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Sky Builders & Developers v. Income-tax Officer, Ward-1(1), Bhopal
Factual and Procedural Background
This appeal arises from an order of the learned Commissioner of Income Tax (Appeals)-I, Bhopal dated 2.2.2010, which confirmed the Assessing Officer's disallowance of a deduction of Rs. 10,50,530 claimed by the assessee under section 80IB(10) of the Income-tax Act. The assessee firm, engaged in construction business, filed a return on 23.10.2006 declaring nil income after claiming the said deduction.
The Assessing Officer disallowed the deduction on the basis that the assessee had sold plots of land to customers by registering sale deeds such that those customers became absolute owners, and thereafter the assessee acted as a contractor; accordingly the AO concluded the assessee was not a developer entitled to the deduction. The assessee appealed to the CIT(A), who affirmed the assessment order. The assessee then appealed to the Tribunal.
At the Tribunal hearing, counsel for the assessee argued that the project was duly completed within the prescribed period and that the assessee was involved in development and construction, completing the project before 31.3.2008. When asked by the Bench whether a completion certificate had been issued by the municipal/local authority, the assessee's counsel candidly agreed that no completion certificate had been issued to date. The Revenue strongly defended the impugned order on the basis that the assessee was not a developer and that no completion certificate had been issued.
Legal Issues Presented
- Whether the assessee qualifies as an "undertaking developing and building housing projects" under section 80IB(10) of the Income-tax Act, or whether it functioned merely as a contractor after selling plots to customers.
- Whether the housing project was "completed" for purposes of section 80IB(10)(a)(i), which turns on the issuance of a completion certificate by the local authority and the relevant cut-off date (completion on or before 31.3.2008 for projects approved before 1.4.2004).
- Whether the absence of a completion certificate prevents the assessee from claiming the deduction under section 80IB(10), given the statutory explanation that the date of completion is the date on which the completion certificate is issued by the local authority.
Arguments of the Parties
Assessee's Arguments
- The project was duly completed within the prescribed time limit and before 31.3.2008.
- The assessee was involved in the development and construction of the housing project and therefore entitled to deduction under section 80IB(10).
- The assessee's counsel relied on a decision of the Indore Bench in D.K. Construction v. ITO (IT Appeal No.243/Ind/2010 dated 6-12-2010) as supportive authority.
Revenue's Arguments
- The assessee was not engaged in development and construction as a developer; instead, it sold plots to customers (making them absolute owners) and thereafter acted as a contractor, which disqualifies the assessee from claiming the deduction under section 80IB(10).
- No completion certificate has been issued by the local authority to the assessee, and under the statutory explanation the date of completion is the date on which such certificate is issued; absence of the certificate therefore precludes the deduction.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Prakash Nath Khanna v. CIT [2004] 266 ITR 1 / 135 Taxman 327 (SC) | Principle that a court cannot read anything into a statutory provision where the language is clear and unambiguous; statutory language is determinative of legislative intent. | The Tribunal invoked this authority to support strict textual interpretation of section 80IB(10), holding that when the statute unambiguously requires the issuance of a completion certificate to establish the date of completion, the court cannot enlarge the statute's meaning to permit a deduction in the absence of such certificate. |
| D.K. Construction v. ITO (IT Appeal No.243/Ind/2010 dated 6-12-2010) (Indore Bench) | Cited as an instance where a completion certificate was issued to the assessee, and the decision turned on that fact. | The Tribunal distinguished this decision on its facts: in D.K. Construction the completion certificate existed (showing a date of completion), whereas in the present case no completion certificate had been issued to the assessee; therefore the precedent did not assist the assessee. |
Court's Reasoning and Analysis
The Tribunal reproduced the text of section 80IB(10) (including the Explanation stating that the date of completion of construction shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority) and analysed the statutory requirements in relation to the facts.
Key points of the Tribunal's analysis:
- Sub-clause (ii) of the Explanation to section 80IB(10)(a) expressly provides that the date of completion is the date on which the completion certificate is issued by the local authority. This textual provision was treated as mandatory ("shall") by the Tribunal.
- The assessee admitted that no completion certificate had been issued to date, and a letter dated 15.12.2008 to the Assessing Officer also showed no certificate was issued. On these facts, the Tribunal inferred that the assessee could not claim the deduction under section 80IB(10) because the statutory precondition (existence and date of a completion certificate) was not satisfied.
- The Tribunal examined the assessee's factual position that it had sold plots to customers by registered sale deeds, making those customers absolute owners of the plots. Subsequently the assessee acted as a contractor to construct buildings for those customers. On these factual findings, the Tribunal concluded the assessee acted as a contractor and not as a developer/undertaking developing and building housing projects for purposes of section 80IB(10).
- The Tribunal considered the assessees' reliance on D.K. Construction but distinguished that decision since in that case a completion certificate had been issued (and the present case lacked such a certificate), and because the factual posture here involved sales of plots followed by construction as a contractor.
- Invoking the Supreme Court authority Prakash Nath Khanna v. CIT, the Tribunal applied the principle of plain statutory interpretation: when a statutory provision's language is clear and unambiguous, courts must give effect to it and must not read into it additional requirements or allowances. The Tribunal therefore gave effect to the statutory wording that links the date of completion to the issuance of a completion certificate.
- The Tribunal also noted legislative amendments (Finance Acts of various years) that clarified the timing and that the date of completion is tied to issuance of the completion certificate, reinforcing the textual interpretation that completion for the purpose of the deduction depends on the certificate.
Holding and Implications
Final Holding: The Tribunal affirmed the order of the CIT(A) and dismissed the assessee's appeal. The deduction of Rs. 10,50,530 claimed under section 80IB(10) was not allowable to the assessee.
Implications and direct effect:
- The direct practical consequence is that the assessee's claim for deduction under section 80IB(10) was disallowed for the assessment year in question, and the assessment order as affirmed by the CIT(A) stands confirmed by the Tribunal.
- The Tribunal's decision turned on two fact-specific and statutory points: (a) absence of a completion certificate issued by the local authority (which the statute treats as the date of completion), and (b) the factual finding that the assessee sold plots and thereafter acted as a contractor rather than as a developer eligible for the section 80IB(10) deduction.
- The Tribunal applied an unambiguous textual reading of the statute and did not purport to lay down any novel legal principle; it distinguished contrary authority on the basis of differing facts (existence of a completion certificate in the other case). Thus, no new precedent beyond the application of the statute to the present facts was claimed to have been set by this order.
Order concluded: Appeal dismissed; CIT(A) order affirmed.
ORDER
Joginder Singh, Judicial Member - This appeal is by the assessees against the order of the learned CIT(A)-I, Bhopal, dated 2.2.2010 on the ground that in the facts and in the circumstances of the case, ld. first appellate authority has erred in confirming the disallowance of deduction of Rs.10,50,530/- u/s 80IB(10) of the Act by wrongly holding that the assessee is not involved in the development and construction of the housing project and further erred in holding that the assessee did not complete the housing project up to 31.3.2008.
2. During hearing of the appeal, we have heard Shri Arun Jain, Ld. Counsel for assessee and Shri Arun Dewan, ld. Sr. DR. The crux of arguments on behalf of the assessee is that the assessee duly completed the project within prescribed limit and the assessee is duly involved in development and construction of the housing project which was completed before 31.3.2008. On a question from the Bench, whether the completion certificate has been issued to the assessee by the municipal authorities, it was fairly agreed by the Ld. Counsel for assessee that till date, the same has not been issued.
On the other hand, the ld. Sr. DR Shri Arun Dewan strongly defended the impugned order by contending that firstly, the assessee is not involved in development and construction of the housing project and secondly, the required completion certificate has not been issued to the assessee till date, therefore, the impugned order was strongly defended.
3. We have considered the rival submissions of ld. representatives of both sides and perused the material available on record. Brief facts are that the assessee firm is engaged in the business of construction, declared nil income in its return filed on 23.10.2006 after claiming deduction of Rs. 10,50,530/-, u/s 80IB(10) of the I.T. Act. However, the Assessing Officer noted that the assessee sold the plots of land to the customers by registering the sale deeds, consequently, such customers became absolute owners of such plots and thereafter the assessee acted as contractor only, consequently, he disallowed the deduction claimed u/s 80IB(10) of the Act. The assessment order was carried in appeal before the ld. CIT(A), wherein, the assessment order was affirmed which is under challenge before this Tribunal. Admittedly, the project was to be completed before 31.3.2008 and till date, no completion certificate has been issued to the assessee. In view of these facts, we are reproducing hereunder sec. 80IB(10) so that the issue can be analysed in a proper perspective.
(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, [2008] 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 day of October, 1998 and 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.
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 clause (
a) or clause (
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 kilometres 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 following clauses (
e) and (
f) shall be inserted after clause (
d) of sub-section (10) of section 80-IB by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2010 :
(e)
not more than one residential unit in the housing project is allotted to any person not being an individual; and
(f)
in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:—
(i)
the individual or the spouse or the minor children of such individual,
(ii)
the Hindu undivided family in which such individual is the karta,
(iii)
any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.
Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).
4. If sub-clause (2) to Explanation is analysed with the facts of the present appeal, it clearly provides that the date of issue of completion certificate, by the local authority, shall be the date of completion of the project. However, as admitted by the Ld. Counsel for assessee and also in view of the letter dated 15.12.2008, issued to the ld. Assessing Officer, no certificate was issued to the assessee, therefore, it can be clearly inferred that the assessee is not eligible for deduction u/s 80IB(10) of the Act. So far as the reliance of the Ld. Counsel for assessee in the case of D.K. Construction v. ITO (IT Appeal No.243/Ind/2010, dated 6-12-2010) passed by the Indore Bench, is concerned, firstly, we find that in this case, the completion certificate was issued to the assessee clearly mentioning the date of the project but in the present appeal, even till date, no such certificate was issued and secondly, the assessee sold the plots to the respective customers by registering a sale deed and thereafter the assessee constructed the building on agreed price, therefore, the assessee acted as building contractor and not as a developer, consequently, this decision may not help the assessee. Sometimes, the process of issuance of certificate may take time, therefore, for claiming eligibility of deduction as per Explanation (2) of sec. 80IB(10)(a) of the Act, the crucial aspect is the date mentioned in the letter certifying completion of project. For claiming deduction u/s 80IB(10), on the profits derived from a housing project, the assessee has to fulfil all the four conditions laid down in the clauses (a ), (b), (c) and (d) of sub-sec. (10). In the case of the assessee, the housing project was approved by the local authority on 24.11.2003 (i.e. before 1.4.2004), consequently, the assessee was to complete the construction on or before 31.3.2008. In sub-clause (ii) to Explanation, the word used is "shall" and not "may" before completion certificate is issued by the local authority, therefore, it can be said that the assessee has not fulfilled the required conditions laid down in clause (a) (i) of sec. 80IB(10). Even otherwise, it is well settled principle in law that the court cannot read anything into a statutory provision where the language is clean and unambiguous because a statute is an addict of legislature. The language employed in statute is the determinative factor of legislative intent. Our view is fortified by the decision from Hon'ble Apex Court in the case of Prakash Nath Khanna v. CIT [2004] 266 ITR 1/135 Taxman 327 (SC) . Amendment/substitution was made by the Finance (No.2) Act 2004 w.e.f. 1.4.2005. Prior to its substitution sub-sec. (10) as amended by the Finance Act 2000, w.e.f. 1.4.2001 and Finance Act 2003 with retrospective effect from 1.4.2002, read as under:
"(10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of 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 day of October, 1998;
(b)
The project is on the size of a plot of land which has a minimum area of one acre, and
(c)
The residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place."
5. Substitution was further made by the Finance (No.2) Act 2009 with retrospective effect from 1.4.2009 and insertion by the Finance Act 2010 w.e.f. 1.4.2010 as per which the assessee is supposed to complete the project within the specified time form the end of the FY in which the housing project is approved by the local authority and the date of completion of construction shall be taken to be the date on which completion certificate is issued by the local authority in respect of such housing project. However, in the case of the assessee, even till today, no completion certificate was issued to the assessee, therefore, there was no infirmity in the stand of the ld. CIT(A). It is affirmed.
Finally, the appeal of the assessee is dismissed.
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