Deduction under section 80-IB(10) towards Income from developing and building housing project if developer is not owner of land

 

Merely because the land was held by the original owner when the housing development project was executed, the same would not be detrimental to the assessee’s claim of deduction under section 80-IB(10).

Assessee was engaged in the business of housing development. It had claimed deduction in respect to income arising out of such activity under section 80-IB(10). AO disallowed the claim of assessee on the ground that assessee was not the owner of land and approval of project was not in the name of assessee.

It was clearly held that Assessee undertook the development of housing project at its own risk and cost. The owner of the land had accepted the full price of the land and was not concerned with the successor or failure of the housing project. Thus, merely because the land was held by the original owner when the housing development project was executed, the same would not be detrimental to the assessee’s claim of deduction under section 80-IB(10).

Decision: In assessee’s favour.

Referred: Pr. CIT v. Green Associates 2018 Tax Pub(DT) 6438 (Guj-HC) and CIT v. Radhe Developers (2012) 341 ITR 403 (Guj).

IN THE GUJARAT HIGH COURT

AKIL KURESHI & B.N. KARIA, JJ.

Pr. CIT v. Green Associates

R/Tax Appeal No. 1199 of 2018

8 October, 2018

Petitioner(s) by: Varun K. Patel, Advocate

Akil Kureshi, J.

Revenue has filed this appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad “B” Bench, Ahmedabad [“Tribunal” for short] dated 13-2-2018. The following questions are framed for our consideration :–

“(A) Whether on the facts and in the circumstances of the case, the ITAT has erred in law and on facts in allowing the assessee the deduction under section 80-IB(10) of the Act after treating the assessee as a developer of the Housing Project even though the project as a whole was not primarily developed and build by the assessee itself and the assessee has sold merely the residential plots and rest of the work has been completed by it as a contractor of the plot purchasers, rendering it ineligible for deduction under section 80-IB(10) of the Act?

(B) Whether on the facts and in the circumstances of the case the ITAT has erred in law and on facts in allowing the assessee the deduction under section 80-IB(10) of the Act by ignoring the fact that 70% of the sale proceeds of the project were the work contract receipts and no entrepreneurial and investment risk was taken by the assessee in respect of the project and therefore it cannot be held that the project as a whole has been developed and build by the assessee so as to make it eligible for deduction under section 80-IB(10) of the Act as a developer of the Housing Project?”

Counsel for the Revenue candidly pointed out that in case of this very assessee for the earlier assessment year, Tax Appeals No. 1154 and 11545 of 2018 raising similar questions came to be dismissed. Following observations may be noted from the Order dt. 17-9-2018, dismissing such appeals —

“3. The respondent is engaged in the business of housing development. For the assessment year 2010-11, the assessee had claimed deduction in respect to the income arising out of such activity under section 80-IB(10) of the Income Tax Act. The assessing officer disallowed the claim mainly on the ground that the assessee was not the owner of the land and the approval of the project was not in the name of the assessee. The issue ultimately reached the Tribunal where the Revenue also contended that the assessee had not sold the residential spouse in the housing project but had sold the residential plots with construction upto plinth level. The assessee therefore cannot be considered as a developer of a housing project but was mere a contractor. The Tribunal followed its earlier judgment in case of similar assessee and confirmed the decision of Commissioner (Appeals) allowing the claim.

4. Various issues arising out of the claim of different assesses under section 80-IB(10) of the Act came to be thrashed out by a Division Bench judgment of this Court in case of Commissioner of Income Tax v. Radhe Developers, reported in (2012) 341 ITR 403 (Guj) : 2012 TaxPub(DT) 0262 (Guj-HC). The Court took note of various development agreements executed by the assessee in favour of individuals claiming that they had been engaged in the activity of housing development. Revenue’s contention, that the nature of activities carried on by the assessees would only qualify them to be the contractors executing works contract, was also considered. It was held that the assessee had undertaken the development of housing project at their own risk and cost. The owner of the land had accepted the full price of the land. He was therefore not concerned with the successor or failure of the housing project. In such background, reference was made to the definition of term “transfer” under section 2(47) of the Act and held that merely because the land was held by the original owner when the housing development project was executed, would not be detrimental to the assessee’s claim of deduction under section 80-IB(10) of the Act.”

In the result, this Tax Appeal is also dismissed.