Amaltas Associates v. Income-tax Officer, Ward-9(2)

ORDER

Bhavnesh Saini, Judicial Member . - This appeal by the assessee is directed against the order of the learned CIT(A)-XV, Ahmedabad dated 9-6-2010, for assessment year 2006-07 on the following ground :

"1 On the facts and circumstances of the case, the learned CIT (Appeals) erred in confirming the finding of the Assessing Officer that the appellant firm is not entitled to deduction under Section 80-IB(10) of the Income-tax Act."

1.1 The facts noted in the impugned order are that the assessee is a firm consisting of following partners :

(i) Shri Trilokchand Govindram Agrawal
(ii) Shri Shivshankar Govindram Agrawal
(iii) Shri Sandip Rampurshotam Agrawal
(iv) Shri Mukesh Rampurshottam Agrawal

2. The assessee firm constructed housing project known as 'Amaltas' at mouje Vejalpur, Ahmedabad. Return of income showing total income of Rs. 5,15,340 was filed on 31-12-2006 claiming deduction of Rs. 4,33,79,124 under Section 80-IB(10). In the assessment order passed under section 143(3) on 29-12-2008 this Section 80-IB(10) deduction claimed has been disallowed and assessment has been framed at total income of Rs. 4,38,94,463. Perusal of the assessment order shows that the Assessing Officer was of the view that the permissions and approvals by the local authorities were not in the name of the assessee but in the name of Kanji Maharaj Cooperative Housing Society Ltd., that the land on which the flats were constructed was owned by the aforementioned society and not by the assessee. In the Assessing Officer's view if the land is not owned by the assessee, it constructed flats on the land only as an agent of the cooperative housing society. The Assessing Officer has cited the Development Agreement in which the cooperative housing society engages the services of the assessee for development of the property and implementation of the scheme (para 3.9 of the assessment order). The Assessing Officer has reproduced in the assessment order clauses 8, 9 and 15 of the Development Agreement to prove his point.

3. The addition and finding of the Assessing Officer were challenged before the learned Commissioner of Income-tax (Appeals). The ld. Learned Commissioner of Income-tax (Appeals) however confirmed the finding and dismissed the appeal of the assessee. His findings are reproduced as under :

"6. For making itself eligible for deduction under Section 80-IB(10) any assessee has to fulfil the conditions stipulated from clause (a) to clause (d) of Section 80-IB(10). Let us see the status in this case.

7. The first condition stipulated in clause (a) of Section 80-IB(10) is that the housing project should be approved before 31st March, 2008 by a local authority if

Such undertaking has commenced development/construction on or after 1st day of October, 1998 and completes such construction :

(i) on or before 31-3-2008 if the housing project has been approved by the local authority before 1-4-2004.
(ii) in case where the housing project has been approved by the local authority on or after 1st April, 2004. such project should be completed within 4 years from the end of the financial year in which the housing project is approved by the local authority.

8. In this case the Development permissions were given by AUDA to the cooperative housing society, vide letters dated 1-10-2003, 16-3-2004 and 6-8-2004 with respect to area of plot measuring 5500 sq. mt. (final plot No. 179, T.P. Scheme No. 6 of Survey No. 997 of Mouje, Vejalpur). BU permission has been given by AUDA again to the society vide letter dated 3-2-2005 with respect to 110 flats built in the scheme known as Amaltas Apartments, behind Fun Republic, Satellite, Ahmedabad - 380 015.

9. So far as time limit of permissions and approvals are concerned the same have not been disputed by the Assessing Officer but need to be read carefully along with development agreement.

Careful reading of the Development Agreement dated 14-8-2003 signed between the assessee and the cooperative housing society shows that as per Schedule B (Annexure 1 of the order) of the Development Agreement dated 14-8-2003 the assessee was authorized to construct only 94 residential units/flats wherein usable area in square meters of the built-up construction has been mentioned as 12260.41 sq. mtrs., but the assessee is claiming Section 80-IB(10) deductions with respect to 110 units. The BU permission for 110 units was given against revised development permission dated 5-8-2004 wherein usable area in square meters of built-up construction was mentioned as 17794 sq. mtrs., whereas the Development Agreement mentioned that the assessee had to construct 94 units with usable area in square meters of 12260.41 sq. mtrs. of the built-up construction.

10. Vide order sheet noting and hearing dated 9-6-2010 the ld. AR was asked to clarify the above point. It was clarified vide note sheet dated 9-6-2010 by the AR that the Development permission dated 1-10-2003 for 94 units was for usable area in square meters (12260.41 sq., mtrs.) of built up construction, which was revised vide development permission dated 16-3-2004 for 88 units for usable area in square meters (16575 sq. mtrs.) of built up construction, however, finally revised development permission was given vide letter dated 5-8-2004 by AUDA for 110 residential units usable area in square meters (17794 sq. mtrs.) of built up construction. It was however confirmed by the learned AR that the first development permission was for 94 units dated 1-10-2003. That BU permission dated 3-8-2004 was with respect to revised development permission dated 5-8-2004.

11. Thus the learned AR did not dispute the facts about number of units the assessee was authorized to construct as per development agreement and as mentioned in the development permissions and BU permission of the local authority. The point of the learned AR was that the assessee had constructed 110 units as per approval of the local authority.

When attention of the AR was drawn towards the fact that the assessee as per development agreement was authorized only to construct 94 units usable area in square meters being 12260.41 sq. mtrs. of built up construction, whereas BU permission was given against development permission dated 5-8-2004 wherein usable area in square meters was given 17794 sq. mtrs. of the built up construction, and not 12260.41 sq. mtrs. mentioned in the development agreement. At this, the learned AR stated that 110 units were constructed as per approval of the local authority still if any other view is taken then pro rata deduction should be allowed meaning deduction at least for 94 units should be allowed.

12. After going through the facts on record I find that there is no provision of pro rata deduction being made available to any assessee who is found violating the conditions prescribed in the statute, therefore it cannot be given.

In view of the aforementioned discussion given in the preceding paragraphs I am of the view that condition mentioned in clause (a) of Section 80-IB(10) has not been fulfilled by the appellant because the Development agreement authorizes it to construct 94 units with reference to 12260.41 sq. mtrs. only of usable area in the built up construction, the development permission for the same stood revised by the local authority.

And the appellant was never authorized in the development agreement to construct 110 units with reference to 17794 sq. mtrs. of usable area. Local authority BU permission is relevant only to the extent that the appellant did not construct within the time period of the flats for which it is seeking hundred per cent deduction of profits under the Income-tax Act. The development and BU permission per se do not authorize any assessee to claim hundred per cent deduction of its profit envisaged in the Income-tax Act.

13. The point of the Assessing Officer is that the appellant not being owner of the land on which it constructed residential units and is thus not entitled to deduction is a point of legal controversy raised by the Assessing Officer and has been dealt from Paras 28 to 32 below.

14. The second condition stipulated in clause (b) of Section 80-IB(10) is :

The project is on the size of plot of land which has a minimum area of 1 acre.

The third condition stipulated in clause (c) of Section 80-IB(10) is :

The residential unit has a maximum built up area of 1500 square feet.

15. For better clarity vide this office letter dated 13-8-2009 reference under section 131(1) was made to the Departmental Valuation Officer to make verification and inform if two conditions mentioned in clauses (b) and (c) above are found fulfilled.

It may be mentioned here that there was correspondence between the appellant and the DVO on various points raised by the DVO while making the verifications. The appellant was also requested by this office time and again to cooperate with the DVO in making the necessary documents and facilitating inspection to him.

16. Finally vide letter dated 22-4-2010 the DVO sent his report which is enclosed as Annexure 2 of this order. Letter of DVO consists of Annexures and therefore annexure 2 of this order consists of six pages. The DVO informed during discussion that earlier correspondence mentioning other points has to be ignored beaus ethos points stands settled after considering the assessee's reply and inspection conducted by this office.

The DVO thus informed that his letter dated 22-4-2010 was his final report.

17. Amaltas project consists of six blocks (A to F) in which five floors (110 flats) were constructed. In this scheme penthouses have been constructed above fifth floor flats in each tower. In other words penthouses have been constructed on the sixth floor.

In this report (dated 22-4-2010) the DVO's first point is that area of separate terrace exclusively available to the individual flat owner (of flat within penthouse) has to be calculated in the built up area of a particular flat, (which means all flats containing penthouses, on fifth floor of the project) because such terrace is analogous to balcony/verandah, which is included in the definition of built up area given in the Income-tax Act.

The DVO reproduced the definition of built up area given vide section 80(14)(a ) of the Act which is as under :

'(14) For the purpose of this section :—

(a)"built-up area" means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units.'

And according to the DVO by including built-up area of exclusive terrace, in each fifth floor flat 'built-up area' of fifth floor flats measures more than 2500 sq. ft. to 2600 sq. ft. instead of being maximum up to 1500 sq. ft.

18. The DVO's report dated 22-4-2010 was sent to the appellant vide this office notice dated 23-10-2010 requesting for counter comments on the DVO report. The date of hearing was fixed as 3-5-2010 vide letter dated 3-5-2010 the appellant asked for adjournment. Ten days adjournment was given. As no counter comments were received through another notice dated 18-5-2010 another date that is 2-6-2010 was fixed. On hearing dated 2-6-2010 Shri Nitin Parikh, CA appeared and filed counter comments on DVO report dated 22-4-2010.

As other points raised by the DVO in earlier letters are no more in existence because report dated 22-4-2010 is the final report, therefore, the arguments given by the ld. AR with respect to report dated 22-4-2010 alone are material.

19. With respect to the point of DVO that terrace in front of penthouse to be included in the built-up area of the flat, vide submission dated 2-6-2010 it was stated as under :

'the argument is based on presumption and in total disregard of the fact that the terrace referred to by the DVO is open to sky and not balcony or verandah. It appears that the DVO is trying to create confusion and to create prejudice against the appellant. It is submitted that there is no such provisions in the Act to consider the terrace area which open to sky as part of built-up area. NO such presumption can be relied upon.'

20. After going through rival submissions on the point, I am of the view that as per definition of 'built-up area' given in the Income-tax Act, the built-up area of balconies and projections has to be included in the built-up area of a residential unit. It is known of all that balconies are open to sky also, and therefore this argument of the appellant holds no water because first the terrace in front of penthouse even if open to sky becomes a balcony which has to be counted in the built up area as per definition of built up area. Secondly, the terrace in front of the penthouse room is a floor level of the room and is used along with the penthouse room exclusively by the owner of the flat with penthouse and by this logic is included in the definition of built-up area given in the Income-tax Act and applicable in the year under consideration. The flats on fifth floor of all the towers constructed by the appellant have penthouses and exceed 1500 sq. ft. limit, when exclusive terrace in front of each penthouse is added to the built-up area. Then as per DVO's report dated 22-4-2010 the built-up area measures more than 2500 sq. ft. In view of the aforesaid discussion I am of the opinion that condition mentioned in sub-clause (c) of 1500 sq. ft. limit has been found violated by the appellant, and therefore, the claim of deduction under Section 80-IB(10) is flawed and the deduction claimed is not allowable to the appellant.

21. Second point which has been made by the DVO in his report dated 22-4-2010 (last para of the DVO report has to be referred to in this regard) is that common area (148.90 sq. ft.) and common parking area (450.22 sq. ft.) should be included in the calculation of 'built-up' area of each flat.

Please refer to the working of built-up area table given by the appellant to the DVO which is at page 3 of the DVO report dated 22-4-2010 and has been made Annexure 3 of this order) if added in the fifth floor flats the flats come to measure about 3100 sq. ft.

Not just this if parking area of 450.22 sq. ft. is added in other flats that is first to fourth floor flats then the built up area of all flats exceeds 1500 sq. ft. limit.

22. Vide submission dated 2-6-2010 it was stated that common area like staircase, parking etc., are not part of the built-up area envisaged for the purpose of Section 80-IB(10)

23. The matter was discussed with the DVO with reference to his report dated 22-4-2010 and he informed that each flat owner in Amaltas Apartments has been allotted 450.22.sq. ft. area for parking two cars, which is to be used exclusively by the individual flat owner. The physical inspection of the site conducted by the DVO revealed that entire basement had been made parking area where each flat owner had specific space of parking for two cars against which flat number was also written.

The DVO stated that in the table (Annexure 3 of this order) to confuse 'common parking area' heading has been put, though it is exclusive car parking area allotted to each flat owner. In this view car parking has been included in the 'super built-up, area incorrectly by the appellant though its built-up area allotted exclusively to each flat owner and is different from the common area like staircase which is used in common by flat owners along with other flat owners.

24. During the course of appellate proceedings it was argued by the ld. AR that parking space was not sold, that it was common area. But perusal of one of the allotment letters for selling one of the flats (C-53) furnished during the course of the appellate proceedings, shows that the appellant had mentioned composite super built-up area 232 sq. yards sold by it. One square yard = 9 square feet therefore it comes to 2088 sq. ft., whereas in the Table (Annexure 3 of this order) given by the appellant total super built up area has been mentioned against C 53 flat as 2021.39 sq. ft. only. As per DVO's opinion if in the built-up area of C 53 flat given by the appellant at 1422.27 sq. ft. is taken and to it car parking area allotted to it 450.22 sq. ft. is added then the built up area exceeds 1500 sq. ft. limit with respect to flat number C-53. And if this calculation is made applicable in all flats, 1500 sq. ft. limit with respect to all flats gets exceeded.

25. The DVO in the discussion drew my attention towards the purpose with which scheme of Section 80-IB(10) was brought in the statute, that was to promote building of residential units for low and middle income group, his point was building apartments with two car parking exclusive space for each flat owner defeats the purpose of the scheme. To the argument of the appellant about definition of built-up area excluding common areas has been brought in the Act only with effect from 1-4-2005, whereas both the development permission and BU permission have been obtained by the appellant before 1-4-2005 and exclusive parking area attached with each residential unit/flat owner cannot be termed as common area or area excluded from the residential unit.

Perusal of the development permissions and BU permission show that these mention specifically composite square feet for parking and residence. The appellant has made cellar/basement and hollow plinth as exclusive parking area. This is obvious in the BU permission given dated 3-2-2005 English translation of which is enclosed as Annexure 4 of this order.

After going through rival submissions on this point I am not in agreement with the DVO's opinion that exclusive parking area allotted and sold to each flat owner should be included in the built up area calculation of each residential unit, because a flat owner has to have some parking area as a resident.

26. The fourth condition stipulated in clause (d) of Section 80-IB(10) is :

The build up area of the shops and other commercial establishments included in the housing project does not exceed 5 per cent of the aggregate built up area or 2000 sq. ft. whichever is less.

This condition has not been disputed by the Assessing Officer or the DVO and is thus found not violated.

27. The discussion of the conditions of Section 80-IB(10) reveals that the fifth floor flats of Amaltas Apartment exceed 1500 sq. ft. limit when exclusive terrace in front of the penthouse is added to the built up area of the flats. Thus as per statutory conditions the appellant is not eligible for deduction Section 80-IB(10) because it has been found violating 1500 sq.ft. built-up area limit prescribed in clause (c) of Section 80-IB(10).

28. Now to come to the legal controversy whether Section 80-IB(10) can be denied to an assessee on the logic taken by the Assessing Officer that he is not the owner of the land but acted merely as an agent of the cooperative Housing Society.

It was stated in the statement by the appellant that as per development agreement society had given possession of said land to the developer for the purpose of development. That by virtue of the development agreement the appellant had obtained the land possession together with the rights to develop and construct the project. That it was covered by Hon'ble Tribunal Ahmedabad decision in the case of Radhe Developers and Shakti Corporation.

Vide submission furnished on 4-6-2010 hearing it was stated that the appellant purchased all substantive land development rights which include all other rights for Rs. 3,00,000 and same is nothing but land and other costs incurred by the society. It was informed that cheque from Kalupur Commercial Cooperative Bank account of Rs. 2,50,000 dated 1-4-2005 and Rs. 50,000 dated 8-9-2005 was issued in this regard.

29. This point has to be examined in the light of the decision dated 7-11-2008 given by Hon'ble ITAT A Bench in the case of M/s. Shakti Corporation, Baroda in ITA No. 1503/Ahd./2008 in at 2005-06 which came subsequent of the decision given in the case of Radhe Developers and in which the decision in the case of Radhe Builder has been distinguished.

Hon'ble ITAT in Shakti Corporation allowed deduction because the assessee was found to have purchased as well as developed the land. In this decision Hon'ble ITAT has laid down that to avail itself of the deduction an appellant should have acquired dominant control over the project and should have developed the housing project at its own cost and risks. To ascertain which Hon'ble ITAT directed the Development Agreement to be looked into.

30. After going through facts on record following points emerge :

1. The ownership of the land is that of the Society. Though it has been stated that the appellant had paid consideration towards land rights to Society, Rs. 3,00,000 was informed to have been paid for purchasing land development rights, but bank account of the society was not furnished to prove that this payment was made to the society. Neither in the submission has it been stated that this payment was to society. No documents have been furnished with respect to land cost borne of this much amount by the society.
The Profit & Loss account reproduced in the statement of facts as under does not show any such amount—

		Particulars	Amount (Rs.)
		Income
		Sale of Flats	11,25,25,95
		Other income	5,15,336
		EXPENDITURE
		Building expenses including material purchases, labour expense, AUDA charges, site expenses, Architect fees and net work in progress	6,69,99,984
		Other expenses	21,46,796
		Total	6,91,46,780
		Net profit as per Profit & loss account before provisions of Income-tax	4,38,94,461

Though the appellant claims that it paid towards land development rights but there is no agreement or document to support this claim. There is no mention of it in the Development Agreement even. Even the Profit and Loss account does not show it.

2. The case of the appellant is different from the case of Radhe Builders because in that case the assessee had purchased land by virtue of the Development Agreement itself, but this is not the case here, there is no written document of any purchase of land or development rights neither any mention in the development agreement.
3. The appellant did not act as a Contractor of the housing society, as is proved by following clauses of the development agreement dated 14-8-2003 signed between the appellant and Kanji Maharaj Cooperative Housing Society Ltd.

Clause A of the Development Agreement states that the Society has purchased the land at Vejalpur and the said Society is of its absolute independent ownership.

Clause B states that the said Society intends to construct low rise buildings consisting of flats for dwelling.

Clause C states that the Society has decided to appoint the appellant for the purpose of planning, execution, construction and completion of the scheme because the appellant is having the experts, experience and efficiency for the same.

Clause 9 of the Development agreement stats that the appellant has given an approximate lump sum estimate in relation to construction of residential units of the project, as shown in the plans but if any member wishes to put up any construction, changes over and above the stipulated construction and specifications, then in that case the appellant can accept additional amount for the same from the concern member.

Clause 10 clearly states about the contractual lien of the appellant. It is reproduced below :

'Party of the other part shall hold the physical possession with it, of the land as well as whatever construction is put on the said land, till the completion of the project and further, till the Agreement for the land as well as construction upon it is not completely executed, the contractual lien of the party of the other part will continue.' (Emphasis Supplied)

31. As per specific clauses of the Development Agreement the appellant build Amaltas Apartments as a contractor of the 'cooperative housing society' which is a separate entity in the eyes of law and therefore no deduction can be allowed under Section 80-IB(10) as per Explanation inserted in Section 80-IB(10) retrospectively i.e., with effect from 1st April, 2001. The Explanation is as under :

'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)' (Emphasis Supplied)

32. Also going by the criteria laid down by Hon'ble ITAT A Bench Ahmedabad in the case of Shakti Corporation the appellant has not proved that it 'practically purchased' the land on which it constructed the residential units and is claiming deduction of profits of Rs. 4,38,94,460.

33. And most importantly the appellant is not eligible for Section 80-IB(10) deduction because it has been found to have violated condition stipulated in clause (a) and clause ( c) of Section 80-IB(10) discussed in detail in the Paras above."

4. The learned counsel for the assessee reiterated the submissions made before the authorities below and referred to the agreement for housing project dated 14-8-2003 executed between the society and the assessee. Copy of which is filed at page No. 62 of the paper book. He has referred to some of the clauses of the agreement to show that the assessee has complete dominance over the property in question and developed the same with its own funds with all rights and titles and all profit and loss have been taken by the assessee, and even the proposed members shall have to be enrolled by the assessee. He also referred to the permission for development for 94 units dated 1-10-2003 (PB-85) and further referred to PB-93 dated 16-3-2004, through which permission to construct the property in question was modified to 88 units and also referred to PB 101 dated 6-8-2004 which is the permission for development of 110 units under FSI on payment. He has also referred to PB-118 dated 3-2-2005 through which building use permission was granted for 110 units developed and constructed by the assessee. The learned counsel for the assessee explaining the contents of the above agreement in question and necessary permissions for construction, development and permission to use, emphasized that the assessee has owned development rights and also the profits and loss shall have to be borne by the assessee and that the entire sale consideration shall be used by the assessee only. He has referred to other pages in the paper book. The permission to construct and development the property was granted as per the limits prescribed under Section 80-IB(10) of the Act and the assessee constructed and developed the residential units within the prescribed limit. The learned counsel for the assessee also filed copy of the agreement to sell dated 12-8-2003 through which the same property in question was purchased by the assessee from the society through the agreement to sell for a consideration of Rs. 3 lakhs. He has also filed copy of ledger accounts in the books of the assessee along with relevant bank statement to show that payment in question is transferred by the assessee to the society through banking channel for the payment of Rs. 2,50,000 lakhs and Rs. 50,000. Copy of the bank account of the society is also filed to show that sale consideration through agreement to sell is received by the Society. He has also filed details of sale consideration received by the assessee in the assessment years 2005-06 and 2006-07 in respect of all the 110 units in question. The learned counsel for the assessee referred to PB-130 which is the reply filed before the learned CIT(A) to show that the above facts were pleaded before the learned CIT(A); that through the agreement to sell, sale consideration at Rs. 3 lakhs was paid by the assessee to the society. PB-134 to 136 are the copies of the ledger account and copy of the bank account of the assessee to show the transfer of money to the society. He has also referred to PB-58 which is the query of the learned CIT(A) on the above aspect and further submitted that in the preceding assessment year 2005-2006, the assessee was granted deduction under Section 80-IB(10) by the Assessing Officer under section 143(3). However, he has submitted that the Assessing Officer later on reopened the assessment under section 147 of the Act and the reopening was challenged before the Hon'ble High Court. He has therefore submitted that once the assessee with all rights and title entered into an agreement to sell and the development agreement, and therefore if original permission was granted to construct 94 units, the assessee was entitled to raise any construction within the permissible limit, which is ultimately granted for 110 units. The assessee has, therefore, right to construct 110 units as per the above agreements and that there was no objection of the real owner of the property to the assessee in this regard. He has further submitted that the entire project was completed on time and rather before time in two years from the sanctioned plan from October, 2003 to February, 2005. He has further submitted that the contents of the agreement can be modified by the oral agreement by conduct by the parties. He has submitted that since the assessee enrolled member for the society and incurred entire development and construction expenses and also received entire consideration, the assessee fulfilled the requirement of Section 80-IB(10) of the Income-tax Act. He has submitted that the definition of section 80-IB(14) provides the definition of "built-up area" which could not be included for open terrace because the open terrace is not balcony as noted by the learned CIT(A). The terrace is not covered as it is open to sky. He has referred to PB 46 which is the report of the DVO to show that DVO took the above open terrace as considered in front of pent house at 6th floor would be analogous to balcony and verandah and would be included in the covered area. He has submitted that the report of the DVO is incorrect and he has referred to several dictionary definitions for the purpose of explaining the word "balcony", which we would be referring to in later part of this order. He has submitted that the details of the built-up area have been given at PB-52 and 53 to show that "built-up area" developed by the assessee was within 1500 sq. feet as per the law, therefore, the assessee has not violated terms of the above provisions. He has relied upon the decision of the ITAT Ahmedabad Bench in the case of Radhe Developers v. ITO [2008] 23 SOT 420 and ITO v. Shakti Corpn. [2009] 32 SOT 438 (Ahd.) and submitted that the issue is now covered in favour of the assessee by the above decision of the ITAT, Ahmedabad Benches. The learned counsel for the assessee submitted that the Explanation to Section 80-IB(10) would not apply in this case which is also not considered by the authorities below. He has submitted that since the assessee claimed deduction which is beneficial provision provided under the Act for development of the housing units, therefore liberal approach has to be adopted while considering the above issue and relied upon the decisions of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. Commissioner Of Income-Tax. [1992] 196 ITR 188/ 62 Taxman 480 and CIT v. South Arcot District Co-op. Marketing Society Ltd. [1989] 176 ITR 117 / 43 Taxman 328 SC . He has also submitted that in alternate pro rata deduction may be allowed to the assessee and relied upon the order of the ITAT, Nagpur Bench in the case of ITO v. AIR Developers [2010] 122 ITD 125 .

5. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that the permission to construct was granted to the society and the assessee was merely an agent of the society to develop the land being a contractor. The assessee has no right to sell the unit and that the land was not transferred to the assessee. He has submitted that the details of the payment made to the Society was not filed and further no details were filed before the learned CIT(A). For transfer of consideration for the purpose of development right, he has submitted that the payment made in 2005 as per the agreement may be referred to the Assessing Officer for verification. The learned DR further submitted that there is no provision for pro rata benefits to be granted to the assessee and that all the conditions of the said Section 80-IB(10) shall have to be satisfied before granting relief to the society. The learned DR, with regard to built-up area, relied upon the orders of the authorities below and submitted that as per the Section 80-IB(10) benefits have been granted to the developers and builders in respect of construction of small units for public at large and that the same would not apply to the big property. The learned DR submitted that the facts in the case of Radhe Developers (supra) and the Shakti Corpn.'s case (supra) are different and in the case of the assessee no agreement and no details of the payment have been made, therefore, the assessee would not be entitled for any deduction.

6. We have considered rival submissions and material available on record. Section 80-IB(10) reads as under :

"80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.—(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections 3(3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.

(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 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; 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.

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)."

7. The definition of "built-up area" is provided in section 80-IB(14)(a) of the Act, which means "the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units." Before proceeding further, it would be relevant to mention the facts considered in the cases of Radhe Developers & Shakti Corpn. (supra) decided by the ITAT, Ahmedabad Benches. In the case of Radhe Developers (supra), the assessee claimed deduction under Section 80-IB(10). However, the Assessing Officer disallowed the claim on the ground that (i) the assessee was not the owner of the land, and (ii) each approval was also not in the name of the assessee and it had acted merely as an agent/contractor for construction of residential house. The claim was denied to the assessee. The Tribunal considered the averments and material on record and held as under :

"27. A bare reading of these provisions of Section 80-IB(10), as they stood in the years under consideration, the requirements for claiming deduction for housing projects are that (i) there must be an undertaking developing and building housing project; (ii) such housing project is approved by the local authority; (iii) the development and construction of housing project has commenced on or after 1st Oct., 1998; (iv) the housing project is on a size of a plot of land which has minimum area of one acre; and (v) the residential unit developed and built has a built up area of 1,000 sq. ft. if it is situated in Delhi and Mumbai or within 25 kms. of municipal limit of these cities and 1,500 sq. ft. at any other place. There is no other condition, which is to be complied by an assessee for claiming the deduction on profits of the housing project.

28. The contention of the revenue authorities that to claim deduction under Section 80-IB(10), there is a condition precedent that the assessee must be owner of the land on which housing project is constructed has no force. We do not find any such condition as appearing in the provisions of the section extracted above. A plain reading of sub-section (10) of section 80-IB reveals and makes it evident that there must be an undertaking developing and building a housing project as approved by a local authority. It does not have any further condition that such development and building of the housing project should also be on a land owned by an assessee undertaking. It might be true that the land belongs to the person who has entered into an agreement with the assessee to develop and build housing project but on a perusal of the agreement as narrated above, it is evident that the development and building work has been carried out by the assessee in pursuance of a tripartite agreement and it is not by the land-owners. Therefore, the mere fact that the landowner and the undertaking developing and building housing project, are two different entities would not make any difference. The deduction would be eligible to the person who is developing and building housing project and not to the mere owner thereof.

A person who enters into a contract with another person is no doubt a contractor. Having entered into agreements with landowners for development and building the housing project, assessee was obviously a contractor but it does not derogate the assessee for being a developer, as well. The term contractor is not essentially contradictory to the term developer. As stated above, it is the undertaking that develops or builds the housing project that is entitled to deduction irrespective of the fact whether that it is the owner or not or whether it is the contractor thereof. The requirement for claiming deduction is that such an undertaking must develop and build housing project, be it on their own land or on the land of others and for which a tripartite agreement has been entered into for development and building housing project; or be the assessee a contractor for developing and building housing project or an owner of the land.

The word 'development' means the realization of potentialities of land or territory by building or mining. Accordingly, it can be safely said that a person who undertakes to develop real estate by developing and constructing a housing project is an eligible undertaking; developing and building of housing projects within the meaning of Section 80-IB(10) of the Act. In the present case in hand, the landowner has not made any conscious attempt to develop the property except ensuring their rights as landowner so that the sale value of the land could be realized to them as per the terms of 'Agreement to Sale' and the 'Development Agreement'. The landowners, no doubt, have not thrown themselves into development of property. It is only the assessee who is developing the property. Throwing itself into the business of development and building of housing projects by taking all risks associated with the business by engaging architects, structural consultants, designing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, approving plans, hiring machinery and equipments, hiring engineers, appointing contractors, etc. No doubt, the permission has been obtained in the name of the registered landowners, but the same have been obtained by the assessee firm through its partners who are holding power of attorney of the respective landowners. It is a fact that the assessee is a 'developer' and not a 'contractor' as held by the lower authorities. The developer is not working on remuneration for the landowners, but developer is working for himself in order to exploit the potential of its business in his own interest and, therefore, opted for all business risks associated with the business of development of real estate including developing and building of housing projects. As per the provisions of section 2(1)(g) of Regulation of Employment and Conditions of Service Act (27 of 1996), the term 'Contractor' means a person who undertakes to produce a given result for any establishment, other than a mere supply of goods or articles of manufacture, by the employment of building workers or who supplies building workers for any work of the establishment; and includes a sub-contractor.

In those circumstances, the assessee is entitled to deduction under Section 80-IB(10) as it had developed and built the housing project; it had started construction after 1 day of April 1998; the project is on the size of a plot of land which has a minimum area of one acre and the maximum built-up area of the residential units is not more than 1,500 sq. ft.

It may also be born in mind that deduction is not exclusively to an assessee but to an undertaking developing and building housing project, be it developed by a contractor or by an owner.

The assessee, in the instant case, can also be said to be the owner of the land as it had made part payment to the landowners during the financial years 2000-01 and 2001-02 for an amount of Rs. 56 lacs, and taken the possession of the land for development and building the housing project and satisfy that condition as well of being the owner of the land in view of provisions of section 2(47)(v). When the assessee has taken on the possession of immovable property or retained it in part performance of a contract of a nature referred to in section 53A of the Transfer of Property Act, 1882 it amounts to transfer under section 2(47)(v).

In the instant case there was, definitely, a dominion of the developer over the land to the exclusion of others inasmuch as possession of the land is given to the developer by the land owners to carry out the construction activity of the housing project. The assessee developer has complied with all the conditions as provided under Section 80-IB(10) of the Act, so as to claim deduction. The assessee has also passed on the part consideration for acquiring the land through an 'Agreement to sale' and in view of the provisions of section 2(47) read with section 53A of the Transfer of Property Act, 1882, the assessee has completely performed his part of the contract and developed the housing project and transferred the flats/tenements to the buyers in view of 'Agreement to sale' as well as 'Development agreement'. It shows that the assessee was in full possession of the land for the development of housing project and has carried out all the activities of a complete housing project by taking all risks associated with this business. The assessee is engaged in complete infrastructure including engaging architects, structural consultants, designing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, on behalf of the landowners, got the plans approved, hiring of machinery and equipments, hiring engineers, appointing contractors, etc.

As discussed above and in view of the case law of the Supreme Court in the case of Mysore Minerals Ltd. (supra), wherein it has been categorically observed as regards to ownership that anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title might not have been sale 'and' Development agreement', the assessee has acquired dominion over the land to the exclusion of others and he has completed the project on terms and conditions laid down under Section 80-IB(10) of the Act, to claim deduction on the profit derived from construction and development of residential housing project. There is no explicit condition enumerated in Section 80-IB(10) of the Act as regards to requirement of ownership for the claim of deduction. In view of above facts and circumstances of the case as well as legal proposition laid down by the Supreme Court in the case of Mysore Minerals Ltd. (supra), we hold that the assessee is entitled for claim of deduction on the profits derived from construction and development of residential housing project."

8. In the case of Shakti Corpn. (supra), the assessee claimed the deduction under Section 80-IB(10). The Assessing Officer disallowed the assessee's claim on the ground that it was not the owner of the property; that the permission was not granted in the assessee's name and the approval from the Municipal Corporation was in the name of the original land owner and not in the name of the assessee. The Tribunal considered the averment and the material on record and allowed the claim of the assessee and it was held as under :

"In the instant case, there was no agreement to share the constructed area. This agreement relates only to purchase part of the land from the landowner by the assessee for a predetermined consideration. All the responsibilities for carrying out the construction, permission, NA, NOC, legal proceedings and the results of the development lies with the assessee. The first party is only to co-operate the assessee in carrying out the development and also to execute the documents whenever it is required by the developer. The assessee has also handed over the physical possession to the builder for carrying out the development of the project. The landowner does not have any right, interest, title in the development so carried out except to the extent he has to receive the consideration from the assessee. The assessee is entitled to publicize the project, print brochures, etc., and can sell the project at its own right. All the expenses have to be incurred by the assessee for carrying out the construction, etc. The landowner has to do nothing except to the extent he has to receive consideration from the assessee. His motive is not to develop, construct or carry on the business as a builder or developer. Practically no right in the land remains with the owner. For whole practical purpose the assessee acquired dominant right over the land and he can deal with the land in the manner in which he may like. Thus, the terms and conditions entered into, in our opinion, give all dominant control and rights over the land to the assessee. The assessee, in our opinion, will be constructing the building at its own cost and will remain the owner of the building at its own without any interference from the landowner. The landowner does not have any right to share the buildings. The agreement does not envisage that the assessee will be working as a contractor or agent on behalf of the landowner. The agreement cannot be regarded to be the joint venture or collaboration agreement. It is, in our opinion, the agreement for the sale of the land for a determined consideration under which the assessee is entitled to develop the project on the said land at its own cost in the manner in which he may decide.

The facts involved in the case of the assessee are similar to the facts in the case of Radhe Developers ( supra) and, accordingly, we are of the view that the assessee has acquired the dominant over the land and has developed the housing project by incurring all the expenses and taking all the risks involved therein. We may mention here that, in our opinion, the decision in the case of Radhe Developers (supra) will not apply in a case where the assessee has entered into the agreement for a fixed remuneration merely as a contractor to construct or develop the housing project on behalf of the landowner. The agreement entered into in that case will not entitle the developer to have the dominant control over the project and all the risks involved therein will vest with the landowner only. The interest of the developer will be restricted only for the fixed remuneration for which he would be rendering the services. The decision in the case of Radhe Developers (supra) has not dealt with such situation. The proposition of law laid down in the case of Radhe Developers (supra) cannot be applied universally without looking into the development agreement entered into by the developer along with the landowner In the case of the assessee, since it had filed copy of the development agreement and crux of the agreement was that the assessee had purchased the land and had developed the housing project at its own, the assessee would be entitled to the deduction under Section 80-IB(10)."

9. The learned counsel for the assessee referred to the terms of the agreement for housing project (PB 62). According to which, the responsibility of the assessee have been analyzed in such manner that the planning, sanction of plan, work of construction, development of the property, labour engagement shall have to be done by the assessee in respect of the development of the property in question. It is further provided that the assessee shall provide parties/members to whom sale is to be made by enrolling the members. The assessee shall accept all the payments from the members/buyers. The learned counsel for the assessee filed details of the sale proceeds received from the parties of 110 units in the assessment years 2005-06 and 2006-07. It would support the case of the assessee that the assessee received entire sale consideration from the members/buyers after completion of the development and building housing project. Agreement further provides that the assessee shall provide payment for construction, engage architect, engineers/site supervisors and shall also obtain all permission from the AUDA. The assessee shall make all financial arrangements for the purpose of implementing housing project and shall execute all deeds in this behalf. The agreement further provides that the assessee shall recommend the names of the members for allotment and land shall remain open for construction for the assessee and the assessee shall have all rights for using of all the terrace and open space in any manner. The agreement further provides that after implementation and completion of the project, whatever profit/surplus or loss/deficit to the assessee out of the project will rest with the assessee and the assessee shall be responsible and liable for all the losses suffered for the completion of the project and the assessee shall compensate in this behalf. The agreement further provides that the assessee shall incur all expenses for common facility like, lights, water, sewerage, lift, bore-well etc. The learned counsel for the assessee also filed copy of the agreement to sell dated 12-8-2003 through which the assessee purchased the property in question through agreement to sell for consideration of Rs. 3 lakhs and also filed copy of the ledger account and banking statement of the assessee as well as of the society to show that the amount of sale consideration of Rs. 3 lakhs is transferred in a sum of Rs. 2.50 lakhs and Rs. 50,000 from the assessee and was received by the society in their account. It would therefore prove that the assessee made the payment of sale consideration of the property in question through banking channel. The details of the amount received as a sale proceeds from the members/proposed buyer is also filed to support the contention of the assessee that the assessee received entire sale proceeds in its books of account with all rights to use profit and loss. PB-130 is the reply filed before the learned CIT(A) to explain the above position that the assessee paid sale consideration to the society. The learned counsel for the assessee also referred to the queries raised by the CIT(A) in this regard which is properly explained by the assessee. The above facts would prove that the assessee entered into an agreement to sell with the society for consideration. All the responsibilities for carrying out the construction, permission and development of the project lie with the assessee. The real owner of the land was only to co-operate with the assessee in carrying out the development and also to execute necessary documents whenever required by the assessee as a developer. The real owner has also handed over the physical possession to the society as a builder for carrying out the development of the project. The land owner did not left with any right, interest or title in development which was carried out by the assessee. The assessee was entitled to enroll the members for selling the units within its own rights. All the expenses have to be incurred by the assessee for carrying out the construction etc. The motive of the real owner was not to develop, construct or carrying out any business as a builder or developer and practically no right in the hands of the real owner in this behalf. With all intents and purposes, the assessee has acquired dominant right over the land and the assessee could deal with the land in the manner in which the assessee might have liked. The terms and conditions entered into between the assessee and the society as per the development agreement and agreement to sell provided all dominant control and rights over the land to the assessee and the assessee would be developing and constructing the housing project at its own cost and would remain owner of the building without any interference from the land owner. The agreement in question did not provide that the assessee would be working as a contractor or agent on behalf of the land owner. The agreement in question would not be regarded to be the joint-venture or collaboration agreement. It was the agreement for sale of the land for determined consideration under which the assessee was entitled to develop the housing project on the said land in its own cost and in the manner in which the assessee might have decided. The authorities below rejected the claim of the assessee, because, originally, the assessee was authorized to construct 94 residential units, but as against the agreement, later on, the assessee constructed 110 units. However, we find that there is bar to construct more flats or units by the assessee in the given facts of the case. It is a matter between the land owner and the assessee. Once sanction plan is approved by the municipal authorities on the papers submitted by the real owner, it could be deemed approval of construction of housing flats in favour of the assessee, more so, when the assessee entered into an agreement to sell whole of the property. So the objection of the authorities below that the assessee constructed more facts is not sustainable in law. The above facts, if considered in light of decision of the ITAT, Ahmedabad Benches, in the case of Radhe Developers (supra) and the Shakti Corpn.'s case (supra) we are of the view that the issue is now covered by the above decision of the Tribunal in favour of the assessee, because, the assessee has acquired dominion right over the land and has developed the housing project by incurring all the expenses and taking all the risk involved therein. The crux of the matter would be that the assessee has purchased the land and has developed the housing project at its own cost, therefore, we are of the view that the assessee will be entitled for deduction under Section 80-IB(10) of the Act.

10. The assessee filed details of built up area of all 110 units of the residential flats at page Nos. 52 and 53 of the PB to show that the built up area was less than 1500 sq. feets. However, the DVO reported in his report (PB-46) that considering the open terrace in front of pent-house room at 6th floor which is analogous to balcony/verandah, then built-up area in this manner will measure more than 2500 sq. feet to 2600 sq. feet approximately. It is therefore a case set up against the assessee that the open terrace is analogous to balcony/verandah and if it is included in the definition of built-up area, then it would exceed the prescribed limit. The definition of built-up area means inner measurement of the residential unit at the floor level including the projections and balconies as increased by the thickness of the walls but does not include the common areas shared with other residential units. The learned counsel for the assessee provided from different dictionaries the definition of "balcony" which reads as under :

1. (Arch.) A platform projecting from the wall of a building, usually resting on brackets or consoles, and enclosed by a parapet; as a balcony in front of a window. Also, a projecting gallery in places of amusements; as, the balcony in a theater. [1913 Webster]
2. (1) an upper floor projecting from the rear over the main floor in an auditorium
(2) a plotform projecting from the wall of a building and surrounded by a balustrade or railing or parapet.
Source : WordNet (r) 2.0
3.1(Arch.) A platform projecting from the wall of a building, usually resting on brackets or consoles, and inclosed by a parapet; as a balcony in front of a window. Also, a projecting gallery in places of amusements; as, the balcony in a theater.
Sources : Webster's Revised Unabridged Dictionary (1913)

11. When the above meaning of "balcony" is taken into consideration with the definition of "built-up area" as provided in the Act, it is clear that finding of the authorities below are not sustainable in law. It is an admitted fact that the open terrace in front of pent-house was considered as balcony/verandah. The open terrace is not covered and is open to sky and would not be part of the inner measurement of the residential floor at any floor level. The definition of "built-up area" is inclusive of balcony which is not open terrace. The DVO has considered the open terrace as analogous to balcony/verandah without any basis. Therefore, the authorities below were not justified in rejecting the claim of the assessee by taking the open terrace as balcony/verandah. Therefore, the assessee has complied with all the requirements of Section 80-IB(10) of the Act in this regard. Moreover, the ITAT, Nagpur Bench in the case of AIR Developers (supra) has held as under :

"In view of the decision of the Kolkata Bench of the Tribunal in the case of Bengal Ambuja Housing Development Ltd. v. Dy. CIT [IT Appeal No. 1595 (Kol.) of 2005, dated 24-3-2006], which was squarely applicable to the instant case, it was to be held that if the assessee had developed a housing project wherein the majority of the residential units had a built-up area of less than 1500 sq. ft, i.e., the limit prescribed by Section 80-IB(10) and only a few residential traits were exceeding the built-up area of 1500 sq. ft., there would be no justification to disallow the entire deduction under Section 80-IB(10). It would be/air and reasonable to allow the deduction on a proportionate basis, i.e., on the profit derived from the construction of the residential unit which had a built-up area of less than 12500 sq. ft., i.e., the limit prescribed under Section 80-IB(10). In view of the above, the Assessing Officer was to be directed that if it was found that the built-up area of some of the residential units was exceeding 1500 sq.ft., he would allow the proportionate deduction under Section 80-IB(10). Accordingly, the appeal of the revenue was to be dismissed and cross-objection of the assessee was deemed to be partly allowed."

Therefore, in the light of the decision of the ITAT, Nagpur Bench, the authorities below should not have rejected the claim of the assessee at least on alternate contention that the assessee would be entitled for deduction under Section 80-IB(10) on pro rata basis. No other point was considered against the assessee for refusing relief under Section 80-IB(10) by the authorities below. Since we have held above that the open terrace is not part of balcony/varandna therefore according to the submissions of the assessee, the built up area of the assessee was within the prescribed limit. Therefore, there is no need to give further finding with regard to alternate claim of the assessee. Considering the facts of the case, in the light of the above decisions, we are of the view that the assessee fulfilled the conditions and requirement of the Section 80-IB(10) of the Act, therefore, the claim of the assessee for deduction should not have been denied by the authorities below. We accordingly, set aside the orders of the authorities below and direct the Assessing Officer to grant deduction to the assessee under Section 80-IB(10) of the Act as claimed by the assessee.

12. In result, the assessee's appeal is allowed.