Open Terrace/Portico Excluded From Built-Up Area Computation; Real Estate Developer Entitled To S. 80-IB Deduction: Telangana High Court
Open Terrace/Portico Excluded From Built-Up Area Computation; Real Estate Developer Entitled To S. 80-IB Deduction: Telangana High Court
The Telangana High Court has held that the real estate developer is entitled to deduction under Section 80-IB of the Income Tax Act as the open terrace or portico is excluded from computation of the built-up area.
The bench of Justice P.Sam Koshy and Justice Narsing Rao Nandikonda has observed that 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 Income Tax Act.
As per Section 80-IB of the Income Tax 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. Such benefits shall not be applicable to residential units with a built-up area of less than 1,500 sq.ft., in case if the residential units are outside the metropolitan city of Delhi or Bombay.
The appellant/assessee 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.
In the course of business, the assessee filed its return of income for the Assessment Year 2009-10 on 21.09.2009 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.
It was processed under Section 143(1) of the Income Tax Act, 1961. After scrutiny, the respondent had issued a notice under Section 143(2) of the Income Tax Act.
After assessment, the respondent 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, vide the impugned order 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 Income Tax Act.
The issue raised was “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 court noted that a plain reading of above Clause (14)(a) of Section 80-IB would clearly indicate that the built-up area would include the entire inner measurement of a residential unit on the floor level added by thickness of a wall and includes projections and balconies. However, common areas shared with other residential units are excluded from the same. This, in other words, would mean that to be a part of built- up area, the same must be part of the inner measurements of a residential unit and it would exclude the open terrace space and would also exclude a balcony which is shared by more than one residential owner.
The court allowed the appeal filed by the real estate developer and quashed the order denying the benefit of Section 80-IB.
Case Details
Case Title: M/s. Modi Builders & Realtors (P) Ltd. Versus Asst. Commissioner of Income Tax
Case No.: Income Tax Tribunal Appeal No.167 of 2012
Date: 21.05.2025
Counsel For Appellant: S. Ravi, learned Senior Counsel
Counsel For Respondent: J.V. Prasad, learned Senior Standing Counsel for the Income Tax Department
Mariya is the Senior Editor at JurisHour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.
