2016 (4) TMI 670 - AT - Income Tax

Deduction under section 80IB(10) declined - land ownership and approval by local authority are not in the name of the assessee - Held that - The issue in appeal before us is squarely covered by the decision in the case of Shri Umeya Corporation vs. Income Tax Officer 2015 (9) TMI 108 - ITAT AHMEDABAD wherein held all that is material is whether assessee is taking the entrepreneurship risk in execution of such project. When profits or losses, as a result of execution of project as such, belong predominantly to the assessee, the assessee is obviously taking the entrepreneurship risk qua the project and is, accordingly, eligible for deduction under section 80IB(10) in respect of the same. - Decided in favour of assessee

Issues Involved:

1. Deduction under section 80IB(10) of the Income Tax Act, 1961.
2. Ownership of land and eligibility for deduction.
3. Role of the assessee as a developer versus a contractor.
4. Interpretation of legal provisions and judicial precedents.

Issue-wise Detailed Analysis:

1. Deduction under section 80IB(10) of the Income Tax Act, 1961:

The core issue revolves around the eligibility of the assessee for a deduction of Rs. 55,94,649/- under section 80IB(10) of the Income Tax Act, 1961. The Assessing Officer (AO) contended that the deduction should be denied as the assessee was not the owner of the land and merely acted as a contractor for the housing project. The AO's decision was based on the premise that the land was owned by Manohar Co-op. Housing Society Ltd., and the assessee entered into a development agreement with the society, thus not fulfilling the conditions laid down for claiming the deduction.

2. Ownership of Land and Eligibility for Deduction:

The AO argued that the ownership of the land and the approval by the local authority were in the name of Manohar Co-op. Housing Society Ltd., and not the assessee. Therefore, the assessee, being a contractor, did not qualify as a developer. However, the Commissioner of Income-Tax (Appeals) [CIT(A)] held that the investment in land was made by the assessee, and by virtue of the development agreement, the assessee was effectively the owner of the land. The CIT(A) relied on the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Radhe Developers, which stated that ownership of land is not a precondition for claiming deduction under section 80IB(10).

3. Role of the Assessee as a Developer versus a Contractor:

The AO's stance was that the assessee was merely a contractor, executing the housing project on behalf of the society, and thus did not satisfy the primary requirement of being a developer. The AO emphasized that the society retained ownership and responsibility for the project, and the assessee's role was limited to construction. However, the CIT(A) and the appellate tribunal found that the assessee bore the risks and rewards of the project, indicating that the assessee was indeed the developer. The tribunal referenced the case of Shri Umeya Corporation vs. Income Tax Officer, where it was established that the assumption of entrepreneurship risk is a key determinant in qualifying as a developer.

4. Interpretation of Legal Provisions and Judicial Precedents:

The tribunal examined the applicable legal position and judicial precedents, particularly the decision in CIT vs. Radhe Developers, which clarified that ownership of land is not a requirement for section 80IB(10) deduction. The tribunal also considered the decision of a larger bench in B T Patil & Sons (Belgaum) Constructions Pvt Ltd vs. ACIT, which highlighted that the format of arrangements and business models should not restrict the eligibility for deduction if the fundamental character of the business remains developing and building housing projects.

Conclusion:

The tribunal concluded that the objections raised by the AO were devoid of legally sustainable merits. The tribunal upheld the CIT(A)'s decision, emphasizing that the assessee assumed the entrepreneurship risks of the housing project and was thus eligible for the deduction under section 80IB(10). The appeal by the AO was dismissed, and the tribunal directed the AO to delete the disallowance of the deduction. The judgment was pronounced in the open court on 25th February 2016.

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