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TMI Blog2011 (2) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that upto 31/3/2005 deduction under Section 80IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user upto 10% of the total built-up area of the plot. Amendment to section 80IB(10) to deny Section 80IB(10) deduction to projects having commercial user beyond the limit prescribed under clause (d), even though such commercial user is approved by the local authority. - retrospective or prospective - Held that: - Clause (d) inserted to Section 80IB(10) with effect from 1/4/2005 is prospective and not retrospective and hence cannot be applied for the period prior to 1/4/2005. - 1194 OF 2010 - - - Dated:- 22-2-2011 - J.P. DEVADHAR, MRS. MRIDULA BHATKAR, JJ. Mr. Vimal Gupta Abhay Ahuja, Advocates for the appellant. Mr. Deepak Tralshawala with V.S. Hadade, Advocates for the respondent. JUDGMENT (PER J.P. DEVADHAR, J.) 1. Although this appeal was admitted on 01/12/2009 on only question, at the hearing of the appeal counsel on both sides agreed that all the questions raised in the appeal be admitted and heard on merits. Accordingly, the following questions of law are admitted and heard on me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under Section 80IB(10) of the Income Tax Act,1961 ['the Act' for short] on the profits derived from the sale of the residential units in the project in question. The profit was computed by following the recognized sale method. The assessing officer opined that the expression "Housing Project" in Section 80IB(10) applies to projects consisting of residential units only. Since the project of the assessee was approved by the local authority as "residential plus commercial", the assessing officer held that the project is not a housing project covered under Section 80IB(10) of the Act and accordingly not entitled to the deduction under Section 80IB(10). 6. The appeal filed by the assessee against the decision of the assessing officer was dismissed by the Commissioner of Income Tax (Appeals). On further appeal filed by the assessee, the matter was referred to a Special Bench in view of the conflicting decisions of the Tribunal. Accordingly, a Special Bench of the ITAT was constituted for hearing the appeal filed by the assessee as also several other appeals involving similar issues. By the impugned judgment and order dated 06/04/2009, the Special Bench of the ITAT held that the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 does not even remotely suggest that the deduction is intended to be given to housing projects consisting of both residential and commercial units. Therefore, the Tribunal was not justified in holding that the housing projects with commercial units upto 10% of the plot area are entitled to deduction under Section 80IB(10) of the Act. (c) Since the expression 'housing project' in Section 80IB (10) is not defined, plain and literal meaning must be assigned to that expression. The expression 'house' ordinarily means a building for human habitation or occupation. Therefore, the expression 'housing project' would literally mean a project to construct dwelling units / residential units for human habitation. The Tribunal committed an error in construing the expression 'housing project' to mean a project for residential units including commercial units. Such a construction amounts to enlarging the scope of the expression 'housing project' which is impermissible in law. Relying on the decision of the Apex Court in the case of Orissa State Warehousing Corporation V/s. CIT reported in 237 I.T.R. 589, it is contended that the taxing statutes should be interpreted literally by giving na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) to projects consisting of commercial establishments to the extent permitted by Section 80IB(10) as amended by Finance Act, 2004. Accordingly, counsel for the revenue submit that the decision of the ITAT in the case of Laukik Developers V/s. DCIT reported in (2007) 108 TTJ (Mum) 364 must be affirmed by holding that prior to 1/4/2005, projects approved as 'residential plus commercial' would not be eligible for deduction under Section 80IB(10) of the Act. 9. Counsel for the assessee as also counsel for the intervenors, on the other hand, supported the order passed by the Special Bench of the ITAT. They submit that prior to 1/4/2005 all projects approved by the local authorities permitting commercial user within the limits prescribed under the respective Development Control Rules must be held to be housing projects for the purposes of Section 80IB(10) of the Act. Accordingly, it is contended that it was not necessary for the ITAT to restrict the benefit of Section 80IB(10) to housing projects having commercial establishments upto 10% of the total area of the plot. However, counsel for the assessee / intervenors submit that 10% ceiling being reasonable and in almost all the cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mote house building activity so as to provide affordable dwelling units to a common man. 13. By Finance Act, 1999, entire Section 80IA was substituted by the newly introduced Section 80IA 80IB which were on the lines of the existing Section 80IA but with certain modifications. The expression 'housing project' is not defined under the Act and, therefore, the dispute is whether the expression 'housing projects' in Section 80IB(10) applies to projects being commercial user or not. Clause (d) inserted to Section 80IB(10) with effect from 1/4/2005 provides that Section 80IB(10) deduction would be available where the built-up area of the shops and other commercial establishments included in the housing project does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet whichever is less. By Finance Act, 2010 clause (d) is amended with effect from 1/4/2010. It provides that Section 80IB(10) deduction would be available where the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate built-up area of the housing project or five thousand square fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no dispute that the assessee fulfills all conditions of Section 80IB(10) as it stood prior to 1/4/2005. The only question is, since the project 'Brahma Estate' consists of 15 residential buildings and 2 commercial buildings, whether the said project can be said to be a 'housing project' under Section 80IB(10) of the Act, as it stood prior to 1/4/2005 ? 16. As noted earlier, the expression 'housing project' is not defined under the Act. However, Section 80IB(10) refers to the housing projects which are approved by the local authorities. Therefore, for the purposes of Section 80IB(10) which project should be treated as a housing project is left to the local authorities. The question, therefore, to be considered is, whether a local authority can approve a project to be a housing project with commercial establishments. 17. Development of every region is regulated by the concerned local authority in accordance with the Development Control Rules / Regulation framed by that local authority. The Development Control Rules / Regulations are framed by the local authority depending upon the needs of that region and hence differ from region to region. We have perused DC Rules framed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding by way of convenient shopping / ancillary use is permitted between 2% to 50% of the total area depending upon the location of the plot. Similarly, the DC Regulation of Gr. Mumbai, provides that in a residential building commercial user by way of convenient shopping / ancillary use could be between 5% to 50% of the total area. 21. Thus, on the date on which the legislature introduced 100% deduction under the Income Tax Act, 1961 on the profits derived from housing projects approved by a local authority, it was known that the local authorities could approve the projects as housing projects with commercial user to the extent permitted under the DC Rules framed by the respective local authority. In other words, it was known that the local authorities could approve a housing project without or with commercial user to the extent permitted under the Development Control Rules. If the legislature intended to restrict the benefit of deduction only to the projects approved exclusively for residential purposes, then it would have stated so. However, the legislature has provided that Section 80IB(10) deduction is available to all the housing projects approved by a local authority. Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the size of the residential unit in Section 80IB(10) as it stood prior to 1/4/2005 is suggestive of the fact that the deduction is restricted to housing projects approved for residential units only cannot be accepted. 25. The above conclusion is further fortified by Clause (d) to Section 80IB(10) inserted with effect from 1/4/2005. Clause (d) to Section 80IB(10) inserted w.e.f. 1/4/2005 provides that even though shops and commercial establishments are included in the housing project, deduction under Section 80IB(10) with effect from 1/4/2005 would be allowable where such commercial user does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet whichever is lower. By Finance Act, 2010, clause (d) is amended to the effect that the commercial user should not exceed three per cent of the aggregate built-up area of the housing project or five thousand square feet whichever is higher. The expression 'included' in clause (d) makes it amply clear that commercial user is an integral part of a housing project. Thus, by inserting clause (d) to Section 80IB(10) the legislature has made it clear that though the housing projects ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial user upto 10% of the plot area would alone be entitled to deduction under Section 80IB(10). As noted earlier, restriction regarding commercial user has been imposed for the first time by introducing clause (d) to Section 80IB(10) with effect from 1/4/2005. Therefore, it was not open to the Tribunal to hold that prior to 1/4/2005, projects having commercial user upto 10% of the plot area alone would be eligible for Section 80IB(10) deduction. 28. In the present case, though the commercial user is more than 10% of the plot area, the Tribunal has allowed Section 80IB(10) deduction in respect of 15 residential buildings on the ground that the profits from these exclusively residential buildings could be determined on stand alone basis. In our opinion that would not be proper, because, Section 80IB(10) allows deduction to the entire project approved by the local authority and not to a part of the project. If the conditions set out in Section 80IB(10) are satisfied, then deduction is allowable on the entire project approved by the local authority and there is no question of allowing deduction to a part of the project. In the present case, the commercial user is allowed in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the commercial user permitted by the local authority is within the limits prescribed under the DC Rules / Regulation, the deduction under Section 80IB(10) upto 31/3/2005 would be allowable irrespective of the fact that the project is approved as 'housing project' or 'residential plus commercial'. c) In the absence of any provisions under the Income Tax Act, the Tribunal was not justified in holding that upto 31/3/2005 deduction under Section 80IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user upto 10% of the total built-up area of the plot. d) Since deductions under Section 80IB(10) is on the profits derived from the housing projects approved by the local authority as a whole, the Tribunal was not justified in restricting Section 80IB(10) deduction only to a part of the project. However, in the present case, since the assessee has accepted the decision of the Tribunal in allowing Section 80IB(10) deduction to a part of the project, we do not disturb the findings of the Tribunal in that behalf. e) Clause (d) inserted to Section 80IB(10) with effect from 1/4/2005 is prospective and not retrospecti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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