COMMISSIONER OF INCOME TAX vs. M/S.ASTORIA LEATHERS

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TCA/533/2018HC Madras08 July 2020Bench: Hon`ble Mr Justice T. S. SIVAGNANAM8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial question of law framed is answered against the Revenue. The Court followed its own earlier decision in TCA.No.177 of 2018 (M/s.Bashyam Constructions Pvt. Ltd. Vs. DCIT) and various other High Court and Supreme Court decisions. The Court noted that in development cases, the developer is entitled to claim deduction and ownership is not the sole criterion. The Court found that the assessee was the developer and the other party was the builder, with their rights and obligations linked. The Court also observed that Section 80IB(10) distinguishes between 'developing' and 'building'. The ITAT's order of remand to the Assessing Officer to verify the developer's assessment order and decide afresh after hearing the assessee was confirmed. The Assessing Officer was directed to scrupulously follow the Tribunal's directions. The appeals were dismissed.

What were the facts?

The Revenue, represented by the Commissioner of Income Tax, Business Ward III(1), Chennai, filed two appeals (TCA.Nos.533 & 534 of 2018) before the High Court of Judicature at Madras. These appeals challenged the common order dated 27.12.2017 passed by the Income Tax Appellate Tribunal (ITAT), Chennai 'C' Bench. The ITAT's order pertained to ITA.Nos.2673 and 2674/Mds/2014 for assessment years 2008-09 and 2010-11, respectively. The assessee is M/s.Astoria Leathers, Chennai. The core of the dispute revolves around the deduction claimed by the assessee under Section 80IB(10) of the Income Tax Act, 1961, for its role as a landowner in a housing project.

What were the issues?

1. Whether the Income Tax Appellate Tribunal was correct and justified in directing the Assessing Officer to allow deduction under Section 80IB(10) of the Income Tax Act, 1961, to the assessee landowner when it had not incurred any expenses towards development or construction of the housing project? (Question of law and fact, concerning Section 80IB(10) of the Income Tax Act, 1961). Assessee's Contention: The judgment does not explicitly record the assessee's arguments. However, the ITAT's direction implies the assessee argued for its entitlement to deduction based on its share of profits from the housing project, provided the developer claimed deduction only on its share. Revenue's Contention: The Revenue contended that the assessee, as a landowner, was not entitled to deduction under Section 80IB(10) as it had not incurred expenses towards development or construction. The Revenue also argued that the Tribunal's finding that no expenses were recorded in the Profit & Loss account was not tenable and that Section 80IB(10) requires an undertaking to develop and build a housing project.

Which sections of the Income-tax Act were involved?

Section 80IB(10),Section 260A

AI-generated summary — verify with the full judgment below

TCA.Nos.533 & 534 of 2018 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 08.7.2020 CORAM THE HONOURABLE MR. JUSTICE T.S.SIVAGNANAM AND THE HONOURABLE MRS. JUSTICE V.BHAVANI SUBBAROYAN TAX CASE APPEAL Nos.533 & 534 of 2018 & CMP.No.11130 of 2018 (heard through video conferencing)

The Commissioner of Income Tax, Business Ward III(1), Chennai.

...Appellant Vs M/s.Astoria Leathers, Chennai-32. ...Respondent

APPEALS under Section 260A of the Income Tax Act, 1961 against the common order dated 27.12.2017 made in ITA.Nos.2673 and 2674/Mds/2014 on the file of the Income Tax Appellate Tribunal, Chennai ‘C’ Bench respectively for the assessment years 2008-09 and 2010-11.

For Appellant : Mr.M.Swaminathan, SSC and Mrs.V.Pushpa, SC & Ms.S.Premalatha, SC For Respondent : Mr.A.S.Sriraman 1/8 http://www.judis.nic.in TCA.Nos.533 & 534 of 2018 COMMON JUDGMENT (Judgment was delivered by T.S.SIVAGNANAM,J) These appeals, by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, the Act), are directed against the common order dated 27.12.2017 made in ITA.Nos.2673 and 2674/ Mds/2014 on the file of the Income Tax Appellate Tribunal, Chennai ‘C’ Bench (for brevity, the Act) respectively for the assessment years 2008-09 and 2010-11.

2.

We have heard Mr.M.Swaminathan, learned Senior Standing Counsel and Mrs.V.Pushpa and Ms.S.Premalatha, learned Standing Counsel appearing for the appellant – Revenue and Mr.A.S.Sriraman, learned counsel appearing for the respondent. 3. The appeals have been admitted on 23.8.2018 on the following substantial question of law : “Whether the Income Tax Appellate Tribunal was correct and justified in directing the Assessing Officer to allow deduction under Section 80IB(10) of the Income Tax Act, 1961 to assessee land owner when it had not incurred any expenses towards development or construction of the housing project ?” 2/8 http://www.judis.nic.in TCA.Nos.533 & 534 of 2018 4. We find from the impugned order that the Tribunal remanded the matter to the Assessing Officer for a fresh consideration with a specific direction. We quote the relevant portion of the impugned order as hereunder : “It is not clear from the materials available on record as to whether the developer M/s.KGEYES Residency Pvt. Ltd. was allowed to claim deduction of profits from its share of 66% alone and if it is so, then, the assessee should be allowed to claim deduction of similar profits and gains of its share of 34%. Accordingly, the Assessing Officer is directed to verify the above facts from the assessment order of the developer M/s.KGEYES Residency Pvt. Ltd., and decide the issue afresh in accordance with law after allowing an opportunity of being heard to the assessee. In case the assessee has incurred any expenditure towards land development as noticed by the learned CIT(A) and the developer M/s.KGEYES Residency Pvt. Ltd., has claimed deduction under Section 80IB(10) of the Act of only its share of 66%, then the assessee should be allowed to claim deduction under Section 80IB(10) of the Act of its share 3/8 http://www.judis.nic.in TCA.Nos.533 & 534 of 2018 of 34%. Thus, the ground raised by the Revenue in both the assessment years is allowed for statistical purposes.” 5. From the observations/directions issued by the Tribunal, we are of the view that the Revenue should not be aggrieved by such a direction of the Tribunal. Nevertheless, the substantial question of law framed for consideration has to be answered. To answer the substantial question of law, we need not labour much, as an identical question was considered and decided by a Division Bench of this Court, to which one of us (TSSJ) was a party, in TCA.No.177 of 2018 vide judgment dated 30.1.2019 [M/s.Bashyam Constructions Pvt. Ltd. Vs. DCIT]. In fact, the nature of transaction is also the same. After taking into consideration the decisions of this Court in the cases of (i) CIT Vs. Sanghvi & Doshi Enterprise [reported in

(2013) 29 Taxman.com 386], (ii) ITO Vs. Doshi Enterprise [reported in (2013) 55 Taxmann.com 500], (iii) CIT Vs. Ceebros Property Development (P.) Ltd. [reported in (2014) 41 Taxmann.com 263], the decisions of the High Court of Gujarat in the cases of (i) CIT vs. Radhe Developers [reported in (2012) 17 Taxmann.com 156], (ii) CIT vs. Moon Star Developers [reported 4/8 http://www.judis.nic.in TCA.Nos.533 & 534 of 2018 in (2014) 88 CCH 0211] and (iii) CIT vs. Prathama Developers [reported in (2013) 32 Taxmann.com 336], the decision of the Bombay High Court in the case of CIT vs. Cajetano Mario Pereira [reported in (2014) 88 CCH 0152] and the decision of the Hon'ble Supreme Court in the case of CIT vs. Veena Developers [reported in (2015) 93 CCH 0184 ISCC], the substantial questions of law framed therein were answered to the following effect : “14. It is interesting to note that in all these decisions, the Revenue placed reliance on the aspect of ownership as a criteria for grant of deduction under Section 80IB of the Act and submitted that Section 80IB(10) contemplates grant of deduction and it being a deduction provision, the same has to be complied in absolute terms by the assessee. The Courts have held that in a case of development, the developer is also entitled to claim deduction and ownership is not the criteria. Unfortunately, in the instant case, the Revenue took a reverse stand contrary to the consistent stand taken by them before this Court and other High Courts, which was rejected by the High courts and affirmed by the Hon'ble Supreme Court...... 5/8 http://www.judis.nic.in TCA.Nos.533 & 534 of 2018 21. The correctness of the above finding was not considered by the Tribunal and the Tribunal merely stated that no expenses were recorded in the P & L account. Therefore, the contention advanced by the Revenue in this regard is not tenable. That apart, a plain reading of Section 80IB(10) of the Act evidently makes it clear that deduction is available in a case where an undertaking develops and builds a housing project. The Section clearly draws the distinction between 'developing' and 'building'. In the preceding paragraphs, we have noted the factual position as could be culled out from the joint venture agreement, which clearly shows that the assessee is the developer and M/s.ETA is the builder and mutual rights and obligations are inextricably linked with each other and undoubtedly, the project is a housing project thereby, the assessee would be entitled to claim deduction under Section 80IB (10) of the Act.” 6. Thus, following the above decision, the substantial question of law framed in these appeals is answered against the Revenue. Accordingly, the above tax case appeals are dismissed. We make it 6/8 http://www.judis.nic.in TCA.Nos.533 & 534 of 2018 clear that the orders of remand by the Tribunal stand confirmed and the Assessing Officer shall scrupulously follow the directions issued by the Tribunal, which directed the Assessing Officer to verify the assessment order of the developer and decide the issue afresh in accordance with law after affording an opportunity of being heard to the assessee. No costs. Consequently, the connected CMP is also dismissed. 08.7.2020 To The Income Tax Appellate Tribunal, Chennai 'C' Bench. RS 7/8 http://www.judis.nic.in TCA.Nos.533 & 534 of 2018 T.S.SIVAGNANAM, J AND V.BHAVANI SUBBAROYAN, J

TCA.Nos.533 & 534 of 2018 and CMP.No.11130 of 2018

08.7.2020 8/8 http://www.judis.nic.in

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