'Built Up Area' Definition Can't Have Retrospective Application, Bombay High Court Dismisses Dept. Appeal

The Bombay High Court has held that the expression 'built up area' introduced with effect from April 1, 2005, could not be applied retrospectively, and the Tribunal was justified in holding that up to April 1, 2005, the expression 'built up area' would exclude the balcony area.

The bench of Justice G. S. Kulkarni and Somasekhar Sundaresan has observed that for the first time, the Legislature has defined the expression 'built up area' in Section 80IB(10) by introducing clause (a) to Section 80IB(14) by Finance (No. 2) Act, 2004 with effect from April 1, 2005.

The issue raised was whether the expression 'built up area' defined with effect from April 1, 2005, can be applied for the period prior to April 1, 2005.

The respondent or assessee is a promoter, developer, or builder. The assessee filed the return of income for A.Y. 2008–09, declaring total income after claiming deduction under Section 80IB(10) of the Income Tax Act in respect of the housing project "Roseland Residency''. The AO passed the assessment order.

The AO noticed that the assessee had claimed a deduction under Section 80IB of the Income Tax Act amounting to Rs. 15,80,47,058 for the A.Y. 2008–09 in respect of the housing project "Roseland Residence''. It was noticed that the built-up area of row houses provided by the assessee was less than the specified limit for claiming deduction, i.e., less than 1500 sq. ft., in which the District Valuation Officers (DVO) worked out the built-up area of row houses at 1602.62 sq. ft. as the issue was referred to DVO for measurement of the built-up area of the row houses.

However, the AO did not accept the claim of the assessee and disallowed the same for A.Y. 208–09. The AO relied on the amended provision of Section 80IB(14)(a) of the Income Tax Act.

The assessee filed the appeal before the CIT (A). The CIT (A) ruled in favor of the assessee. The department challenged the order of the CIT (A) before the ITAT. The tribunal granted the deduction under Section 80IB(10).

The department challenged the order passed by the Income-tax Appellate Tribunal, Pune Bench, by which the appeals filed by the department against the order dated May 5, 2015, passed by the CIT (A) came to be rejected.

The issue raised was whether the Income Tax Appellate Tribunal was justified in holding that the area of balconies and rewas is not to be included while computing the built-up area of the residential units in a housing project eligible for deduction under Section 80IB(10) of the Income Tax Act.

The department contended that the housing project contemplated under Section 80IB(10) also includes commercial establishments or shops. Now, by way of an amendment in the form of Clause (d), an attempt is made to restrict the size of the said shops and/or commercial establishments. Therefore, by necessary implication, the said provision has to be read prospectively and not retrospectively. As is clear from the amendment, the provision came into effect only on the day it was substituted. Therefore, it cannot be applied to those projects that were sanctioned and commenced prior to April 1, 2005, and completed by the stipulated date, though the stipulated date is after April 1, 2005.

The assessee contended that the expression 'built up area' introduced with effect from April 1, 2005, could not be applied retrospectively, and the Tribunal was justified in holding that up to April 1, 2005, the expression 'built up area' would exclude the balcony area.

The court relied on the decision of the Supreme Court in the case of The Principal Commissioner of Income Tax versus G.K. Developers, in which it was held that under the Development Control Regulations framed by the Municipal Corporation for Greater Mumbai, the balcony area is required to be excluded while computing the 'built up area'. If the expression' built-up area' in a housing project approved by the local authority does not include the balcony area, then, prior to April 1, 2005, the same would apply while considering the eligibility under Section 80IB(10) of the Act. That is why the Legislature has introduced the definition of 'built-up area' by including the balcony area, with effect from April 1, 2005. In such a case, where the Legislature, with effect from a particular date, has defined a particular expression by including a meaning that is not ordinarily included in that expression, then the said definition cannot be applied retrospectively. Therefore, the inclusive definition of the expression 'built up area' introduced with effect from April 1, 2005, could not be applied retrospectively, and the CESTAT was justified in holding that up to April 1, 2005, the expression 'built up area' would exclude the balcony area.

The court dismissed the appeal of the department and ruled in favor of the assessee.

Counsel For Appellant: Ashok Kotangle

Counsel For Respondent: Sanket Bora

Case Title: PCIT Versus G.K. Developers

Case No.: ITA NO. 1345 OF 2018

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