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The Supreme Court of India has delivered a significant ruling allowing input tax credit (ITC) on the construction cost of commercial buildings that are subsequently leased out. This decision overturns a previous ruling that had denied ITC on such costs, bringing relief to businesses engaged in the construction and leasing of commercial properties.
The apex court's judgment stemmed from a case involving a company that had constructed commercial buildings for leasing purposes. The company had claimed ITC on the construction costs, but the tax authorities had disallowed the claim, arguing that the buildings were not used for the company's own business activities. This ruling was subsequently upheld by the High Court.
However, the Supreme Court, after examining the relevant provisions of the Goods and Services Tax (GST) Act, held that the company was entitled to ITC on the construction costs. The court reasoned that the buildings were constructed for the purpose of leasing, which constitutes a ‘business activity’ under the GST law. Therefore, the input services used for constructing these buildings are eligible for ITC.
This decision is likely to have a significant impact on the real estate sector, as it clarifies the applicability of ITC on construction costs for commercial buildings intended for leasing. The ruling will encourage businesses to invest in the construction of commercial properties, as they can now claim ITC on the related expenses. This, in turn, could lead to increased construction activity and economic growth.
Furthermore, the Supreme Court's judgment highlights the importance of interpreting the provisions of the GST Act in a manner that supports business activities and promotes economic growth. The court's decision to allow ITC on construction costs for leased commercial buildings is consistent with the spirit of the GST law, which seeks to ensure a fair and transparent tax regime for businesses.
The impact of this ruling will be felt not just in the real estate sector but also in other industries that engage in the construction and leasing of commercial buildings. By clarifying the applicability of ITC on such costs, the Supreme Court has provided much-needed certainty to businesses operating in these sectors.
Source: SC allows ITC on construction cost for commercial buildings for lease