Meaning of “Housing projects”

The meaning of housing projects under section 80HHBA of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of housing projects.

Meaning of housing projects

The phrase ‘housing projects‘ used in section 80HHBA of the Income Tax Act came up before various high courts as detailed under :

1. Hon’ble Madras High Court explained the meaning of ‘housing projects’ while delivering judgment in CIT Vs. Arun Excello Foundations (P.) Ltd. [2013] 29 Taxmann.Com 149/212 taxman 342/259 ctr 362 (mad.) as under :

Meaning : One cannot read any limitation into the expression “housing project” to mean residential project alone and that if and when the projects have mixed built-up area of commercial and residential, the question of disallowance will arise only if and when the residential flats are beyond the limit as provided under sub-clause (c) of section 80-ib(10) and not otherwise.

Even herein, the disallowance could be only proportionate to the extent of units in violation of the area prescribed under clause (c). In a pure commercial housing project, the question of applicability of sub-clause (c) does not arise at all. Going by the background of the expression ‘housing project’ and various clauses contained in section 80-ib of the act, read in the context of subsequent insertion of clause (d), inserted prospectively under the finance act, 2005, the term ‘housing project’ has to be understood as a building project and need not be restricted to residential project alone, meaning thereby, user of the unit is not of relevance in the matter of grant of relief.

The project may be either out and out residential project or commercial project or mix up of both for, a housing project, purely of commercial nature, approved by the local authority, is also a housing project, entitled to 100% deduction. So too, in projects containing residential units alone, where there is a partial compliance, proportionate to the compliance, the assessee would be entitled to have the deduction.

2. Hon’ble Madras High Court explained the meaning of ‘housing projects’ while delivering judgment in Viswas Promoters (P.) Ltd. Vs. Asstt. Cit [2013] 29 taxmann.Com 19/214 taxman 524/255 ctr 149 (mad.) as under :

Meaning: Going by the definition of ‘housing project’ under explanation(a) to section 80hhba as to the construction of ‘any building’ and the wordings in section 80-ib(10), the question of rejection in entirety of the project on account of any one of the blocks not complying with the conditions, does not arise. Even in the case of each one of the blocks, wherever there are flats which satisfied the conditions particularly of the nature stated under section 80-ib(10)(c), the assessee would be eligible for grant of relief under section 80-ib(10) on a proportionate basis.

3. Hon’ble Delhi High Court explained the meaning of ‘housing projects’ while delivering judgment in Dy. Cit Vs. Intercontinental Consultants & Technocrats (P.) Ltd. [2008] 22 Sot 259 (Delhi) as under :

Meaning: The expression ‘execution of housing project’ as appearing in explanation to section 80hhba would include all the necessary activities for the execution and completion of the project such as survey, design, engineering supervision of construction work. The design consultancy and engineering supervision are considered to be the most important parts of execution of the project. Therefore, the engineering and consultancy are considered as integral parts of any project.

4. Hon’ble Bombay High Court explained the meaning of ‘housing projects’ while delivering judgment in CIT Vs. Vandana Properties [2012] 19 taxmann.Com 316/206 taxman 584/254 ctr 258 (bom.) as under :

Section: 80-IB

Meaning: The expression ‘housing project’ in common parlance would mean constructing a building or group of buildings consisting of several residential units. In fact, the explanation in section 80-ib(10) supports the contention that the approval granted to a building plan constituted approval granted to a housing project. Therefore, construction of even one building with several residential units of the size not exceeding 1000 square feet would constitute a ‘housing project’ under section 80-ib(10).

Section 80HHBA of Income Tax Act

Deduction in respect of profits and gains from housing projects in certain cases.

80HHBA. (1) Where the gross total income of an assessee being an Indian company or a person (other than a company) who is a resident in India includes any profits and gains derived from the execution of a housing project awarded to the assessee on the basis of global tender and such project is aided by the World Bank, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to—

(i) forty per cent thereof for an assessment year beginning on the 1st day of April, 2001;

(ii) thirty per cent thereof for an assessment year beginning on the 1st day of April, 2002;

(iii) twenty per cent thereof for an assessment year beginning on the 1st day of April, 2003;

(iv) ten per cent thereof for an assessment year beginning on the 1st day of April, 2004,

and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year.

(2) The deductions under this section shall be allowed only if the following conditions are fulfilled, namely :—

(i) the assessee maintains separate accounts in respect of the profits and gains derived from the business of the execution of the housing project undertaken by him and, where the assessee is a person other than an Indian company or a co-operative society, such accounts have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes along with his return of income the report of such audit in the prescribed form17 duly signed and verified by such accountant;

(ii) an amount equal to such percentage of the profits and gains as is referred to in sub-section (1) in relation to the relevant assessment year is debited to the profit and loss account of the previous year in respect of which the deduction under this section is to be allowed and credited to a reserve account (to be called the Housing Projects Reserve Account) to be utilised by the assessee during a period of five years next following for the purposes of his business other than for distribution by way of dividends or profit :

Provided that where the amount credited by the assessee to the Housing Projects Reserve Account in pursuance of clause (ii) is less than such percentage of the profits and gains as is referred to in sub-section (1) in relation to the relevant assessment year, the deduction under this section shall be limited to the amount so credited in pursuance of clause (ii).

(3) If at any time before the expiry of five years from the end of the previous year in which the deduction under sub-section (1) is allowed, the assessee utilises the amount credited to the Housing Projects Reserve Account for distribution by way of dividends or profit or for any other purpose which is not a purpose of the business of the assessee,

the deduction originally allowed under sub-section (1) shall be deemed to have been wrongly allowed and the Assessing Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make necessary amendment and the provision of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the money was so utilised.

(4) Notwithstanding anything contained in any other provision of this Chapter under heading “C.—Deduction in respect of certain incomes”, no part of the income payable to the assessee for the execution of a housing project under sub-section (1) shall qualify for deduction for any assessment year under any other provision.

Explanation.—For the purposes of this section,—

(a) “housing project” means a project for—

(i) the construction of any building, road, bridge or other structure in any part of India;

(ii) the execution of such other work (of whatever nature) as may be prescribed;

(b) “World Bank” means the International Bank for Reconstruction and Development Bank referred to in the International Monetary Fund and Bank Act, 1945.

Updated up to Finance Act 2021