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TMI Blog2013 (3) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... lenging the order of the Income Tax Appellate Tribunal dated 3.11.2009 proposing the following substantial question of law for consideration of the Court. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing deduction u/s. 80IB(10) r.w.s. 80IB(1) to the assessee when the approval by the local authority as well as completion certificate was not granted to the assessee but to the landowner and the rights and the obligations under the said approval were not transferable, and when the transfer of dwelling units in favour of the end-users was made by the landowner and not 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.54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(Appeals) vide order dated 19.9.2006 rejected the assessee's appeal. CIT(Appeals) put considerable stress on the requirement of ownership of the land to qualify for deduction under Section 80IB(10) of the Act. He was of the opinion that the land is intrinsic and inalienable part of the housing project. No assessee, therefore, could carry on the business of undertaking developing and building housing projects without owning the land. 7. The assessee carried the matter further in appeal before the Income Tax Appellate 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 pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked merely as contractor to construct the housing project on behalf of the land owners. In such a case, agreement between the assessee and the land owner would not permit the assessee to claim the benefit. 9. In the case of M/s.Shakti Corporation, since the assessee had produced documents on record, the Tribunal accepted its case for benefit under Section 80IB(10) of the Act. However, in group of other cases, which the Tribunal was disposing off by the said common judgment, such documents were not readily available. The Tribunal 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place. 29. From the above provisions it can be seen that Section 80IB(10) provided for deduction of the entire amount of profits of an undertaking derived from the business of developing and building housing projects which were approved by the Local Authority before the specified 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause to grow or expand. Developer: a. The act or process of developing; progress. b. Synonym: Expansion, elaboration, growth, evolution, unfolding, maturing, maturation. d. Webster Dictionary,the following definitions emerge: a. To realize the potential of; b. To aid in the growth of Strength, develop the biceps, c. To bring into being: make active (develop a business) d. To convert (a tract of land) for specific purpose, as by building extensively. e. Law lexicon Dictionary: The following definitions could be seen: Development a. 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 Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibutions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. In case, for some reason, the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken 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 propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of necessity to be deduced from the terms of the contract. In order to elucidate the distinction which has been made, it would be necessary to turn to some of the authorities on the subject. While dealing with authorities it would be necessary to note that some of the decided cases deal with issues under sales tax legislation and many of those judgments relate to the period prior to the enactment of the Forty Sixth Amendment to the Constitution. The technicalities of sales tax legislation, especially as a consequence of the Forty Sixth amendment do not fall for determination 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng regard to the nature of the job to be done and the confidence reposed in the contractor for work to be rendered. The supply of paper was merely incidental. More recently, in State of A.P.v. Kone Elevators (India) Ltd. [2005] 3 SCC 389; [2005] 140 STC 22, the assessee was under the terms of contract required to supply and install lifts to its customers, while it was the customers' obligation to undertake work connected in keeping the site ready for installation. The Supreme Court noted that under its contractual obligations, the assessee had undertaken the installation of lifts manufactured 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', th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to be delivered has only individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If A may transfer property for a price in a thing in which B had no previous property then the contact is a contract for sale. On the other hand where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. (4) The bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to a conclusion 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '. 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 to 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'. 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 defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m his part of the contract, then notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no 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 der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Act. In the case before the Apex Court, the land owner had entered into an agreement with the builder requiring him to construct apartment building on the land in question. Part of the constructed area was to be retained by the owner of the land. In consideration of the land price remaining area was free for the builder to sell. When the land owner found series of defects in the construction, he approached the Consumer Protection Forum. It was in this background the Apex Court was considering whether the land owner can be stated to be a consumer and the builder a service provider. It was in this background that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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