2016 (9) TMI 1260 - AT - Income Tax

Disallowance of claim of deduction u/s 80IB(10) - built up area of the Villas constructed by the assessee is 1772.81 sq. ft. that exceeds the limit of 1500 sq. ft. - inclusion of terrace area - Held that - There is no dispute with regard to the fact that the AO rejected the claim of deduction under section 80IB(10) only on the ground that a terrace is an entirely open and large space on the top most level of a building, whereas balconies are relatively smaller areas affixed to a room of the house. He further observed that balconies are accessible only through the room that they are attached with and terraces will usually have independent entrances. The assessee has demonstrated from the pictures of the building that the area is a terrace as it is completely open and is a roof of a room underneath. Merely because the first floor rooms of villa has an opening on the terrace, in our considered view would not make the terrace as a balcony as the balcony normally is attached with the rooms and covered by enclosure but it is not supported by the walls of the room underneath. When a Local Authority, endowed with the jurisdiction to grant the approval is guided in its approval by Regulation as to what constitutes the plinth area, which is the built-up area, it is difficult for us to agree with the contention of the Revenue as well as the reasoning of the Tribunal that for the purpose of considering the claim under section 80-IB, the built-up area would be different from what has been given approval by the Local Authority, on a building project. Given the fact that during 2003-04 there was no definition at all on what a built-up area is, the understanding of the Revenue, which is evidently contrary to the approval of the Local Authority based on the Rules and Regulations could not be sustained. Consequently, we have no hesitation in agreeing with the assessee s contention that open terrace area, even if be private terrace cannot form part of the built-up area. See M/s. Ashina Amar Developers vs. ITO 2016 (3) TMI 84 - ITAT KOLKATA - Decided in favour of assessee

Summary

Issues Involved:
1. Eligibility for deduction under section 80IB(10) of the Income Tax Act, 1961.
2. Interpretation of "built-up area" under section 80IB(14)(a) of the Income Tax Act, 1961.
3. Inclusion of open terrace in the built-up area calculation.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The primary issue is whether the assessee is eligible for deduction under section 80IB(10) of the Income Tax Act, 1961. The Assessing Officer (AO) rejected the claim on the grounds that the built-up area of the villas exceeded the prescribed limit of 1500 sq. ft., thus violating clause (c) of section 80IB(10). The AO included the area of the open terrace in the built-up area, which led to the rejection of the deduction claim. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal, holding that the assessee is eligible for the deduction as the open terrace should not be included in the built-up area.

2. Interpretation of "Built-Up Area":
The definition of "built-up area" under section 80IB(14)(a) is crucial in this case. The term means the inner measurements of the residential unit at the floor level, including projections and balconies, as increased by the thickness of the walls but excluding common areas shared with other residential units. The AO considered the open terrace as part of the built-up area, which was contested by the assessee. The CIT(A) and subsequently the Tribunal examined whether the open terrace should be treated as a balcony for the purpose of determining the built-up area.

3. Inclusion of Open Terrace in Built-Up Area Calculation:
The Tribunal analyzed various case laws and statutory provisions to determine whether the open terrace should be included in the built-up area. The AO's contention was that the terrace area should be included, making the built-up area exceed the 1500 sq. ft. limit. The CIT(A) and the Tribunal, however, found that the open terrace is not covered within the meaning of built-up area as it is open to the sky and not part of the inner measurement of the residential floor at any floor level. Key case laws cited include:

- CIT vs. Mahalakshmi Housing (Madras High Court): Held that open terrace cannot form part of the built-up area.
- Commonwealth Developers CD Fountainhead vs. ACIT (Bombay High Court): Held that the rear courtyard cannot form part of the built-up area of a row house.
- Sanghvi & Doshi Enterprises (ITAT Chennai): Initially included terrace in built-up area, but reversed by Madras High Court, holding open terrace cannot be included.
- Amaltas Associates vs. ITO (ITAT Ahmedabad): Held that open terrace being open to the sky would not be part of the inner measurement of the residential floor.

The Tribunal concluded that the open terrace should not be included in the built-up area, thus the assessee met the eligibility criteria for deduction under section 80IB(10).

Conclusion:
The Tribunal upheld the CIT(A)'s decision, stating that the open terrace should not be included in the built-up area calculation, thereby making the assessee eligible for the deduction under section 80IB(10). Both appeals by the revenue were dismissed, affirming that the built-up area of the residential units, excluding the open terrace, did not exceed the prescribed limit of 1500 sq. ft. The Tribunal relied on consistent judicial precedents to support its decision.