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2011 (2) TMI 373 - HC - Income TaxDeduction u/s.80IB (10) - The assessee had undertaken a construction project called Brahma Estate at Pune as per the layout approved by the Pune Municipal Corporation which is the local authority - The profit was computed by following the recognized sale method - Since the expression housing project in Section 80IB (10) is not defined, plain and literal meaning must be assigned to that expression - Held that - Upto 31/3/2005 (subject to fulfilling other conditions), deduction under Section 80IB(10) is allowable to housing projects approved by the local authority having residential units with commercial user to the extent permitted under the DC Rules / Regulations framed by the respective local authority. - where the commercial user permitted by the local authority is within the limits prescribed under the DC Rules / Regulation, the deduction under Section 80IB(10) upto 31/3/2005 would be allowable irrespective of the fact that the project is approved as housing project or residential plus commercial . - Tribunal was not justified in holding that upto 31/3/2005 deduction under Section 80IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user upto 10% of the total built-up area of the plot. Amendment to section 80IB(10) to deny Section 80IB(10) deduction to projects having commercial user beyond the limit prescribed under clause (d), even though such commercial user is approved by the local authority. - retrospective or prospective - Held that - Clause (d) inserted to Section 80IB(10) with effect from 1/4/2005 is prospective and not retrospective and hence cannot be applied for the period prior to 1/4/2005.
Issues Involved:
1. Eligibility for deduction under Section 80IB(10) for housing projects with commercial establishments. 2. Eligibility for deduction under Section 80IB(10) for projects with commercial area up to 10% of the total project. 3. Eligibility for deduction under Section 80IB(10) for projects with commercial area exceeding 10% but separable residential profits. 4. Retrospective application of the limit on commercial use under Section 80IB(10)(d). Detailed Analysis: Issue 1: Eligibility for deduction under Section 80IB(10) for housing projects with commercial establishments: The court examined whether the Income Tax Appellate Tribunal (ITAT) was justified in holding that projects comprising both residential and commercial units could be eligible for deduction under Section 80IB(10) as it stood before 1/4/2005. The court noted that the term "housing project" was not defined in the Income Tax Act, but it referred to projects approved by local authorities. The court concluded that if local authorities could approve projects with commercial establishments within permissible limits under Development Control Rules (DC Rules), then such projects could qualify as housing projects for the purposes of Section 80IB(10). Thus, the court held that the legislature intended to allow deductions for projects approved by local authorities, irrespective of the commercial component, provided it was within the permissible limits. Issue 2: Eligibility for deduction under Section 80IB(10) for projects with commercial area up to 10% of the total project: The ITAT had held that projects with commercial areas up to 10% of the total built-up area were eligible for deductions on the entire project. The court disagreed, stating that there was no basis in the Income Tax Act for such a restriction before 1/4/2005. The court emphasized that restrictions on commercial use were introduced only with the insertion of clause (d) to Section 80IB(10) effective from 1/4/2005. Therefore, the court held that the ITAT was not justified in imposing a 10% limit for projects approved before this date. Issue 3: Eligibility for deduction under Section 80IB(10) for projects with commercial area exceeding 10% but separable residential profits: The ITAT allowed deductions for projects where commercial areas exceeded 10% if profits from residential units could be separately determined. The court found this approach incorrect, stating that Section 80IB(10) allowed deductions for the entire project approved by the local authority, not just parts of it. The court held that deductions should apply to the whole project if the conditions of Section 80IB(10) were met. However, since the assessee did not challenge the ITAT's decision, the court did not disturb the ITAT's findings in this specific case. Issue 4: Retrospective application of the limit on commercial use under Section 80IB(10)(d): The court addressed whether the limit on commercial use introduced by clause (d) to Section 80IB(10) effective from 1/4/2005 should apply retrospectively. The court concluded that clause (d) was explicitly prospective, as it was introduced to impose new restrictions. Therefore, it could not be applied to periods before 1/4/2005. The court rejected the revenue's argument that the clause should be applied retrospectively, noting that such an interpretation would be contradictory and unjustified. Conclusion: The court answered the questions raised in the appeal as follows: a) Deduction under Section 80IB(10) is allowable for housing projects approved by local authorities with commercial use within the limits prescribed by DC Rules until 31/3/2005. b) Deduction is allowable irrespective of whether the project is approved as 'housing project' or 'residential plus commercial' if the commercial use is within permissible limits. c) The ITAT was not justified in limiting deductions to projects with commercial use up to 10% of the total built-up area before 31/3/2005. d) Deductions should apply to the entire project, not just parts, unless the assessee accepts a partial deduction as in this case. e) Clause (d) of Section 80IB(10) is prospective and cannot be applied retrospectively. The appeal was disposed of with no order as to costs.
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