Citation Codes

Equivalent Citations

citation codes

Case Number

IT Appeal Nos. 1 & 2 of 2012

Advocates

Alok M. Sharma

Judges

A.V. NIRGUDEV.K. Jadhav

Acts

31.03.2008. Relevant provision of the Income Tax Act
Section 80-IB(10) of the Income Tax Act
Section 80-IB(10)
Section 80-IB

See more information ...

Smart Summary

Judgment Summary — A.V. Nirgude, J.

Factual and Procedural Background

These are appeals filed by the Revenue challenging the judgment and order of the Income Tax Appellate Tribunal (ITAT), Pune, in Appeal Nos. 945 to 950/PN/2010. The respondent is a builder-developer that undertook a Mega Housing Project on approximately 25 acres at Aurangabad, approved in February 2000. The respondent completed part of the project and ultimately obtained a Completion Certificate for that part from the Aurangabad Municipal Corporation on 10.10.2008.

The respondent claimed exemption under Section 80-IB(10) of the Income Tax Act for assessment years 2002–2008, asserting that profits from sale of flats under the project were exempt. The Assessing Officer denied the exemption on the ground that the Completion Certificate was not issued on or before 31.03.2008. The respondent's appeal to the Commissioner of Income Tax (Appeals) was dismissed. The respondent then appealed to the ITAT, which held that an application for the Completion Certificate had been made prior to 31.03.2008 and that the date of issuance of the Completion Certificate was not material, noting the delay in issuance was not attributable to the respondent. The Revenue challenged the ITAT order before the court.

Legal Issues Presented

Is it permissible in law to compute the date on which the completion certificate in respect of housing is issued by the local authority as provided in the explanation to Section 80-IB(10) of the Income Tax Act? If yes, how?

Arguments of the Parties

Appellant's (Revenue) Arguments

The court should follow the view expressed by the Commissioner (Appeals) which preferred a strict, literal construction of Section 80-IB(10) and its explanation.
The explanation does not introduce doubt and therefore must be read literally so that the date of issuance of the municipal Completion Certificate determines the date of completion for the purpose of the exemption.
The appellant relied on the decisions of the Supreme Court, including Union of India v. Dharamendra Textile Processors and Commissioner of Central Excise, Bhavnagar v. Saurashtra Chemicals Ltd., to support the rule of literal interpretation and strict application of statutory conditions.

Respondent's Arguments

Even if the explanation and section are clear, their literal application produces an outcome contrary to the spirit and purpose of the exemption provision by introducing undue harshness.
Where a project was practically complete before the statutory cut-off and the assessee applied for municipal Completion Certificate in time (with an architect's completion certificate), delay in municipal issuance (beyond the assessee's control) should not defeat the exemption.
The respondent relied on a Gujarat High Court decision in CIT v. Tarnetar Corpn, where similar facts led the High Court to confirm the ITAT view that timely application for the Completion Certificate was sufficient.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 / 174 Taxman 571 (SC)	Principle that courts should not read into a plain and unambiguous statutory provision; the language of the statute is determinative of legislative intent (paras 13–15 quoted).	The appellant relied on this authority to urge literal construction of Section 80-IB(10). The court noted the authority but did not adopt an approach that would penalize the assessee where delay in municipal action was not attributable to the assessee.
Commissioner of Central Excise, Bhavnagar v. Saurashtra Chemicals Ltd. [2007] 10 SCC 352	Support for literal interpretation where a statute permits a beneficent relief but is circumscribed by conditions; importance of expressions such as "subject to" (para 13 cited).	The appellant relied on this decision to support strict application. The court referred to it but ultimately assessed the statutory scheme and facts and concluded that a strict mechanical application would produce an unduly harsh result in the circumstances.
Institute of Chartered Accountants of India v. Price Waterhouse 1977 (6) SCC 312	Authority for the proposition that intention of legislature is to be gathered from the language used; textual interpretation principle cited within the Dharamendra Textile passage.	Quoted within the discussion on principles of statutory interpretation supporting literalism; the court acknowledged the principle but also weighed purpose and practical consequences in the statutory context.
State of Gujarat v. Dilipbhai Nathjibhai Patel 1989 (3) SCC 234	Support for the rule that courts cannot add words to a statute and must avoid constructions that read words into an Act.	Referred to as part of the established interpretive principles quoted from Dharamendra Textile; the court considered these principles in its analysis of the explanation to Section 80-IB(10).
Stock v. Frank Jones (Tipton), Ltd. 1978 (1) ALL ER 948	Illustration of the rule that courts should not read words into an Act unless necessary.	Referenced in the excerpted authorities as part of the general canon against judicial addition to statutory text; not applied to change the factual result reached by the court.
Ashok Leyland Ltd. v. State of T.N. (citation in Saurashtra Chemicals excerpt)	Interpretation of the expression "subject to" as a limiting expression; the word must be given effect.	Referenced via the Saurashtra Chemicals excerpt to show limits on relief where statute uses conditional language; the court noted this but still examined practical consequences of insisting on municipal issuance date alone.
Homan v. Employers Reinsurance Corpn (referenced in Black's Law Dictionary definition)	Used as an example in defining "subject to" in the quoted authorities.	Appeared within the cited authority discussion explaining meaning of "subject to"; no distinct application beyond that contextual citation in the court's reasoning.
CIT v. Tarnetar Corpn [2014] 362 ITR 174 / [2012] 210 Taxman 206 (Gujarat High Court)	High Court decision holding that where application for Completion Certificate was submitted prior to 31.03.2008, the requirement of strict municipal issuance date was not mandatory in nature for the exemption.	The court perused this decision, observed that facts were similar, and relied on it as supportive of the view that timely submission of the municipal application (with architect's certificate) could prevent municipal delay from defeating the statutory exemption.

Court's Reasoning and Analysis

The court heard detailed submissions and examined the competing interpretive approaches. It began by recognizing the Commissioner (Appeals)'s insistence on strict, literal construction of Section 80-IB(10) and its explanation. The Revenue's counsel relied on authorities (notably Dharamendra Textile and Saurashtra Chemicals) to support literal interpretation and to argue that the municipal Completion Certificate's issuance date is determinative.

The court accepted that the explanation to Section 80-IB(10) is clear and that, in principle, the date of completion is to be taken as the date on which the municipal Completion Certificate is issued. The court further observed that the explanation was introduced to resolve disputes about the date of completion and to provide clarity in practice.

The decisive inquiry for the court, however, was whether this literal rule produced such harshness that it would render the exemption provision effectively nugatory. The court analyzed the practical steps in obtaining a municipal Completion Certificate: (a) an architect issues a completion certificate as part of the application to municipal authorities; (b) municipal authorities then inspect and verify before issuing the municipal Completion Certificate. The court noted that the statute and its explanation give exclusive importance to the municipal certificate and do not account for the architect's certificate or for municipal delay.

Applying those considerations to the facts, the court noted: (i) the project's architect had issued a completion certificate prior to 31.03.2008; (ii) the respondent submitted the application for municipal Completion Certificate on 25.03.2008; (iii) the municipal authority directed deposit of a fee on 27.03.2008 and the amount was deposited on 31.03.2008; and (iv) the municipal Completion Certificate was issued in October 2008. The court found the delay in issuance was attributable to municipal action and not to the respondent.

On this basis, the court concluded that a strict insistence on the municipal issuance date in these circumstances would be unfair and contrary to the object and spirit of the exemption. The court therefore held that where the project was in fact complete before the cutoff date and the assessee had taken timely steps (including filing the municipal application with the architect's certificate), a delay in municipal issuance not attributable to the assessee should not defeat the exemption.

Holding and Implications

HOLDING: Both appeals by the Revenue are DISMISSED. The court answered the substantial question in the affirmative: while the explanation to Section 80-IB(10) identifies the municipal Completion Certificate as the date of completion, where the project is demonstrably complete before the statutory cut-off and the assessee has timely applied for the municipal Completion Certificate (with an architect's certificate) but municipal delay occurs not attributable to the assessee, the project will be regarded as having been completed prior to the statutory date for the purposes of the exemption.

Implications:

The direct effect is that the ITAT's finding—that the project was completed prior to 31.03.2008 and that delay in municipal issuance was not attributable to the respondent—stands; accordingly the Revenue's appeals were dismissed.
The court emphasized the purposive, practical approach in applying the explanation to Section 80-IB(10): although the municipal Completion Certificate is the formal date of completion, where procedural steps were timely taken by the assessee and delays occurred on the part of the municipal authority, the assessee should not be penalised by a rigid application of the municipal issuance date.
The opinion does not purport to lay down a novel legal principle beyond its application to these facts; it resolves the matter by upholding the ITAT's fact-specific conclusion and by recognising that mechanical literalism may produce an unjust result in such circumstances.

Signed: RANJAN

Show full summary ...

Commissioner of Income-tax, Aurangabad v. Hindustan Samuh Awas Ltd.

JUDGMENT

A.V. Nirgude, J. - These Appeals by Revenue challenged the judgment and order passed by the Income Tax Appellate Tribunal, Pune, in Appeal Nos. 945 to 950/PN/2010. The facts leading to these Appeals are as under :

2. The respondent is a builder and developer company. They had undertaken a Mega Housing Project on a layout covering an area of about 25 acre at Aurangabad. The project was approved in February, 2000. The respondents completed part of the project and obtained Completion Certificate for that part of the project from Aurangabad Municipal Corporation on 10.10.2008. The respondent sought exemption under Section 80-IB(10) of the Income Tax Act in all the assessment years 2002-2008. It was their case that the profit made in these years from the sale of flats etc. from this project is exempted from Income Tax. Their claim was denied by the Assessing Officer on the ground that Completion Certificate was not issued on or prior to 31.03.2008. Relevant provision of the Income Tax Act reads as under:—

"80-IB (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 but not later than the 31st day of March, 2005, within four years from the end of the financial year in which the housing project is approved by the local authority;

(iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five 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;

(i) 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;

(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate built-up area of the housing project or five thousand square feet, whichever is higher;

(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)."

3. The respondent's appeal before the Commissioner of Income Tax (Appeals), was dismissed. As against this, the respondent went before Income Tax Appellate Tribunal, where the impugned order was passed.

4. The ITAT held that in view of the fact that the respondent had made application seeking Completion Certificate prior to 31.03.2008, the date on which the Completion Certificate was issued was not material. It also held that the delay in obtaining Completion Certificate was not attributable to the respondent. This delay was beyond their control.

5. The following substantial question of law arises in these appeals:

"Is it permissible in law to compute the date on which the completion certificate in respect of housing is issued by the local authority as provided in explanation to section 80IB(10) of the Income Tax Act? If yes, how?"

6. We have heard the submissions at bar at length. We have also perused the opposite view expressed by the Commissioner (Appeals), in his judgment. In the said judgment, he opined that the explanation to Section 80-IB(10)(a)(ii) of the Act must be strictly construed. He rejected the respondent's contention that this provision has introduced a doubt. He preferred the literal interpretation of Section 80-IB(10) and the explanation referred to above.

7. Mr. Sharma, learned council for the appellant contended that we should adhere to the opinion expressed by the Commissioner (Appeals) and set aside the judgment of the ITAT. In support of his contentions, he placed reliance on the following judgments:

i. Union of India v. Dharamendra Textile processors [2008] 306 ITR 277/174 Taxman 571 (SC) and (para 13 and 14)

ii. Commissioner Of Central Excise, Bhavnagar v. Saurashtra Chemicals Ltd.. [2007] 10 SCC 352. (para 13)

Para Nos. 13, 14 and 15 in the case of Dharamendra Textiles Processors (supra) read as under:—

'13. It is well settled principle in law that the court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. Similar is the position for conditions stipulated in advertisements.

14. Words and phrases are symbols that stimulate mental references to referents. The object of interpreting a statute is to ascertain the intention of the legislature enacting it. (See institute of Chartered Accountants of India v. Price Waterhouse 1977 (6) SCC 312). The intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. As observed in Crawford v. Spooner (1846) 6 MOO pc1, the courts cannot aid the legislature's defective phrasing of an Act, they cannot add or mend, and by construction make up deficiencies which are left there. (See State of Gujarat v. Dilipbhai Nathjibhai Patel 1989 (3) SCC 234). It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. [see Stock v. Frank Jones (Tipton), Ltd. 1978 (1) ALL ER 948.] Rules of interpretation do not permit the courts to do so, unless the provision as it stands is meaningless or of doubtful meaning. The courts are not entitled to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the act itself. (Per Lord Loreburn, L.C. in Vickers Sons)

15. The question is not what may be supposed and has been intended but what has been said. "statutes should be construed not as theorems of Euclid", Judge Learned Hand said, "but words must be construed with some imagination of the purposes which lie behind them".'

Para No. 13 in the case of Saurashtra Chemicals Ltd. (supra) reads as under:—

"13. A beneficent statute may have to be considered liberally but where a statute does not admit of more than one interpretation, literal interpretation must be resorted to. The provision allows taking of credit but the same is circumscribed by the condition as is apparent from the use of the words "subject to" and is limited to an amount not exceeding 50% of the duty paid on such capital goods. The term "subject to" in the contest assumes some importance. In Ashok Leyland Ltd. v. State of T.N. This Court held: (SCC p. 36, para 79)

"79. . . . . . 'Subject to' is an expression whereby limitation is expressed. The order is conclusive for all purposes."

This Court further noticed the dictionary meaning of "subject to" stating: (SCC p. 38, paras 92-93)

92. Furthermore, the expression 'subject to' must be given effect to.

93. In Black's Law Dictionary, 5th Edn. at p. 1278, the expression 'subject to' has been defined as under:

'Liable, subordinate, subservient, inferior, obedient to; governed or affected by; provided that; provided; answerable for. Homan v. Employers Reinsurance Corpn."

8. The learned council for the appellant asserted that though Subsection (10) is a provision relating to exemption, since the explanation does not introduce any uncertainty, it must be read and interpreted literally.

9. On the other hand, learned council for the respondents contended that even assuming that there is no doubt arising from the interpretation of Section 80-IB and the explanation referred to above, there is scope for holding that the interpretation had inducted an element, which goes against the spirit and purpose of the Section. He also placed reliance on a judgment of Gujarat High Court in the case of CIT v. Tarnetar Corpn. [2014] 362 ITR 174/[2012] 210 Taxman 206 (Mag.)/26 taxmann.com 180 on the point. We have perused the judgment of Gujarat High Court and found that the situation before the Gujarat High Court was similar. The High Court was examining the correctness of the findings recorded by the Income Tax Appellate Tribunal. The High Court mainly placed reliance on the crucial fact that the application seeking Completion Certificate was submitted to the Municipal Corporation prior to 31.03.2008 and therefore, they confirmed the finding of the Court that the requirement of Section was not mandatory in nature.

10. We have no difficulty to accept this contention. We also hold that the explanation is quite clear and does not introduce any uncertainty. In other words, date of completion of a project has to be the date of issuance of Completion Certificate by the Municipal authority.

11. The question we raise here is whether the explanation introduced an element of harshness to such an extent that it rendered the main provision nugatory? In our view, the explanation is introduced recently to put an end to a controversy, which might arise before the Assessing Officer about the date of completion. The intention of the legislature in providing explanation to fix the date of completion of a project is quite helpful when this provision is utilized in practice. In our view the explanation has introduced an unnecessarily strictness in the provision which is in the nature of exemption and not in the nature of charging. Sub-section (10) mentions that a housing project should be complete before 31.03.2008 so as to get the exemption. Completion of housing project is a physical act. It can be demonstrated on the spot and also through a certificate issued by an architect who is appointed for supervising the construction work. He is a professional who would declare that the project is complete. Unfortunately, Sub-section (10) and the explanation do not give any importance to the issuance of such Completion Certificate by the concerned architect. It gives importance only to the certificate of Municipal authority. It is common knowledge that an application for Completion Certificate submitted to the Municipal Authorities is accompanied by a Completion Certificate issued by the concerned architect. No doubt, the Municipal authorities then cause inspection of the site and verify the claim. Thereafter, they issue Completion Certificate. But, if a project is really complete before 31.03.2008 and an application is moved quite in time, for seeking Completion Certificate from the Municipal authorities, and if they do not take steps urgently and delay the issuance of Completion Certificate from their side, can it be said that such certificate would alone decide the date of completion of the project? The answer is in negative.

12. In the facts of this case, admittedly, the Architect of the project had given a certificate prior to 31.03.2008. The respondent submitted application to the Municipal authority along with such certificate well in time on 25.03.2008. It seems that the Municipal authorities directed the respondent to deposit certain amount for issuance of Completion Certificate on 27.03.2008 and the amount was accordingly deposited on 31.03.2008. Thereafter, the certificate was issued in October, 2008. This delay cannot be attributed to the respondent assessee.

13. In view of this, we are inclined to hold that the project, for which exemption is sought, was completed prior to 31.03.2008 and therefore, we are inclined to record our answer in affirmative to the substantial question of law referred to above. Both the appeals are accordingly dismissed.

RANJAN

Commissioner of Income-tax, Aurangabad v. Hindustan Samuh Awas Ltd.

Judgment Summary — A.V. Nirgude, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's (Revenue) Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner of Income-tax, Aurangabad v. Hindustan Samuh Awas Ltd.

Comments