2013 (7) TMI 737 - HC - Income Tax

Deduction u/s 80IB - Work contract - Tribunal granted deduction - Held that - assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk - Therefore, it cannot be said that the assessee acted only as a works contractor - Following decision of CIT v. Radhe Developers 2011 (12) TMI 248 - GUJARAT HIGH COURT - Decided against Revenue.

Summary

Issues:
1. Interpretation of section 80-IB(10) for deduction eligibility.
2. Legal relationship between the assessee firm and end users.
3. Application of the decision in the case of Radhe Developers.
4. Control and risk assessment in housing project development agreements.

Interpretation of section 80-IB(10) for deduction eligibility:
The High Court addressed the issue of whether the assessee firm was eligible for deduction under section 80-IB(10) of the Income Tax Act. The Tribunal upheld the decision of the CIT(A) to delete the disallowance under this section. The Court considered the legal relationship between the assessee firm and the end users of the unit, focusing on the nature of the agreement in question.

Legal relationship between the assessee firm and end users:
The Court analyzed the terms and conditions of the development agreements between the assessee firm and the land owners in a previous case. It was observed that the assessee firm had total and complete control over the land in question, with the authority and responsibility to develop the housing project. The risk element was entirely borne by the assessee firm, indicating a significant level of involvement and ownership in the project beyond that of a mere works contractor.

Application of the decision in the case of Radhe Developers:
The Tribunal relied on its decision in the case of Radhe Developers to support the eligibility of the respondent assessee for deduction under section 80-IB(10) for a housing project development. The Court noted that the decision in the Radhe Developers case had been upheld by the High Court in a subsequent case involving the same parties, reinforcing the validity of the legal principles applied.

Control and risk assessment in housing project development agreements:
The Court emphasized the detailed analysis of the development agreements, highlighting the extensive involvement and control exercised by the assessee firm in the project. The terms of the agreement indicated that the assessee firm undertook the entire task of development, construction, and sale of housing units, assuming financial risks and responsibilities typically associated with ownership rather than a works contractor role. The Court dismissed the Tax Appeal, affirming the decision in favor of the respondent assessee.