Deduction u/s. 80-IB(10) on YOY basis to builders/developers showing profit on partial completion method

Dec 11, 2009

Analysis of CBDT Instruction No 4/2009, dated 30th June, 2009

Background

    * An undertaking engaged in developing and building housing
 projects is entitled to a deduction to the extent of 100% of
the profits derived from such housing projects subject to the
fulfillment of certain conditions in accordance with the provision
of section 80-IB(10) of the Income-tax Act, 1961 (ITA).

    * One such condition requires that the said projects
should commence on or after 1 October 1998 and complete within
four years from the financial year in which the housing project
 is approved by the local authority ( In cases where the said
approval is obtained on or after 1 April 2004).

    * In the case of an undertaking showing profit on partial
 completion, there was an issue whether the deduction
 u/s. 80-IB(10) would be available on a year to year basis
or in the year of completion of the project.

Clarification

The Central Board of Direct Taxes (CBDT) has now
 clarified that the deduction can be claimed on a
year to year basis where the assessee is showing profit
 from partial completion of the project in every year.

Further, it is also clarified that in case it is later
found that the condition of completing the project within
the specified time limit of 4 years as stated in
section 80-IB(10) has not been satisfied, thededuction
granted to the assessee in the earlier years should
 be withdrawn.

Conclusion

The above clarification puts to rest a long drawn controversy
regarding timing of claiming deduction u/s 80-IB(10) in respect
of housing projects where the assessee was showing profits
on partial completion.