2021 (8) TMI 959 - AT - Income Tax

Addition on account of long term capital gain - Assessment in the hands of members of the assessee society or society itself - AO has taken a view that the long term capital gain on sale of plot of land to be taxed in the hands of the assessee society whereas the assessee pleaded that such long term capital gain will be taxable in the hands of the members of the assessee society who were the real owners of the land - HELD THAT - Members of the society have contributed funds for the purchase of the land. The land was purchased by the society only after the introduction of the new members along with the old continuing members who were the real owners of the land. On sale of the land, the society has made distribution to the members in the proportion of the contribution made by the members at the time of the purchase of the land. The genuineness of the member was established from the filing of their income tax return and assessment made in some of the cases. AO has not brought on record any material which establish non-genuineness of the members of the society - all the members of the society were assessed to tax, in the case of the four members assessments have been made u/s. 143(3) of the Act, the capital gain shown by them in their return of income was duly accepted by the AO, in all these four cases assessment were made in the jurisdiction of the same range wherein the case of the society was assessed - action of the AO for taxing the long term capital gain arising on sale of land in the hands of the assessee society is amount to double taxation since the same has been taxed in the hands of individual member. After considering the above cited facts and circumstances, we consider that ld. CIT(A) has rightly deleted the impugned addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer on account of long-term capital gain.
2. Determination of the real owner of the property and the liable entity for tax on the capital gain.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the Assessing Officer on Account of Long-Term Capital Gain:

The primary issue in this case revolves around the deletion of an addition of ?11,55,30,800/- made by the Assessing Officer (AO) on account of long-term capital gain. The AO observed that the assessee society had escaped its liability to pay tax on the long-term capital gain arising from the sale of immovable property (open land). The society contended that it was merely a facilitator and that the capital gain belonged to the individual members who were the real owners. The individual members had disclosed the capital gain in their returns, and in four cases, the AO had accepted the capital gain shown in their returns during scrutiny assessments under section 143(3) of the Income Tax Act, 1961. However, the AO disagreed, stating that the purchase deed was in the name of the society, making the society liable for the tax. Consequently, the AO added the long-term capital gain to the society's income.

2. Determination of the Real Owner of the Property and the Liable Entity for Tax on the Capital Gain:

The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal of the assessee, concluding that the real owners of the property were the individual members of the society who had made the payments for the purchase. The CIT(A) noted that the society was merely a facilitator, and the capital gain from the sale of the property was disclosed by the members in their returns and taxed accordingly. The CIT(A) emphasized that the income should be taxable in the hands of the real owners, i.e., the individual members, and not the society. The CIT(A) also highlighted that taxing the same income in the hands of both the society and the individual members would amount to double taxation.

The CIT(A) referred to the decision of the Amritsar Bench of ITAT in the case of Mohinder Kaur Josh, where it was held that the society acted as a facilitator, and the individual members were the real owners liable for tax. Additionally, the CIT(A) cited a CBDT Circular No. 9 dated 25-03-1969, which instructed that in the case of tenant co-partnership cooperative housing societies, the income from each building should be assessed in the hands of the individual members, not the society.

The CIT(A) noted that in four cases, the AO had already accepted the capital gain shown by the individual members during scrutiny assessments under section 143(3) of the Act. Therefore, taxing the same gain in the hands of the society would result in double taxation. The CIT(A) concluded that the addition made by the AO was not sustainable and deleted it.

During the appellate proceedings before the ITAT, the Departmental Representative relied on the AO's order, while the counsel for the assessee supported the CIT(A)'s order. The ITAT observed that the members of the society had contributed funds for the purchase of the land, and the society had distributed the sale proceeds to the members in proportion to their contributions. The genuineness of the members was established through their income tax returns and assessments. The ITAT found no material evidence from the AO to establish the non-genuineness of the members. It was undisputed that all members were assessed to tax, and in four cases, the capital gain shown by them was accepted by the AO. The ITAT concluded that taxing the capital gain in the hands of the society would amount to double taxation since it had already been taxed in the hands of the individual members. Therefore, the ITAT upheld the CIT(A)'s decision to delete the addition and dismissed the revenue's appeal.

Conclusion:

The appeal of the revenue was dismissed, and the order of the CIT(A) deleting the addition of ?11,55,30,800/- made by the AO on account of long-term capital gain was upheld. The ITAT concluded that the individual members of the society were the real owners of the property, and the capital gain was rightly taxable in their hands, not the society's, to avoid double taxation.