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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)

CIVIL APPEAL NO.        4491       OF 2015 (ARISING OUT OF SLP (C) NO. 10290 OF 2014)

CIVIL APPEAL NO.        4485       OF 2015 (ARISING OUT OF SLP (C) NO. 9871 OF 2014)

CIVIL APPEAL NO.        4486       OF 2015 (ARISING OUT OF SLP (C) NO. 4652 OF 2015)

CIVIL APPEAL NO.        4479       OF 2015 (ARISING OUT OF SLP (C) NO. 4651 OF 2015)

CIVIL APPEAL NO.        4481       OF 2015 (ARISING OUT OF SLP (C) NO. 5769 OF 2015)

CIVIL APPEAL NO.        4487       OF 2015 (ARISING OUT OF SLP (C) NO. 7570 OF 2015)

CIVIL APPEAL NO.        4490       OF 2015 (ARISING OUT OF SLP (C) NO. 7575 OF 2015)

Civil Appeal No.          of 2015 & Ors. Page 1 of 33 (arising out of SLP (C) No. 24330 of 2011 & Ors.)

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CIVIL APPEAL NO.        4483       OF 2015 (ARISING OUT OF SLP (C) NO. 7579 OF 2015)

CIVIL APPEAL NO.        4482       OF 2015 (ARISING OUT OF SLP (C) NO. 7578 OF 2015)

CIVIL APPEAL NO.        4489       OF 2015 (ARISING OUT OF SLP (C) NO. 8823 OF 2015)

CIVIL APPEAL NO.        4492       OF 2015 (ARISING OUT OF SLP (C) NO. 8390 OF 2015)

CIVIL APPEAL NO.        4478       OF 2015 (ARISING OUT OF SLP (C) NO. 8827 OF 2015)

CIVIL APPEAL NO.        4484       OF 2015 (ARISING OUT OF SLP (C) NO. 8828 OF 2015)

CIVIL APPEAL NO.        4493       OF 2015 (ARISING OUT OF SLP (C) NO. 8829 OF 2015)

CIVIL APPEAL NO.        4488       OF 2015 (ARISING OUT OF SLP (C) NO. 12063 OF 2015)

CIVIL APPEAL NO.        4480       OF 2015 (ARISING OUT OF SLP (C) NO. 8825 OF 2015)

J U D G M E N T

A.K. SIKRI, J.

Leave granted.   

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.)

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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.)

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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.)

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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.)

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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.)

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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.)

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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.)

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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.)

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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'.

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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

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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

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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.)

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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.)

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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.)

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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.)

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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 Civil Appeal No.          of 2015 & Ors. Page 22 of 33 (arising out of SLP (C) No. 24330 of 2011 & Ors.)

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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.)

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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

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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

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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

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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.)

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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.

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