2014 (12) TMI 483 - HC - Income Tax

Allowability of deduction u/s 80IB(10) - land development agreement - Decision in the case of DY. COMMISSIONER OF INCOME TAX Versus RADHE DEVELOPERS INDIA LTD 2009 (4) TMI 21 - GUJARAT HIGH COURT rightly followed or not Held that - The Tribunal has rightly recorded that CIT(A) found that as per the Development Agreement and facts of the case, the assessee had taken full responsibility for execution of the development project - The assessee had been given full authority for execution of the development project, including development of the land and construction of residential units - The assessee had engaged professionals such as architect for designing architectural work and had also enrolled members and collected the consideration from the buyers of the residential units - The assessee had also paid the cost of the land to the Societies including stamp duty and had taken possession of the land for construction of the project as per the decision in DY. COMMISSIONER OF INCOME TAX Versus RADHE DEVELOPERS INDIA LTD 2009 (4) TMI 21 - GUJARAT HIGH COURT a legal title was not required for getting benefits u/s 80IB(10) of the Act and the assessee was the deemed owner of the land u/s 2(47) of the Act - the assessee had borne the entire cost of construction, including materials, and the receipt was not fixed for the contractor and the assessee was a developer and builder of the housing project. In K. Raheja Development Corporation v. State of Karnataka 2014 (10) TMI 110 - KARNATAKA HIGH COURT while construing the meaning of the term works contract , what the Supreme Court had in mind was Article 366(29-A)(b) of the Constitution. By Article 366(29-A)(b), a legal fiction had been introduced into a contract which was divisible into one for sale of goods and the other for supply of labour - the term works contract has to be understood in a manner that Parliament had in its view at the time of the Forty-sixth Amendment which was more than appropriate to Article 366(29-A)(b) and which was not restricted to works contract as commonly understood i.e. a contract to do some work on behalf of somebody else. The ordinary meaning of the term works contract means a contract to do some work on behalf of somebody else whereas in the above decisions, the Supreme Court having regard to the provisions of Article 366(29-A)(b) has adopted a wider meaning of the expression works contract . In the opinion of this court, while construing the provisions of the Income Tax Act, the ordinary meaning of the expression works contract is required to be taken into and resort cannot be had to the meaning of the said expression as envisaged under the relevant Sales Tax Act which are in the context of the provisions of Article 366(29-A)(b) of the Constitution - the interpretation rendered was based not on the normal meaning of the term works contract but on the special meaning assigned to it under the Act itself, which provided for a definition of inclusive nature - the Tribunal did not commit any error in holding that the assessees were entitled to the benefit u/s 80IB of the Act even where the title of the lands had not passed on the assessees and under some cases the development permissions also have been obtained in the name of the original owners thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act.
2. Applicability of the decision in the case of M/s. Radhe Developers.
3. Relevance of the Supreme Court decision in the case of Larsen & Toubro vs. State of Karnataka.

Detailed Analysis:

Issue 1: Deduction under Section 80IB(10) of the Income Tax Act

The appellant-revenue challenged the order of the Income Tax Appellate Tribunal allowing the deduction under Section 80IB(10) amounting to Rs. 4,62,69,270/-. The Assessing Officer had denied the deduction on the grounds that the assessee was not the owner of the land and was merely a contractor for the housing project. The assessee had entered into a Development Agreement with the land-owning societies and was responsible for the construction of housing units. The Assessing Officer concluded that the assessee did not fulfill the conditions of being both a developer and builder as required under Section 80IB(10) and was merely executing a works contract. However, the Commissioner of Income-tax (Appeals) and the Tribunal found that the assessee had taken full responsibility for the project, bore the cost and risk, and had dominant control over the land, thus meeting the criteria for deduction under Section 80IB(10).

Issue 2: Applicability of the Decision in the Case of M/s. Radhe Developers

The Tribunal followed the decision in the case of M/s. Radhe Developers, where it was held that ownership of the land is not a prerequisite for claiming deduction under Section 80IB(10). The court in Radhe Developers had determined that the assessee, who had full control over the development and bore all risks, was eligible for the deduction. The Tribunal found that the facts of the present case were similar to Radhe Developers, as the assessee had dominant control over the land, executed the project at its own risk, and was responsible for profit or loss. The Tribunal and Commissioner (Appeals) concluded that the assessee met all the necessary conditions for the deduction, thus dismissing the revenue's appeal.

Issue 3: Relevance of the Supreme Court Decision in the Case of Larsen & Toubro vs. State of Karnataka

The appellant argued that the decision in Larsen & Toubro, which dealt with the definition of "works contract" under the Sales Tax Act, should apply. The Supreme Court in Larsen & Toubro held that a developer could be considered as executing a works contract if the project involved construction for monetary consideration. The appellant contended that this interpretation should apply to the present case, thereby disqualifying the assessee from the deduction under Section 80IB(10). However, the court noted that the decision in Larsen & Toubro was rendered in the context of the Sales Tax Act and Article 366(29-A)(b) of the Constitution, which introduced a legal fiction for divisible contracts. The court opined that the ordinary meaning of "works contract" should be applied in the context of the Income Tax Act, and the broader interpretation under the Sales Tax Act was not applicable.

The court concluded that the Tribunal's reliance on Radhe Developers was appropriate, and the decision in Larsen & Toubro did not alter the applicability of Section 80IB(10) to the present case. The Tribunal's findings were based on concurrent facts and there was no perversity in its conclusions. Therefore, the appeal was dismissed, upholding the Tribunal's order allowing the deduction under Section 80IB(10).