2012 (12) TMI 415 - HC - Income Tax

Deduction u/s 80IB(10) - whether allowable on a prorata basis where both commercial and residential houses have been built and when there is no such provision under the statute to grant the same? - Held that - Housing project defined under Section 80HHBA refers not only building, but also road, bridge or other structure in any part of India. Given the fact that the one and only definition we have on the housing project is under Section 80HHBA and it refers to the project of construction of a building apart from other things, the expression housing project as defined therein referring to any building , should be taken as referable to a structure that is built irrespective of its usage as for residential/commercial usage for the purpose of understanding the scope of Section 80-IB(10). Thus, as rightly pointed out by assessee, irrespective of the purpose for which the housing project has been developed and constructed, so long as the conditions stipulated under Section 80-IB(10) are satisfied, the assessee would be entitled to the benefit of deduction under the said provision. Given the object of the provisions under Section 80-IB(10) when the deduction to be granted is on the profits and gains of undertaking developing and constructing approved housing projects, in the absence of restrictive covenant under sub- Section (10) of Section 80-IB, no justifiable ground to hold that on the mere fact of some of the units having the built-up area exceeding the condition specified under clause (c), the claim for deduction would stand rejected on the entire project. As pointed out in CIT v. BRAHMA ASSOCIATES 2011 (2) TMI 373 - BOMBAY HIGH COURT with zones classification permitting commercial establishment in residential flats too, once the local authorities approved the project with or without the commercial use as permitted under the Rules, the project approved is eligible for deduction under Section 80IB(10). When the project fulfills the criteria for being approved as a housing project, then, deductions cannot be denied under Section 80IB(10) merely because the project is approved as residential plus commercial - In the case of mixed projects, the assessee s claim has to be allowed in full, if all the residential units satisfied clause (c); otherwise, to the extent of compliance, the relief has to be worked out. A housing project of commercial premises is entitled to 100% deduction, there being no necessity of looking at clause (c) for compliance - in favour of assessee.

Summary

Issues Involved:

1. Whether deduction under Section 80IB(10) is allowable on a prorata basis where both commercial and residential houses have been built.
2. Whether the Tribunal was correct in holding that the amendment to Section 80IB(10)(d) effective from 1.4.2005 is prospective and not retrospective.
3. Interpretation of the term "housing project" under Section 80IB(10) of the Income Tax Act.

Detailed Analysis:

1. Deduction under Section 80IB(10) on a Prorata Basis:

The core issue revolves around whether the deduction under Section 80IB(10) can be claimed on a prorata basis when both commercial and residential units are part of the same project. The Tribunal held that the assessee complied with the conditions stipulated in Section 80IB(10) and allowed the deduction on the residential units constructed on a prorata basis. The Tribunal noted that the total extent used for commercial construction was 9.31%, and the assessee was entitled to the deduction for the residential units on a prorata basis, excluding the commercial area.

The High Court upheld this view, stating that the provisions of Section 80IB(10) as they stood during the relevant assessment years did not restrict the inclusion of commercial areas in housing projects. The Court emphasized that the term "housing project" should not be interpreted narrowly to exclude commercial units. The Court concluded that the assessee is entitled to prorata relief for the residential units, as the law did not explicitly prohibit such an interpretation.

2. Prospective Nature of the Amendment to Section 80IB(10)(d):

The Tribunal and subsequently the High Court agreed that the amendment to Section 80IB(10)(d), which restricted the built-up area for commercial usage in housing projects, was effective from 1.4.2005 and was not retrospective. The Tribunal noted that the legislative history and the specific wording of the amendment indicated its prospective nature. The High Court affirmed this, emphasizing that the amendment could not be applied retrospectively to the assessment years in question (2003-04 and 2004-05).

3. Interpretation of "Housing Project":

The High Court explored the definition of "housing project" under Section 80IB(10) and related provisions. The Court referred to Section 80HHBA, which defines "housing project" broadly to include the construction of any building, road, bridge, or other structure. The Court concluded that the absence of a specific definition in Section 80IB(10) should not restrict the interpretation of "housing project" to residential units only.

The Court highlighted that the Development Control Rules allowed for mixed-use zones, where residential areas could include commercial establishments. The Court held that the term "housing project" should be interpreted to include both residential and commercial units, provided the conditions under Section 80IB(10) are met. The Court cited the Supreme Court's decision in TATA ENGG. AND LOCOMOTIVE CO., LTD v. GRAM PANCHAYAT, which supported a broad interpretation of "building" to include non-residential structures.

Conclusion:

The High Court dismissed the Revenue's appeal, confirming the Tribunal's decision to allow prorata deduction under Section 80IB(10) for the residential units in a mixed-use housing project. The Court held that the amendment to Section 80IB(10)(d) was prospective and that the term "housing project" should be interpreted broadly to include both residential and commercial units. The decision emphasized the importance of a fair and liberal interpretation of deduction provisions to promote housing development.