Payments by Developer on Behalf of Housing Society Not Taxable as ‘Income from Other Sources’: ITAT [Read Order[

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that expenditures discharged by a re-developer for statutory fees and site infrastructure did not constitute "Income from other sources" in the hands of the cooperative housing society.

MIG Co-op Housing Society Group II Ltd (assessee) entered into a re-development agreement with Kalpataru Properties Pvt. Ltd.. During the assessment proceedings for Assessment Year 2014-15, the Assessing Officer (AO) observed that the developer had made various payments on behalf of the society.

These payments, totaling ₹8,97,82,846 which included Premium for Extra FSI/Built-Up Area amounted to ₹9,93,40,020, On-site Infrastructure amounted to ₹15,40,328.40, Water Charges amounted to ₹12,00,000 and Security and Layout Approval Fees amounted to ₹72,000 and ₹48,000 respectively.

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The AO contended that since the assessee did not pay these amounts themselves but allowed the developer to discharge them, the sum represented income under Section 2(24) of the Income Tax Act and was chargeable as Income from Other Sources.

The assessee argued that these expenses were in the nature of reimbursements or direct statutory obligations of the project and did not amount to income. However, the AO rejected this and added the entire amount to the assessee's income.

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

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The two-member bench comprising Amit Shukla(Judicial Member) and Arun Khodpia (Accountant Member) applied the "true test" of whether the amount ever reached the assessee as income. It observed that where an obligation diverts income before it reaches the assessee, it was not taxable.

The Bench noted that payments made to government agencies (like MHADA) or for project-related infrastructure in connection with property development fall into the category of diverted income.

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The tribunal found the issue was squarely covered by the assessee’s own case for A.Y. 2011-12, where similar payments were held to be non-taxable. It accepted the CIT(A)’s ruling that such amounts cannot be added to the society's hands as "Income from Other Sources". The appeal of the Revenue on this ground was dismissed.

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