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TMI Blog2013 (2) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... and risk involved in the project, in respect of the issue regarding deductions u/s. 80IB(10) r.w.s. 80IB(1) as claimed by the assessee ?" 2. On hearing learned counsel Mr. K.M. Parikh for the Revenue and on examining the material on record with his assistance, this Tax Appeal is being decided. 3. The central question is as to whether the respondent assessee is eligible for the benefit under Section 80IB. As can be culled out from the record, both CIT(Appeals) as well as the Tribunal had allowed the deduction to the assessee respondent under Section 80IB(10) read with Section 80IB(1). 4. As candidly pointed out to us by the learned counsel, this Bench in Tax Appeal No.546 of 2008 and allied appeals in case of Commissioner of Income-Tax vs. Radhe Developers decided the identical question of law on 13.12.2011. As the present appeal also arise in similar factual background leading to the same question of law, instead of giving independent reasonings to the question proposed, relevant findings arrived at in case of Radhe Developers(supra) would be appropriate to be reproduced for the purpose of deciding the present appeal. "3. In Tax Appeal No.546 of 2008 (M/s. Radhe Developers), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal ("the Tribunal" for short). The Tribunal vide its impugned judgment dated 29.6.2007 allowed the assessee's appeal and reversed the orders passed by the Revenue authorities. The Tribunal based its order on two aspects. Firstly, the Tribunal was of the opinion that for deduction under Section 80IB (10) of the Act it is not necessary that the assessee must be the owner of the land. Second aspect of the Tribunal's judgment was that even otherwise looking to the provisions contained in Section 2(47) of the Act, read with Section 53A of the Transfer of Property Act, by virtue of the development agreement and the agreement to sell, the assessee had, for the purpose of Income Tax, become the owner of the land. The Tribunal, accordingly, allowed the assessee's appeal directing the Assessing Officer to grant deduction under Section 80IB(10) of the Act. The Revenue is, therefore, in appeal before this Court. 8. Second stream of appeals led by Tax Appeal No.733 of 2009 ( M/s. Shakti Corporation) arises in the following background. 8.1 Here also the assessee had claimed deduction under Section 80IB (10) of the Act on the ground that the income was derived from the business of the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal remanded the proceedings to the Assessing Officer with a direction that the Assessing Officer should look into the agreement entered into in each case by the land owner and decide whether the assessee had in fact purchased the land for a fixed consideration and had developed a housing project at its own cost and risk. If it was so found, the Assessing Officer should allow the deduction under Section 80IB(10) of the Act. On the other hand, if the Assessing Officer found that the developer had acted on behalf of the land owner and received only a fixed consideration for developing the housing project, the assessee would not be eligible for deduction under Section 80IB (10) of the Act. This common judgment in the case of M/s. Shakti Corporation is also in appeal before us at the hands of the Revenue. We may record that the assessees have accepted the judgment and not carried the issue further before us. xxx xxx xxx 28. From the above documents on record and the statutory provisions brought to our notice, it is necessary for us to examine whether the Tribunal was justified in granting benefit to the assessees under Section 80IB(10) of the Act. As already noted, the Tribunal in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified date. Such deduction, however, was subject to certain conditions, namely, that such undertaking had commenced development and construction prior to a specified date and that the project was on the size of a plot of land with a minimum area of 1 acre and the residential unit had maximum inbuilt area of 1500 sq.feet, (except in cases of cities of Delhi and Mumbai, where maximum area permitted was 1000 sq.feet.) 30. The essence of sub-Section (10) of Section 80IB, therefore, requires involvement of an undertaking in developing and building housing projects approved by the local authority. Apparently, such provision would be aimed at giving encouragement to providing housing units in the urban and semiurban areas, where there is perennial and acute shortage of housing, particularly, for the middle income group citizens. To ensure that the benefit reaches the people, certain conditions were provided in sub-Section(10) such as specifying date by which the undertaking must commence the developing and construction work as also providing for the minimum area of plot of land on which such project would be put up as well as maximum built up area of each of the residential units to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To act, process or result of development or growing or causing to grow; the state of being developed. b. Happening." 32. Section 80IB(10) of the Act thus provides for deductions to an undertaking engaged in the business of developing and constructing housing projects under certain circumstances noted above. It does not provide that the land must be owned by the assessee seeking such deductions. 33. It is well settled that while interpreting the statute, particularly, the taxing statute, nothing can be read into the provisions which has not been provided by the Legislature. The condition which is not made part of Section 80IB(10) of the Act, namely that of owning the land, which the assessee develops, cannot be supplied by any purported legislative intent. 34. We have reproduced relevant terms of development agreements in both the sets of cases. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects. Under the agreements, the assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work. Assessee would enroll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the the full FSI as per the existing rules and regulations. However, in future, rules be amended and additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use as agreed between the parties. The assessee had full authority and also responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this proceeding. The decided cases are being referred to only with a view to emphasise the distinction between a contract for work and a contract for sale. 15. In Govt. of Andhra Pradesh v. Guntur Tobaccos Ltd., AIR 1965 SC 1396; 16 STC 240, the Supreme Court held that in the execution of a contract of work some materials may be used and property in the goods so used passes to the other party. However, the contractor who undertakes to do the work will not necessarily be deemed on that account to sell the materials. The Supreme Court noted that a contract for work in the execution of which goods are used may take one of three forms. Those three forms were elaborated as follows( page 1404 of AIR 1965 SC and page 255 of 16 STC): "The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price: it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work: or it may be a contract for work and use or supply of materials though not accessory to th execution of the contract is voluntary or gratuitous. In the last class there is no sale because though property pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufactured and brought to site in a knocked-down state and the contract in question was a contract of sale and not a works contract. The distinction between a contract of sale and a works contract found elaboration in the following observations (page 26 of 140 STC): "If the intention is to transfer for a price a chattel in which the transferee had no previous property, then the contract is a contract for sale. Ultimately, the true effect of an accretion made pursuant to a contract has to be judged not by artificial rules but from the intention of the parties to the contract. In a 'contract of sale', the main object is the transfer of property and delivery of possession of the property, whereas the main object in a 'contract for work' is not the transfer of the property but it is one for work and labour. Another test often to be applied is: when and how the property of the dealer in such a transaction passes to the customer: is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a 'sale'; if it is the latter, it is a 'works contract'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion that the contract is in substance one for the sale of goods and not for the work and labour. However, the test is not decisive..." 18.A contract for sale has hence to be distinguished from a contract of work. Whether a particular agreement falls within one or the other category depends upon the object and intent of the parties, as evidenced by the terms of the contract, the circumstances in which it was entered into and the custom of the trade. The substance of the matter and not the form is what is of importance. If a contract involves the sale of movable property as movable property, it would constitute a contract for sale. On the other hand, if the contract primarily involves carrying on of work involving labour and service and the use of materials is incidental to the execution of the work, the contract would constitute a contract of work and labour. One of the circumstances which is of relevance is whether the article which has to be delivered has an identifiable existence prior to its delivery to the purchaser upon the payment of a price. If the article has an identifiable existence prior to its delivery to the purchaser, and when the title to the property vests with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 'works-contract'. Therefore, in judging whether the contract is for a 'sale' or for 'work and labour', the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a 'sale' or a 'works contract'. Essentially, the question is of interpretation of the 'contract'. It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. No definite rule can be formulated to determine the question as to whether a particular given contract is a contract for sale of goods or is a works-contract. Ultimately, the terms of a given contract would be determinative of the nature of the transaction, whether it is a "sale" or a "works-contract". Therefore, this question has to be ascertained on facts of each case, on proper construction of terms and conditions of the contract between the parties." 38. In the present case, as already held the assessee had undertaken the development of housing project at its own risk and cost. The land owner had acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice of the contract or of the part performance thereof." 41. In the present case, we find that the assessee had, in part performance of the agreement to sell the land in question, was given possession thereof and had also carried out the construction work for development of the housing project. Combined reading of Section 2(47)(v) and Section 53A of the Transfer of Property Act would lead to a situation where the land would be for the purpose of Income Tax Act deemed to have been transferred to the assessee. In that view of the matter, for the purpose of income derived from such property, the assessee would be the owner of the land for the purpose of the said Act. It is true that the title in the land had not yet passed on to the assessee. It is equally true that such title would pass only upon execution of a duly registered sale deed. However, we are, for the limited purpose of these proceedings, not concerned with the question of passing of the title of the property, but are only examining whether for the purpose of benefit under Section 80IB (10) of the Act, the assessee could be considered as the owner of the land in question. As held by the Apex Court in the case of Myso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Apex Court made certain observations. Such observations cannot be seen out of context nor can the same be applied in the present case where we are concerned with the deduction under Section 80IB(10) of the Act. 44. In the case K. Raheja Development Corporation vs. State of Karnataka (supra), the Apex Court considered whether the builder, who was engaged in the development of property and for such purpose had entered into an agreement with the land owner, can be stated to have executed works contract. Such interpretation was rendered in the background of the term "works contract" defined in Section 2(1)(v-i) of the Karnataka Sales Tax Act, which reads as under:- "12. Section 2(1)(v-i) is relevant. It defines a "works contract" as follows: "2.(1)(v-i) 'works contract' includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;" It is thus to be seen that under the Karnataka Sales Tax Act the definition of the words "works contract" is very wide. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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