2021 (5) TMI 193 - HC - Income Tax

Deduction u/s 80IB(10) - open terrace area should not be included in computation of built up area for purpose of deduction - HELD THAT - Following the ratio laid down in M/S. VANDANA PROPERTIES, 2012 (4) TMI 54 - BOMBAY HIGH COURT and RADHE DEVELOPERS 2011 (12) TMI 248 - GUJARAT HIGH COURT , the questions of law are decided against the Revenue and in favour of the assessee.

Issues Involved:

1. Inclusion of open terrace area in the computation of built-up area for deduction under Section 80IB(10).
2. Time limit for completion of the eligible project.
3. Validity of completion certificate issued by Pallikaranai Panchayat versus Chennai Metropolitan Development Authority (CMDA).
4. Classification of the assessee as a developer or works contractor.
5. Ownership of land for eligibility under Section 80IB(10).

Detailed Analysis:

1. Inclusion of Open Terrace Area in Built-Up Area:
The Tribunal held that the open terrace area should not be included in the computation of the built-up area for the purpose of deduction under Section 80IB(10). This decision was based on the precedent set by the Hon’ble Jurisdictional High Court in the case of CIT v. Sanghvi & Doshi Enterprise, where it was determined that open terrace areas could not be considered part of the built-up area. The Tribunal meticulously calculated the built-up area and concluded that the total built-up area of each residential unit was 1465.03 sq ft, excluding the open terrace.

2. Time Limit for Completion of the Eligible Project:
The Tribunal ruled that the time limit for the completion of the eligible project should be computed from the date on which the building plan approval was obtained for the last time (29.03.2007), not from the date on which the layout was first approved (22.09.2003). This decision was influenced by the Hon’ble Bombay High Court's judgment in CIT v. Vandana Properties, which clarified that the approval date for the entire project should be considered from the date of the last approval of individual units, not the initial prototype approval.

3. Validity of Completion Certificate:
The Tribunal accepted the completion certificate issued by the Pallikaranai Panchayat without insisting on the completion certificate from the Chennai Metropolitan Development Authority (CMDA). It was noted that for housing projects developed in a CMDA-approved layout, the competent authority for issuing planning permission and building permits for independent buildings was the local authority, i.e., Pallikaranai Panchayat. This was confirmed by a letter from the Member-Secretary of CMDA.

4. Classification of the Assessee as Developer or Works Contractor:
The Tribunal determined that the assessee was a developer and builder, not a works contractor. The assessee had entered into agreements with landowners, developed infrastructure, and constructed independent houses, taking on investment risks. This classification was supported by various case laws and the Tribunal's detailed examination of the assessee's activities, which included developing roads, parks, and other amenities, and negotiating with prospective buyers.

5. Ownership of Land for Eligibility Under Section 80IB(10):
The Tribunal concluded that ownership of the land was not a prerequisite for claiming deduction under Section 80IB(10). This was in line with the judgments of the Hon’ble Gujarat High Court in CIT v. Radhe Developers and the Hon’ble Jurisdictional High Court in CIT v. Sanghvi & Doshi Enterprise, which held that the developer need not own the land to be eligible for the deduction. The assessee, having developed the land and constructed the houses, was deemed to have met the conditions for the deduction.

Conclusion:
The High Court, following the precedents set by the Madras, Bombay, and Gujarat High Courts, decided all questions of law against the Revenue and in favor of the assessee. Consequently, the appeal was dismissed with no costs.

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