The Commissioner of Income Tax-I V. Shital Corporation

TAXAP/580/2008

AI Insights

The case revolves around a series of tax appeals concerning the eligibility of Shital Corporation for deductions under Section 80IB(10) of the Income Tax Act, 1961. The primary contention by the Revenue was that the assessees, being neither the owners of the land nor the holders of the development permissions, could not be considered as developers of the housing projects but merely as works contractors. The High Court, referencing previous judgments and the definitions of 'developer', concluded that the assessees did indeed develop the housing projects and were thus eligible for the deductions claimed.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 690646 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 05-03-2014
• Assessment Year: misc
• Other Referred Cases: CIT v. Radhe Developers, 341 ITR 403 (Guj.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S N SOPARKAR; B S SOPARKAR
• Assessee Lawyers: K M PARIKH
• Keywords: Deduction; Housing projects; Land ownership; Works contractor; Development permission
• Section: 80IB(10)

Judgement Text

"O/TAXAP/564/2008 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 564 of 2008 With TAX APPEAL NO. 312 of 2009 With TAX APPEAL NO. 311 of 2009 With TAX APPEAL NO. 188 of 2009 With TAX APPEAL NO. 580 of 2008 With TAX APPEAL NO. 575 of 2008 With TAX APPEAL NO. 569 of 2008 With TAX APPEAL NO. 567 of 2008 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 T o be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? Page 1 of 9 O/TAXAP/564/2008 JUDGMENT ================================================================ THE COMMISSIONER OF INCOME TAX-I....Appellant(s) Versus SHITAL CORPORATION....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) MR SN SOPARKAR, SR. ADV. WITH MR BS SOPARKAR, ADVOCATES for the Opponent(s) ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 05/03/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. In this group of appeals, the sole issue, though may have been worded differently and different questions have been framed by the Courts at the time of admission of appeals, pertains to deduction under section 80IB(10) of the Income Tax Act, 1961 (‘the Act’ for short) claimed by the respondents-assessees. 2. The assessees had developed housing projects fulfilling the conditions contained in section 80IB(10) of the Act and claimed deduction envisaged therein. The Revenue, however, was of the opinion that since neither the land nor the development permission was in the name of the builder, he cannot be stated to have developed the housing project and at best can be treated as works contractor. On such basis, disputes had previously reached the Tribunal in two sets of cases referred to as the Radhe group of matters and Shakti group of matters. Both the Page 2 of 9 O/TAXAP/564/2008 JUDGMENT sets of cases ultimately reached this Court which confirmed the view of the Tribunal and ruled in favour of the assessees in the case of CIT v. Radhe Developers, 341 ITR 403 (Guj.) wherein it was held as under: “31. Neither the provisions of Section 80IB nor any other provisions contained in other related statutes were brought to our notice to demonstrate that ownership of the land would be a condition precedent for developing the housing project. It was perhaps not even the case of the Revenue that under the other laws governing construction in urban and semi-urban areas, there was any such restriction. It is, however, the thrust of the argument of the Revenue that in order to receive benefit under Section 80IB(10) of the Act, such requirement must be read into the statute. We cannot accept such a contention. Firstly, as already noted, there is nothing under Section 80IB (10) of the Act requiring that ownership of the land must vest in the developer to be able to qualify for such deduction. Secondly, term developer has been understood in common parlance as well as in legal sense carrying a much wider connotation. The Tribunal itself in the impugned order has traced different meanings of term developer explained in different dictionaries, which read as under:- “a. The Webster's Encyclopedia unabridged of the English Language gives Following meaning of the term 'developer' as: “1. One who or that which develops; 2. A person who invests in and develops the Urban or Suburban potentialities of real estate. b. Oxford Advanced Learners Dictionary of Current English Fourth Indian Edition gives meaning of the term 'developer' as persons or company that develops land. c. Random House Dictionary of the English Language, the following can be found. Develop: a. T o bring out the capabilities or possibilities of; bring to a more advanced or effective state. Page 3 of 9 O/TAXAP/564/2008 JUDGMENT b. T o cause to grow or expand. Developer: a. The act or process of developing; progress. b. Synonym: Expansion, elaboration, growth, evolution, unfolding, maturing, maturation. d. Webster Dictionary,the following definitions emerge: a. T o realize the potential of; b. T o aid in the growth of Strength, develop the biceps, c. T o bring into being: make active (develop a business) d. T o convert ( a tract of land) for specific purpose, as by building extensively. e. Law lexicon Dictionary: The following definitions could be seen: Development a. T o act, process or result of development or growing or causing to grow; the state of being developed. b. Happening.” 32. Section 80IB(10) of the Act thus provides for deductions to an undertaking engaged in the business of developing and constructing housing projects under certain circumstances noted above. It does not provide that the land must be owned by the assessee seeking such deductions. 33. It is well settled that while interpreting the statute, particularly, the taxing statute, nothing can be read into the provisions which has not been provided by the Legislature. The condition which is not made part of Section 80IB(10) of the Act,namely that of owning the land, which the assessee develops, cannot be supplied by any purported legislative intent. 34. We have reproduced relevant terms of development agreements in both the sets of cases. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects. Under the agreements, the assessee had full authority to Page 4 of 9 O/TAXAP/564/2008 JUDGMENT develop the land as per his discretion. The assessee could engage professional help for designing and architectural work. Assessee would enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence. 35. With respect to the question whether the assessee had acquired the ownership of the land for the purposes of the Income T ax Act and, in particular, Section 80IB (10) of the Act and to examine the effect of Explanation to Section 80IB(10) introduced with retrospective effect from 1.4.2001, since several aspects overlap, it would be convenient to discuss the same together. 36. We have noted at some length, the relevant terms and conditions of the development agreements between the assessees and the land owners in case of Radhe Developers. We also noted the terms of the agreement of sale entered into between the parties. Such conditions would immediately reveal that the owner of the land had received part of sale consideration. In lieu thereof he had granted development permission to the assessee. He had also parted with the possession of the land. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. It was specified that the assessee would bring in technical knowledge and skill required for execution of such project. The assessee had to pay the fees to the Architects and Engineers. Additionally, assessee was also authorized to appoint any other Architect or Engineer, legal adviser and other professionals. He would appoint Sub-contractor or labour contractor for execution of the work. The assessee was authorized to admit the persons willing to join the scheme. The assessee was authorised to receive the contributions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. In case, for some reason, the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners Page 5 of 9 O/TAXAP/564/2008 JUDGMENT agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the the full FSI as per the existing rules and regulations. However, in future, rules be amended and additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use as agreed between the parties. The assessee had full authority and also responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. Most significantly, the risk element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed to pay off the land owner first before appropriating any part of the sale consideration of the housing units for his benefit. In short, assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk. 37. By no stretch of imagination can it be said that the assessee acted only as a works contractor. The terms works contractor has been receiving judicial attention in several cases. xxxxxx xxxxxx Page 6 of 9 O/TAXAP/564/2008 JUDGMENT 41. In the present case, we find that the assessee had, in part performance of the agreement to sell the land in question, was given possession thereof and had also carried out the construction work for development of the housing project. Combined reading of Section 2(47)(v) and Section 53A of the Transfer of Property Act would lead to a situation where the land would be for the purpose of Income T ax Act deemed to have been transferred to the assessee. In that view of the matter, for the purpose of income derived from such property, the assessee would be the owner of the land for the purpose of the said Act. It is true that the title in the land had not yet passed on to the assessee. It is equally true that such title would pass only upon execution of a duly registered sale deed. However, we are, for the limited purpose of these proceedings, not concerned with the question of passing of the title of the property, but are only examining whether for the purpose of benefit under Section 80IB (10) of the Act, the assessee could be considered as the owner of the land in question. As held by the Apex Court in the case of Mysore Minerals Ltd. vs Commissioner of Income T ax (supra), and in the case of Commissioner of Income-T ax vs. Podar Cement Pvt. Ltd. and others (supra), the ownership has been understood differently in different context. For the limited purpose of deduction under Section 80IB(10) of the Act, the assessee had satisfied the condition of ownership also; even if it was necessary. 42. In the case of Shakti Corporation similarly the assessee had entered into a development agreement with the land owners on similar terms and conditions. It is true that there were certain minor differences, however, in so far as all material aspects are concerned, we see no significant or material difference. Here also assessee was given full rights to develop the land by putting up the housing project at its own risk and cost. Entire profit flowing therefrom was to be received by the assessee. It is true that the agreement provided that the assessee would receive remuneration. However, such one word used in the agreement cannot be interpreted in isolation out of context. When we read the entire document, and also consider that in form of “remuneration” the assessee had to bear the loss or as the case may be take home the Page 7 of 9 O/TAXAP/564/2008 JUDGMENT profits, it becomes abundantly clear that the project was being developed by him at his own risk and cost and not that of the land owners. Assessee thus was not working as a works contract. Introduction of the Explanation to Section 80IB(10) therefore in this group of cases also will have no effect. 43. We may at this stage examine the ratio of different judgments cited by the Revenue. The decision in case of Faqir Chand Gulati vs. Uppal Agencies Private Limited and another (supra) was rendered in the background of the provisions of the Consumer Protection Act. In the case before the Apex Court, the land owner had entered into an agreement with the builder requiring him to construct apartment building on the land in question. Part of the constructed area was to be retained by the owner of the land. In consideration of the land price remaining area was free for the builder to sell. When the land owner found series of defects in the construction, he approached the Consumer Protection Forum. It was in this background the Apex Court was considering whether the land owner can be stated to be a consumer and the builder a service provider. It was in this background that the Apex Court made certain observations. Such observations cannot be seen out of context nor can the same be applied in the present case where we are concerned with the deduction under Section 80IB(10) of the Act. xxxxx xxxxx 45. Under the circumstances, we are of the opinion that the Tribunal committed no error in holding that the assessees were entitled to the benefit under Section 80IB(10) of the Act even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners.” In the result, the issue being identical, the questions are answered in favour of the assessee. All the Tax Appeals are therefore, dismissed. Page 8 of 9 O/TAXAP/564/2008 JUDGMENT (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) (vjn) Page 9 of 9 "