By TIOL News Service

NEW DELHI, MAY 05, 2015: THE bone of contention before the Bench is - Whether deduction u/s 80IB(10) is allowable to housing projects approved by local authority, having residential units with commercial user to the extent permitted under DC Regulations framed by respective local authority. YES is the answer.

Facts of the case

The assessees during the relevent year, had undertaken construction projects which were approved by the municipal authorities/local authorities as housing projects. Accordingly, they had claimed deduction u/s 80IB(10), while filing their return. The AO as well as the CIT(A) denied the same to the assessees on the ground that the projects undertaken by assessees were not "housing project" inasmuch as some commercial activity was also undertaken in those projects. On appeal, the Tribunal as well as the High Court reversed the assessment order by observing that the expression "housing project" by giving grammatical meaning thereto as housing project was not defined under I-T Act insofar as the said provision is concerned.

Having heard the parties, the Supreme Court held that,

++ it is seen that 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. It is also seen that the High Court had made observations in the context of Development Control Regulations under which the local authority sanctions the housing projects and stated that in these DCRs itself, an element of commercial activity is provided but the total project is still treated as housing project. On the basis of this discussion, after modifying some of the directions given by the ITAT, the High Court arrived at conclusions that:

["....(i) Upto 31st Mar, 2005, deduction u/s 80IB(10) is allowable to housing projects approved by the local authority having residential units with commercial user to the extent permitted under DC Rules/Regulations framed by the respective local authority, (ii) In such a case, where the commercial user permitted by the local authority is within the limits prescribed under the DC Rules/ Regulation, the deduction u/s 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', (iii) In the absence of any provisions under the Income Tax Act, the Tribunal was not justified in holding that upto 31/3/2005 deduction u/s 80IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user upto 10% of the total built-up area of the plot, (iv) Since deductions u/s 80IB(10) is on the profits derived from the housing projects approved by the local authority as a whole, the Tribunal was not justified in restricting Section 80IB(10) deduction only to a part of the project. However, in the present case, since the assessee has accepted the decision of the Tribunal in allowing Section 80IB(10) deduction to a part of the project, we do not disturb the findings of the Tribunal in that behalf, and (v) Clause (d) inserted to Section 80IB(10) with effect from 1/4/2005 is prospective and not retrospective and hence cannot be applied for the period prior to 1/4/2005...."]

++ this court is in agreement with the answers given by the High Court to the various issues. However, it needs to be clarified that insofar as answer (i) is concerned, it would mean those projects which are approved by the local authorities as housing projects with commercial element therein. It was argued by the Revenue's counsel that a project which is cleared as "residential plus commercial" project cannot be treated as housing project and therefore, this direction is contrary to the provisions of Section 80(I)(B)(10). However, reading the direction in its entirety and particularly the first sentence thereof, it is found that commercial user which is permitted, is in the residential units and that too, as per DCR. Examples given before us by the counsel for assessee was that such commercial user to some extent is permitted to the professionals like Doctors, Chartered Accountants, Advocates, etc., in the DCRs itself. Therefore, this court clarifies that direction (ii) is to be read in that context where the project is predominantly housing/residential project but the commercial activity in the residential units is permitted.

(See 2015-TIOL-94-SC-IT)