PANAJI: The high court of Bombay at Goa has held that the area of courtyard cannot be included to calculate the built-up area of a residential unit for assessing the income tax liability of a construction firm.
The order comes as a relief to a partnership firm, whose claim of deduction amounting to 1.71 crore was not allowed by the income-tax appellate tribunal (ITAT). ITAT ordered that the built-up area should have included a courtyard that was excluded by the firm while computing the built-up area to claim deduction.
The case pertains to the interpretation of Section 80-IB (10) of the Income Tax Act. The section provides that the amount of deduction in the case of an undertaking developing and building housing projects approved before March 31, 2008, by a local authority, will be 100% of the profits from such housing project if the residential unit has a maximum built-up area of 1,500 square feet (as is applicable for Goa)
.The question before the high court was whether the area of the rear courtyard which is open to the sky and appurtenant to the residential unit is to be included to compute the built-up area as mentioned under Section 80-IB(10) of the act.
In 2003, Commonwealth Developers had taken permission from Margao municipal council for the construction of row villas with a built-up area of 1,500 square feet comprising the ground and first floors. Subsequently, the firm filed a return of income claiming deduction under Section 80-IB amounting to 1,71,24,680, which was disallowed by a tax authority. The matter reached ITAT.
In its order, the tribunal held that the row house constructed by the firm had a courtyard on the rear which is to be added to calculate the built-up area and the built-up area becomes more than 1,500 square feet. The tribunal, accordingly, held that the firm is not entitled to claim the deduction. Aggrieved by the ITAT order, Commonwealth Developers approached the high court and filed an appeal.
During the hearing of the case, the appellants' lawyer, Chythanya K K, argued that in order to include an area as built-up area there should be something built in such an area. When the area is open to the sky, the question of holding that there is anything built therein to be included as built-up area would not arise at all, he stated. In case the rear courtyard area is excluded, the residential unit would not exceed 1,500 square feet, he pointed out.
Asha Desai, advocate for the income tax department, pointed out that as the area of the courtyard is enclosed by a compound wall, it was in exclusive use of the owner and the tribunal has rightly included the area to compute the built-up area. She also referred the definition of built-up area under law and stated that only common open spaces are to be excluded to compute built-up area and not exclusive area.
Section 80-IB(14) inserted with effect from March 1, 2005, provides that built-up area means the inner measurements of a 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.
A division bench comprising Justice R S Dalvi and Justice F M Reis, observed, "Thus, unless and until it is shown that some construction is put up, the area of the courtyard which is open to the sky cannot be included to compute the built-up area."
The court further noted, "In such circumstances, the built-up area is to be worked out from the wall of the residential unit, the question of extending it to mean that the area within the compound around an open land is erroneous." The court stated that the building plan sanctioned by the statutory authorities does not disclose that the built-up area of the residential unit did not exceed 1,500 square feet.
"In order that an area is to be included to be a built-up area to avail of deduction under Section 80-IB(10) of the Income Tax Act, something has to be built in order that such area can be included to calculate the built-up area," the court stated.
The court also held that the definition of the words built-up area was introduced by the Finance Act of 2004 with effect from March 1, 2005, which is otherwise not applicable to the facts of the present case as the project of the appellant was approved prior to the date.
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The order comes as a relief to a partnership firm, whose claim of deduction amounting to 1.71 crore was not allowed by the income-tax appellate tribunal (ITAT). ITAT ordered that the built-up area should have included a courtyard that was excluded by the firm while computing the built-up area to claim deduction.
The case pertains to the interpretation of Section 80-IB (10) of the Income Tax Act. The section provides that the amount of deduction in the case of an undertaking developing and building housing projects approved before March 31, 2008, by a local authority, will be 100% of the profits from such housing project if the residential unit has a maximum built-up area of 1,500 square feet (as is applicable for Goa)
.The question before the high court was whether the area of the rear courtyard which is open to the sky and appurtenant to the residential unit is to be included to compute the built-up area as mentioned under Section 80-IB(10) of the act.
In 2003, Commonwealth Developers had taken permission from Margao municipal council for the construction of row villas with a built-up area of 1,500 square feet comprising the ground and first floors. Subsequently, the firm filed a return of income claiming deduction under Section 80-IB amounting to 1,71,24,680, which was disallowed by a tax authority. The matter reached ITAT.
In its order, the tribunal held that the row house constructed by the firm had a courtyard on the rear which is to be added to calculate the built-up area and the built-up area becomes more than 1,500 square feet. The tribunal, accordingly, held that the firm is not entitled to claim the deduction. Aggrieved by the ITAT order, Commonwealth Developers approached the high court and filed an appeal.
During the hearing of the case, the appellants' lawyer, Chythanya K K, argued that in order to include an area as built-up area there should be something built in such an area. When the area is open to the sky, the question of holding that there is anything built therein to be included as built-up area would not arise at all, he stated. In case the rear courtyard area is excluded, the residential unit would not exceed 1,500 square feet, he pointed out.
Asha Desai, advocate for the income tax department, pointed out that as the area of the courtyard is enclosed by a compound wall, it was in exclusive use of the owner and the tribunal has rightly included the area to compute the built-up area. She also referred the definition of built-up area under law and stated that only common open spaces are to be excluded to compute built-up area and not exclusive area.
Section 80-IB(14) inserted with effect from March 1, 2005, provides that built-up area means the inner measurements of a 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.
A division bench comprising Justice R S Dalvi and Justice F M Reis, observed, "Thus, unless and until it is shown that some construction is put up, the area of the courtyard which is open to the sky cannot be included to compute the built-up area."
The court further noted, "In such circumstances, the built-up area is to be worked out from the wall of the residential unit, the question of extending it to mean that the area within the compound around an open land is erroneous." The court stated that the building plan sanctioned by the statutory authorities does not disclose that the built-up area of the residential unit did not exceed 1,500 square feet.
"In order that an area is to be included to be a built-up area to avail of deduction under Section 80-IB(10) of the Income Tax Act, something has to be built in order that such area can be included to calculate the built-up area," the court stated.
The court also held that the definition of the words built-up area was introduced by the Finance Act of 2004 with effect from March 1, 2005, which is otherwise not applicable to the facts of the present case as the project of the appellant was approved prior to the date.
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