2024 (2) TMI 932 - HC - Income Tax

Assessment of housing society - consideration received on the transaction carried out for redevelopment of the land (LTCG) taxation in the hands of the society or not? - HELD THAT - As decided in Raj Ratan Palace Co-operative Housing Society 2011 (2) TMI 96 - ITAT MUMBAI Society was only the lessee and what was transferred to the developer is development rights not land or building Section 50C of the Act stipulates as where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both. No authority is required to hold that terms land or building or both do not include development rights and that in the case before there was transfer of such rights only. Thus we hold that FAA was not justified in taxing sum in the hands of the assessee, as same was the income of the members of the society. We should also note that against the order of this Court 2013 (2) TMI 933 - BOMBAY HIGH COURT in Raj Ratan Palace CHS (supra), Revenue had preferred a Special Leave Petition in the Apex Court, which came to be dismissed on 28th October 2013 2013 (10) TMI 1579 - SC ORDER . This will take care of Questions 1 and 3 proposed in the appeal. Nature of receipt - Corpus fund taxability in the year of receipt - as submitted assessee is following mercantile system of accounting - CIT(A) held that on Rs. 3.50 Crores which was taxable under the head income from other sources only could be taxed for the year under consideration - ITAT after hearing the parties came to a conclusion that in view of the fact that assessee had not given possession of the land to the Developer during the year under consideration, the money received by assessee during the year was to be assessed under the head capital gains - HELD THAT - We are unable to find any error in the conclusion arrived at by the ITAT. No substantial questions of law arise.

Summary

Issues Involved:

1. Taxation of consideration received on redevelopment of land (LTCG) in the hands of the society.
2. Taxability of the amount received towards the corpus fund in the year of receipt.
3. Treatment of the amount paid by the developer to MHADA on behalf of the assessee.

Summary:

Issue 1: Taxation of Consideration Received on Redevelopment of Land (LTCG)
The High Court examined whether the consideration received from the redevelopment of land should be taxed in the hands of the society. The ITAT had held that the consideration should not be taxed in the hands of the society, as the receipts were distributed among the members. The Tribunal relied on the precedent set by the Raj Ratan Palace Co-operative Housing Society case, where it was determined that since the income was received by individual members and offered for taxation by them, it should not be taxed again in the hands of the society. The High Court found that the facts of the present case were almost identical to the Raj Ratan Palace case and upheld the ITAT's decision, concluding that there should be no double taxation.

Issue 2: Taxability of Corpus Fund Amount
The second issue was whether the amount received towards the corpus fund was taxable in the year of receipt. The AO had treated the Rs. 15 Crores received towards the corpus fund as taxable under 'income from other sources,' while the CIT(A) and ITAT held that only the amount actually received during the year (Rs. 3.50 Crores) should be taxed. The ITAT concluded that since possession of the land was not given to the developer during the year, the amount received should be assessed under 'capital gains' and not 'income from other sources.' The High Court found no error in the ITAT's conclusion.

Issue 3: Treatment of Amount Paid by Developer to MHADA
The third issue was whether the amount paid by the developer to MHADA on behalf of the assessee should be treated as income of the assessee. The ITAT held that such payments should not be treated as the assessee's income. The High Court agreed with the ITAT's decision, noting that the Revenue had not challenged the Tribunal's finding that the facts were similar to the Raj Ratan Palace case, where similar payments were not treated as income of the society.

Conclusion:
The High Court dismissed the appeal, finding no substantial questions of law arising from the ITAT's decision. The ITAT's conclusions on all three issues were upheld, confirming that the consideration received on redevelopment should not be taxed in the hands of the society, the corpus fund amount should be taxed as 'capital gains,' and the amount paid by the developer to MHADA should not be treated as the assessee's income.