Rajasthan H.C : Assessee as the developer and thereby allowing deduction u/s 80IB(10) of Rs.1,01,86,533/-, ignoring the specific development agreement entered into by him merely as land owner with another developer to execute and construct the flats on the land of the assessee

High Court Of Rajasthan

Pr. CIT vs. Prem Kumar Sanghi

Section : 80IB(10)(a)

K.S. Jhaveri & Inderjeet Singh, JJ.

D.B. Income Tax Appeal No. 146 / 2017 & 114 / 2016

19th July, 2017

Counsel appeared:

Anuroop Singhi, Aditya Vijay for the Petitioner.: Siddharth Ranka, Sourabh Harsh for the Respondent.

JUDGMENT

In both these appeals common question of law and facts are involved, they are decided by this common judgment.

By way of these appeals, the appellants have assailed the judgment and order of the Tribunal whereby Tribunal has dismissed the appeals of the department.

Counsel for the appellants has framed the following substantial question of law: DB ITA No.146/2017

(i) Whether the Tribunal was justified in holding assessee as the developer and thereby allowing deduction u/s 80IB(10) of Rs.1,01,86,533/-, ignoring the specific development agreement entered into by him merely as land owner with another developer to execute and construct the flats on the land of the assessee?

(ii) Whether the Tribunal was justified in allowing deduction u/s 80IB(10) to the assessee when neither he undertook development and construction of the housing project nor the completion certificate of the project as required in Clause-ii of explanation to Section 80IB(10)(a) was furnished by the assessee?

(iii) Whether on the facts and circumstances of the case, the finding of the Tribunal is perverse, contrary to the record and untenable in the eye of law?

DB ITA No. 114/2016

(i) Whether the Tribunal was justified in holding assessee as the developer and thereby allowing deduction u/s 80IB(10) of Rs.5,22,92,252/-, ignoring the specific development agreement entered into by him merely as land owner with another developer to execute and construct the flats on the land of the assessee?

(ii) Whether the Tribunal was justified in allowing deduction u/s 80IB(10) to the assessee when niether he undertook development and construction of the housing project nor the completion certificate of the project as required in Clause-ii of explanation to Section 80IB(10)(a) was furnished by the assessee?

(iii) Whether on the facts and circumstances of the case, the finding of the Tribunal is perverse, contrary to the record and untenable in the eye of law?

The brief facts of the case are that during the assessment year under question the assessee claimed deduction u/s 80IB(10) of the Act of Rs.1,01,86,533/-on the income earned from sale of flats, which the assessee received as his share in the project carried out at the land owned by him at Khasra No.10 Gram Durgapura, Tehsil Sanganer, Jaipur.

It is relevant to note that for the development of the said plot of land the assessee entered into a development agreement dated 30.06.2005 with one M/s. Unique Builder and Developer (Reality) with the intent get constructed a residential complex.

A perusal of the said development agreement makes it more than explicit that on account of the inability of the assessee to raise construction on account of lack of finance, manpower and infrastructure for construction and for other reasons stated in the development agreement, he entered into the development agreement with M/s. Unique Builder and Developer (Reality), who was specifically referred in the Development Agreement as Developer.

It is submitted by the counsel for the appellant that the Tribunal as well as CIT(A) have committed grave illegality by reversing the findings given by Assessing Officer and thereby allowing the benefit of deduction under Section 80IB(10) of the Act to the assessee of Rs.1,01,86,533/-after holding that assessee has undertook development and construction of the housing project. Thus, the order passed by the Tribunal deserves to be quashed and set-aside.

He has further submitted that the Tribunal as well as CIT(A) have failed to consider the clauses of agreement, which clearly shows that the assessee was only a land owner. Perusal of clauses of agreements reveals that the assessee was only a land owner. He was not a developer/contractor and by no stretch of imagination could be said to have been involved in developing and building housing project.

It is also submitted that the appellate authorities ha e completely lost sight of the specific clauses of the development agreement dated 30.06.2005 entered into by the assessee, in the capacity of OWNER, with M/s. Unique Builder and Developer (Reality) in th capacity of DEVELOPER. The very factum that the assessee was merely an owner and there was a specific developer for developing the land owned by the assessee makes it more than evident that the assessee cannot be considered as a developer for any purpose much less for claiming benefit of deduction u/s 80IB(10).

The other relevant clause referred by the Assessing Officer which demonstrate and establishes not only the intent but also the incapacity of the assessee to develop the project and also the exclusion of the assessee from day-to-day working in execution/construction/completion of the development of the plot leaves no scope of doubt that the assessee was not a developer of the project and cannot be held entitled for claiming deduction u/s 80IB(10).

It is further submitted that the Tribunal has grossly erred by placing reliance upon the fact that all the approvals, permissions are in the name of the assessee, which was inevitable as there was no transfer of title by the assessee and merely a development agreement has been entered into by the assessee with a developer to develop the project. Grant of approval/permission in the name of the assessee is of no consequence whatsoever for the purposes of claiming deduction u/s80IB(10) of the Act.

4. However, in view of the observations made by CIT(A) in para 3.1.2 observing as under:
3.1.2 Determination

(i) I have carefully perused the submissions of the appellant, assessment order and the material placed on record. The AO has disallowed the deduction claimed by the appellant u/s 80IB(10) of the Act on account of the following reasons:

The appellant was just the owner of the land and he was not a developer. The housing project was not completed by 31.03.2011.

The appellant violated the provisions of clause (e) and (f) of section 80IB(10) of the Act.

(ii) It would be appropriate to mention here that the AO did not allow the deduction claimed by the appellant u/s 80IB(10) of the Act for the AY 2010-11 and 2011-12 on the similar ground and the ld. CIT(A) vide his order dated 19.09.2014 in ITA No. 427/13-14 and 443/13-14 for the AY 2010-11 and 2011-12 did not agree with the AO and allowed deduction u/s 80IB(10) of the Act, and the ld. CIT(A) followed the order of his predecessor in respect fo first two grounds i.e. the appellant was just the owner and not the developer and the project was not completed within the stipulated time which were decided by ld. CIT(A) vide order dated 01.02.2013 for the AY 2009-10 in ITA No.349/1112, wherein the deduction was allowed to the appellant. Regarding the third ground i.e. the appellant has not complied with the provisions of clause (e) and (f) of section 80IB (10), it was held by the ld. CIT(A) for the AY 2010-11 and 2011-12 that these clauses were brought on the statute w.e.f. 01.04.2010 and a perusal of the details has shown that the flats under consideration were allotted before this provision came into force. Therefore, he allowed the deduction u/s 80IB(10) of the Act

(iii) It is noted from the assessment order that it has been observed by the AO that during the year under consideration, the appellant sold two flats i.e. 824 and 924 on 01.04.2011 to Smt. Neena Rathi and thus violated the provisions of clause (e) and (f) of section 80IB(10) of the IT Act which are applicable from 19.08.2009 in view of Explanatory notes to the provisions of the Finance (no 2) Act 2009 dated 03.06.2010 circulated by CBDT Circular no. 5/2010.

(iv) During appellate proceedings, it was submitted by the appellant that the sale deeds registered in favour of Smt. Neeta Rathi on 01.04.2011 were in pursuance to Agreement to Sell dated 14.07.2009 in the name of Narendra Kumar Rathi who assigned his rights in favour of Neeta Rathi, his relative. Thus the allotment of these flats were also before 14-2010. The appellant also produced copies of the Agreement to Sell dated 14.07.2009 which revealed that the flats No. 824 and 924 were allotted to Shri Narendra Kumar Rathi on 14.07.2009 who assigned these flats to Smt. Neena Rathi on 28.03.2011. In view of the above, it is held that there was no violation of provisions of clause (e) and clause (f) of sectio 80IB(10) of the Act in respect of flats no. 824 and 924 which were allotted by the appellant on 14.07.2009 i.e. well before the date 01.04.2010, the said clauses were brought on the statute.

(v) During the appellate proceedings, the AR submitted a copy of the order dated 04.12.2015 of Hon’ble ITAT, Jaipur in the case of the appellant for the AY 2009-10, 2010-11 and 2011-12 wherein the Hon’ble ITAT allowed deduction u/s 80IB to the appellant for all the three years.

(vi) Therefore, in view of the above and respectfully following the decision of Hon’ble ITAT, Jaipur in case of the appellant, as referred above and in view of the principle of consistency, it is held that the AO was not justified in disallowing deduction claimed by the appellant u/s 80IB(10) of the Act and hence the AO is directed to allow the deduction claimed by the appellant u/s 80IB(10) of the Act.

5. The observations of tribunal in para 4.1 & 4.2 holding as under:

4.1 On the contrary, the ld. Counsel for the assessee reiterated the submissions as made in the written submission and at the outset submitted that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in assessee’s own case pertaining to A.Ys 2009-10, 2010-11 and 2011-12 in ITA Nos. 448/JP/2013, 782/JP/2014 and 783/JP/2014. The ld. Counsel submitted that identical grounds were raised by the revenue in these assessment years which have been decided in favour of the assessee.

4.2 We have heard rival contentions and perused the material available on record. The revenue in assessment year 2009-10 has raised the identical grounds as reproduced by the Coordinate Bench in ITA No. 448/JP/2013 as under:

“i. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in allowing deduction/s 80IB to the assessee who entered into a development agreement as the land owner and has not undertook development & construction of the housing project.

ii. Whether on the facts and in the circumstances of the case and in law the deduction u/s 80IB is allowable only to an undertaking involved in the business of developing and building housing projects and not to an individual who entered into a development agreement as the owner of the land.

iii. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in allowing deduction u/s 80IB to the assessee wheen the completion certificate of the project was not furnished by assessee as required in clause (ii) of explanation below section 80IB(10)(a) of the Act “

We find that the coordinate Bench after considering the submissions of the assessee has decided the issue as under:

“4.9 We have heard the rival contentions and perused the material available on record. As the facts emerge, the assessee undertook various activities from inception over a long period of time which included:

i. Undertaking the omprehensive and fundamental tedious process of getting the land converted for residential use from competent authorities and obtaining patta from JDA for its residential use;

ii. Coordination, compliance and meeting the lengthy queries about sanction of plan for development and construction of housing project on the impugned land from local authority which is undisputedly carried over by assessee over a period of time. These activities are fundamental and crucial for development of housing project. There is no dispute on these glaring facts.

iii. Making the impugned land usable for the purpose the permission of development of housing construction by providing proper road and easy approach to the site which is precondition for sanction of plan. This work has been done by the assessee.

iv. Assessee had not transferred the land to M/s UDB (Reality) and as per agreement retained the rights of jointly supervising the development and construction of the impugned housing project.

v. The assessee apart from the said rights of supervision retaining the rights of transferring the flats falling in his share in the name of prospective purchasers.

Since the project was big, it falls well within the commercial expediency that the project is jointly developed. Therefore, assessee’s endeavor of making a joint venture with M/s UDB (Reality) cannot be looked at with suspicion. It is settled law that the revenue authorities should not step into the shoes of a businessman and decide on their own perception what, when and how a businessman should conduct his business. Be that as it may, the joint development agreement has not been doubted by ld. AO. The impression carried by ld. AO is to the effect that assessee has merely transferred his land and the income derived from sale of flats is not eligible for deduction u/s 80IB. Besides the case of Radhey Developers (supra) is relied to disentitle the assessee. The facts of that case have been succinctly delineated above which in our considered opinion are distinct from assesses facts inasmuch as there is no doubt that assessee was owner of the land in question, undertook various activities for conversion of land user, tedious activities for approval for development of housing project and constructing the approach road which was mandatory for development permissions. All the approvals, permissions and completion certificates are in the name of assessee. All this copious evidence available on record and filed in paper book along with detailed written submissions supports the contentions and claim of the assessee. In our considered view the following judicial precedents which are on similar facts as that of assessee support the eligibility of his claim u/s 80IB(10) in all these years:

“Jaipur ITAT in the case of M/s Indo Continental Hotels & Resorts Ltd.(supra) held that the approval of project was granted Gaziabad Development Authority in the name of assessee M/s Indo Continental Hotels & Resorts Ltd. i.e. assessee and not in the name of M/s Parswanath Developer, therefore it cannot be said that assessee was only a name lender in the development of housing development project. The agreement entered by assessee with M/s Parswanath Developers provided that assessee will participate in the Housing Project and will do the necessary work assigned to it. After completion of the Project, the profit ratio was shared in the ratio of 1/3rd in this case it is 46% and 56%. No doubt, assessee did not do any marketing activity as it was assigned to M/s PDL, and thereafter flats were sold in the market and profits were shared in terms of agreed ratio. ITAT held that all these facts and circumstances amply proved that assessee indulged in developing of the Housing Project and was eligible for claim u/s 80 (IB).

In our considered view the facts and circumstances of M/s Indo Continental Hotels are similar to assessee’s case and being a judgment of this bench only deserves to be followed. Hon’ble Karnataka High Court in case of CIT Vs. Shravanee Construction had occasion to decide the eligibility of claim u/s 80(IB) on similar facts. Hon’ble court held that-contention of the revenue that there is no eligibility to deduction u/s 80(IB) as assessee did not undertake any developmental or building activity has no substance. That is not the requirement of law and keeping in mind, the object with which this provision is introduced when all persons who have made investments in this housing project and have complied wi h 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”. Similar view has been taken by other judicial authorities as under:

i. Abdul Khader Vs. ACIT (2012) 137 ITD 188 (Bang)

ii. Kura Homes P. Ltd. Vs. I.T.O. (2012) 139 ITD 460 (Hyd)

iii. D.K. Construction Vs. ACIT (2010) 17 TTJ 1 (Indore)

iv. RNS Infrastructure Ltd Vs. DCIT (Bang. Bench) (2012) 24 Taxman.com Hon’ble Karnataka High Courts clear judgment in Shravanee Construction (supra) besides correctly interpreting provisions of sec 80 (IB) has thrown guiding light on legislative purpose in incorporating the eligibility of this deduction, dispels doubts which are raised by ld. AO following Radhey Developers judgment, which is on different facts. Jaipur ITAT in M/s Indo Continental Hotels judgment (supra) also has adopted same view, as taken by Hon’ble Karnataka High Courts in Shravanee Construction (supra). It has been held that if the development plans and other approvals are in the name of assessee, its claim for deduction u/s 80(IB) cannot be denied on the basis that some other agency was involved in construction. This is quite understandable as for all practical purposes, the assessee retains the status of a developer of housing project in the record of JDA, other concerned regulatory laws and agencies of govt. departments. This leads to an anomalous situation of contradiction amongst the govt. departments, which has been duly addressed by Hon’ble Karnataka High Court. Respectfully following these judgments which are on similar facts, we are inclined to hold that assessee is eligible for claim u/s 80 (IB)(10). In the facts and circumstances mentioned in details above and respectfully following these judicial precedents, we find not infirmity in the orders of ld. CIT(A) for the impugned assessment years. Consequently the impugned orders of ld. CIT(A) are upheld.”

The ld. D/R has not pointed out any contrary binding precedent, therefore, taking a consistent view of the matter, we do not see. Any infirmity in the order of ld. CIT(A), the same is hereby upheld. The ground raised by the revenue in this appeal is dismissed.”

6. Otherwise also, the controversy is covered by the decision of this court in Appeal No. 120/2016 in the case of same assessee decided on 4.1.2017 wherein it has been held as under:

“4. The Tribunal has sought to rely upon the judgment in the case of CIT, Jaipur vs. M/s Indo Continental Hotels and Resorts which judgment was confirmed by this court in D.B. Income Tax Appeal No.630/2011 (CIT Jaipur vs. M/s Indo Continental Hotels and Resorts) & other connected matter decided on 30.5.2017 which reads as under:

4.1 The issue agitated before tribunal as regard to previous year, the issues is discussed in Income Tax appeal No.470/2009, which we have decided today but there is no reference of price in the same. In our view in CIT(A) and the tribunal have committed an error in not referring to the price in the previous year.

4.2 Therefore, the matter is required to be remitted back to the tribunal only on this issue.

4.3 The matter is remitted back to tribunal to decide, the same keeping in view the statutory provision. We make it clear that we have not expressed any opinion of merits.

5.1 The second issue is covered by the decision of this court in Commissioner of Income Tax Vs. Veena Developers(2015) 277 CTR 0297(SC) wherein it has been observed as under

“High Court interpreted the expression “housing project” by giving grammatical meaning thereto as housing project is not defined under the Income Tax Act in so far as the aforesaid provision is concerned. Since sub-section (10) of Section 80IB very categorically mentioned that such a project which is undertaken as housing project is approved by a local authority, once the project is approved by the local authority it is to be treated as the housing project. We may also point out that the High Court had made observations in the context of Development Control Regulations (hereinafter referred to as ‘DCRs’ in short) under which the local authority sanctions the housing projects and noted that in these DCRs itself, an element of commercial activity is provided but the total project is till treated as housing project.

a. Upto 31/3/2005 (subject to fulfill ng other conditions), deduction under Section 80IB (10) is allowable to housing projects approved by the logal authority having residential units with commercial user to the extent permitted under DC Rules/Regu ations framed by the respective local authority.

b. Where the commercial user permitted by the local authority is within the limits prescribed under the DC Rules/Regulation, the deduction under Section 80IB(10) upto 31.3.2005 would be allowable irrespective of the fact that the project is approved as ‘housing project’ or ‘residential plus commercial.”

5.2 Therefore this issue is required to be held in favour of assessee.

5.3 For the first issue the judgment of the tribunal is quashed and set aside. The matter is remitted back to the tribunal to decide this issue afresh. However, the second issue is decided in favour of assessee.”

7. In that view of the matter, the issues are answered in favour of the assessee and against the department. The appeals stand dismissed. A copy of this judgment be placed in each file.

[Citation : 408 ITR 632]