# COMMISSIONER OF INCOME TAX-19 MUMBAI. \ v. M/S. SARKAR BUILDERS

- **Citation:** [2015] 7 S.C.R. 56
- **Court:** Supreme Court of India
- **Decided:** 2015
- **Case number:** Civil Appeal No. 44 76 Of 2015
- **Bench:** A. K. Sikri, R. F. Nariman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-19-mumbai-v-m-s-sarkar-builders-30937
- **Pages:** 30

## Headnote

Income Tax Act, 1961: s.8018(10) (as amended by
c Finance No.2 Act, 2004 w.e.f. 1.4.2005- Deduction in case
of undertaking developing and building housing projects -
By Clause (d) inserted by amendment and made effective
from 1.4.2005, it was stipulated that the built up area of shop
and other commercial establishments in the housing projects
D would not exceed 5% .'lf aggregate built up area of housing
project or 2000 sq. feet whichever is less -Whether
s.80/B(10)(d) applies to a housing project approved before
31.03.2005 but completed on or after 01.04.2005 -
Held:
This amendment is prospective and has come into effect
E from 1. 4. 2005, therefore, the restriction on extent of
commercial area in housing project imposed w.e.f. 1.4.2005
would not apply to housing projects which had been
sanctioned and started earlier even if they finished after
1.4.2005.
F
Dismissing the appeals, the Court
HELD: 1. Prior to 01.04.2005, the developers/
assessees who had got their projects sanctioned from
G 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 8018 of the Act. Their
H projects were sanctioned much before 01.04.2005. As
56
COMMISSIONER OF INCOME TAX -19 MUMBAI v. M/S.
57
SARKAR BUILDERS
per the permissible commercial user on which"tlie project A
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 B
successive Finance Acts in the same provision Section
8018. 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 C
provision has no retrospectivity. [Paras 7 and 12] [75-CF]
2. The basic objective behind Section 8018(10) is
to encourage developers to undertake housing projects D
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 E
Mumbai or within 25 kms. from the municipal limits of
these cities and 1500 sq.ft. at any other place: It is the
cardinal principle of interpretation that a construction
resulting in unreasonably harsh and absurd results must F
be avoided. 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 G
2000 sq.ft., whichever is less. However, the Legislature
itself felt that this much commercial space would not
meet the 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 H
58
SUPREME COURT REPORTS
[2015) 7 S.C.R.
A 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
B 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
C higher'. In contrast, the provision earlier was 5% or 2000
sq.ft., 'whichever is less'. From this provision, therefor,
it is clear that the housing project contemplated under
sub-section (

## Text

_Characters 0–39,928 of 55,862. This is a partial read: ask again with offset=39928 for what follows._

[2015] 7 S.C.R. 56
A
COMMISSIONER OF INCOME TAX-19 MUMBAI.
\
B
v.
M/S. SARKAR BUILDERS
(Civil Appeal No. 44 76 Of 2015)
MAY15,2015
[A. K. SIKRI AND R. F. NARIMAN, JJ.]
Income Tax Act, 1961: s.8018(10) (as amended by
c Finance No.2 Act, 2004 w.e.f. 1.4.2005- Deduction in case
of undertaking developing and building housing projects -
By Clause (d) inserted by amendment and made effective
from 1.4.2005, it was stipulated that the built up area of shop
and other commercial establishments in the housing projects
D would not exceed 5% .'lf aggregate built up area of housing
project or 2000 sq. feet whichever is less -Whether
s.80/B(10)(d) applies to a housing project approved before
31.03.2005 but completed on or after 01.04.2005 -
Held:
This amendment is prospective and has come into effect
E from 1. 4. 2005, therefore, the restriction on extent of
commercial area in housing project imposed w.e.f. 1.4.2005
would not apply to housing projects which had been
sanctioned and started earlier even if they finished after
1.4.2005.
F
Dismissing the appeals, the Court
HELD: 1. Prior to 01.04.2005, the developers/
assessees who had got their projects sanctioned from
G 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 8018 of the Act. Their
H projects were sanctioned much before 01.04.2005. As
56
COMMISSIONER OF INCOME TAX -19 MUMBAI v. M/S.
57
SARKAR BUILDERS
per the permissible commercial user on which"tlie project A
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 B
successive Finance Acts in the same provision Section
8018. 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 C
provision has no retrospectivity. [Paras 7 and 12] [75-CF]
2. The basic objective behind Section 8018(10) is
to encourage developers to undertake housing projects D
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 E
Mumbai or within 25 kms. from the municipal limits of
these cities and 1500 sq.ft. at any other place: It is the
cardinal principle of interpretation that a construction
resulting in unreasonably harsh and absurd results must F
be avoided. 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 G
2000 sq.ft., whichever is less. However, the Legislature
itself felt that this much commercial space would not
meet the 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 H
58
SUPREME COURT REPORTS
[2015) 7 S.C.R.
A 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
B 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
C higher'. In contrast, the provision earlier was 5% or 2000
sq.ft., 'whichever is less'. From this provision, therefor,
it is clear that the housing project contemplated under
sub-section (10) of Section 8018 includes commercial
0 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
E retrospectively. As is clear from the amendment, this
provision came into effect only from the day the provision
was substituted. Therefore, it cannot be applied to those
projects which were sanctioned and commenced prior
to 01.04.2005 and completed by the stipulated date,
F though such stipulated date is after 01.04.2005. The
assesees were entitled to the benefit of Section 8018(10).
[Paras 20 and 23] [81-8-H; 82-A-E; 85-G]
Mis. Reliance Jute and Industries Ltd. v. C.I. T, West
G
Bengal, Calcutta 1980 (1) SCR 906 - Distinguished.
Commissioneroflncome Tax, UP v. Mis. Shah Sadiq
and Sons 1987 (2) SCR 942 : (1987) 3 SCC 516 -
relied on.
H
C.I. Tv. Brahma Associates 333 ITR 289; Commissioner
COMMISSIONER OF INCOME TAX-19 MUMBAI v. M/S.
.59
SARKAR BUILDERS
of Income Tax I, Ahmedabad v. Gold Coin Health Food
Private Limited 2008 (12) SCR 179: (2008) 9 SCC 622;
The Karimtharuvi Tea Estate Ltd. v. The State of.Kera/a
AIR 1966 SC 1385: 1966 SCR 93; Commissioner of
Income Tax v. Shah Sadiq and Sons (1987) 166 ITR
102 (SC); Commissioner of Income Tax (Central)-/,
New Delhi v. Vatika Township Private Limited (2015) 1
sec 1; (1980) 1sec139- referred to.
.::;I ··t
Case Law Reference
333 ITR 289
referred to.
Para 5
2008 (12) SCR 179
referred to.
Para 7
1966 SCR 93
referred to.
Para 8
(1987) 166 ITR 102 (SC)
referred to.
Para 9
(2015) 1 sec 1
referred to.
Para 9
1980 (1) SCR 906
Distinguished
Para 13
1987 (2) SCR 942
relied on.
Para 22
CIVILAPPELLATE JURISDICTION: Civil Appeal No.
4476 of 2015.
From the Judgment and Order dated 22.02.2011 of the
High Court of Bombay in ITA No. 872 of 2010. ;>u
WITH
I .,.a
"
C.A.Nos.4477,4491,4485,4486,4479,4481,4487,
4490,4483,4482,4489,4492,4478,4484,4493,4488and
A
B
c
D
E
F
4480 of 2015.
1r
G
S. Guru Krishna Kumar, Kavin Gulati, T. M. Singh,
Rekha Pandey, D. L. Chidanand, Sadhana Sandhu, Gargi
Khanna, Anil Katiyar, 8. V. Balaram Das, Rupesh Kumar, Arijit
Prasad, SubhasAcharya, Kaustugh Shukla, Anita Sahni, SWA H
60
SUPREME COURT REPORTS
[2015] 7 S.C.R.
A Qadri for the Appellant.
J. D. Mistry, Rakesh Dwivedi, Kiran Suri, Prag Tripathi,
Kunal Vajani, Pranaya Goyal, Bindi Girish Dave, Kirti R.
Mishra, Dr. Vipin Gupta, Aparva Garg, S. J. Amith, Vikas Jain,
B Salil Kapoor, Shubham Rastogi (For Kamal Mohan Gupta),
Vinodh Kanna B., S. U. K. Sagar, Bina Madhavan, Praseena
Elizabeth Joseph, Akanksha Mehra, Srividya K. Kaimal,
Shrinjan Khosla, Swati Vellodi, Laksh Puri (For Lawyer S Knit
& Co.), Rajat N., Pradeep Kumar Bakshi, Kushara Pandit,
C Syed Shahid Hussain Rizvi for the Respondent.
The Judgment of the Court was delivered by
A. K. SIKRI, J. 1) Leave granted.
D
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 assessees are subject to the jurisdiction of the
E different High Courts, all of whom had claimed the benefit of
Section 801B 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 801B
F 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
G Courts have taken the same view holding that these assessees
would be entitled to the deduction under Section 801B(10) of
the Act. We may also point out at this stage itself that though
Section 801B has been on the statute book for quite some time,
a new Section 801B had been introduced by the Finance Act,
H 1999 w.e.f. 01.04.2000. All these cases are covered by the
COMMISSIONER OF INCOME TAX-19 MUMBAI v. M/S.
61
SARKAR BUILDERS [A K. SIKRI, J.]
said Section, as introduced. However, insofar as sub-section A
(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.2Act, 2004 w.e.f. 01.04.2005. In all
these cases, though the housing projects were sanctioned B
much before the said 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 C
under sub-section (10) of Section 801B, 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 0
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 E
for discussion that needs to be answered is thus common in
all these appeals and can be formulated as under:
"Whether Section 801B(1 O)(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
F
the benefit of the said provision. Further, it is also clear that
the benefit is available fo those undertakings which are G
developing and building 'housing projects' approved by a local
authority. Thus, this 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, H
62
SUPREME COURT REPORTS
[2015] 7 S.C.R.
A there would be some area for commercial purposes as certain
shc.ps 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 8018(10) regarding the built8 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
C 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
0
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).
E
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
F has to be satisfied. All the High Courts have held that since
this amendment is prospective and .has come into effect from
01.~4.2005, this condition would not apply to those housing
projects which had been sanctioned and started earlier even
if they finished after01.04.2005._
G
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,
H we propose to answer the question of law involved and as
formulated above in order to give quietus to this surging debate.
COMMISSIONER OF INCOME TAX -19 MUMBAI v. M/S.
63
SARKAR BUILDERS (A. K. SIKRI, J.]
5) Before we come to the grip of the aforesaid central A
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 BOIS. That dispute
primarily related to the meaning that is to be assigned to B
'housing projects' prior to 01. 04.2005 because of the reason
that there was no clause (d) earlier and there is no express
provision in this sub-section deating with the consequence of
having a commercial establishment within a housing project.
One of the requirements contained in sub-section (10) is that C
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, 0
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 E
"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 F
manner for shopping and commercial purposes as well. The
question that had arisen was-whether deduction under Section
801B(10) would be admissible when commercial establishment
is constructed in a housing project? That is, whether it would
still retain the character of housing project within the meaning G
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
1 3331TR289
H
64
SUPREME COURT REPORTS
[2015] 7 S.C.R.
A 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
8 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
C 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
0 29.04.2015, we would like to reproduce the said order in
entirety hereunder:
E
F
G
H
"All these special leave petitions are filed by the Revenue/
Department of Income tax against the judgments
rendered by various High Courts deciding identical issue
which pertains to the deduction under Section 8018(10)
of the Income TaxAct, 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 8018(10)
of the Act. This provision as it stood at that time, i.e.,
prior to 01.04.2005 reads as under: -
Section 8018(10) fas it stood prior to 01.04.20051
COMMISSIONER OF INCOME TAX-19 MUMBAI v. M/S.
65
SARKAR BUILDERS [A. K. SIKRI, J.]
"(10) The amount of profits in case of an undertaking
A
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, -
B
(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 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 801 B 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
c
D
E
F
G
H
66
A
8
c
SUPREME COURT REPORTS
[2015] 7 S.C.R.
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},
D
deduction under Section 8018(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
E
F
G
H
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
8018(10) upto 31/3/2005 would be allowable irrespective
of the fact that the project is approved as 'housing project'
or 'residential plus commercial'.
c) In the absence of any provisions under the Income
TaxAct, the Tribunal was not justified in holding that upto
31/3/2005 deduction under Section 8018(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 8018(10) is on the
COMMISSIONER OF INCOME TAX-19 MUMBAI v. M/S.
67
SARKAR BUILDERS [A. K. SIKRI, J.]
profits derived from the housing projects approved by
A
the local authority as a whole, the Tribunal was not justified
in restricting Section 801B(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 801B(10) deduction to a part of the
B
project, we do not disturb the fi~dings of the Tribunal in
that behalf.
e) Clause (d) inserted to Section 801B(10) with effect
from 1/4/2005 is prospective and not retrospective and
C
hence cannot be applied for the period prior to YJ2005."
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
o
would mean those projects which are approved by the
local authorities as housing projects with commercial
elementtherein.
There was much debate on the answer given in para (b)
E
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(1)(B)(10) of the Act.
F
However, reading the direction' in its entirety and
particularly the first sentence theteof, we find that
commercial user which is permitted is in the residential
units and that too, as per OCR. Examples given before
us by the learned counsel for the assessee was that such
G
commercial user to some e~ent is permitted to 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
H
68
SUPREME COURT REPORTS
[2015) 7 S.C.R.
A
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
B 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,
C 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.
D 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 8018(10) would not be
E admissible to these assessees/developers in case the area
utilised for shops and commercial establishment exceeded
5% of the aggregate built-up area of the housing project or
. 2000 sq. feet, whichever is less.
F
7) In the aforesaid scenario, we revert bac~ 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
G 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
H the projects were to be completed as on the date when the
COMMISSIONER OF INCOME TAX-19 MUMBAI v. M/S.
69
SARKAR BUILDERS [A. K. SIKRI, J.]
project was sanctioned, are also met by the assessees. A
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 B
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 year which C
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 0
801B 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 Limitec:P and, particularly, the discussion contained
in paras 9 and 16 which are reproduced hereunder:
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"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.
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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
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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."
·
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8) He also referred to the decision in the case of The
Karimtharuvi Tea Estate Ltd. v. The State of Kera/a3 which
is to the same effect.
9) Mr. J .D. Mistry, learned senior counsel who appeared
c 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
D 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
E rights had accrued in favour of such persons which could not
be taken away by the am~ndment. 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
F 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 Tax (Central)-/, New Delhi v. Vatika Township
G Private Limited°. 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
3 AIR 1966 SC 1385 :: 60 ITR 262
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judgments and supporting those reasons.
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10) We have given our due consideration to the
respective submissions.
11) As pointed out above, the judgment pronounced 8
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 8018 of the Act. Interestingly, in the batch of
appeals decided by the High Court in that very judgment, the c
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 D
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 judgment, which
has some bearing on the issue at hand, runs as under:
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"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
F
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
G
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 8018(10) deduction
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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 8018(10) deduction to all the housing
project.s 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 8018(10) would be allowable.
In other words, if a project could be approved as a housing
project having residenti~I units with permissible
commercial user, then it is not open to the income tax
authorities to contend that the expression 'housing
project' in Section 8018(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 80l8(10)
deduction irrespective of the 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 8018(10)
merely because the project is approved as 'residential
plus commercial'.
24. The fact that the deduction under Section 801B(10)
prior to 1.4.2005 was allowable on the profits derived
from the housing projects constructed during the specified
COMMISSIONER OF INCOME TAX-19 MUMBAI v. MIS.
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period, on a specified size of the plot with residential
units of the specified size, it cannot be inferred that the
deduction under Section 8018(10) was allowable to
housing projects having residential units only, because,
restriction on the size ofthe 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 8018(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 8018(10) inserted with effect from 1.4.2005.
Clause (d) to Section 8018(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 8018(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 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 8018(10) the legislature has made it clear
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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
8018(10) deduction, with effect from 1.4.2005 such
deduction would be subject to the restriction set out in
clause (d) of Section 8018(10). Therefore, the argument
of the revenue that with effect from 1.4.2005 the
legislature for the first time allowed Section 8018(10)
deduction to housing projects having commercial user
cannot be accepted.
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29. Lastly, the argument of the revenue that Section
8018(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 forthe period prior to 1.4.2005.
Secondly, clause (d) seeks to deny Section 8018(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 8018(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
8018(10) with effect from 1.4.2005 is prospective and
COMMISSIONER OF INCOME TAX-19 MUMBAI v. MIS.
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not retrospective and hence cannot be applied to the
A
period prior to 1.4.2005."
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 B
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, C
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
801 B of the Act. Their projects were sanctioned much before
01.04.2005. As per the permissible commercial user on which D
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 E
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 F
provision has no retrospectivity. Take for example, a case
where 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 G
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 ar9ued by that
Revenue that he is to demolish the extra coverage meant for
commercial purpose and bring the same within the limits H
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A prescribed by the new provision if he wanted to avail the benefit
of deduction under Section 8018( 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
B 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
C is ludicrous or. the part of the Revenue authorities to expect
the assessees to do something which is almost impossible
13) In Mis. Reliance Jute and Industries Ltd. v. C./. T.,
West Bengal, Calcutta6, this Court had, no doubt, pointed
D 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:
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"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 i.s 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
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relation to a proceeding pertaining to that year'. Thus, it clearly A
follows that though normally the law which is in force in the
assessment year would prevail, but this is not an absoluta
principle as the Court itself carved out i:lxceptions thereto by
making it clear that such exception can be either express or
implied by necessary implication. Even the principle which is B
mentioned is qualified with the words 'ordinarily available'.
15) On examining the scheme of sub-section (1) of
Section 801B of the Act, its historical turn around by
amendments from time to time and keeping in view of the real C
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.