2012 (9) TMI 700 - HC - Income Tax

Denial of claim of deduction under Section 80IB (10) - non-fulfillment of the condition of limitation for built up area - whether the amendment to Section 80IB(10)(d) having been made effective from 1.4.2005 is to be held retrospective or prospective - Held that - Section 80IB(10) originally indicated 100% deduction on the profits derived from housing projects approved by local authority subject to certain conditions set out in the provision. By virtue of the amendment having come into effect from 1.4.2005, deduction is permissible to housing project having residential units with commercial units to the extent permitted therein. As is very apparent form the record, there was no criteria for making commercial construction prior to the amended Section and the plans are approved as housing projects by the local authority for both the projects of the appellant. Permission for construction of shops has been allowed by the local authority in accordance with rules and regulations, keeping in mind presumably the requirement of large townships. However, the projects essentially remained residential housing projects and that is also quite apparent from the certificates issued by the local authority and, therefore neither on the ground of absence of such provision of commercial shops nor on account of such commercial construction having exceeded the area contemplated in the prospective amendment can be made applicable to the appellant assessee whose plans are sanctioned as per the prevalent rules and regulations by the local authority for denying the benefit of deduction of profit derived in the previous year relevant to the assessment year as made available otherwise under the statue. The entire object of such deduction is to facilitate construction of residential housing project and while approving such project when initially there was no restriction and by amendment as stated permissible ratio for construction is 5% of the total built up area, reduction of this ratio to 3% of the total built up area has to be necessarily on prospective basis - Criteria to hold this amendment retrospective are are absent as there is no as explicit and specific wording expressing retrospectivity and even if it is assumed for the sake of arguments that the same is to be read by implication the same does not appear to be reasonable but, in fact emerges to be harsh and unreasonable when it comes to implementation and as as held in the case of Mysore Minerals Ltd. vs. Commission of Income- Taxreported in 1999 (9) TMI 1 - SUPREME COURT with two possibilities of interpretation of a taxing statute, one which is favourable to the assessee should be always preferred - in favour of the assessee

Summary

Issues involved:
1. Interpretation of Section 80IB(10) of the Income-tax Act, 1961.
2. Applicability of the amendment to Section 80IB(10)(d) with effect from 1.4.2005.
3. Eligibility for deduction under Section 80IB(10) for projects approved before 1.4.2005.

Issue-wise Detailed Analysis:

1. Interpretation of Section 80IB(10) of the Income-tax Act, 1961:
The primary issue is whether the Tribunal correctly interpreted Section 80IB(10) in confirming the disallowance of Rs. 6,84,44,461/- made by the Assessing Officer. The Tribunal's decision was based on the amended provision of Section 80IB(10)(d) effective from 1.4.2005, which restricts the built-up area of commercial establishments in housing projects to 5% of the aggregate built-up area or 2000 sq. feet, whichever is less. The appellant argued that this amendment should not apply retrospectively to projects approved before 1.4.2005.

2. Applicability of the amendment to Section 80IB(10)(d) with effect from 1.4.2005:
The appellant contended that the amendment to Section 80IB(10)(d) effective from 1.4.2005 should not apply to their projects, which were approved before this date. The Tribunal, however, applied the amendment retrospectively, denying the deduction. The appellant relied on the decision of the Special Bench in Brahma Associates vs. JCIT, which held that the amendment is prospective and does not apply to projects approved before 1.4.2005. The High Court agreed with the appellant, stating that neither the assessee nor the local authority could have anticipated future legislative changes when the projects were approved.

3. Eligibility for deduction under Section 80IB(10) for projects approved before 1.4.2005:
The appellant's projects, Krishna Park and Prashiddhi Project, were approved before 1.4.2005. The High Court noted that the projects complied with the conditions of Section 80IB(10) as they stood before the amendment. The Court emphasized that the amendment should not apply retrospectively, as it would impose new conditions on projects that were compliant with the law at the time of approval. The Court referred to the Bombay High Court's decision in Brahma Associates, which held that the amendment is prospective and not retrospective.

Conclusion:
The High Court concluded that the amendment to Section 80IB(10)(d) effective from 1.4.2005 is prospective and does not apply to projects approved before this date. The Court held that the Tribunal misinterpreted the law by applying the amendment retrospectively and denying the deduction to the appellant. The Court emphasized that the legislative intent was to facilitate housing projects and that retrospective application of the amendment would lead to absurd results. Consequently, the Court reversed the Tribunal's decision and allowed the appeal in favor of the assessee.