CIT vs. Veena Developers [SLP (c) No.22450 of 2011 dated 30-4-2015]
The assessees had undertaken construction projects which were approved by the municipal authorities/local authorities as housing projects. On that basis, they claimed deduction u/s. 80IB(10) of the Act.
However, the income tax authorities rejected the claim of deduction on the ground that the projects were not “housing project” inasmuch as some commercial activity was also undertaken in those projects. This contention of the Revenue was not accepted by the Income-tax Appellate Tribunal as well as the High Court. The High Court interpreted the expression “housing project” by giving grammatical meaning thereto as housing project is not defined under the Income-tax Act insofar as the aforesaid provision is concerned. The High Court held that since sub-section (10) of section 80-IB very categorically mentioned that such a project which is undertaken as housing project is approved by a local authority, once the project is approved by the local authority it is to be treated as the housing project. The High Court had made observations in the context of Development Control Regulations (hereinafter referred to as ‘DCRs’ in short) under which the local authority sanctions the housing projects and noted that in these DCRs itself, an element of commercial activity is provided but the total project is still treated as housing project. The Supreme Court noted that on the basis of this discussion, after modifying some of the directions given by the ITAT , the conclusions arrived at by the High Court were as follows:-
a) Upto 31/3/2005 (subject to fulfilled other conditions), deduction u/s. 80-IB(10) is allowable to housing projects approved by the local authority having residential units with commercial user to the extent permitted under DC Rules/Regulations framed by the respective local authority.
b) I n such a case, where the commercial user permitted by the local authority is within the limits prescribed under the DC Rules/Regulation, the deduction u/s. 80- IB(10) upto 31/3/2005 would be allowable irrespective of the fact that the project is approved as ‘housing project’ or ‘residential plus commercial’.
c) I n the absence of any provision under the Income-tax Act, the Tribunal was not justified in holding that upto 31/3/2015 deduction u/s. 80-IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user upto 10% of the total built-up area of the plot.
d) Since deductions u/s. 80-IB(10) is on the profits derived from the housing projects approved by the local authority as a whole, the Tribunal was not justified in restricting section 80-IB(10) deduction only to a part of the project. However, in the present case, since the assessee has accepted the decision of the Tribunal in allowing section 80-IB(10) deduction to a part of the project, the findings of the Tribunal in that behalf were not disturbed.
e) Clause (d) inserted to section 80IB(10) with effect from 1/4/2005 was prospective and not retrospective and hence could not be applied for the period prior to 1/4/2005.
The Supreme Court agreed with the aforesaid answers given by the High Court to the various issues. The Supreme Court however, clarified that in so far as answer at para (a) was concerned, it would mean those projects which were approved by the local authorities as housing projects with commercial element therein.
There was much debate on the answer given in para (b) above before the Supreme Court. It was argued by learned senior counsel, for the Revenue that a project which was cleared as “residential plus commercial” project could not be treated as housing project and therefore, this direction was contrary to the provisions of section 80-IB(10) of the Act. However, according to the Supreme Court reading the direction in its entirety and particularlly the first sentence thereof, the commercial user which was permitted was in the residential units and that too, as per DCR.
The Supreme Court clarified that direction (b) was to be read in the context where the project was predominantly housing/residential project but the commercial activity in the residential units was permitted.
