The Income Tax Appellate on January 28, 2021, held that a mere landowner is not entitled to the deduction u/s 80-IB(10) if they have not incurred any cost or risk towards any developmental activity.
The assessee M/s. Anjli Foundations is a firm formed on 26.07.2005. They purchased a vacant land measuring 1 acre and four cents on 28.07.2005. As the owners of the land, the firm entered into a joint development agreement with M/s. Narendra Properties Ltd., the developer, on 16.08.2005. By virtue of the agreement, the assessee-owner had transferred/assigned 50% of the landholding to the developer, M/s. Narendra Properties Ltd., which in turn made an investment by way of constructing all the flats and both of them held 50% of rights in all the aspects of flat promotion in terms of built-up area, undivided share of land and open terrace area, etc. The assessee then claimed 100% deduction under section 80IB(10) of the Income Tax Act. i.e. on its entire net profit. The Assessing Officer (AO)however examined the assessee’s claim and held, inter alia, that the assessee firm is neither a builder nor a developer in order to claim the deduction under 80IB(10) for the reasons, inter alia, that the assessee had not independently developed/completed the project.
Judicial Member Duvvuru RL Reddy and Accountant Member S. Jayaraman while allowing the revenue’s appeal held, “Since, the assessee transferred/assigned 50% of the property to the developer, the assessee owned only 25 cents or half-acre as against one acre as per the condition laid down in section 80IB(10), the assessee’s Profit and Loss Account showed that on the gross sale value of Rs. 4,07,53,750/-, only bank charges of Rs. 1,625/- was debited. Since no other expenses were incurred towards the construction of flats as per the agreement, the assessee firm is neither a builder nor a developer for claiming the deduction and accordingly disallowed the claim. Aggrieved, the assessee filed an appeal before the CIT(A). The Ld. CIT(A) held, inter alia, that the Hon’ble Madras High Court in the case of CIT vs Sanghvi & Doshi Enterprises 255 CTR 156 has held that ownership of the land is not a criterion to decide the status of the developer to claim the deduction u/s. 80IB(10), this decision supports the view that both developer and landowner can claim the benefit of deduction u/s 80IB(10) in respect of their shares, the deduction is available for the project and not for the individual assessee and accordingly allowed the appeal.”
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