SC rules restriction on extent of commercial area in housing project imposed w. e. f. 1 April 2005 in profit-linked incentive deduction would not apply to project approved and commenced before 1 April 2005

We are pleased to release a Tax Alert which summarizes a recent ruling of the Supreme Court (SC) in the case of  Sarkar Builders (Taxpayer) where, in the context of profit-linked incentive deduction for housing project, the SC held that amendment introduced w. e. f. 1 April 2005 restricting commercial area which could form part of housing project cannot apply retroactively to housing projects which were approved by local authority and which had commenced construction prior to 1 April 2005. The SC held that the said condition of the Indian Tax Laws (ITL) was inextricably linked with the factor of approval and commencement of construction of housing project prior to 1 April 2005, and asking a taxpayer to comply with the said condition for such project at a later stage would tantamount to seeking impossibility of performance.

The principles espoused by the SC in this ruling on retroactive application of taxation laws are important.
The SC held that once the taxpayer had planned and arranged its affairs in a particular manner to avail the benefit in accordance with legislative requirement, an amendment introduced subsequently cannot take away vested right of the taxpayer to claim the benefit, in the absence of an express provision in the law or by necessary implication.