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High Court of Delhi
S. RAVINDRA BHAT & R.K. GAUBA, JJ.
Commissioner of Income Tax-VI – Appellant
Vs.
VRM India Ltd – Respondent
ITA Nos. 2069 of 2010 & 318 & 320 of 2014
Decided On : 18-03-2015
Income Tax - Deduction under Section 80-IB(10) - Income Tax Act, 1961 - [S. 80-IB(10)] - The judgment discusses the interpretation and application of Section 80-IB(10) of the Income Tax Act, 1961 in the context of deduction claimed by the assessee for profits derived from developing and building housing projects. The court analyzed the conditions for claiming the deduction, the nature of work undertaken by the assessee, and the distinction between a works contract and infrastructure development. The court concluded that the assessee was entitled to the deduction as it had developed infrastructure facilities and was not merely a works contractor. The court also highlighted the importance of the plain text of the provision and the need to interpret it in a manner that aligns with the legislative intent.
Fact of the Case:
The assessee, engaged in building and developing housing projects, claimed deduction under Section 80-IB(10) of the Income Tax Act, 1961. The Assessing Officer declined the deduction, stating that the assessee had executed works in respect of housing projects of Indian Railway Welfare Organisation (IRWO) and Delhi Development Authority (DDA) and was only a contractor, not a developer. The Commissioner of Income Tax (Appeals) allowed the claim, which was upheld by the Income Tax Appellate Tribunal (ITAT). The revenue appealed to the court.
Finding of the Court:
The court found that the assessee had developed and executed housing projects for IRWO and DDA, and the profits derived from these projects were claimed as tax exempt under Section 80-IB(10). The court held that the assessee had worked as a builder and developer of housing projects and was entitled to the deduction. The court also emphasized the importance of the plain text of the provision and the need to interpret it in a manner that aligns with the legislative intent.
Issues: The main issue was whether the assessee was entitled to deduction under Section 80-IB(10) for profits derived from developing and building housing projects, considering the nature of work undertaken by the assessee and the distinction between a works contract and infrastructure development.
Ratio Decidendi: The court's decision was based on the interpretation of Section 80-IB(10) and the nature of work undertaken by the assessee. The court emphasized that the assessee had developed infrastructure facilities and was not merely a works contractor, entitling it to the deduction under the provision. The court also highlighted the importance of interpreting the provision in a manner that aligns with the legislative intent.
Final Decision: The court dismissed the revenue's appeals and held in favor of the assessee, concluding that the assessee was entitled to the deduction under Section 80-IB(10) for profits derived from developing and building housing projects.
S. Ravindra Bhat, J. (Open Court):
1. The following substantial question of law arises for consideration in these appeals under Section 260-A of the Income Tax Act, 1961 (hereafter 'the Act'):-
Whether the Income Tax Appellate Tribunal was right in view of the contracts in question that the respondent-assessee is entitled to deduction under Section 80-IB(10) of the Income Tax Act, 1961?
2. These appeals of the revenue stem from decisions of the Income Tax Appellate Tribunal (ITAT) for assessment years (AY) 2002-03; 2004-05 and 2005-06. The Commissioner of Income Tax (Appeals) (“CIT(A”)) and the ITAT had concurrently ruled against the revenue. Briefly the facts are that the assessee is engaged in the business of building and developing of housing projects. In its return of Income, the assessee claimed deduction under Section 80-IB(10) which was declined by the Assessing Officer (“AO”) in the course of assessment under Section 143(3). The AO observed that the assessee company had been undertaking construction activity since 1996-97. The company had been allotted in FY 2001-02 a housing project worth Rs.12,53,65,692/- for constructing housing units measuring 450 sq. ft. each on more than one acre of land at Sector-62, Noida by the Indian Railway Welfare Organisation ('IRWO'). A housing Project worth Rs.22,82,96,800/- had also been allotted for the construction of housing units measuring 38 to 42 sq. meter each on a total area of more than one acre of land at Sector 14, Dwarka, Phase-II, New Delhi, by the Delhi Development Authority ("DDA"). Both these continued in the year under consideration. The contract receipts from these works during the year under consideration disclosed was Rs.5,47,85,200/-. The profit from this contract receipt was shown at Rs. 48,40,725/-. Of this, Rs. 47,03,714/- was claimed as tax exempt income by virtue of Section 80-IB(10) of the Act.
3. The AO, upon a textual analysis of Section 80IB (10) was of the view that profit derived only from developing and building housing projects which are approved by local authority is eligible for deductions u/s 80IB. According to him, these conditions had to necessarily be fulfilled:
(i) a proposal for developing and building housing from the assessee’s side.
(ii) the assessee should develop and build the housing project.
(iii) The project should "belong" to the assessee.
(iv) The assessee should have submitted its proposal to a local authority and there should be an approval of proposal for the project from local authority.
The AO observed that in this case, the assessee had executed works in respect of housing projects of IRWO & DDA. The project belonged to IRWO & DDA. The assessee company did not develop and build any housing project of its own but merely executed the contract work awarded to it by the principals, i.e DDA and IRWO. There was consequently no development of building of housing project of the assessee.
4. The assessee was asked to file copies of its proposals to Noida Authority (as it was a local authority) as well as DDA and the copies of approval granted to it by these local authorities for developing and building housing projects. The assessee company filed a letter dated 10.01.2002 of Executive Engineer SW D-9, DDA accepting the tender of the assessee; likewise, a letter dated 30.07.2001 from the Director Technical IRWO, accepting the tender for the construction of dwelling works was also placed on record. The IRWO, by its letter dated 16.09.2005 addressed to the AO, Ward 17(1) stated that the assessee was awarded a work for construction of 260 dwelling units including all civil, electrical, plumbing, sewerage, road, pavements, drains, underground water tank etc. at the rates provided in the schedule. The letter of DDA dated 17.09.2005 to the ITO, W.17(1), explained that the rate contract on which the work was awarded was Rs.22,82,96,800/- and the work was completed as per specifications given. The AO declined the claim of the assessee unde
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