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2015 (5) TMI 555 - SC - Income TaxEntitlement to deduction under Section 80IB(10) - Whether Section 80IB(10)(d) of the Income Tax Act, 1961 applies to a housing project approved before 31.03.2005 but completed on or after 01.04.2005? - Held that - In the present case, the approval of the housing project, its scope, definition and conditions, all are decided and dependent by the provisions of the relevant DC Rules. In contrast, the judgment in M/s. Reliance Jute and Industries Ltd. 1979 (10) TMI 2 - SUPREME Court was concerned with income tax only. (b) The position of law and the rights accrued prior to enactment of Finance Act, 2004 have to be taken into account, particularly when the position becomes irreversible. (c) The provisions of Section 80IB(10) mention not only a particular date before which such a housing project is to be approved by the local authority, even a date by which the housing project is to be completed, is fixed. These dates have a specific purpose which gives time to the developers to arrange their affairs in such a manner that the housing project is started and finished within those stipulated dates. This planning, in the context of facts in these appeals, had to be much before 01.04.2005. (d) The basic objective behind Section 80IB(10) is to encourage developers to undertake housing projects for weaker section of the society, inasmuch as to qualify for deduction under this provision, it is an essential condition that the residential unit be constructed on a maximum built up area of 1000 sq.ft. where such residential unit is situated within the cities of Delhi and Mumbai or within 25 kms. from the municipal limits of these cities and 1500 sq.ft. at any other place. (e) It is the cardinal principle of interpretation that a construction resulting in unreasonably harsh and absurd results must be avoided. (f) Clause (d) makes it clear that a housing project includes shops and commercial establishments also. But from the day the said provision was inserted, they wanted to limit the built up area of shops and establishments to 5% of the aggregate built up area or 2000 sq.ft., whichever is less. However, the Legislature itself felt that this much commercial space would not meet the requirements of the residents. Therefore, in the year 2010, the Parliament has further amended this provision by providing that it should not exceed 3% of the aggregate built up area of the housing project or 5000 sq.ft., whichever is higher. This is a significant modification making complete departure from the earlier yardstick. On the one hand, the permissible built up area of the shops and other commercial shops is increased from 2000 sq.ft. to 5000 sq.ft. On the other hand, though the aggregate built up area for such shops and establishment is reduced from 5% to 3%, what is significant is that it permits the builders to have 5000 sq.ft. or 3% of the aggregate built up area, whichever is higher . In contrast, the provision earlier was 5% or 2000 sq.ft., whichever is less . (g) From this provision, therefor, it is clear that the housing project contemplated under sub-section (10) of Section 80IB includes commercial establishments or shops also. Now, by way of an amendment in the form of Clause (d), an attempt is made to restrict the size of the said shops and/or commercial establishments. Therefore, by necessary implication, the said provision has to be read prospectively and not retrospectively. As is clear from the amendment, this provision came into effect only from the day the provision was substituted. Therefore, it cannot be applied to those projects which were sanctioned and commenced prior to 01.04.2005 and completed by the stipulated date, though such stipulated date is after 01.04.2005. Thus High Court was correct in allowing the exemption to assessee in present case since this amendment is prospective and has come into effect from 01.04.2005, this condition would not apply to those housing projects which had been sanctioned and started earlier even if they finished after 01.04.2005 as that of assessee. - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 80IB(10)(d) of the Income Tax Act, 1961 to housing projects approved before 31.03.2005 but completed on or after 01.04.2005. 2. Interpretation of 'housing projects' under Section 80IB(10) prior to 01.04.2005. 3. Prospective vs. retrospective application of the amendment to Section 80IB(10) effective from 01.04.2005. Issue-wise Detailed Analysis: 1. Applicability of Section 80IB(10)(d) of the Income Tax Act, 1961: The primary issue was whether the new conditions under Section 80IB(10)(d), introduced by the Finance No.2 Act, 2004 effective from 01.04.2005, apply to housing projects approved before 31.03.2005 but completed on or after 01.04.2005. The Supreme Court held that the amendment is prospective and does not apply to projects approved before 31.03.2005. The Court emphasized that the amendment cannot retroactively impose new conditions on projects that were sanctioned and commenced before the effective date of the amendment. 2. Interpretation of 'Housing Projects' under Section 80IB(10) prior to 01.04.2005: The Court examined the interpretation of 'housing projects' under Section 80IB(10) before the amendment. It was noted that prior to 01.04.2005, there was no specific limit on the built-up area for commercial purposes within housing projects. The Bombay High Court, in C.I.T. v. Brahma Associates, had held that projects approved by local authorities as 'housing projects' were eligible for deduction under Section 80IB(10), even if they included commercial establishments, as long as they complied with local laws. This interpretation was endorsed by the Supreme Court, affirming that the term 'housing project' includes projects with permissible commercial use as approved by local authorities. 3. Prospective vs. Retrospective Application of the Amendment: The Court discussed the principle that tax laws generally apply to the assessment year unless expressly stated otherwise. However, it was determined that the new condition under Section 80IB(10)(d) introduced from 01.04.2005 could not be applied retrospectively to projects approved and commenced before this date. The Court reasoned that developers who had planned their projects based on the laws existing before the amendment had vested rights that could not be taken away by a subsequent change in law. The Court highlighted that the amendment was intended to apply prospectively and not retrospectively, ensuring that developers were not unfairly penalized for adhering to the regulations in place at the time of their project's approval. Conclusion: The Supreme Court upheld the judgments of various High Courts that the amendment to Section 80IB(10) effective from 01.04.2005 is prospective and does not apply to housing projects approved before 31.03.2005. The Court affirmed that developers who had their projects sanctioned under the pre-amendment rules were entitled to the benefits of Section 80IB(10) without the new conditions imposed by the amendment. The appeals by the Revenue were dismissed, confirming that the assessees were entitled to the deductions claimed under the original provisions of Section 80IB(10).
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