M/S.prime Developers, Tirupur v. The Income Tax Officer, Ward-I(4),Tirupur

In the High Court of Judicature at Madras Dated : 22.3.2016 Coram : The Honourable Mr.Justice V.RAMASUBRAMANIANandThe Honourable Mr.Justice N.KIRUBAKARAN Tax Case Appeal No.1208 of 2015 and MP.No.1 of 2015 M/s.Prime Developers, Tirupur. Vs ...Appellant The Income Tax Officer, Ward-I(4),Tirupur....Respondent APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 23.9.2015 made in I.T.A.No.933/Mds/2013on the file of the Income Tax Appellate Tribunal, Madras 'B'Bench preferred against the order of the Commissioner of IncomeTax (Appeals)-II, Coimbatore dated 12.02.2013 made in AppealNo.146/11-12 preferred against the Assessment order of theIncome Tax Officer Ward 1(4) Tirupur dated 30.12.2011 made inPA.NO.AAIFP0122G for the assessment year 2009-10. For Appellant : Dr.Anita Sumanth For Respondent : Mr.T.R.SenthilkumarJUDGMENT WAS DELIVERED BY V.RAMASUBRAMANIAN,J This tax case appeal, filed by the assessee under Section260A of the Income Tax Act, 1961, was admitted on 17.12.2015 onthe following substantial questions of law : "(i) Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law inconfirming the denial of relief under Section80IB of the Act, when the appellant satisfiesall parameters in this regard ? and(ii) Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in notfollowing the rationale of the earlier ordersof the Tribunal accepting the position thatthe appellant is a 'developer' in accordancewith consistency?" https://hcservices.ecourts.gov.in/hcservices/ 2. Heard Dr.Anita Sumanth, learned counsel for the assesseeand Mr.T.R.Senthilkumar, learned Standing Counsel for theDepartment. 3. The assessee, which is a firm, entered into an agreementtitled as 'Joint Development Agreement' with an entity known as'Prime Textiles Limited' (now known by a different name) on17.1.2005. The said entity was the owner of a piece of land.Under the agreement, the assessee agreed to develop the land,put up constructions of flats and sell them to third parties. 4. The assessee claimed themselves to be developers andclaimed relief under Section 80IB of the Act. This was acceptedin respect of the assessment years 2007-08 and 2008-09. However,in respect of the assessment year 2009-10, the Assessing Officertook the view that the assessee is not a developer, but acontractor. The Commissioner (Appeals) confirmed the assessmentorder and the Tribunal also upheld the same, forcing theassessee to come up with the above appeal. 5. It is seen from paragraph 7 onwards of the order of theTribunal that there is no dispute on the following facts : (i) that the assessee entered into an unregistered agreementtitled as 'Joint Development Agreement' on 17.1.2005 with theowner of the land of an extent of about 3.91 acres (ii) that under the said agreement, the assessee was toengage architects, prepare a plan for the development of theland into a complex of residential apartments with suitableamenities (iii) that the assessee should obtain approval from the Local Body for all the activities (iv) that the assessee should market the proposed apartmentsto third parties by entering into necessary agreements and (v) that the assessee should put up a construction to theextent of about 5,85,000 sq.ft. 6. Pursuant to the said joint development agreement, theland owner applied for necessary permission from the Local Bodyand the building plan was approved on 3.5.2005. Thereafter, thedeeds of conveyance of undivided shares in the land wereexecuted by the land owner in favour of the third parties. Thosethird parties entered into separate construction agreements withthe assessee. (iii) that the assessee should obtain approval from the Local Body for all the activities (iv) that the assessee should market the proposed apartmentsto third parties by entering into necessary agreements and (v) that the assessee should put up a construction to theextent of about 5,85,000 sq.ft. 6. Pursuant to the said joint development agreement, theland owner applied for necessary permission from the Local Bodyand the building plan was approved on 3.5.2005. Thereafter, thedeeds of conveyance of undivided shares in the land wereexecuted by the land owner in favour of the third parties. Thosethird parties entered into separate construction agreements withthe assessee. 7. Based on the fact that it was the owner, who applied forbuilding plan approval and that the assessee merely entered intoconstruction agreements with the purchasers of undivided sharesof the land, the Tribunal came to the conclusion that theassessee was only a contractor. But, in the process, theTribunal lost sight of one important distinction. The assesseeno doubt played the role of contractor in so far as purchasersof undivided shares of the land are concerned. 8. But, in so far as the owner of the land is concerned, theassessee actually acted as the developer. They had undertakenthe following activities namely (i) engagement of architects(ii) preparation of building plans for approval (iii)coordinating with the Local Body for the grant of building planapproval (iv) identification of purchasers of flats and (v)entering into agreements of construction with them. All theabove activities cannot be undertaken, if a person was merely acontractor. Therefore, primarily, the view taken by the Tribunalappears to be wholly unsustainable. 9. Drawing our attention to the Explanation inserted towardsthe end of Sub-Section (10) of Section 80IB, it is contended bythe learned Standing Counsel for the Department that the benefitof Section 80IB is not available to any undertaking, whichexecutes a housing project or a works contract awarded by anyperson. This Explanation was inserted by Finance Act 2/2001 witheffect from 1.4.2001. 10. But unfortunately for the Department, the aboveExplanation has no application to the case on hand. The assesseedid not execute a housing project as a works contract for theowner of the land. The relationship that the assessee had withthe purchasers of undivided shares has been misunderstood as therelationship that they had with the owner of the land.Therefore, the Tribunal was wrong in holding the appellant to bea mere contractor. 11. Accordingly, the questions of law are answered in favourof the appellant. The tax case appeal is allowed. No costs.Consequently, the above MP is closed. Sd/- Assistant Registrar(CO) //True Copy// RS Sub Assistant Registrar https://hcservices.ecourts.gov.in/hcservices/ To 1.The Income Tax Officer, Ward-I(4), Tirupur. 2. Commissioner of Income Tax Appeals-II,Coimbatore.Coimbatore. 3. The Income Tax Appellate Tribunal, Madras 'B' Bench, Chennai. Madras 'B' Bench, Chennai. TCA.No.1208 of 2015and MP.No.1 of 2015MSM(CO)Eu 26.4.16