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TMI Blog2015 (12) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessee is eligible for claim u/s 80 (IB)(10). - Decided in favour of assessee - ITA No. 783/JP/2014 & ITA No. 448/JP/2013 - - - Dated:- 4-12-2015 - SHRI R.P. TOLANI, JM SHRI VIKRAM SINGH YADAV, AM For the Respondent : Shri M.S. Meena, CIT - DR For the Petitioner : Shri G.G. Mundra, CA ORDER PER R.P. TOLANI, JM:- These are three appeals filed by department for aforementioned years against the respective orders of ld. CIT (A) I, Jaipur dated 01-02-2013 and 19- 09-2014 and assessee s CO for AY 2009-10. 2.1 The department has effectively raised following common grounds of appeals relating to the allowability of deduction u/s 80 IB of the IT Act: - i. Whether on the facts and in the circumstances of the case and in law the Ld. CIT (A) has erred in allowing deduction u/s 80IB to the assessee who entered into a development agreement as the land owner and has not undertook development construction of the housing project. ii. Whether on the facts and in the circumstances of the case and in law the deduction u/s 80IB is allowable only to an undertaking involved in the business of developing and building housing projects and not to an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sec. 80 IB are Shri Chunni Lal Sanghi, assessee s father demised on 13-1-75, who owned some land acquired on distribution of family land by a settlement deed registered on 30-4-1971. The description thereof being Khasra No. 10 admeasuring to 11 bigha 9 biswa in vil. Durgapura Tehsil Sanganer. Consequent to death his two sons Shri Manik Lal Sanghi and Prem Kumar Sanghi inherited the said land and after leaving a part of land for 80 ft. wide road got the said land converted into non-agricultural land by adopting due procedure. As a result of conversion of land as non agriculture, Govt. of Rajasthan granted lease deeds for 99 years for setting up a small scale industry for automobile Body building, repairing, and manufacturing ancillaries. which were registered in 1983-84. Thereafter on 12-8-2004 the land was partitioned by a partition deed executed between assessee and his brother. By these antecedents assessee became owner of a plot of land admeasuring to 1,37,973.25 Sq. ft.. Assessee intended to develop the plot for a housing project, therefore, applied to JDA competent authority for conversion of the impugned land from Industrial to Residential use and JDA vide registered le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminary work till end of construction all work to be done by UDB (Reality), the assessee has no control or supervision on the project reference made to clause 5(v), 8(b), 10, 17 18 of Development agreement and M/s UDB (Reality) is bearing project related risks as well as complying the rules and so assessee is neither a builder or developer. The difference of land lord vs. developer was given and Ld. A.O. held that the deduction u/s 80IB is allowable to undertaking developing and building housing projects and therefore deduction is not allowable to assesee. Ld. AO relied on Ahmedabad ITAT judgement in case Radhey Developers others (2007) 113 TTJ 300. (c) In AY 2009-10 it was held that assessee did not filed copy of completion certificate issued by local authority only copy of application for issue of completion certificate filed. The contents of Instruction No. 2009 dated 30-6-2009 issued by CBDT supporting assessee s claim were rejected. Ld. A.O. thus held that assessee was not eligible for claim of deduction u/s 80IB (10) and denied the same in all these years. 4.2 Aggrieved assessee preferred 1st appeals before ld. CIT (A) who after considering the facts, cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Reality) was to develop and construct in accordance with the permission given by the local authorities the residential complex. It was also mentioned (Page 3) in the agreement that this agreement was being resorted to, because the appellant did not have the required resources by way of finances, manpower and know how to construct the residential complex. On perusal of the Development Agreement it is seen that the undertaking fulfills all the criterion required for claiming exemption u/s 80IB (10). However, the undertaking would not have come into existence if the appellant had not contributed the land. So if the undertaking is entitled for exemption u/s 80IB it logically ensues that the appellant is entitled to the exemption u/s 80IB (10) on the profits earned by him from this undertaking. Secondly, it has been clearly stated that the appellant did not have the financial and infrastructural wherewithal for construction of the residential complex, and that is why he had to resort to signing an agreement with M/s UDB (Reality) for the purpose of development and construction of the residential complex. The creation of the eligible undertaking was initiated by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant considering that he did not have the knowledge in these professional matters, should not be interpreted to mean that he was not a developer. In fact he has maintained the right to supervise and give suggestions as long as these do not interfere with the day today working of the project. The AO has discussed extensively the development agreement with respect to certain clauses to show that the assessee was not a developer. However, on perusal of these clauses it is apparent that they were included to safeguard the professional functioning of the other party of the undertaking that is M/s UDB (Reality). The other observation of the AO was that the assessee had not filed the completion certificate and so was not entitled to the exemption. It is pertinent to note that search and seizure proceedings were carried out at the business and residential premises of M/s UDB (Reality). The assessment orders for the block period for A.Ys. 2006-07 to 2008-09 were adjudicated upon by CIT (A), Jaipur vide a single order dated 05/03/2012 wherein after examining all the facts he has allowed the claim of section 80IB (10) on its portion of profits from this undertaking in these assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale under which the land owner handed over the possession to the developer which entitled the developer to develop the property entirely at his choice. For all purposes, therefore, the land owner extinguished his interest in this land in favour of the developer on execution of this Development Agreement. It was further enunciated that the development means the realization of potentialities of land or territory by building or mining. The Hon ble ITAT in the said case give a finding as follows: - In the present case in hand, the landowner has not made any conscious attempt to develop the property except ensuring their rights as landowner so that the sale value of the land could be realized to them as per the terms of Agreement to Sale and the Development Agreement . The landowner, no doubt, have not thrown themselves into development of property. On the basis of the above facts the Hon ble ITAT Ahmadabad held that the appellant who was the developer was entitled to the claim of deduction u/s 80IB (10) even though he was not the owner of the land. In the case of the appellant that is Mr. Prem Sanghi it is seen that the facts of the case are completely distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 80IB (10). He has not incurred any expenditure on the development of project and contributed no activity for development. That business profits are result of a scheme of sharing flats, for the development activities which were in fact carried out only by UDB (reality) and not by assessee. Ld. AO has made detailed observation in this behalf and relied on the ITAT judgment in the case of Radhey Developers (supra) which is confirmed by Hon ble Gujarat High Court. AO s order is heavily relied contending that the order of ld. CIT(A) may be reversed and that of AO may be upheld. 4.5 Ld. Counsel for the assessee on the other hand contends that there is no dispute about the facts that: i. Assessee with intention to develop the impugned plot for housing project approached the JDA authorities for conversion of industrial plot into residential plot. ii. Necessary plans of development and construction of housing project were obtained by assessee and stand issued in his name. Thus the relevant record reflects that in the eyes of rules, regulations and law assessee is the developer and builder of impugned housing project. iii. For various commercial reasons it was not viable and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by AO as there is not even a whisper suggesting that agreement was not genuine or that the parties were related in any manner. The power of control, supervision and ownership over the development project as stipulated by clauses of agreement is evident from the fact that all the approvals, permissions and power to executed sale deeds of flats remained with assesse till the project was completely developed. vii. As per agreement which stands accepted by the ld. AO, assessee was entitled to the share of profits in the form of 46% of flats after successful contribution of his part of obligations which flowed from the said development agreement. The agreement was executed with M/s UDB (Reality) with explicit stipulations that parties have entered into this agreement on principal to principal basis. Each party shall be strictly responsible for its own acts and shall keep the other party indemnified for any losses caused by the acts of commission or omission by other party. viii. The assessee had control and supervision over the development of housing project is further clear from the stipulations in clause(s) (v), 8(a), 8(b), 9, 10 of the development agreement empowering the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The land holder was not entitled to any profit earned by developer in development of housing project. Whereas in assessee s case there is no dispute on the facts that he was absolute owner of the land, permission for development of housing project, maps thereof and completion certificate. Further assessee was entitled to profits of the development of housing project quantified in 46% of the constructed flats. Thus the facts of Radhey Developers case (supra) being quite different than the case of assessee its ratio was not at all applicable to assessee. In that case the development agreement itself transferred all the rights of development and construction and to deal with the land in favor of main developer. The Radhey Developers case (supra) ITAT judgement at para 29 last 5 lines held: The requirement for claiming deduction is that such an undertaking must develop and build housing project, be it on their own land or on the land of others and for which a tripartite agreement has been entered into for development and building housing project; or be the assessee a contractor for developing and building housing project or an owner of the land and further in para 33 it held It m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that assessee is only a name lender. As per agreement entered by assessee with M/s Parswanath Developers Ltd. (PDL), in various clauses it has been provided that assessee will participate in the Housing Project and will do the necessary work assigned to the assessee. Thereafter on completion of the Project, the profit ratio was shared in the ratio of 1/3rd and 2/3rd as agreed upon by the assessee and M/s PDL. No doubt, assessee has not done any marketing activity as this was the duty of M/s PDL, who has done the marketing of the Housing Project and thereafter flats were sold in the market and as stated above, the profits were shared in terms of agreed ratio. From all these facts and circumstances of the case, it is amply proved that assessee was indulged in developing of the Housing Project. 21.3 The decision in case of M/s Radhey Developers relied upon by Ld. CIT D/R is altogether on different footing. In fact, in this case the land in question was not in the name of that assessee and, therefore, it was held that they are not entitled for deduction under section 80IB. In the present case the land in question is in the name of assessee. Therefore, the ratio of this decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over a period of time for development of the project leaves no doubt whatsoever that his status is of a Developer . Assessee has duly complied with relevant conditions for claiming deduction under Section 80IB(10) of the Act, thus the claim is perfectly valid and rightly allowed by ld. CIT(A). As is clear from the development agreement, the undertaking of developing and building housing project was jointly undertaken by the assessee and M/s UDB (Reality). The assessee thus being a developer for all practical purposes is entitled to the impugned claim of deduction u/s 80IB(10). Further reliance is placed on Hon ble Karnataka High Court in case of CIT Vs. Shravanee Construction (2012) 22 Taxman.com 250 which is on the same facts as that of assessee. Hon ble High Court held that: . the contention of the revenue that the assessee did not undertake any developmental or building activity and therefore, he cannot individually claim the benefit has no substance. That is not the requirement of law. Keeping in mind, the object with which this provision is introduced when all persons who have made investments in this housing project which is for the benefit of middle and lower class peo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities. The provision contained in section 80-IB(10) is perused. [Para 12]. On a joint reading of sub-section (10) of section 80-IB and Explanation thereto it is clear that deduction is allowable to an undertaking developing and building housing project approved, it is nowhere mentioned that for claiming this deduction, construction has to be carried out by the undertaker, moreover, the explanation clarified that any undertaking which executed housing project as a works contract awarded by any person is not eligible for claiming this deduction which clearly shows that even if any undertaking is constructing the housing project under a works contract entered by a person is not eligible for deduction. The only condition for claiming the deduction under section 80-IB(10) is that the undertaking is developing and building housing projects approved by a local authority. In the instant case, it is not the case of the department that the project was not approved or developed and built by the assessee. The only reason for denying the deduction under section 80-IB(10) to the assessee was that the assessee had not carried out any construction activity, it is held that said reason is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... east it would lose the deduction already granted u/s 80-IB(10) for the earlier years if it is not so produced. As held by the Hon ble Supreme Court in the case of Bajaj Tempo v. CIT [1992] 196 ITR 188/62 Taxman 480 a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. Clause (a) of section 80-IB(10) specifies that the development and construction of the project has to start before 1.4.2004 and the project has to be completed within four years from the end of the financial year in which approval for project was received from the local authority. Thus, a project can have a span of not more than 4 years from the end of the financial year it has received approval. Explanation under clause (a) only specified how to reckon the day of approval and date of completion. It would not mean that the assessee can have the benefit of section 80- IB(10) only in the year of completion of the project, especial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ld. A.O. that assessee has not submitted evidence for completion of project within specified period of four years from the end of financial year in which project was approved by the local authority , it is submitted that housing project of assessee was approved by JDA on 30-6- 2005 and as per provisions of Section 80IB(10) the project was to the completed within five years from the end of the financial year in which the Housing project is approved by the local authority. The fact of date of approval of project is admitted by Ld. A.O. in para 4.10 of assessment order. Thus the required date of completion of housing project is 31-3-2011as per provisions of section 80IB(10)(a)(iii) inserted by Finance Act, 2010 and not 31-3-2010 as held by Ld. A.O. (also refer ITAT Bangalore Bench Judgement in case of RNS Infrastructure P. Ltd. (2012) 24 Taxman.com (copy placed on record). In any case none of these dates falls in this assessment year 2009-10. 4.8 The assessee declared the profits of housing project on percentage completion method i.e. the profits on sale of flats declared in the year in which the same were transferred by way of sale within the meaning of Section 2(47) of I. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (copy submitted) it has been held that where assessee completed housing project within the time prescribed merely because occupancy certificate was issued beyond stipulated date, it could not vitiate claim u/s 80IB(10). In view of the above facts of the case and position of law the Ld. A.O. erred in law and on facts in denying the assessee s claim of deduction u/s 80IB(10) in all these years. Ld. CIT(A) has appreciated all the relevant facts, legal provisions and applicable judicial precedents while allowing the deduction u/s 80IB(10) in all these years, there being no infirmities in his orders the deserve to be upheld. 4.9 We have heard the rival contentions and perused the material available on record. As the facts emerge, the assessee undertook various activities from inception over a long period of time which included:- i. Undertaking the comprehensive and fundamental tedious process of getting the land converted for residential use from competent authorities and obtaining patta from JDA for its residential use; ii. Coordination, compliance and meeting the lengthy queries about sanction of plan for development and construction of housing project on the impugned land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim u/s 80 IB(10) in all these years:- Jaipur ITAT in the case of M/s Indo Continental Hotels Resorts Ltd.(supra) held that the approval of project was granted Gaziabad Development Authority in the name of assessee M/s Indo Continental Hotels Resorts Ltd. i.e. assessee and not in the name of M/s Parswanath Developer, therefore it cannot be said that assessee was only a name lender in the development of housing development project. The agreement entered by assessee with M/s Parswanath Developers provided that assessee will participate in the Housing Project and will do the necessary work assigned to it. After completion of the Project, the profit ratio was shared in the ratio of 1/3rd and 2/3rd in this case it is 46% and 56%.. No doubt, assessee did not do any marketing activity as it was assigned to M/s PDL, and thereafter flats were sold in the market and profits were shared in terms of agreed ratio. ITAT held that all these facts and circumstances amply proved that assessee indulged in developing of the Housing Project and was eligible for claim u/s 80 (IB). In our considered view the facts and circumstance of M/s Indo Continental Hotels are similar to assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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