Telangana High Court: In a batch of appeals filed by Appellant 1, Modi Builders and Realtors (P) Ltd. (‘the assessee’), under Section 260-A of the Income Tax Act, 1961 (‘the Act’), the Division Bench of P. Sam Koshy* and Narsing Rao Nandikonda, JJ., dealt with the question of law whether terrace or balcony in the form of open to sky or portico without walls would be added while computing the built up area for determining the eligibility for deduction under Section 80-IB(10) of the Act. The Court held that both “open terrace” and “open portico” have nowhere been mentioned to be a part of the built-up area as defined in Section 80-IB(14)(a). Thus, an open terrace could never be a balcony or a projection and similarly an open portico would never be included within the inner measurement of a residential unit.
Background:
Appellant 1 was a real estate developer and was engaged in construction of residential units or bungalows. Each unit consisted of a portico and an open terrace. Appellant 1 filed its ITR for the year 2009-2010 admitting an income of Rs 3,16,46,847 and claimed the entire amount as deduction under Section 80-IB(10) and the same was processed. But Respondent 1 issued a notice under Section 143(2) of the Act and thereafter, post assessment determined a total income of Rs 3,41,41,862 disallowing deductions under Sections 80-IB(10) and 14-A.
However, it was alleged by the assessee that he would be entitled to the deductions as the terrace which was open to sky and portico without walls would not be included in the built-up area and thus the limit of 1500 sq.ft. for the purpose of determining eligibility for the deductions would not be exceeded.
Analysis of scops of Section 80-IB of IT Act:
Section 80-IB(10) laid down the deductions in respect of profit and gain from certain industrial and other infrastructural undertakings from which housing projects under the schemes of Central Government or State Government in the course of re-construction or re-development of existing buildings in areas declared to be slum areas would be excluded. Further, residential units with a built-up area of less than 1500 sq.ft., in case if these units were outside the metropolitan city of Delhi or Bombay would also be excluded.
The “built-up area” as defined in Section 80-IB(14)(a) would include the entire inner measurement of a residential unit on the floor level added by thickness of a wall as well as the projections and balconies but would not include the common areas shared with other residential units. Thus, it would mean that it would exclude the open terrace space and would also exclude a balcony which was shared by more than one residential owner. If after excluding these spaces the residential unit’s built-up area remained within 1500 sq.ft., the assessee would be eligible for tax deduction under Section 80-IB.
The Court referred to the decision in CIT v. Amaltas Associates, 2016 SCC Online Guj 4685 and relied upon the interpretation of the term “built-up area” and held that both “open terrace” and “open portico” have nowhere been mentioned to be a part of the built-up area. The Court stated that an open terrace could never be a balcony or a projection and similarly an open portico would never be included within the inner measurement of a residential unit.
The Court then examined the drawing of the construction area in the present case and held that the said areas would be excluded from the computation of the built-up area entitling the assessee the benefit of Section 80-IB.
The Court allowed the instant appeal and set aside the impugned order passed by the Tribunal and the impugned assessment order passed by the Appellate Authority.
[Modi Builders and Realtors (P) Ltd. v. CIT, 2025 SCC OnLine TS 283, decided on 21-5-2025]
*Judgment authored by: Justice P. Sam Koshy
Advocates who appeared in this case :
For the Appellants: S. Ravi, Senior Counsel appearing on behalf of C.H. Pushyam Kiran.
For the Respondents: J.V. Prasad, Senior Standing Counsel for the Income Tax Department.