2012 (8) TMI 509 - AT - Income Tax

Non eligibility for deduction u/s 80-IB (10) - CIT (A) allowed the claim - Held that - As the investment made by the assessee for the project and the source for such investment which have been disputed or rebutted by the Revenue & not also disputed that assessee had purchased the land - assessee had entered into individual agreements with prospective buyers for sale of undivided share in such land and for construction of flats therein. But, this would not mean that assessee was not a developer of the project or that assessee was only a contractor. Assessee had obtained loans in its name and made substantial investment for promotion of the project - the assessee could establish that it was a project developer which satisfied the conditions specified in Section 80- IB (10) as disallowance could not have been done considering the assessee as a mere works contractor The term works contract in the Act is an inclusive definition. It does not include merely a works contract as normally understood. It has a wide definition which includes any agreement for carrying out building or construction activity for cash, deferred payment or other valuable consideration. The definition as given in that Act does not make any distinction based on as to who carries on the construction activity - in favour of assessee.

Summary

Issues:
- Eligibility for deduction under Section 80-IB(10) of the Income-tax Act, 1961.
- Interpretation of the Explanation to Section 80-IB(10) regarding works contractors.
- Determining whether the assessee qualifies as a developer or a works contractor for claiming the deduction.

Analysis:

1. Eligibility for deduction under Section 80-IB(10):
The case involved the Revenue appealing against the Commissioner of Income Tax (Appeals)-V, Chennai's decision to grant the assessee eligibility for deduction under Section 80-IB(10) of the Income-tax Act, 1961. The assessee, engaged in property development, claimed a deduction of Rs. 6,72,70,165 under Section 80-IB. The Assessing Officer contended that the assessee was not eligible for the deduction as it was considered a works contractor, not a developer. The assessee argued that it satisfied all conditions for the deduction, emphasizing its role as a developer in housing projects approved by the local authority.

2. Interpretation of Explanation to Section 80-IB(10) regarding works contractors:
The Assessing Officer relied on the Explanation to Section 80-IB(10) which excluded works contractors from claiming the deduction. The dispute arose from the sequence of events where the assessee first sold undivided land shares and then entered into agreements for flat construction with buyers. The Revenue contended that the assessee was merely a works contractor based on the agreement terms, not a developer entitled to the deduction. However, the assessee argued that it was actively involved in project development, had obtained necessary approvals, and invested significantly in the project, thus meeting the requirements of a developer under Section 80-IB(10).

3. Determining developer status for claiming the deduction:
The Tribunal analyzed the investment made by the assessee in the project, which was not disputed by the Revenue. The Tribunal noted that although the assessee entered into agreements with buyers for land shares and flat construction, it did not negate its status as a developer. The Tribunal referred to a previous case where the definition of "works contract" was discussed, emphasizing that the assessee's activities aligned with those of a project developer under Section 80-IB(10). Ultimately, the Tribunal upheld the CIT(A)'s decision to allow the assessee's claim for deduction, dismissing the Revenue's appeal.

In conclusion, the Tribunal affirmed that the assessee qualified as a developer under Section 80-IB(10) based on its project involvement, approvals obtained, and investments made, rejecting the Revenue's argument that the assessee was a works contractor. The judgment highlighted the importance of meeting the specified criteria for claiming deductions under the Income-tax Act, ultimately upholding the CIT(A)'s decision in favor of the assessee.