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2011 (12) TMI 356 - AT - Income TaxAddition - Deduction u/s 80-IB - it was submitted by the learned Departmental Representative that there is no definition of work contract in IT Act and hence, guidelines can be imported form other statute - the appellant vide his written submissions and also by way of arguments during the assessment of hearing put forth the claim that they are actually developers and builders - If the developer has acted on behalf of the landowner and has got fixed consideration from the landowner for the development of housing projects, the assessee should not be allowed deduction under s. 80-IB(10) - AO s reliance on cl. 15 of the development agreement (quoted above) to say that the appellant is not a developer is misplaced. In fact, the said clause makes it amply clear that the entire financial risk and the surplus or deficit in the venture shall rest with the appellant - If the assessee is eligible for profit and loss and not for a fixed amount then it cannot be said to be a works contract - Appeal is dismissed
Issues Involved:
1. Disallowance of deduction under Section 80-IB of the Income Tax Act, 1961. 2. Determination of whether the appellant is a developer or a contractor for works. Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 80-IB: The primary issue revolves around the disallowance of a deduction amounting to Rs. 4,23,89,356 claimed under Section 80-IB(10) of the Income Tax Act, 1961, by the appellant. The Assessing Officer (AO) had rejected this claim on the grounds that the appellant was not a developer but a contractor for works. The appellant had entered into a 'development agreement' with a Co-operative Housing Society for developing a housing project and claimed the deduction based on the net profit earned. The AO, relying on various decisions, concluded that the appellant did not qualify as a developer under the Act. 2. Determination of Developer vs. Contractor for Works: The CIT(A) and the Tribunal had to determine whether the appellant was a developer or merely a contractor. The CIT(A) referred to the agreement terms, which indicated that the appellant bore all responsibilities for executing the housing project, including obtaining approvals, designing, financing, and selling the houses. The appellant bore the entire financial risk and profit or loss from the project, which indicated that the appellant was indeed a developer. This conclusion was supported by the Tribunal's decision in the case of Radhe Developers and others, which laid down three parameters to determine the developer status: purchase of land for a fixed consideration, development at own cost and risk, and dominant control over the project. Detailed Judgment Analysis: 1. Disallowance of Deduction under Section 80-IB: The Tribunal upheld the CIT(A)'s decision to allow the deduction under Section 80-IB. The CIT(A) had obtained a remand report from the AO, who reiterated his findings. However, the CIT(A) found that the appellant met the criteria laid down in the Radhe Developers case, which included purchasing the land, bearing the cost and risk of development, and having dominant control over the project. The CIT(A) concluded that the appellant was a developer and not a contractor, thus eligible for the deduction. 2. Determination of Developer vs. Contractor for Works: The Tribunal examined the development agreement and found that the appellant was responsible for all aspects of the project, including financial risks and profits. The agreement's clause 15, which detailed the payment structure, indicated that the appellant would receive the surplus from the project after covering all costs, rather than a fixed fee for services. This supported the conclusion that the appellant was a developer. The Tribunal also addressed the AO's reliance on the Supreme Court judgment in the case of K. Raheja Development Corporation, clarifying that it was not applicable as it pertained to the Karnataka Sales-tax Act and not the Income-tax Act. The Tribunal concluded that the CIT(A)'s findings were reasonable and in line with the Radhe Developers decision, and thus no interference was required. Consequently, the Revenue's appeal was dismissed.
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