THE COMMISSIONER OF INCOME - TAX vs M/S. MAHAVEER MARVEL

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 2ND DAY OF SEPTEMBER 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A. NO.13/2013 BETWEEN:

THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD BANGALORE.

THE INCOME-TAX OFFICER WARD-4(3), C.R. BUILDING QUEENS ROAD, BANGALORE.

... APPELLANTS (BY SRI.K.V.ARAVIND, ADV.,)

AND:

M/S. MAHAVEER MARVEL NO.1, 24TH MAIN MAHAVEER TOWERS J P NAGAR, 6TH PHASE BANGALORE-560078. ... RESPONDENT (BY SRI.A.SHANKAR SR. ADV. A/W SRI.M.LAVA, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 31.08.2012 PASSED IN ITA NO.154/BANG/2011 FOR THE ASSESSMENT YEARS 2007-08, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO:

(I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW THE APPEAL AND SET ASIDE THE ORDER DATED 31.08.2012 PASSED BY THE ITAT, BANGALORE IN ITA NO.154/BANG/2011 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-4(3), BANGALORE.

THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2007-08. The appeal was admitted by a bench of this Court vide order dated 23.01.2013 on the following substantial questions of law: (i) Whether the appellate authorities were correct in holding that the assessee firm is eligible for deduction under Section 80IB(10) of the Income-Tax Act despite the fact that there was large scale violations and deviations to the sanctioned plan of the local authority by the assessee firm in carrying out the “Housing Project” without appreciating

the fundamental nature of the legislature for providing such relief?

(ii) Whether the appellate authorities were correct in construing that deviations and violations committed by the assessee while undertaking the housing project and yet to be paid compounding fee for regularizing the default is fairly enough to claim the deduction under Section 80IB(10) without appreciating the intended structure of the legislative provisions of Section 80IB?

Facts leading to filing of this appeal briefly stated are that the assessee is a partnership firm, which had sold 66 flats. The net profit to the firm from the sale proceeds of 66 flats was to the extent of Rs.3,05,61,975/-. The assessee claimed whole of the aforesaid amount of profit of Rs.3,05,61,975/- as deduction under Section 80IB(10) of the Act and declared the income as ‘NIL’ for Assessment year 2007- 08. The case was selected for scrutiny and notices under

Section 143(2) and 143(1) of the Act were issued to the assessee. The Assessing Officer by an order dated 29.12.2009 inter alia held that the assessee had not complied with the condition incorporated under Section 80IB(10)(a) of the Act inasmuch as assessee has sold built up area of 2,60,960.70 square feet, whereas, the project was approved for 1,53,066 square feet and therefore, the built up area was not in accordance with the approved plan and therefore, the project put up by the assessee was not approved by the local authority and provisions of Section 80IB(10) of the Act are not applicable and therefore, the claim of exemption under Section 80IB(10) of the Act was disallowed and the profits earned from the project in question i.e., Rs.3,05,61,970/- were treated as income and subjected to levy of tax and interest.

Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order

dated 10.11.2011 inter alia held that after the construction of residential apartments, a modified building drawing was submitted, which was duly approved by Bruhat Bengaluru Mahanagara Palike (BBMP). It was further found that subsequently the authorities of BBMP instructed the building for issuance of occupancy certificate and found that there is a deviation in the construction with reference to modified building plan, which was in the permissible limits as per revised master plan and therefore, compounding fee was levied, which was paid by the assessee and permission was granted to occupy the building for residential purposes. It was also held that Section 80IB(10) being beneficial provision should be liberally construed and there was no justification in reducing the deduction claimed by the assessee. It was held that the project was approved by the local authority as a housing project and therefore, in view of Central Board of Direct Taxes (CBDT) Circular dated 04.05.2010, the assessee

is entitled to benefit of exemption under Section 80IB(10) of the Act. The revenue filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’, for short). The Tribunal by an order dated 31.08.2012 dismissed the appeal preferred by the revenue. In the aforesaid factual background, this appeal has been filed.

Learned counsel for the revenue submitted that the mandatory conditions prescribed under Section 80IB(10) of the Act have to be complied with in order to claim the exemption under the aforesaid provision. It is further submitted that admittedly, the housing project in question was completed in violation of the sanction plan and completion certificate was also not obtained. It is further pointed out that the Assessing Officer found that excess built up area was 70.50% and therefore, the Assessing Officer rightly held that since, the construction was not put up as per the approved plan, therefore, the project as built and completed by the assessee does not

have an approval of the local authority. It is further submitted that Commissioner of Income Tax (Appeals) grossly erred in not recording the findings of fact and proceeded to decide the appeal merely on the basis that the benefit of beneficial provision has to be extended. It is also submitted that the Tribunal has failed to record any finding whether completion certificate was obtained. It is also argued that if a housing project is not completed as per the sanction plan, it ceases to be a project under Section 80IB(10) of the Act. It is further submitted that beneficial provision cannot be interpreted liberally but has to be construed strictly. In support of aforesaid submissions, reference has been made to decisions of Supreme Court in ‘COMMISSIONER OF INCOME-TAX-19, MUMBAI VS. SARKAR BUILDERS’, (2010) 57 TAXMANN.COM 313 (SC), ‘DEPUTY COMMISSIONER OF INCOME-TAX VS. ACE MULTI AXES SYSTEMS LTD.’, (2018) 400 ITR 141 (SC) and ‘RAMNATH & CO. VS. COMMISSIONER OF INCOME-

TAX’, (2020) 116 TAXMANN.COM 885 (SC) as well as the form of completion certificate as prescribed under bye law 5.6.1 of the bye laws framed by the BBMP.

On the other hand, learned Senior counsel for the assessee submitted that the Assessing Officer has passed an order solely on the ground that since, the assessee has not completed the project as approved by the local authority, therefore, the project built and completed by the assessee does not have approval of local authority. It is also pointed out that there is no finding in the order of the assessing authority with regard to issuance of the completion certificate and therefore, the Commissioner of Income Tax (Appeals) did not have an occasion to consider the issue of completion certificate. It is further submitted that the form of completion certificate has to be filled in by the architect. It is also pointed out that no substantial questions of law have been framed with regard to completion certificate and therefore, the issue with

regard to completion of certificate does not arise for consideration in this appeal. It is also argued that law contemplates modification of the building plan and the assessee had got the building plan modified and had subsequently paid the compounding fee and had also obtained the permission to occupy the building for residential purposes. It is also pointed out that occupancy certificate was issued by BBMP on 25.04.2009. Learned Senior counsel for the assessee has submitted that there is no requirement of obtaining completion certificate under the Bangalore Development Authority (BDA) Act, Karnataka Municipal Corporation Act and under Karnataka Municipalities Act. Therefore, the revenue cannot insist on production of completion certificate as the revenue cannot insist on assessee to do something, which is impossible in law. In support of aforesaid submission, reliance has been placed on division bench decision of this court in ‘COMMISSIONER OF INCOME-TAX, CENTRAL

CIRCLE, BANGALORE VS. ITTINA PROPERTIES (P.) LTD’, (2014) 49 TAXMANN.COM 201 (KARNATAKA). It is also urged that if there is any violation in respect of the building plan, the prescribed authority i.e., BBMP alone has the authority to determine the issue of violation and to take consequential action. In support of aforesaid submission, reference has been made to a decision of the Supreme Court in ‘MANASA HOUSING CO- OPERATIVE SOCIETY LTD. VS. MARIKELLAIAH & ORS.’, AIR 2006 KARNATAKA 273. It is also submitted that the ratio laid down in the case of Ramnath & Co. supra supports the case of the assessee.

We have considered the submissions made by learned counsel on both the sides and have perused the record. Before proceeding further, it is apposite to take note of Section 80IB(10) of the Act, which reads as under:

80-IB. (10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,— (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,— (i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008; (ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004 but not later than the 31st day of March, 2005, within four years from the end of the financial year in which the housing project is approved by the local authority; (iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority. Explanation.—For the purposes of this clause,— (i) 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; (ii) 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;

Thus, it is evident that Section 80IB(10)(a) of the Act not only mentions a particular date before housing project has to be approved by the local authority but even a date by which housing project has to be completed. These dates have a specific purpose with a view to give time to the developers to arrange their affairs in such a manner that the housing project is started and finished within the dates stipulated in Section 80IB(10)(a) of the Act. The basic object of Section 80IB(10) is to encourage developers of housing project for weaker section of the society and in order to qualify for deduction under the provision the conditions mentioned therein have to be fulfilled.

At this stage, we may advert to the well settled legal principles with regard to interpretation of taxing statutes. It is trite law that subject is not to be taxed without clear words for the purpose and also that

every Act of Parliament must be read according to natural construction of its word. The well established rule in the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury and Lord Simonds, is that ‘if the person sought to be taxed comes within the letter of the law he must be taxed, however, great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute. [See: PRINCIPLES OF STATUTORY INTERPRETATION, JUSTICE G.P.SINGH, 14TH EDITION, PAGE 879].

It is equally well settled legal proposition that exemption is available on complying with certain conditions, those conditions have to be strictly complied with. [See: ‘EAGLE FLASK INDUSTRIES LTD., VS. COMMISSIONER OF CENTRAL EXCISE’, (2004) 7 SCC 377 AND ‘STATE OF JHARKHAND VS. ANBAY CEMENTS’, (2005) 1 SCC 368, ‘STATE OF BIHAR VS. KALYANPUR CEMENTS LTD.’, (2010) 3 SCC 274 and ‘DEPUTY COMMISSIONR OF INCOME TAX, CIRCLE 11(1), BANGALORE VS. ACE MULTI AXES SYSTEMS LTD.’, AIR 2017 SC 5660]. The constitution bench of the Supreme Court in COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI VS. DILIP KUMAR AND COMPANY AND ORS. has held that incentive provision is subjected to strict interpretation and until the stage of finding out the eligibility to claim deduction, the ambit and scope of the provision for the purpose of its applicability cannot be expanded or widened, but once, eligibility is decided in favour of a person claiming

such deduction, it could be construed liberally with regard to other requirements, which may be formal or directory in nature. The aforesaid decision was referred to with approval by the Supreme Court in Ramnath & Co. supra.

In the backdrop of aforesaid well settled legal principles, we may advert to the issues arising out of the substantial questions of law in the facts of the case in hand. In the instant case, there is no dispute that the assessee has complied with the provisions of clauses (b) to (f) of Section 80IB(10) of the Act. The only issue, which arises for consideration in this appeal is whether the assessee has complied with the requirement contained in Section 80IB(10)(a) of the Act. In substance, the housing project is required to be approved by the local authority. The Assessing Officer has held that the construction of the project has been carried out in violation of the sanction plan. Therefore, the project built and completed by the assessee does

not have an approval of the local authority. The Commissioner of Income Tax (Appeals) has in para 3.2 and 3.3 has held as follows: 3.2 A plan was sanctioned for construction of residential apartments consisting of stilt plus ground floor and 3 upper floors at survey No.1 & others, Katha No.54 in Kodichikkanahalli Village, Begur Hobli, Bangalore South Taluk vide LP No.274/05-06 dated 01.08.2005. Subsequently, a modified building drawing was submitted an the same was approved by the BBMP.

3.3 subsequently, the authorities of the BBMP inspected the building for issue of occupancy certificate and it was observed that there was a deviation in construction with reference to the modified building plan, which is well within the permissible limit of regularization as per the revised Master Plan 2015 with levy of compounding fee. The appellant has paid the compounding fee and subsequently, permission was granted to occupy the building for residential purposes.

10.

The aforesaid finding of fact has been affirmed by the Tribunal and it has been held that the assessee has fulfilled the conditions mentioned in Section 80IB(10) of the Act. Thus, the aforesaid findings of fact are based on meticulous appreciation of evidence on record. The Bangalore Development Authority Act, Karnataka Municipal Corporation Act and Karnataka Municipalities Act do not contain any provision to obtain completion certificate and therefore, it was not necessary for the assessee to obtain any completion certificate in the absence of any provisions in the aforesaid Acts. Thus, from the findings recorded by the Commissioner of Income Tax (Appeals) as well as the Tribunal, it is evident that the project undertaken by the assessee was approved by the local authority and therefore, it had complied with the conditions mentioned in Section 80IB(10)(a) of the Act.

In view of preceding analysis, the substantial questions of law framed by this court are answered against the revenue and in favour of the assessee.

In the result, the appeal fails and the same is hereby dismissed. Sd/- JUDGE

Sd/- JUDGE ss

THE COMMISSIONER OF INCOME - TAX vs. M/S. MAHAVEER MARVEL