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TMI Blog2011 (3) TMI 1834X X X X Extracts X X X X X X X X Extracts X X X X ..... eveloping and building housing projects was granted to the original owners of the land and not to the assessee who acted only as an agent for execution of the project of Vrindavan Township, which rights were obtained by the assessee firm from the original owners. (4) The ld. CIT(A) failed to appreciate that the land being an essential and intrinsic part of developing and building of a housing project, approval is granted by the local authority to the owner of the land for developing and building housing projects thereon and any other person to whom he entrusts the works connected with the execution of the project instead of taking it up himself, cannot be said to be an undertaking developing and building housing projects approved by the local authority within the meaning of section 80IB(10) of the Act. (5) The ld. CIT(A) failed to appreciate that it is the owners of the land who entered into agreements for sale of the developed units to the buyers and the assessee acted only as a confirming party which renders the owners of the land and not the assessee as an undertaking in terms of section 80IB(10). (6) The ld. CIT(A) erred in adopting liberal interpretation of a benevole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the withdrawals by the partners. According to him profits earned during the year was sufficient to cover the withdrawal by the partners. 5. We have heard the parties and carefully perused the material on record. In our considered view there is no case for interference in the order of ld. CIT(A). It is because there is a finding by ld. CIT(A) that money was borrowed by the assessee from bank and other depositors for the purpose of business and once it is so the question of any disallowance out of any interest paid therefrom does not arise. It is immaterial whether the partners have made heavy withdrawals. So long as finding of the ld. CIT(A) that borrowed money was utilized for the purpose of business no disallowance can be made out of interest payment. Hon. Supreme Court in the case of Munjal Sales Corporation (2008) 298 ITR 298 held that no disallowance of interest under section 36(1)(iii) can be done if borrowed funds are utilized for the purpose of business. In view of this we confirm the order of ld. CIT(A) on this issue. This ground of Revenue is dismissed. 6. The next issue is the allowability of deduction under section 80IB(10). The AO noted that assessee claimed dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10/- Area of eligible project in % 81.979 Area of non eligible project in % 18.021 Total area 100.000 Deduction u/s 80IB(10) for eligible project revised profit of business x area of eligible project/total area 7,82,92,110 x 81.979/100.000 = 6,41,83,089 So the deduction u/s 80IB(10) is Rs.6,41,83,089/- Addition on account of deduction u/s 80IB(10) Deduction claimed in return of income 7,17,90,881/- Less: deduction allowable 6,41,83,089/- Addition on account of deduction u/s 80IB(10) 76,07,792/- On this basis the AO disallowed the claim of deduction u/s 80IB(10 at Rs.76,07,792/-. 7. The ld. CIT(A) allowed the claim of the assessee by holding that expenditure of Rs.1,34,92,927/- is specifically allocable to the noneligible part of the business and, therefore, non-eligible part of the construction had shown a loss and accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The books of the assessee are audited and no default has been found therein. The assessee has in fact submitted the details of the loss incurred on non-eligible profits in the notes forming part of the account in Schedule-C of the balance sheet. The auditors have also pointed out the loss incurred on non eligible projects after verifying all the records and pertaining to which income and expenditure of the project. 10. We have considered the rival submissions and perused the material on record. We observe that AO has in fact estimated the profits from non eligible business by rejecting the loss shown by the assessee. In our considered view such estimation is not permissible unless books of accounts are rejected by the AO. In entire order of the AO we do not find any observation about defects in the books of account pointed out by the AO. Once books of account are not rejected profits of business either of eligible business or of non eligible business cannot be estimated. Therefore, the calculation done by the assessee and certified by the auditors has to be accepted. Even though AO may not agree when and how assessee would have incurred expenditure while earning profits on non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench in Radhe Developers vs. ITO (2008) 23 SOT 420 (Ahmedabad). Since in this case assessee has dominant control over the land, it has invested in the construction of flats, it has shared the profit and loss he would be treated as a developer as per judgement in the case of Radhe Developer. In that it case it has been held as under :- 24. Further, the Memo contained in Finance Bill, 1999 has explained the provisions brought by the Legislature with effect from 1-4-2000 and the same reads as under: Tax Incentive for Promotion of Housing. Liberalization of tax holiday to approved housing projects. Under section 80-IA of the Income-tax Act, profits of approved housing projects where the development and construction commences on or after 1-10-1998 and is completed by 31-3-2001 are fully deductible. The conditions necessary for claiming the benefit are that the approved housing project should be on minimum area of one acre and should have dwelling units with a maximum built-up area of 1,000 sq. ft. It is proposed to modify the existing benefits to provide that in areas other than those falling in and within 25 kms. from the municipal limits of Delhi and Mumbai, thebuilt-up area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requirements for claiming deduction for housing projects are that (i) there must be an undertaking developing and building housing project; (ii) such housing project is approved by the local authority; (iii) the development and construction of housing project has commenced on or after 1-10-1998; (iv) the housing project is on a size of a plot of land which has minimum area of one acre; and (v) the residential unit developed and built has a built up area of 1,000 sq. ft. if it is situated in Delhi and Mumbai or within 25 kms of municipal limit of these cities and 1,500 sq. ft. at any other place. There is no other condition, which is to be complied by an assessee for claiming the deduction on profits of the housing project. 28. The contention of the revenue authorities that to claim deduction under section 80-IB(10), there is a condition precedent that the assessee must be owner of the land on which housing project is constructed has no force. We do not find any such condition as appearing in the provisions of the section extracted above. A plain reading of sub-section (10) of section 80-IB reveals and makes it evident that there must be an undertaking developing and building a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lops 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 person or company that develops land. (c) Random House Dictionary of the English Language, the following definitions 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 : strengthen, develop the biceps (c) To bring into being : make active (develop a business) (d) To convert ( a tract of land ) for specific purpose, as by building extensively (e) Law Lexicon Dictionary, the following definitions could be seen : Development (a) To act, process or result of development or growing or causing to grow; the state of being developed. (b) Happening. 31. The Supreme Court in the case of Guja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture, by the employment of building workers or who supplies building workers for any work of the establishment; and includes a sub-contractor. 32. In these circumstances, in our opinion, the assessee is entitled to deduction under section 80-IB(10) as it had developed and built the housing project; it had started construction after 1-4-1998; the project is on the size of a plot of land which has a minimum area of one acre and the maximum built-up area of the residential units is not more than 1,500 sq. ft. the property being situated in Baroda, a city other than Delhi and Mumbai. 33. It may also be born in mind that deduction is not exclusively to an assessee but to an undertaking developing and building housing project, be it developed as a contractor or as an owner. This fact is evident on the bare reading of sub-section (1) of section 80-IB, sub-section (2) of section 80-IB, which provides that this section applies to an industrial undertaking which fulfils all the following conditions viz. . . . and sub-section (12) which allows the deduction to the amended (sic) or resulting company in case of amalgamation or demerger of the original undertaking which had started ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion 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 the contract, though required to be registered, has not been registered, or, 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 in possession, other than a right expressly provided by the terms of the contract : Provided that nothing in this section shall affect the rights or a transferee for consideration who has no notice of the contract or of the part performance thereof. 36. In view of above provisions of the Transfer of Property Act, vis-a-vis, the Incometax Act to get the correct import of section 80-IB(10) of the Act we have to read along with section 80-IB(1) of the Act which also does not provide for any condition that the assessee should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the housing schemes, payment of development charges, obtaining necessary permissions, approving plans, hiring machinery and equipments, hiring engineers, appointing contractors, etc. No doubt, the permission has been obtained in the name of the registered landowners, but the same have been obtained by the assessee-firm through its partners who are holding power of attorney of the respective landowners. It is a fact that the assessee is a developer and not a contractor as held by the lower authorities. The developer is not working on remuneration for the landowners, but developer is working for himself in order to exploit the potential of its business in his own interest and, therefore, opted for all business risks associated with the business of development of real estate including developing and building of housing projects. As per the provisions of section 2(1)(g) of Regulation of Employment and Conditions of Service Act (27 of 1996), the term Contractor means a person who undertakes to produce a given result for any establishment, other than a mere supply of goods or articles of manufacture, by the employment of building workers or who supplies building workers for any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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