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2014 (12) TMI 19 - HC - Income TaxAllowability of deduction u/s 80IB(10) and 80IB(1) Works contract - Whether the Tribunal was right in law in allowing the deduction u/s 80IB(10) r.w.s. 80IB(1) claimed by the assessee without appreciating that the nature of agreement between the assessee and the unit purchasers shows that it was only a works contract , the agreement was entered into before the construction was completed and not after the flat or unit is sold and also the assessee has not borne any risk through this agreement Held that - In Commissioner of Income-tax Versus Radhe Developers 2011 (12) TMI 248 - GUJARAT HIGH COURT it has been held that Section 80IB(10) provides for deductions to an undertaking engaged in the business of developing and constructing housing projects under certain circumstances - It does not provide that the land must be owned by the assessee seeking such deductions - it can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects and have not acted only as a works contractor. The assessee had, in part performance of the agreement to sell the land was given possession and had also carried out the construction work for development of the housing project - Combined reading of Section 2(47)(v) and Section 53A of the Transfer of Property Act leads to conclusion even for limited purpose of Income tax that assessee had satisfied the condition of ownership also - assessees were entitled to the benefit u/s 80IB(10) 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 - the meaning assigned to the expression works contract in the cannot be imported while construing the meaning of the expression in the context of the provisions of the Income Tax Act the order of the Tribunal is upheld Decided against revenue.
Issues Involved:
1. Applicability of Section 80IB(10) of the Income Tax Act, 1961. 2. Interpretation of the term "works contract" in the context of the Income Tax Act. 3. Relevance of the Supreme Court decisions in Larsen and Toubro Limited v. State of Karnataka and K. Raheja Development Corporation v. State of Karnataka. 4. Application of the decision in Commissioner of Income-tax v. Radhe Developers. Detailed Analysis: 1. Applicability of Section 80IB(10) of the Income Tax Act, 1961 The appellant-revenue questioned the entitlement of the respondent-assessee to deduction under Section 80IB(10) of the Act. The main contention was whether the nature of the agreement between the assessee and unit purchasers constituted a "works contract," thereby disqualifying the assessee from availing the deduction. The Tribunal, however, upheld the assessee's entitlement to the deduction, finding that the assessee had dominant control over the land and bore the entire risk and reward of the project, thus satisfying the requirements under Section 80IB(10). 2. Interpretation of the Term "Works Contract" in the Context of the Income Tax Act The appellant argued that the nature of the agreement was a "works contract," which should disqualify the assessee from deductions under Section 80IB(10) as per the Explanation inserted in the section. The Tribunal and the Commissioner (Appeals) found that the assessee had undertaken the entire task of development, construction, and sale of the housing units, and thus, could not be considered merely as a works contractor. The court noted that the definition of "works contract" under Sales Tax Acts could not be imported into the Income Tax Act. 3. Relevance of the Supreme Court Decisions in Larsen and Toubro Limited v. State of Karnataka and K. Raheja Development Corporation v. State of Karnataka The appellant relied heavily on these Supreme Court decisions to argue that the agreement constituted a works contract. However, the court distinguished these decisions, stating that they were rendered in the context of the Karnataka Sales Tax Act and Maharashtra Value Added Tax Act, and interpreted the term "works contract" in light of Article 366(29-A)(b) of the Constitution. The court held that these interpretations could not be applied to the Income Tax Act, which requires the ordinary meaning of "works contract." 4. Application of the Decision in Commissioner of Income-tax v. Radhe Developers The respondent-assessee argued that the present case was squarely covered by the decision in Radhe Developers, where it was held that ownership of the land by the developer was not a prerequisite for claiming deductions under Section 80IB(10). The court found that the facts of the present case were similar to those in Radhe Developers, where the developer had full control over the land and bore the entire risk and reward of the project. The court upheld the Tribunal's finding that the assessee's case met the parameters laid down in Radhe Developers. Conclusion The court dismissed the appeals, holding that there was no legal infirmity in the Tribunal's order. The Tribunal correctly applied the principles from Radhe Developers and found that the assessee was entitled to deductions under Section 80IB(10). The Supreme Court decisions in Larsen and Toubro Limited and K. Raheja Development Corporation were not applicable to the facts of the present case, as they were rendered in the context of Sales Tax Acts and not the Income Tax Act.
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