2015 (5) TMI 193 - SC - Income Tax

Deduction under Section 80IB(10) as applicable prior to 01.04.2005 - whether project which is cleared as residential plus commercial project cannot be treated as housing project and therefore, this direction is contrary to the provisions of Section 80(I)(B)(10)? - Held that - Projects which are approved by the local authorities as housing projects with commercial element therein. Reading the direction in its entirety and particularly the first sentence thereof, we find that commercial user which is permitted is in the residential units and that too, as per DCR. Examples given before us by the learned counsel for the assessee was that such commercial user to some extent is permitted to the professionals like Doctors, Chartered Accountants, Advocates, etc., in the DCRs itself. Therefore, we clarify that direction (b) is to be read in that context where the project is predominantly housing/ residential project but the commercial activity in the residential units is permitted.

Summary

Issues:
- Interpretation of Section 80IB(10) of the Income Tax Act regarding deduction for housing projects approved before 31st March 2005.
- Whether projects with a commercial element alongside residential units qualify as "housing projects" for the purpose of claiming the deduction.
- Consistency in High Courts' decisions on the interpretation of the term "housing project."

Analysis:
The Supreme Court addressed multiple Special Leave Petitions (SLPs) filed by the Revenue/Department of Income Tax against various High Court judgments on the deduction under Section 80IB(10) of the Income Tax Act before 1st April 2005. The High Courts uniformly ruled that the deduction under this provision would be applicable to a "housing project" approved by local authorities. The dispute arose when the income tax authorities rejected the deduction claim due to commercial activities within the projects. However, both the Income Tax Appellate Tribunal and the High Courts disagreed with this view, emphasizing that once a project is approved by the local authority, it qualifies as a housing project under Section 80IB(10).

The High Courts' interpretation of the term "housing project" focused on the approval by local authorities, rather than the presence of commercial elements within the project. The courts highlighted that the Income Tax Act did not define a housing project specifically for this provision. The High Court's analysis considered Development Control Regulations (DCRs) under which local authorities sanction housing projects, even if they include some commercial activities. The Supreme Court concurred with the High Court's conclusions, emphasizing that projects approved as "residential plus commercial" could still qualify for the deduction if the commercial usage adhered to the DC Rules/Regulations within prescribed limits.

In clarifying the High Court's directions, the Supreme Court specified that the commercial usage permitted should be within residential units and in compliance with DCRs. The Court dismissed the argument that projects labeled as "residential plus commercial" could not be treated as housing projects, emphasizing that the primary nature of the project should be residential, with ancillary commercial activities allowed within residential units. With this clarification, the Supreme Court disposed of all the SLPs related to this issue, affirming the High Courts' consistent interpretation of Section 80IB(10) regarding housing projects and commercial elements.