Saturday, 26 September 2015

Whether in tax law law to be applied has to be law in force in assessment year?

 It is
ludicrous on the part of the Revenue authorities to expect the
assessees to do something which is almost impossible
13) In M/s. Reliance Jute and Industries Ltd. v. C.I.T., West

Bengal, Calcutta  (1980) 1 SCC 139
, this Court had, no doubt, pointed out the
cardinal principle of tax law that the law to be applied has to be
the law in force in the assessment year. However, this is qualified
by the exception when it is provided otherwise expressly or by
necessary implication, as is clear from the following
observations:
“6. The assessee claims a vested right under
Section 24(2)(iii), as it stood before its amendment
in 1957, to have the unabsorbed loss of 1950-51
carried forward from year to year until the loss is
completely absorbed. The claim is based on a
misconception of the fundamental basis underlying
every income tax assessment. It is a cardinal
principle of the tax law that the law to be applied is
that in force in the assessment year unless
otherwise provided expressly or by necessary
implication...”
14) In the same paragraph, the Court also remarked that 'a right
claimed by an assessee under the law in force in a particular
assessment year is ordinarily available only in relation to a
proceeding pertaining to that year'. Thus, it clearly follows that
though normally the law which is in force in the assessment year
would prevail, but this is not an absolute principle as the Court
itself carved out exceptions thereto by making it clear that such
exception can be either express or implied by necessary
implication. Even the principle which is mentioned is qualified with the words 'ordinarily available'.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4476 OF 2015
(ARISING OUT OF SLP (C) NO. 24330 OF 2011)
COMMISSIONER OF INCOME TAX-19
MUMBAI .....APPELLANT(S)
VERSUS
M/S. SARKAR BUILDERS .....RESPONDENT(S)
W I T H
 CIVIL APPEAL NO. 4477 OF 2015
(ARISING OUT OF SLP (C) NO. 9132 OF 2014)

A.K. SIKRI, J.
Citation; (2015) 7 SCC 579

2) No doubt the assessees/respondents in all these appeals are
different and even assessment years are different. But the
question of law which is raised by the Income Tax Authorities
(hereinafter referred to as the 'Revenue') is identical. The
Civil Appeal No. of 2015 & Ors. Page 2 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 3
assessees are subject to the jurisdiction of the different High
Courts, all of whom had claimed the benefit of Section 80IB of the
Income Tax Act ('Act' for short), namely, deduction in respect of
profits and gains on the ground that their cases were covered by
sub-section (10) of Section 80IB which provides for deduction of
100% of profits in the case of an undertaking developing and
building housing projects when such profits are derived in the
previous year relevant to any assessment year from such housing
projects, provided the conditions contained in the said
sub-section are satisfied. High Courts have taken the same view
holding that these assessees would be entitled to the deduction
under Section 80IB(10) of the Act. We may also point out at this
stage itself that though Section 80IB has been on the statute
book for quite some time, a new Section 80IB had been
introduced by the Finance Act, 1999 w.e.f. 01.04.2000. All these
cases are covered by the said Section, as introduced. However,
insofar as sub-section (10) is concerned, with which we are
directly concerned, there have been amendments in that
provision from time to time. We are concerned with the
amendment to the said sub-section carried out by Finance No.2
Act, 2004 w.e.f. 01.04.2005. In all these cases, though the
housing projects were sanctioned much before the said
Civil Appeal No. of 2015 & Ors. Page 3 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 4
amendment but have been completed after 01.04.2005 when
amended provision has come into operation. It is also not in
dispute that the amendment is prospective in nature.
Interestingly, when the housing project was approved by a local
authority, which is the requirement under sub-section (10) of
Section 80IB, as on that date, the conditions stipulated in the said
sub-section were met by the assessees. However, condition in
clause (d) which was laid down for the first time by the
amendment made effective from 01.04.2005 is not fulfilled. In
this scenario, the question is as to whether the new conditions
mentioned in the amended provision have also to be fulfilled only
because the housing projects in question, though started before
01.04.2005, were completed after the said date. The question of
law, that arises for discussion that needs to be answered is thus
common in all these appeals and can be formulated as under:
“Whether Section 80IB(10)(d) of the Income Tax Act,
1961 applies to a housing project approved before
31.03.2005 but completed on or after 01.04.2005?”
3) As pointed out above, sub-section (10) stipulates certain
conditions which are to be satisfied in order to avail the benefit of
the said provision. Further, it is also clear that the benefit is
available to those undertakings which are developing and building
'housing projects' approved by a local authority. Thus, this
Civil Appeal No. of 2015 & Ors. Page 4 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 5
Section is applicable in respect of housing projects and not
commercial projects. At the same time, we are conscious of the
fact that even in the housing projects, there would be some area
for commercial purposes as certain shops and commercial
establishments are needed even in a housing projects. That has
been judicially recognised while interpreting the provision that
existed before 01.04.2005 and there was no limit fixed in Section
80IB(10) regarding the built-up area to be used for commercial
purpose in the said housing project. As would be noticed later,
the extent to which such commercial area could be constructed
was as per the local laws under which local authority gave the
sanction to the housing project. However, vide clause (d), which
was inserted by the aforesaid amendment and made effective
from 01.04.2005, it was stipulated that the built-up area of the
shops and other commercial establishments in the housing
projects would not exceed 5% of the aggregate built-up area of
the housing project or 2000 sq. feet, whichever is less (there is a
further amendment whereby 5% is reduced to 3% and instead of
the words “2000 sq. feet whichever is less” the words “5000 sq.
feet, whichever is higher” have been substituted. However, we
are not concerned with this amendment).
Civil Appeal No. of 2015 & Ors. Page 5 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 6
The question, thus, that arises for consideration is as to whether
in respect of those housing projects which finished on or after
01.04.2005, though sanctioned and started much earlier, the
aforesaid stipulation contained in clause (d) also has to be
satisfied. All the High Courts have held that since this
amendment is prospective and has come into effect from
01.04.2005, this condition would not apply to those housing
projects which had been sanctioned and started earlier even if
they finished after 01.04.2005.
4) As there is a commonality of issue and the judgments of the
various High Courts have spoken in one voice which are
questioned on identical grounds by the appellant Revenue, all
these appeals were heard analogously and by this judgment, we
propose to answer the question of law involved and as formulated
above in order to give quietus to this surging debate.
5) Before we come to the grip of the aforesaid central issue, it would
be of some relevance to mention certain other disputes which had
arisen between the Revenue and the assessees/developers of
the housing projects concerning interpretation of sub-section (10)
of Section 80IB. That dispute primarily related to the meaning
that is to be assigned to 'housing projects' prior to 01.04.2005
Civil Appeal No. of 2015 & Ors. Page 6 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 7
because of the reason that there was no clause (d) earlier and
there is no express provision in this sub-section dealing with the
consequence of having a commercial establishment within a
housing project. One of the requirements contained in
sub-section (10) is that in order to be entitled to have the
deduction under this provision, housing project is to be approved
by a local authority. It is a matter of common knowledge that
there are Municipal Acts of specific Local Acts governing the
construction of buildings, commercial as well as residential, in
every State. For undertaking any such construction authority, it is
necessary to have the building plans sanctioned from the local
authorities in accordance with the provisions of such local acts.
There are local laws relating to the development and building of
“housing projects” by the developers/builders which also need a
sanction from the local authorities as per the law prevailing in that
particular area where the housing project is developed. Such
local laws, while sanctioning the housing projects, also permit use
of certain area in the housing projects in a specified manner for
shopping and commercial purposes as well. The question that
had arisen was – whether deduction under Section 80IB(10)
would be admissible when commercial establishment is
constructed in a housing project? That is, whether it would still
Civil Appeal No. of 2015 & Ors. Page 7 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 8
retain the character of housing project within the meaning of this
provision. The Bombay High Court in the case of C.I.T. v.
Brahma Associates1 held that since the expression 'housing
project' is not defined under the Act, the intention of Parliament
was that whatever is approved by the local authority under the
extent rules as a housing project would be treated as 'housing
project' for the purpose of this Section, inasmuch as sub-section
(10) itself mandates that housing project is to be approved by a
local authority as such an approval is a necessary condition for
claiming the deduction under this provision. When the local
authority has approved a housing project, whether 'residential' or
'residential cum commercial' the assessee is entitled to a
deduction on the entire profit including the commercial
establishments portion. We would also like to point out that
following this judgment of the Bombay High Court, or
independently, other High Courts had also taken similar view.
Against the aforesaid judgments, special leave petitions were
filed by the Revenue in this Court. All these SLPs have been
disposed of by this Court vide order dated 29.04.2015, we would
like to reproduce the said order in entirety hereunder:
“All these special leave petitions are filed by the
Revenue/ Department of Income tax against the
judgments rendered by various High Courts
1 333 ITR 289
Civil Appeal No. of 2015 & Ors. Page 8 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 9
deciding identical issue which pertains to the
deduction under Section 80IB(10) of the Income
Tax Act, as applicable prior to 01.04.2005. We
may mention at the outset that all the High
Courts have taken identical view in all these
cases holding that the deduction under the
aforesaid provision would be admissible to a
“housing project”.
All the assessees had undertaken
construction projects which were approved by
the municipal authorities/local authorities as
housing projects. On that basis, they claimed
deduction under Section 80IB(10) of the Act.
This provision as it stood at that time, i.e., prior
to 01.04.2005 reads as under: -
Section 80IB(10) [as it stood prior to
01.04.2005]
“(10) The amount of profits in case of an
undertaking developing and building housing
projects approved before the 31st day of March,
2005 by a local authority, shall be hundred per
cent of the profits derived in any 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 day of
October, 1998;
(b) the project is on the size of a plot of
land which has a minimum area of one crore;
and
(c) the residential unit has a maximum built-up
area of one thousand square feet where such
residential unit is situated within the cities of
Delhi or Mumbai or within twenty-five kilometres
from the municipal limits of these cities and one
thousand and five hundred square feet at any
other place.”
However, the income tax authorities rejected the
claim of deduction on the ground that the
projects were not “housing project” inasmuch as
Civil Appeal No. of 2015 & Ors. Page 9 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 10
some commercial activity was also undertaken
in those projects. This contention of the
Revenue is not accepted by the income tax
Appellate Tribunal as well as the High Court in
the impugned judgment. The High Court
interpreted the expression “housing project” by
giving grammatical meaning thereto as housing
project is not defined under the Income Tax Act
insofar as the aforesaid provision is concerned.
Since sub-section (10) of Section 80IB very
categorically mentioned that such a project
which is undertaken as housing project is
approved by a local authority, once the project is
approved by the local authority it is to be treated
as the housing project. We may also point out
that the High Court had made observations in
the context of Development Control Regulations
(hereinafter referred to as 'DCRs' in short) under
which the local authority sanctions the housing
projects and noted that in these DCRs itself, an
element of commercial activity is provided but
the total project is still treated as housing
project. On the basis of this discussion, after
modifying some of the directions given by the
ITAT, the conclusions which are arrived at by the
High Court are as follows: -
“30. In the result, the questions raised in
the appeal are answered thus:-
a) Upto 31/3/2005 (subject to fulfilling
other conditions), deduction under Section
80IB(10) is allowable to housing projects
approved by the local authority having
residential units with commercial user to the
extent permitted under DC Rules/Regulations
framed by the respective local authority.
b) In such a case, where the commercial
user permitted by the local authority is within the
limits prescribed under the DC Rules/
Regulation, the deduction under Section
80IB(10) upto 31/3/2005 would be allowable
irrespective of the fact that the project is
approved as 'housing project' or 'residential plus
commercial'.
Civil Appeal No. of 2015 & Ors. Page 10 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 11
c) In the absence of any provisions under
the Income Tax Act, the Tribunal was not
justified in holding that upto 31/3/2005 deduction
under Section 80IB(10) would be allowable to
the projects approved by the local authority
having residential building with commercial user
upto 10% of the total built-up area of the plot.
d) Since deductions under Section
80IB(10) is on the profits derived from the
housing projects approved by the local authority
as a whole, the Tribunal was not justified in
restricting Section 80IB(10) deduction only to a
part of the project. However, in the present
case, since the assessee has accepted the
decision of the Tribunal in allowing Section
80IB(10) deduction to a part of the project, we
do not disturb the findings of the Tribunal in that
behalf.
e) Clause (d) inserted to Section
80IB(10) with effect from 1/4/2005 is prospective
and not retrospective and hence cannot be
applied for the period prior to ¼/2005.”
We are in agreement with the aforesaid
answers given by the High Court to the various
issues. We may only clarify that insofar as
answer at para (a) is concerned, it would mean
those projects which are approved by the local
authorities as housing projects with commercial
element therein.
There was much debate on the answer
given in para (b) above. It was argued by Mr.
Gurukrishna Kumar, learned senior counsel, that
a project which is cleared as “residential plus
commercial” project cannot be treated as
housing project and therefore, this direction is
contrary to the provisions of Section 80(I)(B)(10)
of the Act. However, reading the direction in its
entirety and particularly the first sentence
thereof, we find that commercial user which is
permitted is in the residential units and that too,
as per DCR. Examples given before us by the
learned counsel for the assessee was that such
commercial user to some extent is permitted to
Civil Appeal No. of 2015 & Ors. Page 11 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 12
the professionals like Doctors, Chartered
Accountants, Advocates, etc., in the DCRs itself.
Therefore, we clarify that direction (b) is to be
read in that context where the project is
predominantly housing/residential project but the
commercial activity in the residential units is
permitted. With the aforesaid clarification, we
dispose of all these special leave petitions.”
6) The reason for recapitulating the aforesaid events pertaining to
the earlier litigation is that before 01.04.2005, the legal position
was that once the project is sanctioned by the local authority as
'housing project', the extent of area sanctioned for shops and
commercial establishments in the said housing project was
immaterial and had no bearing. Thus, irrespective of the said of
area where shops and commercial establishments were permitted
by the local authority in a housing project, it was still treated as
housing project and further that while granting 100% deductions,
the area covered by shops and commercial establishments was
also includible. This position has changed with the insertion of
clause (d) to sub-section (10). As per the amendment carried out
and made effective from 01.04.2005, even if the local authority
had sanctioned larger area for shops and commercial
establishment, the benefit of Section 80IB(10) would not be
admissible to these assessees/developers in case the area
utilised for shops and commercial establishment exceeded 5% of
Civil Appeal No. of 2015 & Ors. Page 12 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 13
the aggregate built-up area of the housing project or 2000 sq.
feet, whichever is less.
7) In the aforesaid scenario, we revert back to the question that is to
be answered. We have already pointed out that the parties are
ad idem that the amendment is prospective in nature and,
therefore, it operates from 01.04.2005. We have also mentioned
that in the instant appeals, all these assessees had got the
housing projects sanctioned prior to 01.04.2005 and the
construction of the said housing project also started before
01.04.2005. All other conditions mentioned namely the date by
which approval was to be given and the dates by which the
projects were to be completed as on the date when the project
was sanctioned, are also met by the assessees. Notwithstanding
this position, the argument of Mr. S. Gurukrishna Kumar, learned
senior counsel appearing for the Revenue is that amendment
w.e.f. 01.04.2005 is retroactive even if not retrospective. He has,
thus, endeavoured to draw a fine distinction between the
retroactive nature of amendment in contrast with retrospectivity of
a provision. He argued that once the project is financed after
01.04.2005 and on the completion of the said project, a particular
assessee has earned the income which is shown by the
assessee in a particular assessment year, it is that assessment
Civil Appeal No. of 2015 & Ors. Page 13 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 14
year which would be the determinative factor and the law
prevailing on the date relevant to the assessment year will have
to be applied. On that basis, it was argued that since the
assessment years are post 01.04.2005, clause (d) of sub-section
(10) of Section 80IB of the Act gets attracted. In support of this
plea, he referred to the judgment of this Court in Commissioner
of Income Tax I, Ahmedabad v. Gold Coin Health Food
Private Limited2
 and, particularly, the discussion contained in
paras 9 and 16 which are reproduced hereunder:
“9. In Reliance Jute and Industries Ltd. v. CIT,
(1980) 1 SCC 139, it was observed by this Court
that the law to be applied in income tax
assessments is the law in force in the
assessment year unless otherwise provided
expressly or by necessary implication.
xx xx xx
16. The law is well settled that the applicable
provision would be the law as it existed on the
date of the filing of the return. It is of relevance
to note that when any loss is returned in any
return it need not necessarily be the loss of the
previous year concerned. It may also include
carried-forward loss which is required to be set
up against future income under Section 72 of
the Act. Therefore, the applicable law on the
date of filing of the return cannot be confined
only to the losses of the previous accouting
years.”
8) He also referred to the decision in the case of The Karimtharuvi
2 (2008) 9 SCC 622
Civil Appeal No. of 2015 & Ors. Page 14 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 15
Tea Estate Ltd. v. The State of Kerala3
 which is to the same
effect.
9) Mr. J.D. Mistry, learned senior counsel who appeared on behalf of
the assessees in some of these appeals emphatically countered
the aforesaid arguments. In the first instance, he pointed out that
this argument of retroactivity was not even raised by the Revenue
in the High Courts or before the lower forum or even in the
special leave petitions filed in this Court. He further submitted
that it was necessary to keep the objective of the amendment in
mind which would clearly evince that the conditions in clause (d)
could not be applied in respect of those projects which had been
sanctioned and commenced prior to 01.04.2005. He further
argued that vested rights had accrued in favour of such persons
which could not be taken away by the amendment. He also
advanced various reasons, as would be noted later, necessitating
the approach as to why the principle of tax law that the law in
force in the Assessment Year is to be applied, insisting that it was
a case where departure was needed and such a departure is
recognised in certain circumstances, by the courts. He relied
upon the judgments of this Court in Commissioner of Income
Tax v. Shah Sadiq and Sons4
 and Commissioner of Income
3 AIR 1966 SC 1385 :: 60 ITR 262
4 (1987) 166 ITR 102 (SC)
Civil Appeal No. of 2015 & Ors. Page 15 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 16
Tax (Central)-I, New Delhi v. Vatika Township Private Limited5
.
Senior counsel who appeared for other assessees argued on the
same lines drawing our attention to the reasons which are given
by the High Courts in the impugned judgments and supporting
those reasons.
10) We have given our due consideration to the respective
submissions.
11) As pointed out above, the judgment pronounced by the Bombay
High Court in Brahma Associates case has already been upheld
by this Court on the interpretation given to the expression
'housing project' occurring in sub-section (10) of Section 80IB of
the Act. Interestingly, in the batch of appeals decided by the High
Court in that very judgment, the issue with which we are
concerned was also taken up. The Revenue had argued that
clause (d) inserted with effect from 01.04.2005 should be applied
retrospectively, which argument was repelled by the High Court.
Therefore, for better understanding, we would like to begin our
discussion with the meaning given to 'housing project' along with
the issue of retrospectivity of clause (d), as raised by the
Revenue, which was dealt with by the High Court and repelled.
That portion of the discussion contained in the High Court
5 (2015) 1 SCC 1
Civil Appeal No. of 2015 & Ors. Page 16 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 17
judgment, which has some bearing on the issue at hand, runs as
under:
“21. Thus, on the date on which the legislature
introduced 100% deduction under the Income Tax
Act, 1961 on the profits derived from housing
projects approved by a local authority, it was known
that the local authorities could approve the projects
as houding projects with commercial user to the
extent permitted under the DC Rules framed by the
respective local authority. In other words, it was
known that the local authorities could approve a
housing project without or with commercial user to
the extent permitted under the Development
Control Rules. If the legislature intended to restrict
the benefit of deduction only to the projects
approved exclusively for residential purposes, then
it would have stated so. However, the legislature
has provided that Section 80IB(10) deduction is
available to all the housing projects approved by a
local authority. Since the local authorities could
approve a project to be a housing project with or
without the commercial user, it is evident that the
legislature intended to allow Section 80IB(10)
deduction to all the housing projects approved by a
local authority without or with commercial user to
the extent permitted under the DC Rules.
22. It is not in dispute that where a project is
approved as a housing project without or with
commercial user to the extent permitted under the
Rules/Regulations, then, deduction under Section
80IB(10) would be allowable. In other words, if a
project could be approved as a housing project
having residential units with permissible
commercial user, then it is not open to the income
tax authorities to contend that the expression
'housing project' in Section 80IB(10) is applicable
to projects having only residential units.
23. Once it is held that the local authorities could
approve a project to be housing project without or
with the commercial user to the extent permitted
under the DC Rules, then the project approved with
the permissible commercial user would be eligible
for Section 80IB(10) deduction irrespective of the
Civil Appeal No. of 2015 & Ors. Page 17 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 18
fact that the project is approved as 'housing project'
or approved as 'residential plus commercial'. In
other words, where a project fulfills the criteria for
being approved as a housing project, then
deduction cannot be denied under Section
80IB(10) merely because the project is approved
as 'residential plus commercial'.
24. The fact that the deduction under Section
80IB(10) prior to 1.4.2005 was allowable on the
profits derived from the housing projects
constructed during the specified period, on a
specified size of the plot with residential units of the
specified size, it cannot be inferred that the
deduction under Section 80IB(10) was allowable to
housing projects having residential units only,
because, restriction on the size of the residential
unit is with a view to make available large number
of affordable houses to the common man and not
with a view to deny commercial user in residential
buildings. In other words, the restriction under
Section 80IB(10) regarding the size of the
residential unit would in no way curtail the powers
of the local authority to approve a project with
commercial user to the extent permitted under the
DC Rules/Regulations. Therefore, the argument of
the Revenue that the restriction on the size of the
residential unit in Section 80IB(10) as it stood prior
to 1.4.2005 is suggestive of the fact that the
deduction is restricted to housing projects
approved for residential units only cannot be
accepted.
25. The above conclusion is further fortified by
Clause (d) to Section 80IB(10) inserted with effect
from 1.4.2005. Clause (d) to Section 80IB(10)
inserted w.e.f. 1.4.2005 provides that even though
shops and commercial establishments are included
in the housing project, deduction under Section
80IB(10) with effect from 1.4.2005 would be
available where such commercial user does not
exceed five per cent of the aggregate built-up area
of the housing project or two thousand square feet
whichever is lower. By Finance Act, 2010, clause
(d) is amended to the effect that the commercial
user should not exceed three percent of the
aggregate built-up area of the housing project or
Civil Appeal No. of 2015 & Ors. Page 18 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 19
five thousand square feet whichever is higher. The
expression 'included' in clause (d) makes it amply
clear that commercial user is an integral part of
housing project. Thus, by inserting clause (d) to
Section 80IB(10) the legislature has made it clear
that though the housing projects approved by the
local authorities with commercial user to the extent
permissible under the DC Rules/Regulation were
entitled to Section 80IB(10) deduction, with effect
from 1.4.2005 such deduction would be subject to
the restriction set out in clause (d) of Section
80IB(10). Therefore, the argument of the revenue
that with effect from 1.4.2005 the legislature for the
first time allowed Section 80IB(10) deduction to
housing projects having commercial user cannot be
accepted.
xx xx xx
29. Lastly, the argument of the revenue that
Section 80IB(10) as amended by inserting clause
(d) with effect from 1.4.2005 should be applied
retrospectively is also without any merit, because,
firstly, clause (d) specifically inserted with effect
from 1.4.2005, and therefore, that clause cannot be
applied for the period prior to 1.4.2005. Secondly,
clause (d) seeks to deny Section 80IB(10)
deduction to projects having commercial user
beyond the limit prescribed under clause (d), even
though such commercial user is approved by the
local authority. Therefore, the restriction imposed
under the Act for the first time with effect from
1.4.2005 cannot be applied retrospectively. Thirdly,
it is not open to the revenue to contend on the one
hand that Section 80IB(10) as stood prior to
1.4.2005 did not permit commercial user in housing
projects and on the other hand contend that the
restriction on commercial user introduced with
effect from 1.4.2005 should be applied
retrospectively. The argument of the revenue is
mutually contradictory and hence liable to be
rejected. Thus, in our opinion, the Tribunal was
justified in holding that clause (d) inserted to
Section 80IB(10) with effect from 1.4.2005 is
prospective and not retrospective and hence
cannot be applied to the period prior to 1.4.2005.”
Civil Appeal No. of 2015 & Ors. Page 19 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 20
12) The issues dealt with from paras 21 to 25 by the High Court
already stands approved by this Court. In para 29, the High
Court has held that clause (d) has prospective operation, viz.,
with effect from 01.04.2005, and this legal position is not disputed
by the Revenue before us. What follows from the above is that
prior to 01.04.2005, these developers/assessees who had got
their projects sanctioned from the local authorities as 'housing
projects', even with commercial user, though limited to the extent
permitted under the DC Rules, were convinced that they would be
getting the benefit of 100% deduction of their income from such
projects under Section 80IB of the Act. Their projects were
sanctioned much before 01.04.2005. As per the permissible
commercial user on which the project was sanctioned, they
started the projects and the date of commencing such projects is
also before 01.04.2005. All these assessees were made known
of the provision by which these projects are to be completed as
those dates have been specified from time to time by successive
Finance Acts in the same provision Section 80IB. In these cases,
completion dates were after 01.04.2005. Once they arrange their
affairs in this manner, the Revenue cannot deny the benefit of this
section applying the principle of retroactivity even when the
provision has no retrospectivity. Take for example, a case where
Civil Appeal No. of 2015 & Ors. Page 20 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 21
under the extant DC Rules, for shops and commercial activity
construction permitted was, say, 10% and the project was also
sanctioned allowing a particular assessee to construct 10% of the
area for commercial purposes. The said developer started with its
project much prior to 01.04.2005 with the aforesaid permissible
use and the construction was at a very advanced stage as on
01.04.2005. Can it be argued by that Revenue that he is to
demolish the extra coverage meant for commercial purpose and
bring the same within the limits prescribed by the new provision if
he wanted to avail the benefit of deduction under Section
80IB(10) of the Act, only because of the reason that the project
was not complete as on 01.04.2005? As in such a case he filed
his return for an assessment year after 01.04.2005 and for the
purpose of assessment of the said return, law prevailing as on
that date would be applicable? Answer has to be in the negative
on the principle that with the aforesaid planning as per the law
prevailing prior to 01.04.2005, these assessees acted and
acquired vested right thereby which cannot be taken away. It is
ludicrous on the part of the Revenue authorities to expect the
assessees to do something which is almost impossible
13) In M/s. Reliance Jute and Industries Ltd. v. C.I.T., West
Civil Appeal No. of 2015 & Ors. Page 21 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 22
Bengal, Calcutta6
, this Court had, no doubt, pointed out the
cardinal principle of tax law that the law to be applied has to be
the law in force in the assessment year. However, this is qualified
by the exception when it is provided otherwise expressly or by
necessary implication, as is clear from the following
observations:
“6. The assessee claims a vested right under
Section 24(2)(iii), as it stood before its amendment
in 1957, to have the unabsorbed loss of 1950-51
carried forward from year to year until the loss is
completely absorbed. The claim is based on a
misconception of the fundamental basis underlying
every income tax assessment. It is a cardinal
principle of the tax law that the law to be applied is
that in force in the assessment year unless
otherwise provided expressly or by necessary
implication...”
14) In the same paragraph, the Court also remarked that 'a right
claimed by an assessee under the law in force in a particular
assessment year is ordinarily available only in relation to a
proceeding pertaining to that year'. Thus, it clearly follows that
though normally the law which is in force in the assessment year
would prevail, but this is not an absolute principle as the Court
itself carved out exceptions thereto by making it clear that such
exception can be either express or implied by necessary
implication. Even the principle which is mentioned is qualified with
6 (1980) 1 SCC 139

the words 'ordinarily available'.
15) On examining the scheme of sub-section (1) of Section 80IB of
the Act, its historical turn around by amendments from time to
time and keeping in view of the real purpose behind such a
provision, we are of the view that in the peculiar scenario as
projected in this provision, the aforesaid cardinal principle of tax
law is not to be applied as, by necessary implication, application
thereof stands excluded. We have already narrated the essence
of this provision. For the purpose of discussing this particular
issue, it is required to be noted that with effect from 01.04.2001,
Section 80IB(10) stipulated that any housing project approved by
the local authority before 31.03.2001 was entitled to a deduction
of 100 per cent of the profits derived in any previous year relevant
to any assessment year from such housing project, provided - (i)
the construction/development of the said housing project
commenced on or after 1.10.1998 and was completed before
31.03.2003; (ii) the housing project was on a size of a plot of land
which had a minimum area of one acre; and (iii) each individual
residential unit had a maximum built-up area of 1000 sq.ft., where
such housing project was situated within the cities of Delhi or
Mumbai or within 25 kms. from the municipal limits of these cities,
Civil Appeal No. of 2015 & Ors. Page 23 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 24
and a maximum built-up area of 1500 sq.ft. at any other place.
Therefore, for the first time, a stipulation was added with
reference to the date of approval, namely, that approval had to be
accorded to the housing project by the local authority before
31.03.2001. Before this amendment there was no date
prescribed for the approval being granted by the local authority to
the housing project. Prior to this amendment, as long as the
development/construction commenced on or after 1.10.1998 and
was completed before 31.03.2001, the assessee was entitled to
the deduction. Also by this amendment, the date of completion
was changed from 31.03.2001 to 31.03.2003. Everything else
remained untouched. Thereafter, by Finance Act, 2003, further
amendments were made to Section 80IB(10), which read as
under:
“(10) The amount of profits in case of an
undertaking developing and, building housing
projects approved before the 31st day of March
2005 by a local authority, shall be hundred per cent
of the profits derived in any 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 day of October
1998;
(b) the project is on the size of a plot of land which
has a minimum area of one acre; and
(c) the residential unit has a maximum built-up area
Civil Appeal No. of 2015 & Ors. Page 24 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 25
of one thousand square feet where such residential
unit is situated within the cities of Delhi or Mumbai
or within twenty-five kilometres from the municipal
limits of these cities and one thousand and five
hundred square feet at any other place.”
16) As can be seen from the aforesaid provision, now the only
changes that were brought about were that with effect from
1.4.2002: (i) the housing project had to be approved before
31.03.2005; and (ii) there was no time limit prescribed for
completion of the said project. Though these changes were
brought about by the Finance Act, 2003, the Legislature thought it
fit that these changes be deemed to have been brought into effect
from 1.4.2002. All the remaining provisions of Section 80IB(10)
remained unchanged.
17) Thereafter, significant amendment, with which we are directly
concerned, was carried out by Finance (No.2) Act, 2004 with
effect from 1.4.2005. This amendment has already been noted
above. The Legislature made substantial changes in sub-section
(10). Several new conditions were incorporated for the first time,
including the condition mentioned in clause (d). This
condition/restriction was not on the statute book earlier when all
these projects were sanctioned. Another important amendment
was made by this Act to sub-section (14) of Section 80IB with
effect from 1.4.2005 and for the first time under clause (a) thereof
Civil Appeal No. of 2015 & Ors. Page 25 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 26
the words 'built-up area' were defined. Section 80IB(14)(a) reads
as under:
“(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;”
18) Prior to insertion of Section 80IB(14)(a), in many of the rules and
regulations of the local authority approving the housing project
“built-up area” did not include projections and balconies.
Probably, taking advantage of this fact, builders provided large
balconies and projections making the residential units far bigger
than as stipulated in Section 80IB(10), and yet claimed the
deduction under the said provision. To plug this lacuna, clause
(a) was inserted in Section 80IB(14) defining the words “built-up
area” to mean 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 did not include the
common areas shared with other residential units.
19) Can it be said that in order to avail the benefit in the assessment
years after 1.4.2005, balconies should be removed though these
were permitted earlier? Holding so would lead to absurd results
Civil Appeal No. of 2015 & Ors. Page 26 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 27
as one cannot expect an assessee to comply with a condition that
was not a part of the statute when the housing project was
approved. We, thus, find that the only way to resolve the issue
would be to hold that clause (d) is to be treated as inextricably
linked with the approval and construction of the housing project
and an assessee cannot be called upon to comply with the said
condition when it was not in contemplation either of the assessee
or even the Legislature, when the housing project was accorded
approval by the local authorities.
20) Having regard to the above, let us take note of the special
features which appear in these cases:
(a) In the present case, the approval of the housing project, its scope,
definition and conditions, all are decided and dependent by the
provisions of the relevant DC Rules. In contrast, the judgment in
M/s. Reliance Jute and Industries Ltd. was concerned with
income tax only.
(b) The position of law and the rights accrued prior to enactment of
Finance Act, 2004 have to be taken into account, particularly
when the position becomes irreversible.
(c) The provisions of Section 80IB(10) mention not only a particular
date before which such a housing project is to be approved by the
local authority, even a date by which the housing project is to be
Civil Appeal No. of 2015 & Ors. Page 27 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 28
completed, is fixed. These dates have a specific purpose which
gives time to the developers to arrange their affairs in such a
manner that the housing project is started and finished within
those stipulated dates. This planning, in the context of facts in
these appeals, had to be much before 01.04.2005.
(d) The basic objective behind Section 80IB(10) is to encourage
developers to undertake housing projects for weaker section of
the society, inasmuch as to qualify for deduction under this
provision, it is an essential condition that the residential unit be
constructed on a maximum built up area of 1000 sq.ft. where
such residential unit is situated within the cities of Delhi and
Mumbai or within 25 kms. from the municipal limits of these cities
and 1500 sq.ft. at any other place.
(e) It is the cardinal principle of interpretation that a construction
resulting in unreasonably harsh and absurd results must be
avoided.
(f) Clause (d) makes it clear that a housing project includes shops
and commercial establishments also. But from the day the said
provision was inserted, they wanted to limit the built up area of
shops and establishments to 5% of the aggregate built up area or
2000 sq.ft., whichever is less. However, the Legislature itself felt
that this much commercial space would not meet the
Civil Appeal No. of 2015 & Ors. Page 28 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 29
requirements of the residents. Therefore, in the year 2010, the
Parliament has further amended this provision by providing that it
should not exceed 3% of the aggregate built up area of the
housing project or 5000 sq.ft., whichever is higher. This is a
significant modification making complete departure from the
earlier yardstick. On the one hand, the permissible built up area
of the shops and other commercial shops is increased from 2000
sq.ft. to 5000 sq.ft. On the other hand, though the aggregate built
up area for such shops and establishment is reduced from 5% to
3%, what is significant is that it permits the builders to have 5000
sq.ft. or 3% of the aggregate built up area, 'whichever is higher'.
In contrast, the provision earlier was 5% or 2000 sq.ft.,
'whichever is less'.
(g) From this provision, therefor, it is clear that the housing project
contemplated under sub-section (10) of Section 80IB includes
commercial establishments or shops also. 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, this provision came into effect only
from the day the provision was substituted. Therefore, it cannot
Civil Appeal No. of 2015 & Ors. Page 29 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 30
be applied to those projects which were sanctioned and
commenced prior to 01.04.2005 and completed by the stipulated
date, though such stipulated date is after 01.04.2005.
21) These aspects are dealt with by various High Courts elaborately
and convincingly in their judgments. It is not necessary to go into
the detailed reasoning given by these High Courts. However, we
would like to extract the following discussion from the judgment
dated 25.07.2014 of the Bombay High Court in ITA Nos. 201 and
308 of 2012, where this very aspect is answered in the following
manner:
“36. There is yet another reason for coming to the
aforesaid conclusion. Take a scenario where an
Assessee, following the project completion method
of accounting, has completed the housing project
approved by the local authority complying with all
the conditions as set out in section 80-IB(10) as it
stood prior to 1st April, 2005. If we were to accept
the argument of the Revenue, then in that event,
despite having completed the entire construction
prior to 1st April, 2005 and complying with all the
conditions of section 80-IB(10) as it stood then, the
Assessee would be disentitled to the entire
deduction claimed in respect of such housing
project merely because he offered his profits to tax
in the A.Y. 2005-06. In contrast, if the same
Assessee had followed the work-in-progress
method of accounting, he would have been entitled
to the deduction under section 80-IB(10) upto the
A.Y. 2004-05, and denied the same from A.Y.
2005-06 and thereafter. It could never have been
the intention of the Legislature that the deduction
under section 80-IB(10) available to a particular
Assessee would be determined on the basis of the
accounting method followed. This, to our mind and
Civil Appeal No. of 2015 & Ors. Page 30 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 31
as rightly submitted by Mr. Mistry, would lead to
startling results. We therefore have no hesitation in
holding that section 80-IB(10) is prospective in
nature and can have no application to a housing
project that is approved before 31st March, 2005.
As the deduction sought to be claimed under
section 80-IB(10) is inseparably linked with the
date of approval of the housing project, it would
make no difference if the construction of the said
project was completed on or after 1st April, 2005 or
that the profits were offered to tax after 1st Apri,
2005 i.e. in A.Y. 2005-06 or thereafter. We
therefore find no substance in the argument of the
Revenue that notwithstanding the fact that the
housing project was approved prior to 31st March
2005, if the construction was completed on or after
1st April, 2005 or if the profits are brought to tax in
the A.Y. 2005-06 or thereafter, the said housing
project would have to comply with the provisions of
clause (d of section 80-IB(10). To our mind, we do
not think that the condition/restriction laid down in
clause (d) of section 80-IB(10) has to be revisited
and/or looked at and complied with in the
assessment year in which the profits are offered to
tax by the Assessee. When the Assessee claims a
deduction under section 80-IB(10), the Assessee is
required to comply with such a condition only if it is
on the statute-book on the date of the approval of
the housing project and it has nothing to do with
the year in which the profits are brought to tax by
the Assessee. We have come to this conclusion
only because we find that clause (d) of section
80-IB(10) is inextricably linked to the date of the
approval of the housing project and the subsequent
development/construction of the same, and has
nothing to do with the profits derived therefrom.
We may hasten to add that if a particular condition
is not inseparably linked to the date of approval of
the housing project, different considerations would
arise. However, we are not called upon to decide
any such condition and hence we are not laying
down any general proposition of law, save and
except that clause (d) of section 80-IB(10), being a
condition linked to the date of the approval of the
housing project, would not apply to any housing
project that was approved prior to 31st March,
2005 irrespective of the fact that the profits of the
Civil Appeal No. of 2015 & Ors. Page 31 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 32
said housing project are brought to tax after the
said provision was brought into force.”
22) At this juncture, we would like to quote the following passage
from Commissioner of Income Tax, U.P. v. M/s. Shah Sadiq
and Sons7
:
“14. Under the Income Tax Act of 1922, the
assessee was entitled to carry forward the losses
of the speculation business and set off such losses
against profits made from that business in future
years. The right of carrying forward and set off
accrued to the assesee under the Act of 1922. A
right which had accrued and had become vested
continued to be capable of being enforced
notwithstanding the repeal of the statute under
which that right accrued unless the repealing
statute took away such right expressly or by
necessary implication. This is the effect of Section
6 of the General Clauses Act, 1897.
15. In this case the 'savings' provision in the
repealing statute is not exhaustive of the rights
which are saved or which survive the repeal of the
statute under which such rights had accrued. In
other words, whatever rights are expressly saved
by the 'savings' provision stand saved. But, that
does not mean that rights which are not saved by
the 'savings' provision are extinguished or stand
ipso facto terminated by the mere fact that a new
statute repealing the old statute is enacted. Rights
which have accrued are saved unless they are
taken away expressly. This is the principle behind
Section 6(c) of the General Clauses Act, 1897. The
right to carry forward losses which had accrued
under the repealed Income Tax Act of 1922 is not
saved expressly by Section 297 of the Income Tax
Act, 1961. But, it is not necessary to save a right
expressly in order to keep it alive after the repeal of
the old Act of 1922. Section 6(2) saves accrued
rights unless they are taken away by the repealing
statute. We do not find any such taking away of
7 (1987) 3 SCC 516
Civil Appeal No. of 2015 & Ors. Page 32 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)Page 33
the rights by Section 297 either expressly or by
implication.”
23) The aforesaid discussion persuades us to conclude that the
judgments of the High Courts, which are impugned in these
appeals, take correct view that the assesees were entitled to the
benefit of Section 80IB(10). As a result, these appeals fail and
are hereby dismissed.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ROHINTON FALI NARIMAN)
NEW DELHI;
MAY 15, 2015.
Civil Appeal No. of 2015 & Ors. Page 33 of 33
(arising out of SLP (C) No. 24330 of 2011 & Ors.)
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