Navratan Techbuild (P) Ltd. vs Commissioner of Income Tax

M.C. Garg, J.—Present review petition has been filed by the petitioner who was appellant in IT Appeal No. 83 of 2013 and was aggrieved of the judgment passed by the Tribunal, Indore Bench, dismissing their appeal vide order dt. 30th July, 2013. It is not disputed that the petitioner is a private limited company engaged in the business of real estate and construction of residential/housing projects. They filed e-return for the asst. yr. 2008-09 declaring nil income basically by claiming deduction of Rs. 13,37,31,420 under s. 80-IB(10) of the IT Act, 1961 (in short "the Act"). It is also not disputed that except for creating any infrastructural development in the area in question, residential flats were not constructed by the petitioner and residential plots were sold.

The AO did not agree with the petitioner that they were entitled to deduction as claimed under s. 80-IB(10) of the Act vide order dt. 31st Dec, 2010 on the ground that petitioner was not entitled to claim deduction having not constructed residential flats on the plots in question. It was this order which was assailed before the CIT(A) where also, the petitioner did not meet with any success and the appeal filed before the CIT(A) was dismissed vide order dt. 1st Aug. 2012. It is thereafter, the petitioner approached the Tribunal, Indore Bench, where also the orders of the AO and the CIT(A) were maintained and the second appeal filed before the Tribunal was dismissed vide order judgment dt. 30th of July, 2013 holding that the petitioner was not entitled to claim deduction under s. 80-IB(10) of the Act.

It was against that judgment, the petitioner approached this High Court which stands dismissed by this High Court vide judgment dt. 27th Jan., 2014.

The petitioner is seeking review of the aforesaid judgment passed by us primarily by stating that the appeal filed by them raises substantial question of law and this Court without framing substantial question of law involved in the appeal dismissed the appeal. It is submitted that it was necessary for this Court to have first framed the substantial question of law and then answer it.

Some facts to which reference has been made to this review petition are reproduced hereunder for the sake of reference:

"That the petitioner is a private limited company engaged in the business of real estate development and construction of residential/housing projects. The company filed its return of income for asst. yr. 2008-09 electronically on 29th Sept, 2008 declaring its total income as nil. While filing the said return, 80-IB(10) of the IT Act, 1961, in respect of the Income derived by the company from the eligible housing project of Omaxe City, Indore, at village Mayakhedi, District Indore. The assessee had undertaken the development and construction of the housing project at Indore in collaboration with M/s. Omaxe Ltd. and Shradha Buildcon (P) Ltd. on an area of land admeasuring 36.074 hectares i.e. 89.14 acres. The housing project undertaken by the petitioner company consisted of development of housing sites as well as development and construction of the residential units. Since the assessee company was following percentage completion method of accounting, revenue was recognized only on sale of housing sites during the impugned assessment year. Since according to petitioner, it satisfied all the conditions of s. 80-IB(10) of the Act, it was eligible for deduction under that section. The petitioner claimed that the petitioner was eligible for deduction in respect of the profits derived on the activity of development and construction of the housing sites as also on the constructions of the residential units."

It is not the case of the petitioner that they constructed residential houses which were necessary for claiming deduction under s. 80-IB(10) of the Act. The said section is reproduced hereunder for the sake of reference:

"80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.--(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-ss. (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.

...........

(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st March, 2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project If,--

(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st Oct., 1998 and completes such construction,--

(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;

(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, but not later than the 31st March, 2005 within four years from the end of the financial year in which the housing project is approved by the local authority.

(iii) In a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority.

Explanation: For the purposes of this clause,--

(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;

(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;

(b) the project is on the size of a plot of land which has a minimum area of one acre:

Provided that nothing contained in cl. (a) or cl. (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;

(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred sq. ft. at any other place; and

(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate built-up area of the housing project or five thousand square feet, whichever is higher.

(e) not more than one residential unit in the housing project is allotted to any person not being an individual; and

(f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely--

(i) The individual or the spouse or the minor children of such individual.

(ii) The Hindu divided family in which such individual is the Karta.

(iii) any person representing such individual, the spouse or the minor children of such individual or the HUF in which such individual is the Karta.

Explanation: For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government)

...........

(14) For the purposes of this section,--

(a) ''built-up area'' means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units;"

The AO taking note of the provisions contained under s. 80-IB(10) of the Act held that the said section confirms 100 per cent tax deduction only in respect to profit derived from the housing project undertaken by the assessee subject to following conditions:

"(a) Development and construction of the housing project must commence on or after 1st Oct., 1998 and such construction must be completed as under:

(i) In case where the housing project is approved before 1st day of April, 2004, on or before 31st March, 2008.

(ii) In case where the housing project is approved between 1st day of April, 2004 and 31st March, 2005, within 4 years from the end of the financial year in which the project is approved.

(iii) In case, where the housing project is approved after 1st April, 2005, within 5 years from the end of the relevant financial year in which housing project is approved.

(b) The housing project must be on the size of a plot of one acre or more.

(c) The residential units in the project should have maximum built-up area of 1,000 sq. ft. in respect of projects in Delhi, Mumbai and within 25 kms. thereof, and 1,500 sq ft. at other places.

(d) The built-up area of shops and other commercial shops included in the housing project should not exceed 3 per cent of the aggregate built-up area of the housing project or 5,000 sq. ft., whichever is more."

Prior to amendment, by the Finance Act, 2010, w.e.f. 1st April, 2010, the condition was that the built-up area of shops and other commercial establishments should not exceed 5 per cent of the aggregate built-up area or 2,000 sq. ft., whichever is less.

It is not in dispute that the aforesaid conditions with respect to raising residential flats in terms of the aforesaid section were not complied with by the petitioner. What they did, only raised infrastructural facilities i.e. building of roads, etc. and not raised residential houses, in as much as, admittedly they sold the residential plots instead of constructing residential houses. It was in these circumstances, the AO held that since the petitioner did not comply with the conditions qualifying them to claim exemption, rejected their plea of exemption. It was this order, which was upheld by CIT(A) as well as by the Tribunal in second appeal.

The submission made before us by the petitioner was that since they had carried out infrastructural development, that question ought to have been considered by framing the substantial question of law, that even carrying the infrastructural development could also be a ground for claiming exemption, but this ground is not tenable in law, because bare perusal of s. 80-IB(10) of the Act on the basis of which exemption was sought, clearly goes to show that what was required, was completion of the residential units, which admittedly has not been done in this case.

This was consistent view taken not only by the AO, but also by CIT(A) and then by the Tribunal.

In view of the aforesaid findings that no substantial question of law was involved in this case, we dismissed the appeal filed by the appellant. Paras 15 and 16 of our judgment are reproduced hereunder for the sake of reference:

"15. In this case, the grant of permission with respect to the aforesaid project which would have made the appellant eligible for exemption, requires not only development of the residential plots, but also construction of the plots which admittedly was not done. Construction of residential plots or construction of some plots later on would not qualify the appellant for exemption. Legal position has been clearly understood and complied by the appellate authority in the impugned judgment, in as much as it has been referred that reading of sub-s. (1) of s. 80-IB(10) of the Act is clear that deduction was subject to the condition of undertaking, condition of undertaking development and construction of the residential project, thus, the construction and development of the housing project were sine qua non for claim of deduction under s. 80-IB(10) of the Act, besides fulfilment of other conditions. The Tribunal has rightly observed that in the instant case, it is undisputed that the assessee has just developed the plots and sold them. No construction activity was undertaken during the relevant year and therefore, it was held that the assessee was not liable for claim of deduction. We have also taken. note of the relevant provisions of the statute in para 9 of the judgment.

Considering the aforesaid enactment and the judgment of the Tribunal, we find that in this case, legal issues were clearly understood by the Tribunal and it is not the case where any interpretation of the law is required or needs any clarification at this level. Hence, we are of the considered view that in this case, there is no substantial questions of law raised by the appellant which requires admission of the appeal filed by the appellant. Consequently, present appeal filed by the appellant is dismissed."

Learned counsel for the petitioner seeking review of the impugned judgment has relied upon the following judgements:

"(a) M. Janardhana Rao Vs. Joint Commissioner of Income Tax, ;

(b) Commissioner of Income Tax Vs. Ajay Vijay Traders, ;

(c) GST v. Hukumchand Mill (2004) 3 STJ 700 (MP)(FB)."

In the judgment delivered in the case of M. Janardhana Rao (supra), the Hon''ble apex Court discussed the scope and procedure of s. 260A of the IT Act. Observations made in that judgment are as follows:

"On an appeal under s. 260A, it is essential for the High Court to first formulate the substantial question of law and thereafter proceed in the matter; High Court having not formulated any substantial question of law at the time of admission of the appeal and formulated the question subsequently after conclusion of arguments for the purpose of adjudication the impugned judgment is set aside and the matter is remitted to the High Court to deal with the same afresh keeping in view the prescriptions of s. 260A."

In the case of CIT v. Ajay Vyay Traders (supra), the Hon''ble apex Court, considering the scope of appeal which requires assessment of trust under s. 161(1A) of the Act has held as under:

"After hearing the counsel for the parties, we are of the opinion that the High Court should have admitted the appeals under s. 260A of the IT Act, 1961 and decided the cases on merit. We, accordingly, allow the appeals, set aside the judgments of the High Court and restore the appeals filed by the appellant on the Board of the High Court. We make it clear that we are not expressing any opinion on the merits of the these cases."

In the case of CST v. Hukumchand Mill (supra), Hon''ble apex Court has held that:

"9. For the first time this question had cropped up before a Bench consisting of D.M. Chandrashekhar and M. Santosh, JJ. of Mysore High Court, AIR 1972 Mysore 44. After noticing divergent views of various High Courts and following the test laid down by Rajagopala Ayyangar, J. in Thungabhadra (supra), it was held that Art. 141 of the Constitution of India provides that law declared by the Supreme Court is binding on all Courts within the territory of India. Hence, where there is a decision of Supreme Court bearing on a point and where a Court has taken a view on that point which is inconsistent with the decision of the Supreme Court, no elaborate arguments are required to point out such an apparent error on the face of the record. Following decision of Federal Court in Commissioner of Income Tax Vs. Ajay Vijay Traders, , it was further held by the Mysore High Court Division Bench, that the question as to how the error apparent on the face of the record occurred is of no relevance for the purpose of review and that it is immaterial whether such error occurred due to counsel''s mistake or had crept in by reason of oversight on the part of the Court. The view taken by the Mysore Division Bench has been accepted by the Full Bench of Himachal Pradesh, The Nalagarh Dehati Co-operative Transport Society Ltd., Nalagarh Vs. Beli Ram etc., . The Full Bench formulated two question for the decision. First question was whether any subsequent decision of the Supreme Court or Larger Bench taking a different or contrary view on a point of law is good ground for review. Presently, we are not concerned with the first question which was answered in negative but are more concerned with second question. The second question was whether taking a view on a point while pronouncing decision by the Court, contrary to the existing decision of the Supreme Court or High Court is good ground for review While dealing with second question, the Full Bench in paras 15 and 16 held as under:

''15. The second part of the question relates to a situation where a Court has failed to notice an existing contrary decision of the High Court or the Supreme Court on a point covered by its judgment. Now failure to notice a decision on a question of law of the Supreme Court, which is the law of the land under Art. 141 of the Constitution, is not the same thing as failure to notice a binding decision of the High Court. So, we would divide the question into two parts: (a) failure to notice a decision of the Supreme Court; (b) failure to notice a binding decision of the High Court.

Failure to notice an existing decision of the Supreme Court on question of law results in not applying the law which should have been applied. Therefore, a contrary decision would amount to a mistake or error apparent on the face of the record. The error would be obvious and no elaborate reasoning would be necessary to find it."

We are in respectful agreement with the views expressed by Mysore and Himachal Pradesh High Courts. All Courts in India are bound to follow the decision of the Supreme Court and the law laid down by the Supreme Court is binding on all Courts and Tribunals. When some principle of law has been laid down by the Supreme Court, it is the duty of the High Court or subordinate Courts to follow the decision of the Supreme Court and to ignore the well-settled law by a judicial pronouncement of the Supreme Court and to pass order contrary to it would be gross impropriety. It amounts to ''judicial adventurism'' as has been held by the Supreme Court at p. 462 in Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engineering Works (P) Ltd., and another, .

To appreciate the judgment relied upon by the petitioner, we are required to look into the provisions contained under s. 260A of the Act, which reads as under:

"260A. Appeal to High Court.--(1) An appeal shall lie to the High Court from every order passed in appeal by the Tribunal (before the date of establishment of the National Tax Tribunal), if the High Court is satisfied that the case involves a substantial question of law.

(2) The Chief CIT or the CIT or an assessee aggrieved by any order passed by the Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be--

(a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Chief CIT or CIT;

(b)...........

(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.

(2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in cl. (a) of sub-s. (2), if it is satisfied that there was sufficient cause for not filing the same within that period.

(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.

(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question:

Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.

(6) The High Court may determine any issue which--

(a) has not been determined by the Tribunal; or

(b) has been wrongly determined by the Tribunal, by reason of a decision on such question of law as is referred to in sub-s. (1).

(7) Save as otherwise provided in this Act, the provisions of the CPC, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section."

Applying the aforesaid principle to the facts of this case, we notice that the controversy raised by the petitioner was to submit that even raising infrastructural development entitled them to deduction under s. 80-IB(10) of the Act which is not sustainable by bare reading of this section, in as much as the deduction was permissible only subject to compliance of the following conditions:

"(a) Development and construction of the housing project must commence on or after 1st Oct., 1998 and such construction must be completed as under:

(i) In case where the housing project is approved before 1st April, 2004, on or before 31st March, 2008.

(ii) In case where the housing project is approved between 1st April, 2004 and 31st March, 2005, within 4 years from the end of the financial year in which the project is approved.

(iii) In case where the housing project is approved after 1st April, 2005, within 5 years from the end of the relevant financial year in which housing project is approved.

(b) The housing project must be on the size of a plot of one acre or more.

(c) The residential units in the project should have maximum built-up area of 1,000 sq. ft. in respect of projects in Delhi, Mumbai and within 25 kms. thereof, and 1,500 sq. ft. at other places.

(d) The built up area of shops and other commercial shops included in the housing project should not exceed 3 per cent of the aggregate built-up area of the housing project or 5,000 sq. ft., whichever is more."

Prior to amendment, by the Finance Act, 2010, w.e.f. 1st April, 2010, the condition was that the built-up area of shops and other page No. 15 commercial establishments should not exceed 5 per cent of the aggregate built-up area or 2,000 sq. ft. whichever is less.

Admittedly, in this case, petitioner/appellant having not constructed residential flats and as such barely raising infrastructural facilities would not raise any substantial question of law requiring adjudication by this Court. This is more so because in the facts of this case, the AO, the CIT as well as the Tribunal took a consistent view that in this case, the petitioner having sold the plots instead of constructing the residential houses which was essential for the purpose of claiming deduction, was not entitled to deduction.

Bare perusal of s. 260A of the Act as quoted above clearly goes to show that appeal before the High Court is maintainable with respect to any judgment where the High Court is satisfied that the case involves the substantial question of law. Sub-s. (3) of the aforesaid provision also emphasizes the aforesaid point because what the aforesaid sub-s. (3) says that only the High Court is satisfied that the substantial question of law was involved in any case, then only the High Court was required to formulate the same and then answer it.

Perusal of the scheme of aforesaid section of the IT Act leaves no room for doubt that if the appeal before the High Court does not involve any substantial question of law or that High Court is not satisfied that the appeal involves any substantial question of law, then there is no necessity for the High Court to frame substantial question of law and to answer the same thereafter.

Basic submission of learned counsel for the petitioner is that in this case since the infrastructural development had been done by the petitioner, that also permitted deduction under the provisions contained under s. 80-IB(10) of the Act, which to our view is not tenable since the entire controversy raised by the petitioner was factual in nature and does not contain any legal issue. We dismissed the appeal because we are of the considered view and are still of the considered view that in this case, appeal filed by the appellant/petitioner did not raise any substantial question of law and consequently, the issue of framing of substantial question of law did not arise. In view of the aforesaid observations, we dismiss the present review petition with costs of Rs. 50,000.