The Commissioner Of Income Tax, Chennai v. Shri S. Muthu Palaniappan,Chettinadu Housing

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR.JUSTICE M. DURAISWAMYANDTHE HON'BLE MR.JUSTICE KRISHNAN RAMASAMY T.C.A.No.209 of 2015 The Commissioner of Income Tax, Chennai. ... Appellant /Appellant vs. Shri S. Muthu Palaniappan,Chettinadu Housing No.1,9th Avenue, Ashok Nagar,Chennai - 600 083.PAN : AAQPP 7494 P... Respondent /Respondent Appeal preferred under Section 260A of the Income TaxAct, 1961, against the order of the Income Tax AppellateTribunal, Chennai, "B" Bench, dated 12.11.2013 inI.T.A.No.1650/Mds/2012 for the Assessment Year 2009-2010. Order passed by the Commissioner of Income Tax Appeals – VIII,Chennai in ITA.119/11-12(A)- VIII dated 22.05.2012 against theAssistant Commissioner of Income Tax Business Circle IV,Chennai – 34 in PAN AAQPP746P dated 28/12/2011. For Appellant : Mr. M. Swaminathan Senior Standing CounselFor Respondent : Mr. G. BaskarJUDGMENT (Judgment was delivered by M. DURAISWAMY, J.) Challenging the order passed in I.T.A.No.1650/Mds/2012in respect of the Assessment Year 2009-2010 on the file ofthe Income Tax Appellate Tribunal, Chennai, "B" Bench (forbrevity, the Tribunal), the Revenue has filed the aboveappeal. 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 which can beaccessed only through the private balcony ofthe individual purchaser should not beincluded while computing the built up area forhttps://hcservices.ecourts.gov.in/hcservices/purpose of claiming 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 day onwhich the layout was approved , viz.,22.9.2003, but the time limit was to bereckoned from the date on which the buildingplan approval was obtained for the last timei.e. 29.3.2007? (iii) Whether on the facts andcircumstances of the case, the Income TaxAppellate Tribunal was accepting thecompletioncertificateissuedbythePallikaranai Panchayat Union without insistingon the completion certificate of the ChennaiMetropolitan Development Authority, who hadoriginally sanctioned the layout plans? (iv) Is not the finding of the Tribunalwrong by holding that the open terrace areawhich cannot be accessed by anybody except theowner of the unit that the private balcony isnot to be taken into account while computingthe built up area for the purpose of claimingu/s 801B(10)?" 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:- (iv) Is not the finding of the Tribunalwrong by holding that the open terrace areawhich cannot be accessed by anybody except theowner of the unit that the private balcony isnot to be taken into account while computingthe built up area for the purpose of claimingu/s 801B(10)?" 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:- “ 20. The first point for our consideration iswhether the building project of the assessee is anhousing project or not for the purpose of section80lB(10) of the Act. The word 'housing project’ isneither defined in section 2 of the Income Tax Actnor in section 80IB(10) of the said Act. It has tobe understood in common parlance, the expression’housing project means "constructing single buildingor a group of buildings consisting of severalresidential units". In this case, the assessee hadconceived project for development and constructionof independent houses. Accordingly, he entered intoan agreement with the land owners as well asprospective buyers and constructed 162 independenthouses. Therefore, in our opinion, the assesses’sproject is an housing project, which is within thehttps://hcservices.ecourts.gov.in/hcservices/ambit of section 80IB(10) of the Act. The Id. CIT (Appeals) has considered the issue elaborately inhis order [page 28 and 29]. Therefore, we do notfind any infirmity in the order of the Id. CIT(Appeals) and the ground raised by the Revenuestands dismissed. (Appeals) has considered the issue elaborately inhis order [page 28 and 29]. Therefore, we do notfind any infirmity in the order of the Id. CIT(Appeals) and the ground raised by the Revenuestands dismissed. 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.The assessee, initially entered into an agreementdated 15.06.2004 with 17 land owners to develop theland to the extent of 7.11 acres and built housingproject on a layout, which has already been approvedby the CMDA and paid advance of Rs.86,05000/-.Thereafter, the assessee has developedroads, parks,play areas, etc. The assessee has applied jarapproval of construction of 3 prototype houses andthe same was approved on by the PallikaranaiPanchayat and started negotiating with prospectivebuyers and after registration, the assessee hasconstructed independent house. The objection raisedby the Assessing Officer that the 3 prototype housesare not having] acre area of landand therefore heldthat the assessee is not eligible for deductionunder section 80IB(10) on the ground that plot mustbe in 1 acre of land This aspect .was considered bythe Id. CIT(Appeals) in detail in his order at page33 to 35. From the careful consideration of theassessment 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 havingan area of minimum- 1 acre or not. The size of theplot, as taken by the assessee, is 7..11 acres andafter developing roads, parks, play area, etc. theleft over area for construction of the house is3.675 acres. Therefore, the Assessing Officer wasnot correct in saying that the housing projectisnot on a plot of] acre area. The assessee hastaken 3 prototype houses and got it approved fromthe local authority and on the basis of that theassessee has pursued prospective buyers and enteredinto an agreement for' construction as well asselling of the land and completed the housingproject. The method adopted by the assessee isaccording to his business convenience and in ouropinion, the housing project is on the size of plotof land haying more than 1 acre and therefore, onthis account, the benefit available under section801B(10) cannot be denied and the projectconstructed by the assessee is in 1 acre of land andwe find, no reason to interfere with the order ofthe Id CIT(Appeals). Accordingly, the issue raisedhttps://hcservices.ecourts.gov.in/hcservices/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 TownPanchayat previously and Chennai Corporation now. Inthe 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 assesseehttps://hcservices.ecourts.gov.in/hcservices/got approval of building on various dates, the dale of 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 .para22 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 forhttps://hcservices.ecourts.gov.in/hcservices/the whole housing project contemplated by the assessee. 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. assessee. 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. 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 deniedhttps://hcservices.ecourts.gov.in/hcservices/on the ground that the. assessee is not the owner of the 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 tosell 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 behttps://hcservices.ecourts.gov.in/hcservices/allowed. At the tune of argument, the Id. DR has pointed 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 hascame up for consideration before the Hon'bleJurisdictional High Court in the case of Sanghvi andDoshi Enterprise 255 CT]? (Mad) 156, wherein theHonsble High Court has observed that open terracearea could not be the subject matter of inclusion asbuilt up area to deny the benefit under section ofthe Act. Further, the Honsble Jurisdictional HighCourt in another case C'IT v. Mahalakshmi Housing(supra), the Hon'ble High Court has. observed that"as per the issue in respect of inclusion of openterrace area within the built up area is concerned,the Court has already held the issue against theRevenue and the decision rendered in T.C.A No. 581of 2008,1186 of 2008 and 136 of 2009 the case ofM/s. Ceebros Hotels Private Limited v. DCIT dated19.10.2012 and accordingly, the order of theTribunal on this issue is set aside. The assessee'sappeal viz. T.C.A. No. 318 of 2012, stands allowedholding that open terrace area cannot form part ofbuilt up area and the assessee would be entitled todeduction under section., 801B(10) of the Act.Keeping in view of the facts and circumstances andthe decision of the Hon'ble 'Jurisdictional HighCourt and respectfully following the same, the openterrace area could not. be included in the built uparea for the purpose of benefit under section 801B(10) of the Act. The Id. CIT(Appeals) haselaborately discussed the issue in his order at pageNos. 36 to 39 and held that the open -terrace areaare not to be included in the built up area anddecided the issue in favour of the assessee.Keeping in view of above decisions of Hon'bleJurisdictional High Court, we do not find any reasonto interfere withthe order passed by the Id.CI77Appeals) and dismiss the grounds raised by theRevenue. In view of the facts and circumstances ofthe case, materials placed on record as well as fromthe order of the Id. CIT(Appeals), we are of theconsidered opinion that the assessee is a developerand builder of housing project and he has compliedwith all conditions laid down under section 80IB(10)and thus, he is eligible for deduction under section80IB(10) of the Act and confirm the order passed bythe ld.CIT(Appeals) 4çpro tanto. Accordingly, theappeal filed by the Revenue is dismissed. " Further, the learned Senior Standing Counsel submitted thatthe above questions of law were also decided against thehttps://hcservices.ecourts.gov.in/hcservices/Revenue 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 therespondent-assessee submitted that in view of the decisionsof 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 RegistrarRjTo 1.The Income Tax Appellate Tribunal, Chennai,"B" Bench. Chennai,"B" Bench. 2.The Commissioner of Income Tax Appeals VIII, Chennai. Chennai. 3.The Assistant Commissioner of Income Tax Business, Circle -IV, Chennai – 34. Circle -IV, Chennai – 34. 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 RegistrarRjTo 1.The Income Tax Appellate Tribunal, Chennai,"B" Bench. Chennai,"B" Bench. 2.The Commissioner of Income Tax Appeals VIII, Chennai. Chennai. 3.The Assistant Commissioner of Income Tax Business, Circle -IV, Chennai – 34. Circle -IV, Chennai – 34. +1cc to Mr. M.Swaminathan, Advocate, S.R.No. 24547+1cc to Mr. G.Baskar, Advocate, S.R.No. 24803+1cc to Mr. G.Baskar, Advocate, S.R.No. 24803 PVS(CO)GN(06/07/2021)