2010 (3) TMI 876 - AT - Income Tax

Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings

Summary

Issues Involved:

1. Eligibility for deduction under section 80-IB(10) of the Income-tax Act.
2. Applicability of amended provisions of section 80-IB(10) with effect from 1-4-2005.
3. Definition and scope of a housing project.
4. Proportionate deduction for residential portion of the project.
5. Commercial space within the housing project.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80-IB(10):

The assessee, a joint venture, undertook a slum rehabilitation project approved by MMRDA, constructing 3,840 tenements. The project was completed and handed over to MMRDA, and the assessee claimed a deduction under section 80-IB(10) for the net profit declared. The Assessing Officer disallowed the deduction, citing excess commercial space beyond the limit specified in the amended section 80-IB(10)(d) effective from 1-4-2005.

2. Applicability of Amended Provisions of Section 80-IB(10):

The core issue was whether the law as it existed during the assessment year 2004-05, when the project commenced, should apply, or the amended provisions effective from 1-4-2005. The Tribunal referred to the Special Bench decision in Brahma Associates v. Jt. CIT, which stated that the limit on commercial space prescribed by clause (d) of section 80-IB(10) has no retrospective application and applies only from assessment year 2005-06 onwards.

3. Definition and Scope of a Housing Project:

The Tribunal clarified that the term "housing project" is not explicitly defined in section 80-IB(10). However, as per CBDT's clarification, any project approved by a local authority as a housing project qualifies. The project, despite being a slum rehabilitation scheme, was considered a housing project as it provided residential units for slum dwellers, fulfilling the primary objective of addressing housing shortages.

4. Proportionate Deduction for Residential Portion of the Project:

The Tribunal referred to the Special Bench decision in Brahma Associates, which allowed proportionate deduction for the residential segment of a housing project if the commercial space exceeded the permissible limit. The Tribunal remanded the case to the Assessing Officer to determine if the assessee met the conditions for deduction under section 80-IB(10) based on the law applicable during the assessment year 2004-05.

5. Commercial Space within the Housing Project:

The Tribunal noted that the project included commercial space exceeding the limit specified in the amended section 80-IB(10)(d). However, it held that the law as it existed during the assessment year 2004-05, which had no such restriction, should apply. The Tribunal emphasized that the legislature did not intend to retrospectively apply the amended provisions, thereby protecting the assessee's vested rights.

Conclusion:

The Tribunal concluded that the law as it existed during the assessment year 2004-05 should apply to the assessee's project. It remanded the case to the Assessing Officer to verify if the assessee met the conditions for deduction under section 80-IB(10) based on the principles laid down by the Special Bench in Brahma Associates. The appeal was allowed for statistical purposes.