In the case of Manan Corporation vs. Assistance Commissioner of Income Tax, Hon'ble High Court of Gujarat has held that, amendment in the provision of sec-80IB (10) of the Income Tax Act, 1961 is prospective in nature for the purpose of deduction claimed by an assessee. In the present case the assessee claimed deduction under section 80-IB (10) for two projects. The principal objection is of the non-fulfillment of the condition of limitation for built up area being more than 1500 sq. feet and its ratio to commercial shops being more than 5% of the created built up area of housing project or 2000 sq feet which ever is less. According to the Assessing Officer, such assessee would not be eligible for the deduction.
It was contended by the assessee that, condition of limiting the commercial establishment/shop to 2000 sq.feet came in force with effect from 1.4.2005 and, therefore, the same would be applicable for the projects approved on or after 1.4.2005 and as the approval of both these projects was prior to 31.3.2005 i.e. 28.12.2004 for project no. 1 and 18.1.2003 for Project no. 2.
Hence, the amended provision would have no application for these projects. Such contentions was not accepted and after completing the assessment, claim of appellant regarding the deduction under Section 80IB(10) was disallowed.
Hon'ble CIT (Appeals) favored the assessee and allowed the deduction.
Revenue appealed against the said order of CIT (Appeals) where heavy reliance was placed on the judgment of Bombay High Court rendered in the case of CIT v. Brahma Associates  333 ITR 289/197 Taxman 459/9 taxmann.com 289 (Bom.) on the count that such amendment can not be not respected in absence of explicit provision and should be held to have effect retrospectively as were argued before the Tribunal for and on behalf of the assessee that neither the Bombay High Court nor the Special Bench has held that clause (d) of Section 80IB(10) is applicable to those projects, which were approved on or before 31st March, 2005. Both the decisions have held that amendment of Section 80IB(10) is applicable prospectively.
The Tribunal concluded that the assessee is not eligible for deduction under Section 80IB(10) because it did not comply with the requirement of Clause (d) of Section 80IB(10), which is applicable from 1.4.2005 regardless of date of approval. It was further stated that this would be applicable to all those projects, which were approved by the competent authority. In respect of even those housing projects approved before 31.3.2005, as no explanation has been carved out by specifying that the amended provisions are applicable in respect of those projects which are approved on or after 1.4.2005 but before 31.3.2008. It denied such benefit to the applicant by further holding that the Legislature if wanted to exempt old projects from the operation of clause (d) then, it could have been specified by making a specific provision or new provision being applicable to only those housing projects, which are approved on or after 31.3.2005 but before 31.3.2008 and since that was not the case, the same was denied.
"Section 80-IB(10) prior to the amendment of 1.4.2005:
Sub-section (10), before substitution by Finance (No. 2) Act, 2004, stood as under:
"(10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March, 2005 by a local authority, shall be hundred per cent. of the profits derived in any previous year relevant to any assessment year from such housing project if,-
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998;
(b) the project is on the size of a plot of land which has minimum area of one acre; and
(c) the residential unit has a minimum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and fiver hundred square feet at any other place."
"Section 80IB(10) in the post-amendment period :-
"(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 by a local authority shall be hundred per cent. of the profits derived in the previous year relevant to any assessment year from such housing project if,-
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction-
(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;
(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004 but not later than the 31st day of March, 2005, within four years from the end of the financial year in which the housing project is approved by the local authority.
(iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority.
Explanation-For the purposes of this clause,-
(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;
(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;
(b) the project is on the size of a plot of land which has a minimum area of one acre:
Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;
(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place;
(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent. of the aggregate built-up area of the housing project of five thousand square feet, whichever is higher."
Section 80IB(10) provides for deduction of 100% of the profit derived by an undertaking developing and building housing projects, subject to certain conditions. It can be also noted that amended provision provides for time limit for completion of the project, which was not there in the earlier Section. It will be apt to mention that the issue regarding construction of shopping in the housing project in accordance with the permission of the Municipal laws was requested to be considered adequate for the purpose of Section 80IB(10). It also further can be deduced that the deduction which was available if the project is on a plot land of minimum area of 1 acre has been in the amended provision liberalized in accordance with the scheme framed by the Central or the State Government. Again, the deduction was available if the built up area for the residential unit does not exceed 1000 feet in the city of Delhi, Mumbai or within 25 kms. from Municipal Limit of these cities and 1500 sq.feet at any other place. This 'built up' area appears to have been defined in the amended provision.
Question that requires to be answered by the Court:
Whether the deduction u/s. 80IB (10) will be applied in respect of the housing projects, which have been approved and commenced prior to 1.4.2005?
High Court held as under,-
Observation of facts:
1) Both the projects were approved by the local authorities.
2) As per the sanctioned plan of the local authorities that the entire project has been carried out. Building completion permission was also obtained.
3) The assessee followed the project completion method for claiming the profit admittedly prior to 31-3-2005.
4) As towards project 1- The whole project was approved and completed prior to the insertion of amended provision of section 80-IB (10) with effect from 1-4-2005.
5) Project 2 - The housing project was approved by the local authority as is apparent from the certificate of the Municipal Corporation and the ratio worked out of commercial offices to the total built up area for residential project is 3.5 per cent.
6) The built up area of commercial user in terms of the shop is below 6 per cent.
Question of Law & Decision:-
Whether the amendment in question would have a bearing on the claim of assessee whose project is approved prior to the amendment which became effective from 1-4-2005?
The projects essentially remained residential housing projects and therefore neither on the ground of absence of such provision of commercial shops nor on account of such commercial construction having exceeded the area contemplated in the prospective amendment can be made applicable to the assessee whose plans are sanctioned as per the prevalent rules and regulations by the local authority for denying the benefit of deduction of profit derived in the previous year relevant to the assessment year as made available otherwise under the statute.
The entire object of deduction under section 80-IB is to facilitate construction of residential housing project and while approving such project when initially there was no restriction and by amendment as stated permissible ratio for construction is 5 per cent of the total built up area, reduction of this ratio to 3 per cent of the total built up area has to be necessarily on prospective basis.
The criteria to hold the amendment in question retrospective are absent as there is no explicit and specific wording expressing retrospectivity.
Above discussion cumulatively when examined with the objectives and intent it sought to achieve in bringing about the provision of section 80-IB(10), this amended taxing statute requires to be interpreted in favor of the assessee rather than insisting upon strict compliance leading to absurdity.
It can be also held that this being a substantive amendment and not a clarificatory amendment, the amendment of this nature cannot have retrospective effect.
Madam I am confused in a legal point. if you could help me with this.ReplyDelete
Under 80 IB (10) :
We got first approval in year 2007 and second approval in year 2009. The completion certificate is of year 2011. And now the IT officer is Examining the file.
I want to know - which clause would be valid for my project :
The new " 3% or 5000 sq. foot whichever is higher " or "5% or 2000 sq.foot whichever is less".
We satisfy all other conditions but are confused abt the above.Pls guide me madam.
Also one more thing before you answer madam.ReplyDelete
First approval was year 2007.
Our building is standing on the second approval (yr 2009) right now. Which Approval plan will be valid ? I do not mind the Approval date of year 2007 since we have finished it before time but our building is standing on second approval. Kindly help me.