INCOME TAX OFFICER 23.2.1, MUMBAI, MUMBAI vs. MIG CO OP HOUSING SOCIETY GROUP II LTD., MUMBAI

4. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deletes the addition made on account of claimed of Rs. 95,33,143/- u/s 80P(2)(d) and Rs. 50,000/-u/s 80P(2)(c) of the IT Act, 1961, without considering the decision of the Hon'ble Supreme Court in the case of Citizen Co operative Society Ltd. Va. ACIT vide its order dated 08/08/2017 [[2017/ 84 taxmann.com 114 (SC) which was further affirmed in its order dated 21/11/2017 in response to a review petition [2017] 88 twomann.com 279 (SC) which was further affirmed in its order dated 21/11/2017 in response to a review petition [[2017) 88 taxmann.com 279 (SC), wherein the Hon'ble Apex Court held that the Co-operative Bank cannot be treated as co-operative society and cannot take benefit of deduction u/s 80P of the Act and accordingly, as per the Act the deduction u/a 80P/2jid) of the Act is allowable only with the deposit made with co-operative society not with co operative bank?

5. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in allowing the deduction u/s 80P(2)(d) of the Act, without appreciating the fact that Section 80P of the Income tax Act was amended by inserting a new sub section (4) to as to provide that the provisions of the said section shall not apply in relation to any co-operative bank other than a primary agricultural credit Society or a primary cо-operative agricultural and rural development bank. ?"

MIG Co-op Housing Society Group II Ltd.

3. The ld. AO accordingly had issued a show-cause dated 23.11.2016 directing the assessee to explain as to why the extra FSI of 782.8 sq. mtr to the MIG Co-op Housing Society Group II Ltd. re-developer as per agreement dated 07.01.2014, should not be added to the income of the assessee. In response, the assessee furnished detailed submissions, however the ld. AO was not convinced with the same and accordingly has made an addition of Rs. 5,24,63,648/- to the income of the assessee on account of capital gain arising on transfer of capital asset.

Sl. Particulars Amount No. 1 Security Fees 72,000/- 2 Debris Removal Already Paid 3 Layout Approval Fees 48,000 4 Premium for Extra FSI/ Built-Up Area 9,93,40,020 5 Deduction for Offsite Infrastructure -1,24,17,502.5 6 On site Infrastructure 15,40,328.40 7 Water Charges 12,00,000 Total 8,97,82,846

MIG Co-op Housing Society Group II Ltd.

3. CIT v. Raj Ratan Palace (SC) (SLP No. 18794/2013) Department's SLP filed against the order of the High Court dismissed.

4. CIT v. Raj Ratan Palace (ITA No. 2292 of 2011) (Dated February 27, 2013) (Bombay HC).

5. Raj Ratan Co. Op. Hsg. Society Ltd. v. DCII (12 taxmann.com 172) (Trib. Mumbai)

4.4.1. Here, it will be useful to take notice of the case of Raj Ratan Palace Co- operative Housing Society(supra), wherein the Tribunal had dealt with the similar issue. It that matter the society consisted of 51 members and was owner of certain property. It entered into an agreement with a developer for development of said property. The Tribunal recorded the following facts:

"The assessee was a registered housing society having 51 members and duly elected managing committee. It was the owner of a property admeasuring 3316 sq.meters or thereabouts together with 'R' building. The society invited offers from builders for redevelopment of its property by construction of a new multi-storey building behind the 'R' building, by means of T.D.R. from elsewhere and by the consumption of available F.S.I. of the said property, after demolishing the existing bungalow. In pursuance of the above 'N' submitted tender for development of society's said property.

The assessee society vide agreement dated 18.05.1996 agreed to grant to the developers permission leave and licence to enter upon the society's property and with the right to demolish the said bungalow and construct a new multi- storey R.C.C. building, on the terms and conditions mutually agreed upon by the and on behalf of the society and the developers.

It was not in dispute that as per terms of agreement the assessee society was paid only a sum of Rs.2,51,000. The consideration mentioned in clause 12 of the agreement of Rs.2,00,16,828/-was later revised to a sum of Rs 3,02,16,828/- because of the additional FSI that the builder had constructed. The sum of Rs.3,02,16,828/- was paid by the developer to the individual members of the society totalling in all about 51.

The assessee filed its return of income wherein it did not offer any sum to tax in respect of the agreement dated 18.5.1996. The Assessing Officer, however, was of the view that the assessee was the owner of the land and by virtue of MIG Co-op Housing Society Group II Ltd. clauses 12 & 13 of the agreement dated 18-5-1996 it was entitled to the entire compensation of Rs.3.02.16,828/ he was of the view that the assessme held a capital asset and allowed the developer namely 'N' to construct the multi- storied building on the surplus land belonging to the society and received compensation. The Assessing Officer held that the said receipt of compensation was taxable as per the provisions of section 2(24). He also held that the agreement between the developer and the individual 51 members of the society was only to facilitate payment by the developer and it did not absolve the society from the taxability of the entire proceeds. Thus, a sum of Rs.3,02,16,828/ was added by the Assessing Officer On appeal, the Commissioner(Appeals) upheld the addition made by the Assexxing Officer."

After considering the submission of the both the sides, the Tribunal has held as under-

"It was apparent from records that under the agreement dated 18-5-1996 the assessee society gave permission to the developer to construct on the society's land. No part of the land was ever transferred to the society. The society merely gave permission to the developer to carry out development in the rear side of the existing building 'R' after demolishing a small bungalow which was in existence. Clauses 12 & 13 of the agreement dated 18-5-1996 clearly mentioned that the developer would pay compensation to the society and members. The sum was quantified at Rs.2,00,16,828/- Out of this only a sum of Rs.2,51,000/- was paid to the society. Admittedly, the remaining sum and the additional sum payable under clause 13 of the agreement dated 18-5-1996 was paid to the individual members of the society under 51 different agreements. Thus it was clear that the assessee did not part with any rights in property and did not receive any consideration except a sum of Rs.2,51,000. In such circumstances, one failed to see as to how there could be any incidence of taxation in the hands of the assessee. Besides, the order of the Assessing Officer was vague. It was not clear as to whether the sum in question was brought to tax as capital gain in the hands of the assessee or as income under section 2(24). Neither of the above provisions could be pressed into service for bringing the sum in question to tax in the hands of the assessee. As already seen that there was no receipt by the assessee except a sum of Rs. 2,51,000. The sum so received was for merely granting consent to consume TDR purchased by the developer from a 3rd party. The society continued to be the owner of the land and no change in ownership of land had taken place. Mere grant of consent would not amount to transfer of land/or any rights therein. It was also seen that the some of the individual members had offered the receipts from the developer to tax and the same had also been brought to tax in the hands of the individual members. In this scenario, the addition made in the MIG Co-op Housing Society Group II Ltd. hands of the assessee society was without any basis. Consequently the addition made in the hands of the society was to be deleted. [Para 12]

Before the Hon'ble Bombay High Court following question was raised by the department-

"Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in holding that amount received cannot be taxed in the hands of assessee society because society continues to be owner of the land as no change in ownership of land has taken place without appreciation the fact that the assessee has received compensation of Rs.3,02,16,828/-for granting the developer the right to develop the property which is clearly taxable as per provisions of Section 2(24) read with Section 2(47) and 2(14) of the Income Tax Act?"

The Hon'ble Court decided the issue as under:

"2. The Revenue seeks to tax the society in respect of the amount received on transfer of TDR. The Tribunal in the impugned order recorded a finding of fact that the amount which was received on the transfer of TDR was received by members of Respondent Society. The members of the Society had offered the amounts received by them to tax in their individual returns. In fact, copies of orders of the Tribunal in respect of individual members who received amount from the developers and offered to tax was also placed before the Tribunal.

4. Accordingly, appeal is dismissed with no order as to costs.”

We find that facts of the case before us are almost similar to the facts of Raj Ratan Palace CHG(supra). As stated earlier, the developer had made payments to the Society as well as to the members and they had offered the amounts, received by them, for taxation. In our opinion, once the members had shown the income received by them in their hands there can -not be any justification for taxing the same in the hands of society. No double taxation and no double deduction is one of the well recognised and fundamental principles of taxation. In our opinion, signing of agreement by the members or society cannot be base for taxing of income. As per the scheme of the Act,income received by any person or income accrued to him has to be taxed. In the case under consideration, income was received by the members and they had offered the same for taxation.

MIG Co-op Housing Society Group II Ltd. 5. We also hold that Society was only the lessee and what was transferred to the developer was development rights not land or building Section 50C of the Act stipulates as under:

"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.

In light of the above discussion and respectfully, following the judgment of the Hon'ble High Court in the case of Raj Ratan CHS(supra), we hold that FAA was not justified in taxing the sum of Rs. 53.50 crores in the hands of the assessee, as same was the income of the members of the society GOA.2 is decided in favour of the assessee.”

12. In light of the aforesaid facts and circumstances, the question arises before us is that, whether the facts and circumstances of the case in present matter are identical to the facts of the assessee’s case for AY 2011-12. We may herein note that the facts in present matter are prima facie similar to the facts of the case of assessee for AY 2011-12, however there was certain facts which 11 MIG Co-op Housing Society Group II Ltd. were not fully placed and verified by the ld. CIT(A), further, such facts were never produced before the ld. AO. The factual aspect that whether the amount which is treated as capital gain was offered for taxation by the members of the Society, which though had been claimed by the assessee before the ld. CIT(A) stating that the advance tax for the sale of additional 10 & ½ flats have been paid by the members of the Society , so the Society would not be not liable to pay any tax on the same. On perusal of the order of ld. CIT(A) it is emanating that such factual aspect regarding the payments of taxes by the members was remanded to the AO, however whether such fact was verified and found correct was not approved or confirmed in the said order. Even the details for payment of tax were furnished for 45 members out of 96 members. Though, we are principally agree with the contention raised by the assessee that if the legitimate taxes are paid by the members of the Society on certain amounts of sale of the flats / additional flats then the Society would not be responsible to pay taxes on the same amount again, otherwise the same would tantamount to be double taxation, however since the payment of taxes could not be verified by the authorities below, thus for the purpose of verification only that the actual payment of taxes on the said amount by the members of Society have been discharged, the issue is restored back to the file of AO to verify the same and delete or sustain the addition accordingly.

“9.3.We find that the developer had made payment to MHADA, that the AO treated it as income of the assessee. In our opinion, payment made to a government agency in pursuance of an agreement cannot be treated income of assessee. As far as principle of application of income is concerned, we would like to state that the true test for the application of the rule of diversion of income by an overriding charge, is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. We are of the opinion that disputed amount falls in first category. In the case before us, the obligation income was diverted before it reached the assessee. Besides, the payment is not in doubt and it is also a fact that same was made in connection with the development of the property. So as a corollary, it has to be allowed as an allowable expenditure. Considering the circumstances and facts of the case, we decide ground no.5 in favour of the assessee.”

MIG Co-op Housing Society Group II Ltd. 17. Since the issue is squarely covered by the aforesaid observations of the Tribunal which are followed by the Ld. CIT(A) and there are no new facts, evidence or decision contrary to the same brought on record by the revenue, we concur with the decision of ld. CIT(A) that such amount cannot be added in the hands of the assessee as Income from Other Sources. Accordingly, ground no. 3 of the appeal of revenue stands dismissed.

MIG Co-op Housing Society Group II Ltd. 20. In view of the aforesaid facts and circumstances and our observations therein, the appeal of revenue stands partly allowed in terms of our aforesaid observations.

Order pronounced in the open court on 19-12-2025.