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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ C ’
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
“ 1. The order of the Learned ClT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and facts and circumstances or the case.
The CIT(A) erred in holding that the assessee is eligible [or deduction u/s 8OIB (10) as it jointly undertook developing and building of the housing project.
3. The CIT (A) erred in not appreciating that the other party to the .IDA Mangalya Developers was the undertaking developing and building the housing projects and not the assessee.
4. The CIT (A) erred in not appreciating that the assessee was not in the business of developing and building housing projects.
5. The CIT (A) erred in holding that the assessee is entitled to deduction u/s 8OIB(10) without appreciating the fact that according to the Memorandum of Articles and Articles of Association the assessee could only construct buildings in connection with the business of the company and not that the assessee's business is that of developing and building of the housing projects. 6. The CIT(A) erred in holding that there is no specific condition in sub-section (10) of Sec 80IB that the main object should be construction of housing. 7. The CIT(A) erred in holding that there is no violation of the bye laws. i.e .. the Memorandum of Articles and Articles of Association on the ground that construction activity was its ancillary object without appreciating the fact that according to the Memorandum of Articles and Articles of Association the assessee could only construct buildings in connection with the business of the company and not that the assessee's ancilairy business was construction. 8. The CIT(A) erred in directing the AO to compute the deduction u/s. 80 IB(10) by excluding the f l a t ( s u p r a ) ) e x c e e d i n g t h e prescribed area relying on the decision in the case of SJR Builders without appreciating the fact that the deduction U/S. 80 IB(10) is in respect of a housing project as a whole and not in respect of individual residential flats. 9. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT (Appeals) be reversed and that of the Assessing Officer be restored. 10. The appellant craves leave to add, to alter, amend or delete any of the grounds that may be urged at the time of hearing of the appeal.”
The assessee is a private limited company and engaged in cargo business. The assessee was the owner of the plot of land measuring 1 acre 25 guntas in Survey No.17, new survey number 17-2 bearing City Municipal Assessment No.1/99, situated in Munnekolala village, Varthur Hobli, Bangalore. The assessee entered into a joint development agreement dated 15/10/2004 with developer Mangalya Developers, a partnership firm for development of housing project on the said land.
For the year under consideration, the assessee filed its return of income and claimed deduction under section 80 IB (10) of the Income Tax Act, 1961 (‘the Act’) on the income derived from sale of flats. The AO denied the claim of 80 IB (10) and assessed the income as ‘income from capital gains’. The assessee challenged the action of the AO before the CIT(A).
The CIT(A) allowed the claim of the assessee under section 80 IB (10) by holding that the assessee is eligible for deduction under section 80 IB (10) of the Act.
Before us the Ld. D.R. has submitted that when the assessee is in the business of cargo, then how can the assessee claim the deduction or developer on fulfilment of certain conditions under this section. The Ld. D.R. has pointed out that the assessee is not in the business of construction and development of buildings but the assessee was the owner of the land in question which was given to the developer for development of the building and therefore, the assessee is not entitled for the claim under section 80 IB (10) of the Act. The Ld. D.R. has relied upon the orders of the assessing officer and submitted that the AO has examined the facts and found on verification of the record from the Registrar of Companies that assessee has not amended its Memorandum of Association. The learned DR has referred to the finding of the assessing officer and submitted that the Assessing Officer found the claim of assessee that the assessee had submitted a resolution of the company to the office of the Registrar of Companies is not correct as it was evident from the documentary evidence received from the Registrar of Companies. Further, it is also evident from agreement between the assessee and Mangalya Developer on 15.10.2004 that the assessee Is not in the business of development or construction of buildings. The land schedule of the assessee company. Thus, the AO was justified in computing the capital gain arising from the sale of the flats. The Ld. D.R has further contended that the assessee company had no right once it handover its land to the developer up to the delivery of the share of its flats. The assessee did not participate in the activity of construction in the development of project. He has referred the relevant clauses of the development agreement and submitted that after handing over the possession of the land to the developer, the assessee was not required to do anything in the process of development of the project. It was contended that the CIT (Appeals) has not reversed the finding of the fact given by the Assessing Officer. Therefore the assessee is not entitled for deduction under Section 80IB(10) of the Act.
On the other hand, the learned Authorised Representative of the assessee submitted that joint development does not mean participation of each and every activity of the construction and development by the parties. He has referred to the clauses of the joint development agreement and submitted that the construction obligation was only on in the activity of construction and development once the assessee has performed its part to give its land for development of the project. In support of his contention, he has relied upon the following decisions :
i. Decision dt.28.2.2012 of Hon'ble jurisdictional High Court in the case of CIT Vs. Shravanee Constructions. (ITA Nos.421 & 422 of 2009) ii. Decision of the co-ordinate bench of this Tribunal in the case of Abdul Khader Vs. ACIT, Bangalore. 137 ITD 188. iii. Decision of Chennai Benches of this Tribunal dt.22.11.2012 in the case of ACIT Vs. Sri Lakshmi Brick Industry in to 1647/Che/2012. Relying upon the above decision, the learned Authorised Representative of the assessee has submitted that the assessee did not undertake any development or building activity under the agreement however it has contributed its land for the development and construction of the project.
Therefore, it has complied with all other conditions which are required to be fulfilled for claiming the benefit under Section 80IB (10) of the Act.
The learned Authorised Representative has submitted that the Chennai Benches of this Tribunal in the case of Sri Lakshmi Brick Industries (supra) has followed the judgment of Hon'ble jurisdictional High Court in in the construction activity is not a condition required under the provisions of Section 80IB (10) of the Act. He has further submitted that even otherwise the assessee has incurred various expenditure in respect of his share of the constructed portion of the project. Therefore the assessee has participated in the construction activity of the building.
In rejoinder, the learned Departmental Representative has submitted that the decision of the Hon'ble jurisdictional High Court was delivery in the facts of the said case wherein the assessee was engaged in the business of development of real estate whereas the assessee in the present case is not in the business of development of property.
We have considered the rival submissions as well as the relevant material on record. From the terms and conditions of the agreement I is manifest that except the land in question the assessee was not required to do anything or incurred any expenditure towards the construction or other activity of the development of the project. For ready reference, we reproduce relevant clauses / recital of the agreement :
8 & 1235/Bang/2013 “WHEREAS the Schedule Property is ideal for development into Residential Apartment Buildings and First Party is desirous of developing the same and hence on lookout for a Developer who will be able to formulate a scheme of development of the Schedule Property into Residential Buildings and disposal of the same. The Second Party who is in the field of real estate having come to know of the intention of the First Party offered to develop the Schedule Property as permissible by the authorities and for disposal, for which the First Party agreed since development is beneficial to them also.” As it is clear from the recital as well as the terms and conditions of the agreement that the assessee has contributed the land in question and the developer has contributed the entire cost of construction and development right from getting the plan sanctioned till the completion of the construction and necessary approval from the concerned authorities.
Therefore the value of the land was the contribution by the assessee in the project in question and the said valuation is equivalent to the share of market price of the land as on the date of handing over the possession of the land to the developer as per the joint development agreement. There is no quarrel on the point that the income derived from the sale of flats developed under the housing development project is eligible for deduction under Section 80IB (10) of the Act. However, such deduction is available only on the income arising from the the assessee consist of two elements - the difference in the cost of acquisition of the land and fair market price of the land as on 15.10.2004 being the capital gain and the second element is the profit being the difference between the market price of the land and the sale price of the constructed portion of the share of the assessee in the project.
Consequently, there are two components of income one is capital gain on land and other is business income from sale of flats in the housing project. There is no dispute that the land in question was part of block of assets of the assessee and therefore the treatment given by the assessee to the land in question in the books of accounts was capital asset and therefore at the time of joint development agreement the capital asset owned by the assessee was transferred to the undertaking under the joint development agreement for construction and development of housing project. Therefore, on transfer of land for the housing project it gives raise to the income being capital gains. The assessee has claimed to have incurred certain expenditure. However, we note that the alleged expenditure by the assessee does not pertain to the development / agreement, the entire cost of construction or other development activities was to be borne by the developer. Even otherwise the alleged expenditure if any incurred by the assessee is post development and post ear-marking of the built up share in the project. When the assessee was under no obligation to incur any expenditure except to contribute the land for the project then this claim of the assessee is inconsistent with the terms and conditions of the agreement as well as the facts and circumstances of the case. Hence the said finding of the CIT (Appeals) is contrary to the basic fact and agreed terms of the agreement. However, we find that the income which is derived from the sale of flats, exclusion of capital gain towards the land would be eligible for deduction under Section 80IB(10) of the Act as held by the Hon'ble High Court in the case of Shreevani Constructions (supra) in paras 8 & 9 as under :
“8. In terms of the agreement, which are not in dispute, the assessee not only undertook the aforesaid development activities on the land in question, but in fact, he entered into an agreement of sale with the owners of the land, paid the entire consideration but he did not take a registered sale deed in his name. On the contrary, the procedure adopted is he in turn entered into a joint development agreement with the builder and the owner of the land was made a party to the said proceedings. Thus, the assessee contributed the land, undertook the aforesaid developmental activities in the said land and thus complied with all other conditions, which have to be fulfilled before claiming benefit under section 80IB(10) of the Act. The builder has invested 11 & 1235/Bang/2013 money in the construction. It is after completion of the building in terms of the agreement, the assessee was given 22% share of the building area. It is after sale of the built area, in terms of section 80IB(10), the assessee is claiming deduction. As is clear from the joint development agreement, the undertaking of developing and building housing project was jointly undertaken by the assessee and the builder. Therefore, in respect of the residential units numbering 211 in all, the persons who undertook this undertaking are entitled to the benefit of section 80IB(10) of the Act in proportion to the share to which they are entitled to in the built up area.
In that view of the matter, the contention of the revenue that the assessee did not undertake any developmental or building activity and therefore, he cannot individually claim the benefit has no substance. That is not the requirement of law. Keeping in mind, the object with which this provision is introduced when all persons who have made investments in this housing project which is for the benefit of middle and lower class people and when they have complied with all the conditions prescribed under the aforesaid provision, both of them are entitled to hundred percent benefit of tax deduction as provided under the said provision. In that view of the matter, we do not see any merit in these appeals. The substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, the appeals are dismissed.” Accordingly, we set aside the matter to the record of the Assessing Officer to recompute the income in the above terms. As regards the issue of the area of certain flats exceeding 1500 sq. ft., the Assessing Officer is directed to compute the correct area and allow proportionate deduction as held by the Tribunal in the series of decisions relied upon by the CIT (Appeals). statistical purpose. Order pronounced in the open court on the 8th June, 2016.