2009 (4) TMI 215 - AT - Income Tax

Interpretation of section 80-IB(10)(d) - Ceiling On Commercial Area - Eligibility of deduction u/s. 80IB(10) on housing project - Retrospectively Effect of amendment w.e.f. 01.04.2005 - Whether deduction under s. 80-IB(10) as applicable prior to 1st April 2005 is admissible in case of a housing project comprising residential housing units and commercial establishments? - Allowance of Proportionate deduction - size of residential unit is restricted to 1, 000 sq. fts. in areas within 25 kms from municipal limits in Delhi and Mumbai and to 1, 500 sq. fts. in other areas also shows this unmistakable thrust in the tax incentive - HELD THAT - A five Judge Bench of Hon ble Supreme Court in the case of Padmasundara Rao (Decd.) vs. State of Tamil Nadu 2002 (3) TMI 44 - SUPREME COURT had an occasion to attempt reconciling between the principle of casus omissus and the need of purposive interpretation. The view that non-residential use of built-up area upto 10 per cent will not vitiate the true character of a housing project is fully justified in the background of provision discussed above. In our view it would be illegal to apply ceiling of 5 per cent to assessment years prior to asst. yr. 2005-06 though no such ceiling was provided under the statute and deny benefit to borderline cases. At the same time there is no justification to allow exemption to project not carried as per the dominant objective of the provision. The legislature itself has accepted 5 per cent as permissible commercial use from asst. yr. 2005-06 onwards and in the period when such a limit was not in force we can safely take 10 per cent as the maximum permissible commercial use in a housing project for the reasons discussed.. There would be no legal justification to deny exemption to residential segment of such a housing project which satisfies conditions of s. 80-IB(10) on standalone basis merely because their project has been approved by local authority as a residential-cum-commercial project. If the income of the project pertaining exclusively to the construction of the residential units can be separately worked and other requirements of section are satisfied there is no good reason to withhold grant of incentive to such income of the undertaking. Apart from the above other undertakings exceeding above limit i.e. those with commercial built-up of more than 10 per cent of area in our opinion are not entitled to benefit of exemption as those undertakings have not worked in accordance with spirit and intendment of the statutory provision. Therefore we are not inclined to infer that a ceiling over commercial use of built-up area @ 5 per cent exists in the assessment year before us in which admittedly no such restriction finds place in the statute. We have also held that notwithstanding the inapplicability of this limit of 5 per cent limit in the assessment year in appeal before us it cannot be inferred that commercial use of built-up area could be allowed to any limit and yet the project will continue to be treated as a housing project. We have held that as long as the residential use of built-up area is 90 per cent or more it cannot be said that the project is not a predominantly housing project and accordingly deduction under s. 80-IB(10) cannot be declined. As regards Shri Kapila s reliance on Allied Motors case 1997 (3) TMI 9 - SUPREME COURT in support of the proposition that one has to take into account the intent of legislature and construe the provision accordingly it is not even the case of the Revenue that the provisions of s. 80-IB(10)(d) are retrospective in application and the aforesaid judgment lays down that when a proviso is inserted to remedy unintended consequences make the provision workable supplying an obvious omission in the section and required to be read into the section to give it reasonable interpretation it has to be treated as retrospective in operation . There is an inherent contradiction in the approach of the Revenue. Either s. 80-IB(10)(d) is retrospective in application or it is not. If it is not retrospective one cannot proceed on the basis that the ceiling of 5 per cent on non-residential use of aggregate built-up area is applicable in pre-amendment years as well. We are of the considered view that deduction under s. 80-IB(10) as applicable prior to 1st April 2005 is indeed admissible in case of a housing project comprising residential housing units and commercial establishments. Question No. 1 therefore must be answered in the affirmative. Accordingly we approve decisions of the Division Benches in the cases of Arun Excello Foundations (P) Ltd. 2007 (2) TMI 264 - ITAT MADRAS-A Harshad P. Doshi 2007 (1) TMI 461 - ITAT MUMBAI and Saroj Sales Organisation 2008 (1) TMI 420 - ITAT BOMBAY-E in this respect and we decline to concur with the view expressed in the case of Laukik Developers 2006 (7) TMI 534 - ITAT MUMBAI . As a matter of fact the view expressed by the Division Bench in the case of Laukik Developers as we have noted earlier in this order has not even been canvassed before us by the Revenue. We have noted that s. 80-IB(10) categorically refers to the profits derived in the previous year relevant to any assessment year from such housing project . What is deductible is profit of the housing project and not the profit attributable to the residential units . Once therefore we hold that the project in question is a housing project entire profits of the housing project are deductible under s. 80-IB(10). The question of proportionate deduction is therefore not at all relevant in this context. An exception however will have to be made out in a case where commercial use of built-up area is more than 10 per cent of the total area and yet in terms of our observations the assessee is eligible for deduction in respect of profits of the residential units segment of the project. In such a situation since residential unit segment is being treated on a standalone basis for eligibility to deduction under s. 80-IB(10) the eligibility for such deduction can only be for the profits which are in respect of residential unit segment of the overall project because in the light of the discussions only that part of the overall project can be said to be housing project. Accordingly eligibility for deduction under s. 80-IB(10) must remain confined to the same. The answer to question No. 2 is thus in negative though with the rider as set out above. Whether the limit under cl. (d) of s. 80-IB(10) will operate retrospectively and will also apply for the assessment year before us - There is no dispute on this question also. Learned representatives have agreed that cl. (d) is not to be treated as retrospective in application. That aspect of the matter is also not in dispute before us. We accordingly hold that the limit under cl. (d) of s. 80-IB(10) will not apply. To sum up the conclusions; (a) The deduction under s. 80-IB(10) as applicable prior to 1st April 2005 subject to and in the light of the observations made in the preceding paras is admissible in case of a housing project comprising residential housing units and commercial establishments. In case these projects are approved as housing projects by the local authority such an approval as housing project is sufficient for the purposes of eligibility. In any other case where 90 per cent or more of the total built-up area is used for dwelling units in accordance with the scheme of s. 80-IB(10) the benefit of deduction under s. 80-IB(10) will not be declined. In case commercial use of built-up area is more than 10 per cent but the residential segment of the project satisfies requirements of s. 80-IB(10) on standalone basis i.e. (i) the size of the plot excluding portion under commercial unit is more than minimum area of one acre (ii) residential units built on such area must satisfy condition of cl. (c) of the provision and (iii) other necessary conditions are fulfilled and where income from construction of residential dwelling units can be worked out on standalone basis deduction under s. 80-IB(10) will be available in respect of residential segment of the project. (b) The deduction under s. 80-IB(10) is available in respect of profits of housing project as a whole and as such it is not relevant as to what is the portion of profits which can be said to be attributable to residential units. This is subject to the rider that in case commercial use of built-up area in a project is more than 10 per cent and for this reason the project cannot be said to be a predominantly housing project but in terms of observations made in para 115 above the assessee is entitled to deduction in respect of residential unit segment of the overall project on fulfilment of necessary conditions the entitlement of incentive deduction will be confined to only to the profits to the residential segment of the overall project. (c) The limit on commercial use of built-up area as prescribed by cl. (d) of s. 80-IB(10) has no retrospective application and it applies only w.e.f. the asst. yr. 2005-06. The matters will now to go to the Division Benches for disposing of the appeals in the light of inter alia our above conclusions.

Summary

Issues Involved:
1. Eligibility of deduction under Section 80-IB(10) for housing projects comprising residential housing units and commercial establishments.
2. Proportionate deduction for residential units if the project includes commercial establishments.
3. Applicability of the limit prescribed by clause (d) of Section 80-IB(10).

Issue-wise Detailed Analysis:

1. Eligibility of Deduction under Section 80-IB(10) for Housing Projects Comprising Residential Housing Units and Commercial Establishments:
The Tribunal considered whether a housing project with both residential and commercial units qualifies for deduction under Section 80-IB(10). It was noted that the term "housing project" is not defined in the Act, leading to divergent views. The Tribunal concluded that the deduction is indeed admissible for such projects, provided the project is approved by the local authority as a housing project or if 90% or more of the total built-up area is used for residential units. The Tribunal emphasized that the primary objective of Section 80-IB(10) is to augment affordable dwelling units, and the presence of commercial units does not vitiate the character of the housing project as long as the residential component predominates.

2. Proportionate Deduction for Residential Units if the Project Includes Commercial Establishments:
The Tribunal addressed whether proportionate deduction should be allowed for profits attributable to residential units. It was clarified that Section 80-IB(10) allows deduction for the entire profits of the housing project and not just the portion attributable to residential units. However, if the commercial use exceeds 10% of the total built-up area, the deduction should be confined to the profits from the residential segment of the project, provided the residential segment independently meets the conditions of Section 80-IB(10).

3. Applicability of the Limit Prescribed by Clause (d) of Section 80-IB(10):
The Tribunal examined whether the limit on commercial use of built-up area prescribed by clause (d) of Section 80-IB(10) applies retrospectively. It was concluded that this limit is not retrospective and applies only from the assessment year 2005-06 onwards. The Tribunal emphasized that prior to this amendment, there was no explicit statutory limit on commercial use in housing projects, and such a restriction cannot be inferred retrospectively.

Conclusion:
The Tribunal held that:
- Deduction under Section 80-IB(10) is admissible for housing projects with both residential and commercial units if approved by the local authority as a housing project or if 90% or more of the built-up area is for residential units.
- Deduction applies to the entire profits of the housing project, not just the residential portion, except when commercial use exceeds 10%, in which case it is limited to profits from the residential segment.
- The limit on commercial use prescribed by clause (d) of Section 80-IB(10) is not retrospective and applies only from the assessment year 2005-06.