2016 (10) TMI 359 - HC - Income Tax

Deduction u/s. 80IB (10) eligibility - develpoer v/s contractor - whether some of the units exceeded the maximum permissible builtup area - whether the open space adjoining the top floor constructed area of the unit would also form part of the builtup area of the unit - Held that - The Tribunal in the impugned judgment has referred to the terms and conditions between the assessee and the society, from which, the Tribunal culled out that entire planning, sanctioning of plan, work of construction, development of the property was done by the assessee. The assessee would enroll the members and accept payments from such members. Entire sale consideration was received by the assessee from such members. As per the agreement, the assessee had to provide the payment from construction, engage architect, engineer and site supervisor and also obtain necessary permission from AUDA. The Tribunal concluded that these conditions would show that the assessee was a developer and not a contractor. The case of the assessee would in background of such findings of the Tribunal be covered by the judgment of this Court in case of Radhe Developers 2011 (12) TMI 248 - GUJARAT HIGH COURT wherein held assessee as entitled to the benefit u/s 80IB(10) even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners. Section 80(14) of the Act contains definitions for the purpose of the said section. Clause( a) thereof provides that builtup area means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls, but does not include the common areas shared with other residential units. Thus, the builtup area would include inner measurements of a residential unit on the floor level added by thickness of a wall as also projections and balconies. This would however, exclude the common areas shared with other residential units. This exclusion clause of the common areas shared by other units cannot be applied in the reverse. In other words, the moment a certain area is not shared but is exclusively assigned for the use of a particular residential unit holder, would not mean that such area would automatically be included in the builtup area. In order to be part of the builtup area, the same must be part of the inner measurements of a residential unit or projection or balcony. The open terrace space on the top floor of a building would not satisfy this description. It will also not be covered in the expression balcony. Term balcony has been explained in Webster s Third International Dictionary (Unabridged) as unroofed platform projecting from the wall of a building, enclosed by a parapet or railing, and usually resting on brackets or consoles. It is often used as synonyms to gallery, loggia, veranda, piazza, porch, portico, stoop etc. In the context of residential or even commercial complexes, term balcony has gained a definite common parlance meaning. It usually consists of a projection from a building covered by a parapet or railing and may or may not but usually is covered from the top. This term balcony certainly would not include an open terrace adjoining a bedroom or any other constructed area of a penthouse. The terrace is not a projection. - Decided against revenue

Summary

Issues:
1. Interpretation of deduction under section 80IB (10) of the Income Tax Act.
2. Determination of developer status in a housing project.
3. Consideration of excess built-up area in relation to section 80IB (10) of the Act.

Analysis:
1. The Tax Appeal was admitted to consider whether the Appellate Tribunal rightly allowed the deduction claimed by the assessee under section 80IB (10) of the Income Tax Act. The respondent assessee had filed a return of income for the assessment year 2006-07, claiming deduction under section 80IB for a housing project. The Assessing Officer and Commissioner rejected the claim, arguing that the assessee was a contractor, not a developer, and some units exceeded the maximum permissible built-up area. However, the Tribunal ruled in favor of the assessee, stating that the assessee was indeed a developer and that the open space attached to a penthouse should not be considered as part of the built-up area.

2. The Tribunal's decision was supported by the case law of Radhe Developers and Shakti Corporation, where similar deductions were allowed under section 80IB (10). The High Court had previously confirmed the view of the Tribunal in the Radhe Developers case, emphasizing that the developer had total control over the land, took full responsibility for the project, and bore all associated risks. The Supreme Court later dismissed the appeal against this judgment.

3. The Revenue contended that the terms of the agreement in the present case differed from Radhe Developers and that certain units exceeded the permissible built-up area. However, the Tribunal found that the assessee was indeed a developer based on the terms of the agreement with the society, which outlined the assessee's responsibilities in planning, construction, and development. The Tribunal also clarified that the open terrace space in a penthouse should not be considered part of the built-up area, as it did not meet the definition of a balcony as per the Act.

4. Section 80(14) of the Act defines built-up area and clarifies that it includes inner measurements of a residential unit at the floor level, projections, and balconies, but excludes common areas shared with other units. The judgment emphasized that the exclusion of common areas does not automatically include any area exclusively assigned to a unit holder. The definition of a balcony was also discussed, highlighting that an open terrace adjoining a penthouse should not be considered a balcony. Consequently, the Court ruled against the Revenue, dismissing the tax appeal.