The Commissioner of Income Tax vs Raviraj Kothari Punjabi Associates

These six appeals pertain to assessment years 2003-04 to 2008-09. Each of these appeals propose different set of questions all of which have now been reframed. Mr. Gupta, learned Senior Counsel appearing on behalf of the revenue has submitted a list of five reframed questions. The questions posed by the revenue as substantial questions of law are as under:

"(1) Whether on the facts and circumstances of the case, the Hon''ble Income Tax Appellate Tribunal erred in allowing deduction u/s. 80IB(10) of the I.T. Act, 1961 for A.Ys.2003-04 even though the project had been sanctioned as residential + commercial by Pune Municipal Corporation and was thus not a housing project?

(2) Whether on the facts and circumstances of the case, the Hon''ble Income Tax Appellate Tribunal erred in holding that up to 31.03.2005, deduction u/s. 80IB(10) was allowable to housing project approved by the local authority having residential units with commercial user to the extent permitted under the DC rules/regulations framed by the respective local authorities, irrespective of whether the project is approved as a "housing project" or as a "residential plus commercial" project?

(3) Whether on the facts and circumstances of the case, the Hon''ble Income Tax Appellate Tribunal erred in interpreting Sec. 80IB(10) by making unjustifiable imputations to the intention of the legislature without appreciating that there was no ambiguity whatsoever in Sec. 80IB(10) in as much as in the absence of any definition of "housing project" the said expression is required to be construed as well as applied in the manner used and understood on common parlance i.e. as a project consisting of residential houses, and, therefore, was no need whatsoever to resort to any interpretation?

(4) Whether on the facts and circumstances of the case, the Hon''ble Income Tax Appellate Tribunal erred in not appreciating the fact that the word "included" in clause (d) of Sec. 80IB(10) which was introduced w.e.f. 1.4.2005, to hold that commercial user is an integral part of the housing project and, therefore, would have to be so considered even prior to 31.3.2005 giving it a retrospective effect?

(5) Whether on the facts and circumstances of the case, the Hon''ble Income Tax Appellate Tribunal erred in not appreciating the fact that the flats on the seventh floor had a built-up area of more than 1500 sq. ft. after including the exclusive terrace and, therefore, the assessee was not eligible for deduction u/s. 80IB(10)(c) of the Act?"

The facts in Income Tax Appeal No. 1628 of 2013 pertaining to the assessment year 2003-04 can be taken up conveniently for the purpose of all these appeals. The Respondent is a developer who had obtained approval of a project by Pune Municipal Corporation for constructing residential and commercial premises consisting of 10 buildings. The Assessing Officer held that in respect of assessment year 2003-04 the assessee declared total sales in relation to its project "Citadel" at Rs. 13,97,83,157/-on which net profit was shown at Rs. 4,88,52,973/- and after adjusting the brought forward losses of Rs. 48,15,337/- the gross total income was computed at Rs. 4,40,37,636/- which was claimed as exempt under section 80IB(10) of the Income Tax Act, 1961. It was observed that the assessee had constructed commercial premises with total area of 13,2480.06 sq. ft. which was 6.6% of the total area and therefore the Assessing Officer held that the assessee having constructed commercial area in excess of 2000 sq. ft., had violated clause (d) of section 80IB(10).

The Assessee contended that constructed commercial premises was part of project and required to be constructed as per mandatory requirement of Pune Municipal Corporation and the City Engineer of Pune Municipal Corporation. It was categorically required to include the aforesaid commercial area. The Assessing Officer also observed that the commercial premises number 1, 2, 3, 4, 5 on the first floor of the building D and commercial premises number 1, 2, 3, 4 of building D-1 had area more than 20 sq. mtr. each and therefore fall in the category of convenience shopping as defined in Rule 123.6(ii) of the Development Control Rules. In the circumstances the assessing officer denied the benefit of section 80IB(10).

It is further observed by the assessing officer that on the 7th floor i.e. flat Nos. 25 to 28 of building E, E3 and Flat No. 38, 39, 40, 41 and 43 of building F and similarly five seventh floor flats of building F1, F2 had a built-up area of more than 1500 sq. ft. and on this count alone the assessee was not eligible for deduction.

In appeal before the Commissioner of Income Tax it was contended that the amendment to section 80IB(10) with effect from 1.4.2005 did not clarify whether it took effect before the amendment or post amendment. The Commissioner held that amended provisions with effect from 1.4.2005 cannot have retrospective effect so as to be applicable to assessment year 2003-04 but the implication of inclusion of definition of built-up area in section 80IB(10) being declaratory and curative in nature it was held to be applicable to the assessment year under consideration.

Being aggrieved by the order of the Commissioner the assessee filed an appeal before the Tribunal. The Tribunal held that the assessee had commenced development and construction of the housing project in terms of the approval granted by the Corporation which was admittedly granted on 16th July, 2002, well before the 1st April, 2005. With reference to the stand that commercial area constructed was more than permissible area of 2000 sq. ft. or at 5% of total built up area whichever is less, reliance placed by the revenue on clause (d) of section 80IB(10) was misplaced in view of the judgment of this Court in case of Brahma Associates which laid down that the provision was prospective and not retrospective in nature and therefore, cannot be applied retrospectively.

The Tribunal also held that the contention that only a pure housing project was eligible for deduction was also misconceived in view of the judgment of Brahma Associates. The Tribunal held that the project in order qualify for benefit of section 80IB(10) could include residential and commercial premises as approved by the Corporation. Furthermore, there were objections raised by the revenue that built up area of some of the units exceed 1500 sq. ft. and therefore provision of section 80IB(10) would not apply since the said section was inserted with effect from 1st April, 2005. The tribunal once again decided issue in favour of the assessee and directed the Assessing Officer to allow deduction under section 80IB(10).

Mr. Gupta, learned Senior Counsel submitted that the Assessee had constructed one building (being part of the 10 then being constructed) which was fully commercial in nature. He submitted that this commercial development in the project disentitles the Assessee to claim benefit of section 80IB(10). Mr. Gupta submitted that for the assessment year 2005-06 the provisions of section 80IB(14)(a) would be applicable and while computing built up area, 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 including common areas have to be taken into account.

We find that issues in the present case and five questions proposed as essential questions revolve around eligibility to claim benefit of section 80IB(10). Since the project is admittedly approved prior to 1.4.2005 the assessee is covered in the case of the Commissioner of Income Tax v. M/s. Happy Home Enterprises decided in two appeal being ITA No. 201/2012 alongwith ITA No. 308 of 2012. In the case of Happy Home Enterprises this Court in a judgment to which one of us (Shri S.C. Dharmadhikari, J.) was a party, after considering the submissions of revenue on the issue of applicability of the judgment of Brahma Associates has held that the clause (d) of section 80IB(10) is prospective in nature and would not apply to the housing projects commenced prior to 1.4.2005.

We are of the view that Mr. Gupta''s submission apropos assessment year 2005-06 will make no difference since the provisions of section 80IB(14)(a) will not affect the present project having been sanctioned prior to 1.4.2005. In the present case it is seen that the approval of the project was granted on 16th July, 2002 well before introduction of the provisions of clause (d) which came into effect from 1.4.2005.

In the circumstances and in the facts of the present appeals these issues are covered by the judgment in M/s. Happy Home Enterprises and M/s. Kanakia Spaces Pvt. Ltd., we do not find that any of the questions proposed give rise to any substantial questions of law. The appeals are accordingly, dismissed. There will be no order as to costs.