Taxation of Real Estate Development Contracts Ready Reckoner of Case Laws

8/3/2019 Taxation of Real Estate Development Contracts Ready Reckoner of Case Laws

1/6

TaxationofRealEstateDevelopmentContracts: http://www.itatonline.orgReadyReckonerofCaseLaws

1

TaxationofRealEstateDevelopmentContracts:ReadyReckonerofCaseLawsDr.K.Shivaram&RahulHakani,Advocates

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

(i) CBDTCircularF.No.205/3/2000/ITAIIdt.452001.CBDThasclarifiedthatanyprojectwhichhasbeenapprovedbyalocalauthorityashousingprojectshouldbeconsideredasadequateforpurposeofSection80IB(10).

(ii) CITvs.BrahmaAssociates(2011)333ITR289(Bom.). Section80IB(10)allowsdeductiontotheentireprojectapprovedbythelocalauthorityandnottoapartoftheproject,iftheconditionssetoutinsection80IB(10)aresatisfied,thendeductionisallowableontheentireprojectapprovedbythelocalauthorityandthereisnoquestionofallowingdeductiontoapartoftheproject

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

(iv)From1/4/2010clause(d)isliberalizedbyincreasingthelimitforshopsandcommercialtothehigherof3%oftheaggregatebuiltupareaor5,000sq.ft.

(2)OwnerofLand:

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

eligiblefor

deduction.

(3)SubDeveloper:

SarojSalesOrganisationvs.ITO(2008)115TTJ485.Thesubdeveloperiseligiblefordeduction.

(4)SingleSanctionPlan:

SarojSalesOrganisationvs. ITO (2008) 115TTJ485 (Mum.) / (2008)3DTR494 (Mum)OneblockeligibleifsatisfiesrequirementofS.80B(10).

(5)

Pro

rata

Deduction:

(i) Asperfollowingdecisionsassesseewasentitledtodeduction inrespectofresidentialunitsbelowspecifiedlimit:

(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.)


2/6


2

(d)Bengal Ambuja Housing Development Ltd. (IT Appeal No. 458 of 2006 (Cal. H.C.) dt.5/1/2007approvingTribunaldecisioninBengalAmbujaHousingDevelopmentLtd.vs.Dy.

CIT

(ITA

No.

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 flatswere sold separately and two flat owners themselves combinedseparate flats whereby the total area exceeded 1,500 sq. ft., deduction under section80IB(10)cannotbedeniedtotheassesseedeveloperonthisground.

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

(6)MinimumAlternateTax:

(i) Even thoughprofit from thedevelopmentof ahousingproject isallowable asdeduction,whilecalculatingthebookprofitundersection115JB forMinimumAlternateTaxpurposes,thesamewillnotbereducedfromthebookprofit.

(ii) XIIBAminimumalternatetaxisapplicabletoLimitedLiabilityPartnership(LLP).Ifprojectofanundertakingnotbeingacompanyisapprovedbefore31/3/2008andlatertheundertakingisconvertedintoLLP,minimumalternatetaxmaybeapplicable.

(7)Direct

Tax

Code,

2010

(2010)

326

ITR

(St.)

41

(317)

Asperclause318whichdealswithrepealsandsavingssubclause(2)(O)providesthatdeductionundersection80IBwouldbecontinuedtobeallowedunderthecode iftheassessee iseligibleforsuchdeductionfortheAssessmentyearbeginningonthe1stdayofApril,2012.

(8)SlumRehabilitationProject

(i) ByFinance(No.2)2004,the legislaturehasremovedtherestrictionoftheprojectsizebyaprovisoduetodifficultiesfacedtodeveloperingettinganareaofoneacrefordevelopmentofasinglesocietywithintheentireslumproject.

(ii) AlliedMotors(P)Ltd.vs.CIT(1997)224ITR677(SC)(iii)OneoftheconditionintheprovisoisthattheSlumRehabilitationschemehastobenotifiedbytheBoard.Thoughtheprovisowas insertedbyFinance(No.2)Act,2004,theBoardhasnotified the SRA scheme only in 2010. The notification no.67/2010 dated 3rdAugust, 2010approvedtheSRAprojectsunderRegulation33(10)oftheDevelopmentControlRegulationsforgreaterMumbai,1991.


3/6


3

AssessingAuthority&Ors. vs.PatialaBiscuitManufacturers (P) Ltd. (1977) 1977 CTR 185

(SC),

(iv) TheBombayHighCourt inRameshG.Dedhiavs.ACITIncomeTaxAppealNo.2469of2010on17/6/2011hasadmittedthefollowingquestionoflaw

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

(v)NotificationNo.01/2011dated5/1/2011(9)CompletionofProject:

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

(ii) When, construction is duly completedbefore 3132008,but the saleof some flats takeplace inthesubsequentyear,deductionundersection80IB(10)wouldbeavailable inthesubsequentyearsfromtheincomesfromsuchsales.

(iii) Sanghavi&DoshiEnterprise(Supra)itwasheldthatwhereAssesseemakesanapplicationforcompletioncertificate,grantofcompletioncertificateafterverificationonsubsequentdatewouldrelatebacktothedateonwhichapplicationismade.

(iv) Theconditionofcompletingofprojectbefore31/3/2008 isnotapplicablewhereproject iscommencedbefore1/4/2005i.e.,beforethedatefromwhichrequirementofcompletionofprojectbefore31/3/2008wasintroduced.

(10)FullValueofSaleConsiderationS.50C:

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

-Meghraj

Baid

vs.

ITO

(2008)

114

TTJ

841

(Jd.)

/

(2008)

4

DTR

509

(Jd.)

Mandatory.

- ITOvs.Smt.ManjuRaniJain(2008)24SOT24(Del.)- CIT(A)canalsodirect.

Hasmukhbhaivs.ACIT(2011)46SOT419(Ahd.)(Trib.)

- A.O.cannotsubstitutevaluewhichstamp.(iii)EffectofDVOValuation


4/6


4

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

It

was

held

that,

where

apparent

consideration

of

land

and/or

building

as

shown

in

the

documentoftransferislessthanthestampdutyvaluationfixedbyStateGovernment,itis the latterwhich shallprevail for computationof capital gains. In case the assesseeclaimsthatthevaluefixedforstampdutypurposes ishigherthanfairmarketvalue,theAssessingOfficershallreferthemattertoDVOundersection50C(2)fordeterminationoffairmarketvalue,whichiflessthanthestampdutyvaluation,shallbeconsideredasfairmarketvalue;butifhigherthanthestampdutyvaluation,thestampdutyvaluationshallbe treated by virtue of section 50C(3), to be the fairmarket value. AssessingOfficercannotdisregardthevaluationfixedbyDVO.

Itwas further held that valuation by the DVO placing toomuch of emphasis on thevaluation by the Stamp valuation authority which is based on circle rates is neither

desirablenor

permissible.

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

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

(iv)NoRegistrationSection50CNotApplicableNavneetKumarThakkarvs.ITO(2007)112TTJ76(Jd.)/ (2008)110ITD525(Jd.)

(v)Section50CdoesnotapplytobuyerforinvokingSection69BITOvs.OptecDiscManufacturing(2008)11DTR264(Chd.)(Trib.)

(vi)BusinessIncomeInderlokHotelsPvt.Ltd.vs.ITO(2009)32SOT419(Mum.).S.80Cnotapplicable.

(vii) DevelopmentRightArifAkhtarHusainvs.ITO(2011)59DTR307(Mum.)(Trib.)

- S50Capplicable.ChairanjeevLalKhannavsITO(Mum.)(Trib.)Source: www.itatonline.org.

(viii) Section50C:AppliestoDepreciableAssets(S.2(11),48,50)


5/6


5

TheMumbai Special Bench in ITO vs. UnitedMarine Academy (2011) 130 ITD 113(Mum.)(SB)(Trib.).

(ix)Section50C:DoesnotapplytotransferofleaseholdrightsAtulG.Puranikvs.ITO(2011)132ITD499/11ITR120(Trib.)(Mum.)

(x)S.50C:OwnershipofLand (S.45)ITOvs.SushmaGupta(Smt.)(2011)44SOT568(Delhi)(Trib.)

TheTribunalheldthatinordertoapplyprovisionsofsection50C,itisnotnecessarythatassesseeshouldbedirectownerofproperty.

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

(xii) StampDutyValuationundersection50CandDeductionundersection54FMohd.Shoibvs.Dy.CIT(2010)127TTJ459S.50Capplicable.GyanChandBatravs.ITO(2010)133TTJ482(JP.)S.50Cnotapplicable.GouliMahadevappavs.ITO(2011)128ITD503(Bang.)(Trib.)S.50Cnotapplicable.

(xiii) AssessableThe

Finance

(No.2)

Act,

2009,

w.e.f.

1/10/2009

has

introduced

the

word

assessable

insection50C.AsperExplanation2, theexpressionassessablemeansthepricewhich the stampvaluationauthoritywouldhave,notwithstandinganything to thecontrarycontainedinanyotherlawforthetimebeinginforce,adoptedorassessed,ifitwerereferredtosuchauthorityforthepurposesofthepaymentofstampduty.Hence,evenifthesaledocumentisnotputupforregistrationandthereisnostampvaluation by stamp Authorities, this amendment empowers Assessing officer todeterminethepriceasperstampvaluation.

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

the

bill

clause

50(2)(h)

provides

that

in

the

case

of

transfer

of

land

or

building

thefullvalueofconsiderationwillbestampdutyvalueoftheasset.Howeverthereisnoprovision in thebill for the assessee toobject this valuationor to request theAssessingofficertoreferthequestionofvaluationtoDVOas isthereinsection50CofIncomeTaxAct,1961.


6/6


6

(11)ConversionofTenanciesintoOwnership:

(a)Dr.

D.

A.

Irani

vs.

First

ITO

(1984)

7

ITD

160

(Bom.)

(SB)

Extinguishment

of

rights.

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

(c) CostofAcquisition BalmukundP.Acharyavs. ITO(2010)133TTJ640. Similarview isalsoheldbyBombayHighCourtCITvs.AbrarAlvi (2001)247 ITR312.Marketvalueof tenancyrightwhenitwassurrendered.

Disclaimer:Thecontentsofthisdocumentaresolelyforinformationalpurpose.Itdoesnotconstituteprofessionaladviceora formal recommendation.Whileduecarehasbeen taken inpreparing thisdocument, theexistenceofmistakesandomissionsherein isnot ruledout.Neither theauthornor itatonline.organd itsaffiliatesacceptsany

liabilities

for

any

loss

or

damage

of

any

kind

arising

out

of

any

inaccurate

or

incomplete

information

in

this

document

norforanyactionstakeninreliancethereon.Nopartofthisdocumentshouldbedistributedorcopied(exceptforpersonal,noncommercialuse)withoutexpresswrittenpermissionofitatonline.org

Note:ThisArticlewassubmittedatthe32thFoundationDay &NationalTaxConference 2011heldon11to13.11.2011heldatDelhi.Reproducedwiththepermissionoftheauthor&organizers.

Taxation of Real Estate Development Contracts Ready Reckoner of Case Laws

Documents

Transcript of Taxation of Real Estate Development Contracts Ready Reckoner of Case Laws