2014 (1) TMI 480 - AT - Income Tax

Deduction u/s 80IB - Works contractor - Whether the assessees are builders/developers and therefore eligible for deduction under section 80-IB(10)? - Held that - Assessees were builders/developers and therefore eligible for deduction under section 80-IB(10). Even where the purchasers of the flats combined two flats together thereby exceeding the limit of the built-up area of 1500 sq. ft., it could still be considered as proper compliance of the stipulation provided in section 80-IB(10) that the built-up area should not exceed 1500 sq. ft. and therefore, assessees are eligible for deduction under section 80-IB(10). Even though assessees had furnished project completion certificates which are dated before 31st March, 2008, these certificates related back to date on which the applications for such certificates were made by the assessees and therefore, assessees are entitled for deduction under section 80-IB(10). - Decided in favor of assessee. Insofar as the issue whether built-up area of certain flats measuring more than 1500 sq. ft. is concerned, it is restored to the files of the Assessing Officer with a direction to measure a flat in the presence of DVO as well as Registered Valuation Officer appointed by the assessee. Private terrace area should be included in the built-up area of the flats for the purpose of working out statutory extent of the built-up area - Decided against the assessee. Based on majority view, deduction should be allowed to the assessees under section 80-IB(10) in respect of flat having built-up area not exceeding 1500 sq. ft. are not entitled for deduction in respect of these flats having built-up area exceeding 1500 sq. ft. - Decided against the assessee. There need not be any cap of 10 per cent for flats having built-up area exceeding 1500 sq. ft., with regard to a claim for deduction under section 80-IB(10) of the Act - Decision in the case of CIT v. Brahma Associates 2009 (4) TMI 215 - ITAT PUNE followed. - Decided partly in favor of assessee.

Issues Involved
1. Whether the assessee is a contractor or a builder or a developer.
2. Whether the completion certificate obtained after the due date but for which the application was given before the due date should be considered as due compliance.
3. Whether the undertaking developing and building the housing project should be the owner of the size of the plot of land having an area of one acre.
4. Whether the private terrace is to be considered as part of the built-up area of the flat for computing the built-up area of 1500 sq.ft. as per section 80-IB(14) of the Income-tax Act, 1961.
5. Whether the built-up area, if it exceeds 1500 sq.ft., entitles the assessee to deduction under section 80-IB(10) of the Income-tax Act, 1961 on a pro-rata basis.

Issue-wise Detailed Analysis

1. Whether the assessee is a contractor or a builder or a developer:
The Tribunal analyzed the agreement between the assessee and HMPL and concluded that the assessee is not merely a contractor but also a builder and developer. The Tribunal noted that the assessee had the exclusive right to sell the flats, determine the sale price, and collect the sales consideration. The assessee also bore the investment risk, as it had to construct the entire building regardless of whether all flats were sold. Therefore, the Tribunal held that the assessee is a developer-builder and entitled to deduction under section 80-IB(10).

2. Whether the completion certificate obtained after the due date but for which the application was given before the due date should be considered as due compliance:
The Tribunal held that the completion certificate issued after the due date but based on an application made before the due date should be considered as due compliance. It was noted that the project was completed before the due date, and the delay in issuing the certificate was due to procedural reasons. The Tribunal also admitted additional evidence showing that the building was inspected and found to meet the approved building permit conditions before the due date.

3. Whether the undertaking developing and building the housing project should be the owner of the size of the plot of land having an area of one acre:
The Tribunal held that the ownership of the land is not a criterion for claiming deduction under section 80-IB(10). The assessee's role as a developer-builder was emphasized, and it was noted that the land was developed as per a scheme jointly evolved by the owner and the builder. The Tribunal concluded that the assessee is eligible for deduction under section 80-IB(10) even though it was not the owner of the land.

4. Whether the private terrace is to be considered as part of the built-up area of the flat for computing the built-up area of 1500 sq.ft. as per section 80-IB(14) of the Income-tax Act, 1961:
The Tribunal held that the private terrace should be included in the built-up area of the flat. The definition of "built-up area" includes projections and balconies, and since the private terrace is accessible only through the flat and not shared with other residential units, it should be considered part of the built-up area. Therefore, the area of the private terrace will be included in the computation of the built-up area.

5. Whether the built-up area, if it exceeds 1500 sq.ft., entitles the assessee to deduction under section 80-IB(10) of the Income-tax Act, 1961 on a pro-rata basis:
The Tribunal restored the issue of measuring the flats to the Assessing Officer for verification. It was held that flats measuring more than 1500 sq.ft. should be excluded from the deduction. However, the Tribunal also held that the deduction should be allowed if the built-up area of flats measuring more than 1500 sq.ft. does not exceed 10% of the total built-up area. This 10% cap was later clarified by the Third Member, who agreed with the view that there should be no such stipulation of a limit.

Conclusion
The appeals were partly allowed for statistical purposes. The Tribunal held that the assessee is a developer-builder entitled to deduction under section 80-IB(10), subject to the fulfillment of other conditions. The completion certificate obtained after the due date but based on an application made before the due date was considered as due compliance. The private terrace was included in the built-up area, and the issue of measuring flats exceeding 1500 sq.ft. was restored to the Assessing Officer for verification. The Tribunal also clarified that there should be no 10% cap on flats exceeding 1500 sq.ft. for claiming deduction under section 80-IB(10).

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