Housing Society Not Liable to pay Income Tax if Members Paid Capital Gain: ITAT Remands for verification [Read Order]

The Mumbai Bench of the Income Tax AppellateTribunal (ITAT) ruled that the housing society was not liable if members had already paid capital gains and remanded the matter back to the Assessing Officer (AO) to verify whether the taxes on the capital gains were indeed discharged by the society's members.

MIG Co-op Housing Society Group II Ltd. (assessee) entered into a redevelopment agreement on April 26, 2010, with Kalpataru Properties Pvt. Ltd. A supplemental agreement was later executed on January 7, 2014, to address shortfalls in the members' carpet area and the society's share of aggregate Floor Space Index (FSI).

Under the terms, the society was entitled to 10.5 flats in lieu of its share in the extra FSI. During the assessment for Assessment Year 2014-15, the AO determined that the transfer of FSI/Built-up area to the developer resulted in capital gains taxable in the hands of the society.

Aggrieved by the AO's additions, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) accepted the society's contentions and allowed the appeal. Aggrieved by the CIT(A)’s order, the Revenue appealed before the ITAT.

Read More: Statutory Income Tax Appeal Pending for Over Two Years: Calcutta HC Orders Expeditious Disposal, Refuses Refund Direction without Stay [Read Order]

The assessee argued the case was covered by its own previous case and the precedent in Raj Ratan Palace Co-operative Housing Society Ltd., where it was held that if members pay tax on the receipts in their individual capacity, the society cannot be taxed again.

The two-member bench, comprising Amit Shukla(Judicial Member) and Arun Khodpia (Accountant Member) noted that Income received and offered for taxation by members cannot be justified for taxation in the hands of the society.

The bench observed that if it was taxed in the hands of society it would amount to double taxation. It also noted that double taxation was a violation of fundamental tax principles which cannot be sustained.

The tribunal noted that the CIT(A) had not fully verified the actual payment of taxes by all members because only 45 out of 96 members' details were provided. It restored the issue to the AO solely for the purpose of verifying that the members had discharged the tax liability on the sale of the additional flats. The appeal of the Revenue was partly allowed for statistical purposes.