Tca/753/2014 Of The Commissioner Of Income Tax v. Shri Shanmugham Muthu

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE R.HEMALATHA Commissioner of Income Tax, Chennai. ... Appellant/Appellant Shri Shanmugham Muthu Palaniappan,Chettinadu Housing No.1,9th Avenue, Ashok Nagar,Chennai - 600 083. ... Respondent/Respondent Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Chennai, "C" Bench, dated 04.02.2014 in I.T.A.No.1755/Mds/2013for the Assessment Year 2010-2011 and against the order of thecommissioner of Income tax Appeal -V Chennai-34 dated 17.06.2013and made in ITA No.78/12-13(A)V and against the order of theAssistant Commissioner of Income Tax. Business Circle IV Chennaidated 12.02.2012 and made in PAN No for theAssessment year 2010-2011. For Respondent : Mrs. Sri Niranjani Srinivasan Challenging the order passed in I.T.A.No.1755/Mds/2013 inrespect of the Assessment Year 2010-2011 on the file of theIncome Tax Appellate Tribunal, Chennai, "C" Bench (for brevity,the Tribunal), the Revenue has filed the above appeal. 2. The above appeal was admitted on the followingsubstantial questions of law: “ (i) Whether on the facts and in the https://hcservices.ecourts.gov.in/hcservices/ circumstances of the case, the Tribunal wasright in holding that the open terrace areashould not be included while computing the built-up area for the purpose of claiming deductionunder Section 801B(10)? ? (ii) Whether on the facts and in thecircumstances of the case, the Tribunal was rightin holding that the time limit for completion ofthe eligible project should not be computed fromthe day on which the lay out was approved for the1[st] time on 22.09.2003 but only from the date onwhich the building plan approval was obtained forthe last time on 29.03.2007? (iii) Whether the Tribunal was correct inholding that the completion certificate issued byPallikaranai Panchayat would satisfy instead ofcompletion of certificate issued by ChennaiMetropolitan Development Authority who hadoriginally approved the plan?” " 3. When the appeal is taken up for hearing,Mr. M.Swaminathan, learned Senior Standing Counsel appearing for theappellant fairly submitted that the questions of law thatare raised in the above appeal were already decided against theRevenue in the respondent- assessee's own case in respect of theAssessment Year 2009-2010 in I.T.A.No.16650/Mds/2012, dated12.11.2013 vide para Nos. 21 to 25 of the Judgement, which readsas follows:- “ 21. The second issue for our consideration iswhether the approval of the Project and completiondate is as per section 801B(10) of the Act or not. Theassessee, initially entered into an agreement dated15.06.2004 with 17 land owners to develop the land tothe extent of 7.11 acres and built housing project ona layout, which has already been approved by the CMDAand paid advance of Rs.86,05000/-. Thereafter, theassessee has developed roads, parks, play areas, etc.The assessee has applied jar approval of constructionof 3 prototype houses and the same was approved on bythe Pallikaranai Panchayat and started negotiatingwith prospective buyers and after registration, theassessee has constructed independent house. Theobjection raised by the Assessing Officer that the 3prototype houses are not having] acre area of land andtherefore held that the assessee is not eligible fordeduction under section 80IB(10) on the ground thatplot must be in 1 acre of land This aspect .wasconsidered by the Id. CIT(Appeals) in detail in his order at page 33 to 35. From the careful considerationof the assessment order and CIT(Appeals)'s order withdetails filed by the assessee in the paper book, wehave to find whether the project undertaken by theassessee is on the size of the plot of land having anarea of minimum- 1 acre or not. The size of the plot,as taken by the assessee, is 7..11 acres and afterdeveloping roads, parks, play area, etc. the left overarea for construction of the house is 3.675 acres.Therefore, the Assessing Officer was not correct insaying that the housing project is not on a plot of]acre area. The assessee has taken 3 prototype housesand got it approved from the local authority and onthe basis of that the assessee has pursued prospectivebuyers and entered into an agreement for' constructionas well as selling of the land and completed thehousing project. The method adopted by the assessee isaccording to his business convenience and in ouropinion, the housing project is on the size of plot ofland haying more than 1 acre and therefore, on thisaccount, the benefit available under section 801B(10)cannot be denied and the project constructed by theassessee is in 1 acre of land and we find, no reasonto interfere with the order of the Id CIT(Appeals).Accordingly, the issue raised by the Revenue standsdismissed . 22. In so far as CMDA- approval is concerned,in response to Assessing Officer's letter, vide letterNo. 1v12/21841/2011 dated 26.1212011 [paper book pageNo. ]85 & 1861, the Assessing Officer has received aletter from the Member-Secretary, CMDA, wherein it wasexpressed an opinion that if a housing project is 'madein a already CMDA approved layout, than in such case,the Competent Authority for issue of planningpermission and building permit for independentbuildings in each plot under ordinary building categoryis Pallikaranai Town Panchayat previously and ChennaiCorporation now. In the case of the assessee, theassessee had entered into an agreement with thelandowners and paid an advance and developed the landand after negotiation with prospective buyers, he hassold the plots and constructed independent houses.Therefore, in our opinion, the approving authority islocal authority 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 layout approvedhas to be taken into consideration for the purpose ofapproval of the project. We find no reason to take layout approval date for approval of the housingproject for simple reason that the layout wasapprovecton 22,09.2003 and" subsequently "assessee hadentered into an agreement with the land owners on15.06.2004. When the layout was approved, the assesseewas not conceived the project. In the assessmentorder, the Assessing officer has raised one moreobjection that the assessee has taken several approvalsand then multiple approvals for the same project wastaken then the first approval of the project should betaken as the date of approval of the project. In thiscase, the assessee, after entering into an agreementwith the land owners, taken approval ler the 3prototype houses (3'units) and got approved from theLocal authority on 06.05.2005. This approval was onlyfor 3 units out of 162 units. The, assessee, by showingthe prototype 3 models and sold the land, constructionagreement entered into and submitted for approval ofthe local authority. This is the modus operandi adoptedby the assessee. In that process, the assessee gotapproval for remaining 159 independent housing unitsand the last unit approval by the local authority wason 29.03.2007 and ultimately the entire project wascompleted and completion certificate was obtained fromthe Pallikaranai Panchayat on 03.03.2011. The Id CIT(Appeals), after considering the entire facts of thecase, has observed that "though the assessee gotapproval of building on various dates, the dale ofapproval of the building was taken on the date on whichhe has obtained first approval for construction of 3prototype houses. However, the building plan approvalsfor the remaining houses have also been obtained before31.03.2008 as required by section 8018(10) and allthese dwelling units in the project were completed andcompletion certificate was obtained on 03.03.2011 asrequired by clause (a) of section 80IB(10)". Byfollowing the decision of the Hon'ble Bombay High courtin the case of CIT v. Vandana Properties 353 ITR 36(Born). The Hon'ble Bombay High Court has observed in .para 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 granted morethan once, then, that housing project shall be deemedto have been approved on the date on which the buildingplan of such housing project is first approved by thelocal authority. For example, in respect of a housingproject, the assessee may seek amendment of thebuilding plan at several stages of the construction andthe same may be approved. In sucka, case, the Explanation provides that for the purposes of section80IB(10) the housing project shall be deemed to havebeen approved on the date on which the first approvalwas granted by the local authority. Thus, theExplanation to section 80IB(10)(a) refers to approvalgranted to the same housing project more than once andthe said Explanation would not apply where the approvalis granted to different housing projects". In thepresent case, at the cost of repetition, we have tostate that the so called initial approval on 06.05.2005was, in fact, obtained in respect of 3 prototype units.It will be mislettding, Vwe say that the said approvalof the prototype units cover the entire units of theproject and the said approval should be taken at theapproval for the whole project. Such a conclusion willbe a travesty of truth. It is on the basis of theapproval of the prototype units that the assessee hadfinalized its project and commenced negotiations .withpotential customers. When the assessee was successfulin selling out the individual units of the project onthe basis of the prototype, the occasion actually aroseto the assessee to seek for the approval of theprojects as a whole. Since the project consisted ofindividual dwelling unit, it was necessary to obtainindividual approval and the last approval for the lastunit obtained was, in fact, on 29.03.2007. Therefore,it is this date on 29.03.2007, which is to be reckonedas the date of approval of the local authority for thewhole housing project contemplated by the assessee. Thelimitation period of five years of completion of theproject runs from the date of 29.03.2007. The projectwas completed on 03.03.2011; within the limitationperiod offive years. Therefore, in the light of thejudgement of the Hon'ble Bombay High Court rendered inthe case of CIT v. Vandana Properties (supra) and thefacts of the case as explained above, the objection ofthe Assessing Officer that the project was notcompleted within the time is not sustained in law.Therefore, as already stated, we endorse the findingsof the Id. CIT(Appeals)'on this issue. 23. The next aspect for our consideration iswhether the assessee is developer or works contractor.The assessee initially entered into an agreement with17 land owners to the extent of land in 7.11 acres andpaid an advance of Rs. 86,05,000/- and developed theroads, parks, play, area, street lights, etc. byincurring an amount of Rs. 79.20 lakhs and pursuedprospective buyers and negotiated with them • andthereafter sold the land and constructed independent houses. So, the assessee has taken an investment riskand also developed the area. Therefore, the assessee isa builder and developer and not a contractor. Thecontractor is a person undertakes to do a particularwork In this case, the assessee has' not taken anysimple construction work. The assessee has conceivedthe project, 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 was notof the nature of works contract and the assesseeundertook investment - ,risk. Therejb re,. we .find noinfirmity in the order of the Id. CIT(Appeals) on thisissue and the ground raised by the Revenue isdismissed. 24. In the assessment order, one of theobjections raised by the Assessing Officer is that thesale deed was not registered in the name of theassessee and therefore, the assessee was not owner ofthe land and not eligible for deduction under section801B(10). The Id. DR has also raised this objection atthe time of hearikg. This aspect was considered by theBombay Bench of ITAT in the case of Essem CapitalMarkets Ltd. V. ITO (2011) TIOL 196 (ITAT Mum), whereinthe Tribunal held that deduction. under section 80IB(10) cannot be denied on the ground that the. assesseeis not the owner of the property, which he undertakesto develop nor can it be denied on the ground that thedevelopment agreement is not registered. In anothercase C1T v. Radhe Developers [20]2] 341 1112 403 (Gu]),wherein the Hohrble Gujarat High Court has observedthat section 80113(10) allows deduction to anundertaking engaged in the business of. developing andconstructing housing projects, there is no requirementthat the land must be owned by the assessee seeking thededuction. Further, as the assessee was in partperformance of the agreement to sell the land, givenpossession and had also -carried out the constructionwork for the development of the housing project, it hadto be deemed to be the owner under section 2(47)(v)read with 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 into anagreement with the land owners and paid advance and possession of the land was taken, developed the area aswell as carried out construction. Similar view has beentaken by the Hon'ble Jurisdictional High Court in thecase of CIT v. Sanghvi and Doshi " Enterprise 255 CTR(Mad) 156, wherein the Hon 'ble High Court has observedin the provisions nowhere requires that the developerare owner of the land under section 80111(10),Therefore, the ownership is not an essential conditionto get the benefit under section 801.600). In thiscase, the assessee being a developer as well as builderis entitled for deditction under section 801B (1 0) ofthe Act. possession of the land was taken, developed the area aswell as carried out construction. Similar view has beentaken by the Hon'ble Jurisdictional High Court in thecase of CIT v. Sanghvi and Doshi " Enterprise 255 CTR(Mad) 156, wherein the Hon 'ble High Court has observedin the provisions nowhere requires that the developerare owner of the land under section 80111(10),Therefore, the ownership is not an essential conditionto get the benefit under section 801.600). In thiscase, the assessee being a developer as well as builderis entitled for deditction under section 801B (1 0) ofthe Act. 25. Another objection raised by the AssessingOfficer is with regard to built up area. In theassessment order, the Assessing Officer has noted thatif private terrace is included in the built up area, itexceeds more than 1500 sq ft. and therefore, theassessee is not eligible for deduction under section80113(1 0). Further, he has relied on the decision of1TAT Chennai Bench in the case of Sanghvi and DoshiEnterprise. The Id. CIT(Appeals) in his order at pageNos. 36 to 39 has meticulously calculated the built uparea. According to the Id. CIT(Appeals), the totalbuilt up area of each residential unit is 1465.03 sqft. He has observed that there is nothing built and itis an open space, such space cannot be included in thebuilt up area without a specific provision in thatregard. Therefore, he has held that open terrace is notto be included in the built up area and accordingly,the claim of the assessee was to be allowed. At thetune of argument, the Id. DR has pointed that openterrace should be included in the built up are and thesame was considered by the Tribunal in the case ofSanghvi & Doshi Enterprise, the same very 1TAT orderhas been followed by the Assessing Officer. We findthat the same issue has came up for considerationbefore the Hon'ble Jurisdictional High Court in thecase of Sanghvi and Doshi Enterprise 255 CT]? (Mad)156, wherein the Honsble High Court has observed thatopen terrace area could not be the subject matter ofinclusion as built up area to deny the benefit undersection of the Act. Further, the Honsble JurisdictionalHigh Court in another case C'IT v. Mahalakshmi Housing(supra), the Hon'ble High Court has. observed that "asper the issue in respect of inclusion of open terracearea within the built up area is concerned, the Courthas already held the issue against the Revenue and thedecision rendered in T.C.A No. 581 of 2008,1186 of 2008and 136 of 2009 the case of M/s. Ceebros Hotels Private Limited v. DCIT dated 19.10.2012 and accordingly, theorder of the Tribunal on this issue is set aside. Theassessee's appeal viz. T.C.A. No. 318 of 2012, standsallowed holding that open terrace area cannot form partof built up area and the assessee would be entitled todeduction under section., 801B(10) of the Act. Keepingin view of the facts and circumstances and the decisionof the Hon'ble 'Jurisdictional High Court andrespectfully following the same, the open terrace areacould not. be included in the built up area for thepurpose of benefit under section 801B(10) of the Act.The Id. CIT(Appeals) has elaborately discussed theissue in his order at page Nos. 36 to 39 and held thatthe open -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 find anyreason to interfere withthe order passed by the Id.CI77Appeals) and dismiss the grounds raised by theRevenue. In view of the facts and circumstances of thecase, materials placed on record as well as from theorder of the Id. CIT(Appeals), we are of the consideredopinion that the assessee is a developer and builder ofhousing project and he has complied with all conditionslaid down under section 80IB(10) and thus, he iseligible for deduction under section 80IB(10) of theAct and confirm the order passed by the ld.CIT(Appeals)4çpro tanto. Accordingly, the appeal filed by theRevenue is dismissed. " 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. Mrs. Sri Niranjani Srinivasan, learned counsel appearingfor the respondent-assessee submitted that in view of thedecisions of the Madras, Bombay and Gujarat High Courts, thequestions of law may be decided against the Revenue and theappeal may be dismissed. 5. In view of the submissions made by the learned counsel on either side, following the ratio laid down in (2013) 255 CTR(Madras) 156 [ cited supra], 2013) 353 ITR 356 (Bombay) [ citedsupra] 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 Registrar Rj To 1.The Income Tax Appellate Tribunal, Chennai,"C" Bench. Chennai,"C" Bench. 2.The Commissioner of Income Tax Appeal V Chennai-34. Appeal V Chennai-34. 3.The Assistant Commissioner of Income Tax Business Circle -IV, Chennai. Business Circle -IV, Chennai. +1cc to Mr.M.Swaminathan, Advocate, S.R.No.27818+1cc to Mr.M.P.Senthilkumar, Advocate, S.R.No.27922 T.C.A.No. 753 of 2014 NRJK(CO)SB(20/07/2021)