Bhrama Associates vs. JCIT (ITAT Pune Special Bench)

DATE: (Date of pronouncement)
DATE: April 6, 2009 (Date of publication)

Click here to download the judgement (brahma_associates_80IB_10_Special_Bench.pdf)

On a rationalized interpretation of s. 80-IB (10),
“Housing Projects” held to include commercial area.

Where the assessee constructed a project in Pune in which the percentage of commercial area to the total area was 20.83% and the said project was approved by the Pune Municipal Corporation as a “New/ Residential + Commercial project” (and not as a “housing project”) and the question arose whether prior to the amendment of s. 80 IB (10) w.e.f. 1.4.2005 (to the effect that the commercial area in a housing project should not exceed the lesser of 5% of the built up area or 2,000 sq ft), the assessee’s project was a “housing project” eligible for deduction u/s 80-IB (10), HELD:

(i) S. 80 IB (10) is aimed at promoting construction of housing projects so as to address the problem of shortage of dwelling units. It cannot be said that the object is to encourage house building activity per se, irrespective of whether these are dwelling or commercial units;

(ii) However, given that under the DC Rules (of Pune) there cannot be a pure residential project and it is incumbent on the developer to reserve a part of the plot for shopping, commercial use of area must be regarded as an integral part of a housing project and does not vitiate the character of a housing project;

(iii) The fact that the 2005 amendment placed a restriction on commercial user also shows that commercial user was permissible even prior to that;

(iv) On the question as to the extent to which commercial use in a “housing project” is permissible, the approval by the local authority of a project as a “housing project” is conclusive and no further enquiry is required;

(v) Where the local authority does not grant approvals to “housing projects” but instead grants approvals to “residential and residential cum commercial projects”, one will have to adopt the doctrine of purposive interpretation to draw a “lakshman rekha” and ensure that the basic character of the project continues to remain in harmony with the object of the tax incentive i.e. augmenting affordable dwelling units. Applying the said doctrine of purposive interpretation, cases where commercial built up area does not exceed 10% of the total area are eligible for the benefit as such projects are predominantly residential in nature;

(vi) Cases where the commercial area is more than 10% will not be eligible for deduction unless it can be shown that income from the residential dwelling units can be worked out separately and even after excluding the commercial use of plot, the project satisfies all the requirements of section 80IB (10).

Harshad Doshi 109 TTJ 335 and Saroj Sales 115 TTJ 485 approved.

Arun Excello 108 TTJ 71 partly approved.

Laukik Developers vs. DCIT 105 ITD 657 (Mum) overruled (Note: It was not even the Revenue’s case before the Spl. Bench that a housing project can have no commercial area at all).

See Also: Treatise on the law of Real Estate Development Contracts