2011 (6) TMI 979 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to proportionate deduction under Section 80IB(10) for residential units exceeding 1000 square feet.
2. Applicability of the amendment by the Finance (No. 2) Act 2004 with effect from 1.4.2005 regarding commercial area restrictions.

Detailed Analysis:

Issue 1: Proportionate Deduction under Section 80IB(10) for Residential Units Exceeding 1000 Square Feet

The primary issue was whether the assessee is entitled to a proportionate deduction under Section 80IB(10) when some residential units in a project exceed the prescribed built-up area of 1000 square feet. The Assessing Officer denied the deduction, arguing that Section 80IB(10) does not allow for proportionate deductions and that any violation of the conditions would render the entire project ineligible for the deduction.

However, the Tribunal referenced multiple precedents from various benches, including the Nagpur Bench in AIR Developers, the Bangalore Bench in DCIT vs. Brigade Enterprises Pvt. Ltd., and the Kolkata Bench in Bengal Ambuja Housing Development Ltd. These precedents consistently held that if some units exceed the prescribed area, the deduction should still be allowed on a proportionate basis for those units that comply with the prescribed limits.

The Tribunal also noted that the Hon'ble Bombay High Court in Brahma Associates did not specifically address the issue of proportionate deductions for units exceeding the prescribed area. Instead, the High Court dealt with the issue of commercial elements in residential projects. Consequently, the Tribunal upheld the CIT(A)'s decision to allow proportionate deductions, referencing the principle of liberal interpretation of tax incentive provisions as endorsed by the Hon'ble Supreme Court in Bajaj Tempo Ltd.

Issue 2: Applicability of the Finance (No. 2) Act 2004 Amendment Regarding Commercial Area Restrictions

The second issue was whether the amendment introduced by the Finance (No. 2) Act 2004, effective from 1.4.2005, which restricted the commercial area in a housing project to 5% of the total built-up area or 2000 square feet, whichever is less, applied to projects approved before this date. The Assessing Officer applied this restriction to deny the deduction for the assessee's project, which had a commercial area exceeding 2000 square feet.

The Tribunal found that the amendment was prospective and did not apply to projects approved before 1.4.2005. This conclusion was supported by decisions in Saroj Sales Organisation and Hiranandani Akruti JV, which held that the law as it stood at the time of the project's approval should be applied. The Tribunal emphasized that the legislature did not intend to take away vested rights without clear words to that effect.

The Tribunal also referenced the Hon'ble Bombay High Court's decision in Brahma Associates, which approved the view that the amendment was prospective. Consequently, the Tribunal upheld the CIT(A)'s decision to allow the deduction, dismissing the revenue's appeals.

Conclusion:

The Tribunal dismissed the revenue's appeals, affirming the CIT(A)'s decisions on both issues. The assessee was entitled to proportionate deductions for residential units under Section 80IB(10), and the amendment regarding commercial area restrictions was deemed prospective, not affecting projects approved before 1.4.2005.