Tuesday, February 26, 2013

rBI guidelines, not sacrosanct for IT ; AT Realty v Special provisiions of IT Act

Union Budget is coming and everyone has its expectations. The National Real Estate Development Council (NAREDCO) has demanded provisions for including cost of land and building construction in capital expenditure in the Budget 2013.
NAREDCO said section 35AD sub-section (5) (ac) & (5) (ad) of Income Tax Act stipulates that deduction of capital expenditure incurred wholly and exclusively for developing and building a housing project under a scheme for slum development or rehabilitation or affordable housing framed by Central or State govt. and notified in accordance with the guidelines prescribed is allowed.  It added that definition of capital expenditure does not include does not include land cost and building construction cost or any other significant investment in the project. As result developer of slum redevelopment/rehabilitation and affordable housing does not get any major advantage as far as the income tax concession is concerned.  NAREDCO  therefore suggested that cost of land and building construction cost should be made part of capital expenditure to incentives developer to undertake construction of social housing.

<> The purport or import, much less the nature, of the grouse/complaint of the NAREDCO and the suggestion made are, to say the least, quite confusing; in any case, not readily understood. For, it prima facie offends the belief and clear understanding of even anyone having an elementary knowledge of such matters. To the best of one’s knowledge and belief, the referred costs, if incurred by developer in the course of his carrying on the business of construction and sale, are always treated as costs of the ’stock-in-trade’, hence been allowed to be deducted, according to the ‘method of accounting’ consistently followed. That, as one imagines, has been the accepted legal position, de hors / without the referred new provisions of the IT Act. If NAREDCO were, in its perspective, to have had in mind anything else, that has not been made clear.

May be, accounting and tax experts will be better equipped to clarify the obviously disturbing doubts.

Cross refer S 35 AD @ http://www.lawzonline.com/bareacts/income-tax-act/section35AD-income-tax-act.htm

Jan 26, 2013 ... National Real Estate Development Council (NAREDCO) had given their suggestions mainly on the following issues: 1. Real Estate (Regulation ...

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