M/S.bashyam Constructions P Ltd v. The Deputy Commissioner Of Income Tax,Corporate Circle-1(2),Chennai-600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MR.JUSTICE N.SATHISH KUMAR M/s.Bashyam Constructions P Ltd.,11, Gopalakrishnan Street,T.Nagar, Chennai-600 017.PAN: AACCB 4376P ... Appellant -vs- The Deputy Commissioner of Income Tax,Corporate Circle-1(2),Chennai-600 034. Tax Case Appeal filed under Section 260-A of the Income TaxAct, 1961 against the order of the Income-tax AppellateTribunal, 'B' Bench, Chennai, in I.T.A.No.1646/Mds./2015, dated12.06.2017, for the assessment year 2010-11. Against the order made in I.T.A.No.282/13-14/A-1 NewNo.ITA25CIT(A)-1/2013-14 dated 24.03.2015 on the file of theCommissioner of Income Tax (Appeals)-1 for the Assessment Year2010-11. Against the order made in GIR/PAN- dated28.03.2013 on the file of the Assistant Commissioner of IncomeTax Company Circle-1(2), Chennai for the Assessment Year 2010-11. For Appellant: Mr.A.S.SriramanFor Respondent : Mrs.R.Hemalatha, Senior Standing Counsel This appeal, by the assessee filed under Section 260-A of https://hcservices.ecourts.gov.in/hcservices/ the Income Tax Act, 1961 (hereinafter referred to as “the Act”)is directed against the order of the Income-tax AppellateTribunal, 'B' Bench, Chennai, (for brevity “the Tribunal”) inI.T.A.No.1646/Mds./2015, dated 12.06.2017, for the assessmentyear 2010-11. 2.This appeal has been admitted, on 13.03.2018, on thefollowing substantial questions of law:- “i. Whether the claim of an assesseeincorporated for the purpose of real estatedevelopment for deduction under Section 80IB (10)of the Income Tax Act, 1961, based on the benefitof tax holiday for those engaged in real estatedevelopment, can be disallowed on the ground thatthe assessee had entrusted the development toanother company by execution of a JointDevelopment Agreement?ii. Alternately, whether the execution of aJoint Development Agreement, in terms whereof anassessee incorporated for the purpose ofdeveloping real estate makes over possession ofland to the Contractee for development, byexecution of purchase deeds in return forcompleted flats in the buildings to beconstructed, disentitles himself to the benefit oftax holiday under Section 80IB (10) of the IncomeTax Act, 1961?iii. Whether a Bench of the Tribunal candisregard a prior decision of a Bench of theTribunal of co-ordinate strength?” 3.The facts, which are necessary for taking a decision inthis appeal, are as follows: 3.1.The assessee is a Company engaged in the business ofreal estate and for the assessment year under consideration(2010-11), return of income was filed on 30.09.2010, declaringthe assessable income as 'Nil', after claiming deduction underSection 80IB(10) of the Act at Rs.27,76,97,278/-. In the saidreturn of income, the assessee computed book profits underSection 115JB of the Act at Rs.27,79,97,773/-. The said returnwas initially accepted under Section 143(1) of the Act andsubsequently, selected for scrutiny and the assessment wasframed under Section 143(3) of the Act, by order dated28.03.2013. The Assessing Officer determined the total taxableincome at Rs.27,69,75,954/- while accepting the computation ofadjusted book profit under Section 115JB of the Act atRs.27,79,97,773/-. The Assessing Officer while completing theassessment, disallowed the claim of deduction under Section 80IB (10) of the Act on the ground that the assessee had notexecuted/developed a housing project, inasmuch as bycontributing 2/3[rd] of its land holding to M/s.ETA Properties &Investments P Ltd. (“M/s ETA”) in exchange for 73 flats. TheAssessing Officer concluded that the assessee has not taken anyinvestment risk. Further, the Assessing Officer had noticed thesale of two flats exceeding 1500 sq.ft., and in any event,eligibility for such deduction in relation thereto was notcomplied with. (10) of the Act on the ground that the assessee had notexecuted/developed a housing project, inasmuch as bycontributing 2/3[rd] of its land holding to M/s.ETA Properties &Investments P Ltd. (“M/s ETA”) in exchange for 73 flats. TheAssessing Officer concluded that the assessee has not taken anyinvestment risk. Further, the Assessing Officer had noticed thesale of two flats exceeding 1500 sq.ft., and in any event,eligibility for such deduction in relation thereto was notcomplied with. 3.2.The assessee filed an appeal before the Commissionerof Income-tax (Appeals)-I, Chennai (for brevity “the CIT(A)).The CIT(A), by order dated 24.03.2015, allowed the appeal anddirected the Assessing Officer to re-work the eligibility ofdeduction under Section 80IB(10) of the Act. With regard to theviolation of build up area for two flats, which exceeded theprescribed limit of 1500 Sq.ft., the CIT(A) upheld the decisionof the Assessing Officer. The Revenue filed an appealchallenging the order passed by the CIT(A) before the Tribunal.The appeal was allowed by the impugned order dated 12.06.2017.This is how the assessee is before us by way of this tax caseappeal by raising the substantial questions of law as mentionedabove. 4.We have heard Mr.A.S.Sriraman, learned counsel for theappellant/assessee; and Mrs.R.Hemalatha, learned Senior StandingCounsel for the respondent/Revenue. 5.The reason assigned by the Tribunal for reversing theorder passed by the CIT(A) is on the ground that the assesseecannot be considered as a developer of the housing project, asjoint venture happens only when the owner, that is, the assesseetreats the lands as stock-in-trade in the books of accounts ofthe assessee. Further, the Tribunal held that the CIT(A)committed an error in granting deduction under Section 80IB (10)of the Act, solely on the reason that the assessee is the ownerof the land and the project plan was in the name of theassessee. The Tribunal opined that the Joint DevelopmentAgreement cannot be constituted as a Joint Venture so as togrant deduction under Section 80IB (10) of the Act and even ifit is presumed that it is a joint venture, the deduction underSection 80IB(10) of the Act can be granted to the joint venture,which is the association of person consisting the assessee andM/s.ETA and not to the present assessee. Further, the Tribunalpointed out that the assessee was not engaged in construction ofhousing project and have not incurred any expenditure forconstruction of housing flats and the development of projects. 6.We are to test the correctness of the reasons assignedby the Tribunal while reversing the order passed by the CIT(A). https://hcservices.ecourts.gov.in/hcservices/ We need not labour much to decide the issue, as there areseveral decisions of the Division Bench of this High Court andother High Courts, which have considered a similar issue. Firstof such decisions being that of the High Court of Karnataka inthe case of CIT vs. Shravanee Constructions, [2012] 22taxmann.com 250 (Kar.). We refer to this decision at the firstinstant because, the facts are identical. The substantialquestion of law, which was framed for consideration, was whetherthe Tribunal was correct in holding that the assessee therein isentitled to deduction under Section 80IB(10) of the Act,admittedly when the assessee has not carried out activity ofdeveloping and building house project and has merely assistedthe developer/promoter in the project. This question wasanswered in favour of the assessee, after noting the factualposition as to the activities undertaken by the assessee. Atthis juncture, it would be beneficial to refer to paragraph 8 ofthe said judgment, which reads as follows:- “8. In terms of the agreement, which arenot in dispute, the assessee not only undertookthe aforesaid development activities on the landin question, but in fact, he entered into anagreement of sale with the owners of the land,paid the entire consideration but he did not takea registered sale deed in his name. On thecontrary, the procedure adopted is he in turnentered into a joint development agreement withthe builder and the owner of the land was made aparty to the said proceedings. Thus, the assesseecontributed the land, undertook the aforesaiddevelopmental activities in the said land andthus, complied with all other conditions, whichhave to be fulfilled before claiming benefit underSection 80IB (10) of the Act. The builder hasinvested the money in the construction. It isafter completion of the building in terms of theagreement, the assessee was given 22% share of thebuilding area. It is after sale of the builtarea, in terms of Section 80IB (10), the assesseeis claiming deduction. As is clear from the jointdevelopment agreement, the undertaking ofdeveloping and building housing project wasjointly undertaken by the assessee and thebuilder. Therefore, in respect of the residentialunits numbering 211 in all, the persons whoundertook this undertaking are entitled to thebenefit of Section 80IB (10) of the Act inproportion to the share to which they are entitledto in the built up area.” 7.As noted in the decision cited above, in the instant case also, the assessee entered into a Joint Venture Agreementwith M/s.ETA dated 16.07.2006. We have perused the terms andconditions of the joint development agreement, which has beenplaced in the paper book. In terms of the said agreement, theassessee, who was the owner of the site, was desirous ofdeveloping the property by putting up residential and commercialcomplex consisting of flats and apartments. M/s.ETA, which hasbeen described as a builder of the joint development agreementoffered to develop the property by putting up multistoreyedbuilding complex at their own cost and to allot 33.33% of totalbuilt up area to the owners and take for themselves 66.67% builtup area in lieu of the value of the land provided by theassessee. Further, the agreement stated that the assessee inconsideration of the builder agreeing to allot 33.33% of thetotal built up area to be constructed on the property, haveagreed to convey 66.67% of undivided interest of land to thebuilder or to their nominee/nominees and accordingly, mutuallyagreed to the terms and conditions set down in the agreement.Further, the agreement stated that the assessee shall getnecessary orders from Chennai Metropolitan Development Authority(CMDA) for reclassifying the project land for enablingconstruction of residential complex with minimum FSI of 1.5 andboth parties will endeavour to achieve the maximum FSI of 2.5.All expenses in respect of obtaining reclassification shall beborne by the assessee and all expenses for preparation of plan,fees, including any security deposit in respect of buildingsanction etc., shall be borne by M/s.ETA. 8.As noticed by the Court in the case of ShravaneeConstructions (supra), the assessee contributed land, undertookdevelopment activity in the land and has complied with all theconditions, thereby being entitled to the benefit under Section80IB(10) of the Act. The assessee in his explanation to hisAssessing Officer, vide letter dated 20.03.2013, stated that thecompany has incurred initial expenses towards the housingproject like architect fee, plan reclassification charges,construction expenses, project administrative expenses etc. TheTribunal states that the expenses are not reflected in the P & Laccount. However, this aspect was considered by the CIT(A) andby referring to the P & L account, stated that the assessee hasnot taken the cost of the land into consideration therebyclaiming more surplus income for the purpose of 80IB(10)benefit. Further, the CIT(A) noted that the assessee has shownonly increase in work-in-progress of Rs.2.22 crores along withsome minimal expenses in its P & L Account, but this has nothingto do with the cost of the land alone. This aspect of thematter has not been dealt with by the Tribunal, but the Tribunalmade a sweeping observation that the expenses are not reflectedin the said account. Therefore, we do not agree with thereasoning given by the Tribunal in this regard. 9.A Division Bench of this Court in the case of CIT vs.Sanghvi and Doshi Enterprise, [2013] 29 taxmann.com 386(Madras), examined a similar question raised by adeveloper/promoter. The question of law framed forconsideration was whether the assessee therein, who was abuilder/promoter was eligible for deduction under Section 80IB(10) of the Act. The Division Bench after considering the factsof the case and the terms of the joint development agreement, asin the instant case, decided the question in favour of the saidassessee in the following terms:- “30............Thus, seen in the backgroundof the data available as regards the date of sale,the clause in the agreement between the owner ofthe land and the assessee and the sale agreementwith the prospective purchasers, it is evidentthat what the assessee had undertaken is not amere construction, but developing and constructionof a project, which qualifies for a deductionunder Section 80IB of the Income Tax Act. Asrightly pointed out by learned Senior Counselappearing for the assessee, a bare reading ofSection 80IB of the Income Tax Act shows that thededuction contemplated therein is oriented towardsthe project and not with reference to an assessee.It is no doubt true that the project has to bedone by the assessee, but then, when the deductionis specific enough as regards the particularactivity, we fail to see how one should assume anysignificance in the matter of considering adeduction.”The above decision was followed by another Division Benchin Income tax Officer vs. Doshi Enterprise, [2013] 55taxmann.com 500 (Mad.). 10.Similar decision was taken by a Division Bench in thecase of CIT vs. Ceebros Property Development (P.) Ltd., [2014]41 taxmann.com 263 (Madras). 11.In CIT vs. Radhe Developers, [2012] 17 taxmann.com 156(Gujarat), the substantial question of law, which was framed forconsideration was whether the Tribunal was right in law inallowing deduction under Section 80IB(10) read with Section 80IB(1) to the assessee, when the approval by the local authority aswell as completion certificate was not granted to the assessee,but to the landowner and the rights and the obligations underthe said approval were not transferable, and when the transferof dwelling units in favour of the end-users was made by thelandowner and not by the assessee. The question was decided inthe favour of the assessee therein, in the following terms:-“30. The essence of sub-section (10) of https://hcservices.ecourts.gov.in/hcservices/ 11.In CIT vs. Radhe Developers, [2012] 17 taxmann.com 156(Gujarat), the substantial question of law, which was framed forconsideration was whether the Tribunal was right in law inallowing deduction under Section 80IB(10) read with Section 80IB(1) to the assessee, when the approval by the local authority aswell as completion certificate was not granted to the assessee,but to the landowner and the rights and the obligations underthe said approval were not transferable, and when the transferof dwelling units in favour of the end-users was made by thelandowner and not by the assessee. The question was decided inthe favour of the assessee therein, in the following terms:-“30. The essence of sub-section (10) of https://hcservices.ecourts.gov.in/hcservices/ Section 80IB, therefore, requires involvement ofan undertaking in developing and building housingprojects approved by the local authority.Apparently, such provision would be aimed atgiving encouragement for providing units in theurban and semi-urban areas, where there isperennial and acute shortage of housing,particularly, for the middle income groupcitizens. To ensure that the benefit reaches thepeople, certain conditions were provided in sub-Section (10) such as specifying date by which theundertaking must commence the developing andconstruction work as also providing for theminimum area of plot of land on which such projectwould be put up as well as maximum built up areaof each of the residential units to be locatedthereon. The provisions nowhere required thatonly those developers who themselves own the landwould receive the deduction under Section 80IB(10) of the Act.”12.The said decision in Radhe Developers (supra) wasfollowed by the High Court of Gujarat in CIT vs. Moon StarDevelopers, (2014) 88 CCH 0211 GujHC; and in the case of CIT vs.Prathama Developers, [2013] 32 taxmann.com 336 (Gujarat). 13.The High Court of Bombay in CIT vs. Cajetano MarioPereira, (2014) 88 CCH 0152 MumHC, held that Section 80IB(10)does not require that the ownership of land must vest in thedeveloper to be able to qualify for such deduction. The Revenuepreferred appeal against all such cases, which were clubbed as abatch before the Hon'ble Supreme Court and all the decisionswere affirmed by the Hon'ble Supreme Court in the case of CITvs. Veena Developers, (2015) 93 CCH 0184 ISCC. 14.It is interesting to note that in all these decisions,the Revenue placed reliance on the aspect of ownership as acriteria for grant of deduction under Section 80IB of the Actand submitted that Section 80IB(10) contemplates grant ofdeduction and it being a deduction provision, the same has to becomplied in absolute terms by the assessee. The Courts haveheld that in a case of development, the developer is alsoentitled to claim deduction and ownership is not the criteria.Unfortunately, in the instant case, the Revenue took a reversestand contrary to the consistent stand taken by them before thisCourt and other High Courts, which was rejected by the Highcourts and affirmed by the Hon'ble Supreme Court. 15.We may point out that the decision of the DivisionBench in the case of Sanghvi and Doshi Enterprise (supra) was https://hcservices.ecourts.gov.in/hcservices/ affirmed by the Hon'ble Supreme Court as reported in (2017) 84taxmann.com 241 (SC). 16.Mrs.R.Hemalatha, learned Senior Standing Counselreferred to the decision in the case of Mangalore Ganesh BeediWorks vs. CIT, (2015) 378 ITR 0640 (SC) in support of hercontention that the High Court will not be justified inupsetting the finding of fact arrived at by the Tribunal,particularly, in the absence of substantial questions of lawbeing framed in this regard. 15.We may point out that the decision of the DivisionBench in the case of Sanghvi and Doshi Enterprise (supra) was https://hcservices.ecourts.gov.in/hcservices/ affirmed by the Hon'ble Supreme Court as reported in (2017) 84taxmann.com 241 (SC). 16.Mrs.R.Hemalatha, learned Senior Standing Counselreferred to the decision in the case of Mangalore Ganesh BeediWorks vs. CIT, (2015) 378 ITR 0640 (SC) in support of hercontention that the High Court will not be justified inupsetting the finding of fact arrived at by the Tribunal,particularly, in the absence of substantial questions of lawbeing framed in this regard. 17.We are of the view that this decision will not renderany assistance to the case of the Revenue, since the Tribunalhad not recorded any reason for reversing the finding of the CIT(A), which had gone into the facts of the case and appreciatedthe terms of the agreement and as to how the assessee wouldqualify for deduction under Section 80IB (10). Therefore, tostate that no substantial question of law arises forconsideration is an argument to be rejected. 18.Reliance was placed on the decision of the Hon'ble HighCourt of MP in the case of Navratan Techbuild Private Ltd. vs.CIT, (2014) 88 CCH 0264 MPHC, wherein, the Court whileconsidering the claim for deduction under Section 80IB(10) ofthe Act, held that there was no substantial question of lawinvolved in the said appeal. 19.We have noted the facts in the said case and hold thatthe assessee having not constructed residential flats and barelyraising infrastructural facility would not raise any substantialquestion of law requiring adjudication. In the light of thefactual position involved in the said case, the said decisioncan have no application to the case on hand. 20.Mrs.R.Hemalatha, learned Senior Standing Counselreiterated that the Tribunal has recorded that there is noexpenditure incurred by the assessee as could be seen from the P& L Account. As pointed out earlier, this aspect wasspecifically considered by the CIT(A) in the following terms inparagraph 4.2.1 of the order dated 24.03.2015, which is asfollows:- 4.2.1. As seen from the facts of the case,the appellant cannot be denied deduction u/s 80IB(10) as it otherwise fulfills all the conditions. https://hcservices.ecourts.gov.in/hcservices/ However, as seen from the P & L the appellant hasnot taken the cost of the land into considerationthereby claiming more surplus income for thepurpose of 80IB(10) benefit. The appellant hasshown only increase in work-in-progress of Rs.2.22crores along with some minimal expenses in its P &L but this has nothing to do with the cost of theland alone. From the details submitted, the costof the land was as under - 21.The correctness of the above finding was not consideredby the Tribunal and the Tribunal merely stated that no expenseswere recorded in the P & L account. Therefore, the contentionadvanced by the Revenue in this regard is not tenable. Thatapart, a plain reading of Section 80IB(10) of the Act evidentlymakes it clear that deduction is available in a case where anundertaking develops and builds a housing project. The Sectionclearly draws the distinction between 'developing' and'building'. In the preceding paragraphs, we have noted thefactual position as could be culled out from the joint ventureagreement, which clearly shows that the assessee is thedeveloper and M/s.ETA is the builder and mutual rights andobligations are inextricably linked with each other andundoubtedly, the project is a housing project thereby, theassessee would be entitled to claim deduction under Section 80IB(10) of the Act. 22.Thus, for the above reasons, we hold that the Tribunalerred in reversing the order passed by the CIT(A). 22.Thus, for the above reasons, we hold that the Tribunalerred in reversing the order passed by the CIT(A). 23.Mrs.R.Hemalatha, learned Senior Standing Counselsubmitted that the builder, M/s.ETA has also claimed deductionand it would amount to double deduction. We find that theauthorised representative, who appeared on behalf of theassessee has specifically stated that there is no case of doublededuction and it is only proportionate to their respectiveshares. We find that the Tribunal has not given any finding asto any double deduction and therefore, such a plea cannot becanvassed before us in this appeal. 24.In the result, the appeal filed by the assessee isallowed; the order passed by the Tribunal, dated 12.06.2017, isset aside; the order passed by the CIT(A) dated 24.03.2015, isrestored; and the substantial questions of law are answered infavour of the assessee. No costs. Consequently, connectedmiscellaneous petitions are closed. Sd/- Assistant Registrar(CS IV) //True Copy// Sub Assistant RegistrarabrTo1.The Income-tax Appellate Tribunal, 'B' Bench, Chennai. 2.The Commissioner of Income Tax (Appeals)-I, 121, Mahatma Gandhi Road, Chennai-600 034.3.The Assistant Commissioner of Income Tax, Company Circle-1(2), Chennai.+1 cc to Mr.S.Sridhar, Advocate Sr.No.7468+1 cc to R.Hemalatha, Advocate Sr.No.7899T.C.A.No.177 of 2018CSL/04.02.2019 https://hcservices.ecourts.gov.in/hcservices/