The Commissioner Of Income Taxchennai v. Shri.subba Reddy (Huf)"Sukriti"

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.01.2015 Coram The Honourable Mr.JUSTICE R.SUDHAKARandThe Honourable Mr.JUSTICE R.KARUPPIAH Tax Case (Appeal) No.139 of 2009 The Commissioner of Income TaxChennai. .... Appellant Vs. Shri.Subba Reddy (HUF)"Sukriti"19/1, 3rd Cross Street,R.A.Puram, Chennai - 600 028. .... Respondent APPEAL under Section 260-A of the Income Tax Act against theorder dated 28.03.2008 made in I.T.A.No.1230/Mds/2007 on the file ofthe Income Tax Appellate Tribunal, 'A' Bench for the assessment year2004-05 and against the order dated 22.02.2007 made in ITA No.113/06-07 on the file of the Commissioner of Income Tax appeals-I, Chennai34, and against the order dt. 18.12.2006 made in 203-S/AACHC 2523G onthe file of the Assistant Commissioner of I.T Central Circle IV(3),108, MG Road, Chennai-34. For Appellant : Mr.T.Ravikumar Standing Counsel for Income TaxFor Respondent : Mr.S.Sridhar J U D G M E N T (Judgment of the Court was delivered by R.SUDHAKAR,J.)This Tax Case (Appeal) has been filed by the Revenue as againstthe order of the Income Tax Appellate Tribunal relating to theassessment year 2004-05. At the time of admission, the followingsubstantial questions of law were admitted by this Court forconsideration: "1. Whether on the facts and circumstances of thecase, the Tribunal was right in holding that as theprovision is violated only on the 7th floor of thebuilding, proportionate deduction under Section 80-IB(10) is to be allowed? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether on the facts and circumstances of thecase, the Tribunal was right in granting partialexemption where one of the conditions of grantingexemption is that the residential units should be lessthan 1500 sq.ft.?" 2. In the course of the hearing before this Court, learnedStanding Counsel appearing for the Revenue sought permission toreframe the questions of law, since the questions admitted by thisCourt did not project the issues fully. Hence, after hearing thelearned counsel appearing for the assessee, who had no seriousobjection for re-framing the questions, the following substantialquestions of law, as reframed, arise for consideration: "1. Whether on the facts and circumstances of thecase, the Tribunal was right in allowing the benefit ofclaim under Section 80IB(10) when the assessee is not adeveloper, but only a builder, when the eligibility todeduction under Section 80IB(10) is conferred fordeveloping and building housing projects?2. Whether on the facts and circumstances of thecase, the Tribunal was right in holding that car parkarea could not be taken as built up area of theresidential unit for the purpose of computing deductionunder Section 80IB(10)?" "1. Whether on the facts and circumstances of thecase, the Tribunal was right in allowing the benefit ofclaim under Section 80IB(10) when the assessee is not adeveloper, but only a builder, when the eligibility todeduction under Section 80IB(10) is conferred fordeveloping and building housing projects?2. Whether on the facts and circumstances of thecase, the Tribunal was right in holding that car parkarea could not be taken as built up area of theresidential unit for the purpose of computing deductionunder Section 80IB(10)?" 3. The assessee, who is a promoter, has claimed deduction underSection 80IB(10) of the Income Tax Act on the housing project, whichwas denied by the Assessing Officer on two counts, viz., (i) theassessee had not developed the flats and (ii) out of 66 flatsconstructed, the 'built-up area' of 25 flats exceeded the prescribedmaximum limit of 1500 sq.ft., if we include the car park area of 220sq.ft. sold to these 25 flat owners. The reasoning of the AssessingOfficer reads as follows:"It is obvious that the ground floor has beenexclusively constructed to accommodate the cars. The carpark is allotted to the buyer of flat with a cleardemarcation of the location and a specification ofdimension. The value of the car park is fixed for eachflat and is paid for. The right to car parks has beenconveyed through proper deeds. The use of car park is forthe exclusive purposes of the buyer of flat. The car parkis not meant for others use. The car prk is covered onthe top and on one or two of its sides. For these reasonsthe car parks of this project are taken as built up area.Since builtup area of half of the flats have exceeded thestipulated extent of 1500 sq.ft., the assessee looses hiseligibility to claim deduction u/s 80IB(10) on this scorealso. The spirit of the section is to encourage housingprojects for the low and middle income group of the population. The section has specified the builtup area asone of the scales to judge the eligibility of the projectfor the deduction. When the assessee fails the test thewhole of the project looses its eligibility. There is noscope for proportionate allowance of deduction." 4. On appeal by the assessee, the Commissioner of Income Tax(Appeals) following the earlier order dated 21.2.2007 in ITANo.115/06-07 allowed deduction under Section 80IB(10) holding thatprovisions of Section 80IB(10) do not warrant the ownership of land.With regard to the issue on car park area, the Commissioner ofIncome Tax (Appeals) held that there is no definition for the term'common area' in the Income Tax Act. Further, relying on thedefinition found in TN Apartment Ownership Act, which states that'car park area' has to be treated as common area, the Commissioner ofIncome Tax (Appeals) held that car park area should not be held asprivate area. Accordingly, the Commissioner of Income Tax (Appeals)held that the assessee had not come under any of the disqualificationprescribed under Section 80IB(10) of the Income Tax Act and alloweddeduction under Section 80IB(10) of the Income Tax Act. 5. On the appeal filed by the Revenue before the Tribunal, theTribunal confirmed the findings of the Commissioner of Income Tax(Appeals). Aggrieved by the same, the Revenue is before this Court. 5. On the appeal filed by the Revenue before the Tribunal, theTribunal confirmed the findings of the Commissioner of Income Tax(Appeals). Aggrieved by the same, the Revenue is before this Court. 6. As far as the first substantial question of law is concerned,both the learned Standing Counsel appearing for the Revenue and thelearned counsel appearing for the assessee submitted that firstquestion of law is covered by a decision of this Court dated02.11.2012 in T.C.(A)Nos.137 and 138 of 2009, wherein, the DivisionBench of this Court following the earlier decision of this Courtdated 19.10.2012 in T.C.Nos.581 and 1186 of 2008 and 136 of 2009 heldthat for the purpose of claiming deduction, it is not necessary thatthe assessee, who is engaged in the business of developing andconstruction of housing project, should be the owner of the land. 7. Accordingly, following the above-said decision, the firstsubstantial question of law is answered against the Revenue and infavour of the assessee. 8. With regard to the second substantial question of law thatwhether the built-up area of the residential unit is inclusive of carpark area, learned Standing Counsel appearing for the Revenuesubmitted that the assessee had allotted the car park to the buyer offlat with a clear demarcation of the location and a specification ofdimension. He further submitted that the use of car park is theexclusive purposes of the buyer of the flat and hence, the car parkshould not be treated as common area. As per Section 80IB(10) of theIncome Tax Act, when the residential unit has exceeded the maximumbuilt-up area of 1500 sq.ft., then the entire project will not be eligible for exemption under Section 80IB(10). In the present case,the built-up area exceeds 1500 sq.ft. as per the specification givenby the assessee. He also submitted that for the assessment year inquestion, 2004-05, there is no definition for 'built-up area'. Onlywith effect from 01.04.2005, the definition for the term 'built-up'area was inserted under Section 80IB(14)(a) of the Income Tax Act.Hence, the Tribunal is not justified in allowing deduction relying onthe definition under Section 80IB(14)(a), which is applicable fromthe assessment year 2005-06. 9. Learned counsel appearing for the assessee submitted thatwhen there is no definition for the term 'built-up area' for theassessment year in question, the Commissioner of Income Tax (Appeals)relied on the definition for the term 'common area and facilities'defined in the Tamil Nadu Apartment Ownership Act, 1994. The saidAct was notified in the Tamil Nadu Government Gazette(Extraordinary) dated 24th April, 1995. He further submitted thateven though Section 80IB(14)(a) of the Income Tax Act defining theterm 'built-up area' is not available for the assessment year inquestion, when at the time of deciding the issue the definition isavailable, the Tribunal is justified in relying on the definition ofthe term 'built-up area' provided under Section 80IB(14)(a) of theIncome Tax Act. 10. Heard learned Standing Counsel appearing for the Revenue andthe learned counsel appearing for the assessee and perused thematerials placed before this Court. 11. Before going into the merits of the case, it is necessary tolook into the relevant provisions, viz., 80IB(10) and the definitionfor the term 'built - up area' under Section 80IB(14)(a) of theIncome Tax Act, which read as follows: 10. Heard learned Standing Counsel appearing for the Revenue andthe learned counsel appearing for the assessee and perused thematerials placed before this Court. 11. Before going into the merits of the case, it is necessary tolook into the relevant provisions, viz., 80IB(10) and the definitionfor the term 'built - up area' under Section 80IB(14)(a) of theIncome Tax Act, which read as follows: "Deduction in respect of profits and gains from certainindustrial undertakingsother than infrastructure development undertakings.80-IB (10) The amount of deduction in the case of anundertaking developing and building housing projectsapproved before the 31st day of March, 2007 by a localauthority shall be hundred per cent of the profits derivedin the previous year relevant to any assessment year fromsuch housing project if,—(a) such undertaking has commenced or commences developmentand construction of the housing project on or after the 1stday of October, 1998 and completes such construction,—(i) in a case where a housing project has been approved bythe local authority before the 1st day of April, 2004, on orbefore the 31st day of March, 2008; (ii) in a case where a housing project has been, or, isapproved by the local authority on or after the 1st day ofApril, 2004, within four years from the end of the financial year in which the housing project is approved by the localauthority.Explanation.—For the purposes of this clause,—(i) in a case where the approval in respect of the housingproject is obtained more than once, such housing projectshall be deemed to have been approved on the date on whichthe building plan of such housing project is first approvedby the local authority;(ii) the date of completion of construction of the housingproject shall be taken to be the date on which thecompletion certificate in respect of such housing project isissued by the local authority; (b) the project is on the size of a plot of land which has aminimum area of one acre:Provided that nothing contained in clause (a) or clause (b)shall apply to a housing project carried out in accordancewith a scheme framed by the Central Government or a StateGovernment for reconstruction or redevelopment of existingbuildings in areas declared to be slum areas under any lawfor the time being in force and such scheme is notified bythe Board in this behalf; (c) the residential unit has a maximum built-up area of onethousand square feet where such residential unit is situatedwithin the city of Delhi or Mumbai or within twenty-fivekilometres from the municipal limits of these cities and onethousand and five hundred square feet at any other place;and(d) the built-up area of the shops and other commercialestablishments included in the housing project does notexceed five per cent of the aggregate built-up area of thehousing project or two thousand square feet, whichever isless......................80 IB (14) For the purposes of this section,— (a) “built-up area” means the inner measurements of theresidential unit at the floor level, including theprojections and balconies, as increased by the thickness ofthe walls but does not include the common areas shared withother residential units" 12. It is seen that car park has been separately shown in theagreement and according to the assessee, the same does not form partof the residential unit for the purpose of determining the maximumbuilt-up area, in view of the definition for the term 'built-up area'came into effect from 01.04.2005. The Commissioner of Income Tax(Appeals) relied upon the provisions of the Tamil Nadu ApartmentOwnership Act, 1994 , wherein Section 3(h) defines the term 'commonareas and facilities' in which clause 3 states that the basements,cellars, yards, gardens, parking areas and storage spaces are common areas. Hence, following the said provision, the Commissioner ofIncome Tax (Appeals) allowed deduction. 12. It is seen that car park has been separately shown in theagreement and according to the assessee, the same does not form partof the residential unit for the purpose of determining the maximumbuilt-up area, in view of the definition for the term 'built-up area'came into effect from 01.04.2005. The Commissioner of Income Tax(Appeals) relied upon the provisions of the Tamil Nadu ApartmentOwnership Act, 1994 , wherein Section 3(h) defines the term 'commonareas and facilities' in which clause 3 states that the basements,cellars, yards, gardens, parking areas and storage spaces are common areas. Hence, following the said provision, the Commissioner ofIncome Tax (Appeals) allowed deduction. 13. In the absence of any specific definition for the term'built-up area' during the relevant period, the reasoning of theCommissioner of Income Tax (Appeals), which was confirmed by theTribunal is justified. Nevertheless, we find that Section 80IB(10)of the Income Tax Act speaks about the residential unit having amaximum built-up area of 1500 sq.ft. to claim deduction. Even in thedefinition under Section 80IB(14)(a), which came into effect from01.04.2005, "built-up area" was defined as inner measurements of theresidential unit at the floor level, including the projections andbalconies, as increased by the thickness of the walls, meaningthereby, the actual residential portion of the property. It,however, clearly states that it will not include common area sharedwith other residential units. Hence, the definition under Section80IB(14)(a), could, at best, throw some light as to how the built-uparea of the residential unit should be computed for the purpose ofdetermining deduction under Section 80IB(10) of the Income Tax Act. 14. From a reading of the above-said provisions, we find thatthere is no justification in including the car park in the definitionof the built-up area of the residential unit for the purpose ofdetermining the maximum built-up area. In such view of the matter,we are inclined to accept the reasoning of the Commissioner of IncomeTax (Appeals) drawing support from the Tamil Nadu Apartment OwnershipAct, 1994, which was confirmed by the Tribunal. Accordingly, thesecond substantial question of law is answered against the Revenueand in favour of the assessee. 15. In the light of the above-said discussion, we reject theRevenue's appeal on all the grounds and hold that the Tribunal hadrightly granted the relief to the assessee. In the result, this Tax Case (Appeal) stands dismissed. Nocosts. //True Copy// Sd/-Assistant RegistrarSub Assistant Registrar sl https://hcservices.ecourts.gov.in/hcservices/ To 1. The Income Tax Appellate Tribunal, 'A' Bench. 2. The Commissioner of Income Tax (Appeals) I, Chennai– 600 034. 3. The Assistant Commissioner of Income Tax, Central Circle IV(3), Chennai - 34. Central Circle IV(3), Chennai - 34. 4.The Commissioner of Income Tax, Chennai. + 1 cc to Mr.S. Sridhar, Advocate SR.4024 + 1 cc to Mr.T. Ravikumar, Advocate Sr.3855 T.C.(A) No.139 of 2009 KM(CO)Eu 10.02.15