Deduction u/s 80IB when assessee was not owner of the land – SC dismisses SLP of Department

Deduction u/s 80IB allowed when assessee was not owner of the land and undertook housing project at their own risk and cost- Supreme Court dismisses SLP of Department

ABCAUS Case Law Citation:
ABCAUS 2854 (2019) (04) SC

Important Case Laws Cited/relied upon by the parties
Commissioner of Income Tax vs. Radhe Developers 341 ITR 403.

The respondent was engaged in the business of housing development. For the relevant assessment year, the assessee had claimed deduction in respect to the income arising out of such activity under section 80IB(10) of the Income Tax Act, 1961 (the Act).

The Assessing Officer (AO) disallowed the claim mainly on the ground that the assessee was not the owner of the land and the approval of the project was not in the name of the assessee.

The issue ultimately reached the Tribunal where the Revenue also contended that the assessee had not sold the residential house in the housing project but had sold the residential plots with construction upto plinth level. The assessee therefore cannot be considered as a developer of a housing project but was mere a contractor.

The Tribunal followed its earlier judgement in case of similar assessee and confirmed the decision of CIT (A) allowing the claim.

The Revenue approached the Hon’ble High Court with the following grounds:

(1) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing the assessee the deduction u/s. 80IB(10) of the Act after treating the assessee as a developer of the Housing Project even though the project as a whole was not primarily developed and build by the assessee itself and the assessee has sold merely the residential plots and rest of the work has been completed by it as a contractor of the plot purchasers, rendering it ineligible for deduction u/s 80IB(10) of the Act?

(2) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing the assessee the deduction u/s. 80IB(10) of the Act by ignoring the fact that 70% of the sale proceeds of the project were the work contract receipts and no entrepreneurial and investment risk was taken by the assessee in respect of the project and therefore it cannot be held that the project as a whole has been developed and build by the assessee so as to make it eligible for deduction under section 80IB(10) of the Act as developer of Housing Project?

The Hon’ble High Court noted that in a similar case, the issue had been decided in favour of the assessee where Revenue’s contention, that the nature of activities carried on by the assessees would only qualify them to be the contractors executing works contract, was also considered.

It was held that the assessee had undertaken the development of housing project at their own risk and cost. The owner of the land had accepted the full price of the land. He was therefore not concerned with the successor or failure of the housing project.

In such background, reference was made to the definition of term “transfer” under section 2(47) of the Act and held that merely because the land was held by the original owner when the housing development project was executed, would not be detrimental to the assessee’s claim of deduction under section 80IB(10) of the Act.

In view of the said judgment, the Hon’ble High Court dismissed the appeal holding that the instant case did not present any new facts or legal contentions.

The dismissal of the appeal, was challenged by the Revenue in the Hon’ble Supreme Court by filing a Special Leave Petition (SLP) which has however been dismissed.

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