Section 80IB deduction available where the construction is completed, though the certificate of completion from the local authority is not granted within the prescribed time limit

The Gujarat High Court (“HC”) in a recent decision has held that if the construction of a housing project is completed within the prescribed time, and there has been a delay in obtaining a construction certificate, it should not impact the eligibility to claim deduction under section  80IB(10) of the Income-tax Act, 1961 (“Act”).  A summary of the case is provided below:

The Facts

·        The taxpayer, Tarnetar Corporation (“the Taxpayer”) claimed deduction under section 80IB(10) of the Act for the development and building of a housing project.

·       

The Taxpayer had completed construction in the year 2006 and applied for grant of a completion certificate.  Due to technical errors, the completion certificate was granted in March 19, 2009, which was beyond the time prescribed for completion of construction for eligibility to claim deduction.

Revenue’s contentions

·        The Revenue authorities contended section 80IA(10) requires that the construction should be completed before March 31, 2008.  The section deems construction of the housing project to be completed when a completion certificate is issued.

·        Since the completion certificate was granted on March 19, 2009, the Taxpayer had not fulfilled one of the essential conditions required for claiming the deduction.  Therefore, the deduction should not be available.

·        The Commissioner Appeals and the Income-tax Appellate Tribunal (“ITAT”) ruled in favour of the Taxpayer holding that the requirement to obtain the completion certificate was not mandatory.

HC ruling

·        The fact that the Taxpayer had completed the construction well before 31st March 2008 is not in doubt, though a formal permission was not granted by such date.  It is equally true that section 80IB(10) of the Act links the completion of the construction to the receipt of the completion certificate.

·        However, not every condition of the statute can be seen as mandatory.  If substantial compliance thereof is established on record, the court may take a view that minor deviation thereof would not vitiate the purpose for which deduction was being made available.

Accordingly, ruling in favour of the Taxpayer, the HC concluded that not only had the Taxpayer completed the construction two years before the statutory date but had also applied for permission to the relevant local authority within such time.  Such permission was not rejected on the ground that construction was not completed, but was delayed due to some other technical reason.  Hence, the benefit of deduction under section 80IB (10) could not be denied.