2015 (7) TMI 1399 - AT - Income Tax

Deduction u/s 80IB - Claim denied as two units have exceeded the stipulated constructed area - definition of Built up Area in the newly inserted provisions of section 80IB(14)(a) - excess of area of maximum limit of 1500 sq. ft. to qualify for 80-IB(10) deduction and AO was of the view that the provisions of section 80IB are in respect of complete housing project and not individual unitwise, thereofre, 80IB deduction shall be allowed for complete housing project - Scope of newly inserted provision for definition of Built up Area in section 80IB(14)(a) - HELD THAT - We would like to state that the assessee has been granted completion certificate as per the sanctioned plan and no deviations or compounding fee have been reported/levied. Further, we would also like to state that those conditions can be applied to the housing projects which were on the statute book on the date when the housing projects were approved by local authority. In other words, in case the housing projects were approved by the local authority prior to 31.3.2004 then the newly inserted definition of Built up Area in section 80(1B)(14a) shall not be applicable to such housing projects. An assessee cannot be asked to comply with the conditions which were not a part of the statute when the housing project was approved and more so when such conditions are inextricably linked with the approval granted to the housing project by the local authority under its own rules and regulations. If the condition of sub-section (14)(a) of section 80IB is held applicable to the projects approved prior to 1.4.2005 then the assessee has to necessarily seek for a modified plan otherwise the assessee will not be eligible for exemption u/s 80IB(10) and when the assessee obtained valid approval and constructed the building in all respect prior to Ist April, 2005, then also if the provisions are applied retrospectively, the assessee would not be entitled to benefit of tax exemption. We would like to mention that such beneficial provisions in the Act have been brought into to bring in investment and to encourage infra-structure development of middle income housing projects. If these amended provisions are made effective retrospectively then it will negate the object of the provision. If certain areas are not considered as part of built up area as per Municipal Act then the definition of built up area that is introduced in the Act at later stage shall not be substituted to the project approved prior to that date. It is a settled law that the Court has to harmonize the provision and interpret the same in a manner to achieve the object of legislature than to distress the said object. Therefore, in our considered view, the definition of Built up area as inserted by subsection (14)(a) to section 80IB of the Act by the Finance Act (No. 2) 2004, cannot be applied retrospectively and if this definition is not applied, the measurement of constructed unit comes within the limit as provided in the Act. - Decided in favour of assessee.

Summary

Issues Involved
1. Whether the assessee is merely acting as a contractor.
2. Whether the assessee has made necessary investments.
3. Whether the project is approved as a whole by the Municipal Corporation.
4. Whether the built-up area exceeds the maximum limit of 1500 sq. ft.
5. Whether the completion certificate has been obtained within the stipulated period.

Issue-Wise Detailed Analysis

1. Whether the Assessee is Merely Acting as a Contractor
The Assessing Officer (AO) disallowed the deduction under section 80IB(10) of the Income Tax Act on the grounds that the assessee was merely acting as a contractor. The CIT(A) did not sustain this contention, stating that the assessee owned the land, developed the housing project, and carried out all necessary activities such as planning, infrastructure development, and construction. Therefore, the assessee could not be considered merely a contractor.

2. Whether the Assessee has Made Necessary Investments
The AO claimed that virtually no investment was made to start the project. The CIT(A) found this observation factually incorrect, noting that all necessary investments were made by the partners through capital contributions. For instance, in the assessment year 2006-07, an investment of Rs. 221.19 lakhs was made out of a total investment of Rs. 309.04 lakhs.

3. Whether the Project is Approved as a Whole by the Municipal Corporation
The AO argued that the project was not approved as a whole by the Municipal Corporation. The CIT(A) refuted this, stating that the layout plan of the housing project was indeed approved as a whole and not on an individual permission basis.

4. Whether the Built-Up Area Exceeds the Maximum Limit of 1500 Sq. Ft.
The AO disallowed the deduction based on measurements taken during the assessment year 2004-05, which indicated that two units exceeded the 1500 sq. ft. limit. The CIT(A) upheld this disallowance. However, the ITAT found that the definition of "built-up area" as per section 80IB(14)(a) is applicable only from 1.4.2005 and cannot be applied retrospectively. Therefore, the built-up area should be calculated as per local municipal laws for projects approved before this date. The ITAT concluded that the units in question did not exceed the 1500 sq. ft. limit when measured according to the applicable laws at the time of approval.

5. Whether the Completion Certificate has Been Obtained Within the Stipulated Period
The AO disallowed the deduction on the grounds that the completion certificate was not obtained by 31.3.2008. The CIT(A) upheld this contention. The ITAT, however, noted that the assessee had applied for the completion certificate on 28.9.2007 and submitted reminders thereafter. The certificate was eventually issued on 5.7.2010, which relates back to the date of application. The ITAT held that the amended provisions of section 80IB(10) do not apply retrospectively to projects approved before 1.4.2004. Therefore, the assessee's failure to obtain the completion certificate by the stipulated date should not disqualify them from the deduction.

Conclusion
The ITAT allowed the appeals of the assessee, concluding that:
1. The assessee was not merely acting as a contractor.
2. Necessary investments were made.
3. The project was approved as a whole by the Municipal Corporation.
4. The built-up area did not exceed the maximum limit of 1500 sq. ft. when measured according to the applicable laws at the time of approval.
5. The completion certificate issue should not disqualify the assessee from the deduction, as the amended provisions do not apply retrospectively.

The ITAT also dismissed the revenue's appeals, affirming the CIT(A)'s decision to grant relief to the assessee. The judgment emphasized that the beneficial provisions of section 80IB(10) should be interpreted in a manner that achieves the legislative intent of promoting investment and infrastructure development.