2014 (5) TMI 708 - HC - Income Tax

Deletion of disallowance of deduction u/s 80IB(10) of the Act Owner of land and development permission not granted - Construction and development of housing project Held that - Following Commissioner of Income-tax v. Radhe Developers 2011 (12) TMI 248 - GUJARAT HIGH COURT - It is true that the title in the land had not yet passed on to the assessee the title would pass only upon execution of a duly registered sale deed - the term works contract contained in the Act is inclusive definition and includes not merely the works contract as normally understood but it is a wide definition which includes any agreement for carrying out building or construction activity for cash, deferred payment or other valuable consideration - the interpretation was based on not the normal meaning of term works contract but on the special meaning assigned to it under the Act itself, which provided for a definition of the inclusive nature - the Tribunal committed no error in holding that the assessees were entitled to the benefit u/s 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 against Revenue.

Issues Involved:

1. Disallowance of deduction under Section 80IB(10) by the Assessing Officer.
2. Ownership of the land and approval by the local authority.
3. Role of the assessee as a developer or a mere work contractor.
4. Execution of sale deeds by landowners and the role of the assessee as a confirming party.
5. Dominion control over the project by the assessee.

Detailed Analysis:

1. Disallowance of Deduction Under Section 80IB(10):

The Revenue challenged the Income Tax Appellate Tribunal's decision to delete the disallowance of deduction under Section 80IB(10) made by the Assessing Officer. The Tribunal's decision was based on the precedent set by the Gujarat High Court in the case of Commissioner of Income-tax v. Radhe Developers, where it was held that for the purpose of Section 80IB(10), it is not necessary for the assessee to be the owner of the land. The Tribunal confirmed the view of CIT (Appeals) and allowed the deduction under Section 80IB(10).

2. Ownership of the Land and Approval by the Local Authority:

The Assessing Officer objected to the deduction on the grounds that the assessee was not the owner of the land and the development permission was granted to a cooperative housing society, not the assessee. The High Court in Radhe Developers had observed that the ownership of land is not a prerequisite for claiming deduction under Section 80IB(10). The Tribunal found that the assessee had acquired dominion over the land through a development agreement and had undertaken the entire task of development, construction, and sale of housing units, thus satisfying the condition of ownership for the purpose of the Income Tax Act.

3. Role of the Assessee as a Developer or a Mere Work Contractor:

The Revenue argued that the assessee acted merely as a work contractor for the landowners, which would disqualify them from claiming the deduction. However, the Tribunal, relying on the terms of the development agreement, concluded that the assessee had full control and responsibility over the project, including financial arrangements, and bore the risk of profit or loss. This indicated that the assessee was not merely a contractor but a developer, thus eligible for the deduction under Section 80IB(10).

4. Execution of Sale Deeds by Landowners and Role of the Assessee as a Confirming Party:

The Assessing Officer noted that the sale deeds were executed by the landowners, with the assessee only joining as a confirming party. The High Court, in its analysis, emphasized that the assessee had undertaken the entire development project, including enrolling members, accepting contributions, and managing the construction. The sale proceeds were appropriated towards the land price, and the surplus remained with the assessee, indicating that the assessee had substantial control and responsibility over the project.

5. Dominion Control Over the Project by the Assessee:

The Tribunal found that the assessee had total and complete control over the land and the project. The development agreement authorized the assessee to develop the land, construct residential units, and manage the entire project, including financial arrangements and professional engagements. The risk element was entirely borne by the assessee, further establishing their dominion control over the project.

Conclusion:

The High Court dismissed the Revenue's appeal, affirming the Tribunal's decision to allow the deduction under Section 80IB(10). The Court reiterated that ownership of land is not a necessary condition for claiming the deduction, and the assessee's role as a developer, with full control and responsibility over the project, qualified them for the benefit under Section 80IB(10). The Court criticized the Revenue's litigious approach and emphasized the need for finality in legal proceedings, especially when higher courts have settled the issue.

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