2013 (3) TMI 8 - HC - Income Tax

Deduction u/s 80IB(10) - when the approval by the local authority as well as completion certificate was not granted to the assessee but to the landowner and the rights and the obligations under the said approval were not transferable, and when the transfer of dwelling units in favour of the end-users was made by the landowner and not by the assessee - held that - Tribunal committed no error in holding that the assessees were entitled to the benefit under Section 80IB(10) of the Act even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners. - Decided in favor of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act.
2. Requirement of ownership of land for claiming deduction.
3. Interpretation of "developer" and "works contractor" under the Income Tax Act.
4. Application of Section 2(47) of the Income Tax Act and Section 53A of the Transfer of Property Act.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The central issue was whether the respondent assessee is eligible for the benefit under Section 80IB(10) of the Income Tax Act. The assessee had claimed deduction on the premise that income was derived from the business of developing and building housing projects approved by the local authority. Both the CIT(Appeals) and the Tribunal had allowed the deduction to the assessee. The Tribunal based its decision on the interpretation that ownership of the land is not a prerequisite for claiming deduction under Section 80IB(10).

2. Requirement of Ownership of Land:
The Assessing Officer rejected the assessee's claim for deduction on the grounds that the assessee was not the owner of the land and that the approvals were not in the name of the assessee. CIT(Appeals) upheld this view, emphasizing that ownership of the land is intrinsic to qualifying for the deduction. However, the Tribunal reversed this decision, stating that Section 80IB(10) does not necessitate ownership of the land by the developer. The Tribunal referred to the provisions of Section 2(47) of the Income Tax Act and Section 53A of the Transfer of Property Act, which imply that possession and development rights can be sufficient for claiming ownership for tax purposes.

3. Interpretation of "Developer" and "Works Contractor":
The Tribunal distinguished between a "developer" and a "works contractor," concluding that the assessee acted as a developer. The assessee had full control over the land, bore the risks, and was responsible for the construction and sale of the housing units. The Tribunal emphasized that the term "developer" carries a broader meaning and does not necessarily imply ownership of the land. The Tribunal also noted that the Explanation to Section 80IB(10) introduced with retrospective effect from 1.4.2001, which excludes works contracts from the deduction, did not apply to the assessee as they were not merely executing a works contract.

4. Application of Section 2(47) and Section 53A:
The Tribunal and the High Court examined whether the assessee had acquired ownership of the land for the purposes of the Income Tax Act. The agreements between the assessee and the landowners showed that the assessee had taken possession of the land and carried out construction work, satisfying the conditions of Section 2(47)(v) and Section 53A. This implied that for tax purposes, the assessee could be deemed the owner of the land. The High Court upheld this interpretation, stating that for the purpose of deduction under Section 80IB(10), the assessee met the ownership condition even if the title had not formally passed.

Conclusion:
The High Court upheld the Tribunal's decision, dismissing the Revenue's appeal. It concluded that the assessee was entitled to the deduction under Section 80IB(10) despite not owning the land, as the assessee had full control and responsibility for the development project. The court emphasized that the legislative intent of Section 80IB(10) was to encourage housing development, and ownership of land was not a stipulated condition for claiming the deduction. The court also clarified that the Explanation to Section 80IB(10) did not affect the assessee's eligibility as they were not merely executing a works contract.