2015 (2) TMI 198 - AT - Income Tax

Deduction u/s. 80IB(10)- Assessing Officer has disallowed the claim of assessee on the ground that assessee firm is not the owner of land at relevant point of time on which project was constructed and permission from local authority was not accorded in the name of assessee firm - whether the legal relationship between the assessee and the end user of the units was that of work contract ? - Held that - For the purpose of claiming deduction u/s 80IB(10) of the Act, it is not necessary for assessee to own the land. Such condition is not mentioned in the relevant section. In view of above discussion, this ground as taken by Assessing Officer was not justified in rejecting the claim of assessee because in this case, housing project has been approved by the local authority on 24-05-2004 and plan was passed on 02-08-2004. The size of plot of land was 12,141.59 sq.mtrs. which was more than 1 acre. Built-up area of each unit did not exceed 1500 sq.fts. The undertaking starting construction in the financial year 2004-05 and the same was completed in F.Y. 2007-08. Assessee firm developed housing project and entire risk with regard to such housing project was to be borne by it only. Accordingly, Assessing Officer was not justified in denying the claim u/s. 80IB(10) and same has rightly been granted by CIT(A). This reasoned finding of CIT(A) needs no interference from our side. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income-tax Act for the assessment years 2005-06, 2006-07, and 2007-08.
2. Ownership of the land on which the housing project was developed.
3. Whether the assessee acted as a "work contractor" or as a developer.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The primary issue in these appeals was whether the assessee was eligible for deductions under Section 80IB(10) of the Income-tax Act for the assessment years 2005-06, 2006-07, and 2007-08. The Revenue contended that the assessee was not entitled to these deductions because the legal relationship between the assessee and the end-users of the units was that of a 'work contract'.

The assessee had claimed deductions of Rs. 19,33,110/- for A.Y. 2005-06, Rs. 12,21,790/- for A.Y. 2006-07, and Rs. 9,41,940/- for A.Y. 2007-08 under Section 80IB(10). The Assessing Officer (AO) disallowed these claims on the grounds that the assessee firm was not the owner of the land on which the housing project was constructed, and the permissions from the local authority were not in the name of the assessee firm.

2. Ownership of the Land:
The AO's main argument was that the land on which the housing project was developed was not owned by the assessee firm but by four individual partners who introduced the land as capital in the firm. The AO observed that the land was purchased by four persons before the constitution of the firm and that the firm was not the owner of the subject land. The AO concluded that the assessee was merely a construction contractor and not eligible for the deduction under Section 80IB(10).

The assessee argued that the land was introduced as capital by the partners into the firm, making it the property of the firm. This introduction of land as capital is treated as a transfer under Section 45(3) of the Act. The assessee further contended that the housing project was approved by the local authority, and the approval was granted to the project rather than to a specific developer or landowner.

3. Developer vs. Work Contractor:
The AO contended that the assessee acted as a 'work contractor' and not as a developer. According to the AO, the assessee firm executed the housing project as a works contract, which disqualified it from claiming the deduction under Section 80IB(10) as per the Explanation inserted by the Finance (No.2) Act, 2009.

The assessee, however, maintained that it fulfilled all conditions prescribed under Section 80IB(10) and that the project was approved by the local authority. The assessee relied on the legal precedent set by the Hon'ble Gujarat High Court in the case of CIT vs. Radhey Developer India Ltd. & Another (2012) 341 ITR 403 (Guj), which held that it is not necessary for the developer to own the land to claim the deduction under Section 80IB(10).

Judgment:
The Tribunal found that the assessee firm was engaged in the business of real estate and had claimed deductions under Section 80IB(10) for the construction of a housing project. The Tribunal noted that the land on which the housing project was developed was introduced as capital by the partners into the firm, making it the property of the firm. The Tribunal also observed that the housing project was approved by the local authority and that all conditions under Section 80IB(10) were satisfied.

The Tribunal upheld the CIT(A)'s decision to allow the deductions, stating that the AO was not justified in denying the claim based on the ownership of the land. The Tribunal reiterated that it is not necessary for the developer to own the land to claim the deduction under Section 80IB(10), as long as the housing project is approved by the local authority and all conditions are met.

The appeals filed by the Revenue for all three years were dismissed, and the CIT(A)'s orders allowing the deductions were upheld.

Conclusion:
The Tribunal concluded that the assessee was entitled to the deductions under Section 80IB(10) for the assessment years 2005-06, 2006-07, and 2007-08. The Tribunal found that the assessee had fulfilled all the conditions prescribed under the section and that the AO's grounds for disallowance were not justified. The appeals filed by the Revenue were dismissed.