Friday 27 January 2012

Income tax - Whether, to avail Sec 80IB(10) benefits, it is mandatory for developer to have ownership of project land - NO, rules HC



AHMEDABAD, JAN 25, 2012: THE questions before the Bench are - Whether, to avail Sec 80IB(10) benefits, it is mandatory for the assessee to have ownership of the project land and Whether where the risk has been transferred to the assessee, it cannot be said that the assessee is only a works contractor and thus, the deduction is not to be allowed. And the verdict goes in favour of the assessee.
Facts of the case

Assessee claimed deduction u/s 80IB(10) on the income derived from the business of the undertaking developing and building housing project approved by the local authority. Assessee entered into a development agreement with the owners and the owners entered into an agreement to sell the land in question to the assessee. AO rejected the claim of the assessee stating that the assessee firm was not the owner of the land. Approval by the local authority as well as permission to develop the project and permission to commence construction were not in the name of the assessee firm. The assessee had merely acted as an agent or a contractor for construction of residential houses.

CIT (A) stressed on the requirement of ownership of the land to qualify for deduction u/s 80IB(10). The land was intrinsic and inalienable part of the housing project and without owning the land, no assessee could carry on the business of undertaking developing and building housing projects.

ITAT allowed the appeal of the assessee on two grounds (i) for deduction u/s 80IB (10) it is not necessary that the assessee must be the owner of the land, (ii) even otherwise looking to the provisions contained in Section 2(47) of the Act, read with Section 53A of the Transfer of Property Act, by virtue of the development agreement and the agreement to sell, the assessee had, for the purpose of Income Tax, become the owner of the land.

Revenue contended that when admittedly the assessees were neither land owners nor necessary permissions for development from the local authorities were granted in the name of the assessee, no deduction can be allowed u/s 80IB(10). The provisions were made to give encouragement and fillip to the housing projects where acute shortage was felt in urban and semi-urban areas for middle class housing. Without the land ownership, the assessee could not be stated to be a developer of the land. Any assessee executing the housing project as a works contract would not qualify for deduction u/s 80IB(10).

Assessee contended that Section 80IB(10) does not require that to qualify for deductions, the assessee had to own the land, which he was developing. Wherever ownership was necessary for claiming certain benefits, the Act had so provided. Since no such specification is made under this section, the Tribunal correctly allowed the appeal. Either owner, occupier or even the developer with the permission of the owner can develop the land after obtaining permission of the Local Authority. The present case do not involve execution of a housing project by way of works contract and assessee had acted as developer. The Explanation to Section 80IB(10) introduced with effect from 1.4.2001 would have no material impact. Assessee had taken all crucial decisions and also taken the full risk of failure or success of such housing project. Profit and Loss both belonged to the assessee. Thus assessee was entitled to deduction u/s 80IB (10).

After hearing both the parties, the High Court held that,
++ Section 80IB(10) provided for deduction of the entire amount of profits of an undertaking derived from the business of developing and building housing projects which were approved by the Local Authority before the specified date. Such deduction, however, was subject to certain conditions, namely, that such undertaking had commenced development and construction prior to a specified date and that the project was on the size of a plot of land with a minimum area of 1 acre and the residential unit had maximum inbuilt area of 1500 sq.feet, (except in cases of cities of Delhi and Mumbai, where maximum area permitted was 1000 sq.feet.). The essence of sub-Section (10) of Section 80IB, therefore, requires involvement of an undertaking in developing and building housing projects approved by the local authority. Apparently, such provision would be aimed at giving encouragement to providing housing units in the urban and semi-urban areas, where there is perennial and acute shortage of housing, particularly, for the middle income group citizens. To ensure that the benefit reaches the people, certain conditions were provided in sub-Section(10) such as specifying date by which the undertaking must commence the developing and construction work as also providing for the minimum area of plot of land on which such project would be put up as well as maximum built up area of each of the residential units to be located thereon. The provisions nowhere required that only those developers who themselves own the land would receive the deduction under Section 80IB(10). Neither the provisions of Section 80IB nor any other provisions contained in other related statutes were brought to demonstrate that ownership of the land would be a condition precedent for developing the housing project. There is nothing u/s 80IB (10) requiring that ownership of the land must vest in the developer to be able to qualify for such deduction;

++ while interpreting the statute, particularly, the taxing statute, nothing can be read into the provisions which has not been provided by the Legislature. The condition which is not made part of Section 80IB(10) of the Act, namely that of owning the land, which the assessee develops, cannot be supplied by any purported legislative intent. The assessee had taken full responsibilities for execution of the development projects and full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work. Assessee would enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence;

++ the owner of the land had received part of sale consideration and granted development permission to the assessee. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. The assessee was authorized to admit the persons willing to join the scheme and to receive the contributions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, clears that the assessee had total and complete control over the land in question. Most significantly, the risk element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed to pay off the land owner first before appropriating any part of the sale consideration of the housing units for his benefit. Thus, it cannot be said that the assessee acted only as a works contractor. The Explanation to s. 80IB inserted w.r.e.f 1.4.2001 has no application as the project is not a “works contract”;

++ the assessee had, in part performance of the agreement to sell the land in question, was given possession thereof and had also carried out the construction work for development of the housing project. Combined reading of Section 2(47)(v) and Section 53A of the Transfer of Property Act would lead to a situation where the land would be for the purpose of Income Tax Act deemed to have been transferred to the assessee. It is true that the title in the land had not yet passed on to the assessee. It is equally true that such title would pass only upon execution of a duly registered sale deed. However, for the limited purpose of these proceedings, not concerned with the question of passing of the title of the property, but are only examining whether for the purpose of benefit under Section 80IB (10) of the Act, the assessee could be considered as the owner of the land in question. Thus, the Tribunal committed no error in holding that the assessees were entitled to the benefit u/s 80IB(10) even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners.

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