Individual Members Occupying Flats Not a Housing Society: ITAT confirms Tax Liability on Development Rights [Read Order]

In a ruling affirming that individual members occupying flats, not the housing society, are liable for tax on development rights, the Income Tax Appellate Tribunal (ITAT) Mumbai Bench dismissed the Revenue's appeal against RBI Employees Bhagvati Co-op. Housing Society Ltd., upholding the deletion of a capital gains addition of Rs. 4.97 crore.

The assessee, a Co-operative Housing Society registered under Maharashtra Co-operative Housing Society Act 1960, had entered into a development agreement with M/s Chetan Enterprises on 09/11/2010 for consideration of Rs. 37.67 lakhs and had received a refundable security deposit of Rs. 10 lakhs. The Assessing Officer initiated reassessment proceedings and made an addition of Rs. 4.97 crore as Short Term Capital Gains in the hands of the society.

The Revenue contended that since the society had entered into the registered development agreement and received consideration, the amount was liable to be taxed in the hands of the society under Section2(47)(v) read with Section 50C of the Income-tax Act, 1961. They argued that the society had shown land and building under fixed assets, indicating ownership.

The assessee argued that individual members were the actual owners of their respective flats and the society merely entered into the redevelopment agreement on behalf of its members. They relied on CBDT Circular No.9 dated 25/02/1969, which stated that legal ownership in flats vests in individual members, not the cooperative society. They also cited the Tribunal's decision in Raj Ratan Palace Co. Op. Hsg. Society Ltd. case.

A two member bench of Shri Vikram Singh Yadav, Accountant Member and Shri Rahul Chaudhary, Judicial Member observed that the development agreement clearly listed the members who were to receive consideration and provided for transit compensation to be paid directly to them.

The society had only received a refundable security deposit of Rs. 10 lakhs, which was to be returned upon receiving the occupation certificate. The Tribunal concurred with the CIT(A)'s finding that the society had entered into the Development Agreement in the capacity of a representative of the flat owners/members.

The Tribunal held that the individual members were the real owners of the old flats which were transferred to the developer for exchange of new flats, and therefore, the consideration was taxable in their hands, not the society's.

The Tribunal found no infirmity in the CIT(A)'s order deleting the addition and dismissed all grounds raised by the Revenue. Consequently, the cross-objections filed by the assessee were also dismissed as having been rendered infructuous.

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