CIT vs. RENAISSANCE BULID HOME PVT. LTDL

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ITA/21/2014HC RajasthanRJHC02036287201413 September 201716 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the assessee is a builder and developer and cannot be termed as a works contractor for the purpose of invoking the Explanation below Section 80IB(10) of the Act. The Tribunal's decision to allow the deduction under Section 80IB(10) was upheld. The Court reasoned that the contract with CGEWHO was for the development and sale/transfer of fully operational dwelling units on a turnkey basis. The transfer of land was for performance security and did not alter the assessee's status from a builder/developer to a works contractor. The assessee had full control and bore the risks and costs of developing the housing project before handing over possession. The Court noted that CGEWHO did not become the owner on a brick-to-brick basis. Since the assessee agreed to be assessed on the Percentage Completion method and had filed the requisite audit report, it was entitled to the deduction under Section 80IB(10) in terms of CBDT Instruction No. 4/2009. The orders of the CIT(A) rejecting accounts and estimating income were not interfered with, as the deduction was allowed. The issue was answered in favour of the assessee and against the department.

What were the facts?

The assessee, Renaissance Buildhome Pvt. Ltd., filed returns declaring a loss and claiming a refund. The Assessing Officer (AO) issued a notice under Section 148 as the refund was claimed based on tax deducted at source without declaring corresponding income. The assessee requested the existing return be treated as valid. The AO disposed of the assessee's objections. The appeals before the High Court challenge the Tribunal's order, which partly allowed the assessee's appeal, reversing the orders of the CIT(A) and AO. The core of the dispute revolves around the assessee's eligibility for deduction under Section 80IB of the Income Tax Act, 1961, concerning a housing project developed in conjunction with the Central Government Employees Welfare Housing Organization (CGEWHO).

What were the issues?

1. Whether the Tribunal was justified in reversing the orders of the CIT(A) and AO and allowing the benefit of deduction under Section 80IB of the Act to the assessee, despite the explanation to Section 80IB(10) which states the deduction is not applicable to execution of a housing project as a work contract awarded by any person, and whether the assessee's work falls within the parameters of a work contract? (Question of law and mixed fact and law, turning on Section 80IB(10)). Assessee's Contention: The assessee argued that it acted as a builder and developer, not a works contractor. It relied on the case of CIT vs. Radhe Developers (2012) 341 ITR 403 (Guj.) which held that land ownership is not a necessary ingredient for a developer. The assessee also pointed to the contract with CGEWHO being a turnkey project for development and sale/transfer of housing units, where the transfer of land was for performance security and not a sale. The assessee agreed to be assessed on the Percentage Completion method and had furnished the requisite audit report, making it eligible for deduction under Section 80IB(10) as per CBDT Instruction No. 4/2009. Revenue's Contention: The revenue contended that the assessee's activities constituted a work contract, thereby disentitling it from the deduction under Section 80IB(10) due to the explanation to the section.

Which sections of the Income-tax Act were involved?

Section 80IB,Section 80IB(10),Section 148

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 21 / 2014 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj) ----Appellant Versus Renaissance Buildhome Pvt. Ltd., 6-D, Corporate Tower, A-2, Jawahar Lal Nehru Marg, Jaipur. ----Respondent Connected With D.B. Income Tax Appeal No. 22 / 2014 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj) ----Appellant Versus Renaissance Buildhome Pvt. Ltd., 6-D, Corporate Tower, A-2, Jawahar Lal Nehru Marg, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS

Judgment 13/09/2017

1.

In both these appeals common question of law and facts are involved hence they are decided by this common judgment.

2.

By way of these appeals, the appellant has assailed the judgment and order of the tribunal whereby Tribunal has partly allowed the appeal of the assessee.

(2 of 16) [ITA-21/2014]

3.

This court while admitting the appeals (21/2014) & (22/2014) on 15.9.2015 framed following substantial question of law:- “(i) Whether the Tribunal was justified in reversing the orders passed by CIT(A) as well as the Assessing Officer and allowing the benefit of deduction u/s 80IB of the Act to the assessee, ignoring the specific explanation to Sec. 80IB(10) of the Act, which provides that the said deduction is not applicable in respect of execution of housing project as a work contract awarded by any person and in the present case the work carried by the assessee duly falls within the parameters of work contract?”

4.

The facts of the case are that assessee a private limited company and filed return declaring loss of Rs.4,25,107/-. It had claimed refund of Rs.61,94,160/-. Since the refund was claimed on account of credit of tax at source deducted by Central Government Employees Welfare Housing Organization (hereinafter to be referred as CGEWHO) and asseesee did not declare any corresponding receipt or income in its return of income, the Assessing Officer issued a notice u/s 148 of the Income Tax Act, 1961 on 1.7.2010. In response thereto, the assessee filed a letter dt 4.8.2010 stating that the return already filed may be treated as a valid return in response to such notice. The assessee’s objection to the issuance of notice were disposed of by the Assessing Officer vide order dt. 9.12.2011. 5. The tribunal while considering the matter has relied upon the decision rendered in the case of The Commissioner of Income

(3 of 16) [ITA-21/2014]

Tax-I vs. Radhe Developers (2012) 341 ITR 403 (Guj.) wherein it has been held as under:-……

32.

Section 80IB(10) of the Act thus provides for deductions to an undertaking engaged in the business of developing and constructing housing projects under certain circumstances noted above. It does not provide that the land must be owned by the assessee seeking such deductions.

34.

We have reproduced relevant terms of development agreements in both the sets of cases. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development

projects.

Under the agreements, the assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work. Assessee would enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence.

36.

We have noted at some length, the relevant terms and conditions of the development agreements between the assessees and the land owners in case of Radhe Developers. We also noted the terms of the agreement of sale entered into between the parties. Such conditions would immediately reveal that the owner of the land had received part of sale consideration. In lieu thereof he had granted development permission to the assessee. He had also parted with the possession of the land. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. It was specified that the assessee would bring in technical knowledge and skill required for execution of such project. The assessee had to pay the fees to the Architects and Engineers. Additionally, assessee was also authorized to appoint any other Architect or (4 of 16) [ITA-21/2014]

Engineer,

legal

adviser

and other professionals. He would appoint Sub- contractor or labour contractor for execution of the work. The assessee was authorized to admit the persons willing to join the scheme. The assessee was authorised to receive the contributions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. In case, for some reason, the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the full FSI as per the existing rules and regulations. However, in future, rules be amended and additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use as agreed between the parties. The assessee had full authority and also responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting

members,

carrying

out modifications engaging professional agencies and so on. Most significantly, the risk

(5 of 16) [ITA-21/2014]

element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed to pay off the land owner first before appropriating any part of the sale consideration of the housing units for his benefit. In short, assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk.

37.

By no stretch of imagination can it be said that the assessee acted only as a works contractor. The terms works contractor has been receiving judicial attention in several cases In the case of Commissioner of Income-Tax vs. Glenmark Pharmaceuticals Ltd. (supra), the Bombay High Court observed as under: Contract of work or a contract of sale

14.

The question as to whether a contract is a contract of work or a contract of sale is the subject-matter of precedents on the subject. The principles, as decided cases would show, are well defined but the application of those principles to individual cases often poses a difficulty. The consistent line of thinking that emerges from the decided cases is that essentially, in determining as to whether a contract constitutes one for work or is a contract of sale, it is the dominant interest and object of the parties in entering into the contract, as evinced by the terms of the contract, the circumstances of the contract and the custom of the trade that provide a guiding indicator. The object of the parties is of necessity to be deduced from the terms of the contract. In order to elucidate the distinction which has been made, it would be necessary to turn to some of the authorities on the subject. While dealing with authorities it would be necessary to note that some of the decided cases deal with issues under sales tax legislation and many of those judgments relate to the period prior to the enactment of the Forty Sixth Amendment to the Constitution. The technicalities of sales

(6 of 16) [ITA-21/2014]

tax legislation, especially as a consequence of the Forty Sixth amendment do not fall for determination in this proceeding. The decided cases are being referred to only with a view to emphasise the distinction between a contract for work and a contract for sale.

15.

In Govt. of Andhra Pradesh v. Guntur Tobaccos Ltd. MANU/SC/0272/1964 : AIR 1965 SC 1396 : 16 STC 240, the Supreme Court held that in the execution of a contract of work some materials may be used and property in the goods so used passes to the other party. However, the contractor who undertakes to do the work will not necessarily be deemed on that account to sell the materials. The Supreme Court noted that a contract for work in the execution of which goods are used may take one of three forms. Those three forms were elaborated as follows( page 1404 of AIR 1965 SC 255 of 16 STC): The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price: it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work: or it may be a contract for work and use or supply of materials though not accessory to the execution of the contract is voluntary or gratuitous. In the last class there is no sale because though property passes it does not pass for a price. Whether a contract is of the first or the second class must depend upon the circumstances: if it is of the first: it is a composite contract for work and sale of goods: where it is of the second category, it is a contract for execution of work not involving sale of goods.

16.

In a subsequent decision in the State of Punjab and Haryana v. Associated Hotels of India Ltd. MANU/SC/0570/1972 : AIR 1972 SC 1131 : 29 STC 474, the Supreme Court held that a contract for sale is one whose main object is the transfer of property in, and the delivery of the possession of a chattel as a chattel to the buyer. Where the principal object of the work undertaken by the payee of the price is not the transfer of a chattel, the contract is one of work and (7 of 16) [ITA-21/2014]

labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of material, nor the value of the skill and labour as compared with the value of the material, is conclusive, though these circumstances may be taken into consideration in deciding whether a subsisting contract is a contract of work and labour or contract for a sale of a chattel. In Sentinel Rolling Shutters and Engineering Co. Pvt. Ltd. v. CST MANU/SC/0341/1978 : AIR 1978 SC 1747 : 42 STC 409 this principle was reiterated by the Supreme Court. In State of Tamil Nadu v. Anandam Viswanathan MANU/SC/0560/1989 :

AIR 1989 SC 962 : 73 STC 1, the contract in question involved supply and printing of question papers to universities. The assessee entered into those contracts for printing and the question involved was whether the taxable turnover for the purpose of the Tamil Nadu General Sales Tax Act, 1959 would include the printing and block making charges. The Supreme Court held that the contract in question was a contract of work, having regard to the nature of the job to be done and the confidence reposed in the contractor for work to be rendered. The supply of paper was merely incidental. More recently, in State of A.P.v. Kone Elevators (India) Ltd. MANU/SC/0118/2005 : (2005) 3 SCC 389 : (2005) 140 STC 22, the assessee was under the terms of contract required to supply and install lifts to its customers, while it was the customers' obligation to undertake work connected in keeping the site ready for installation. The Supreme Court noted that under its contractual obligations, the assessee had undertaken the installation of lifts manufactured and brought to site in a knocked-down state and the contract in question was a contract of sale and not a works contract. The distinction between a contract of sale and a works contract found elaboration

in the following observations( STC): If the intention is to transfer for a price a chattel in which the transferee had no previous property, then the contract is a contract for sale. Ultimately, the true effect

(8 of 16) [ITA-21/2014]

of an accretion made pursuant to a contract has to be judged not by artificial rules but from the intention of the parties to the contract. In a 'contract of sale', the main object is the transfer of property and delivery of possession of the property, whereas the main object in a 'contract for work' is not the transfer of the property but it is one for work and labour. Another test often to be applied is: when and how the property of the dealer in such a transaction passes to the customer: is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer' If it is the former, it is a 'sale'; if it is the latter, it is a 'works contract'. Therefore, in judging whether the contract is for 'sale' or for 'work and labour', the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provide a guide in deciding whether transaction is a 'sale' or a 'works contract'. Essentially, the question is of interpretation of the 'contract'. It is settled law that the substance and not the form of the contract is material in determining the nature of transaction.

17.

In Hindustan Shipyard Ltd. v. State of Andhra Pradesh (2000) 119 STC 533, the Supreme Court enunciated certain principles which were deduced from the decided cases on the distinction between the two concepts. The second, third and fourth principles laid down in the judgment of the Supreme Court, read thus (page 545): (2) Transfer of property of goods for a price is the linchpin of the definition of ' sale Whether a particular contract is one of sale of goods or for work and labour depends upon the main object of the parties found out from an overview of the terms of contract, the circumstances of the transaction and the custom of the trade. It is the substance of the contract document/s and not merely the form, which has to be looked into. The court may form an opinion that the contract is one whose main object is transfer of property in a chattel as a chattel to the buyer, though

(9 of 16) [ITA-21/2014]

some work may be required to be done under the contract as ancillary or incidental to the sale, then it is a sale. If the primary object of the contract is the carrying out of work by bestowal of labour and services and materials are incidentally used in execution of such work then the contract is one for work and labour. (3) If the thing to be delivered has only individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If A may transfer property for a price in a thing in which B had no previous property then the contact is a contract for sale. On the other hand where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. (4) The bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to a conclusion that the contract is in substance one for the sale of goods and not for the work and labour. However, the test is not decisive…'

18.

A contract for sale has hence to be distinguished from a contract of work. Whether a particular agreement falls within one or the other category depends upon the object and intent of the parties, as evidenced by the terms of the contract, the circumstances in which it was entered into and the custom of the trade. The substance of the matter and not the form is what is of importance. If a contract involves the sale of movable property as movable property, it would constitute a contract for sale. On the other hand, if the contract primarily involves carrying on of work involving labour and service and the use of materials is incidental to the execution of the work, the contract would constitute a contract of work and labour. One of the circumstances which is of relevance is whether the article which has to be delivered has an identifiable existence prior to its delivery to the purchaser upon the payment of a price. If the article has an identifiable existence prior to its delivery to the purchaser, and when the title to the (10 of 16) [ITA-21/2014]

property vests with the purchaser only upon delivery, that is important indicator to suggest that the contract is a contract for sale and not a contract for work. In India, the distinction between the two categories is elucidated by the Sales of Goods Act, 1930. Sub-section(1) of section 4 provides that a contract of the sale of goods is a contract, whereby a seller transfers or agrees to transfer the property in goods to the buyer for a price. Where under a contract of sale, the property in goods in transferred from the seller to the buyer, the contract is that of sale, but where transfer of property in the goods is to take place at a future time, or subject to some condition thereafter to be fulfilled, the contract is not a sale but is an agreement to sell. A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of the offer. Under section 5(1) the contract may provide for immediate delivery of the goods or immediate payment of the price or postponement of delivery or payment of the price by installments. In the case of State of Andhra Pradesh vs. M/s.Kone Elevators (India) Ltd. (supra),Apex Court observed as under:

5.

It can be treated as well settled that there is no standard formula by which one can distinguish a 'contract for sale' from a 'works-contract'. The question is largely one of fact depending upon the terms of the contract including the nature of the obligations to be discharged thereunder and the surrounding circumstances. If the intention is to transfer for a price a chattel in which the transferee had no previous property, then the contract is a contract for sale. Ultimately, the true effect of an accretion made pursuant to a contract has to be judged not by artificial rules but from the intention of the parties to the contract'. In a 'contract of sale', the main object is the transfer of property and delivery of possession of the property, whereas the main object in a 'contract for work' is not the transfer of the property but it is one for work and labour. Another test often to be applied to is: when and how the property of the dealer in such a transaction passes to the (11 of 16) [ITA-21/2014]

customer; is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer' If it is the former, it is a 'sale', if it is the latter, it is a 'works-contract'. Therefore, in judging whether the contract is for a 'sale' or for 'work and labour', the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a 'sale' or a 'works-contract'. Essentially, the question is of interpretation of the 'contract'. It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. No definite rule can be formulated to determine the question as to whether a particular given contract is a contract for sale of goods or is a works- contract. Ultimately, the terms of a given contract would be determinative of the nature of the transaction, whether it is a "sale" or a "works-contract". Therefore, this question has to be ascertained on facts of each case, on proper construction of terms and conditions of the contract between the parties.

38.

In the present case, as already held the assessee had undertaken the development of housing project at its own risk and cost. The land owner had accepted only the full price of the land and nothing further. The entire risk of investment and expenditure was that of the assessee. Resultantly, profit and loss also would accrue to the assessee alone. In that view of the matter, the addition of the Explanation

to Section 80IB with retrospective effect of 1.4.2001 would have no material bearing in the cases on hand. We may recall that the said Explanation introduced by Finance (No.2)Act, 2009 provided as under: (Explanation-For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any (12 of 16) [ITA-21/2014]

person (including the Central or State Government)).” 6. held as under:- “10. We are in respectful agreement with the view of the Gujarat High Court in Radhe Developer’s case (supra) that the deduction u/s 80IB(10) is available to an assessee who is engaged in the business of developing and building a housing project.

11.

The CIT(A) as also the ITAT have given concurrent findings of the fact that in the facts of the present case also risks and rewards relating to the project were on the assessee developer and not on the owner of the land. The deduction is available in case of developing and building housing project, and it is the respondent-assessee who are engaged in the business of developing and building housing project in question and therefore we do not find any merit in the submission made by the learned counsel for the appellant-revenue that the respondents- assessee were not eligible to the benefit u/s 80IB(10) of the Act, merely because the project was not approved in the name of respondents-assessee, but was in the name of the original land owner.”

7.

We have heard counsel for the parties.

8.

Taking into consideration the observations made by the tribunal which reads as under:- “19. We have heard parties with reference to material on record. On the ground of initiation of proceedings under section 147/148 of the Act, it is found that the assessing authority

(13 of 16) [ITA-21/2014]

after processing the return under section 143(1) of the Act and after expiry of statutory period for issuing notice under section 143(2) of the Act, cause and justification that income of the assessee had escaped assessment. He thus entertained a bonafide belief that income of the assessee has escaped from assessment as the receipts from contract on which tax at source has been deducted are not disclosed as income in the Profit & Loss account. In this view of the matter, we do not find any error in the order of Ld. CIT(A) in upholding the action taken by the assessing authority. The ground raised in appeal being deviod of any merit, the same stands rejected.

20.

On the issue of deduction under section 80IB(10) of the Act, we have perused the entire material on record with reference to the rival arguments. The covenants contained in the agreement dated 31.12.2008 placed at assessee’s paper book pages 18 to 33 and documents on record clearly reveal that the land on which the project under consideration was to come up was initially purchased by the appellant in his own name by making actual payment to the agriculturists. The land use from agriculture to residential use was also allowed to the appellant. A further division of plot into three projects was also permitted by the Jaipur Development Authority in the name of the appellant itself. The Deed of Transfer executed by the appellant and CGEWHO placed in assessee’s paper book pages 142 to 148 reveals that the Transfer of land in the name of CGEWHO is merely a part of development and delivery of the complete turnkey housing project and the same is necessitated as a security of performance obligation of assessee company as one of the conditions towards the complete turnkey group housing project. The terms and conditions in the tender and letter of intent have also been made a part and parcel of such Deed of Transfer. The perusal of definition of turnkey contract as contained in the Agreement placed in assessee’s paper book page 18, relevant page 22, it has been agreed and accepted by the parties that under a Turnkey Housing Contract, a fully functional complex has to be developed for the organization, on the land of the company

(14 of 16) [ITA-21/2014]

upto and including transferring and handing over the complete complex to the beneficiaries of the organization including fully operational dwelling units as per the specifications including land, development and specified common facilities to the beneficiaries of the organization, performing Defect rectification during the Defect Liability Period of 12 months extendable by another 12 months and obtaining completion certificates. It is scope of the work of the assessee company that complete planning, designing and approval of project plans, development of land and the housing project is to be carried out by the appellant and the appellant has agreed and undertaken to give possession of all the dwelling units and external services inclusive of all taxes levies etc. to the beneficial/ allottees of the organization. The appellant has laid on record the copies of letters according approval of building plans as well as occupancy certificate in his name by Jaipur Development Authority and the same were also a part of record of the authorities below. All these documents read together thus reveals that the appellant has entered into a contract with CGEWHO for development and sale/transfer of composite housing complex comprising of dwelling units and specified common facilities on a Turnkey basis which included providing of land, carrying out development etc. Merely the payment of stamp duty for transfer of land does not mean that the assessee had lost control and possession of the land that vested in him prior to execution of such transfer deed in favour of CGEWHO without receiving any sale consideration in lieu thereof, in particular when such a transfer was for a limited purpose of performance security only. The land under question remained in possession of the appellant prior to the date of such transfer deed as well as subsequent to that date till the housing project is completely constructed and possession is handed over by the appellant to the CGEWHO or its beneficial allottees in the composite turnkey contract and there is no separate consideration

for land

or development/contract or other constituents of turnkey project. The preamble of the contract is reproduced below:

(15 of 16) [ITA-21/2014]

“The composite obligations of the company in the said Turnkey Housing Project is to develop a Group Housing Project comprising of fully operational dwelling units as per agreed specifications along with common facilities as per the tender document forwarded by the organization vide its letter No. T-III/3 dt. 12.2.2007 and thereafter transfer the same in favour of the allottees of the organization. The perusal of the preamble clearly reveals that the contract under reference is a contract for development and sale/transfer of the fully operational dwelling units to the allottees of CGEWHO and going by this substance of the transaction, the transfer of land as a security for performance of the contract will not alter the status of the applicant from a builder and a seller to a works contractor, even though the ownership of land is not a necessary ingredient for a person to be termed as a developer in terms of judgment rendered by Hon’ble Gujarat High Court in the case of CIT vs. Radhe Developers (2012) 341 ITR 403 (Guj.). In the present case in appeal, the authorities below are found to have erred in holding that the appellant is a work contractor and did not appreciate the material fact that CGEWHO did not become owner of the property on a brick to brick basis. It is a case where is the appellant has first become the owner of the property during its formation and thereafter was to transfer the property to the CGEWHO/its allottees by way of handing over of the possession and executing a joint deed in that regard. Before the delivery of the possession to the allottees, the assessee had full right to develop the land by putting the housing project at its on risks and costs and not that of the CGEWHO. The ld. CIT(A) has not brought on record any significant risk and reward of ownership transferred in this regard to CGEWHO. In the light of above findings, it has to be held that the explanation below section 80IB(10) of the Act is not applicable to the case of the appellant. In the case of Unique Builders & Developers vs. DCIT (supra), the Appellate Tribunal at Jaipur vide its order dated 14.3.2013 has held that it is the option of the assessee to follow any method of accounting but such a method has to be followed consistently. It has also been (16 of 16) [ITA-21/2014]

held that in a case where a method applied in the first year is followed in the subsequent year, the rule that it has consistently been followed shall be applicable to such first year also. In the present case in appeal even though the appellant followed Project Completion method but it has given up his claim and agreed to be assessed on the basis of Percentage Completion method provided the deduction under section 80IB(10) of the Act is allowed to it in the light of Board’s Instruction No. 4/2009 as has been reproduced in para 8.2 of the assessment order as the tax audit report as envisaged before allowing deduction has also been furnished by the assessee. We, therefore, on the peculiar facts and considering entire gamut of the case laws are satisfied that the assessee is a builder and developer and cannot be termed as a works contractor for invoking Explanation below section 80IB(10) of the Act. The appellant having agreed to be assessed on Percentage Completion method, the estimation of income after rejecting accounts by the Ld. CIT(A) in both the years under appeal does not require any interference so that the appellant in this case having filed the requisite audit report also is entitled to deduction under section 80IB(10) of the Act in terms of the Instruction No. 4/2009 issued by the CBDT. The assessing authority accordingly shall allow the deduction to the appellant in both the years under appeal.”

9.

In that view of the matter, the issue is answered in favour of the assessee and against the department. The appeals stand dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 107-108.

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