Section 80IB(10) provides for 100% deduction of profits and gains from housing projects for certain period if it satisfies various conditions prescribed in the section. Section 80IB(10)(c) prescribes the condition restricting the size of residential unit to maximum built-up area of one thousand sq.ft if the residential unit is situated within the cities of Delhi or Mumbai and one thousand five hundred sq.ft at any other place.
In case of housing project having houses beyond this size, the developers used to circumvent the provisions by showing one house as two adjacent houses on paper, sell these premises to one person or persons belonging to one family and then combine it.
To avoid any such misuse, sub-clauses (e) and (f) were inserted by Finance Act, 2009 w.e.f. 1-4-2010. According to sub-clause (e), deduction shall be denied to the undertaking if more than one residential unit in the housing project is allotted to an individual.
Further, as per sub-clause (f), such deduction shall be denied to the undertaking, if one residential unit is allotted to an individual and at the same time the other unit is allotted to
(i) him or the spouse or his/her minor child, or
(ii) HUF of which he is a karta. Thus insertion of clause (e) and (f) definitely provided a check in the case of undertakings where the size of units was more than 1000 or 1500 sq.ft as the case may be. However, it created a hurdle even where the combined size of units was less than the prescribed area. In other words, if two units of 500 sq.ft each are allotted to husband and wife, respectively, then in that case the undertaking may lose the deduction even though the cumulative area does not exceed the prescribed area. This was certainly not the intention of the Legislature.
The unfairness:
How far is it logical to deny the deduction to an undertaking just because the condition in sub-clause (e) or (f) is not satisfied even though the prescribed condition of total built-up area to a family of an individual is satisfied, or not violated.
In fairness sub-clause (e) or (f) should have been drafted in such a way that the area allotted to a family of an individual collectively shall not exceed the prescribed area. In fact, that was the intention of the Legislature in inserting clauses (e) and (f).
In the situation where the question of denial of deduction arises where the areas of some of flats are exceeding the prescribed area or the flats are allotted as stated above, the solace is available to an undertaking in view of the decisions given below in which it was held that in such a situation, deduction may be denied only in respect of those units where the area exceeds the prescribed limit or the condition as above is not satisfied.
The said decisions are as follows:
(1) Sanghavi & Doshi Enterprise v. ITO, (Third member ITAT Chennai) (2011) 131 ITD 151/12 Taxmann. com 240
(2) CIT v. Bengal Ambuja Housing Development Ltd., (ITA 458 of 2006 dated 5-1-2007)
Conclusion:
In short, the purpose of introducing sub-clauses (e) and (f) was to curb the practice of claiming tax benefits by circumventing the limits of area. However, in the process, there has been an overdoing of the remedy, due to which even the genuine cases involving the total area within prescribed limits are also adversely affected. It is desirable that a suitable proviso be inserted or a clarification issued to the effect that the deduction or the tax benefits would not be denied so long as the total area is within the limits. In fact section 80-IB was introduced to encourage housing projects and in view of this, one may even feel that clauses (e) and (f) may prove to be harsh on the assessees.
