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TMI Blog2014 (4) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... of FSI certainly cannot be a ground for rejecting the claim u/s 80IB(10) of the Act - Even if there has been considerable underutilization, if the assessee can point out any special grounds why the FSI could not be fully utilized, the case may stand on a different footing - in cases where the utilization of FSI is way short of the permissible area of construction, looking to the scheme of section 80IB(10) of the Act and the purpose of granting deduction on the income from development of housing projects envisaged, bifurcation of profits arising out of such activity and that arising out of the net sell of FSI must be resorted to - none of the assessees have made any special ground for non-utilization of the FSI- Decided in favour of Revenue. - TAX APPEAL NO. 549 of 2008 With TAX APPEAL NO. 489 of 2009 With TAX APPEAL NO. 492 of 2009 With TAX APPEAL NO. 323 of 2009 With TAX APPEAL NO. 317 of 2009 With TAX APPEAL NO. 304 of 2009 With TAX APPEAL NO. 1711 of 2008 With TAX APPEAL NO. 1490 of 2 - - - Dated:- 11-3-2014 - Akil Kureshi And Sonia Gokani,JJ. For the Appellant : Mr. Bhatt with Mrs. Mauna Bhatt For the Respondent : Mr. SN Soparkar, Sr. Adv. JUDGMENT (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58/08, 561/08, 565/08, 566/08, 568/08, 570/08, 572/08, 573/08, 574/08, 577/08, 581/08 though such issue arises, at the time of admission of the appeals, question relatable to this issue was not framed though it does arise out of respective judgment of the Tribunal. We therefore permit the Revenue to raise such additional question in such appeals. In other appeals, such an additional question has already been framed. For the purpose of all these appeals, therefore, we adopt the following common substantial question of law for our consideration: Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that full deduction under section 80IB(10) of the Act was available to the assessees even though the construction was carried out only utilizing a portion of FSI available? 3. We may first, deal with issue No.1 which is possible of summary disposal since the issue is already covered by a decision of this Court in the case of Radhe Developers (supra). Under identical circumstances, this Court upheld the assessees claim for deduction under section 80IB(10) of the Act making following observations: 31. Neither the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B(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 members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal 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 including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. Most significantly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had entered into a development agreement with the land owners on similar terms and conditions. It is true that there were certain minor differences, however, in so far as all material aspects are concerned, we see no significant or material difference. Here also assessee was given full rights to develop the land by putting up the housing project at its own risk and cost. Entire profit flowing therefrom was to be received by the assessee. It is true that the agreement provided that the assessee would receive remuneration. However, such one word used in the agreement 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al authority was in the name of one Shri Mustaqbhai Alibhai Patel and others who were the owners of the land. On the issue of deduction under section 80IB(10) of the Act, on the entire profit, he held as under: 7.12 The plain reading of section 80IB(10) makes it clear that profit in case of an undertaking developing and building housing project approved by a local authority shall be allowed deduction at 100% of profit derived from such housing project, if the conditions as laid down in subsection 10 of section 80IB are fulfilled. However, in this case, as discussed above, the firm has not fulfilled the basic condition for claiming deduction, i.e. ownership of land on which housing project is constructed and the approval of local authority is not in the name of the assessee firm. Here I would like to make clear that the partner and partnership firm both are totally separate and different entity and have their own separate rights and obligations. The assessee does not become eligible for deduction u/s 80IB of the Act on the plea that the land of the project was owned by the partner. The contention of the assessee that by entering into development contract it has acquired ownershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations: 11. The submission of assessee firm is duly considered but the same was not tenable. The argument that the assessee firm has developed the FSI available @ 40% of area for construction of ground floor houses, therefore the assessee has complied the condition prescribed. The local authority has imposed restriction of construction on ground floor @ 40% of area so that every residential unit have proper light, air and the parking space. Therefore, though anybody can develop property to the extent of 1.6 times of area available subject to maximum ground floor construction @ 40% of the area available. However, the assessee has not consdiered the FSI available on the ground floor i.e. the upper floor of the residential units. Due to non development of of this available FSI, the question raised is still remains unanswered. The fact of the matter is that the assessee firm had undertaken to construct only a part of the FSI available to it under the scheme of things sanctioned by the local authority. The other part of unutilized FSI relating to the approved units have not been constructed or developed, but being sold directly, although as a composite part of unit of tenement its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter in appeal. CIT (Appeals), rejected the entire claim under section 80IB(10) of the Act and therefore, did not find it necessary to examine this separate aspect of claim for deduction under section 80IB(10) of the Act. He observed as under: 16. In view of the discussions given above, I do not intend to interfere with the action of the Assessing Officer in disallowing the claim of deduction u/s.80IB(10) hence the same is confirmed. Since the disallowance has been confirmed in toto the alternative finding regarding profits attributable to sale of unutilized FSI is not required to be considered. 10. The assessee then carried the matter in appeal before the Tribunal. The Tribunal allowed the assessee s appeal making following observations: .......... On verification of the sale deed executed in favour of the buyers of the residential houses, it is clear that the assessee had made this sale deed for sale of plot of land. Further, on verification of development agreement with the landowner, we find that here also the reference is with respect to land area only. In both the documents, assessee had not acquired rights and has snot relinquished rights with reference to FSI. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no requirement as to FSAI under the schcme of provisions of Sec.80IB(10). In any case the assessee has not sold FSI of plot, even if the unutilized FSI rights are available with the assessee, it is the only way left out of utilizing such unutilized FSI is to make construction on top of the ground floor, which is already being sold to prospective buyers. With this so called unutilized FSI rights, if the assessee wishes to make further construction then it will practically impossible as the assessee is left with no Easement rights for making construction or access to go on top of the ground floor as the ground level rights are already sold to prospective customer. In this situation, it would be practically impossible to make either construction or to give access for construction made. Thus the concept of element of unutilized FSI sold is imaginary; and based on surmises and conjunctures. 11. In rest of the appeals, facts are similar. Relevant data in such appeals, as provided by the counsel for the assessees, is as under:- 12. The question is, in such facts, whether the Revenue was correct in segregating the assessee s profit from sale of housing units and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dopted the same arguments and drew our attention to a decision of the Delhi High Court in the case of Honda Siel Power Products Ltd. v. CIT, 318 ITR 309 (Delhi) in which the Court held that the profits derived from industrial undertaking from sale of imported machinery and spare parts used for providing after sale service is not profit derived from such industrial undertaking and the assessee would not be entitled to special deductions under section 80HH or 80I of the Act. 17. On the other hand, learned counsel Shri Saurabh Soparkar appearing for the assessees opposed the appeals contending that the only requirement under section 80IB(10) of the Act is development and building of housing project, of course, within the parameters laid down therein. In the present case, it is not even the ground of the Revenue that any of the conditions were breached. Merely because a portion of the FSI available for construction was not fully utilized would not disentitle the assessee from such deduction. In case of M/s.Moon Star Developers, he pointed out that almost entire ground floor area available for construction was so covered by the housing units constructed by the assessee. Full FSI on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 573 sq. meters was utilised. The residential units were constructed only on the ground floor carrying no further construction. Such residential units were sold and the entire surplus was claimed as profit derived from activity of developing housing project deductible under section 80IB(10) of the Act. Facts, with minor differences, are similar 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Mumbai and Delhi. I propose to accept this suggestion and make suitable modifications in the law. This amendment in the scheme for treating housing projects as infrastructure will, I believe, also give a significant fillip to construction activities in the small towns. 25. The said provision was added for easing the housing problem particularly for the middle income group in urban areas. In this context, in the decision of this Court in Radhe Developers, it was observed as under: 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 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amine, whether the decision of the Assessing Officer to treat the income of the assessees from sale of FSI separate and excludable from the purview of section 80IB(10) of the Act? The concept of FSI, is a wellknown one. Local authorities, such as Corporations, Municipalities and Panchayats, frame regulations for regulating activities of development of lands within their local areas. Such regulations 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of residential units and from sale of unused FSI are distinct and separate and rightly segregated by the Assessing Officer. 31. It is true that section 80IB(10) of the Act does not provide that for deduction, the undertaking must utilize 100% of the FSI available. The question however is, can an undertaking utilize only a small portion of the available area for construction, sell the property leaving 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceeds for claiming relief under section 80HH of the Act, in case of any profit or gain derived from an industrial undertaking in backward areas. In this context, the Apex Court held that the import entitlements cannot be said to be derived from the industrial undertaking of the assessee. For the application of the words derived from , there must be a direct nexus between the profits and gains and the industrial undertaking and in the case on hand, the nexus was not direct but only incidental. 34. In case of Pandian Chemicals Ltd (supra), once again, the assessee claimed deduction under section 80HH of the Act. This claim included interest on deposit made with Electricity Board for supply of electricity. The Apex Court held that the interest derived by the industrial undertaking of the assessee on such deposits made with the Electricity Board cannot be said to flow directly from the industrial undertaking itself and was not profit earned or gain derived by the undertaking for the purpose of special deduction under section 80HH of the Act. 35. In the case of Liberty India (supra), the assessee was engaged in infrastructure development and claimed deduction under section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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