Commissioner of Income-tax v. Sarkar Builders
[Citation -2015-LL-0515-4]

Citation 2015-LL-0515-4
Appellant Name Commissioner of Income-tax
Respondent Name Sarkar Builders
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 15/05/2015
Judgment View Judgment
Keyword Tags project completion method • method of accounting • unabsorbed loss • housing project
Bot Summary: Of the profits derived in any previous year relevant to any assessment year from such housing project if,- such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998; the project is on the size of a plot of land which has a minimum area of one acre; and the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place. The income-tax authorities rejected the claim of deduction on the ground that the projects were not'housing project' inasmuch as some commercial activity was also undertaken in those projects. Since sub- section of section 80-IB 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. Deduction under the Income-tax Act, 1961, on the profits derived from housing projects approved by a local authority, it was known that the local authorities could approve the projects as housing projects with commercial user to the extent permitted under the DC Rules framed by the respective local authority. As per the permissible commercial user on which the project was sanctioned, they started the projects and the date of commencing such projects is also before April 1, 2005. For the purpose of discussing this particular issue, it is required to be noted that with effect from April 1, 2001, section 80-IB(10) stipulated that any housing project approved by the local authority before March 31, 2001, was entitled to a deduction of 100 per cent of the profits derived in any previous year relevant to any assessment year from such housing project, provided-(i) the construction/development of the said housing project commenced on or after October 1, 1998, and was completed before March 31, 2003; the housing project was on a size of a plot of land which had a minimum area of one acre; and each individual residential unit had a maximum built-up area of 1,000 square feet, where such housing project was situated within the cities of Delhi or Mumbai or within 25 kms. We are not called upon to decide any such condition and hence we are not laying down any general proposition of law, save and except that clause of section 80-IB(10), being a condition linked to the date of the approval of the housing project, would not apply to any housing project that was approved prior to March 31, 2005, irrespective of the fact that the profits of the said housing project are brought to tax after the said provision was brought into force.


JUDGMENT judgment of court was delivered by A. K. Sikri J.-Leave granted. No doubt assessees-respondents in all these appeals are different and even assessment years are different. But question of law which is raised by income-tax authorities (hereinafter referred to as "Revenue") is identical. assessees are subject to jurisdiction of different High Courts, all of whom had claimed benefit of section 80-IB of Income-tax Act, 1961 ("the Act" for short), namely, deduction in respect of profits and gains on ground that their cases were covered by sub-section (10) of section 80-IB which provides for deduction of 100 per cent. of profits in case of undertaking developing and building housing projects when such profits are derived in previous year relevant to any assessment year from such housing projects, provided conditions contained in said sub-section are satisfied. High Courts have taken same view holding that these assessees would be entitled to deduction under section 80-IB(10) of Act. We may also point out at this stage itself that though section 80-IB has been on statute book for quite some time, new section 80-IB had been introduced by Finance Act, 1999, with effect from April 1, 2000. All these cases are covered by said section, as introduced. However, in so far as sub-section (10) is concerned, with which we are directly concerned, there have been amendments in that provision from time to time. We are concerned with amendment to said sub-section carried out by Finance (No. 2) Act, 2004, with effect from April 1, 2005. In all these cases, though housing projects were sanctioned much before said amendment but have been completed after April 1, 2005, when amended provision has come into operation. It is also not in dispute that amendment is prospective in nature. Interestingly, when housing project was approved by local authority, which is requirement under sub-section (10) of section 80-IB, as on that date, conditions stipulated in said sub-section were met by assessees. However, condition in clause (d) which was laid down for first time by amendment made effective from April 1, 2005, is not fulfilled. In this scenario, question is as to whether new conditions mentioned in amended provision have also to be fulfilled only because housing projects in question though started before April 1, 2005, were completed after said date. question of law that arises for discussion that needs to be answered is thus common in all these appeals and can be formulated as under: "Whether section 80-IB(10)(d) of Income-tax Act, 1961, applies to housing project approved before March 31, 2005, but completed on or after April 1, 2005?" As pointed out above, sub-section (10) stipulates certain conditions which are to be satisfied in order to avail of benefit of said provision. Further, it is also clear that benefit is available to those undertakings which are developing and building "housing projects" approved by local authority. Thus, this section is applicable in respect of housing projects and not commercial projects. At same time, we are conscious of fact that even in housing projects, there would be some area for commercial purposes as certain shops and commercial establishments are needed even in housing project. That has been judicially recognised while interpreting provision that existed before April 1, 2005, and there was no limit fixed in section 80-IB(10) regarding built-up area to be used for commercial purpose in said housing project. As would be noticed later, extent to which such commercial area could be constructed was as per local laws under which local authority gave sanction to housing project. However, vide clause (d), which was inserted by aforesaid amendment and made effective from April 1, 2005, it was stipulated that built-up area of shops and other commercial establishments in housing projects would not exceed 5 per cent. of aggregate built-up area of housing project or 2,000 square feet, whichever is less (there is further amendment whereby 5 per cent. is reduced to 3 per cent. and instead of words "2,000 square feet, whichever is less" words "5,000 square feet, whichever is higher" have been substituted. However, we are not concerned with this amendment). question, thus, that arises for consideration is as to whether in respect of those housing projects which finished on or after April 1, 2005, though sanctioned and started much earlier, aforesaid stipulation contained in clause (d) also has to be satisfied. All High Courts have held that since this amendment is prospective and has come into effect from April 1, 2005, this condition would not apply to those housing projects which had been sanctioned and started earlier even if they finished after April 1, 2005. As there is commonality of issue and judgments of various High Courts have spoken in one voice which are questioned on identical grounds by appellant-Revenue, all these appeals were heard analogously and by this judgment, we propose to answer question of law involved and as formulated above in order to give quietus to this surging debate. Before we come to grip of aforesaid central issue, it would be of some relevance to mention certain other disputes which had arisen between Revenue and assessees/developers of housing projects concerning interpretation of sub-section (10) of section 80-IB. That dispute primarily related to meaning that is to be assigned to "housing projects" prior to April 1, 2005, because of reason that there was no clause (d) earlier and there is no express provision in this sub-section dealing with consequence of having commercial establishment within housing project. One of requirements contained in sub-section (10) is that in order to be entitled to have deduction under this provision, housing project is to be approved by local authority. It is matter of common knowledge that there are Municipal Acts of specific Local Acts governing construction of buildings, commercial as well as residential, in every State. For undertaking any such construction authority, it is necessary to have building plans sanctioned from local authorities in accordance with provisions of such local Acts. There are local laws relating to development and building of "housing projects" by developers/ builders which also need sanction from local authorities as per law prevailing in that particular area where housing project is developed. Such local laws, while sanctioning housing projects, also permit use of certain area in housing projects in specified manner for shopping and commercial purposes as well. question that had arisen was whether deduction under section 80- IB(10) would be admissible when commercial establishment is constructed in housing project? That is, whether it would still retain character of housing project within meaning of this provision. Bombay High Court in case of CIT v. Brahma Associates held that since expression "housing project" is not defined under Act, intention of Parliament was that whatever is approved by local authority under extent rules as housing project would be treated as "housing project" for purpose of this section, inasmuch as sub- section (10) itself mandates that housing project is to be approved by local authority as such approval is necessary condition for claiming deduction under this provision. When local authority [2011] 333 ITR 289 (Bom). has approved housing project, whether "residential" or "residential-cumcommercial" assessee is entitled to deduction on entire profit including commercial establishments portion. We would also like to point out that following this judgment of Bombay High Court, or independently, other High Courts had also taken similar view. Against aforesaid judgments, special leave petitions were filed by Revenue in this court. All these special leave petitions have been disposed of by this court, vide order dated April 29, 2015, we would like to reproduce said order in entirety hereunder: "All these special leave petitions are filed by Revenue-Department of Income-tax against judgments rendered by various High Courts deciding identical issue which pertains to deduction under section 80-IB(10) of Income-tax Act, as applicable prior to April 1, 2005. We may mention at outset that all High Courts have taken identical view in all these cases holding that deduction under aforesaid provision would be admissible to a'housing project'. All assessees had undertaken construction projects which were approved by municipal authorities/local authorities as housing projects. On that basis, they claimed deduction under section 80-IB(10) of Act. This provision, as it stood at that time, i.e., prior to April 1, 2005, reads as under: Section 80-IB(10) (as it stood prior to April 1, 2005) '(10) amount of profits in case of undertaking developing and building housing projects approved before 31st day of March, 2005, by local authority, shall be hundred per cent. of profits derived in any previous year relevant to any assessment year from such housing project if,- (a) such undertaking has commenced or commences development and construction of housing project on or after 1st day of October, 1998; (b) project is on size of plot of land which has minimum area of one acre; and (c) residential unit has maximum built-up area of one thousand square feet where such residential unit is situated within cities of Delhi or Mumbai or within twenty-five kilometres from municipal limits of these cities and one thousand and five hundred square feet at any other place.' However, income-tax authorities rejected claim of deduction on ground that projects were not'housing project' inasmuch as some commercial activity was also undertaken in those projects. This contention of Revenue is not accepted by Income-tax Appellate Tribunal as well as High Court in impugned judgment. High Court interpreted expression 'housing project' by giving grammatical meaning thereto as housing project is not defined under Income-tax Act in so far as aforesaid provision is concerned. Since sub- section (10) of section 80-IB very categorically mentioned that such project which is undertaken as housing project is approved by local authority, once project is approved by local authority it is to be treated as housing project. We may also point out that High Court had made observations in context of Development Control Regulations (hereinafter referred to as'DCRs' in short) under which local authority sanctions housing projects and noted that in these DCRs itself, element of commercial activity is provided but total project is still treated as housing project. On basis of this discussion, after modifying some of directions given by Income-tax Appellate Tribunal, conclusions which are arrived at by High Court are as follows: '30. In result, questions raised in appeal are answered thus: (a) Up to March 31, 2005 (subject to fulfilling other conditions), deduction under section 80-IB(10) is allowable to housing projects approved by local authority having residential units with commercial user to extent permitted under Development Control Rules/Regulations framed by respective local authority. (b) In such case, where commercial user permitted by local authority is within limits prescribed under Development Control Rules/Regulation, deduction under section 80-IB(10) up to March 31, 2005, would be allowable irrespective of fact that project is approved as "housing project" or "residential plus commercial". (c) In absence of any provisions under Income-tax Act, Tribunal was not justified in holding that up to March 31, 2005, deduction under section 80-IB(10) would be allowable to projects Page 303 of 333 ITR. approved by local authority having residential building with commercial user up to 10 per cent. of total built-up area of plot. (d) Since deductions under section 80-IB(10) is on profits derived from housing projects approved by local authority as whole, Tribunal was not justified in restricting section 80-IB(10) deduction only to part of project. However, in present case, since assessee has accepted decision of Tribunal in allowing section 80-IB(10) deduction to part of project, we do not disturb findings of Tribunal in that behalf. (e) Clause (d) inserted to section 80-IB(10) with effect from April 1, 2005, is prospective and not retrospective and, hence, cannot be applied for period prior to 2005.' We are in agreement with aforesaid answers given by High Court to various issues. We may only clarify that insofar as answer at para (a) is concerned, it would mean those projects which are approved by local authorities as housing projects with commercial element therein. There was much debate on answer given in paragraph (b) above. It was argued by Mr. Gurukrishna Kumar, learned senior counsel, that project which is cleared as'residential plus commercial' project cannot be treated as housing project and, therefore, this direction is contrary to provisions of section 80-IB(10) of Act. However, reading direction in its entirety and section 80-IB(10) of Act. However, reading direction in its entirety and particularly first sentence thereof, we find that commercial user which is permitted is in residential units and that too, as per DCR. Examples given before us by learned counsel for assessee was that such commercial user to some extent is permitted to professionals like Doctors, Chartered Accountants, Advocates, etc., in DCRs itself. Therefore, we clarify that direction (b) is to be read in that context where project is predominantly housing/residential project but commercial activity in residential units is permitted. With aforesaid clarification, we dispose of all these special leave petitions." reason for recapitulating aforesaid events pertaining to earlier litigation is that before April 1, 2005, legal position was that once project is sanctioned by local authority as "housing project", extent of area sanctioned for shops and commercial establishments in said housing project was immaterial and had no bearing. Thus, irrespective of said of area where shops and commercial establishments were permitted by local authority in housing project, it was still treated as housing project and further that while granting 100 per cent. deductions, area covered by shops and commercial establishments was also includible. This position has changed with insertion of clause (d) to sub-section (10). As per amendment carried out and made effective from April 1, 2005, even if local authority had sanctioned larger area for shops and commercial establishment, benefit of section 80-IB(10) would not be admissible to these assessees/developers in case area utilised for shops and commercial establishment exceeded 5 per cent. of aggregate builtup area of housing project or 2,000 square feet, whichever is less. In aforesaid scenario, we revert back to question that is to be answered. We have already pointed out that parties are ad idem that amendment is prospective in nature and, therefore, it operates from April 1, 2005. We have also mentioned that in instant appeals, all these assessees had got housing projects sanctioned prior to April 1, 2005, and construction of said housing project also started before April 1, 2005. All other conditions mentioned, namely, date by which approval was to be given and dates by which projects were to be completed as on date when project was sanctioned, are also met by assessees. Notwithstanding this position, argument of Mr. S. Gurukrishna Kumar, learned senior counsel appearing for Revenue, is that amendment with effect from April 1, 2005, is retroactive even if not retrospective. He has, thus, endeavoured to draw fine distinction between retroactive nature of amendment in contrast with retrospectivity of provision. He argued that once project is financed after April 1, 2005, and on completion of said project, particular assessee has earned income which is shown by assessee in particular assessment year, it is that assessment year which would be determinative factor and law prevailing on date relevant to assessment year will have to be applied. On that basis, it was argued that since assessment years are post April 1, 2005, clause (d) of sub-section (10) of section 80-IB of Act gets attracted. In support of this plea, he referred to judgment of this court in CIT v. Gold Coin Health Food P. Ltd. and, particularly, discussion contained in paragraphs 9 and 16 which are reproduced hereunder: "9. In Reliance Jute and Industries Ltd. v. CIT [1980] 1 SCC 139, it was observed by this court that law to be applied in income-tax assessments is law in force in assessment year unless otherwise provided expressly or by necessary implication.... [2008] 9 SCC 622; [2008] 304 ITR 308, 312 (SC). [1979] 120 ITR 921 (SC). 16. law is well-settled that applicable provision would be law as it existed on date of filing of return. It is of relevance to note that when any loss is returned in any return it need not necessarily be loss of concerned previous year. It may also include carried forward loss which is required to be set up against future income under section 72 of Act. Therefore, applicable law on date of filing of return cannot be confined only to losses of previous accounting years." He also referred to decision in case of Karimtharuvi Tea Estate Ltd. v. State of Kerala which is to same effect. Mr. J. D. Mistry, learned senior counsel who appeared on behalf of assessees, in some of these appeals emphatically countered aforesaid arguments. In first instance, he pointed out that this argument of retroactivity was not even raised by Revenue in High Courts or before lower forum or even in special leave petitions filed in this court. He further submitted that it was necessary to keep objective of amendment in mind which would clearly evince that conditions in clause (d) could not be applied in respect of those projects which had been sanctioned and commenced prior to April 1, 2005. He further argued that vested rights had accrued in favour of such persons which could not be taken away by amendment. He also advanced various reasons, as would be noted later, necessitating approach as to why principle of tax law that law in force in assessment year is to be applied, insisting that it was case where departure was needed and such departure is recognised in certain circumstances, by courts. He relied upon judgments of this court in CIT v. Shah Sadiq and Sons and CIT v. Vatika Township P. Ltd.. Senior counsel who appeared for other assessees argued on same lines drawing our attention to reasons which are given by High Courts in impugned judgments and supporting those reasons. We have given our due consideration to respective submissions. As pointed out above, judgment pronounced by Bombay High Court in Brahma Associates' case has already been upheld by this court on interpretation given to expression "housing project" occurring in sub-section (10) of section 80-IB of Act. Interestingly, in batch of appeals decided by High Court in that very judgment, issue with which we are concerned was also taken up. Revenue had argued that AIR 1966 SC 1385; [1966] 60 ITR 262 (SC). [1987] 166 ITR 102 (SC). [2014] 367 ITR 466 (SC); [2015] 1 SCC 1. clause (d) inserted with effect from April 1, 2005, should be applied retrospectively, which argument was repelled by High Court. Therefore, for better understanding, we would like to begin our discussion with meaning given to "housing project" along with issue of retrospectivity of clause (d), as raised by Revenue, which was dealt with by High Court and repelled. That portion of discussion contained in High Court judgment, which has some bearing on issue at hand, runs as under: "21. Thus, on date on which Legislature introduced 100 per cent. deduction under Income-tax Act, 1961, on profits derived from housing projects approved by local authority, it was known that local authorities could approve projects as housing projects with commercial user to extent permitted under DC Rules framed by respective local authority. In other words, it was known that local authorities could approve housing project without or with commercial user to extent permitted under Development Control Rules. If Legislature intended to restrict benefit of deduction only to projects approved exclusively for residential purposes, then it would have stated so. However, Legislature has provided that section 80- IB(10) deduction is available to all housing projects approved by local authority. Since local authorities could approve project to be housing project with or without commercial user, it is evident that Legislature intended to allow section 80-IB(10) deduction to all housing projects approved by local authority without or with commercial user to extent permitted under Development Control Rules. 22. It is not in dispute that where project is approved as housing project without or with commercial user to extent permitted under Rules/Regulations, then, deduction under section 80-IB(10) would be allowable. In other words, if project could be approved as housing project having residential units with permissible commercial user, then it is not open to income-tax authorities to contend that expression'housing project' in section 80-IB(10) is applicable to projects having only residential units. 23. Once it is held that local authorities could approve project to be housing project without or with commercial user to extent permitted under DC Rules, then project approved with permissible commercial user would be eligible for section 80-IB(10) deduction irrespective of fact that project is approved as'housing See page 300 of 333 ITR. project' or approved as'residential plus commercial'. In other words, where project fulfils criteria for being approved as housing project, then deduction cannot be denied under section 80-IB(10) merely because project is approved as'residential plus commercial'. 24. From fact that deduction under section 80-IB(10) prior to April 1, 2005, was allowable on profits derived from housing projects constructed during specified period, on specified size of plot with residential units of specified size, it cannot be inferred that deduction under section 80- IB(10) was allowable to housing projects having residential units only, because, restriction on size of residential unit is with view to make available large number of affordable houses to common man and not with view to deny commercial user in residential buildings. In other words, restriction under section 80-IB(10) regarding size of residential unit would in no way curtail powers of local authority to approve project with commercial user to extent permitted under DC Rules/Regulations. Therefore, argument of Revenue that restriction on size of residential unit in section 80-IB(10) as it stood prior to April 1, 2005, is suggestive of fact that deduction is restricted to housing projects approved for residential units only cannot be accepted. 25. above conclusion is further fortified by clause (d) of section 80- IB(10) inserted with effect from April 1, 2005. Clause (d) of section 80-IB(10) inserted with effect from April 1, 2005, provides that even though shops and commercial establishments are included in housing project, deduction under section 80-IB(10) with effect from April 1, 2005, would be allowable where such commercial user does not exceed five per cent. of aggregate built-up area of housing project or two thousand square feet, whichever is lower. By Finance Act, 2010, clause (d) is amended to effect that commercial user should not exceed three per cent. of aggregate builtup area of housing project or five thousand square feet whichever is higher. expression'included' in clause (d) makes it amply clear that commercial user is integral part of housing project. Thus, by inserting clause (d) of section 80- IB(10) Legislature has made it clear that though housing projects approved by local authorities with commercial user to extent permissible under DC Rules/Regulation were entitled to section 80-IB(10) deduction, with effect from April 1, 2005, such deduction would be subject to restriction set out in clause (d) of section 80-IB(10). Therefore, argument of Revenue that with effect from April 1, 2005, Legislature for first time allowed section 80-IB(10) deduction to housing projects having commercial user cannot be accepted... 29. Lastly, argument of Revenue that section 80-IB(10) as amended by inserting clause (d) with effect from April 1, 2005, should be applied retrospectively is also without any merit, because, firstly, clause (d) is specifically inserted with effect from April 1, 2005, and, therefore, that clause cannot be applied for period prior to April 1, 2005. Secondly, clause (d) seeks to deny section 80-IB(10) deduction to projects having commercial user beyond limit prescribed under clause (d), even though such commercial user is approved by local authority. Therefore, restriction imposed under Act for first time with effect from April 1, 2005, cannot be applied retrospectively. Thirdly, it is not open to revenue to contend on one hand that section 80-IB(10) as stood prior to April 1, 2005, did not permit commercial user in housing projects and on other hand contend that restriction on commercial user introduced with effect from April 1, 2005, should be applied retrospectively. argument of Revenue is mutually contradictory and, hence, liable to be rejected. Thus, in our opinion, Tribunal was justified in holding that clause (d) inserted to section 80-IB(10) with effect from April 1, 2005 is prospective and not retrospective and, hence, cannot be applied to period prior to April 1, 2005." issues dealt with from paragraphs 21 to 25 by High Court already stands approved by this court. In paragraph 29, High Court has held that clause (d) has prospective operation, viz., with effect from April 1, 2005, and this legal position is not disputed by Revenue before us. What follows from above is that prior to April 1, 2005, these developers/assessees who had got their projects sanctioned from local authorities as "housing projects", even with commercial user, though limited to extent permitted under DC Rules, were convinced that they would be getting benefit of 100 per cent. deduction of their income from such projects under section 80-IB of Act. Their projects were sanctioned much before April 1, 2005. As per permissible commercial user on which project was sanctioned, they started projects and date of commencing such projects is also before April 1, 2005. All these assessees were made known of provision by which these projects are to be completed as those dates have been specified from time to time by successive Finance as those dates have been specified from time to time by successive Finance Acts in same provision section 80-IB. In these cases, completion dates were after April 1, 2005. Once they arrange their affairs in this manner, Revenue cannot deny benefit of this section applying principle of retroactivity even when provision has no retrospectivity. Take for example, case where under extant DC Rules, for shops and commercial activity construction permitted was, say, 10 per cent. and project was also sanctioned allowing particular assessee to construct 10 per cent. of area for commercial purposes. said developer started with its project much prior to April 1, 2005, with aforesaid permissible use and construction was at very advanced stage as on April 1, 2005. Can it be argued by that Revenue that he is to demolish extra coverage meant for commercial purpose and bring same within limits prescribed by new provision if he wanted to avail of benefit of deduction under section 80-IB(10) of Act, only because of reason that project was not complete as on April 1, 2005? As in such case he filed his return for assessment year after April 1, 2005, and for purpose of assessment of said return, law prevailing as on that date would be applicable? Answer has to be in negative on principle that with aforesaid planning as per law prevailing prior to April 1, 2005, these assessees acted and acquired vested right thereby which cannot be taken away. It is ludicrous on part of Revenue authorities to expect assessees to do something which is almost impossible. In Reliance Jute and Industries Ltd. v. CIT, this court had, no doubt, pointed out cardinal principle of tax law that law to be applied has to be law in force in assessment year. However, this is qualified by exception when it is provided otherwise expressly or by necessary implication, as is clear from following observations: "6. assessee claims vested right under section 24(2)(iii), as it stood before its amendment in 1957, to have unabsorbed loss of 1950-51 carried forward from year to year until loss is completely absorbed. claim is based on misconception of fundamental basis underlying every income-tax assessment. It is cardinal principle of tax law that law to be applied is that in force in assessment year unless otherwise provided expressly or by necessary implication..." In same paragraph, court also remarked that "a right claimed by assessee under law in force in particular assessment year is ordinarily available only in relation to proceeding pertaining to that year". Thus, it clearly follows that though normally law which is in force in assessment year would prevail but this is not absolute principle as [1979] 120 ITR 921, 923 (SC); [1980] 1 SCC 139. court itself carved out exceptions thereto by making it clear that such exception can be either express or implied by necessary implication. Even principle which is mentioned is qualified with words "ordinarily available". On examining scheme of sub-section (1) of section 80-IB of Act, its historical turn around by amendments from time to time and keeping in view of real purpose behind such provision, we are of view that in peculiar scenario as projected in this provision, aforesaid cardinal principle of tax law is not to be applied as, by necessary implication, application thereof stands excluded. We have already narrated essence of this provision. For purpose of discussing this particular issue, it is required to be noted that with effect from April 1, 2001, section 80-IB(10) stipulated that any housing project approved by local authority before March 31, 2001, was entitled to deduction of 100 per cent of profits derived in any previous year relevant to any assessment year from such housing project, provided-(i) construction/development of said housing project commenced on or after October 1, 1998, and was completed before March 31, 2003; (ii) housing project was on size of plot of land which had minimum area of one acre; and (iii) each individual residential unit had maximum built-up area of 1,000 square feet, where such housing project was situated within cities of Delhi or Mumbai or within 25 kms. from municipal limits of these cities, and maximum built-up area of 1,500 square feet at any other place. Therefore, for first time, stipulation was added with reference to date of approval, namely, that approval had to be accorded to housing project by local authority before March 31, 2001. Before this amendment there was no date prescribed for approval being granted by local authority to housing project. Prior to this amendment, as long as development/construction commenced on or after October 1, 1998, and was completed before March 31, 2001, assessee was entitled to deduction. Also by this amendment, date of completion was changed from March 31, 2001, to March 31, 2003. Everything else remained untouched. Thereafter, by Finance Act, 2003, further amendments were made to section 80-IB(10), which read as under: "(10) amount of profits in case of undertaking developing and, building housing projects approved before 31st day of March, 2005, by local authority, shall be hundred per cent. of profits derived in any previous year relevant to any assessment year from such housing project if,- (a) such undertaking has commenced or commences development and construction of housing project on or after 1st day of October, 1998; (b) project is on size of plot of land which has minimum area of one acre; and (c) residential unit has maximum built-up area of one thousand square feet where such residential unit is situated within cities of Delhi or Mumbai or within twenty-five kilometres from municipal limits of these cities and one thousand and five hundred square feet at any other place." As can be seen from aforesaid provision, now only changes that were brought about were that with effect from April 1, 2002: (i) housing project had to be approved before March 31, 2005; and (ii) there was no time limit prescribed for completion of said project. Though these changes were brought about by Finance Act, 2003, Legislature thought it fit that these changes be deemed to have been brought into effect from April 1, 2002. All remaining provisions of section 80-IB(10) remained unchanged. Thereafter, significant amendment, with which we are directly concerned, was carried out by Finance (No. 2) Act, 2004, with effect from April 1, 2005. This amendment has already been noted above. Legislature made substantial changes in sub-section (10). Several new conditions were incorporated for first time, including condition mentioned in clause (d). This condition/restriction was not on statute book earlier when all these projects were sanctioned. Another important amendment was made by this Act to sub-section (14) of section 80-IB with effect from April 1, 2005, and for first time under clause (a) thereof words "built-up area" were defined. section 80- IB(14)(a) reads as under: "(14) For purposes of this section,- (a)'built-up area' means inner measurements of residential unit at floor level, including projections and balconies, as increased by thickness of walls but does not include common areas shared with other residential units;" Prior to insertion of section 80-IB(14)(a), in many of rules and regulations of local authority approving housing project "built-up area" did not include projections and balconies. Probably, taking advantage of this fact, builders provided large balconies and projections making residential units far bigger than as stipulated in section 80-IB(10), and yet claimed deduction under said provision. To plug this lacuna, clause (a) was inserted in section 80-IB(14) defining words "built-up area" to mean inner measurements of residential unit at floor level, including projections and balconies, as increased by thickness of walls but did not include common areas shared with other residential units. Can it be said that in order to avail of benefit in assessment years after April 1, 2005, balconies should be removed though these were permitted earlier? Holding so would lead to absurd results as one cannot expect assessee to comply with condition that was not part of statute when housing project was approved. We, thus, find that only way to resolve issue would be to hold that clause (d) is to be treated as inextricably linked with approval and construction of housing project and assessee cannot be called upon to comply with said condition when it was not in contemplation either of assessee or even Legislature, when housing project was accorded approval by local authorities. Having regard to above, let us take note of special features which appear in these cases: (a) In present case, approval of housing project, its scope, definition and conditions, all are decided and dependent by provisions of relevant DC Rules. In contrast, judgment in Reliance Jute and Industries Ltd. was concerned with income-tax only. (b) position of law and rights accrued prior to enactment of Finance Act, 2004, have to be taken into account, particularly when position becomes irreversible. (c) provisions of section 80-IB(10) mention not only particular date before which such housing project is to be approved by local authority, even date by which housing project is to be completed, is fixed. These dates have specific purpose which gives time to developers to arrange their affairs in such manner that housing project is started and finished within those stipulated dates. This planning, in context of facts in these appeals, had to be much before April 1, 2005. (d) basic objective behind section 80-IB(10) is to encourage developers to undertake housing projects for weaker section of society, inasmuch as to qualify for deduction under this provision, it is essential condition that residential unit be constructed on maximum built-up area of 1,000 sq.ft. where such residential unit is situated within cities of Delhi and Mumbai or within 25 kms. from municipal limits of these cities and 1,500 square feet at any other place. (e) It is cardinal principle of interpretation that construction resulting in unreasonably harsh and absurd results must be avoided. (f) Clause (d) makes it clear that housing project includes shops and commercial establishments also. But from day said provision was inserted, they wanted to limit built-up area of shops and establishments to 5 per cent. of aggregate built-up area or 2,000 sq.ft., whichever is less. However, Legislature itself felt that this much commercial space would not meet requirements of residents. Therefore, in year 2010, Parliament has further amended this provision by providing that it should not exceed 3 per cent. of aggregate built-up area of housing project or 5,000 square feet, whichever is higher. This is significant modification making complete departure from earlier yardstick. On one hand, permissible built-up area of shops and other commercial shops is increased from 2,000 square feet to 5,000 square feet. On other hand, though aggregate built-up area for such shops and establishment is reduced from 5 per cent. to 3 per cent., what is significant is that it permits builders to have 5,000 square feet or 3 per cent. of aggregate built-up area, "whichever is higher". In contrast, provision earlier was 5 per cent. or 2,000 sq.ft., "whichever is less". (g) From this provision, therefor, it is clear that housing project contemplated under sub-section (10) of section 80-IB includes commercial establishments or shops also. Now, by way of amendment in form of clause (d), attempt is made to restrict size of said shops and/ or commercial establishments. Therefore, by necessary implication, said provision has to be read prospectively and not retrospectively. As is clear from amendment, this provision came into effect only from day provision was substituted. Therefore, it cannot be applied to those projects which were sanctioned and commenced prior to April 1, 2005, and completed by stipulated date, though such stipulated date is after April 1, 2005. These aspects are dealt with by various High Courts elaborately and convincingly in their judgments. It is not necessary to go into detailed reasoning given by these High Courts. However, we would like to extract following discussion from judgment dated July 25, 2014, of Bombay High Court in I. T. A. Nos. 201 and 308 of 2012, where this very aspect is answered in following manner: "36. There is yet another reason for coming to aforesaid conclusion. Take scenario where assessee, following project completion method of accounting, has completed housing project CIT v. Happy Home Enterprises [2015] 372 ITR 1, 19 (Bom). approved by local authority complying with all conditions as set out in section 80- IB(10), as it stood prior to April 1, 2005. If we were to accept argument of Revenue, then in that event, despite having completed entire construction prior to April 1, 2005, and complying with all conditions of section 80-IB(10) as it stood then, assessee would be disentitled to entire deduction claimed in respect of such housing project merely because he offered his profits to tax in assessment year 2005-06. In contrast, if same assessee had followed work-in-progress method of accounting, he would have been entitled to deduction under section 80-IB(10) up to assessment year 2004-05, and denied same from assessment year 2005-06 and thereafter. It could never have been intention of Legislature that deduction under section 80-IB(10) available to particular assessee would be determined on basis of accounting method followed. This, to our mind and as rightly submitted by Mr. Mistry, would lead to startling results. We, therefore, have no hesitation in holding that section 80-IB(10) is prospective in nature and can have no application to housing project that is approved before March 31, 2005. As deduction sought to be claimed under section 80-IB(10) is inseparably linked with date of approval of housing project, it would make no difference if construction of said project was completed on or after April 1, 2005, or that profits were offered to tax after April 1, 2005, i.e., in assessment year 2005-06 or thereafter. We therefore find no substance in argument of Revenue that notwithstanding fact that housing project was approved prior to March 31, 2005, if construction was completed on or after April 1, 2005, or if profits are brought to tax in assessment year 2005-06 or thereafter, said housing project would have to comply with provisions of clause (d) of section 80-IB(10). To our mind, we do not think that condition/restriction laid down in clause (d) of section 80-IB(10) has to be revisited and/or looked at and complied with in assessment year in which profits are offered to tax by assessee. When assessee claims deduction under section 80-IB(10), assessee is required to comply with such condition only if it is on statute-book on date of approval of housing project and it has nothing to do with year in which profits are brought to tax by assessee. We have come to this conclusion only because we find that clause (d) of section 80-IB(10) is inextricably linked to date of approval of housing project and subsequent development/construction of same, and has nothing to do with profits derived therefrom. We may hasten to add that if particular condition is not inseparably linked to date of approval of housing project, different considerations would arise. However, we are not called upon to decide any such condition and hence we are not laying down any general proposition of law, save and except that clause (d) of section 80-IB(10), being condition linked to date of approval of housing project, would not apply to any housing project that was approved prior to March 31, 2005, irrespective of fact that profits of said housing project are brought to tax after said provision was brought into force." At this juncture, we would like to quote following passage from CIT v. Shah Sadiq and Sons: "14. Under Income-tax Act of 1922, assessee was entitled to carry forward losses of speculation business and set off such losses against profits made from that business in future years. right of carrying forward and set off accrued to assessee under Act of 1922. right which had accrued and had become vested continued to be capable of being enforced notwithstanding repeal of statute under which that right accrued unless repealing statute took away such right expressly or by necessary implication. This is effect of section 6 of General Clauses Act, 1897. 15. In this case the'savings' provision in repealing statute is not exhaustive of rights which are saved or which survive repeal of statute under which such rights had accrued. In other words, whatever rights are expressly saved by the'savings' provision stand saved. But, that does not mean that rights which are not saved by the'savings' provision are extinguished or stand ipso facto terminated by mere fact that new statute repealing old statute is enacted. Rights which have accrued are saved unless they are taken away expressly. This is principle behind section 6(c) of General Clauses Act, 1897. right to carry forward losses which had accrued under repealed Income-tax Act of 1922 is not saved expressly by section 297 of Income-tax Act, 1961. But, it is not necessary to save right expressly in order to keep it alive after repeal of old Act of 1922. Section 6(2) saves accrued rights unless they are taken away by repealing statute. We do not find any such taking away of rights by section 297 either expressly or by implication." [1987] 166 ITR 102, 109 (SC); [1987] 3 SCC 516. aforesaid discussion persuades us to conclude that judgments of High Courts, which are impugned in these appeals, take correct view that assessees were entitled to benefit of section 80-IB(10). As result, these appeals fail and are hereby dismissed. *** Commissioner of Income-tax v. Sarkar Builder
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