2016 (4) TMI 171 - HC - Income Tax

Denial of relief under Section 80IB - Held that - As the owner of the land is concerned, the assessee actually acted as the developer. They had undertaken the following activities namely (i) engagement of architects (ii) preparation of building plans for approval (iii) coordinating with the Local Body for the grant of building plan approval (iv) identification of purchasers of flats and (v) entering into agreements of construction with them. All the above activities cannot be undertaken, if a person was merely a contractor. Therefore, primarily, the view taken by the Tribunal appears to be wholly unsustainable. Drawing our attention to the Explanation inserted towards the end of Sub-Section (10) of Section 80IB, it is contended by the learned Standing Counsel for the Department that the benefit of Section 80IB is not available to any undertaking, which executes a housing project or a works contract awarded by any person. This Explanation was inserted by Finance Act 2/2001 with effect from 1.4.2001. But unfortunately for the Department, the above Explanation has no application to the case on hand. The assessee did not execute a housing project as a works contract for the owner of the land. The relationship that the assessee had with the purchasers of undivided shares has been misunderstood as the relationship that they had with the owner of the land. Therefore, the Tribunal was wrong in holding the appellant to be a mere contractor. - Decided in favour of assessee.

Summary

Issues:
1. Denial of relief under Section 80IB of the Income Tax Act.
2. Classification as a developer or contractor under the Joint Development Agreement.

Analysis:
1. The appellant filed a tax case appeal under Section 260A of the Income Tax Act, challenging the denial of relief under Section 80IB. The appeal raised questions regarding the correctness of the Income Tax Appellate Tribunal's decision in denying the relief when the appellant met all necessary parameters. The Tribunal's failure to consider the appellant's eligibility for the relief under Section 80IB was a key issue in this case.

2. The dispute arose from the classification of the appellant as either a developer or a contractor under a Joint Development Agreement. The agreement involved the appellant undertaking activities like engaging architects, preparing building plans, obtaining approvals, marketing apartments, and constructing buildings. The Assessing Officer, supported by the Commissioner (Appeals) and the Tribunal, classified the appellant as a contractor based on specific criteria.

3. The Tribunal's decision was primarily based on the perception that the appellant acted as a contractor due to the nature of agreements with purchasers of undivided shares of the land. However, the High Court observed that the appellant functioned as a developer concerning the landowner, engaging in activities beyond typical contractor responsibilities. The High Court emphasized the distinction between the roles played by the appellant with the landowner and the purchasers.

4. The High Court highlighted the importance of the Explanation inserted in Section 80IB, indicating that the benefit is not available to undertakings executing housing projects as works contracts. The Department argued that this provision applied to the appellant. Still, the High Court disagreed, stating that the appellant did not execute a housing project as a works contract for the landowner, clarifying the misunderstanding between the relationships with the landowner and the purchasers.

5. Ultimately, the High Court ruled in favor of the appellant, concluding that the Tribunal's decision was incorrect. The High Court found the Tribunal's classification of the appellant as a mere contractor unsustainable, emphasizing the appellant's developer role in the project. As a result, the tax case appeal was allowed, and the questions of law were answered in favor of the appellant, leading to the closure of the matter without costs.