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TMI Blog2009 (4) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... tablishments? 2. In case the question No. 1 is answered in affirmative, whether considering facts and circumstances of a particular case, a proportionate deduction should be allowed? 3. In case the answers to question Nos. 1 and 2 are in affirmative, whether the limit prescribed by cl. (d) of s. 80-IB(10) should operate?" 2. Hon'ble President accepted these recommendations of the Division Bench and, accordingly, constituted this Special Bench to resolve the conflict between Division Bench decisions. That is how this Special Bench came to be in seisin of the matter. 3. Learned counsel appearing for the appellants have prayed that Brahma Associates be taken as the lead case, and Dr Pathak be allowed to lead the arguments. Shri Kapila, learned special counsel appearing for the respondents, did not object to this prayer. We have, therefore, accepted the prayer of the appellants and taken up Brahma Associates as the lead case. Dr Pathak, learned counsel for this assessee, has also been permitted to lead the arguments. 4. Dr. Pathak suggests some minor amendments in the questions before this Special Bench. He suggests that in second question words "under s. 80-IB(10) to the extent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is very much clear that these deductions are meant for housing project meaning project consisting of residential units". The AO further observed that "While giving deduction, one has to keep in mind the entire project in totality, as approved by the municipal corporation". A reference was then made to the rules framed by the Pune Municipal Corporation. Rule 13.6 of the said Rules, as noted by the AO, provided that "In the case of layouts or subdivision of areas in residential and commercial zones, provision shall be made for 'convenience shopping' and that "Such convenience shopping area shall not be less than 2 per cent, but shall not, however, exceed 5 per cent area of the plot". The AO further took note of r. 13.6(ii) of the Development Rules which provides that "Such convenience shops shall not have an area of more than 20 sq. mtrs." The AO also noted that even the usage of such convenience shops can only be for specific purposes, in terms of the provision of the rules framed by the Pune Municipal Corporation. Analyzing the facts of the case, the AO noted that none of these three conditions are satisfied. Not only the commercial usage of plot is 20 per cent, the size of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted the layout plan accordingly, it would have been approved by the PMC. (ii) The project was still incomplete in March, 2006. The appellant was following project completion method and, therefore, no deduction was available in the year under consideration. (iii) The commercial areas consisting of buildings C-1 and C-2 was more than 7000 sq. mtrs. whether the plot area is taken at 22789.79 sq. mtrs. or taken at 34209.79 sq. mtrs. as claimed by the appellant. It is more than 30 per cent of the plot area if deductions as per PMC Rules is made. In any case the commercial area is more than 20 per cent of the plot area if the plot area is taken at 34209.79 sq. mtrs. and such deduction as per PMC Rules is made while as per DP Rules such commercial area for convenient shopping could not be more than 5 per cent of the area of the plot. (iv) The usage of the commercial areas for convenient shopping was not for the purposes of which it was sanctioned and the areas of some shops being more than 20 sq. mtrs. further infringed the DP Rules. (v) The amended provisions of s. 80-IB(10) are clarificatory for otherwise. s. 80-IB(10) could not be harmoniously interpreted. For the same project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions are to be interpreted liberally. 10. Having thus noted the rival contentions of the assessee and the AO, learned CIT(A) formulated the following two issues for his considerations and proceeded to adjudicate on the same: (i) Whether the amendment to s. 80-IB(10) w.e.f. 1st April, 2005 was retrospectively applicable? (ii) Whether the deduction under s. 80-IB(10) is available to a housing project by splitting the project into residential and commercial buildings for the assessment year under consideration. 11. As for the first question that he posed to himself, i.e. whether or not the amendment to s. 80-IB(10) w.e.f. 1st April, 2005 is prospective or not, learned CIT(A) held that this amendment can only be prospective in nature. The relevant discussions in the impugned order are as follows: "2.19 It is established law that amendments to the law should be taken to be effective only from the date which is indicated in the amended statute. They have to be inferred only to be prospective in nature unless retrospectivity is clearly spelt out. However, in the matters of procedural law or even in matters of substantive law, the amendments of clarificatory nature can have ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 772 (SC) pointed out that even in respect of procedural law, it may not be understood that the vested rights got divested by a prospective amendment. The decision was rendered in the context of extension of time limitation brought about by an amendment to ss. 150(1) and 150(2) of the IT Act. It was held that retrospective intent may be inferred only where it is expressly provided or otherwise, is inferable by necessary implications. In provisions of s. 80-IB(10), the legislature has explicitly codified a restriction on construction of commercial area by the Finance Act, 2004 w.e.f. 1st April, 2005. It was not mentioned that it would be with retrospective effect. There is no lack of clarity in the amended section. The plain reading is that the prospective effect is a conscious decision of the legislature. In the case of CIT vs. Varas International (P) Ltd. (2006) 204 CTR (SC) 119 : (2006) 283 ITR 484 (SC), it has been held that the presumption is always against the retrospective operation and in order that an amendment of the statute is construed as being retrospective, the amended provisions should itself indicate either in terms or by necessary implications that it is to operate r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in negative. He concluded that no part of built-up area of the housing project could be used for commercial purposes and that deduction under s. 80-IB(10) was not available even for residential units segment of a residential-cum-commercial project. Learned CIT(A) observed as follows: "2.21 Having said so, it is however, to be seen as to the second issue which arises for consideration as referred above whether the housing project would also include commercial area even prior to the amendment so as to deny the deduction to the entire project. The words "housing project" is not defined in s. 80-IB(10) of the IT Act, 1961 and as there was a controversy regarding the definition of this term under s. 80HHBA and there was also possibility of different view points on the issue, the language of the section with regard to 'housing project' being not clear and unambiguous, reference is required to be made to the speech of the Finance Minister and the circular issued by the CBDT in this regard to interpret the will of the legislature. As per Circular No. 5 of 2005, dt. 15th July, 2005 [(2005) 197 CTR (St) 1], a deduction equal to hundred per cent of the profits of an undertaking developing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lax the conditions of minimum plot size of one acre in the case of a housing project, carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings and notified by Board in this behalf. It is also proposed to define the expression "built-up area" to mean 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 not including the common areas shared with other residential units.' It is seen that the words "residential unit" appear time and again with reference to s. 80-IB(10) and even while defining the expression "built-up area", the inner measurements of the residential unit were mentioned. It is, therefore, evident from the Circular No. 5 of 2005 explaining the provisions relating to direct taxes law and the speech of the Finance Minister which refer to the huge shortage of houses and residential unit that the deduction was always intended to be allowable to the residential units only. 2.22 It is a cardinal principle of construction of statute that the true or legal meaning of an enactment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commercial as well as residential units, separate entrance or the fencing done would not dissect the project into two different and independent projects as the project being residential and commercial but it remained one project for which sanction was given by the PMC as residential + commercial. In my considered view, the case of the appellant is not different from the cases of other assesses, wherein, in the same residential building certain portion was built as commercial area, being shops or halls, which were used for commercial purposes. Also, the appellant's assertion that no possession of the commercial units was given before 31st March, 2003 is not correct as would be seen in the succeeding paras but even then it cannot be argued that if commercial units were not sold in a particular year and only residential units were sold in that year, the deduction would be available on the sale of residential units in that year. The very fact that commercial units were constructed in pursuance of the local authorities' sanction is sufficient to hold that the deduction was not available as what is required to be seen is whether it is possible to allow deduction on proportionate basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r/w any latitude to the taxpayer or even with a wider connotation. Referring to its decision in the case of Keshavji Ravji & Co. vs. CIT (1990) 82 CTR (SC) 123 : AIR 1991 SC 1806, the Courts has quoted the following observations from its this decision: 'Artificial and unduly latitudinarian rules of construction which, with their general tendency to 'give the taxpayer the breaks' are out of place where the legislation has a fiscal mission.' Moral precepts are not applicable to the interpretation of revenue statues." 14. Learned CIT(A) then proceeded to deal with the Mumbai Division Bench decision in the case of Laukik Developers vs. Dy. CIT (2007) 108 TTJ (Mum) 364 : (2007) 105 ITD 657 (Mum) and extensively quoted from the said decision of the Tribunal. Learned CIT(A) observed as follows: "2.27 In the case of Laukik Developers vs. Dy. CIT the IT Tribunal, Mumbai Bench 'C' in ITA No. 532/Mum/2006 for the Asst. yr. 2002-03, had occasion to adjudicate on this issue. The assessee in that case filed return of income declaring total income at nil, which was arrived at after claiming deduction under s. 80-IB(10). The claim was rejected mainly on two grounds, i.e. (i) the project conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent of the profits derived in any previous year from a housing project, if all the conditions mentioned therein are fulfilled by an assessee. In this case the assessee is a registered firm engaged in the business of developing real estate project in Dombivali. The assessee has claimed exemption with regard to its building project at village Gajbandhan, Dombiviali under s. 80-IB(10) of the IT Act, 1961. It has been denied by the AO and the order of the AO has been confirmed by the CIT(A). The ground of rejection of the claim of the assessee under s. 80-IB(10) of the Act by the Department are two namely that the project contain commercial area of 3143 sq. ft. of shops and hence is not a housing project....... The material facts of the case are not in dispute. Before proceeding to decide the issues before us, it shall be relevant to reproduce the relevant provision of s. 80-IB(10) of the Act as prevalent in the relevant period, as under: Sec. 80-IB(10): The amount of profits in case of an undertaking developing and building housing projects approved before the 31st March, 2005 by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the argument of the learned counsel for the assessee that since the case pertains to pre-amended period, the deduction under s. 80-IB(10) will be available to the assessee even if the shops and other commercial establishments are included in the housing project of the assessee. If this argument of the assessee is accepted, then it shall nullify the very object of introducing the provision of s. 80-IB(10) in the statute book for promotion of hosing activity in the country since there shall be no limit of the total built-up area devoted to the construction of shops and other commercial establishments in the housing project of the assessee. The clarification of CBDT vide letter dt. 4th May, 2001 to Maharashtra Chamber of Housing Industry clearly states that any project, which is approved by local authority as a "housing project", should be considered adequate for the purposes of ss. 10(23G) and 80-IB(10) of the Act. This clarification by the CBDT is of no help to the case of assessee for the reason that the building project of the assessee was not approved by the local authority namely KDMC as a 'housing project' and was in fact approved as a 'residential as well as commercial proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the case of Laukik Developers and concluded that no element of commercial use of built-up area was permissible in a housing project until the amendment in s. 80-IB(10) came into force w.e.f. 1st April, 2005. 16. The CIT(A) then addressed himself to the assessee's contention that the incentive deduction under s. 80-IB(10), being a beneficial provision, should be construed liberally. This plea was also rejected by observing as follows: "2.28 It was also contended that s. 80-IB(10), being beneficial provision of tax incentive, should be interpreted liberally so as to confer the benefit on the so called developer-cum-builder. Law is fairly settled in this regard by a number of decision of the apex Court whose ratio is summarized below: (i) Petron Engineering Construction (P) Ltd. vs. CBDT (1989) 75 CTR (SC) 20 : (1989) 175 ITR 523 (SC)-Liberal interpretation of an incentive provision can be resorted to only when it is possible without imparing the legislative requirement and the spirit of the provision. Where the phraseology of a particular provision takes within its sweep the transactions which are taxable, it is not for the Courts to strain and stress the language so as to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. It was contended on behalf of the Revenue that one of the basic conditions was not fulfilled by the assessee and, therefore, its claim for deduction under s. 80-IB(10) should not be allowed. After considering the rival submissions in the light of the material on record, the Hon'ble Pune Tribunal in the order dt. 31st August, 2005 held as under: 'The elementary principle of interpreting or construing a statute is to gather the mens or sentential legis of the legislature. Where the language is clear, the intention of the legislature is to be gathered from the language used....' 2.30 The decision in the case of Federation of Andhra Pradesh Chambers of Commerce & Industry & Ors. vs. State of Andhra Pradesh & Ors. (2001) 165 CTR (SC) 672 : (2001) 247 ITR 36 (SC) was quoted wherein the classic passage from Cape Brandy Syndicate's case (1921) 1 KB 64, 71 was extracted as narrated in para 2.26 above. The deduction under s. 80-IB(10) was not allowed." 18. It was in this backdrop that the "denial of deduction under s. 80-IB(10) to the appellant" was upheld and the related grounds of appeal are dismissed. Aggrieved by the stand so taken by the CIT(A), the assessee is in second appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interchangeably. It was submitted that originally, w.e.f. asst. yr. 1999-2000, legislature had introduced s. 80-IA(4F) to provide 100 per cent deduction in respect of the profits from developing and building housing projects. It was argued that while introducing this section, the Hon'ble Finance Minister had stated that housing was an activity which required utmost attention and in that context he had outlined several incentives to encourage house building activity. One of the incentives was 100 per cent deduction from profits. In the same context, the Hon'ble Finance Minister also proposed an incentive of exempting certain specified commercial properties from wealth-tax. Thus, if the term "housing project" meant only a residential project, the Hon'ble Finance Minister in his speech would not have included the concession for the commercial property in the incentives for housing sector. It was submitted that the true intention of the legislature while introducing this provision was to encourage house building activity. It was emphasized that there is a conspicuous absence of any mention about the intention of encouraging construction of residential buildings, which has been inferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less than, say, x per cent, he presupposes that the said fruit basket includes bananas as well. Of course, if he does riot want onions in this fruit basket to be more than x per cent, instead of saying that onion content should be less than x per cent, he would perhaps say that onions can also be mixed in fruit basket to the extent of x per cent. There is no question of restricting something which is not includible in the first place. 22. Our attention was invited to cl. (d) of s. 80-IB(10) which provides that the built-up area of the shops and other commercial establishments included in the housing project should not exceed 5 per cent of the built-up area or 2000 sq. ft. whichever is less. It was submitted that if housing project meant purely residential project, there was no question of including commercial area therein and cl. (d) would have been worded in a different manner. The question of limiting the area of the commercial complex in a housing project comes up only if the commercial area is included in a housing project. It is thus contended that the wording of s. 80-IB(10) suggests that commercial usage was part of the housing project, though, in view of the specific provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed upon the judgment of Hon'ble Supreme Court in the case of Tata Engineering & Locomotive Co. Ltd. vs. Gram Panchayat AIR 1976 SC 2463. In this case, Supreme Court held that the word "house" in its ordinary sense would include any building irrespective of its user. Thus, it was contended that the word "house" did not mean a purely a residential unit. 24. Our attention was invited to the CBDT Circular dt. 4th May, 2001 as also to the letter written by the Maharashtra Chamber of Housing Industry addressed to Hon'ble Finance Minister, asking for clarification in respect of the issue whether commercial area could be included in a housing project. It was submitted that the said circular was issued in reply to the aforesaid letter. It was in the context of this letter that the CBDT replied that if the project was approved as a housing project by the local authority, the deduction would be available. It was submitted that the Pune Municipal Corporation (PMC) did not have any such system of granting approval as a housing project, and that, as a matter of fact, this term i.e. 'housing project' was not at all used by the PMC. However, according to the learned counsel, the point to be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project was treated as housing project. Learned counsel, however, fairly admits that in this case only proportionate deduction under s. 80-IB(10), to the extent of profits from residential units, was granted, whereas the assessee's case before us is that no disallowance of deduction under s. 80-IB(10) can be made in respect of commercial area. In the case of Harshad P. Doshi vs. Asstt. CIT (2007) 109 TTJ (Mumbai) 335, even though there was commercial area, the Division Bench allowed the deduction under s. 80-IB(10) on the ground that the project was approved by the Bombay Municipal Corporation as a housing project. In the said case, it was also held that no disallowance of deduction under s. 80-IB(10) can be made in respect of the commercial area and shops. The same was the logic employed by another Division Bench in granting deduction under s. 80-IB(10) in the case of Saroj Sales Organisation vs. ITO (2008) 115 TTJ (Mumbai) 485, and in the unreported case of Ideal Realtors, ITA No. 4292/Mum/2007. Learned counsel submits that approval as a housing project is not the requirement of statute, though the Board circular certainly states so. Our attention is invited to the words of 80IB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue as to whether the proportionate deduction is to be allowed in respect of profits attributable to residential units, learned counsel contends that once Tribunal comes to the conclusion that a housing project can include shops or commercial establishments prior to the amendment, there is no good reason for restricting the deduction to profits in respect of the profits of the residential units. It is contended that the section provides for one hundred per cent deduction from the profits of a housing project and therefore, the entire profits including the profit on sale of shops or commercial establishments would be eligible for deduction. The later amendment in cl. (d) of s. 80-IB(10) clearly supports this aspect of the matter, as after this amendment, the deduction is allowable to a housing project including the commercial portion. Without prejudice to this argument, learned counsel submits that in any event and even assuming that Tribunal comes to the conclusion that no part of commercial use can be resorted to in a housing project, at least proportionate deduction should be allowed in respect of the residential portion. 29. As regards the third question i.e. whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itation but also a building for keeping animals and goods as also a building of boarding school, a place of public refreshments, a restaurant or even an inn. In support of this understanding about meaning of expression 'house', learned counsel relies upon various dictionaries and filed copies of the relevant pages from dictionary. He also refers to the 'Law Lexicon' which, at p. 817, states that "the weight of judicial opinion is conclusively in favour of the view that the word 'house' extends to a ' building which is used for business and should not be restricted to a mere dwelling house". While learned counsel recognizes that residential unit is taken as thrust of the statutory provisions, he also submits that restriction is placed on the size of the unit. He also takes us through the letter written by the Maharashtra Chamber of Housing Industry, in response to which the Board clarification was issued, to demonstrate that the Government was fully aware of the controversy regarding residential and commercial units being part of the housing project, and yet the expression used by the statute was 'housing' and not 'residential'. It was submitted that using the word 'residential' in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilies. Under the Phase-I of Barrackpore Housing Project, KMDA completed construction of 768 flats, of which 240 were for the LIG category and 528 for MIG category. The total amount expended in Phase-I amounted to about Rs. 1700 lacs. Almost all ~he flats in Phase-I have been allotted to the selected beneficiaries. Given the success of Phase-1 and also to address the social objective of providing affordable dwelling units to MIG and LIG households, KMDA has been prompted to take up this Phase-II of Barrackpore housing. Project details No. of MIG flats 288 No. of LIG flats 192 Commercial complex 6,000 sq. ft. Community Hall 2,000 sq. ft." 32. Learned counsel submits that, as evident from website of KMDA, a housing project by even Governmental bodies involves commercial use of area as well. In such a situation, it is indeed contrary to commonsense meaning of the term 'housing project' to exclude all such projects which are not pure residential projects from the ambit of 'housing projects'. The very foundation of the stand of the authorities below is thus devoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restriction did not find (place) in pre-amendment law, the same cannot be supplied by way of an aggressive interpretation either. Learned counsel then mentions about convenience shopping, and submits that the 5 per cent limit on use of aggregate built-up area for the purpose of convenience shopping was being accepted by the Revenue as maximum permissible commercial use, but that interpretation is also, according to the learned counsel, erroneous. No restrictions were placed on the area of commercial use of built-up area for such convenience shopping till the 2004 amendment to s. 80-IB(10) was made. In addition to these submissions, learned counsel relies upon the submissions made by Dr. Pathak and Shri Jain, and supports the stand taken by these representatives of the appellants before us. 35. Shri S.K. Tulsiyan, appearing for Harsh Unique Construction-another intervener before this Special Bench, submits that a housing project essentially involves a residential plot but it is only elementary that residents should also get necessary amenities as well. He submits that by and large these housing projects are aimed at being complete and standalone projects, and therefore a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of copies of orders. 37. Shri S.D. Kapila, learned special counsel appearing for the Revenue, joins the issue with learned representatives of the assessee on the question as to what was the objective of introducing s. 80-IB(10). He submits that when an assessee does not have certificate of a local authority as a 'housing project', the only basis on which one could come to the conclusion whether if is a housing project or not is whether or not this is a project for dwelling units. He, however, fairly accepts that once the approval as 'housing project' is granted by the local authority, in view of the stand taken by the CBDT, it is sufficient for the purpose of claiming deduction under s. 80-IB(10), but when no such approval as 'housing project' is available' to the assessee, the expression 'housing project'. in the context in which it is used, can only mean a project for dwelling units. He then takes us through Speeches of the Finance Ministers to demonstrate the context in which 'housing project' is used in the statute. In the budget speech for the year 1997-98, he invites our attention to the following extracts: "Housing: 21. A constraint on adding to the housing stock of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Urban Development Corporation (HUDCO) is being increased by Rs 110 crores from the budget so that it may leverage more funds for housing construction. I also have some tax incentives for housing which I will outline later in my speech." 40. The above extracts from the 1998 Budget Speech, according to Shri Kapila, make two things very clear. First, that reference to housing is for dwelling units, as evident from the fact that the reference is specifically for building additional dwelling units, for HUDCO which deals with dwelling units, and for Indira Awas Yojna which again is a scheme for building dwelling units for poor persons in rural areas. Second, the plan expenditure is linked with tax incentives, as evident from the last sentence reproduced in the above extracts. It would in turn show that any reference to housing in successive budgets has been for dwelling units. Learned counsel submits that it is inconceivable that there could be plan expenditure for building offices, commercial complexes and shops. When plan expenditure and tax incentives are to be considered in a harmonious manner and in conjunction, the reference can only be for dwelling units and not commercial unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding of more non-residential units. The incentive provision of s. 80-IB(10), according to the learned counsel, is an incentive for supply and development of dwelling houses. 45. A reference is then made to the 'Law and Practice of Income-tax by Kanga, Palkivala and Vyas' in support of the proposition that speeches made by the Finance Ministers can be taken into consideration for the purposes of discovering the legislative intent or to ascertain object or the purpose behind the legislation. 46. As regards the references made by the learned counsel for the appellants to the wealth-tax provisions, learned special counsel submits that the scheme of income-tax and wealth-tax have one fundamental difference and that is the fact that while in the income-tax law, nature of asset is irrelevant and character of income is relevant, it is the other way round for wealth-tax law. So far as taxation under the head 'Income from house property' is concerned, all that is necessary is that there should be a building. As to what is nature of building, is not relevant for income-tax purposes. The anology drawn by the assessee, according to the learned counsel, is thus not valid. 47. Shri Kapila sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a hyper-technical meaning which will have no relationship with ground realities. 49. A reference is then made to s. 2(16) of Maharashtra Cooperative Housing Societies (Act) which defines 'housing societies' as "a society, object of which is to provide its members with open plots for housing, dwelling units or flats; or, if open plots, dwelling houses or flats are already acquired, provide its members common amenities and services". It is submitted that a shop-keeper and office owner cannot be a part of such a housing society and it is thus, contrary to commonsense meaning of the expression 'housing', to include such shops and commercial spaces. 50. Assailing the argument of the assessee that the legislature has not used the expression 'residential projects' at any place and therefore we cannot infer that provision is construed to benefit only residential projects, learned special counsel submitted that legislative history of the provisions as also Finance Minister's speeches on the floor of the Parliament are eloquent testimonies to the unambiguous thrust of the tax incentives under s. 80-IB(10) being for promoting supply of dwelling units and for commercial use of area being ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'convenience shopping' is neatly defined in the Development Control Rules, and there are extensive guidelines about the use of such convenience shopping area. It is pointed out that not only purposes for which convenience shopping area can be used is specified, but also size of each unit is restricted to 20 sq. mtrs., as also the overall limit on 5 per cent of the area of plot. We are also taken through various other provisions of the DCR and it is highlighted that convenience shopping, which can perhaps be said to be an integral part of the housing project, cannot at all be equated with commercial use of constructed areas in the cases before us. We are also taken through facts of some of the cases, and the nature of application of commercial use, to emphasize this point. 54. Shri Kapila then submits that a project can be a residential project, a residential-cum-commercial project or commercial project. However, when a project is said to be residential-cum-commercial project, it presupposes that both the activities, i.e. residential as also commercial, are main objects. Learned counsel then links this to Hon'ble Supreme Court's judgment in the case of CIT vs. Indian Sugar Mills As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Gram Panchayat's case is concerned, that was a situation in which issue before the Hon'ble Court was whether taxing a house came within the jurisdiction of the Gram Panchayat. That was a different context altogether. Learned counsel once again referred to Hon'ble Supreme Court's judgment in the case of Venkateswara Hatcheries (P) Ltd. and reiterated the proposition that context in which meaning is to be given is of paramount importance. 58. On the circular issued by the CBDT, learned special counsel states that this circular is at best a support of the proposition that once a project is accepted as a housing project, deduction under s. 80-IB(10) (sic). Nothing more, according to the learned counsel, can be read into this circular. 59. On the strength of these submissions, and also relying upon the orders of the authorities below, learned special counsel submits that so far as first question before the Special Bench is concerned, his submission is that deduction under s. 80-IB(10), even in the pre-amendment period, is not admissible unless it is a purely residential project. He, however, concedes that provision for convenience shopping, in accordance with the Development Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dwelling units, while assessee's contention was that the intention of legislature was to encourage house-building activity and not merely construction of dwelling units. Without prejudice to this assessee's contention, it was further submitted that the intention behind this s. 80-IB(10) being only to grant the deduction in respect of a residential project is incorrect. This was shown by way of an example. For example, if a project is of 100 residential units and no commercial portion, the AO will grant the deduction, but if there are 99 residential units and 1 commercial unit, the deduction will be denied. Such a treatment is illogical for the reason that in both the cases, the intention of the legislature in making available residential units was served. The approach of the Revenue authorities thus, according to the learned counsel, proceeded on fallacious logic. 62. As regards learned special counsel's suggestion that deduction under s. 80-IB(10) was not allowable for shops or commercial establishments because deduction under s. 80-IB(7A) or under s. 80-IB(7B) were allowable for those purpose, it was pointed out that the deduction available to multiplex theatre under s. 80-IB(7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned that on satisfaction of any conditions, the project becomes a housing project. These rules, according to the assessee, are of no practical use and do not provide any solution to the problem before us. 68. Shri V.L. Jain once again referred to the KMDA website which refers to their housing project but the project details given on the website clearly show that commercial units are also included in the housing project. He also referred to the proviso to s. 80-IB(10) which refers to 'reconstruction and redevelopment of existing building in areas declared to be slum areas'. Our attention is also invited to the restrictions placed under the Development Control Rules for commercial use under residential zones. Finally, reliance is placed on the Hon'ble Supreme Court's judgment in the case of CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88ITR 192 (SC) in support of the proposition that when two reasonable views are possible, one in the favour of the assessee must be adopted. 69. A reference was also made to depreciation schedule which refers to the "buildings other than those covered by sub-item (3) below which are used mainly for residential purposes" in support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place." 74. There is no dispute about the basic position that some element of commercial use of built-up area can be treated as an integral part of the housing project, inasmuch as learned special counsel for the Revenue has conceded that commercial use of built-up area for convenience shopping, to the extent of 5 per cent of total area of plot as permissible under the Development Control Rules for Pune Municipal Corporation, will not vitiate the claim of deduction under s. 80-IB(10) of the Act. Learned special counsel has also accepted that in such a situation deduction under s. 80-IB(10) will be admissible for the entire profits of the housing project, though he also contends that when assessee constructs commercial area more than permissible convenience shopping, entire claim of deduction under s. 80-IB(10) will be lost. 75. We are in considered agreement with the learned special counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the emphasis placed by the learned counsel for the assessee on dictionary meanings of the word 'house', and their contention that since the several dictionary meanings of the expression 'house' go well beyond dwelling units, connotations of 'the expression 'house' cannot remain confined to the dwelling unit, we may point out that as held by the Hon'ble Supreme Court in the Venkateswara Hatcheries (P) Ltd., where dictionary gives more than one meaning of a word, that word 'has to be construed in the context of the provisions of the Act and regard must also be had to the legislative history of the provisions of the Act and the scheme of the Act'. Viewed in this perspective, and bearing in mind unambiguous thrust of the legislative history and background of the provisions of s. 80-IB(10), most appropriate meaning of the expression 'house' in the present context, in our humble understanding, is a dwelling unit. In the case of K.P. Varghese vs. ITO also, Hon'ble Supreme Court has deprecated a mechanical approach to the task of interpretation of statutes by laying too much of emphasis on the dictionary meanings of the expression used in the statute. In their inimitable and felicitous lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee is clearly contrary to the scheme of the Act and legislative history of the provisions of s. 80-IB(10). 77. The question then arises whether construction of non-residential units, i.e commercial space or shops etc. comes in conflict with the objective of the incentive provision to the extent that the this incentive can be declined proximately for the reason that a part of the built-up area is used for commercial or non-residential purposes. In other words, we need to address ourselves to the question whether non-residential use of built-up area in a housing project could, by itself, lead to denial of deduction under s. 80-IB(10). 78. As we have seen while perusing Development Control Rules applicable in Pune, there cannot be a pure residential project inasmuch as it is incumbent on a developer to provide at least 2 per cent of the plot area, and upto a maximum of 5 per cent of plot area, for convenience shopping. As Shri Puranik pointed out, the reference is to the plot area and not the built-up area. Therefore, even if permissible FSI is 1:1 but if a part of the total plot is vacant, the actual ratio of non-residential use vis-a-vis aggregate built-up area can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under s. 80-IB(10) will be lost. It leads to an absurd situation that no housing project can be eligible for deduction under s. 80-IB(10) at all, because unless the project is approved by the local authority, it is not eligible for deduction under s. 80-IB(10), but one of the conditions of approval of the project, i.e. mandatory provision for convenience shopping, is such that some element of commercial use of built-up area is inevitable, and this commercial use, per se, is held to be reason enough to render assessee ineligible for deduction under s. 80-IB(10). This is a vicious cycle of circular logic and it is inherently impossible for an assessee to come out of it. That apart, it is not even the case of the Revenue before us that there cannot be any commercial use at all of built-up area in a housing project. Revenue's case only is that such commercial use of built-up area should be confined to permissible convenience shopping. It is thus not possible for us to follow, nor are we inclined to do so on merits either, the approach adopted by the Division Bench in the case of Laukik Developers. 80. In view of the discussions above, it is now beyond any serious dispute or controv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) above. Suffice to say that, so far as assessment year before us, which is prior to the asst. yr. 2005-06, is concerned, approval by the local authority as a housing project constitutes admissible material to come to the conclusion that the housing project is eligible for deduction under s. 80-IB(10). Nothing further, therefore, needs to be examined in such a case. 83. Under the Development Control Rules for Pune Municipal Corporation, as applicable in the cases before us, admittedly there is no provision under which a project is approved as a 'housing project'. The projects are approved as residential, residential-cum-commercial or as commercial projects. We have to, therefore, address ourselves to the question whether in order to be termed as a housing project, any commercial use of built-up area was at all permissible in the assessment years before the asst. yr. 2005-06, and, if so, to what extent. 84. It is interesting to note that when cl. (d) was inserted vide Finance (No. 2) Act, 2004, which reads as "the built-up area of the shops and other commercial establishments, included in the housing project, does not exceed five per cent of aggregate built-up area or two thous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that there was no such limit in force for the earlier years as well. One can restrict only what is permitted. The restriction is placed at 5 per cent in the asst. yr. 2005-06. This limit is applicable only with prospective effect and there is no justification to presume that such a limit or prohibition was in place in the earlier years as well on the commercial use of area. There is nothing in the context or in the language of the amendment to suggest that the same is applicable in earlier years. If this limit was to be applicable in the earlier years as well, there was no need to make it applicable with prospective effect from 1st April, 2005 only. Further commercial built-up area beyond a specified limit is not only prohibited but it is now a condition precedent for getting benefit of s. 80-IB(10) that commercial built-up area must not be more than 5 per cent of total plot area. The presumption of implicit condition cannot, therefore, be inferred. There can neither be a presumption about retrospectivity of this ceiling on commercial use, nor can it be presumed that such a ceiling amounted to a concession and that no commercial use was at all permitted in the preceding years. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... araj Chintamani Saran Nath Shahdeo vs. State of Bihar AIR 1999 SC 3609 in paras 22-23 observed as follows: "22. In Garikapatti Veeraya vs. N. Subbiah Choudhury, 1957 SCR 4888 : AIR 1957 SC 540, the Chief Justice S.R. Das speaking for the Court observed as follows: The golden rule of construction is that, in the absence of anything in the enactment to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed.' 23. We may also refer to Francis Benion's Statutory Interpretation, 2nd Edn., at p. 214 wherein the learned author commented as follows: The essential idea of a legal system is that current law should govern current activities. Elsewhere in this work a particular Act is likened to a floodlight switched on or off, and the general body of law to the circumambient air. Clumsy though these images are, they show the inappropriateness of retrospective laws. If we do something today, we feel that the law applying to it should be the law in force today, not tomorrow's backward adjustment of it. Such, we believe, is the nature of law. Dislike of ex post ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject is approved as residential-cum-commercial project, the assessee will be eligible for deduction under s. 80-IB(10) in respect of entire profits of the housing project, such an interpretation will clearly lead to an absurdity inasmuch as the benefit of tax incentive under s. 80-IB(10) will then be available in respect of a project which is not even aimed at augmenting the supply of affordable dwelling units. Such a project, by no stretch of logic, can be construed as a project which can be said to be for the purpose of malting available the dwelling units. 93. Similarly, the limit of 51 per cent on residential use of built-up area, as suggested by learned counsel for the assessee, is also incompatible with our finding that dominant objective of s. 80-IB(10) is to provide tax incentive for a housing project which is predominantly for affordable dwelling units. When commercial use and residential use is almost equal, it cannot at all be said that predominant objective of the project is for providing dwelling units. When two different type of usage are equal or close to equal, as fifty one per cent ceiling on residential built-up area necessarily mandates, none of the usage can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfortunately expressed in such language that it leaves it quite as much open with regard to its form of expression, to the one interpretation as to the other, the question arises, 'what is to be done? We must try and get at the meaning of what was intended by considering the consequences of either construction'. And if it appears that one of these constructions will do injustice, and the other will avoid that injustice, 'it is the bounden duty of the Court to adopt the second, and not to adopt the first, of these constructions. However 'difficult, not to say impossible', it may be to put a perfectly logical construction upon a statute, a Court of justice 'is bound to construe it, and as far as it can, to make it available for carrying out the objects of the legislature, and for doing justice between parties." 96. In Seaford Court Estates Ltd. vs. Asher (1949) 2 All ER 155, 164 : 2 KB 481 at p. 498, Denning L.J. spelt out the principle of interpretation of statutes in the following terms: "Whenever a statute comes up for consideration it must be remembered that it is not within human powers to foresee the manifold sets of facts which may arise, and, even, if it were, it is not pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will then be interpreted according to the object which the Court deems the legislation is intended to serve. This operates even if Parliament has failed to incorporate the intention which the Judge believes that the section possesses. The learned Law Lord, has re-emphasized the importance of making a purposive approach in Reg. vs. Nat. Ins. Commr.: Ex parte Hudson (1972) AC 944 at p. 1005 : (1972) 2 WLR 210, 251 (HL) thus: "Meticulous linguistic analysis of words and phrases used in different contexts in particular sections of the Act should be subordinate to this purposive approach. It should not distract your Lordships from it." 99. No doubt, the above observation was made in the matter of interpretation of a social legislation, viz., National Insurance (Industrial Injuries) Act, 1946, but these observations are equally relevant for interpretation of tax incentive provisions. 100. In Carter vs. Bradbeer (1975) 3 All ER 158 at p. 161 : (1975) 1 WLR 1204, 1206 (HL), Lord Diplock has observed thus: "If one looks back to the actual decisions of this House on questions of statutory construction over the past thirty years, one cannot fail to be struck by the evidence of a trend aw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st April, 2005 have been explained in Notes on Clauses of the Finance (No. 2) Act, 2004 which reads as under: 'Under the existing provisions contained in sub-s. (10), hundred per cent deduction of the profits of an undertaking developing and building housing projects is allowed if the housing project is approved by a local authority before the 31st March, 2005 subject to the conditions specified in cls. (a) to (c) of the said sub-section. The existing provisions of the said sub-section provides that (a) the undertaking should have commenced development of the housing project after the 1st Oct., 1998, (b) the project should be on a size of a plot of land which has a minimum area of one acre, and (c) the residential unit should have a maximum built-up area of one acre, and (d) the residential unit should have a maximum built-up area of one thousand square feet where such residential units are situated within the cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand five hundred square feet at any other place.' Sub-cl. (d) seeks to substitute sub-s. (10) of the said section so as to prove, inter alia, a hundred per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities at Pune had no power to approve the housing projects as such, Projects could be approved either as "residential projects" or "residential and commercial projects". Even CBDT in their reply dt. 4th May, 2001 could not give clear answer to the query raised by Maharashtra Chamber of Housing Industry on the problem as noted above. In the above background, it will only be reasonable, in our opinion, grant benefit of incentive provision to projects in which built-up area for commercial purposes is more than 5 per cent say 6 per cent to 9 per cent. It would be palpable injustice to deny benefit of exemption to borderline cases merely because commercial built-up area in their cases has exceeded the built-up area by a small percentage on the touchstone of condition (d) applied subsequently. We are of view that Benches of the Tribunal were correct in holding that conditions of section were satisfied where the commercial built-up area had exceeded 9 per cent of total area. This was rightly done by adopting purposive interpretation of an incentive provision under consideration. We are, therefore, of the view that cases where commercial built-up area did not exceed 10 per cent of the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory provisions to case where 90 per cent or more of the total area has been utilised for building dwelling units of specified area and other conditions of the section are fulfilled. The purpose of the legislature in such case is clearly met. To sum up, we hold that a housing project would fulfil the requirement of s. 80-IB if 90 per cent of the area is utilised for building of dwelling units and utilisation of commercial building is restricted to 10 per cent of the built-up area. Such project should be held to be predominantly residential project and, therefore, satisfying description of "housing projects" as envisaged under the statutory provision prior to asst. yr. 2005-06. It will not be just and fair or even legal to deny exemption of the section to the aforesaid type of projects carried by an undertaking. 115. There may be cases where the total built-up commercial area is more than 10 per cent, of total area. These projects, in our opinion, normally should not get benefit of exemption unless such undertaking can show that income from construction of residential dwelling units can be worked out separately and even after excluding the commercial use of plot, the project s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial units, he will still be eligible to deduction under s. 80-IB(10) and such an eventuality will be clearly contrary to the scheme of the Act. In Laukik Developers case, the Division Bench observed that "If the argument of the assessee is accepted, then it shall nullify the very object of introducing the provisions of s. 80-IB(10) in the statute book for promotion of housing in the country since there shall be no limit to the total built-up area devoted to the construction of shops and other commercial establishments". 117. In our considered view, however, these apprehensions are ill conceived inasmuch as, even though there is no ceiling on the limit of commercial use of built-up area, wherever AO can demonstrate that the project built by the assessee is not a genuine housing project but the facade of housing project is given only to claim tax benefits under s. 80-IB(10), and that the real object of the assessee is to build commercial or business units, it will be open to the AO to decline deduction under s. 80-IB(10) on the ground that the project of the assessee is not a housing project in character. In any event, in the preceding paras, we have discussed at length as to what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards Shri Kapila's reliance on Hon'ble Supreme Court's judgment in the case of Indian Sugar Mills Association, we are unable to find any merits in the same. The decision was in the context of charitable institutions and it was held by the Hon'ble Supreme Court that private gain was inconsistent with the object of general public utility, and since there was admittedly an element of personal gain inasmuch as rules of the trust permitted distribution of profits, the trust could not be considered to be charitable in nature. In the case of charitable trusts, when even one of the objectives is non-charitable, the trust cannot be considered to be for charitable purposes. Quite to the contrary, there is not much conflict in various objectives of a housing project. As a matter of fact, even according to the Revenue, to some extent, having commercial use of built-up area, such as by way of convenience shopping, is incidental to the main objective of providing affordable dwelling units. This situation cannot be compared with that of a charitable institution in which even one non-charitable objective vitiates the nature of trust. We are, therefore, of the considered view that merely bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposition. 122. In view of the above discussions, we are of the considered view that deduction under s. 80-IB(10), as applicable prior to 1st April, 2005, is indeed admissible in case of a 'housing project' comprising residential housing units and commercial establishments. Question No. 1, therefore, must be answered in the affirmative. Accordingly, we approve decisions of the Division Benches in the cases of Arun Excello Foundations (P) Ltd., Harshad P. Doshi and Saroj Sales Organisation in this respect, and we decline to concur with the view expressed in the case of Laukik Developers. As a matter of fact, the view expressed by the Division Bench in the case of Laukik Developers, as we have noted earlier in this order, has not even been canvassed before us by the Revenue. 123. The next question is whether or not the deduction under s. 80-IB(10) is to be granted in respect of only of such profits as are attributable to the residential units. 124. There is not much of a dispute on this aspect also. Learned representatives agree that there are no enabling provisions so far as allocation of profits into profits relatable to residential units and commercial units are concerned. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned representatives have agreed that cl. (d) is not to be treated as retrospective in application. That aspect of the matter is also not in dispute before us. We, accordingly, hold that the limit under cl. (d) of s. 80-IB(10) will not apply. 130. To sum up, the conclusions arrived at by this Special Bench are as follows: (a) The deduction under s. 80-IB(10), as applicable prior to 1st April, 2005, subject to and in the light of the observations made in the preceding paras, is admissible in case of a 'housing project' comprising residential housing units and commercial establishments. In case these projects are approved as housing projects by the local authority, such an approval as housing project is sufficient for the purposes of eligibility. In any other case, where 90 per cent or more of the total built-up area is used for dwelling units, in accordance with the scheme of s. 80-IB(10), the benefit of deduction under s. 80-IB(10) will not be declined. In case commercial use of built-up area is more than 10 per cent but the residential segment of the project satisfies requirements of s. 80-IB(10) on standalone basis, i.e. (i) the size of the plot, excluding portion under comme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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