THE issue before the Bench is - Whether Clause (d) of Sec 80IB(10), a condition linked to the date of approval of the housing project, will not apply to any project sanctioned prior to Mar 31, 2005. And the answer goes against the Revenue.
Facts of the case
The assessee is engaged in the business as builders and developers and was following the project completion method of accounting. It had declared its income at NIL after claiming a deduction of Rs.56,27,583/- under section 80-IB(10). During assessment, the AO noticed that the assessee had claimed a deduction under section 80-IB(10) on the profit after sale of shops . The same was
disallowed on the ground that the assessee had not complied with the basic requirement that the profit derived on the sale of commercial area of the project was not entitled for deduction. In AY 2006-2007 the assessee declared income at Rs.45,781. During assessment, the AO noticed that the assessee had claimed a deduction of Rs.2,11,74,864/- under section 80-IB(10). On verification it was noticed that the housing project put up by the Assessee consisted of 12 shops admeasuring approximately 1,910 sq.ft., which was approximately 6.63 % of the total built up area of the said housing project. Thus, since the area occupied by the said shops exceeded the 5% limit specified in clause (d) of section 80- IB(10), the deduction claimed by the assessee was disallowed.
On appeal, the CIT(A) observed that the provisions of section 80-IB(10) was amended and it was provided that the built up area of the shops and other commercial establishments included in the housing project should not exceed 5% of the aggregate built up area or 2000 sq.ft., whichever was less. Thus, he held that the amended provisions of section 80-IB(10) was applicable for the current A.Y. and accordingly dismissed the appeal. The Tribunal, however, held that the AO and CIT(A) by denying the benefit of the deduction under section 80-IB(10), had violated the provisions thereof, which dis-entitled the Assessee to the deduction. After relying upon several decisions of its Coordinate Benches, the Tribunal further held that if housing projects were approved before 31st March 2005, the condition / restriction set out in clause (d) of section 80-IB(10) would not be applicable. Hence, the present appeal of the Revenue.
The DR contended that section 80IB(10) was not in the nature of a relaxation, but instead was a restriction imposed on the quantum of commercial area that could be included in a housing project, then from A.Y. 2005-06, effect will have to be given to the same notwithstanding the fact that the project was approved prior to 31st March, 2005. Also, the assessment for one assessment year, cannot in the absence of a contrary provision, be affected by the law in force in another assessment year. Thus, a right claimed by the assessee under the law in force in a particular assessment year should be available only in relation to a proceeding pertaining to that assessment year.
Whereas, the Counsel of the assessee had contendedthat only those conditions could be applied to the housing projects that were on the statute-book on the date when the housing project was approved. Therefore, the amended provisions of section 80-IB(10) that were brought into force w.e.f. 1st April 2005, and especially clause (d) thereof, would have no application to such a housing project. He submitted that the conditions imposed by the newly substituted section 80-IB(10) were all related and/or linked to the approval and/or construction and/or completion of the said housing project and also the Legislature did not give it any retrospectivity. The Counsel further submitted that prior to 1st April 2005, a housing project approved by the local authority before 31st March, 2005 required compliance of three conditions, which were complied with. Therefore, these were the only conditions which were meant to be complied with. The gist of the sole contention of the Counsel was that an assessee cannot be called upon to comply with the said condition when the same was never in contemplation either of the assessee or the Legislature, when the approval to the housing project was accorded.
On appeal, the HC held that,
++ we do not think that the Legislature intended to give any retrospectivity to clause (d) of section 80-IB(10). This more so because it is clearly a condition that relates to and/or is linked with the approval and construction of the housing project. 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 section 80IB(10). It would be highly unfair to require an Assessee to comply with section 80-IB(10)(d) who has got his housing project approved by the local authority, before 31st March, 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 A.Y. 2005-2006 or thereafter. Requiring the Assessee to comply with the condition set out in clause (d) of sub-section (10) of section 80-IB merely because he has offered his profits to tax in A.Y. 2005-06 or thereafter, even though his housing project was approved before 31st March 2005, would be requiring the Assessee to virtually do a humanly impossible task. This, in our opinion, could never have been the intention of the Legislature. In fact, to our mind, 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 sub-section (10) of section 80-IB cannot have any application to housing projects that are approved before 31st March, 2005. The said clause (d) being inextricably linked to the date of approval of the housing project, it will have to be held that the said clause operates only prospectively i.e. for housing projects approved after 1st April, 2005. This is notwithstanding the fact that the profits were offered to tax by the Assessee for the A.Y. 2005-06 or thereafter;
++ if we were to accept the argument of the Revenue, then in that event, despite having completed the entire construction prior to 1st April, 2005 and complying with all the conditions of section 80-IB(10) as it stood then, the Assessee would be dis-entitled to the entire deduction claimed in respect of such housing project merely because he offered his profits to tax in the A.Y. 2005-06. In contrast, if the same Assessee had followed the work-in-progress method of accounting, he would have been entitled to the deduction under section 80-IB(10) upto the A.Y. 2004-05, and denied the same from A.Y. 2005-06 and thereafter. We do not think that the condition/restriction laid down in clause (d) of section 80-IB(10) has to be revisited and / or looked at and complied with in the assessment year in which the profits are offered to tax by the Assessee. When the Assessee claims a deduction under section 80-IB(10), the Assessee is required to comply with such a condition only if it is on the statute-book on the date of the approval of the housing project and it has nothing to do with the year in which the profits are brought to tax by the Assessee. We have come to this conclusion only because we find that clause (d) of section 80-IB(10) is inextricably linked to the date of the approval of the housing project and the subsequent development/construction of the same, and has nothing to with the profits derived therefrom. We may hasten to add that if a particular condition is not inseparablylinked to the date of approval of the housing project, different considerations would arise. However, we are not called upon to decide any such condition and hence we are not laying down any general proposition of law, save and except that clause (d) of section 80- IB(10) being a condition linked to the date of the approval of the housing project, would not apply to any housing project that was approved prior to 31st March, 2005 irrespective of the fact that the profits of the said housing project are brought to tax after the said provision was brought into force;
++ in the case of CIT and Anr. v/s G.R. Developers - 2012-TIOL-1071-HC-KAR-IT, the question that arose before the Karnataka High Court was whether the definition of "built-up" area inserted in section 80-IB(14)(a) by Finance (No.2) Act, 2004, w.e.f. 1st April 2005, was prospective or retrospective in nature. It can be discerned from the said judgement, the Karnataka High Court categorically held that the said provision viz. sub-section (14)(a) of section 80-IB inserted w.e.f. 1st April, 2005 applied only to housing projects which were approved subsequent to 1st April, 2005. Although, the Karnataka High Court was construing sub-section (14)(a) of section 80-IB that defined the words "built-up area", we find that the same reasoning can even be applied to clause (d) of sub-section (10) of section 80-IB. We should keep in mind that the object of section 80-IB(10) was to bring in investments and to encourage infrastructural development of middle level housing projects. If we were to hold that clause (d) of sub-section (10) of section 80-IB was to be complied with even by an Assessee whose housing project was approved before 31st March 2005, it would negate the very object and purpose for which section 80-IA(4F) and thereafter section 80-IB(10) were introduced in the first place. In that view of the matter, the condition/restriction imposed by clause (d) of section 80-IB(10) and which came into effect from 1st April 2005, can apply only to such housing projects which are approved on or after 1st April, 2005;
++ on the issue of retrospectivity of clause (d) of section 80-IB(10) we are supported in our view by a judgment of this Court in the case of Brahma Associates- 2011-TIOL-125-HC-MUM-IT. This judgment also concludes the argument of the Revenue that clause (d) of section 80-IB(10) inserted with effect from 1st April, 2005 is actually in the nature of a relaxation and / or benefit granted to the Assessee and not a restriction as sought to be contended on behalf of the Assessees;
++ we should keep in mind that the object of section 80-IB(10) was to bring in investments and to encourage infrastructural development of middle level housing projects. If we were to hold that clause (d) of sub-section (10) of section 80-IB was to be complied with even by an Assessee whose housing project was approved before 31st March 2005, it would negate the very object and purpose for which section 80-IA(4F) and thereafter section 80-IB(10) were introduced in the first place. In that view of the matter, the condition/restriction imposed by clause (d) of section 80-IB(10) and which came into effect from 1st April 2005, can apply only to such housing projects which are approved on or after 1st April, 2005. Even the Gujarat High Court in the case of Manan Corporation v/s Assistant Commissioner of Income Tax - 2012-TIOL-756-HC-AHM-IT, has taken a view that clause (d) of section 80-IB(10) is prospective in nature and would not apply to housing projects approved prior to 31st March, 2005. We are in respectful agreement with the ratio laid down in the aforesaid judgement of the Gujarat High Court;
++ as laid down in the case of Sarva Shramik Sanghatana (KV), we find that the reliance placed by the Revenue on the judgment of Reliance Jute Indutries Ltd and Ajay Agarwal, is wholly misplaced and is of no assistance to the arguments advanced on behalf of the Revenue. In view of our discussion and findings in this judgment, we answer both substantial questions of law raised in these Appeals in the affirmative, that is in favour of the Assessees and against the Revenue. The Appeals are disposed off in the aforesaid terms.
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