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2014 (9) TMI 707 - HC - Income TaxInterpretation of section 80-IB(10)(d) - Effect of amendment w.e.f. 01.04.2005 - Whether section 80-IB(10)(d) which was brought into force w.e.f. 1st April, 2005 would apply to projects that were approved by the local authority prior to it being brought on the statute book Held that - Requiring the Assessee to comply with the condition set out in clause (d) of sub-section (10) of section 80-IB merely because he has offered his profits to tax in A.Y. 2005-06 or thereafter, even though his housing project was approved before 31st March 2005, would be requiring the Assessee to virtually do a humanly impossible task This could never have been the intention of the Legislature - clause (d) of sub-section (10) of section 80-IB cannot have any application to housing projects that are approved before 31st March, 2005 - clause (d) being inextricably linked to the date of approval of the housing project, it will have to be held that the clause operates only prospectively i.e. for housing projects approved after 1st April, 2005 - section 80-IB(10)(d) is prospective in nature and can have no application to a housing project that is approved before 31st March, 2005 - clause (d) of section 80-IB(10) is inextricably linked to the date of the approval of the housing project and the subsequent development/construction of the same, and has nothing to do with the profits derived therefrom - relying upon MANAN CORPORATION Versus ASSTT COMMISSIONER OF INCOME TAX 2012 (9) TMI 700 - Gujarat High Court Decided against revenue.
Issues Involved:
1. Applicability of Section 80IB(10)(d) to housing projects approved before 31st March, 2005. 2. Interpretation of the amendments to Section 80IB(10) and their retrospective or prospective application. 3. Compliance requirements for deductions under Section 80IB(10) based on the date of project approval versus the assessment year. Detailed Analysis: Issue 1: Applicability of Section 80IB(10)(d) to Housing Projects Approved Before 31st March, 2005 The central issue was whether the condition in Section 80IB(10)(d), introduced effective from 1st April 2005, applies to housing projects approved by local authorities before 31st March 2005. The court examined whether this provision, which restricts the built-up area of commercial establishments in a housing project, should be applied retrospectively. The court held that Section 80IB(10)(d) is prospective in nature and does not apply to housing projects approved before 31st March 2005. This conclusion was based on the reasoning that the condition relates to the approval and construction phases of the housing project. Imposing this condition retrospectively would require developers to alter approved plans and completed constructions, which is impractical and contrary to legislative intent. Issue 2: Interpretation of Amendments to Section 80IB(10) and Their Retrospective or Prospective Application The court traced the history of Section 80IB(10) and its amendments. Initially, there were no restrictions on the commercial area within housing projects. The substantial amendments introduced by Finance (No.2) Act, 2004, effective from 1st April 2005, included the new clause (d), which imposed restrictions on the commercial area. The court found that these amendments were intended to apply prospectively. The legislative intent was to encourage housing development by providing tax incentives. Applying the new restrictions retrospectively would undermine this objective and create absurd results, such as denying deductions based on the method of accounting used by the developer. Issue 3: Compliance Requirements for Deductions Under Section 80IB(10) Based on the Date of Project Approval Versus the Assessment Year The court emphasized that the compliance with Section 80IB(10) conditions should be linked to the date of the project's approval by the local authority, not the assessment year in which profits are taxed. This interpretation ensures fairness and aligns with the legislative intent to promote housing development. The court noted that requiring compliance with the new conditions for projects approved before the amendments would be unreasonable and practically impossible. This conclusion was supported by judgments from other high courts, including the Karnataka High Court in CIT v. G.R. Developers and the Gujarat High Court in Manan Corporation v. Assistant Commissioner of Income Tax. Conclusion The court ruled in favor of the assessees, holding that Section 80IB(10)(d) does not apply to housing projects approved before 31st March 2005, regardless of when the profits are taxed. The substantial questions of law were answered in the affirmative, favoring the assessees and against the revenue. This decision ensures that developers are not retroactively burdened with new compliance requirements that were not in place when their projects were approved.
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