When the Income Tax Act grants immunity from tax on residential houses conforming to the prescribed standards, such standards have to be applied to each house in the building separately.

Therefore, it would be wrong to deny the immunity lock, stock and barrel even if there is partial non-compliance.

And the maximum size of the flat in terms of the built-up area has to be reckoned without adding the area occupied by a balcony catering to two or more adjoining houses.

These two important principles were laid down by the Karnataka High Court in CIT v. Raghavendra Constructions while interpreting section 80-IB of the Income Tax Act which lets off profits made by a developer-builder from tax, subject to a few conditions.

One of them is that the built-up area of a flat cannot exceed 1,000 sq ft in Delhi and Mumbai and in a radius of 25 km from these two cities and 1,500 sq ft at other places.

The Income Tax Department’s grouse was that at least in respect of a few flats out of the 160 constructed in the building, the maximum built-up area norm was flouted, and hence it said no tax benefit was available.

The Court, rejecting this argument, said that the relevant section did not say that the authorities have to follow an either all-or-none approach.

In other words, the disallowance of the tax benefit to the builder would apply only to those flats that have flouted the norms.

To the relief of the respondent, however, it turned out that neither of the flats had flouted the norms if one excluded the area occupied by balconies shared by two or more flats.

In the event, the entire profit of Rs 36 crore was held eligible for tax exemption.

(The author is a New

Delhi-based Chartered Accountant.)

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