Fiscal policies have a great role and impact in the business decisions of taxpayers. Incentive for setting up industry in backward areas, holiday period from levy of tax and exemption for income earned have played significant part in channelling investments in desired business sectors or geographic locations. The Income-Tax Act, 1961 contains incentive-based on location, activity and specified period. There is a view that such incentives should be withdrawn and most of the provisions therein are now with sunset clause and eventually will fade out in due course.

The housing sector got the push due to insertion of sub-section (10) to section 80-IB in the statute book. This provision had undergone changes during the interregnum. At present, undertakings engaged in developing and building housing projects approved before March 31, 2008, are eligible for this tax incentive by way of total tax exemption for maximum five years from the end of the financial year in which the eligible project was approved by the local authority. Thus this tax incentive will apply in respect of incomes derived from such activity only up to March 31, 2013.

Radhe Developers case

The Gujarat High Court in CIT vs. Radhe Developers (ITA No. 546 of 2008 dated December 12, 2011) gave disposal of 49 such cases together related to tax exemption in respect of housing projects. This mass disposal sets the tone for other taxpayers whoever proposes to avail such exemption or whose case may be pending before various appellate authorities.

The taxpayer claimed Rs 24.76 lakh as income derived from the activity of developing and building housing projects which the tax officer rejected as the land was not owned by the taxpayer. The first appellate authority, too, decided against the taxpayer.

The Tribunal however reversed the orders of the revenue authorities by holding that for claiming exemption under section 80-IB(10) it is not necessary that the taxpayer or the claimant must be the owner of the land. Further, it held that the taxpayer had taken possession of the land by virtue of an agreement with the landowner and hence for the purpose of income tax, the taxpayer was the owner of the land and hence eligible for the claim made by it.

The Division Bench of the Court formulated a question as to whether the taxpayer is eligible for tax incentive when the approval was in the name of the original landowner and the transfer of dwelling units in favour of buyers was made by the landowners and not by the taxpayer.

The Court held that as contended by the taxpayer, section 80-IB(10) does not postulate that to claim deduction the taxpayer must be the owner of the land on which he is developing the housing project. The local regulations permit the owner, occupier or even the developer with the permission of the owner to be eligible to develop the land after obtaining the permission of the local authority. The amendment in law brought in recently to deny the benefit of tax exemption is applicable in respect of works contract and where the taxpayer is a developer, the amendment will not apply.

Court precedents

The Court took note of the Supreme Court's decisions, such as Mysore Minerals Ltd (239 ITR 775) and Podar Cements Ltd (226 ITR 625), to hold that rightful possession was sufficient enough for being treated as owner though registered document was not executed previously. The developer had in the agreement specified the amount of consideration to be appropriated by the landowner and took upon himself the risk of developing the project. The amounts collected from the buyers were disbursed to the landowners and only after complete settlement of such dues to them, the developer became eligible for retaining the proceeds arising out of such activity.

The Court distinguished the sale vis a vis works contract by citing decisions, such as State of Andhra Pradesh v. Kone Elevators (AIR 2005 SC 1581) and State Punjab & Haryana v. Associated Hotels of India Ltd (AIR 1972 SC 1131), and held that the agreement between parties and conduct of the taxpayer had proved beyond doubt that the taxpayer was a developer and not a works contractor.

For interpreting the provisions in the manner as given in law the Court made reference to decisions such as CIT v. Gwalior Rayon Silk Mfg Co. Ltd (196 ITR 149), Bajaj Tempo Ltd v. CIT (196 ITR 188) and CIT v. Hindustan Bulk Carriers (259 ITR 449) and held that the incentive provisions must be interpreted to make them effective and operative by giving liberal interpretation to uphold such provisions.

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