MUMBAI: The Mumbai Income-tax Appellate Tribunal (ITAT), in the case of a Cumballa Hill based co-operative housing society (CHS), has deleted a Rs 18.4 crore addition made to the income of the society.
The tax tribunal held that in the entire redevelopment arrangement, the CHS acted only as a representative of its members (flat owners). Merely because the transaction was reported against the society’s PAN, it could not be treated as its own transaction.
The CHS had entered into a Development Agreement (DA) with the developer, but the agreement specifically provided that only development rights were granted and that the society continued to own the land. The developer, in turn, entered into Permanent Alternate Accommodation Agreements (PAAAs) with the individual members, with the society acting as a confirming party. The DA also contained schedules identifying the members and setting out the hardship and displacement compensation payable to them.
The I-T officer nevertheless treated Rs 18.4 crore appearing in the Annual Information Report (AIR) as the society’s long-term capital gain.
The tax tribunal noted that the AO had essentially relied on the AIR information, whereas the society had demonstrated that no part of the sale consideration had been received in its bank account. Thus, the mere appearance of transactions under the society’s PAN could not establish that the society itself had made a sale or received the consideration.
Under the Section 79A directive of the Maharashtra Government (Maharashtra Co-operative Societies Act, 1960), a housing society is required to execute the DA on behalf of its members. It signs in a representative capacity, not on its own account, noted the ITAT. The ITAT also observed that in respect of a subsequent financial year, reassessment proceedings (relating to the same issue) were dropped after the I-T officer accepted the society’s explanation.
“To substantiate its claim of being a representative, societies should maintain proper records of the agreements entered into with the developer, member-wise schedule of payments made to them, and its own bank records,” states an advocate whose society is undergoing re-development.
He added that this order could be particularly useful for CHS undertaking redevelopment, where transactions are often reported to the tax department against the society’s PAN even though the underlying rights, consideration and benefits belong to individual members. Such societies therefore face scrutiny or inquiries based on AIR information, especially where the registered DA or related PAAA values are substantial.
