THE issue before the Bench is - Whether it is permissible for the Revenue to deny the benefit provided u/s 80IB, in the garb of amendment, applying the principle of retroactivity, where the said amended provision has no retrospectivity. NO is the answer.
Facts of the case
The assessee is engaged in the business of construction and development of residential properties. The assessee while filing its return, had claimed the benefit of Section 80IB, namely, deduction in respect of profits and gains on the ground that their cases were covered u/s 80IB(10) which provides for deduction of 100% of profits in the case of an undertaking developing and building housing projects when such profits were derived in the previous year relevant to any A.Y from such housing projects. The AO however denied the same during assessment proceedings by holding that section 80IB was amended by Finance Act, 2004 w.e.f 01.04.2005 and the new conditions mentioned in the amended provision were not fulfilled, as the housing projects in question, though started before 01.04.2005, were completed after the said date. Thus, AO was of the view that the assessee could not claim benefit under the previous provision. On appeal, the High Court had taken the view that the assessee would be entitled to the deduction u/s 80IB(10), as the amendment was prospective in nature and, when the housing project was approved by a local authority, which is the requirement under sub-section (10) of Section 80IB, as on that date, the conditions stipulated in the said sub-section were met by the assessee.
Having heard the parties, the Supreme Court held that,
Restriction u/s 80IB vis-a-vis Residential units
++ it is seen that sub-section (10) of Section 80IB stipulates certain conditions which are to be satisfied in order to avail the benefit of the said provision. Further, it is also clear that the benefit is available to those undertakings which are developing and building 'housing projects' approved by a local authority. Thus, this Section is applicable in respect of housing projects and not commercial projects. At the same time, this court is conscious of the fact that even in the housing projects, there would be some area for commercial purposes as certain shops and commercial establishments are needed even in a housing projects. That has been judicially recognised while interpreting the provision that existed before 01.04.2005 and there was no limit fixed in Section 80IB(10) regarding the built-up area to be used for commercial purpose in the said housing project. As would be noticed later, the extent to which such commercial area could be constructed was as per the local laws under which local authority gave the sanction to the housing project. However, vide clause (d), which was inserted by the aforesaid amendment and made effective from 01.04.2005, it was stipulated that the built-up area of the shops and other commercial establishments in the housing projects would not exceed 5% of the aggregate built-up area of the housing project or 2000 sq. feet, whichever is less. The question, thus, that arises for consideration is as to whether in respect of those housing projects which finished on or after 01.04.2005, though sanctioned and started much earlier, the aforesaid stipulation contained in clause (d) also has to be satisfied. All the High Courts have held that since this amendment is prospective and has come into effect from 01.04.2005, this condition would not apply to those housing projects which had been sanctioned and started earlier even if they finished after 01.04.2005;
++ it is seen that the Bombay High Court in the case of C.I.T. v. Brahma Associates, has held that since the expression 'housing project' is not defined under the Act, the intention of Parliament was that whatever is approved by the local authority under the extent rules as a housing project would be treated as 'housing project' for the purpose of this Section, inasmuch as sub-section (10) itself mandates that housing project is to be approved by a local authority as such an approval is a necessary condition for claiming the deduction under this provision. When the local authority has approved a housing project, whether 'residential' or 'residential cum commercial' the assessee is entitled to a deduction on the entire profit including the commercial establishments portion. Following this judgment of the Bombay High Court, or independently, other High Courts had also taken similar view. Against the aforesaid judgments, special leave petitions were filed by the Revenue in this Court, whereby all the SLPs have been disposed of by this Court by observing that the project is predominantly housing/residential project, where the commercial activity in the residential units is permitted. The reason for recapitulating the aforesaid events pertaining to the earlier litigation is that before 01.04.2005, the legal position was that once the project is sanctioned by the local authority as 'housing project', the extent of area sanctioned for shops and commercial establishments in the said housing project was immaterial and had no bearing. Thus, irrespective of the said area where shops and commercial establishments were permitted by the local authority in a housing project, it was still treated as housing project and further that while granting 100% deductions, the area covered by shops and commercial establishments was also includible. This position has changed with the insertion of clause (d) to sub-section (10). As per the amendment carried out and made effective from 01.04.2005, even if the local authority had sanctioned larger area for shops and commercial establishment, the benefit of Section 80IB(10) would not be admissible to these assessees/developers in case the area utilised for shops and commercial establishment exceeded 5% of the aggregate built-up area of the housing project or 2000 sq. feet, whichever is less;
++ it is already pointed out that the parties are ad idem that the amendment is prospective in nature and, therefore, it operates from 01.04.2005. In the instant appeals, all the assessees had got the housing projects sanctioned prior to 01.04.2005 and the construction of the said housing project also started before 01.04.2005. All other conditions mentioned namely the date by which approval was to be given and the dates by which the projects were to be completed as on the date when the project was sanctioned, are also met by the assessees. Notwithstanding this position, the argument of Revenue's counsel is that amendment w.e.f. 01.04.2005 is retroactive even if not retrospective. He has, thus, endeavoured to draw a fine distinction between the retroactive nature of amendment in contrast with retrospectivity of a provision. He argued that once the project is financed after 01.04.2005 and on the completion of the said project, a particular assessee has earned the income which is shown by the assessee in a particular A.Y, it is that A.Y which would be the determinative factor and the law prevailing on the date relevant to the A.Y will have to be applied. On that basis, it was argued that since the A.Ys are post 01.04.2005, clause (d) of sub-section (10) of Section 80IB gets attracted. For better understanding, the meaning given to 'housing project' along with the issue of retrospectivity of clause (d), as raised by the Revenue, is required to be understood, which was dealt with by the High Court and repelled. The High Court therein, has observed that once it is held that the local authorities could approve a project to be housing project without or with the commercial user to the extent permitted under the DC Rules, then the project approved with the permissible commercial user would be eligible for Section 80IB(10) deduction irrespective of the fact that the project is approved as 'housing project' or approved as 'residential plus commercial'. In other words, where a project fulfills the criteria for being approved as a housing project, then deduction cannot be denied under Section 80IB(10) merely because the project is approved as 'residential plus commercial'. The fact that the deduction u/s 80IB(10) prior to 1.4.2005 was allowable on the profits derived from the housing projects constructed during the specified period, on a specified size of the plot with residential units of the specified size, it cannot be inferred that the deduction under Section 80IB(10) was allowable to housing projects having residential units only, because, restriction on the size of the residential unit is with a view to make available large number of affordable houses to the common man and not with a view to deny commercial user in residential buildings. In other words, the restriction u/s 80IB(10) regarding the size of the residential unit would in no way curtail the powers of the local authority to approve a project with commercial user to the extent permitted under the DC Rules/Regulations. Therefore, the argument of the Revenue that the restriction on the size of the residential unit in Section 80IB(10) as it stood prior to 1.4.2005 is suggestive of the fact that the deduction is restricted to housing projects approved for residential units only cannot be accepted. The expression 'included' in clause (d) makes it amply clear that commercial user is an integral part of housing project. Thus, by inserting clause (d) to Section 80IB(10) the legislature has made it clear that though the housing projects approved by the local authorities with commercial user to the extent permissible under the DC Rules/Regulation were entitled to Section 80IB(10) deduction;
Amended provision vis-a-vis prospective operation
++ it is further seen that the High Court has held that clause (d) has prospective operation, viz., w.e.f 01.04.2005, and this legal position is not disputed by the Revenue. What follows from the same is that prior to 01.04.2005, these developers/assessees who had got their projects sanctioned from the local authorities as 'housing projects', even with commercial user, though limited to the extent permitted under the DC Rules, were convinced that they would be getting the benefit of 100% deduction of their income from such projects u/s 80IB. Their projects were sanctioned much before 01.04.2005. As per the permissible commercial user on which the project was sanctioned, they started the projects and the date of commencing such projects is also before 01.04.2005. All these assessees were made known of the provision by which these projects are to be completed as those dates have been specified from time to time by successive Finance Acts in the same provision Section 80IB. In these cases, completion dates were after 01.04.2005. Once they arrange their affairs in this manner, the Revenue cannot deny the benefit of this section applying the principle of retroactivity even when the provision has no retrospectivity. At this juncture, it is noted that this court, in the case of Commissioner of Income Tax, U.P. v. M/s. Shah Sadiq and Sons, has held that:
["....Under Income Tax Act, 1922, the assessee was entitled to carry forward the losses of the speculation business and set off such losses against profits made from that business in future years. The right of carrying forward and set off accrued to the assessee under the Act of 1922. A right which had accrued and had become vested continued to be capable of being enforced notwithstanding the repeal of the statute under which that right accrued unless the repealing statute took away such right expressly or by necessary implication. This is the effect of Section 6 of the General Clauses Act, 1897....In this case the 'savings' provision in the repealing statute is not exhaustive of the rights which are saved or which survive the repeal of the statute under which such rights had accrued. In other words, whatever rights are expressly saved by the 'savings' provision stand saved. But, that does not mean that rights which are not saved by the 'savings' provision are extinguished or stand ipso facto terminated by the mere fact that a new statute repealing the old statute is enacted. Rights which have accrued are saved unless they are taken away expressly. This is the principle behind Section 6(c) of the General Clauses Act, 1897. The right to carry forward losses which had accrued under the repealed Income Tax Act of 1922 is not saved expressly by Section 297 of the Income Tax Act, 1961. But, it is not necessary to save a right expressly in order to keep it alive after the repeal of the old Act of 1922. Section 6(2) saves accrued rights unless they are taken away by the repealing statute. We do not find any such taking away of the rights by Section 297 either expressly or by implication...."]
++ therefore, in view of the aforesaid discussion, this court concludes that the judgments of the High Courts, which are impugned in these appeals, take correct view that the assesees were entitled to the benefit of Section 80IB(10).
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