Section 80-IB(10) — Deduction is available to the builder even though he is not the owner of the land. Deduction is allowable on pro-rata basis if some flats were having built-up area exceeding 1,500 sq.ft.
Facts:
The assessee firm was engaged in the business of construction. In both assessment years, it derived profits from a housing project which was constructed on a land owned by Hotel Mullai (P) Ltd. (HMPL). The AO considered the agreement entered into between HMPL and the assessee. He observed that HMPL as the owner of the land decided to develop the project for which the assessee was nominated as its builder for construction. Further, the AO observed the fact that possession with the assessee of the land does not amount to possession as a part performance of the contract u/s.53A of the Transfer of Property Act. All permissions were obtained by HMPL, there was no outright purchase of land by the assessee and the assessee had sub-contracted the civil work to someone else. The AO was of the view that development includes many aspects and construction is only one of it. Based on the above facts, he concluded that the assessee is not eligible for deduction u/s.80-IB of the Act.
Besides the above, the AO noticed that certain other conditions were also violated like:
(a) The built-up area of certain flats exceeded the statutory limit of 1,500 sq.ft.
(b) In some cases, two flats were combined to make one unit which was exceeding 1,500 sq.ft.
(c) In one case, the purchaser had an exclusive right over the terrace and if built-up area of terrace included, then it would exceed 1,500 sq.ft.
(d) The project had to be completed on or before 31st March, 2008 and no completion certificate was on records.
The CIT(A) confirmed the order of the AO in toto in both the years.
Held:
1. The distinction between a ‘builder’, ‘developer’ and ‘contractor’ is quite blurred. As a matter of fact, different persons often use the expressions interchangeably and according to their own perceptions. The question is not who decided to develop the land, but the question is who actually developed the land. Obviously, since the land is owned by HMPL, permissions have to be in its name only. As per the agreement, the builder has the exclusive right to sell the flats to the persons of his choice. He has the exclusive right to determine the sale price of the flats. He has the exclusive right to collect the entire sales consideration of the flats. Out of the total sales consideration received by him, he has to make over only the cost of undivided share of land to the owner which is fixed at Rs.600 per sq.ft. of the super built-up area. Undoubtedly, HMPL as the owner of the land has ventured to realise the potentialities of the land. It has indeed realised the potentialities, not by developing the land, but by handing over the land for development to the builder. All these facts go to show that it is the builder who is responsible to develop the property, maintain it and satisfy the purchasers.
A distinction needs to be drawn between the expressions ‘developer and builder’ and ‘builder and contractor’. If a person is a contractor, then, his job would be merely to construct the building as per the designs provided by the owner and hand over the constructed building to the owner. Thus, the assessee is not a contractor simpliciter, he is not a builder simpliciter, he is not a developer simpliciter. He is all rolled into one i.e., he is a developer, a builder and also a contractor. Even though the assessee and HMPL are joint developers, the role of the assessee as a developer is greater than the role of HMPL as developer. In the final analysis, the assessee is a builder and a developer entitled to deduction u/s.80-IB(10) subject to fulfilment of other conditions mentioned in the section.
2. Once the flats are sold separately under two separate agreements, the builder has no control unless the joining of the flats entails structural changes. Therefore, it is quite clear that the two flat owners have themselves combined the flats whereby the area has exceeded 1,500 sq.ft. The project as a whole and the assessee cannot be faulted for the same. Moreover, clause (e) and (f) of section 80-IB(10) are effective from 1st April, 2010 and they are not retrospective in operation.
3. The assessee has placed on record the completion certificate issued by the Corporation of Chennai by way of additional evidence. The certificate clearly mentions that the building was inspected on 23rd November, 2007 and that it was found to have satisfied the building permit conditions. However, Chennai Metropolitan Development Authority (CMDA) issued completion certificate on 13th June, 2008 in response to an application by the assessee on 13th March, 2006. When sanction is given normally the sanction would contain a date. In the present case the certificate issued is a completion certificate that is a certificate accepting the claim of the assessee that the project has been completed, i.e., the certificate is issued on an application given by the assessee. The assessee can give an application for completion certificate only when the completion of the project is done. Thus the grant of a completion certificate after verification by the competent authority even on a subsequent date would relate back to the date on which the application is made.
4. The terrace talked about here is not the rooftop terrace. It is the terrace, the access to which is through the flat of the purchaser and which is at the floor level and is the terrace of the immediately lower flat. The regular terrace is considered as part of the common area. The terrace that is sold and that is attached to the flat and which is having exclusive access is separate from the regular terrace. Consequently private terrace is to be considered as part of the builtup area of the flat for computing the built-up area of 1,500 sq.ft.
5. The Accountant Member followed the decision of the judgment of the Calcutta High Court rendered in the case of CIT v. Bengal Ambuja Housing Dev. Ltd. in IT Appeal No. 458 of 2006, dated 5th January, 2007 which was a judgment directly on the issue upholding the view of the Calcutta ‘C’ Bench of the Tribunal that a pro-rata deduction is permissible u/s.80-IB(10) when some flats were having built-up area exceeding 1,500 sq.ft. It was held that proportionate deduction should be allowed u/s.80-IB(10) with a caveat that the built-up area of flats measuring more than 1,500 sq.ft. should not exceed 10% of the total built-up area. The Judicial Member disagreed with the above view and held that no such proportional deduction is allowable following the decision of the Co-ordinate Bench in the case of Viswas Promotors (P) Ltd. Upon difference of opinion among the members regarding the last issue the matter was referred to the Third Member.
The third member was of the view that the Madras High Court had not considered the decision in Viswas Promotors (P) Ltd on merits. The Madras High Court in its writ order has dealt with only the writ application filed by the assessee against the order of the Tribunal dismissing the miscellaneous petition filed by the assessee. The Court has specifically mentioned that the writ petition was misconceived and therefore liable to be dismissed. The Madras High Court has not considered anything concerning the merit of the issue. The judgment of CIT v. Bengal Ambuja Housing Dev. Ltd. was a judgment directly on the issue. As there is no direct decision of the jurisdictional High Court available on the subject, the judgment of the Calcutta High Court was to be followed. The assessee was entitled for deduction u/s.80-IB(10) in respect of flats having built-up area not exceeding 1,500 sq.ft. on proportionate basis.
