fulfilling all the conditions as laid down under s. 80-IB(10), the denial of claim by the assessee was held to be based on narrow and restricted interpretation of the provisions of cl. (c) of s. 80-1B(10) of the Act. They drew support from the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC) , wherein it was held that provisions should be interpreted liberally and since the present case also, the assessee by claiming pro rata income on qualifying units which satisfied the condition laid down by s. 80-IB(10), the assessee's claim should be accepted. This order of the Tribunal was taken up in appeal before the Kolkata High Court, the Kolkata High Court dismissed the appeal arising from this order. The ratio laid down by this Tribunal order, in our view, based on the same set of facts as exist in our present case are equally applicable and the assessee's claim for deduction of s. 80-IB(10) in respect of the eligible units of this housing project is therefore, deserves to be accepted.
13. As regards the objection of the AO that the permissible shopping area of housing project exceeds 5 per cent, the assessee is not entitled for relief under s. 80-IB(10). We are of the view that the housing project were approved before 31st March, 2005 and for such project which were so approved, there was no stipulation as to the shopping complex area is permissible in the project. As already stated earlier that the amendments were subsequently made while extending the deduction of income from housing project approved upto 31st March, 2007, the denial of deduction, in our view, is clearly not in accordance with law.
14. One of the objections of the AO in his assessment order is failure of the assessee to obtain a completion certificate in respect of 6 wings in the block 'Nisarg' from which it has returned the income in the asst. yr. 2005-06. The assessee has filed completion certificate issued by the local authority in respect of 3 wings viz. C, D and E before submission of its return and for the rest of the wings viz. F, F1 and G, it had applied for such certificate on 17th Aug., 2004, but the same was not received till date of filing of the return. It was reported in the course of hearing by the learned counsel for the assessee that the occupation certificate in respect of the remaining wings i.e. F, F1 and G has also been issued by the municipal authorities on 20th Dec, 2006. Copies of such certificates issued by the local authorities have been paced in the paper book filed by the learned counsel for the assessee. It was explained that since the housing project in this case has been approved by the local authorities before 1st April, 2004 and the construction is required to be completed before 31st March, 2008. As the occupation certificate in respect of the wings F, F1 and G have been issued on 20th Dec, 2006, i.e. prior to 31st March, 2008, the condition relating to completion of the construction as prescribed in s. 80-IB(10)(a) should also be taken to be satisfied.
15. In the result, the assessee's claims for deduction under s. 80-IB(10) are accepted and the appeal is to be treated as allowed. The AO is directed to allow the deduction as claimed by the assessee in the light of the above discussions.