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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 5TH DAY OF FEBRUARY, 2021 PRESENT THE HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON’BLE MR. JUSTICE V. SRISHANANDA I.T.A. NO.423/2017 BETWEEN 1. THE PR.COMMISSIONER OF INCOME TAX-4 C.R.BUILDINGS,QUEENS ROAD, BANGALORE 2. THE INCOME TAX OFFICER
WARD-4(3)(3),BANGALORE
…APPELLANTS (BY SRI E.I.SANMATHI, ADVOCATE) AND M/S MAHAVEER TUSCAN NO.9,MAHAVEER HOMES 24TH MAIN, 6TH PHASE J.P NAGAR, BANGALORE-560 078 PAN :AANFM7688
… RESPONDENT (BY SRI A.SHANKAR, SR.ADVOCATE FOR SRI M.LAVA, ADVOCATE) THIS I.T.A. IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 06.01.2017 PASSED IN ITA NO.611/BANG/2016, FOR THE ASSESSMENT YEAR 2010-11 PRAYING TO (1) DECIDE THE FOREGOING QUESTIONS OF LAW AND/OR SUCH OTHER QUESTIONS OF
2 LAW AS MAY BE FORMULATED. (2) SET ASIDE THE APPELLATE ORDER DATED 06.01.2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'C' BENCH, BANGALORE AS SOUGHT FOR, IN THE RESPONDENT -ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN ITA NO.611/BANG/2016 FOR A.Y.2010-11. THIS I.T.A., COMING ON FOR HEARING, THIS DAY, V. SRISHANANDA. J., DELIVERED THE FOLLOWING: JUDGMENT
Revenue-State has preferred this appeal under Section 260-A of the Income Tax Act, 1961 [hereinafter referred to as 'the Act' for short]. The subject matter of the appeal pertains to the assessment year 2010-11. The appeal was admitted by this Court on 5.11.2018 for consideration of the following substantial question of law: "Whether on the facts and circumstances of the case, the Tribunal is right in holding that assessee is entitled for deduction under Section 801B(10) of the Income Tax Act even when the assessee has not satisfied the requirements of the said provision and when the project was approved with a sanctioned built up area and the assessee has eventually constructed the area far in excess of what was approved?"
Facts leading to filing of this appeal briefly stated are that the assessee is a firm engaged in the business of construction and had filed its return of income for the assessment year 2010-11 by claiming deduction under Section 80IB(10) of the Income Tax Act, 1961. The Assessing Officer completed the assessment by denying the said claim by holding that the assessee has not satisfied conditions set out in the said provision as the project approved with a sanctioned built up area is for 1,83,748 sq.ft. whereas the total built up area is 2,26,851 sq. ft. far in excess of what was approved. The built up area shown by assessee was excluding common area. The sale deeds included common area works out to 18.5%. Since what was built is not according to the plan approved, it was held that the project completed is not approved. It is observed that built up area is in excess of the plan approved. Thereafter, the assessee approached the Commissioner of Income Tax (Appeals) by filing an appeal, wherein the Commissioner of Income Tax (Appeals) allowed the appeal by an order dated 21.01.2016 preferred by the assessee.
4 3. Being aggrieved by the order of the Commissioner of Income Tax (Appeals), the revenue preferred this appeal. On the issue of deduction under Section 80IB(10) of the Act, the Tribunal relied on the earlier decision which has not reached finality and even when the assessee has not constructed the flats as per the approved plan and conditions set out in Section 80IB(10) are not satisfied by assessee. It is stated that, the Tribunal is erred in allowing deduction under Section 80IB(10) of the Act when the project was approved with a sanctioned built up area and the assessee has eventually constructed the area far in excess of what was approved and prayed for allowing of this appeal. 4. On the other hand, learned Senior counsel for the assessee submitted that this Court in 'CIT Vs. BRIGADE ENTERPRISES LTD.' (2020) 120 TAXMANN.COM 346 (KAR) and 'CIT Vs. SJR BUILDERS', supra and the decision of Madras High Court in 'CIT Vs. ARUN EXCELLO FOUNDATIONS (P) LTD.' (2013) 259 CTR 362, has held that accounting Standard 7 was not applicable to the real estate developers. Therefore, he submitted that percentage
5 of completion of method cannot be thrashed upon assessee and assessee was right in following the project completion method as per accounting standard 9. In this regard, learned Senior Counsel also invited the attention of this court with regard to the clarification issued by the Chartered Accountants as to applicability of the revised accounting Standard 7 to the enterprises which are in construction activity. He drew our attention to para Nos.6 and 11 of the aforesaid clarification in support of his contentions. 5. The co-ordinate bench of this Court in ITA No.54/2013 between The Commissioner of Income Tax and Others Vs. Brigade Enterprises Ltd., cited supra has held as under: "LEGAL PRINCIPLES: 9. We have considered the submissions made by learned counsel for the parties and have perused the record. The object of Section 80IB(10) of the Act is to provide 100% deduction of the profits derived by an undertaking from developing and building housing projects. Section 80IB(10) was substituted by Finance Act No.(2) Act, 2004 with effect from 01.04.2005. Prior to
6 the amendment, Section 80IB(10) and post amendment with effect from 01.04.2005, Section 80IB(10) reads as under: Prior to 01.04.2005 (10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March, 2005 by a local authority, shall be hundred per cent of the profits derived in any 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; (b) the project is on the size of a plot of land which has a minimum area of one acre; and (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place.” AFTER 01.04.2005 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,—
7 (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;
8 (b) the project is on the size of a plot of land which has a minimum area of one acre: Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf; (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate built-up area of the housing project or five thousand square feet, whichever is higher; (e) not more than one residential unit in the housing project is allotted to any person not being an individual; and (f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:— (i) the individual or the spouse or the minor children of such individual,
9 (ii) the Hindu undivided family in which such individual is the karta, (iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta. 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 person (including the Central or State Government).
Thus, from close scrutiny of Section 80IB(10) of the Act, prior to its amendment with effect from 01.04.2005 as well as after its amendment with effect from 01.04.2005, it is evident that clauses (b) and (c) have not been subjected to any amendment and remain the same. Thus, the legal principles evolved by various courts with regard to interpretation with regard to clauses (b) and (c) of Section 80IB(10) of the Act, even after amendment remain the same. It is noteworthy that in Section 80IB(10) of the Act, the Legislature has used the expression ‘housing project’ except in clause (c) where the expression ‘residential unit’ has been used.
10 11. In order to claim the benefit of deduction under Section 80IB(10) of the Act, the assessee has to satisfy the following conditions: (a) The project has to be approved by the local authority before 31.03.2007. (b) The project is constructed on a plot of land having a minimum area of one acre. (c) The built-up area of each residential unit should not exceed 11,500 sq.ft. in the cities of Delhi and Mumbai (including areas falling within 25 Kms. Of Municipal limits of these cities) and 1,500/- sq.ft. in other places. (d) The built up area of the shops and other commercial establishments included in the housing project should not exceed 5% of the total built up area of the housing project or 2,000 sq.ft. whichever is less. (e) The project has to be completed within four years from the end of the financial year in which the project is approved by the local authority. 12. 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
11 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. The Constitution Bench of the Supreme Court in STATE OF WEST BENGAL VS. KESORAM INDUSTRIES LTD.’, (2004) 10 SCC 201 cited a passage from JUSTICE G.P.SINGH’S TREATISE on Principles of Statutory interpretation summed up the following principles with regard to interpretation of taxing statute. (i) in interpreting a taxing statute, equitable considerations are entirely cut of place. Taxing statutes cannot be interpreted on any
12 presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) before taxing any person it must be shown that he fails within the ambit of the charging section by clear words used In the Section; and (iii) if the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject. There is nothing unjust in the tax- payer escaping if the letter of the law falls to catch him on account of Legislature's failure to express itself clearly. The aforesaid principles were referred to with approval by another constitution bench decision of Supreme Court in ‘COMMISSIONER OF CUSTOMS (IMPORT) MUMBAI VS. DILIP KUMAR AND COMPANY’, (2018) 361 ELT 577 (SC). 13. 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 COMMISSIONER OF INCOME TAX,
13 CIRCLE 11(1), BANGALORE VS. ACE MULTI AXES SYSTEMS LTD.’, AIR 2017 SC 5660]. The constitution bench of the Supreme Court in DILIP KUMAR AND COMPANY SUPRA 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. ANALYSIS: 14. In the backdrop of aforesaid well settled legal principles, we may now examine the facts of the case in hand. The pivotal issue in this appeal is whether the assessee has complied with the conditions, which are sine qua non in order to claim benefit of deduction under Section 80IB(10) of the Act viz., the requirements contained in clauses (b), (c) & (d) of Section 80IB(10) of the Act. We shall proceed to deal with the aforesaid issues ad seritum.
14 A. Requirement of project of the size of a plot of land which has a minimum area of 1 acre: 15. From perusal of para 14 of the order passed by the Assessing Officer, we find that the Assessing Officer has himself recorded a finding that the site area as per the plan, which was approved on 30.04.2005 is 48,939 square feet, which is more than one acre i.e., 45,560 square feet. It has further been found by the Assessing Officer that the assessee company had to hand over certain land to BBMP for development. It has also been found that after handing over of the land, the project has been constructed on an area of 38,573 square feet. The Commissioner of Income Tax (Appeals) by following the decision of the Income Tax Appellate Tribunal dated 29.08.2008 in case of assessee itself for the Assessment Year 2004-05 has reversed the finding recorded by the Assessing Officer in this regard. The Tribunal by an order dated 07.09.2012 has held that as per the approved plan, the total area of the land is 48,939 square feet, which is more than one acre and part of the land was handed over to the BBMP by the assessee for public purposes. It was further held that the land area, which was ultimately sold to
15 the purchasers of various flats was only 38,573 square feet. The Tribunal by placing reliance on decision of Mumbai Bench of the Tribunal in M/s Veedhi Builders vs. ITO in ITA No.1212/2009 for Assessment Year 2005-06 held that size of the plot has to be taken as a whole and the area surrendered for the public purpose viz., for roads and gardens cannot be excluded. It is pertinent to note that Central Board of Direct Taxes (CBDT) has issued a letter dated 04.05.2001 to Maharashtra Chamber of Housing Industry and has clarified that any project, which has been approved by the local authority as a housing project should be considered adequate for the purpose of Section 10(23G) and Section 80IB(10) of the Act. The aforesaid Circular was interpreted by Bombay High Court in COMMISSIONER OF INCOME TAX VS. VANDANA PROPERTIES supra and it was held that the housing project must be on a vacant plot of land having minimum area of one acre and in such a case, the assessee is entitled to benefit of deduction under Section 80IB(10) of the Act. Similar view was taken by High court of Madras in ‘COMMISSIONER OF INCOME TAX THIRUCHIRAPALLI VS. R.SETHURAMAN’, 2015-TIOL-1912-HC-MAD- IT as well as in ‘COMMISSIONER OF INCOME
16 TAX, CHENNAI VS. M/S VOORA PROPERTY DEVELOPERS PVT. LTD.’, TAX CASE (APPEAL) NO.56/2015 DATED 09.03.2015. We respectfully concur with the view taken by the Bombay as well as Chennai High Courts. In the instant case, the housing project of the assessee was approved in respect of an area of 48,939 square feet, which is more than one acre i.e., 43,500 square feet, therefore, we hold that the assessee has complied with requirement contained in Clause (b) of Section 80IB(10) of the Act. B. REQUIREMENT OF RESIDENTIAL UNIT HAVING A MAXIMUM BUILT UP AREA OF 1,500 SQUARE FEET: 16. The Assessing Officer has held that 32% of the units of the assessee are having an area of more than 1,500 square feet. It was further held that though the Income Tax Appellate Tribunal has recorded a finding in favour of the assessee that assessee is entitled to benefit of principle of proportionality for the Assessment Years 2004-05 and 2005-06, yet the aforesaid finding has not attained finality and the same is pending before this court in an appeal. The Commissioner of Income Tax (Appeals) by
17 placing reliance on the order passed by the Tribunal in respect of previous Assessment Year viz., 2004-05 has held that the assessee is entitled to benefit of deduction under Section 80IB(10) of the Act proportionately in respect of residential units having built up area less than or equal to 1,500 square feet. The aforesaid finding has been affirmed by the Tribunal vide order dated 07.09.2012 by placing reliance in case of the assessee in respect of previous Assessment Year i.e., 2005-06 as well as 2006-07. It is pertinent to note that the aforesaid view has been affirmed by a bench of this court in respect of another project of the assessee for the Assessment Year 2004-05 vide order dated 29.02.2012 passed in I.T.A.No.763/2009. It is also pertinent to note that similar view was taken in favour of the assessee in respect of Assessment Year 2005-06 and 2006-07 and the SLP against the order passed by this court has been dismissed vide orders dated 04.01.2013 and 14.03.2014 respectively. The aforesaid issue has therefore, attained finality. It is also pertinent to mention here that clause (c) of Section 80IB(10) of the Act, the Legislature has used the expression ‘residential unit’ and has specifically omitted to use the expression ‘each’. It is also
18 pertinent to mention here that in several Sections like Section 5A, 6(5), 10(10), 35D(1), 44AD(3), 80HHB, 80I(5), 153C, 153D, 158DA, 293A(3), 296 and 298(4) of the Act as well as under Rules 2BA, 20(4), 22(3), 62(3), 74(2), 74(6) and 104 of the Rules, the Legislature has expressly used the word ‘each’. It is well settled rule of statutory interpretation that when a situation has been expressed differently, the legislation must be taken to have been tended to express a different intention. [SEE: ‘COMMISSIONER OF INCOME TAX, NEW DELHI VS. EAST WEST IMPORT AND EXPORT (P) LTD’ 1989 (1) SCC 760]. On plain reading of clause (c) of Section 80IB(10) of the Act, it is evident that the same does not exclude the principle of proportionality in any manner. Therefore, we hold that the Commissioner of Income Tax (Appeals) as well as the Tribunal have rightly found that the assessee has complied with the requirement contained in clause (c) of Section 80IB(10) of the Act. C. REQUIREMENT OF COMMERCIAL AREA IN A PROJECT NOT EXCEEDING 5% OF THE BUILT UP AREA: 17. The Assessing Officer in para 11 of its order has recorded the submission of the
19 assessee that in respect of each block, it has taken separate approval. The Tribunal vide order dated 07.09.2012 inter alia held that individual residential block has to be considered as separate project and the commercial space which is separate part of the project should not be considered. It was further held that similar view was taken by the Tribunal in case of the assessee for Assessment Year 2004-05, which has been upheld by this court in I.T.A.No.763/2009 and 25/2009 vide order dated 29.02.2012 and therefore, the assessee was held entitled to deduction under Section 80IB(10) of the Act. It is pertinent to mention here that the assessee had preferred a Special Leave Petition, which was dismissed by the Supreme Court. We therefore, hold that the assessee has complied with the requirement of clause (b) of Section 80IB(10) of the Act. 18. The Supreme Court in RADHASOAMI SATSANG Vs. COMMISSIONER OF INCOME- TAX’ (1992) 60 TAXMAN 248 (SC) has held that even though principles of res judicata do not apply to income tax proceedings, but where a fundamental aspect permeating through the different Assessment Years has been found as the fact one way or the other and the parties have
20 allowed the position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year. For this reason also, in the facts of the case, a different view cannot be taken. On literal construction of the provision of Section 80IB(10) of the Act it is evident that the aforesaid provisions do not suffer from any ambiguity, therefore, the decisions rendered by the Supreme Court in the case of DILIP KUMAR and RAMNATH & CO. supra have no application to the obtaining factual matrix of the case." 6. We have carefully considered the submissions made on behalf of the parties and perused the records. On close scrutiny of the judgment rendered by this court in Brigade Enterprises Ltd., supra, and facts involved in the said case, we are of the considered opinion that the substantial question of law involved in this appeal is squarely answered in the said case. 7. Following the dictum in Brigade Enterprises, the substantial question of law raised in this appeal is answered against the Revenue and in favour of the assessee.
21 Resultantly, the appeal fails and is hereby dismissed. Sd/-
JUDGE Sd/- JUDGE PL*