THE issues before the Bench are - Whether the area of the rear
courtyard enclosed by walls of a residential unit is to be taken into account to
compute built up area for the purpose of Sec 80IB(10) benefits; Whether in case
there is no construction activity on the area of the courtyard which is open to
the sky, it can still be included to compute the built-up area u/s 80IB and
Whether the Tribunal can inquire into and get measured the courtyard which is
not included in the built-up area and which is not the lis between the parties.
And the verdict favours the assessee.
Facts of the
case
The assessee concern had submitted its
return of income declaring a total income of Rs.53,620/- on 30.10.2006. An order
was passed u/s 143(3) on 21.11.2008 on the returned income. Thereafter, CIT
invoked its jurisdiction u/s 263 and set aside the order passed u/s 143(3) with
a direction to AO to examine the relevant facts in connection with the claim of
deduction u/s 80-IB(10). After examination, AO concluded that the assessee was
granted permission on 07.07.2003 by the Margao Municipal Council for
construction of row villas with built-up area of 1500 square feet comprising of
ground floor and first floor and the compound wall in the property situated at
Fatorda,Margao. The AO noted that the assessee had not fulfilled the conditions
specified u/s 80-IB(10) essentially on the ground that only flats or apartments
constructed on the land will have common areas sharing with other residential
units and as such since the construction of villas/bungalows/row houses were
independent and do not share common areas, the assessee did not fulfill one of
the conditions specified u/s 80-IB(10) and as such invited the objections of the
assessee. A reply was filed by the assessee disputing the said contention and it
was pointed out that all the conditions specified in Section 80-IB(10) were duly
satisfied by the assessee. But however, the AO disallowed the claim of the
appellant u/s 80-IB(10). On appeal, CIT(A) deleted the
disallowance by the AO observing that there was nothing in the Act to suggest
that such deduction was available only to the projects to construct apartments
or flats and that the absence of common areas cannot disqualify the appellant
from claiming the deduction u/s 80-IB(10). It was further observed that the
intention of the legislature had been ensured by limiting the size of the
residential unit to 1500 square feet. Accordingly, the deduction refused by the
AO was ordered to be deleted and the appeal was allowed. On further appeal,
Tribunal held that the presence of common area was not a condition in order to
qualify for deduction u/s 80-IB(10). Nevertheless, upon inspection of the
concerned residential unit, it was concluded that the row house constructed by
assessee had a courtyard on the rear which also had to be added for computing
the said built up area of 1500 square feet and as such the appeal filed by the
revenue was allowed.
Before HC, the assessee's counsel
had pointed out the meaning of the words 'built-up area' as contemplated in the
provisions of the Act. It had pointed out that in order to invite the inclusion
of an area as 'built-up area' there should be something built in such area. The
counsel further pointed out that when the area was open to the sky the question
of holding that there was anything built therein to be included as 'built-up
area' would not arise at all. The counsel further pointed out that in case the
rear courtyard area was excluded the residential unit would not exceed 1500
square feet and as such the judgment of the Tribunal deserves to be quashed and
set aside as the assessee was eligible for deduction u/s 80-IB(10). The counsel
had thereafter taken us through the judgment of Tribunal and pointed out that
the issue with regard to the area of the residential unit was not at all
disputed by the Revenue and in any event, the approach of the Tribunal was
erroneous in terms of the provisions of the Income Tax Act. The counsel had
thereafter taken us through the relevant provisions of the Income Tax Act and
pointed out that the impugned judgment of the Tribunal deserves to be quashed
and set aside. On the other hand, counsel appearing for the respondent had
supported the impugned judgment. The counsel had pointed out that the dispute
with regard to the area of the residential unit was a question of fact which
cannot be interfered by HC in the present appeal. It was further submitted that
the Tribunal on the basis of an inspection had concluded that the residential
unit put up by the assessee was exceeding 1500 square feet and as such the
assessee was not entitled for the deduction in terms of Section 80-IB(10). The
counsel further submitted that as the area of the courtyard was enclosed by the
compound wall, it was in exclusive use of the appellant being the owner of the
residential unit and as such the Tribunal had rightly included the said area to
compute the 'built-up area'. The counsel had thereafter taken us through the
definition of the words 'built-up area' under the said Act and pointed out that
only the common open spaces were to be excluded for computing the 'built-up
area' and not the exclusive area.
Held
that,
++ on
going through the said provisions, in order to avail of the deduction the
built-up area of the residential unit cannot exceed 1500 square feet. Having
regard to the rival contentions the only aspect to be examined is whether the
area of the rear courtyard which is open to the sky and appurtenant to the
residential unit is to be included to compute the built-up area as provided
under Section 80-IB(10). In order to examine the situation at loco we called
upon the appellant and the respondent to produce the photographs with regard to
such courtyard area and we have noted that such area is an open piece of land
though enclosed by a compound wall but without any masonary construction
therein. It is also contended by the appellant that such area has not been
transferred in favour of the owner of the residential unit. In fact, a copy of
the agreement was even produced before the Tribunal to show that the built-up
area mentioned in the agreement in respect of each villa is 134.83 square metres
as computed by the Architect. In this background, we shall proceed to examine
the rival contentions. The built-up area is the carpet area plus the thickness
of outer walls and balcony. The carpet area of a property is defined as net
usable area from the inner side of one wall to another. The carpet area
comprises of carpet area of the demised premises, toilet areas within such
demised premises. Thus, it can be seen that to meet the requirement of an area
to be treated as a 'built -up area' some construction has to be in existence in
such area;
++
thus, unless and until it is shown that some construction is put up the area of
the courtyard which is open to the sky cannot be included to compute the
built-up area. The definition of the words 'built-up area' was introduced by the
Finance Act of 2004 w.e.f. 1.4.2005, which is not otherwise applicable to the
facts of the present case, also clearly provides that the built-up area would
mean the inner measurements of the residential unit at the floor level including
the projections and balconies as increased by the thickness of the wall but does
not include the common area shared with other residential unit. In such
circumstances, the built-up area is to be worked out from the wall of the
residential unit. The question of extending it to mean that the area within the
compound around an open land is erroneous. The building plan sanctioned by the
statutory authorities does not disclose that the built-up area was exceeding
1500 square feet of the residential unit. The Karnataka High Court in the
judgment reported in the case of CIT V/s G.R. Developers (2012-TIOL-1101-HC-KAR-IT), has observed that
prior to the insertion of this definition in the aforesaid section, built up
area did not include projections and balconies as per the National Building
Code, Building Industry Practice and also according to the Building by-laws.
Probably taking advantage of this fact, the builders provided these balconies
and projections which made these residential units bigger than 1,500 square feet
and thus, had the benefit of this prevision on the one hand. Whereas the object,
with which this provision was made in reality was defeated as probably such
residential units would be beyond the reach of the common man;
++ in
respect of approvals obtained prior to 01.04.2005, if such section 14(a) of
Section 80-IB is held to be applicable, then, the assessee has to necessarily
seek for a modified plan. Otherwise, if he proceeds with the construction
without obtaining the sanction of the modified plan, he would not be eligible
for benefit of tax exemption u/s 80-IB(10). Similarly, if a valid approval is
obtained and the building is constructed in all respects prior to 01.04.2005 and
if the said substituted provision is held to be applicable retrospectively, the
assessee would not be entitled to the benefit of tax exemption, if he effects
sales subsequent to 01.04.2005. Such an interpretation not only would be absurd
but have disastrous consequences so far as the assessee is concerned. Therefore,
it cannot be said that, that was the intention of the legislature while bringing
in the substitution. So we should keep in mind the object behind enacting this
provision, namely to bring in investments and to encourage the infrastructure
development of middle income housing projects. If the aforesaid provision is
held to be retrospective in nature, it would negate the object of the said
provision. It is settled law that the Courts have to harmonize these provisions
and interpret the same in a manner to achieve the object of the legislature than
to distress the said object. In that view of the matter, the definition of
built-up area as inserted in sub-section 14(a) of Section 80-IB by Finance No.2
Act of 2004, which came into effect from 01.04.2005 cannot be held to be
retrospective; it applies only to such housing projects, which are approved
subsequent to 01.04.2005. In that view of the matter, the assessee, in the
instant case, is entitled to the benefit of the aforesaid provision and hence
the said substantial question of law is answered in favour of the assessee and
against the revenue;
++
the Division Bench of the Karnataka HC in the case of CIT V/s G.R.
Developers (2012-TIOL-1101-HC-KAR-IT), has observed that
the assessee obtained approval for building housing project on 14.06.2002 and
has built 84 flats in an area, which is in excess of one acre of land. The
construction is completed within the period stipulated. 84 flats, according to
the assessee is within the 1,500 square feet. The material on record discloses
that a head room is constructed. The head room is not included in the sale deed.
The local authority, after construction of the building, inspected the same and
has granted occupancy certificate. Therefore, the construction put up by the
assessee prima facie can be said to be as per the sanctioned plan. If after
issue of occupancy certificate and after sale of these residential flats, if the
owners of these flats on the top floor decided to put up a head room and engaged
the very same contractor and the engineer may have put up the identical
structures, it cannot be said that the assessee has put up the said construction
and thus, contravened the requirement of Section 80-IB. The material on record
does not disclose that the assessee put up the said construction prior to the
sale of those flats and excluded the said construction in the sale deed with an
intention of getting benefit of Section 80-IB(10). Insofar as balconies are
concerned, prior to 01.04.2005, the area covered by them has to be excluded in
calculating the built-up area. As the housing project was approved on 14.06.2002
and in the said plan, all these balconies are shown and excluding those
balconies, the construction put up is admittedly less than 1,500 square feet.
After 01.04.2005, the authorities cannot add the balcony area to the built up
area and deny the benefit to the assessee. Therefore, as the material on record
discloses that all the 84 or 83 flats constructed are less than the 1,500 square
feet, the assessee cannot be denied the benefit and taxed on the ground that it
exceeds 1,500 square feet. Hence, this question of law is answered in favour of
the assessee and against the revenue;
++
the Division Bench of the Madras High Court in the judgment reported in
- 2012-TIOL-951-HC-MAD-IT in the case of the
CIT, Channai V/s M/s Mahalakshmi Housing has held that the open terrace area
cannot form part of the built up area; in the result, the assessee would be
entitled to deduction u/s 80-IB(10) and that the assessee would be entitled to
proportionate relief as regards the units having built up area not more than
1500 square feet. Considering the ratio laid down in the aforesaid judgments, we
find that the area of courtyard cannot be included to calculate the built-up
area in terms of Section 80- IB(10). Tribunal was not justified to come to the
conclusion that the said area of the courtyard is to be included to calculate
the built-up area and thereby holding that the residential unit was more than
1500 square feet which would disentitle the appellant to claim such deduction.
The contention of the counsel appearing for the respondent that the findings of
the fact arrived at by the Tribunal cannot be interfered in the present appeal
cannot be accepted in the facts of the present case as the Tribunal has
misconstrued the provisions of Income Tax Act and the material on record to deny
the benefit of deduction to the appellant in terms of Section 80-IB(10). The
first substantial question of law is answered accordingly. In view of the
findings on the first substantial question of law, there is no need to examine
the second substantial question of law. Thus, the appeal is allowed. The
impugned judgment dated 13.09.2013 passed by the learned Income Tax Appellate
Tribunal is quashed and set aside. The appeal stands disposed of
accordingly.
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