2014 (4) TMI 785 - AT - Income Tax

Sale of common plot of land Business income OR capital gains Held that - The amount of similar nature was received by 14 cooperative housing societies including the four assessee societies in the present case on account of sale consideration of plot of land jointly owned by them - None of the parties appearing could furnish the relevant details - If the details are furnished by the assessee to the AO, the latter is sufficiently empowered to enforce the attendance of the other cooperative housing societies or the necessary compliance or part so as to decide the issue thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Taxability of transfer fee received from members Principle of Mutuality Held that - The notification issued by the State Government putting restrictions on the amount of transfer fee and the member desired transfer of their shares or occupancy rights are only in respect of housing residential society - the decision in Mittal Court Premises Co-operative Society Ltd. Versus Income-tax Officer 2009 (7) TMI 689 - BOMBAY HIGH COURT - Merely because the amount may be appropriated earlier, it will not lose the character of the amount being paid by a member - the identity of the contributor and beneficiary being satisfied and considering the provisions of Maharashtra Co-operative Societies Act and rules framed thereunder, surplus can be disposed of in favour of the members only or for the objects for which they may specify thus, the order of the CIT(A) set aside and the amount of transfer fee is not taxable in view of principles of mutuality Decided in favour of Assessee.

Summary

Issues:
1. Tax treatment of capital gains on the sale of common plot of land.
2. Taxability of transfer fee received from members.

Issue 1: Tax treatment of capital gains on the sale of common plot of land

The assessee challenged the order of the Assessing Officer and the Commissioner (Appeals) regarding the tax treatment of capital gains amounting to Rs. 73,52,640 from the sale of a common plot of land. The Assessing Officer treated the entire amount as business income due to the nature of activities carried out by the cooperative housing societies involved in the sale. The Tribunal had previously set aside a similar issue for reconsideration by the Assessing Officer, directing compliance with specific directions. In line with this precedent, the Tribunal set aside the Commissioner (Appeals) order and directed the Assessing Officer to decide the issue afresh, considering the observations and directions given by the Tribunal in the previous case.

Issue 2: Taxability of transfer fee received from members

The second issue revolved around the taxability of transfer fees totaling Rs. 30.30 lakhs received from members. The Assessing Officer considered the entire amount as taxable income, rejecting the claim of exemption based on the principle of mutuality. The Commissioner (Appeals) also disallowed the exemption, citing the applicability of restrictions on transfer fees. However, the Tribunal, after considering relevant case laws, notably the decision of the Bombay High Court, held that the transfer fee was not taxable under the principles of mutuality. The Tribunal emphasized that the nature of the society and the specific circumstances distinguished it from housing residential societies, leading to the allowance of the appeal on this issue.

In conclusion, the Tribunal partially allowed the assessee's appeal, setting aside the orders of the Commissioner (Appeals) on both issues. The tax treatment of capital gains on the sale of the common plot of land was remanded to the Assessing Officer for fresh consideration, while the taxability of transfer fees received from members was ruled in favor of the assessee based on the principles of mutuality.