Commissioner Of Income Tax, Business Circle Iv, Chennai v. Shri S. Muthu Palaniappan, Chettinadu Housing

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 20.04.2021 THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE R.HEMALATHA T.C.A.No.1160 of 2015 Commissioner of Income Tax,Business Circle IV, Chennai. ... Appellantv. Shri S. Muthu Palaniappan,Chettinadu Housing No.1,9th Avenue, Ashok Nagar,Chennai - 600 083.PAN : AAQP 7449 P... Respondent Appeal preferred under Section 260A of the Income TaxAct, 1961, against the order of the Income Tax AppellateTribunal, Chennai, "B" Bench, dated 22.05.2015 inI.T.A.No.2665/Mds/2014 for the Assessment Year 2011-2012against the appellate order passed by the Commissiner ofIncome Tax (A.V), Chennai dated 15/07/2014 made in ITANo.1147/13-14 (A)-V, and against the Assessment order passedby the Assistant Commissioner of Income Tax Business CircleIV, Chennai dated 05/02/2014 made in PAN for theAssessment Year 2011-12. For Appellant : Mr. M. Swaminathan Senior Standing Counsel Asst by Ms.V.Pushpa, Junior Standing CounselFor Respondent : Mr. G. Baskar JUDGMENT (Judgment was delivered by M. DURAISWAMY, J.) Challenging the order passed in I.T.A.No.2665/Mds/2014in respect of the Assessment Year 2011-2012 on the file ofthe Income Tax Appellate Tribunal, Chennai, "B" Bench (forbrevity, the Tribunal), the Revenue has filed the aboveappeal. https://hcservices.ecourts.gov.in/hcservices/ 2. The above appeal was admitted on the followingsubstantial questions of law: “ (i) Whether on the facts andcircumstances of the case, the Income TaxAppellate Tribunal was legally justified inholding that open terrace area should not beincluded in computation of built up area forpurpose of deduction u/s 801B(10)? (ii) Whether on the facts andcircumstances of the case, the Income TaxAppellate Tribunal was right in holding thatthe time limit for completion of the eligibleproject should not be computed from the date(22.9.2003) on which the layout was approvedfor the first time, but from the date on whichthe building plan approval was obtained for thelast time (29.3.2007)? (iii) Whether on the facts andcircumstances of the case, the Income TaxAppellate Tribunal was correct in going bythe completion certificate issued by thePallikaranai Panchayat, without insisting onthe completion certificate of the ChennaiMetropolitan Development Authority (CMDA)? (iv) Whether on the facts andcircumstances of the case, the Income TaxAppellate Tribunal was justified in holdingthat open terrace should not included in thecomputation of built up area for the purpose ofdeduction u/s 801B(10) when the same wasincluded in the area sold to flat purchaser andfurther whether perversity of fact and law wascrept into the order under reference, as aresult thereof?" 3. When the appeal is taken up for hearing,Mr. M.Swaminathan, learned Senior Standing Counsel appearing forthe appellant fairly submitted that the questions of lawthat are raised in the above appeal were already decidedagainst the Revenue in the respondent- assessee's own case inrespectoftheAssessmentYear2009-2010inI.T.A.No.16650/Mds/2012, dated 12.11.2013 vide para Nos. 21 to25 of the Judgement, which reads as follows:- “ 21. The second issue for our considerationis whether the approval of the Project andcompletion date is as per section 801B(10) of theAct or not. The assessee, initially entered into anagreement dated 15.06.2004 with 17 land owners todevelop the land to the extent of 7.11 acres andhttps://hcservices.ecourts.gov.in/hcservices/built housing project on a layout, which has already been approved by the CMDA and paid advance ofRs.86,05000/-. Thereafter, the assessee hasdevelopedroads, parks, play areas, etc. The assesseehas applied jar approval of construction of 3prototype houses and the same was approved on by thePallikaranai Panchayat and started negotiating withprospective buyers and after registration, theassessee has constructed independent house. Theobjection raised by the Assessing Officer that the 3prototype houses are not having] acre area oflandand therefore held that the assessee is noteligible for deduction under section 80IB(10) on theground that plot must be in 1 acre of land Thisaspect .was considered by the Id. CIT(Appeals) indetail in his order at page 33 to 35. From thecareful consideration of the assessment order andCIT(Appeals)'s order with details filed by theassessee in the paper book, we have to find whetherthe project undertaken by the assessee is on thesize of the plot of land having an area of minimum-1 acre or not. The size of the plot, as taken by theassessee, is 7..11 acres and after developingroads, parks, play area, etc. the left over area forconstruction of the house is 3.675 acres.Therefore, the Assessing Officer was not correct insaying that the housing project isnot on a plot of]acre area. The assessee has taken 3 prototypehouses and got it approved from the local authorityand on the basis of that the assessee has pursuedprospective buyers and entered into an agreementfor' construction as well as selling of the landand completed the housing project. The methodadopted by the assessee is according to his businessconvenience and in our opinion, the housing projectis on the size of plot of land haying more than 1acre and therefore, on this account, the benefitavailable under section 801B(10) cannot be deniedand the project constructed by the assessee is in 1acre of land and we find, no reason to interferewith the order of the Id CIT(Appeals). Accordingly,the issue raised by the Revenue stands dismissed 22. In so far as CMDA- approval is concerned,in response to Assessing Officer's letter, videletter No. 1v12/21841/2011 dated 26.1212011 [paperbook page No. ]85 & 1861, the Assessing Officer hasreceived a letter from the Member-Secretary, CMDA,wherein it was expressed an opinion that if ahousing project is 'made in a already CMDA approvedlayout, than in such case, the Competent Authorityfor issue of planning permission and building permitfor independent buildings in each plot underordinary building category is Pallikaranai Townhttps://hcservices.ecourts.gov.in/hcservices/Panchayat previously and Chennai Corporation now. In 22. In so far as CMDA- approval is concerned,in response to Assessing Officer's letter, videletter No. 1v12/21841/2011 dated 26.1212011 [paperbook page No. ]85 & 1861, the Assessing Officer hasreceived a letter from the Member-Secretary, CMDA,wherein it was expressed an opinion that if ahousing project is 'made in a already CMDA approvedlayout, than in such case, the Competent Authorityfor issue of planning permission and building permitfor independent buildings in each plot underordinary building category is Pallikaranai Townhttps://hcservices.ecourts.gov.in/hcservices/Panchayat previously and Chennai Corporation now. In the case of the assessee, the assessee had enteredinto an agreement with the landowners and paid anadvance and developed the land and afternegotiation with prospective buyers, he has sold theplots and constructed independent houses. Therefore,in our opinion, the approving authority is localauthority i.e. Pallikaranai Panchayat. Hence, noseparate CMDA approval is required In the assessmentorder, the Assessing Officer has raised one moreobjections that the " date on which the layoutapproved has to be taken into consideration for thepurpose of approval of the project. We find noreason to take layout approval date for approval ofthe housing project for simple reason that thelayout was approvecton 22,09.2003 and" subsequently"assessee had entered into an agreement with theland owners on 15.06.2004. When the layout wasapproved, the assessee was not conceived theproject. In the assessment order, the Assessingofficer has raised one more objection that theassessee has taken several approvals and thenmultiple approvals for the same project was takenthen the first approval of the project should betaken as the date of approval of the project. Inthis case, the assessee, after entering into anagreement with the land owners, taken approval lerthe 3 prototype houses (3'units) and got approvedfrom the Local authority on 06.05.2005. Thisapproval was only for 3 units out of 162 units. The,assessee, by showing the prototype 3 models and soldthe land, construction agreement entered into andsubmitted for approval of the local authority. Thisis the modus operandi adopted by the assessee. Inthat process, the assessee got approval forremaining 159 independent housing units and the lastunit approval by the local authority was on29.03.2007 and ultimately the entire project wascompleted and completion certificate was obtainedfrom the Pallikaranai Panchayat on 03.03.2011. TheId CIT(Appeals), after considering the entire factsof the case, has observed that "though the assesseegot approval of building on various dates, the daleof approval of the building was taken on the date onwhich he has obtained first approval forconstruction of 3 prototype houses. However, thebuilding plan approvals for the remaining houseshave also been obtained before 31.03.2008 asrequired by section 8018(10) and all these dwellingunits in the project were completed and completioncertificate was obtained on 03.03.2011 as requiredby clause (a) of section 80IB(10)". By following thedecision of the Hon'ble Bombay High court in thecase of CIT v. Vandana Properties 353 ITR 36 (Born).The Hon'ble Bombay High Court has observed in .para https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ 22 in respect of Explanation to section 80IB(10)(a),which as introduced w.ef 01.04.2005 that "what thesaid Explanation contemplates is that where theapproval in respect of housing project is grantedmore than once, then, that housing project shall bedeemed to have been approved on the date on whichthe building plan of such housing project is firstapproved by the local authority. For example, inrespect of a housing project, the assessee may seekamendment of the building plan at several stages ofthe construction and the same may be approved. Insucka, case, the Explanation provides that for thepurposes of section 80IB(10) the housing projectshall be deemed to have been approved on the date onwhich the first approval was granted by the localauthority. Thus, the Explanation to section 80IB(10)(a) refers to approval granted to the same housingproject more than once and the said Explanationwould not apply where the approval is granted todifferent housing projects". In the present case, atthe cost of repetition, we have to state that the socalled initial approval on 06.05.2005 was, in fact,obtained in respect of 3 prototype units. It will bemislettding, Vwe say that the said approval of theprototype units cover the entire units of theproject and the said approval should be taken at theapproval for the whole project. Such a conclusionwill be a travesty of truth. It is on the basis ofthe approval of the prototype units that theassessee had finalized its project and commencednegotiations .with potential customers. When theassessee was successful in selling out theindividual units of the project on the basis of theprototype, the occasion actually arose to theassessee to seek for the approval of the projects asa whole. Since the project consisted of individualdwelling unit, it was necessary to obtain individualapproval and the last approval for the last unitobtained was, in fact, on 29.03.2007. Therefore, itis this date on 29.03.2007, which is to be reckonedas the date of approval of the local authority forthe whole housing project contemplated by theassessee. The limitation period of five years ofcompletion of the project runs from the date of29.03.2007. The project was completed on 03.03.2011;within the limitation period offive years.Therefore, in the light of the judgement of theHon'ble Bombay High Court rendered in the case ofCIT v. Vandana Properties (supra) and the facts ofthe case as explained above, the objection of theAssessing Officer that the project was not completedwithin the time is not sustained in law. Therefore,as already stated, we endorse the findings of theId. CIT(Appeals)'on this issue. https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ 23. The next aspect for our consideration iswhether the assessee is developer or workscontractor. The assessee initially entered into anagreement with 17 land owners to the extent of landin 7.11 acres and paid an advance of Rs. 86,05,000/-and developed the roads, parks, play, area, streetlights, etc. by incurring an amount of Rs. 79.20lakhs and pursued prospective buyers and negotiatedwith them • and thereafter sold the land andconstructed independent houses. So, the assessee hastaken an investment risk and also developed thearea. Therefore, the assessee is a builder anddeveloper and not a contractor. The contractor is aperson undertakes to do a particular work In thiscase, the assessee has' not taken any simpleconstruction work. The assessee has conceived theproject, developed all necessary 'infrastructurefacilities and constructed independent houses andcompleted the project well within the time asstipulated under the Act. The Id., CIT(Appeals) hasdealt with this issue at page Nos. 29 to 32 'elaborately in support of various case law and alsoheld that the project executed by the assessee wasnot of the nature of works contract and the assesseeundertook investment - ,risk. Therejb re,. we .findno infirmity in the order of the Id. CIT(Appeals) onthis issue and the ground raised by the Revenue isdismissed. 24. In the assessment order, one of theobjections raised by the Assessing Officer is thatthe sale deed was not registered in the name of theassessee and therefore, the assessee was not ownerof the land and not eligible for deduction undersection 801B(10). The Id. DR has also raised thisobjection at the time of hearikg. This aspect wasconsidered by the Bombay Bench of ITAT in the caseof Essem Capital Markets Ltd. V. ITO (2011) TIOL 196(ITAT Mum), wherein the Tribunal held thatdeduction. under section 80IB(10) cannot be deniedon the ground that the. assessee is not the owner ofthe property, which he undertakes to develop nor canit be denied on the ground that the developmentagreement is not registered. In another case C1T v.Radhe Developers [20]2] 341 1112 403 (Gu]), whereinthe Hohrble Gujarat High Court has observed thatsection 80113(10) allows deduction to an undertakingengaged in the business of. developing andconstructing housing projects, there is norequirement that the land must be owned by theassessee seeking the deduction. Further, as theassessee was in part performance of the agreement tohttps://hcservices.ecourts.gov.in/hcservices/sell the land, given possession and had also -carried out the construction work for thedevelopment of the housing project, it had to bedeemed to be the owner under section 2(47)(v) readwith section 53A of the Transfer of Property Act,1882 even though formal title had not passed. In thepresent case, the assessee is in similar position ofthe above case decided by the 1101rble Gujarat HighCourt. In this case, the assessee had entered intoan agreement with the land owners and paid advanceand possession of the land was taken, developed thearea as well as carried out construction. Similarview has been taken by the Hon'ble JurisdictionalHigh Court in the case of CIT v. Sanghvi and Doshi "Enterprise 255 CTR (Mad) 156, wherein the Hon 'bleHigh Court has observed in the provisions nowhererequires that the developer are owner of the landunder section 80111(10), Therefore, the ownership isnot an essential condition to get the benefit undersection 801.600). In this case, the assessee being adeveloper as well as builder is entitled fordeditction under section 801B (1 0) of the Act. 25. Another objection raised by the AssessingOfficer is with regard to built up area. In theassessment order, the Assessing Officer has notedthat if private terrace is included in the built uparea, it exceeds more than 1500 sq ft. andtherefore, the assessee is not eligible fordeduction under section 80113(1 0). Further, he hasrelied on the decision of 1TAT Chennai Bench in thecase of Sanghvi and Doshi Enterprise. The Id. CIT(Appeals) in his order at page Nos. 36 to 39 hasmeticulously calculated the built up area. Accordingto the Id. CIT(Appeals), the total built up area ofeach residential unit is 1465.03 sq ft. He hasobserved that there is nothing built and it is anopen space, such space cannot be included in thebuilt up area without a specific provision in thatregard. Therefore, he has held that open terrace isnot to be included in the built up area andaccordingly, the claim of the assessee was to beallowed. At the tune of argument, the Id. DR haspointed that open terrace should be included in thebuilt up are and the same was considered by theTribunal in the case of Sanghvi & Doshi Enterprise,the same very 1TAT order has been followed by theAssessing Officer. We find that the same issue has came up for consideration before theHon'ble Jurisdictional High Court in the case ofSanghvi and Doshi Enterprise 255 CT]? (Mad) 156,wherein the Honsble High Court has observed thathttps://hcservices.ecourts.gov.in/hcservices/open terrace area could not be the subject matter of inclusion as built up area to deny the benefit undersection of the Act. Further, the HonsbleJurisdictional High Court in another case C'IT v.Mahalakshmi Housing (supra), the Hon'ble High Courthas. observed that "as per the issue in respect ofinclusion of open terrace area within the built uparea is concerned, the Court has already held theissue against the Revenue and the decision renderedin T.C.A No. 581 of 2008,1186 of 2008 and 136 of2009 the case of M/s. Ceebros Hotels Private Limitedv. DCIT dated 19.10.2012 and accordingly, the orderof the Tribunal on this issue is set aside. Theassessee's appeal viz. T.C.A. No. 318 of 2012,stands allowed holding that open terrace area cannotform part of built up area and the assessee would beentitled to deduction under section., 801B(10) ofthe Act. Keeping in view of the facts andcircumstances and the decision of the Hon'ble'Jurisdictional High Court and respectfullyfollowing the same, the open terrace area could not.be included in the built up area for the purpose ofbenefit under section 801B(10) of the Act. The Id.CIT(Appeals) has elaborately discussed the issue inhis order at page Nos. 36 to 39 and held that theopen -terrace area are not to be included in thebuilt up area and decided the issue in favour of theassessee. Keeping in view of above decisions ofHon'ble Jurisdictional High Court, we do not findany reason to interfere withthe order passed by theId. CI77Appeals) and dismiss the grounds raised bythe Revenue. In view of the facts and circumstancesof the case, materials placed on record as well asfrom the order of the Id. CIT(Appeals), we are ofthe considered opinion that the assessee is adeveloper and builder of housing project and he hascomplied with all conditions laid down under section80IB(10) and thus, he is eligible for deductionunder section 80IB(10) of the Act and confirm theorder passed by the ld.CIT(Appeals) 4çpro tanto.Accordingly, the appeal filed by the Revenue isdismissed. " Further, the learned Senior Standing Counsel submitted thatthe above questions of law were also decided against theRevenue in the following Judgments reported in :- (i) (2013) 255 CTR (Madras) 156 [ Commissioner ofIncome Tax v. Sanghvi & Doshi Enterprise] ;(ii) 2013) 353 ITR 356 (Bombay) [ Commissioner ofIncome Tax v. Vandana Properties Enterprise],; and(iii) (2013) 341 ITR 403(Guj) [ Commissioner ofIncome Tax v. Radhe Developers]. 4. Mr.G.Baskar, learned counsel appearing for thehttps://hcservices.ecourts.gov.in/hcservices/respondent-assessee submitted that in view of the decisions of the Madras, Bombay and Gujarat High Courts, the questionsof law may be decided against the Revenue and the appeal maybe dismissed. 5. In view of the submissions made by the learned counselon either side, following the ratio laid down in (2013) 255CTR (Madras) 156 [ cited supra], 2013) 353 ITR 356 (Bombay) [cited supra] and (2013) 341 itr 403(Guj) [ cited supra], thequestions of law are decided against the Revenue and in favourof the assessee. The appeal is liable to be dismissed.Accordingly, the Tax Case Appeal is dismissed. No costs. Sd/-Assistant Registrar//True copy//Sub Assistant RegistrarRjTo1. The Income Tax Appellate Tribunal, Chennai,"B" Bench.2. The Commissioner of Income Tax, (A-V), Chennai.3. The Assistant Commissioner of Income Tax, Business Circle IV, Chennai.+1cc to Mr.M. Swaminathan, Advocate SR.No.24190T.C.A.No. 1160 of 2015 EV(CO)GMY(07/07/2021)