2018 (9) TMI 1181 - HC - Income Tax

Deduction under section 80IB(10) - assessee is engaged in the business of housing development - AO disallowed the claim mainly on the ground that the assessee was not the owner of the land and the approval of the project was not in the name of the assessee - Held that - Various issues arising out of the claim of different assessee s under section 80IB(10) came to be thrashed out in case of Commissioner of Income Tax vs. Radhe Developers 2011 (12) TMI 248 - GUJARAT HIGH COURT wherein took note of various development agreements executed by the assessee in favour of individuals claiming that they had been engaged in the activity of housing development. Revenue s contention, that the nature of activities carried on by the assessee s would only qualify them to be the contractors executing works contract, was also considered. It was held that the assessee had undertaken the development of housing project at their own risk and cost. The owner of the land had accepted the full price of the land. He was therefore not concerned with the successor or failure of the housing project. Reference was made to the definition of term transfer under section 2(47)and held that merely because the land was held by the original owner when the housing development project was executed, would not be detrimental to the assessee s claim of deduction under section 80IB(10) of the Act. - Decided against revenue

Summary

Issues:
1. Eligibility for deduction u/s. 80IB(10) of the Income Tax Act
2. Interpretation of the term "developer of Housing Project"
3. Consideration of entrepreneurial and investment risk in housing development projects

Eligibility for deduction u/s. 80IB(10) of the Income Tax Act:
The respondent, engaged in housing development, claimed a deduction under section 80IB(10) for the assessment year 2010-11. The Assessing Officer disallowed the claim, arguing that the assessee was not the landowner and project approval was not in their name. The Revenue contended that the assessee sold residential plots with construction up to plinth level, not residential houses, making them a contractor, not a developer. The Tribunal, citing a similar case, upheld the CIT (A) decision allowing the claim. The High Court referenced a Division Bench judgment in Commissioner of Income Tax vs. Radhe Developers, which clarified that undertaking housing projects at one's risk and cost qualifies for the deduction, regardless of land ownership during project execution. The Court held that being the original landowner during project execution does not hinder the assessee's eligibility for deduction under section 80IB(10).

Interpretation of the term "developer of Housing Project":
The main issue revolved around whether the assessee qualified as a developer of a housing project under section 80IB(10). The Revenue argued that since the assessee did not primarily develop and build the project and sold only residential plots, they were ineligible for the deduction. Additionally, the Revenue claimed that 70% of the project's sale proceeds were from work contract receipts, indicating the assessee did not bear entrepreneurial or investment risk. However, the Tribunal, following precedent, deemed the assessee eligible for the deduction, emphasizing that the nature of activities undertaken by the assessee qualified them as developers, not mere contractors.

Consideration of entrepreneurial and investment risk in housing development projects:
The judgment highlighted the importance of assessing entrepreneurial and investment risk in determining eligibility for deductions under section 80IB(10). The Court emphasized that undertaking housing projects at one's own risk and cost, irrespective of land ownership during project execution, fulfills the criteria for claiming the deduction. The judgment dismissed the Tax Appeals, stating that the case did not introduce any new facts or legal contentions, thereby affirming the assessee's eligibility for the deduction under section 80IB(10) of the Income Tax Act.