IN THE INCOME TAX APPELLATE TRIBUNAL
"F" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri N.K. Billaiya, Accountant Member
ITA No. 6901 & 8469/Mum/2010
(Assessment Years: 2006-07 & 2007-08)
Income Tax Officer - 19(3)(4) M/s. Velentine Developers
Room No. 304, 3rd Floor Vs. Plot No. 421/A, "Prarabdh"
Piramal Chambers, Lalbaug 15th Road, Khar (West)
Mumbai 400012 Mumbai 400052
PAN - AAEFV3543P
Appellant Respondent
Appellant by: Shri Rajesh Ranjan Prasad
Respondent by: Shri Reepal G. Tralshawala
Date of Hearing: 25.02.2014
Date of Pronouncement: 14.03.2014
ORDER
Per D. Manmohan, V.P.
These two appeals are directed against the orders passed by the CIT(A)-
30, Mumbai and they pertain to assessment years 2006-07 and 2007-08.
2. Eligibility to claim deduction under section 80IB(10) of the Income Tax
Act, 1961 is the subject matter of dispute before us.
3. The facts of the case revolve in a narrow compass. The assessee is
engaged in the business of developing housing project. The assessee firm
had taken for development a plot of land consisting of 24,168.80 sq.mtrs.
which admeasures about six acres of land and on the said plot of land the
assessee commenced construction of residential complexes which are named
as "Meadow Park-I & Meadow Park-II". The project is situated at Bandivali,
Jogeshwari (W), Mumbai. It is not disputed that the project was approved on
11.03.2004 and construction of Park-II commenced on the same day
whereas Park-I commenced its operations on 26.03.2004. In other words,
both the projects commenced before 31st March, 2004. Admittedly the built
up area of each flat is less than 1000 sq.ft. and the projects have been
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completed within the period stipulated in section 80IB of the Act, i.e.
completion certificate was obtained in respect of Park-II on 05.12.2005
whereas in respect of Park-I completion certificate was obtained on
04.01.2006.
4. Undertakings developing and building housing projects fall in the
eligibility criteria under section 80IB of the Act subject to certain conditions
in force at the time when the projects were approved. Section 80IB
stipulates the following conditions in order to claim benefit of 100%
deduction from the profits earned from undertaking, developing and
building housing projects approved prior to 31.03.2005, which the assessee
had fulfilled: -
i. It has to commence development of housing project on or after 1st
October, 1998
ii. The area of the plot of land should not be less than one acre.
iii. Each residential unit should not exceed the maximum built up
area of 1000 sq.ft. in Mumbai.
5. For the years under consideration assessee claimed deduction under
section 80IB(10) of the Act on the ground that it has fulfilled all the three
conditions. It deserves to be noticed here that section 80IB(10) was amended
w.e.f. 01.04.2005 wherein the Legislature refers to undertakings developing
and building housing projects approved before the 31st day of March, 2007
with a further condition that such undertaking should not only commence
development after the first day of October 1998 but should complete such
construction before 31st March, 2008. The size of the plot of land and the
built up area for each residential unit has not undergone any change but
one more clause was added, i.e. clause `d' whereby the benefit to claim
deduction under section 80IB(10) was limited to those projects subject to
fulfilling of clause `d' w.e.f. 01.04.2005. For immediate reference clause `d' is
reproduced hereunder: -
"the built up area of the shops and other commercial establishments
included in the housing project does not exceed 5% of the aggregate
built up area of the housing project or 2000 sq.ft., whichever is less."
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6. During the course of assessment proceedings for the years under
consideration the AO noticed that the assessee has catered some space for
building shops and commercial establishments, the total of which is in
excess of 2000 sq.ft. and as per sub-clause `d' to section 80IB(10) of the Act
the assessee is not entitled to the benefit of deduction if the built up area of
the shops is in excess of 2000 sq.ft. It also deserves to be noticed that
according to the assessee the total built up area of the shops in the project
is 1816 sq.ft. but the AO has given reasons to establish that the built up
area of commercial space is more than 2000 sq.ft. and the assessee has not
preferred an appeal before us on this aspect.
7. The AO noticed that the assessee constructed 14 shops in the housing
project and the total area of 1816 sq.ft. refers to carpet area and not built up
area. By applying the standard ratio of 1.2 for converting into built up area,
the built up area works out to 2179 sq.ft. Therefore, the AO was of the view
that the assessee violated the conditions prescribed under clause `d' of
section 80IB(10) of the Act, which was introduced in the Statute book w.e.f.
01.04.2005. Under these circumstances the AO was of the opinion that the
assessee is not entitled to deduction under section 80IB(10) of the Act. On
the other hand, the case of the assessee was that the conditions stipulated
in clause `d' of section 80IB(10) cannot be made applicable to the profits
earned from the housing project approved in the case of the assessee since
the approval was obtained prior to the amendment carried out by the
Finance (No. 2) Act, 2004. In other words, the law as on the date, when the
approval of the housing project was obtained and the project commenced,
should be made applicable while considering a case as to whether the
assessee is entitled to deduction as per the provisions of the Statute. It was
further contended that clause `d' was introduced w.e.f. 01.04.2005 whereby
an assessee developing housing project should not construct built up area of
shops in excess of 2,000 sq.ft. whereas prior to the said amendment there
was no such pre-condition for availability of deduction and the only
condition was that the project ought to be approved as "housing project". In
the case of the assessee there is no dispute that the project of the assessee
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fulfilled all the conditions as stipulated in the Act as on the date of approval
and commencement and it was approved as a housing project.
8. The AO was, however, of the opinion that upon construction of shops
and commercial establishments in the project the assessee would not be
entitled to claim deduction under section 80IB(10) of the Act because even
prior to the amendment to section 80IB(10) the condition prescribed was for
construction of residential units only which, in the instant case, stands
violated by virtue of construction of 14 shops. Even otherwise by virtue of
the amended provision the area allocated for shops and commercial
establishments was in excess of 2,000 sq.ft. and even on that count the
assessee would not be entitled to the benefit under section 80IB(10) of the
Act. Assessment was completed accordingly.
9. Aggrieved, assessee raised a two fold contention before the CIT(A), i.e.;
(a) Section 80IB(10)(d) was introduced into the Statute book w.e.f.
01.04.2005 which cannot be made applicable to the housing projects
approved prior to the said date, and (b) the only pre-condition as per the
pre-amended provision was that the project should be approved as a
housing project and unlike the conditions prescribed under clause `d' there
is no such restriction with regard to the built up area of shops and hence,
whether the built up area of shops is below 2,000 sq.ft. or above 2,000 sq.ft.
would not make any difference for the purpose of making a claim under
section 80IB(10) of the Act. Elaborating further it was contended that a
beneficial provision such as section 80IB(10) has to be read in a way that
would advance the legislative object and intent and it should not be
interpreted in a way that it would make the provision redundant. In the
instant case the local authority has approved the project as housing project
and the assessee had developed more than 90,000 sq.ft. out of this the
major portion is for residential units and only a meagre area was converted
into shops for the convenience of the people residing in the buildings. Merely
because a small portion is converted into shopping area it will not change
the main object and it cannot be treated as a non-housing project. It was
also contended that the project was approved in March, 2004 and
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construction was also commenced in March, 2004 and as per the law, as it
stood at the relevant point of time, the assessee would be entitled to
deduction under section 80IB(10) of the Act so long as the project is
approved as a housing project and the amended law, which has come into
force w.e.f. 01.04.2005, would not be applicable merely because the
construction was completed during the previous year relevant to A.Y. 2005-
06. Applicability of the conditions stipulated under section 80IB(10) would
have to be considered at the point of time when the project was approved
and construction commenced and so long as the construction was
completed within the period stipulated in the Act, as it existed at the
relevant point of time, the subsequent amendment which was prospective in
nature cannot take away the right accrued to the assessee to claim the
benefit. In other words, the provisions of the Act has to be given effect to so
as to advance the object of the legislation and it should not be interpreted
narrowly so as to take away the vested right accrued to the assessee with
regard to the claim of deduction of profit from the project. Reliance was also
placed upon several decisions of the ITAT Mumbai Benches wherein it was
held that the amended provisions would not be applicable to the projects
that are approved prior to the amended law coming into force.
10. The learned CIT(A) considered the detailed submissions made on
behalf of the assessee. In the light of the decision of the ITAT Pune Special
Bench in the case of Brahma Associates 30 SOT 155 he was of the opinion
that when a housing project is approved, the law as on the date of approval
should be taken into consideration in which event the amended provision,
which has come into effect from 01.04.2005, cannot be made applicable. In
other words, so long as the built up area of shops is less than 10% of the
total built up area the assessee cannot be denied the benefit under section
80IB of the Act. He also referred to several other decisions of the ITAT
Mumbai Benches in holding that the project undertaken by the assessee
was approved as a `housing project' by the local authority in March, 2004
and the construction also having been commenced in 2004 the pre-amended
provisions are applicable in which event the assessee is entitled to claim
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deduction under section 80IB(10) of the Act and directed the AO
accordingly.
11. Aggrieved, Revenue is in appeal before us. The learned D.R. (CIT-D.R.)
has not disputed the factual matrix of the case. Admittedly, the extent of
land which was taken up for development admeasures about six acres and
the project was approved as housing project by the local authority and Park-
I and Park-II projects were commenced prior to 31.03.2004. The CIT-D.R's
emphasise was mainly on the amended provisions whereby the assessee
would loose the benefit of deduction if the built up area utilised for shops,
etc. exceeds 2,000 sq.ft. He adverted our attention to clause `d' of section
80IB(10) of the Act which came into effect from 01.04.2005. In his opinion,
the assessee having obtained completion certificate on 05.12.2005 in
respect of Park-II and on 04.01.2006 in respect Park-I, the amended
provisions will come into play and, therefore, the assessee is not entitled to
deduction under section 80IB(10) of the Act. He adverted our attention to
Instruction No. 4 of 2009 dated 30.06.2009 issued by CBDT to submit that
deduction under section 80IB(10) would be available on an year to year
basis in which event the law applicable in the year in which deduction is
claimed should be made applicable to the assessee. It deserves to be noticed
here that the instruction referred to by the CIT-D.R. was issued to clarify
that an assessee can claim the benefit of deduction on year to year basis
depending on the method followed by the assessee subject to the condition
that completion of the project should be within the time limit specified under
section 80IB(10) of the Act and if the construction is not completed before
the specified date deduction granted in the earlier years should be
withdrawn. In the case of the assessee here, even as per the pre-amended
provisions the project was completed within the time limit stipulated under
section 80IB(10) of the Act. The CIT-D.R. also referred to Circular No. 5 of
the CBDT dated 15.07.2005 to highlight that extension of time limit for
obtaining approval of housing project under the said provision would apply
in relation to A.Y. 2005-06 and subsequent years. In the instant case the
assessee has completed the projects in the previous year relevant to A.Y.
2006-07; in the opinion of the learned CIT-D.R., the amended provisions are
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applicable. He also filed detailed submissions alongwith certain case law to
submit that it is a cardinal principle of tax law that the law to be applied is
that which is in force in the assessment year and there is no room for
equity. He also relied upon a subsequent decision of the ITAT "I" Bench,
Mumbai in the case of Everest Home Construction (I) P. Ltd. 139 ITD 01
wherein the Bench had taken a view, based upon the ratio laid down by the
Hon'ble Supreme Court in the case of Reliance Jute & Industries Ltd. 120
ITR 921, that in the year of completion if the amended law provides for a
condition that commercial built up area should not be more than 2,000
sq.ft., in the event of exceeding the limit the assessee would not be entitled
to claim deduction under section 80IB(10) of the Act. He has also referred to
the decision of the Hon'ble Karnataka High Court in the case of DSL
Software Ltd. 351 ITR 385 wherein the Court, while considering the
provisions of section 10B of the Act, observed that the provision as it stood
at the time when the assessee is entitled to claim deduction is applicable; if
during the eligibility period tax holiday period is extended the assessee can
claim benefit as per the amended provisions. In the opinion of the CIT-D.R.
the underlying ratio squarely applies to the case on hand which amply makes
it clear that the amended provisions can be made applicable in the years in
which the claim is made. He has also referred to the decision of the Indore
Bench of the ITAT wherein similar view was taken. In the light of these
decisions the learned CIT-D.R. was of the view that the law correctly laid
down in a later decision should be preferred to that of the earlier decisions of
the Tribunal or High Court. He has also referred to the decision of the Hon'ble
Bombay High Court in the case of CIT vs. Thane Electricity Supply Ltd. 206
ITR 727 in support of his contention that the expression "two views" means
two logical views and merely because one view, which is based on improper
reasoning, is already taken by a Bench or a High Court it cannot be strictly
treated as one permissible view and in such cases appellate forum is entitled
to apply the latter decision which espouses the law in the correct perspective.
He thus strongly supported the order passed by the AO.
12. The learned counsel for the assessee submitted that the issue stands
squarely covered by the decision of the Hon'ble Bombay High Court in the
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case of Brahma Associates wherein the decision of the ITAT Pune Special
Bench was upheld. Adverting our attention to the decision of the Hon'ble
Bombay High Court in the case of Brahma Associates 333 ITR 289 the
learned counsel for the assessee submitted that the Hon'ble jurisdictional
High Court has specifically referred to the provisions of section 80IB of the
Act and it has also taken into consideration clause `d' inserted in section
80IB(10) w.e.f. 01.04.2005 and upon analysing the matter the Hon'ble Court
concluded that the amended provision is prospective in nature and it cannot
be applied to a case where the project was approved and construction
commenced prior to introduction of clause `d'. He, therefore, submitted that
the decision of the Hon'ble jurisdictional High Court has to be followed in
preference to the decision of any other High Court. At any rate, even after
the decision of the ITAT Mumbai Bench in the case of Everest Home
Construction (I) P. Ltd., the ITAT Mumbai Bench had an occasion to
consider this very issue in the light of the decision of the Hon'ble Gujarat
High Court in the case of Manan Corporation vs. ACIT 356 ITR 44 wherein
this very issue had come up before the Hon'ble Court and the Hon'ble Court
in turn observed that the amended provisions are not applicable in the case
of an assessee whose project was approved and commenced prior to the
introduction of clause `d'. In fact the ITAT Mumbai Bench in the case of ITO
vs. Yash Developers (ITA No. 3644/Mum/2012 dated 31.02.2014 wherein
one of us is a party) has reconsidered the matter to hold that the amended
provisions are not applicable to a project approved prior to 31.03.2004 and
in turn followed the decision of the Hon'ble Bombay High Court in the case
of Brahma Associates. The learned counsel for the assessee has also referred
to the decisions of the ITAT Pune Bench as well as the decisions of ITAT
Ahmedabad Bench, which were rendered subsequent to the decision of the
ITAT Mumbai Bench in the case of Everest Home Construction (I) P. Ltd. to
submit that the Hon'ble Gujarat High Court and Hon'ble Bombay High
Court have taken a uniform view that the amended provision and condition
of built up area in respect of space utilised for construction of shop is
prospective in nature and not applicable to the projects approved prior to
01.04.2005. He, therefore, submitted that in the absence of any contrary
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decision on section 80IB of any High Court, the decision of the Hon'ble
Bombay High Court has to be followed and thus he justified the view taken
by the learned CIT(A).
13. We have carefully considered the rival submissions and perused the
record. It is not in dispute that the Hon'ble Bombay High Court in the case
of Brahma Associates (supra) had considered this very issue and arrived at a
conclusion that clause `d' to section 80IB(10) is prospective in nature and
cannot be made applicable to the projects approved prior to 01.04.2005.
Though there was deviation from the earlier judgement by certain Benches
of the Tribunal, but subsequent to the decision of the Hon'ble Gujarat High
Court in the case of Manan Corporation (supra) the stand taken earlier by
some of the Benches was not followed and all the Benches of the Tribunal
have uniformly and consistently followed the decision of the Hon'ble Bombay
High Court as well as Hon'ble Gujarat High Court to hold that the condition
of built up area provided in clause `d' is prospective in nature and it is not
applicable to projects approved prior to 01.04.2005. Such being the case, by
respectfully following the decision of the Hon'ble Bombay High Court as well
as the decision of the Hon'ble Gujarat High Court, we uphold the order of
the learned CIT(A), particularly in view of the fact that there is no direct
decision on the issue wherein a contrary view was taken by any other High
Court apart from the fact that the Hon'ble jurisdictional High Court's
decision is binding upon the ITAT Mumbai Benches. We, therefore, uphold
the order passed by the learned CIT(A).
14. In the result, the appeals filed by the Revenue are dismissed.
Order pronounced in the open court on 14th March, 2014.
Sd/- Sd/-
(N.K. Billaiya) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 14th March, 2014
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M/s. Velentine Developers
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) 30, Mumbai
4. The CIT 19, Mumbai City
5. The DR, "F" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.
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