2019 (2) TMI 906 - HC - Income Tax

Deduction u/s 80IB (10) denied - assessee had entrusted the development to another company by execution of a Joint Development Agreement - claim of an assessee incorporated for the purpose of real estate development for deduction - learned Senior Standing Counsel submitted that the builder, M/s.ETA has also claimed deduction and it would amount to double deduction - Held that - As seen from the P L the appellant has not taken the cost of the land into consideration thereby claiming more surplus income for the purpose of 80IB(10) benefit. The appellant has shown only increase in work-in-progress of ₹ 2.22 crores along with some minimal expenses in its P L but this has nothing to do with the cost of the land alone. Tribunal merely stated that no expenses were recorded in the P L account. Therefore, the contention advanced by the Revenue in this regard is not tenable. That apart, a plain reading of Section 80IB(10) of the Act evidently makes it clear that deduction is available in a case where an undertaking develops and builds a housing project. The Section clearly draws the distinction between 'developing' and 'building'. In the preceding paragraphs, we have noted the factual position as could be culled out from the joint venture agreement, which clearly shows that the assessee is the developer and M/s.ETA is the builder and mutual rights and obligations are inextricably linked with each other and undoubtedly, the project is a housing project thereby, the assessee would be entitled to claim deduction under Section 80IB (10) of the Act. Thus, for the above reasons, we hold that the Tribunal erred in reversing the order passed by the CIT(A). We find that the authorised representative, who appeared on behalf of the assessee has specifically stated that there is no case of double deduction and it is only proportionate to their respective shares. We find that the Tribunal has not given any finding as to any double deduction and therefore, such a plea cannot be canvassed before us in this appeal. - Appeal filed by the assessee is allowed

Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act, 1961 for real estate developers.
2. Impact of Joint Development Agreement on eligibility for deduction under Section 80IB(10).
3. Tribunal's disregard for prior decisions of co-ordinate benches.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB(10) of the Income Tax Act, 1961 for real estate developers:

The appeal concerns the assessee's claim for deduction under Section 80IB(10) of the Income Tax Act, 1961, which was disallowed by the Assessing Officer on the grounds that the assessee did not execute or develop a housing project directly but contributed land to another company, M/s. ETA Properties & Investments P Ltd., in exchange for flats. The CIT(A) allowed the appeal, directing the Assessing Officer to re-work the eligibility for deduction, but the Tribunal reversed this decision, stating that the assessee could not be considered a developer as it did not take any investment risk or incur construction expenses.

The High Court, referencing multiple precedents, concluded that the assessee, by contributing land and undertaking developmental activities, fulfilled the conditions for deduction under Section 80IB(10). The court cited the Karnataka High Court's decision in CIT vs. Shravanee Constructions and the Madras High Court's decisions in CIT vs. Sanghvi and Doshi Enterprise and CIT vs. Ceebros Property Development (P.) Ltd., which supported the view that the developer need not own the land to claim the deduction. The court emphasized that the deduction is oriented towards the project rather than the entity, and the developer's role in developing and building the housing project qualifies for the deduction.

2. Impact of Joint Development Agreement on eligibility for deduction under Section 80IB(10):

The Tribunal had held that the Joint Development Agreement (JDA) between the assessee and M/s. ETA could not be considered a joint venture for the purpose of claiming deduction under Section 80IB(10). The High Court disagreed, stating that the JDA, where the assessee contributed land and undertook development activities while M/s. ETA handled construction, qualified as a joint undertaking for developing a housing project.

The court referred to the terms of the JDA, which outlined the mutual obligations and contributions of both parties, demonstrating that the assessee was actively involved in the development process. The court also noted that the CIT(A) had considered the expenses incurred by the assessee, such as architect fees and reclassification charges, which were sufficient to establish the assessee's role in the project. The Tribunal's observation that these expenses were not reflected in the P & L account was dismissed by the court, as the CIT(A) had already addressed this issue.

3. Tribunal's disregard for prior decisions of co-ordinate benches:

The Tribunal's decision to reverse the CIT(A)'s order was criticized for not considering the consistent judicial precedents that supported the assessee's claim. The High Court highlighted that the Tribunal failed to provide a reasoned basis for disregarding the CIT(A)'s detailed findings and the established legal principles from previous cases.

The court reiterated the importance of adhering to judicial consistency and the binding nature of precedents, particularly when the facts and legal issues are similar. The Tribunal's failure to do so was deemed an error, leading to the reinstatement of the CIT(A)'s order.

Conclusion:

The High Court allowed the appeal, setting aside the Tribunal's order and restoring the CIT(A)'s decision. The court affirmed that the assessee was entitled to the deduction under Section 80IB(10) of the Income Tax Act, 1961, as the JDA constituted a joint undertaking for developing a housing project, and the assessee fulfilled the necessary conditions for the deduction. The court also dismissed the Revenue's contention regarding double deduction, as no such finding was made by the Tribunal. The substantial questions of law were answered in favor of the assessee.

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