2012 (7) TMI 87 - HC - Income Tax

Denial of claim of deduction under Section 80-IB (10) - flats whose built-up area was more than 1500 sq. ft - Held that - In calculating the built-up area it is only the inner measurements of the residential unit on the floor level, which has to be taken into consideration and if there are any projections and balconies which exclusively belongs to the residential units, then, that also has to be taken into consideration for deciding the built-up area.If that area does not exclusively belong to the owner of residential unit and if he has to share that common area with the owner of another residential unit, then that common area has to be excluded from the built-up area. In respect of 16 flats whose built-up area was considered more than 1500 sq. ft, the common area is shared by these 16 owners of residential units as this common area is not the subject matter of sale as is clear from the recitals in the sale deed, the owners of the residential units do not have exclusive right to use these balconies as they have to share it with others, that area cannot be taken into consideration to decide the built-up area, thus it is clear that if this balcony space is excluded all the 160 units are less than 1500 sq.ft and therefore the assessee was entitled to 100% tax exemption on this project - decided in favour of assessee.

Summary

Issues:
- Interpretation of Section 80-IB(10) of the Income Tax Act, 1961 regarding deduction eligibility based on built-up area not exceeding 1500 sq. ft.
- Determining whether common areas shared with other residential units should be excluded from built-up area calculations for tax benefits.

Issue 1: Interpretation of Section 80-IB(10)
The case involved an appeal by the revenue challenging the entitlement of the assessee to claim deduction under Section 80-IB(10) of the Income Tax Act. The assessee, a partnership firm engaged in construction and sale of flats, entered into a joint development agreement for a residential project. The assessing authority rejected the deduction claim as some flats exceeded 1500 sq.ft. The Appellate Authority allowed deduction on a pro rata basis, which was upheld by the Tribunal. The revenue contended that any violation of Section 80-IB(10) forfeited the exemption claim entirely. The assessee argued that balconies shared with others should be excluded from built-up area calculations. The Tribunal found in favor of the assessee, stating that excluding shared balconies made all units compliant with the 1500 sq.ft limit, entitling the assessee to 100% tax exemption.

Issue 2: Treatment of Common Areas in Built-Up Area Calculation
The central question was whether common areas shared with other residential units should be excluded from built-up area calculations for tax benefits. The Circular No.5/10 clarified conditions for Section 80-IB(10) deductions, emphasizing the exclusion of common areas. The definition of built-up area specified excluding common areas shared with other units. The judgment highlighted that if a residential unit's common area had to be shared with another unit, it should be excluded from the built-up area calculation. In this case, the shared balcony space was not exclusively owned by individual units, leading to entitlement to tax benefits. The Court emphasized the legislative intent to encourage housing projects for low and middle-income households by limiting unit sizes. The judgment concluded that excluding shared balconies made all units compliant with the 1500 sq.ft limit, entitling the assessee to full tax exemption.

In conclusion, the High Court upheld the Tribunal's decision, ruling in favor of the assessee and dismissing the revenue's appeal. The judgment clarified the interpretation of Section 80-IB(10) and the exclusion of shared common areas from built-up area calculations for tax benefits.