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2018 (5) TMI 1159 - HC - Income TaxDeduction u/s 80IB(10) r.w.s. 80IB(1) - profits derived from sale of unutilized FSI - element of profit derived from the business activity of development and construction of housing project - Held that - For the reasons recorded in case of Moon Star Developers 2014 (4) TMI 1042 - GUJARAT HIGH COURT wherein held if there has been considerable underutilization, if the assessee can point out any special grounds why the FSI could not be fully utilized, the case may stand on a different footing - in cases where the utilization of FSI is way short of the permissible area of construction, looking to the scheme of section 80IB(10) of the Act and the purpose of granting deduction on the income from development of housing projects envisaged, bifurcation of profits arising out of such activity and that arising out of the net sell of FSI must be resorted to - none of the assessee have made any special ground for non-utilization of the FSI - Decided in favour of Revenue.
Issues Involved:
1. Deduction under section 80IB(10) of the Income Tax Act on profits from the sale of unutilized FSI. 2. Fulfillment of the pre-condition for the development of a minimum of one acre of land for eligibility for deduction under section 80IB(10). Detailed Analysis: Issue 1: Deduction under section 80IB(10) on profits from the sale of unutilized FSI The primary issue was whether the assessee could claim a deduction under section 80IB(10) of the Income Tax Act on profits derived from the sale of unutilized Floor Space Index (FSI). The Assessing Officer rejected the claim on the grounds that the assessee was not the owner of the land and thus failed the test of being a developer. The CIT(Appeals) upheld this decision, noting that the assessee had not developed the minimum plot area of one acre as required under section 80IB(10). The Tribunal, however, allowed the assessee's appeal, relying on the judgment in Commissioner of Income Tax vs. Radhe Developers, which did not mandate the full utilization of permissible FSI for claiming the deduction. The Tribunal found that the assessee had developed a housing project on a land admeasuring 3786 sq.mtrs, with a permissible FSI of 1.8, but had only utilized 4037.76 sq.mtrs of the permissible 13294.8 sq.mtrs. The High Court referred to the case of Commissioner of Income Tax vs. Moon Star Developers, which clarified that profits from the sale of unused FSI are distinct from profits derived from the development of a housing project. It emphasized that underutilization of FSI, especially when significant, cannot be considered as profits derived from the development of a housing project. The Court held that the assessee’s profits from the sale of unutilized FSI could not be included for deduction under section 80IB(10). Issue 2: Fulfillment of the pre-condition for the development of a minimum of one acre of land The second issue was whether the assessee fulfilled the pre-condition of developing a minimum of one acre of land for eligibility under section 80IB(10). The CIT(Appeals) had concluded, based on the DVO's report, that the assessee had not developed land exceeding one acre by dividing the total construction area by the permissible FSI. The High Court found this approach incorrect both in facts and in law. The Court noted that the total construction carried out by the assessee should not be divided by the permissible FSI to compute the developed land area. Consequently, the second question framed by the Court at the time of admission of the appeal was not answered as it arose from an incorrect appreciation of facts by the Revenue. Conclusion: The High Court allowed the appeals in favor of the Revenue, setting aside the judgments of the Tribunal. The Court held that the assessee could not claim a deduction under section 80IB(10) on profits derived from the sale of unutilized FSI, and the approach of dividing the total construction by the permissible FSI to determine the developed land area was incorrect. All tax appeals were disposed of accordingly.
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