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TMI Blog2013 (10) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... eement provided that the assessee would receive remuneration - Agreement was one of works contract - Assessees were entitled to the benefit under Section 80IB(10) of the Act even where the title of the lands had not passed on to the assessees – Decided against the Revenue. - Tax Appeal No. 1300 of 2008 - - - Dated:- 11-1-2012 - Akil Kureshi And Sonia Gokani,JJ. For the Appellant : Mr KM Parikh For the Respondent : Rule Unserved ORDER (Per : Honourable Ms. Justice Sonia Gokani) 1. Revenue has challenged in the present Tax Appeal preferred under Section 260A of the Income Tax Act, 1961 ( hereinafter referred to as the Act ) challenging the order of the Income Tax Appellate Tribunal dated 7.9.2007 proposing the substantial question of law for consideration of the Court. 2. This appeal was admitted for considering the following substantial question of law:- Whether on the facts and circumstances of the case, the Tribunal was right in law in allowing benefits under Sec.80IB(10) of the Act, when the approval of the local authority as well as completion certificate was not granted to the assessee, but to the land owners and rights and obligations under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd owners entered into an agreement to sell the land in question to the assessee. The assessee was described as purchaser and the original land owners i.e. the heirs of deceased Ambalal Motibhai Patel were described as party of the Second Part or the sellers. 5. The Assessing Officer, however, rejected the assessee's claim for deduction under Section 80IB(10) of the Act. The Assessing Officer was of the opinion that the assessee firm was not the owner of the land. Approval by the local authority as well as permission to develop the project and permission to commence construction were not in the name of the assessee firm. The Assessing Officer was also of the opinion that the assessee had merely acted as an agent or a contractor for construction of residential houses. 6. The assessee carried the matter in appeal. 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 undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ati vs. Uppal Agencies Private Limited and another (supra), made a minor departure from its own decision in the case of M/s. Radhe Developers. The Tribunal confined its view in its judgment dated 7.11.2008 on the aspect of the ownership of the land. Considering the terms and conditions of development agreement and other documents on record, the Tribunal was of the opinion that the benefit of section 80IB(10) of the Act to the assessee could not be denied. 8.4 The Tribunal held that the assessee had acquired dominion over the land, which he had developed by constructing housing project incurring expenses and also taking risks. The Tribunal, however, observed that decision in the case of M/s. Radhe Developers would not apply in cases, where the assessee had entered into an agreement for a fixed remuneration and 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (10) The amount of profits in case of an undertaking developing and building housing projects approved [before the 31st day of March, [2005]] by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to any assessment year from such housing project if, - (a) such undertaking has commenced or commences development and construction of the housing project or or after the 1st day of October, 1998; (b) the project is on the size of a plot of land which has a minimum area of one acre; and (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 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 ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as in legal sense carrying a much wider connotation. The Tribunal itself in the impugned order has traced different meanings of term developer explained in different dictionaries, which read as under:- a. The Webster's Encyclopedia unabridged of the English Language gives Following meaning of the term 'developer' as: 1. One who or that which develops;2. A person who invests in and develops the Urban or Suburban potentialities of real estate. b. Oxford Advanced Learners Dictionary of Current English Fourth Indian Edition gives meaning of the term 'developer' as persons or company that develops land. c. Random House Dictionary of the English Language, the following can be found. Develop: a. To bring out the capabilities or possibilities of; bring to a more advanced or effective state. b. To 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 bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration. In lieu thereof he had granted development permission to the assessee. He had also parted with the possession of the land. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. It was specified that the assessee would bring in technical knowledge and skill required for execution of such project. The assessee had to pay the fees to the Architects and Engineers. Additionally, assessee was also authorized to appoint any other Architect or Engineer, legal adviser and other professionals. He would appoint Sub-contractor or labour contractor for execution of the work. The assessee was authorized to admit the persons willing to join the scheme. The assessee was authorised to receive the contributions 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Bombay High Court observed as under: Contract of work or a contract of sale 14. The question as to whether a contract is a contract of work or a contract of sale is the subject-matter of precedents on the subject. The principles, as decided cases would show, are well defined but the application of those principles to individual cases often poses a difficulty. The consistent line of thinking that emerges from the decided cases is that essentially, in determining as to whether a contract constitutes one for work or is a contract of sale, it is the dominant interest and object of the parties in entering into the contract, as evinced by the terms of the contract, the circumstances of the contract and the custom of the trade that provide a guiding indicator. The object of the parties 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 enactm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usive, though these circumstances may be taken into consideration in deciding whether a subsisting contract is a contract of work and labour or contract for a sale of a chattel. In Sentinel Rolling Shutters and Engineering Co.Pvt. Ltd. v. CST, AIR 1978 SC 1747; 42 STC 409 this principle was reiterated by the Supreme Court. In State of Tamil Nadu v. Anandam Viswanathan, AIR 1989 SC 962; 73 STC 1, the contract in question involved supply and printing of question papers to universities. The assessee entered into those contracts for printing and the question involved was whether the taxable turnover for the purpose of the Tamil Nadu General Sales Tax Act, 1959 would include the printing and block making charges. The Supreme Court held that the contract in question was a contract of work, having 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is one of sale of goods or for work and labour depends upon the main object of the parties found out from an overview of the terms of contract, the circumstances of the transaction and the custom of the trade. It is the substance of the contract document/s and not merely the form, which has to be looked into. The court may form an opinion that the contract is one whose main object is transfer of property in a chattel as a chattel to the buyer, though some work may be required to be done under the contract as ancillary or incidental to the sale, then it is a sale. If the primary object of the contract is the carrying out of work by bestowal of labour and services and materials are incidentally used in execution of such work then the contract is one for work and labour. (3) If the thing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the price by installments. In the case of State of Andhra Pradesh vs. M/s.Kone Elevators (India) Ltd. (supra),Apex Court observed as under:- 5. It can be treated as well settled that there is no standard formula by which one can distinguish a 'contract for sale' from a 'works-contract'. The question is largely one of fact depending upon the terms of the contract including the nature of the obligations to be discharged thereunder and the surrounding circumstances. 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 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882(4 of 1882); or Section 53A of the Transfer of Property Act reads as under:- 53A. Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be interpreted in isolation out of context. When we read the entire document, and also consider that in form of remuneration the assessee had to bear the loss or as the case may be take home the profits, it becomes abundantly clear that the project was being developed by him at his own risk and cost and not that of the land owners. Assessee thus was not working as a works contract. Introduction of the Explanation to Section 80IB(10) therefore in this group of cases also will have no effect. 43. We may at this stage examine the ratio of different judgments cited by the Revenue. The decision in case of Faqir Chand Gulati vs. Uppal Agencies Private Limited and another (supra) was rendered in the background of the provisions of the Consumer Protection 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 Protect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this definition provided by the statute that the Apex Court concluded that the agreement was one of works contract. The Apex Court observed that the term works contract contained in the Act is inclusive definition and includes not merely the works contract as normally understood but it is a wide definition which includes any agreement for carrying out building or construction activity for cash, deferred payment or other valuable consideration. Thus the interpretation rendered by the Apex Court in the said decision was based on not the normal meaning of term works contract but on the special meaning assigned to it under the Act itself, which provided for a definition of the inclusive nature. 45. Under the circumstances, we are of the opinion that the Tribunal committed no error in holding that the assessees were entitled to the benefit under Section 80IB(10) of the Act even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners. 46. We find that it is not even the case of the Revenue that other conditions of Section 80IB of the Act were not fulfilled. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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