Monday, 22 September 2014

S. 80-IB(10)(d): Limit on extent of commercial area of housing project inserted w.e.f. 1.4.2005 does not apply to projects approved before that date

CIT vs. M/s Happy Home Enterprises (Bombay High Court)

S. 80-IB(10) was amended by the Finance (No.2) Act, 2004, w.e.f. 01.04.2005 by insertion of clause (d) to provide that the built up area of the shops and other commercial establishments included in the housing project should not exceed five percent of the aggregate built up area of the housing project or 2000 square feet, whichever is less. In one case, the assessee’s housing project was approved before 31.03.2005 and completed before 01.04.2005 but the sale of some of the units in the said project took place after 01.04.2005 i.e. in A.Y. 2005-2006. In another case, the housing project was approved before 31.03.2005 but completed on or after 01.04.2005, but within the time-frame as laid down in s. 80-IB(10). The High Court had to consider whether the limitation inserted by the said clause (d) of s. 80-IB(10) applied to projects that were approved before 01.04.2005. HELD by the High Court:
(i) Clause (d) of s. 80-IB(10) is a condition that relates to and/or is linked with the approval and construction of the housing project and the Legislature did not intend to give any retrospectivity to it. At the time when the housing project is approved by the local authority, it decides, subject to its own rules and regulations, what quantum of commercial area is to be included in the said project. It is on this basis that building plans are approved by the local authority and construction is commenced and completed. It is very difficult, if not impossible to change the building plans and / or alter construction midway, in order to comply with clause (d) of s. 80-IB(10). It would be highly unfair to require an assessee to comply with s. 80-IB(10)(d) who has got his housing project approved by the local authority, before 31.03.2005 and has either completed the same before the said date or even shortly thereafter, merely because the assessee has offered its profits to tax in AY 2005-2006 or thereafter. It would be requiring the assessee to virtually do a humanly impossible task. This could never have been the intention of the Legislature and it would run counter to the very object for which these provisions were introduced, namely to tackle the shortage of housing in the country and encourage investment therein by private players. It is therefore clear that clause (d) of s. 80-IB (10) cannot have any application to housing projects that are approved before 31.03.2005.
(ii) The other reason for coming to the aforesaid conclusion is that if the revenue’s contention is accepted, then an assessee following the project completion method of accounting, who has completed the housing project by complying with all the conditions as set out in s. 80-IB(10) as it stood prior to 01.04.2005 would be disentitled to claim the deduction merely because he offers his profits to tax in AY 2005-06 while an assessee following the work-in-progress method of accounting would be entitled to the deduction u/s 80-IB(10) upto AY 2004-05, and denied the same from AY 2005-06 and thereafter. It could never have been the intention of the Legislature that the deduction u/s 80-IB(10) available to a particular assessee would be determined on the basis of the accounting method followed. This would lead to startling results (Brahma Associates 333 ITR 289 (Bom), G.R. Developers 353 ITR 1 (Kar), Manan Corporation 356 ITR 44 (Guj) followed; Reliance Jute Industries 120 ITR 921, SEBI vs. Ajay Agarwal AIR 2010 SC 3466 distinguished).

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