2011 (3) TMI 1675 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act.
2. Transfer of rights and obligations under local authority approval.
3. Sale of unutilized Floor Space Index (FSI).

Detailed Analysis:

Issue 1: Deduction under Section 80IB(10) of the Income Tax Act
The main issue was whether the assessee, engaged in the construction and development of residential houses, was entitled to a deduction under Section 80IB(10) of the Income Tax Act. The Assessing Officer (AO) disallowed the claim for deduction on the grounds that the assessee was not the actual owner of the land and the approval for the project was in the name of the landowners. The AO also observed that the landowners had sold the land directly to unit holders, and the assessee acted merely as a confirming party, functioning as a contractor rather than a developer.

On appeal, the CIT(A) allowed the deduction, referencing the decision in the case of M/s Radhe Developers and M/s Shakti Corporation. The CIT(A) noted that the assessee had incurred all expenses related to the development and construction of the housing project, bore all risks, and was fully authorized to transfer the land along with the construction to any person. The CIT(A) emphasized that the developer had dominant control over the project and developed the land at its own cost and risk.

The Tribunal upheld the CIT(A)'s decision, stating that the assessee had acquired dominant control over the land and developed the housing project at its own cost and risk. The Tribunal referenced the case of Radhe Developers, where it was held that the deduction under Section 80IB(10) is available to an undertaking developing and building housing projects, regardless of whether the land is owned by the developer. The Tribunal also referred to the Supreme Court's decision in Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd., which clarified that the nature of the agreement determines whether the developer is a service provider or a co-adventurer in a joint venture.

Issue 2: Transfer of Rights and Obligations under Local Authority Approval
The AO argued that the approval by the local authority and the completion certificate were granted to the landowner, not the assessee, and the rights and obligations under the approval were not transferable. The CIT(A) and the Tribunal rejected this argument, noting that the assessee had obtained all necessary permissions, incurred all related expenses, and bore all risks associated with the project. The Tribunal emphasized that the developer's dominant control over the project and the assumption of all risks and costs were crucial factors in determining eligibility for the deduction under Section 80IB(10).

Issue 3: Sale of Unutilized Floor Space Index (FSI)
The AO also denied the deduction for proceeds attributable to the sale of unutilized FSI, arguing that such proceeds could not be termed as profit 'derived' from developing and building housing projects. The CIT(A) disagreed, referencing the decision in the case of M/s Shakti Corporation, which allowed the deduction for proceeds from the sale of unutilized FSI. The Tribunal upheld the CIT(A)'s decision, noting that the issue had been decided in favor of the assessee in the case of Radhe Developers, where it was held that the benefit under Section 80IB(10) would be available if the developer had dominant control over the project and developed the land at its own cost and risk.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the deduction under Section 80IB(10) to the assessee. The Tribunal emphasized the importance of the developer's dominant control over the project and the assumption of all risks and costs in determining eligibility for the deduction. The Tribunal also upheld the deduction for proceeds from the sale of unutilized FSI, consistent with the decisions in the cases of Radhe Developers and Shakti Corporation.