2018 (1) TMI 196 - HC - Income Tax

Deduction u/s 80IA (5) and 80IB (10) - clearly established that the constructions of the projects started before 1.10.1998 - Held that - Where the assessee undertakes levelling work so as to develop the land to facilitate the construction of a building over it, the development and construction of the housing project commences with such levelling of the earth. Therefore when the expression used is Commences Development and Construction of the Housing Project the intention of the legislature is clear that the development of the project and the construction which follows such development must start on or before the date specified even if either the development or the construction starts before the specified date, the benefit under the aforesaid provisions would not be admissible. The evidence on record may prove that the foundation laying ceremony of the projects may have been performed on 30.9.1998 and actual construction may have started later on but the levelling of the earth in the project had started much earlier. Thus, with the levelling of the earth, the development and construction of the project had commenced which was prior to 1st October 1998. In view of the fact that the development and construction of the housing project are integral to each other and as the filling or levelling of the earth of the projects which is part of development had commenced prior to 1.10.1998, it would be deemed that the development and construction had commenced prior to 1.10.1998. Thus, the respondent assessee failed to satisfy the third condition for grant of benefit under Section 80 IA (4F) read with Section 80 IA (5) and 80 IB (10) of the Act. Accordingly, the tribunal was not justified in granting the benefit of Section 80 IA (4F) read with Section 80 IA (5) and 80 IB (10) of the Act. - Decided in favour of revenue

Summary

Issues:
- Interpretation of Section 80 IA(4F) and Section 80 IA(5) of the Income Tax Act, 1961.
- Commencement of development and construction of housing projects before 1.10.1998.
- Eligibility for deduction under Section 80 IA(4F) and Section 80 IB(10) of the Act.

Analysis:
The High Court addressed the issue of whether the Income Tax Appellate Tribunal (ITAT) was correct in allowing deductions under Section 80 IA(5) and 80 IB(10) of the Income Tax Act, 1961, when the construction of projects had commenced before 1.10.1998. The respondent, a construction company, claimed deductions for projects like Shipra Rivera and Shipra Sun City. The tribunal accepted the claim, but the revenue challenged it.

The court examined the conditions for exemption under Section 80 IA(4F) and Section 80 IB(10), emphasizing the requirement that development and construction of housing projects must start after 1.10.1998. While the first two conditions were met, the dispute centered on the commencement date of development and construction.

The tribunal's decision was based on work orders issued after 1.10.1998, implying project commencement post that date. However, the court analyzed the proviso of Section 80 IA(4F), highlighting the significance of "Commences Development and Construction." It clarified that project development precedes construction, and both must start after the specified date to qualify for benefits.

The court noted that levelling of the earth, a development aspect, had begun before 1.10.1998, indicating project commencement prior to the specified date. As development and construction are interconnected, any activity before 1.10.1998 affects eligibility for deductions under the Act.

Ultimately, the court ruled in favor of the revenue, disallowing the deductions claimed by the respondent. It concluded that the respondent failed to meet the condition of project commencement after 1.10.1998, as required by Section 80 IA(4F) and Section 80 IB(10) of the Act. Consequently, the appeals by the revenue were allowed, overturning the tribunal's decision.