2011 (5) TMI 597 - AT - Income Tax

Deduction under section 80-IB(10) - disallowance of claim as assessee is not a builder and developer but merely a building contractor - principles of equity, natural justice and fair play - AO concluded that the assessee has assisted the owner, i.e., HMPL in construction only and all other developmental aspects have been done by HMPL - Held that - It is to be noted that the land is not sold to the assessee and this is made clear in clause 5 itself that the possession is not given as a part performance of a contract as contemplated under section 53A of the T.P. Act - In the present case, undoubtedly, HMPL as the owner of the land has ventured to realise the potentialities of the land - There is a construction agreement between the assessee as the builder and the purchaser of each flat - the land is owned by one person and the assessee has undertaken the development and building of the housing project on the said land. Indisputably, the project is on a land exceeding one acre - Just because the plan sanction, plan approval etc. have been taken in the name of the land owner it would not deny the assessee the benefit of being treated as an undertaking developing and building the housing projects insofar as it is the assessee, through the power of attorney specifically taken from the land owner, that the plans have been drawn, approval obtained, sanction taken and the building constructed - decided in favour of the assessee Whether the built up area if it exceeds 1500 s.ft. in respect of any flats, the assessee would be entitled to the deduction under section 80-IB(10) on pro rata basis - Held that - The flats were combined only after the purchase of those flats and after taking possession of them. In such cases the flats concerned are to be treated as constructed and sold as independent flats with built up area not exceeding 1500 sft., each Whether the private terrace is to be included in the computation of built up area - Once the private terrace is for the exclusive use of the purchaser of the flat then, obviously, the said private terrace does not fall within the common areas shared with the other residential units and consequently would have to be included in the measurement for arriving at the built up area - decided in against of the assessee.

Issues Involved:
1. Whether the assessee is a contractor or a builder or a developer.
2. Whether the completion certificate obtained after the due date but for which the application was given before the due date should be considered as due compliance.
3. Whether the undertaking developing and building the housing project should be the owner of the plot of land having an area of one acre.
4. Whether the private terrace is to be considered as part of the built-up area of the flat for computing the built-up area of 1500 sq.ft. as per section 80-IB(14) of the Income-tax Act, 1961.
5. Whether the built-up area exceeding 1500 sq.ft. entitles the assessee to deduction under section 80-IB(10) of the Income-tax Act, 1961 on a pro rata basis.

Detailed Analysis:

Issue 1: Whether the assessee is a contractor or a builder or a developer.
The Tribunal held that the assessee is a builder and developer and not merely a building contractor. The assessee was engaged in the business of construction, had exclusive rights to sell the flats, determine the sale price, and collect the entire sales consideration. The assessee undertook all investment risks, including the risk of unsold flats and the fluctuation in building material prices. The Tribunal concluded that the assessee is a builder, developer, and contractor, all rolled into one, and thus entitled to deduction under section 80-IB(10).

Issue 2: Whether the completion certificate obtained after the due date but for which the application was given before the due date should be considered as due compliance.
The Tribunal held that the completion certificate, even if issued after the due date, should be considered valid if the application was made before the due date. The certificate relates back to the date of application. The Tribunal accepted the completion certificate issued by the Corporation of Chennai, which stated that the building was inspected and found to satisfy the approved building permit conditions before the due date.

Issue 3: Whether the undertaking developing and building the housing project should be the owner of the plot of land having an area of one acre.
The Tribunal held that the ownership of the land is not a criterion for claiming deduction under section 80-IB(10). The project must be on a plot of land with a minimum area of one acre, irrespective of whether the land is owned by the developer or another party. The assessee, having developed the project on such land, fulfilled this condition.

Issue 4: Whether the private terrace is to be considered as part of the built-up area of the flat for computing the built-up area of 1500 sq.ft. as per section 80-IB(14) of the Income-tax Act, 1961.
The Tribunal held that the private terrace should be included in the built-up area of the flat. The term "built-up area" includes the inner measurements of the residential unit at the floor level, including projections and balconies. Since the private terrace was for the exclusive use of the flat owner and not a common area, it had to be included in the built-up area computation.

Issue 5: Whether the built-up area exceeding 1500 sq.ft. entitles the assessee to deduction under section 80-IB(10) of the Income-tax Act, 1961 on a pro rata basis.
The Tribunal was divided on this issue. The Vice-President held that the deduction should be allowed for flats with a built-up area not exceeding 1500 sq.ft., even if some flats exceed this limit. However, the deduction should be denied for flats exceeding 1500 sq.ft. The Judicial Member disagreed, stating that any violation of the built-up area limit disqualifies the entire project from claiming the deduction. The Third Member, agreeing with the Vice-President, held that the assessee is entitled to deduction for flats not exceeding 1500 sq.ft., and the decision of the Hon'ble Calcutta High Court in the case of Bengal Ambuja Housing Development Ltd. (supra) supports this view. The Tribunal ultimately decided not to impose a 10% cap on flats exceeding 1500 sq.ft.

Conclusion:
The Tribunal concluded that the assessee is a developer-builder entitled to deduction under section 80-IB(10), subject to verification of the built-up area of flats. The completion certificate obtained after the due date but applied for before the due date is valid. The private terrace is included in the built-up area. The assessee is entitled to deduction for flats not exceeding 1500 sq.ft., and no 10% cap is required for flats exceeding this limit.

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