Open Terrace/Portico Excluded While Computing Built-Up Area To Determine Eligibility For Deduction U/S 80-IB Of IT Act: Telangana High Court

The Bench consists of Justices P. Sam Koshy and Narsing Rao Nandikonda was addressing the issue of whether the terrace / balcony that is in the form of open to sky or portico / porch area without walls could be added while computing the built-up area for the purpose of determining the eligibility for deduction under Section 80-IB of the Income Tax Act, 1961.

The bench observed that as per Section 80-IB of the Act an assessee is entitled for deduction in respect of profit and gain from certain industrial undertakings and other infrastructural undertakings. Such deductions shall not apply to housing projects carried out in accordance with the scheme framed by the Central Government or the State Government in the course of re-construction or re-development of existing buildings in areas declared to be slum area.

In this case, the assessee/appellant is a real estate developer. The assessee is engaged in the business of construction of residential units / bungalows which are duplexes surrounded by a compound wall. Each residential unit consists of a portico and an open terrace.

The assessee filed its return of income for the Assessment Year 2009-10 admitting an income of Rs.3,16,46,847/- and claimed the entire amount as deduction under Section 80-IB (10) showing taxable income at Rs. NIL. The same was processed under Section 143(1) of the Income Tax Act, 1961. After scrutiny, the department had issued a notice under Section 143(2) of the Act.

After assessment, the department determined the total income of the assessee at Rs.3,41,41,862/- by making disallowances on two grounds, viz., disallowance of deduction under Section 80-IB (10) for a sum of Rs.3,16,46,847/- and disallowance under Section 14A for a sum of Rs.24,95,015/-.

However, the Tribunal rejected the claim of the assessee pertaining to deduction under Section 80-IB of the Income Tax Act, 1961 amounting to Rs.3,16,46,847/- on the ground that the terrace which is open to sky and portico without walls can be included in computing the built-up area of each residential unit were exceeding 1,500 sq.ft. for the purposes of determining eligibility for deduction under Section 80-IB of the Act.

The bench stated that “……..if we take the literal meaning of “built-up” area as is defined Clause (14)(a) of Section 80-IB of the Act, a built-up area includes balcony and projection. If on the inclusion of balcony and projections, if any, and if the total built-up area exceeds 1,500 sq.ft., the assessee would not be entitled for deduction Section 80-IB of the Act.”

An open terrace and a portico cannot be brought within the ambit of the definition of an “built-up” area as is defined under Section 80-IB (14)(a) of the Act, the definition that was inserted vide amendment that took place w.e.f. 01.04.2005, added the bench.

The bench opined that “Moreover, from the drawing itself, it is evidently clear that the two spaces i.e. the open terrace and also the portico is an area which is otherwise totally open and exposed. It could not be under any stretch of imagination be brought or considered to be an area within the inner measurement of a residential unit. Since it is an open space which cannot be brought within the purview of inner measurement of the residential unit, the said two areas i.e. the open terrace and the portico has to be excluded from computation of the built-up area entitling the appellant the benefit that which is enshrined under Section 80-IB of the Act.”

In view of the above, the bench allowed the appeal.

Case Title: M/s. Modi Builders & Realtors (P) Ltd. and Others v. Asst. Commissioner of Income Tax Circle-16 (2), Hyderabad, and Others

Case Number: Income Tax Tribunal Appeal No.167 of 2012

Counsel for Petitioner/ Assessee: S. Ravi, Senior Counsel appearing on behalf of C.H. Pushyam Kiran.

Counsel for Respondent/ Department: J.V. Prasad, learned Senior Standing Counsel for the Income Tax Department

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