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TMI Blog2014 (4) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... acts 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 on profit derived from sale of unutilized FSI not being the element of profits derived from the business activity of development and construction of the housing project relating to the sale of tenements ?" 2. Having heard learned counsel for the parties, we notice that question no.1 is covered by the decision of this Court in case of Commissioner of Incometax v. Radhe Developers reported in (2012) 341 ITR 403(Guj) holding in favour of the assessee making following observations : "31. Neither the provisions of Section 80IB nor any other provisions contained in other related statutes were brought to our notice to demonstrate that ownership of the land would be a condition precedent for developing the housing project. It was perhaps not even the case of the Revenue that under the other laws governing construction in urban and semiurban areas, there was any such restriction. It is, however, the thrust of the argument of the Revenue that in order to receive benefit under Section 80IB(10) of the Act, such requirement must be read into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied 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 members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence. 35. With respect to the question whether the assessee had acquired the ownership of the land for the purposes of the Income Tax Act and, in particular, Section 80IB (10) of the Act and to examine the effect of Explanation to Section 80IB(10) introduced with retrospective effect from 1.4.2001, since several aspects overlap, it would be convenient to discuss the same together. 36.We have noted at some length, the relevant terms and conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. Most significantly, the risk element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed to pay off the land owner first before appropriating any part of the sale consideration of the housing units for his benefit. In short, assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Protection Forum. It was in this background the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar in all the cases. 11.03.2014 23. Section 80IB(10) of the Act pertains to deduction in respect of profit and gains from certain activities. Subsection (10) thereof, as is wellknown, grants 100% deduction on the profit of an assessee being an undertaking developing and building housing projects on the profit derived from such housing project subject to conditions laid down therein. Subsection (10) of the section 80IB as it stood at the relevant time read as under: (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 on 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 builtup area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twentyfive kilometers from the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in urban areas. In this context, in the decision of this Court in Radhe Developers, it was observed as under: 30. The essence of subSection (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 subSection( 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 located thereon. The provisions nowhere required that only those developers who themselves own the land would receive the deduction under Section 80IB(10) of the Act. 26. It can thus be seen that deduction under section 80IB(10) of the Act was granted to give fillip to the construction of residential units f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are popularly referred to General Development Control Regulations (GDCR). In addition to providing different zones controlling development activities in different areas for regulated and orderly development of urban areas, these regulations also provide for various other details such as maximum height upto which the construction can be carried out, maximum area on the ground floor or on other floors which can be covered under construction, margin to be left on sides, parking facilities to be provided depending on the nature of building and most importantly, the maximum construction that can be carried out on a given piece of land. The last element, namely, the ratio of the land area versus the maximum construction permissible on such land, is referred to as floor space index (FSI for short). It is this FSI which will decide the maximum area of construction that can be carried out on any given piece of land. It is, therefore, not difficult to appreciate that besides several other factors of situational and other advantages and disadvantages, FSI permissible for the land in question would be an important factor in the context of development of the land. Given all other factors same, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaving ample scope for the purchaser to carry on further construction on his own and claim full deduction under section 80IB(10) of the Act on the profit earned on sale of the property? If this concept is accepted, in a given case, an assessee may put up construction of only 100 sq. ft. on the entire area of one acre of plot and sell the same to a single purchaser and claim full deduction on the profit arising out of such sale under section 80IB(10) of the Act. Surely, this cannot be stated to be development of a housing project qualifying for deduction under section 80IB(10) of the Act. This is not to suggest that for claiming deduction under section 80IB (10) of the Act, invariably in all cases, the assessee must utilize the full FSI and any shortage in such utilization would invite wrath of the claim under section 80IB(10), being rejected. The question is where does one draw the line. In our opinion, the issue has to be seen from case to case basis. Marginal underutilization of FSI certainly cannot be a ground for rejecting the claim under section 80IB(10) of the Act. Even if there has been considerable underutilization, if the assessee can point out any special grounds why the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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