2015 (6) TMI 836 - AT - Income Tax

Claim for deduction u/s. 80IB(10) - CIT(A) allowed the claim - Held that - As per clause 15 of the development agreement, the developer was entitled for the profit of the difference between the gross amount received from the members towards construction of bungalows ( ) development of basic common infrastructure amenities and the total cost incurred by the developer towards building material, labour, construction, interest, other charges. Meaning thereby the developer was required to bear all costs and expenditure for the completion of the scheme. In one of the clause, it was agreed upon that all the finances for the purpose of construction shall be arranged by the said developer. With this background of the agreement, with the ledger account of the society as maintained in the books of accounts of the assessee to demonstrate that on 12th of February, 2005 a sum of ₹ 10 lac was paid to the society through cheque of Bank of India. Thereafter regular payments were made; that too through account payee cheques and on 30th March, 2008 by a JV entry under Land Account a sum of ₹ 92,61,613/- was transferred. Also one of the schedule of the balance sheet to demonstrate that the cost of land was reflected in the account. Learned AR has also informed that the assessee had arranged the finances but simultaneously also received the development charges from the members of the society. There is a difference between a developer and a contractor which was elaborately explained to learned CIT(A) who has considered those legal aspect in the light of the facts of this case. We have noted that in the case of Radhey Developers, (2011 (12) TMI 248 - GUJARAT HIGH COURT ) the Hon ble Court has opined that ownership of the property is not the only condition precedent, especially under the circumstances when an agreement is executed to develop a property and the developer has full authority to execute the project but side by side also undertaken the risk as well as the responsibilities. Respectfully following the decision of the Hon ble High Court in the background of the facts of this case, we hereby uphold the view taken by learned CIT(A) and dismiss the ground of the Revenue. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of provisions of section 80IB(10) of the Income Tax Act regarding deduction for housing projects.
2. Determination of ownership of land and eligibility for deduction under section 80IB(10).
3. Examination of the distinction between a developer and a contractor in the context of a housing project.

Analysis:

Issue 1: Interpretation of provisions of section 80IB(10)
The case involved an appeal by the Assessee against the order of the CIT(A)-XV, Ahmedabad, regarding the allowance of a claim for deduction of Rs. 59,03,910 under section 80IB(10) of the Income Tax Act. The Assessing Officer (AO) had objected to the claim, stating that the Assessee did not fulfill the conditions specified in the section. The AO argued that the Assessee was not the owner of the land and, therefore, not entitled to the deduction. The AO's objections were based on the legal entity of the landowner and the development agreement entered into by the Assessee with the landowner association. The AO concluded that the Assessee was a mere builder and not the developer of the project, thus ineligible for the deduction.

Issue 2: Determination of ownership of land and eligibility for deduction
The CIT(A) examined the evidence and facts, referencing a previous decision of the ITAT Bench A Ahmedabad in the case of M/s. Shakti Corporation. The CIT(A) held that the Assessee fulfilled the conditions of section 80IB(10) and had practically purchased the land, bearing the risk of development. The CIT(A) directed the AO to allow the deduction, emphasizing that the Assessee had met the tests laid down in the aforementioned decision. The Revenue challenged this decision, arguing that the land was not purchased by the Assessee and that no risk was undertaken. The Revenue contended that the CIT(A) wrongly allowed the claim.

Issue 3: Examination of the distinction between a developer and a contractor
The Tribunal analyzed the development agreement between the Assessee and the landowner association, highlighting clauses that outlined the responsibilities and liabilities of the developer. The agreement specified that the developer was responsible for all acts related to the development and construction of the property. The Tribunal noted that the developer bore all costs and expenditures for the project, demonstrating a level of risk and responsibility beyond that of a mere contractor. By referencing legal precedents and the distinction between a developer and a contractor, the Tribunal upheld the view taken by the CIT(A) and dismissed the Revenue's appeal.

In conclusion, the Tribunal affirmed the eligibility of the Assessee for the deduction under section 80IB(10) based on the practical purchase of the land, assumption of development risks, and fulfillment of statutory conditions, distinguishing the Assessee's role as a developer rather than a mere contractor in the housing project.