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TMI Blog2015 (10) TMI 2384X X X X Extracts X X X X X X X X Extracts X X X X ..... icipal Corporation on 16.01.2008, claiming that the housing project was completed. The site was inspected by the Inspector of the Municipal Corporation on 27.02.2008. Admittedly, the completion certificate was not issued before the cut off date (i.e. 31.03.2008). It was so issued by the Local Authority on 04.05.2010 which, however, did not mention the date of completion of the project. The Local Authority later on, clarified vide letter dated 23.03.2011, that the date of completion of the project was 27.02.2008. Relying on the said clarification, the assessee contended that the project was in fact completed on 27.02.2008, before the cut off date; and for which reason the assessee was entitled for deduction within the meaning of Section 80IB (10) (a). The Assessing Officer, however, disallowed the claim of the assessee on the finding that inspite of repeated opportunity given to the assessee during the course of assessment proceedings, the completion certificate was not produced before 31.03.2008. That fact was admitted by the assessee in its letter dated nil furnished to the Assessing Officer on 24.12.2008. Further, a letter was issued by the Municipal Corporation dated 18.12.2008, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of law is about the sweep of the amended Section 80IB (10) (a); and consequently the correctness of disallowance of assessee's claim in that behalf, due to non-submission of the completion certificate issued by the Local Authority before 31.03.2008. 9. According to the Department, the express provision introduced in the form of amended clause (a) in Section 80IB(10) must be construed on its own and not on the logic applicable to other situations mentioned in the same section. The stipulation contained in clause (a) as amended, is in the nature of withdrawal of benefit of deduction in respect of projects which have not or could not be completed within the stipulated time, as per the amended provision. The date of completion of construction has been defined to be "the date on which the completion certificate is issued by the Local Authority". For that, sufficient time was provided to the developer to complete the project and to obtain completion certificate from the Local Authority well within time. In that, in the case of housing project approved before 1st April, 2004, it was required to be completed before 31.03.2008 irrespective of the date of approval. In respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or producing absurd results. Notably, contends the learned counsel for the Department, the legislative competence or the validity of the amended provision of Section 80IB (10) (a) has not been put in issue by the assessee. 10. The assessee on the other hand, primarily relies on the exposition of the Supreme Court to contend that it is well settled position that Section 80IB (10) as a whole has prospective application and would not apply to housing projects approved by the Local Authority before 01.04.2005. In any case, the assessee who maintains Books of Account on work in progress method, as in this case, would not be covered by the condition of obtaining completion certificate before the cut off date. It is then contended that it would be a case of substantial compliance of stipulation, if completion certificate issued by the Local Authority even after the cut off date, unambiguously records the date of completion of project before the cut off date. For, the assessee has no control over the working of the Local Authority. Thus, in cases where the housing projects approved prior to 01.04.2014, if the assessee had submitted application to the Local Authority prior to 31.03.2008 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 25 kms. from the municipal limits of these cities, and a maximum built-up area of 1500 sq.ft. at any other place. For the first time, a stipulation was added with reference to the date of approval, namely, that approval had to be accorded to the housing project by the Local Authority before 31st March, 2001. Before this amendment, there was no date prescribed for the approval being granted by the Local Authority to the housing project. Prior to this amendment, as long as the development/construction commenced on or after 1st Oct., 1998 and was completed before 31st March, 2001, the assessee was entitled to the deduction. By this amendment, the date of completion was also changed from 31st March, 2001 to 31st March, 2003. Rest of the provision remained the same. Later, by Finance Act, 2003, further amendments were made to Section 80-IB(10), which read as under:- "(10) The amount of profits in case of an undertaking developing a 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 comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e slum areas under any law for the time being in force and such scheme is notified by the board in this behalf. (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet to any other place; and (d) the built-up area of the shops and other commercial establishments included in the housing projects does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet, whichever is less." (Emphasis Supplied) 13. As noted earlier, the Department has not advanced any argument with regard to non-compliance of any other condition in sub-Section (10) of Section 80IB, which issue stands conclusively answered by the two decisions of the Supreme Court. In the present appeals, however, the controversy is in relation to the sweep of amended clause (a) of the provision. As per unamended clause (a), as was in force prior to 01.04.2005, the assessee was entitled for deduction of profits in case of housing projects approved before 31.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the concerned assessee of having undertaken development of the housing project - which also included permissible area of commercial units, as per the D.C. Rules of the Local Authority. The Court noticed that if clause (d) of sub-Section (10) was to be applied to the projects approved prior to 1st April, 2005 and completed within the specified time, it would result in absurd situation and also expecting the assessee to do something which was almost impossible. On that conclusion, the Court opined that the provisions such as clause (d) will have prospective application and not to the projects approved within the specified period. The Court noted that Clause (d) is to be treated as inextricably linked with the approval and construction of the housing project and the assessee cannot be called upon to comply with a new condition, which was not incontemplation either of the assessee or even the legislature, when the housing project was given approval by the Local Authority and more so when the housing project was dependent on the provisions of the relevant DC Rules. For such projects, which were commenced and completed within the specified time, the position would become irreversible. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is a significant modification making complete departure from the earlier yardstick. On the one hand, the permissible built up area of the shops and other commercial shops is increased from 2000 sq.ft. to 5000 sq.ft., On the other hand, though the aggregate built up area for such shops and establishment is reduced from 5 per cent to 3 per cent, what is significant is that it permits the builders to have 5000 sq.ft,. or 3 per cent of the aggregate built up area, 'whichever is higher'. In contrast, the provision earlier was 5 per cent or 2000 sq. ft., 'whichever is less'. (g) From this provision, therefore, it is clear that the housing project contemplated under sub-s. (10) of s. 80- IB includes commercial establishments or shops also. Now, by way of an amendment in the form of cl.(d), an attempt is made to restrict the size of the said shops and/or commercial establishments. Therefore, by necessary implication, the said provisions has to be read prospectively and not retrospectively. As is clear from the amendment, this provision came into effect only from the day the provision was substituted. Therefore, it cannot be applied to those projects which were sanctione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to comply with the provisions of clause (d) of section 80-IB(10). To our mind, we do not think that the condition/restriction laid down in clause (d) of section 80-IB(10) has to be revisited and/or looked at and complied with in the assessment year in which the profits are offered to tax by the Assessee. When the Assessee claims a deduction under section 80-IB(10), the Assessee is required to comply with such a condition only if it is on the statute-book on the date of the approval of the housing project and it has nothing to do with the year in which the profits are brought to tax by the Assessee. We have come to this conclusion only because we find that clause (d) of section 80-IB(10) is inextricably linked to the date of the approval of the housing project and the subsequent development/construction of the same, and has nothing to do with the profits derived therefrom. We may hasten to add that if a particular condition is not inseparably linked to the date of approval of the housing project, different considerations would arise. However, we are not called upon to decide any such condition and hence we are not laying down any general proposition of law, save and except that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for BU permission was submitted by the assessee to the Municipal Authority on 15.02.2006. In the facts of that case, the Court noted that the assessee had completed the construction well before 31st March, 2008, which was indisputable. The Court then after noting the Explanation (ii) below clause (a) to Section 80IB (10), went on to observe that not every condition of statute can be seen as mandatory. Further, if substantial compliance of such condition is substantiated in a given case, the Court may take the view that minor deviation thereof would not vitiate the very purpose for which deduction was being made available. With utmost respect, the decisions of the Delhi High Court and Gujarat High Court referred to above, do not persuade use to agree, for the reasons which we may allude to hereinafter. 18. In our opinion, however, the Supreme Court decisions in the case of Veena Developers (supra) and Sarkar Builders (supra) will have to be understood only in the context of a new condition stipulated regarding the built up area of the project by way of amendment, which the assessee could not have complied at all; and even though the construction of his housing project was other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... housing projects to fulfil that condition. The provision is in the nature of limiting the benefit of deduction to the specified housing projects, and not to those who fail to fulfil the requirement of completion of construction in time frame specified for the respective category of housing projects. This has been done in larger public interest - to ensure that the benefit is given only to such projects who would further the goal of providing low cost economic houses to the deserving persons in reasonable time. 21. Concededly, it is within the domain of Parliament to extend benefit or privilege to certain class of persons and also to withdraw the same for just reasons. That cannot be questioned, unless shown to be unconstitutional in form or its substance. It was thus open to the Parliament, to provide for a cut off date for completion of the housing projects, as a condition precedent to avail benefit of deduction. In the past, such stipulation was in place, but, later on, it was done away with. However, by amendment which came into effect from 1st April, 2005, the condition for completion of project within specified time has been reintroduced, while giving sufficient time (four y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt question that needs to be answered, is, whether the stipulation in Section 80IB(10)(a) can be said to be directory. Considering the prodigious benefit offered in terms of Section 80IB to the assessee (hundred per cent of the profits derived in any previous year relevant to any assessment year); and the purpose underlying the same - which is inter alia burden on the public exchequer due to waiver of commensurate revenue - the stipulation for obtaining completion certificate from the Local Authority before the cut off date, must be construed as mandatory. The fact that compliance of that condition is dependent on the manner in which the proposal is processed by the Local Authority, the provision cannot be construed as a directory requirement. It is a substantive provision mandating issuance or grant of completion certificate by the Local Authority before the cut off date or specified time, as a precondition to get the benefit of tax deduction. Else, it will then be open to the assessee to rely on other circumstances or evidence to plead that the housing project is complete - requiring enquiry into those matters by the Tax Authorities - sans a completion certificate issued by the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the deficiencies pointed out by the Local Authority. In some States, the Municipal Law may provide for issuing partial or full completion certificate. The requirement of completion certificate issued by the Local Authority, as envisaged in Section 80IB(10)(a) of the Income Tax Act, which is a Central enactment dealing with the special subject of taxation, however, is, of only one certificate - which is full completion certificate issued by the Local Authority before the cut off date. That is to lend credence to the factum of completion of the entire housing project in all respects as per the approval granted by the Local Authority. It can be safely assumed that the legislature was conscious of this position, for which, express provision has been made as to the meaning of the date of completion of the housing project linked to the "date on which" completion certificate "is issued" by the "Local Authority", as predicated in Explanation (ii) thereunder. 26. We accordingly hold that issuance of completion certificate, after the cut off date by the Local Authority but, mentioning the date of completion of project before the cut off date, does not fulfil the condition specified in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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