ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 2,, PUNE vs. VIJAY TUKARAM RAUNDAL,, PUNE

The only issue raised by the Revenue is against the allowing of deduction u/s.80IB(10) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) amounting to Rs.45,89,97,747/- despite the fact that the assessee failed to complete the project within the time stipulated as per the provisions of section 80IB(10).

Succinctly, the facts of the case are that the assessee is a Builder and Developer, who filed his return declaring total income of Rs.28,71,109/- , after claiming deduction u/s.80IB(10) amounting to Rs.45,84,87,519/-. The tax was however paid on the adjusted total income of Rs.8,53,51,346/- u/s.115JC of the Act. Deduction u/s.80IB(10) was claimed in respect of housing project, namely, “Teerth Towers”, which consisted of 7 Buildings and Commercial shops. The assessee had been following “Project Completion Method” for recognising the income, as a result of which all the expenses incurred on the project till the immediately preceding financial year were shown as work-in-progress. During this year, the assessee showed sale of entire units of Buildings A to F for a sum of Rs.90,92,08,550/-. The Assessing Officer (AO) noticed that the assessee contravened the provisions of section 80IB(10) inasmuch as the project was not completed within 5 years from the end of the financial year in which the housing project was approved

CO No.24/PUN/2021 Vijay Tukaram Raundal by the local authority. He observed that the housing project was approved by the competent authority vide order dated 30-02-2007, which depicted that the assessee sought N.A. (Non-Agricultural) permission and also approval for building plan for residential use vide his application dated 21-12-2006. The housing project was completed vide the Completion certificate issued by the competent authority on 30-03-2013. Considering the period from 01-04-2007 to 30-03-2013, the AO found that the project was completed in a period of 6 years as against the requirement of 5 years, so as to qualify for deduction u/s.80IB(10). He, therefore, rejected the assessee’s claim of deduction. The ld. CIT(A) overturned the assessment order by noticing that the N.A. order dt.30-02-2007 was granted subject to compliance on certain conditions and Condition No.3 made obligatory for the assessee to get demarcation of the land from the O/o. District Inspector Land Record (DILR) before commencement of the development work, which actually happened on 22-08-2007. This date, being, within a period of five years from the end of the financial year in which the housing project was approved, the ld. CIT(A) made the assessee eligible for the deduction. Aggrieved thereby, the Revenue has come up in appeal before the Tribunal.

We have heard the rival submissions and perused the relevant material on record. The case of the Department is that the assessee did not fulfil the condition of completing the project within five years from the end of the financial year in which the housing project was approved by the local authority, viz., The District Collector, Pune. In order to appreciate the rival contentions, it would be apposite to take note of the relevant parts of section 80IB(10), as under:

A bare perusal of the above provision indicates that deduction u/s.80IB(10) is allowed if the development and construction of the housing project commences on or after 01-10-1998 and the construction is completed within a period of five years from the end of the financial year in which the housing project is approved by the local authority. Thus, it can be seen that, there are three timelines relevant for claiming the deduction insofar as the dispute under consideration is concerned, viz., i) the date of start of construction; ii) the date of completion of the housing project and iii) the date of approval of the housing project by the local authority. There is no dispute regarding the first timeline, namely, the date of start of construction, which, admittedly, commended after 1.10.1998. We will take up the other two disputed timelines for consideration in seriatim.

Clause (a) of section 80IB(10) provides that the deduction shall be allowed if the assessee, inter alia, `completes such construction’; and then sub-clause (iii) says - `within five years from the end of the financial year in which the housing project is approved by the local authority’. This provision talks of completing the construction by such and such time. Explanation (ii) under CO No.24/PUN/2021 Vijay Tukaram Raundal section 80IB(10)(a) provides that `the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority’. We need to appreciate the logic behind the date of completion of construction de hors the Explanation and its definition w.r.t. the issuance of completion certificate as per the Explanation. As there is an eligibility condition of completing the construction within a period of five years for getting the deduction, the legislature thought it prudent to thwart any attempt by the builders who erringly intimate the completion without actually completing it. With this object in mind, the Parliament qualified the date of completion as the date of issuance of completion certificate. Though, as per the strict language of section 80IB(10), the date of completion of construction of the housing project is the date on which the completion certificate is issued by the local authority, normally, it takes some time for the competent authority to verify the veracity of the intimation of completion of construction by the assessee and then issuing the certificate. For all practical purposes and taking a pragmatic view, the actual date of completion of construction can be considered as the date on which the assessee intimates, in writing, to the local

Adverting to the facts of the instant case, we find that the date of completion certificate issued by the competent authority, a copy placed at page 133A of the paper book, is 30-03-2013. The assessee lodged a claim before the Tribunal that though the completion certificate was issued on this date, but the project was actually completed on 07-03-2012, when it intimated about the CO No.24/PUN/2021 Vijay Tukaram Raundal completion of construction to the District Collector, Pune vide its letter, a copy placed at page 215 of the paper book. It is also claimed that another letter intimating about the completion of the project was sent to the District Collector, Pune on 24-09-2012, whose copy is available at page 217 of the paper book. The ld. AR argued that the date of completion of construction should be taken as the date when the project was actually completed, namely, 07-03- 2012.

We proceed to examine the letters dated 7.3.2012 and 24.09.2012. Whereas the letter dated 24.09.2012 bears the stamp of the `Lipik, Mahsool Shakha, Zila Adhikari Karyalaya, Pune’ and is signed with date of 26.9.12, there is no proper acknowledgement of the receipt of the letter dated 7.9.2012 by the competent authority.

Now we espouse the next timeline, being, the date of approval of housing project by the local authority. The AO has set up a case that the approval was given by the competent authority on 30-03- 2007 pursuant to the assessee’s application dated 24-12-2006 and hence, 30-03-2007 should be taken as the date of approval for commencement. On the other hand, the assessee contended and the ld. CIT(A) accepted the contention that the approval was conditional upon the demarcation and since the demarcation certificate was issued by the O/o. DILR on 22-08-2007, the same was the date of approval.

Sub-clause (iii) of section 80IB(10)(a) provides that the construction should be completed within five years from the end of the financial year in which the housing project is approved by the local authority. The stipulated period of five years has connection only with the granting of approval by the local authority and not when the construction is actually commenced. The requirement is that the construction should be commenced after the stipulated date but it has to complete within a period of five years from the end of the financial year in which the housing project is approved by the local authority. Thus, it is evident that the period of five years is CO No.24/PUN/2021 Vijay Tukaram Raundal relevant only for considering the completion of the project from the end of the financial year in which the housing project is approved by the local authority. Even if the construction and development commences in the 4th year from the date of approval by the local authority and gets completed in the 5th year itself, there can be no dent to the eligibility of deduction u/s.80IB(10).

Explanation (i) to section 80IB(10)(a) states that in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority. The legal position which, therefore, emerges is that the crucial timeline under consideration is the date of approval of the housing project by the local authority, which in this case, is the District Collector, Pune.

At this stage, we need to ascertain the logic behind the Explanation (i), which provides that where the approval in respect of the housing project is obtained more than once, the housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the CO No.24/PUN/2021 Vijay Tukaram Raundal local authority. The requirement for this Explanation arose to deal with certain situations requiring the assessee to seek re-approval of the housing project from the local authority. One situation could be where the approval is subject to certain conditions to be certified by some other statutory authority and some variation actually happens on such certification vis-à-vis the originally approved plan. In that case, the assessee again needs to get the final approval from the local authority before starting development work. To deal with such contingencies, the legislature provided that even if more than one approval is received, the period of five years will run with reference to the first approval granted by the local authority to the housing project.

Now we advert to the relevant facts of the case for finding out the date of approval by the competent authority. Office of the District Collector, Pune granted permission on 30-03-2007 to the assessee’s application dated 21-12-2006, whose copy is available at page 125A of the paper book. Opening part of this order states that:

A perusal of this condition transpires that the drawings will have to be marked on the ground and certified by the Land records department as to the minimum area and the area of road widening before commencing any development work. In case of any variation, `it has to be re-approved’ by the District Collector before commencing development work.

The assessee has set up a case that the certificate as to the fulfillment of the condition No.3 was granted on 22-08-2007 and hence this date should be considered as the date of approval for considering the period of 5 years for completion of construction.

At this juncture, it would be relevant to take note of the Constitution Bench judgment of the Hon’ble Supreme Court, relied

Extantly, we are concerned with a situation in which there is no ambiguity in the relevant language of section 80IB(10) and even on the plain interpretation of the provision, it is clear that the period of five years for completion of construction has to be reckoned from the end of the financial year in which the building plan of the housing project is first approved by the local authority.

The ld. AR heavily relied on the judgment of Hon’ble Bombay High Court in Jamunabai Parmananddas Shah and others Vs. Bajirao Seetaram Kalbhor and others (1995) (1) Mh.L.J. 564. This judgment was rendered in the context of Maharashtra Land Revenue Code and Bombay Tenancy and Agricultural Land Act. The CO No.24/PUN/2021 Vijay Tukaram Raundal question before the Hon’ble Bombay High Court, as set out in the beginning, was: “When and under what circumstances can it be said that the character and definition of agricultural land stand altered to non-agricultural land pursuant to the permission being granted by the Collector for non-agricultural use”. In that case, the plaintiffs purchased certain land through a registered sale deed dated 20.3.1965. Prior to that, the competent authority granted NA permission to the respondent by an order dated 09-10-1964. The issue before the Hon’ble Court was about the date of change of the character of land. The NA permission was granted u/s.65 of the Land Revenue Code subject to the condition that the applicant shall commence the non-agricultural use of this plot within a period of six months from the date of this order, failing which it shall be deemed to have been cancelled. The Hon’ble High Court held that the order granting permission u/s.65 of the Maharashtra Land Revenue Code granting permission for NA use was conditional and it did not automatically come into operation. The order would become operational and effective only on the compliance of the condition satisfied therein within the prescribed time. It can be seen from the facts of that case that the issue raised was about the date of coming into operation of the NA order, which was held to be actually

The ld. AR also relied on a decision of the Bombay Bench of the Tribunal in Shree Krishna Sai Development Corporation Vs. ITO (2011) 130 ITD 31 (Mumbai). In that case, the assessment years orders under consideration were 2005-06 and 2006-07 and the assessee claimed deduction u/s.80IB(10) in earlier years which was CO No.24/PUN/2021 Vijay Tukaram Raundal accepted in the assessments completed u/s.143(3). The CIT, assuming jurisdiction u/s.263, opined that deduction u/s.80IB(10) should not have been allowed by the AO without proper verification of the certificate issued by the CIDCO indicating the date of commencement as 07-04-1998. The Tribunal considered the fact that though the commencement certificate issued by the CIDCO indicated the date of commencement as 07-04-1998, the actual commencement took place only after obtaining permission from the District Collector on 19-05-1999. It was held that the date as per CIDCO certificate was irrelevant. It was only the date of District Collector which was held to be relevant. When we apply the ratio of this decision to the facts of the instant case, it, rather than advancing the case of the assessee, fortifies the view of the AO in considering the date of certificate issued by the District Collector as the relevant date for consideration.

To sum up, the housing project was approved on 30.03.2007 and a period of five years from the end of the financial year in which the housing project was approved by the local authority, came to an end on 31-03-2012. Since the actual completion of the project took place between 24-09-2012 (when the assessee intimated the factum of virtual completion of the project to the CO No.24/PUN/2021 Vijay Tukaram Raundal District Collector) and 30.3.2013 (when the completion certificate was issued by the competent authority), the condition of completing the construction within a period of five years from the end of the financial year in which the housing project was approved, got vitiated, making the assessee ineligible for deduction u/s.80IB(10) of the Act. We, therefore, overturn the impugned order and restore the order of the AO.

All the grounds in the assessee’s Cross Objection, except ground No.3, are in support of the order passed by the ld. CIT(A) in granting deduction u/s 80IB(10). Since we have overturned the impugned order on this issue, the assessee’s grounds also get consequently dismissed.

Ground No.3 is a fresh ground through which the assessee has objected to the levy of tax u/s.115JC of the Act.

Pithily put, the assessee computed its income under the regular provisions and also the adjusted total income u/s.115JC of the Act.

Having heard both the sides and gone through the relevant material on record, it is seen that section 115JC of the Act is a special provision for payment of tax by certain persons other than a company. Sub-section (1) of section 115JC provides as under:

This section starts with a non obstante clause and provides that where the regular income-tax “payable for a previous year” is less than the alternate minimum tax payable for “for such previous year, the adjusted total income shall be deemed to be the total income of that person “for such previous year” and he shall be liable to pay income-tax on such total income @18.5%. This section clearly refers to total income “of the previous year” which has to be substituted as per the mandate of this provision, in case the income under regular provisions for such previous year, is less than that provided under this section. The ld. AR contended that though this section is applicable to the year under consideration, but it should not be applied because the housing project was approved in an CO No.24/PUN/2021 Vijay Tukaram Raundal earlier year, when this section was not in vogue. We do not find any logic in the interpretation of this provision as made by the ld. AR. This section applies as one unit for a previous year, when the income under the regular provisions is less than the adjusted income under it. Neither section 115JC excludes its application in respect of housing projects approved prior to its insertion nor section 80IB(10) contains any such stipulation. As this section applies to a previous year, it cannot be construed to have applicability in part qua the other incomes and inapplicability in respect of income from the housing projects approved u/s 80IB(1) prior to its coming into force.

The ld. AR tried to draw strength from an order passed by the Pune Bench Tribunal in the case of M/s. Vikram Developers & Promoters Vs. DCIT (ITA Nos. 2795 & 2796/PUN/2016). In that case, the Tribunal recorded in para 34 that: `as on date the assessee has no project on hand and on this fact the assessee did not apply

In the result, the appeal of the Revenue is allowed and the C.O. of the assessee is dismissed.