CIT vs. Sarkar Builders (2015) 375 ITR 392(SC)
The question of law that arose for consideration before the Supreme Court was formulated by it as under:
“Whether section 80-IB(10)(d) of the Income-tax Act, 1961, applies to a housing project approved before March 31, 2005, but completed on or after April 1, 2005”?
The Supreme Court observed that sub-section (10) of section 80IB stipulates certain conditions which are to be satisfied in order to avail of the benefit of the said provision. Further, the benefit is available to those undertakings which are developing and building “housing projects” approved by a local authority. Thus, this section is applicable in respect of housing projects and not commercial projects. At the same time, it is a fact that even in the housing projects, there would be some are for commercial purposes as certain shops and commercial establishments area needed even in a housing project.
That has been judicially recognised while interpreting the provision that existing before 1st April, 2005 in CIT vs. Veena Developers [SLP (c) No.22450/2011 dated 30-4- 2015], and there was no limit fixed in section 80-IB(10) regarding the built-up area to be used for commercial purpose in the said housing project. The extent to which such commercial area could be constructed was as per the local laws under which local authority gave the sanction to the housing project. However, vide clause (d), which was inserted by the aforesaid amendment and made effective from 1st April, 2005, it was stipulated that the built-up area of the shops and other commercial establishments in the housing projects would not exceed 5 % of the aggregate built-up area of the housing project or 2,000 square feet, whichever is less (there is a further amendment whereby 5 % is reduced to 3 % and instead of the words “2,000 square feet, whichever is less” the words “5,000 square feet, whichever is higher” have been substituted). According to the Supreme Court, the question, thus, that required for consideration was as to whether in respect of those housing projects which finished on or after 1st April, 2005, though sanctioned and started much earlier, the aforesaid stipulation contained to clause (d) also has to be satisfied. The Supreme Court noted that all the High Courts have held that since this amendment is prospective and has come into effect from 1st April, 2005, this condition would not apply to those housing projects which had been sanctioned and stared earlier even if they finished after 1st April, 2005.
The Supreme Court noted that with effect from 1st April, 2001, section 80-IB(10) stipulated that any housing project approved by the local authority before 31st March, 2001, was entitled to a deduction of 100 % of the profits derived in any previous year relevant to any assessment year from such housing project, provided—(i) the construction/ development of the said housing project commenced on after 1st October, 1998, and was completed before 31st March, 2003; (ii) the housing project was on a size of a plot of land which had a minimum area of one acre; and (iii) each individual residential unit had a maximum built-up area of 1,000 square feet, where such housing project was situated within the cities of Delhi or Mumbai or within 25 kms. from municipal limits of these cities, and a maximum built-up area of 1,500 square feet at any other place. Therefore, 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 October, 1998, and was completed before 31st March, 2001, the assessee was entitled to the deduction. Also by this amendment, the date of completion was changed from 31st March, 2001, to 31st March, 2003. Everything else remained untouched.
Thereafter, by the Finance Act, 2003, further amendments were made to section 80-IB(10). The only changes that were brought about were that with effect from 1st April, 2002: (i) the housing project had to be approved before 31st March, 2005; and (ii) there was no time limit prescribed for completion of the said project. Though these changes were brought about by the Finance Act, 2003, the Legislature thought it fit tht these changes be deemed to have been brought into effect from 1st April, 2002. All the remaining provisions of section 80-IB(10) remained unchanged.
Thereafter, significant amendment, with which the Supreme Court was directly concerned, was carried out by the Finance (No.2) Act, 2004, with effect from 1st April, 2005. The Legislature made substantial changes in subsection (10). Several new conditions were incorporated for the first time, including the condition mentioned in clause (d). This condition/restriction was not on the statute book earlier when all these projects were sanctioned. Another important amendment was made by this Act to sub-section (14) of section 80-IB with effect from 1st April, 2005, and for the first time under clause (a) thereof the words “built-up area” were defined.
Prior to the insertion of section 80-IB(14)(a), in many of the rules and regulations of the local authority approving the housing project “built-up area” did not include projections and balconies. Probably, taking advantage of this fact, builders provided large balconies and projections making the residential units far bigger than as stipulated in section 80-IB(10), and yet claimed the deduction under the said provision. To plug this lacuna, clause (a) was inserted in section 80-IB(14) defining the words “built-up area” to mean the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but did not include the common areas shared with other residential units.
According to the Supreme Court, the only way to resolve the issue was to hold that clause (d) is to be treated as inextricably linked with the approval and construction of the housing project and an assessee cannot be called upon to comply with the said condition when it is not in contemplation either of the assessee or even the Legislature, when the housing project was accorded approval by the local authorities.
The Supreme Court held that by way of an amendment in the form of clause (d), an attempt is made to restrict the size of the said shops and/or commercial establishments. Therefore, by necessary implication, the said provision 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 sanctioned and commenced prior to 1st April, 2005, and completed by the stipulated date, though such stipulated date is after 1st April, 2005. According to the Supreme Court, these aspects were dealt with by various High Courts elaborately and convincingly in their judgments and had taken a correct view that the assesses were entitled to the benefit of section 80-IB(10). The Supreme Court dismissed the appeals filed by the Revenue.
