TaxationofRealEstateDevelopmentContracts:ReadyReckonerofCaseLaws

Dr.K.Shivaram&RahulHakani,Advocates

(1)HousingProjects[S.80IB(10)]

(i) CBDTCircularF.No.205/3/2000/ITAIIdt.452001.CBDThasclarifiedthatanyprojectwhich
hasbeenapprovedbyalocalauthorityashousingprojectshouldbeconsideredasadequate
forpurposeofSection80IB(10).

(ii) CITvs.BrahmaAssociates(2011)333ITR289(Bom.).Section80IB(10)allowsdeductionto
theentireprojectapprovedbythelocalauthorityandnottoapartoftheproject,ifthe
conditionssetoutinsection80IB(10)aresatisfied,thendeductionisallowableontheentire
projectapprovedbythelocalauthorityandthereisnoquestionofallowingdeductiontoa
partoftheproject

(iii) Whetherprojectscommencedbefore1/4/2005wouldcontinuetobegovernedbytheratio
oftheBramhaAssociates(Supra)after1/4/2005.InSarojSalesOrganisationvs.ITO(2008)
115TTJ485(Mum)&HiranandaniAkrutiJVvs.Dy.CIT(2010)39SOT498(Mum).

(iv) From1/4/2010clause(d)isliberalizedbyincreasingthelimitforshopsandcommercialtothe
higherof3%oftheaggregatebuiltupareaor5,000sq.ft.

(2)OwnerofLand:

RadheDevelopers&Ors.vs.ITO&Ors.(2008)23SOT420(Ahd.).Notnecessarytobeownertobe
eligiblefordeduction.

(3)SubDeveloper:

SarojSalesOrganisationvs.ITO(2008)115TTJ485.Thesubdeveloperiseligiblefordeduction.

(4)SingleSanctionPlan:

Saroj Sales Organisation vs. ITO (2008) 115 TTJ 485 (Mum.) / (2008) 3 DTR 494 (Mum) One block
eligibleifsatisfiesrequirementofS.80B(10).

(5)ProrataDeduction:

(i) Asperfollowingdecisionsassesseewasentitledtodeductioninrespectofresidentialunits
belowspecifiedlimit:

(a)C.V.Corporationvs.ITO(2010)38SOT174/43DTR329(Mum.)(Trib)
(b)SJRBuildersvs.ACIT(2010)3ITR569(Bang.)(Trib.)
(c)SreevatsaRealEstates(P)Ltd.vs.ITO(2010)41DTR497(Chennai)(Trib.)
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(d)Bengal Ambuja Housing Development Ltd. (IT Appeal No. 458 of 2006 (Cal. H.C.) dt.
5/1/2007approvingTribunaldecisioninBengalAmbujaHousingDevelopmentLtd.vs.Dy.
CIT(ITANo.1595/Kol/2005,dt.24/3/2006).

(ii) ThistleProperties(P)Ltd.vs.ACIT(2011)138TTJ538(Mum.)

(iii) DeductiondeniedSanghvi&DoshiEnterprisevs.ITO(2011)60DTR406(Chenai)(TM)(Trib.)
has held that once flats were sold separately and two flat owners themselves combined
separate flats whereby the total area exceeded 1,500 sq. ft., deduction under section
80IB(10)cannotbedeniedtotheassesseedeveloperonthisground.

(iv) Witheffectfrom1/4/2010,Finance(No.2)Act,2009introducedtwomoreconditions
- Onlyoneresidentialunittobeallottedtopersonnotbeinganindividual.
- IncaseofIndividualnottospouse.

(6)MinimumAlternateTax:

(i) Even though profit from the development of a housing project is allowable as deduction,
while calculating the book profit under section 115JB for Minimum Alternate Tax purposes,
thesamewillnotbereducedfromthebookprofit.

(ii) XIIBAminimumalternatetaxisapplicabletoLimitedLiabilityPartnership(LLP).Ifprojectof
anundertakingnotbeingacompanyisapprovedbefore31/3/2008andlatertheundertaking
isconvertedintoLLP,minimumalternatetaxmaybeapplicable.

(7)DirectTaxCode,2010(2010)326ITR(St.)41(317)

Asperclause318whichdealswithrepealsandsavingssubclause(2)(O)providesthatdeduction
undersection80IBwouldbecontinuedtobeallowedunderthecodeiftheassesseeiseligible
forsuchdeductionfortheAssessmentyearbeginningonthe1stdayofApril,2012.

(8)SlumRehabilitationProject

(i) ByFinance(No.2)2004,thelegislaturehasremovedtherestrictionoftheprojectsizebya
provisoduetodifficultiesfacedtodeveloperingettinganareaofoneacrefordevelopment
ofasinglesocietywithintheentireslumproject.

(ii) AlliedMotors(P)Ltd.vs.CIT(1997)224ITR677(SC)

(iii) OneoftheconditionintheprovisoisthattheSlumRehabilitationschemehastobenotified
bytheBoard.Thoughtheproviso wasinsertedbyFinance(No.2)Act,2004,theBoard has
notified the SRA scheme only in 2010. The notification no.67/2010 dated 3rd August, 2010
approvedtheSRAprojectsunderRegulation33(10)oftheDevelopmentControlRegulations
forgreaterMumbai,1991.
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Assessing Authority & Ors. vs. Patiala Biscuit Manufacturers (P) Ltd. (1977) 1977 CTR 185
(SC),

(iv) TheBombayHighCourtinRameshG.Dedhiavs.ACITIncomeTaxAppealNo.2469of2010
on17/6/2011hasadmittedthefollowingquestionoflaw

Whether the proviso to section 80IB(10) of the Act inserted by the Finance (No.2)
Act,2004 and the subsequent notification No. 67/2010 dated 3/8/2010 issued by CBDT
notifyingtheSRAprojectsisclarificatoryinnatureandinretrospectiveinoperation?

(v) NotificationNo.01/2011dated5/1/2011

(9)CompletionofProject:

(i)
Dy.CITvs.AnsalProperties&IndustriesLtd.(2008)22SOT45(Del.)occupationcertificate
fromBMCsufficient.

(ii) When, construction is duly completed before 3132008, but the sale of some flats take
placeinthesubsequentyear,deductionundersection80IB(10)wouldbeavailableinthe
subsequentyearsfromtheincomesfromsuchsales.

(iii) Sanghavi&DoshiEnterprise(Supra)itwasheldthatwhereAssesseemakesanapplication
forcompletioncertificate,grantofcompletioncertificateafterverificationonsubsequent
datewouldrelatebacktothedateonwhichapplicationismade.

(iv) Theconditionofcompletingofprojectbefore31/3/2008isnotapplicablewhereprojectis
commencedbefore1/4/2005i.e.,beforethedatefromwhichrequirementofcompletionof
projectbefore31/3/2008wasintroduced.

(10)FullValueofSaleConsiderationS.50C:

(i) K.R.Palanisamyvs.UOI(2008)306ITR61(Mad.)S/50Cisconstitutionallyvalid.

(ii) ReferencetoDVONotDiscretionary

- MeghrajBaidvs.ITO(2008)114TTJ841(Jd.)/(2008)4DTR509(Jd.)Mandatory.
- ITOvs.Smt.ManjuRaniJain(2008)24SOT24(Del.)
- CIT(A)canalsodirect.
Hasmukhbhaivs.ACIT(2011)46SOT419(Ahd.)(Trib.)
- A.O.cannotsubstitutevaluewhichstamp.

(iii) EffectofDVOValuation

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(a) RaviKantvs.ITO(2007)110TTJ297(Del.)

Itwasheldthat,whereapparentconsiderationoflandand/orbuildingasshowninthe
documentoftransferislessthanthestampdutyvaluationfixedbyStateGovernment,it
is the latter which shall prevail for computation of capital gains. In case the assessee
claimsthatthevaluefixedforstampdutypurposesishigherthanfairmarketvalue,the
AssessingOfficershallreferthemattertoDVOundersection50C(2)fordeterminationof
fairmarketvalue,whichiflessthanthestampdutyvaluation,shallbeconsideredasfair
marketvalue;butifhigherthanthestampdutyvaluation,thestampdutyvaluationshall
be treated by virtue of section 50C(3), to be the fair market value. Assessing Officer
cannotdisregardthevaluationfixedbyDVO.

It was further held that valuation by the DVO placing too much of emphasis on the
valuation by the Stamp valuation authority which is based on circle rates is neither
desirablenorpermissible.

(b) WaqfAlalAuladvs.AdditionalCommissionerofIncomeTax(2010)37SOT58(Del.)it
was held that where rent control act applies valuation to be done as per rent
capitalizationmethod.

JitendraMohanSaxenavs.ITO(2008)117TTJ974(Luck.)

(iv) NoRegistrationSection50CNotApplicable

NavneetKumarThakkarvs.ITO(2007)112TTJ76(Jd.)/(2008)110ITD525(Jd.)

(v) Section50CdoesnotapplytobuyerforinvokingSection69B

ITOvs.OptecDiscManufacturing(2008)11DTR264(Chd.)(Trib.)

(vi) BusinessIncome

InderlokHotelsPvt.Ltd.vs.ITO(2009)32SOT419(Mum.).

S.80Cnotapplicable.

(vii)
DevelopmentRight

ArifAkhtarHusainvs.ITO(2011)59DTR307(Mum.)(Trib.)
- S50Capplicable.
ChairanjeevLalKhannavsITO(Mum.)(Trib.)Source:www.itatonline.org.

(viii)
Section50C:AppliestoDepreciableAssets
(S.2(11),48,50)
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The Mumbai Special Bench in ITO vs. United Marine Academy (2011) 130 ITD 113
(Mum.)(SB)(Trib.).

(ix) Section50C:Doesnotapplytotransferofleaseholdrights

AtulG.Puranikvs.ITO(2011)132ITD499/11ITR120(Trib.)(Mum.)

(x) S.50C:OwnershipofLand(S.45)

ITOvs.SushmaGupta(Smt.)(2011)44SOT568(Delhi)(Trib.)

TheTribunalheldthatinordertoapplyprovisionsofsection50C,itisnotnecessarythat
assesseeshouldbedirectownerofproperty.

(xi) ValuationbyDVOBinding.

BhartiJayeshSanghani(Smt)vs.ITO(2011)55DTR212(Mum.)(Trib.).

(xii)
StampDutyValuationundersection50CandDeductionundersection54F

Mohd.Shoibvs.Dy.CIT(2010)127TTJ459S.50Capplicable.GyanChandBatravs.ITO
(2010)133TTJ482(JP.)S.50Cnotapplicable.
GouliMahadevappavs.ITO(2011)128ITD503(Bang.)(Trib.)S.50Cnotapplicable.

(xiii)

Assessable
TheFinance(No.2)Act,2009,w.e.f.1/10/2009hasintroducedthewordassessable
in section 50C. As per Explanation 2, the expression assessable means the price
which the stamp valuation authority would have, not withstanding anything to the
contrarycontainedinanyotherlawforthetimebeinginforce,adoptedorassessed,
ifitwerereferredtosuchauthorityforthepurposesofthepaymentofstampduty.
Hence,evenifthesaledocumentisnotputupforregistrationandthereisnostamp
valuation by stamp Authorities, this amendment empowers Assessing officer to
determinethepriceasperstampvaluation.

(xiv)

DirectTaxCode,2010(2010)326ITR(St.)41(80)

Underthebillclause50(2)(h)providesthatinthecaseoftransferoflandorbuilding
thefullvalueofconsiderationwillbestampdutyvalueoftheasset.Howeverthereis
no provision in the bill for the assessee to object this valuation or to request the
AssessingofficertoreferthequestionofvaluationtoDVOasisthereinsection50C
ofIncomeTaxAct,1961.

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(11)ConversionofTenanciesintoOwnership:

(a) Dr.D.A.Iranivs.FirstITO(1984)7ITD160(Bom.)(SB)Extinguishmentofrights.

(b) CITvs.D.P.SanduBrosChembur(P)Ltd.(2005)273ITR1(SC)AscostofacquisitionisNil
nocapitalgains.

(c) CostofAcquisitionBalmukundP.Acharyavs.ITO(2010)133TTJ640.Similarviewisalso
held by Bombay High Court CIT vs. Abrar Alvi (2001) 247 ITR 312. Market value of tenancy
rightwhenitwassurrendered.

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Note:ThisArticlewassubmittedatthe32thFoundationDay&NationalTaxConference2011heldon
11to13.11.2011heldatDelhi.Reproducedwiththepermissionoftheauthor&organizers.

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