2013 (8) TMI 112 - HC - Income Tax

Deduction u/s 80IB - Work contract - Tribunal granted deduction - Held that - assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk - Therefore, it cannot be said that the assessee acted only as a works contractor - Following decision of CIT v. Radhe Developers 2011 (12) TMI 248 - GUJARAT HIGH COURT - Decided against Revenue. Deduction u/s 80IB(10) - Interest received from the purchases on delayed payments - Income from development of housing project - Tribunal deleted disallowance - Held that - during the course of business in developing housing project, assessee had made payments to the suppliers towards various purchases made. On such payments, the assessee would occasionally deduct some amounts and pay the bill. Difference between the bill amount and payment actually made would be the amount generated during the course of business. Assessee therefore, contended that same should form part of eligible deduction under section 80IB(10) of the Act - as is likely to happen in any business of similar nature, the supply of material may be found wanting at a later stage. They may either be defective or sometimes minor unintentional short supply. This could be the reason why assessee instead of making full payment, deducts a portion of the supplier s bill - such margin would go to reduce the assessee s cost of acquisition of the supply. Such amount therefore, cannot be dissociated or divested from assessee s business. Such receipt therefore, cannot be stated to be not arising out of the assessee s business of development of housing project - Following decision of Nirma Industries Ltd. v. Deputy Commissioner of Income-tax 2006 (2) TMI 92 - GUJARAT High Court - Decided against Revenue.

Summary

Issues:
1. Deduction under section 80-IB(1) for a housing project.
2. Disallowance under section 80-IB(10) for interest on delayed payments and balances written off.

Issue 1: Deduction under section 80-IB(1) for a housing project:
The Revenue appealed against the Tribunal's decision upholding the CIT(A)'s judgment on the deduction under section 80-IB(1) for a housing project. The Tribunal relied on a previous case involving Radhe Developers, where the Court found that the assessee had complete control over the land and took the full risk of the housing project, indicating a legal relationship beyond that of a works contractor. The Court detailed the terms of the agreement between the assessee and the landowner, emphasizing the responsibilities and authorities granted to the assessee. Consequently, the Court concluded that the assessee's claim for deduction under section 80-IB(10) was valid, and the Revenue's appeal on this issue was dismissed.

Issue 2: Disallowance under section 80-IB(10) for interest on delayed payments and balances written off:
Regarding the disallowance under section 80-IB(10) for interest on delayed payments and balances written off, the CIT(A) had deleted the additions, considering them as part of the assessee's income derived from the housing project. The Tribunal upheld this decision, noting that the issues were previously addressed in relevant decisions not appealed by the Revenue. The Court further analyzed the nature of interest received on delayed payments, drawing parallels with a previous case involving Nirma Industries Ltd. The Court emphasized that such payments were part of the sale consideration realization process and should not be treated differently based on terminology. Additionally, the Court examined the balances written off to contractors and suppliers, affirming the assessee's position that these amounts were generated during the course of business and were eligible for deduction under section 80-IB(10). The Court agreed with the CIT(A) and Tribunal that these amounts were integral to the business operations of the housing project. Consequently, the Court dismissed the Revenue's appeal on this issue, upholding the decisions of the lower authorities.

In conclusion, the High Court of Gujarat dismissed the Revenue's appeal on both issues, affirming the deductions claimed under section 80-IB(1) and rejecting the disallowance under section 80-IB(10) for interest on delayed payments and balances written off. The detailed analysis provided insights into the legal relationships, business operations, and income considerations relevant to the housing project in question.