MIDDLE INCOME GROUP CO-OPERATIVE HOUSING SOCIETY LIMITED ,MUMBAI vs. INCOME TAX OFFICER-23(2)(3), MUMBAI

per this background, the Assessing Officer treated the Short Term Capital

Gain on transfer of property at the hand of assessee and computed Short

Term Capital Gain of Rs. 139,16,46792/-, as referred supra. 6. We have heard the ld. AR of the assessee and ld. DR for the Revenue and

perused the material available on record. The ld. AR of the assessee

submits that the assessee has raised ground No.1 & 2 of appeal against

the validity of reopening. The reopening is absolutely invalid and the

assessment order is liable to be quashed as such. The ld. AR further

submits that even on merit the assessee has good case. The assessee has

raised ground No.3 to 9 on which is covered in favour of assessee by the

various orders of Tribunal. In support of his submissions the ld AR relied

on the case law in Auro Ville Co. op. Hsg. Soc. Ltd. vs. ACIT (ITA No.

570/M/2008 (Mum Trib.), Raj Ratan Co.op. Hsg. Society Ltd. vs. DCIT

912 taxmann.com 172 (Mum Trib.), CIT Vs. Raj Ratan Co.op. Hsg.

Society Ltd. vs. CIT (ITA No. 2292 of 2011, (Bom HC) and MIG Co-

operative Housing Society Group-II Ltd. Vs. ITO (ITA No.

896/Mum/2016 (Mum Trib.). 7. The ld. AR of the assessee submits that in MIG Co-operative Housing

Society Group-II Ltd. vs. ITO (supra), the Tribunal on identical facts and

on identical issues deleted the treatment of Short Term Capital Gain in

the hand of that society. The ld. AR of the assessee invited our attention

on the fact of the case in MIG Co-Op. Hsg. Society Group II (supra) 8

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

wherein the members of that society also received similar compensation

from the builder for surrendering their right for redevelopment of

property. He has further referred that like members of assessee’s society,

the members of MIG Co-op. Hsg. Society Group-II also received and

offered the compensation in their respective return of income. The ld AR

submits that he has filed evidences showing that the members have shown

the receipt of compensation in their individual return of income and all

these evidences were furnished before the authorities below. The ld. AR

of the assessee submits that the amount received by the members of

society could not be assessed in the hands of society. The provisions of

section 50C were not applicable, as the society is/was not the owner of

land. The agreement entered with the developer was for transfer of

development right. Section 50C applied to land/ building or right in

respect of land or building and not the development right, which the

society continued be a lessee. The development right had no cost of

acquisition; therefore, transfer of such right would not be taxable. New

right came into existence because of new Regulation framed by MHADA.

The ld. AR submits that the Issue No.3 to 9 is entirely covered in favour

of assessee by the decision of Raj Ratan Co-op. Society (supra) and MIG

Co-op. Society Group-II (supra). The ld. AR further relied upon the

Circular no. 9 dated 25.03.1969, wherein CBDT has instructed that in

case of co-operative housing societies, the income from each building 9

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

should be assessed in the hands of the individual members whom it had

been allotted, notwithstanding the facts that the technical legal ownership

in the property in such cases vested in the society.

Tribunal in Raj Ratan Co-op. Society (supra) and MIG Co-op. Society

Group-II (supra) and on comparing the facts of the case in hand relied on

the order of the lower authorities.

have gone through the order of the authorities below. We have noted that

the coordinate bench of the Tribunal on identical facts and on identical

issues in MIG Co-op. Society Group-II (supra) passed the following

order;

“4.4. We have heard the rival submissions and perused the material. We find that in the present case development-agreement was executed by the society and the developer, that the developer had made payments to the flat owners in their individual capacity, that contribution towards corpus of the society was also paid by developer, that the society as well as individual member had offered receipt of income in their returns, that the AO and the FAA were of the view that payment made by the developer was to be taxed in the hands of the society. 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. 10

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

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 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 assessee 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 Assessing 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 hands of the

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

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. 3. As the decision is based on a finding of fact which is not challenged by the Revenue as being perverse, we see no reason to entertain the proposed question of law. 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 cannot 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. 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.

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

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 10. Considering the decision of Hon'ble Bombay High Court in the case of

CIT Vs Raj Ratan CHS (supra) and the decision of coordinate bench of

Tribunal in MIG Co-op. Society Group-II (supra) as referred above and

respectfully following the same we are of the view that the addition of

Rs. 139,16,46,972/- as short term capital gain is liable to be deleted. 11. In the result the grounds No. 3to 9 are allowed. 12. As we have allowed the Ground No.3 to 9 of the appeal on merit, therefore,

the discussion on ground No.1 & 2, which relates to validity of the

reopening, has become academic.

Rs.67,88,743/-. The ld AR for the assessee submits that this ground of

appeal is also covered in favour of the assessee and against the revenue by

various decision of the Tribunal including the decision of MIG Co-op.

Society Group-II (supra). The ld AR further submits that the facts of MIG

Co-op. Society Group-II (supra) is identical, wherein the similar deduction

was disallowed by assessing officer, however, on appeal it was allowed by

ld Commissioner(Appeals). On further appeal by revenue before Tribunal

the appeal of the revenue was dismissed.

authorities below.

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

have gone through the order of the authorities below. We have noted that

the coordinate bench of the Tribunal on identical facts and on identical

issues in MIG Co-op. Society Group-II (supra) passed the following order;

“2. Next is about allowing deduction u/s.80P of the Act. During the assessment proceedings, the AO held that the society had violated the principles of mutuality, that the provisions of section 80P were not applicable to a Co-op. Housing Society, that the assessee had made deposits out of money received against redevelopment agreement and from different channels, that same was not permissible under byelaws of the society, that it had transferred a sum of Rs.2.97 crores from the corpus fund to the P&L account, that such investment in banks would not qualify for deduction u/s.80P of the Act. Finally, he denied the assessee the benefit of deduction u/s. 80P. 12.1.During the appellate proceedings the assessee referred to provisions of section 80P(2) of the Act especially 80P(2)(c)(ii) and 80P(d) of the Act and relied upon the case of Daoba Co-op Sugar Mills Ltd.230/774,Ashok APT CHS Ltd.(ITA/2845/M/2010),Sagar Sanjog CHS Ltd.(ITA/1972- 74/Mum/2005); Panchratna Co-op.Hsg Ltd.(ITA2858/Mum/2010). Referring to the provisions of section 80P of the Act, the FAA held that restrictions put by the section was with regard to income received by way of interest on securities/income from house property, that the restriction could be extended to other sub sections of section 80P(2), that there was no bar for claiming deduction under other sub sections of Section 80P(2)by a Co-op. Hsg. Society, that deductions could not be denied by observing that the society had breached the principle of mutuality or had violated the bye laws, that till the society was registered as a CHS in the Register of the Registrar of Co-op. Society deduction u/s.80P could not be denied. Finally, he allowed the appeal filed by the assessee. 12.2.Before us,the DR relied upon the order of the AO and the AR relied upon the order of the FAA.” 12.3.We find that the assessee had made a claim deduction of Rs.47.08 lakhs and Rs.50,000/- u/s. 80P(2)(d)and80P(2)(c)(ii)respectively, that the AO had invoked the provisions of Sec.80P (2) (f)and denied the society the benefits claimed by it. In our opinion, the sub sections of 80P deal with different claims and operate in different fields. The provisions of one sub section cannot be imported to another sub section. It is a fact that the Registrar of Co-op.Hsg. Society had not cancelled the registration of the Housing Society on the alleged violation of principle of mutuality or bye laws. In these circumstances, in our opinion the FAA has rightly held that deduction claimed by the assessee under sub-sections (d) and (c)(ii)

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

cannot be denied the assessee. Upholding his order, we dismiss the ground raised by the AO.

Society Group-II (supra) as referred above and respectfully following the

same the ground of appeal raised by the assessee is allowed.

GROUND NO.1:- RE-OPENING U/S. 147 OF THE ACT IS BAD IN LAW: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Assessing Officer ('the AO'), of issuing notice u/s. 148 of the Act and passing an order u/s. 143(3) r.w.s. 147 of the Act wherein the AO did not make addition on the basis of reason recorded u/s. 147 but made other addition and thereby rendering the reassessment order invalid, The Appellant pray that the assessment made by the Ld. AO be held a nun and void-ab-initio and the order passed u/s. 143(3) r.w.s.147 be annulled. WITHOUT PREJUDICE TO GROUND NO.1, GROUND No.2 On the facts and circumstance of the case and in law the Ld. CIT(A) had erred in upholding the action of the AO of issuing notice u/s.148 by invoking Explanation 2(b) instead of Explanation 2(a) to section 147 without noticing the fact that the Appellant had not filed its return of income u/s. 139(1) of the Act. The Appellant prays that invoking explanation 2(b) of section 147 is completely on the wrong premise and therefore, reassessment order is liable to be annulled/quashed. WITHOUT PREJUDICE TO GUOUND NO. 1 AND 2, GROUND NO. 3: ADDITIO OF RS. 181,81,64,744/- AS SHORT TERM CAPITAL GAIN: On the facts and in the circumstances of the ea e and in law, the CIT(A) erred in confirming the action of the AO in charging to tax all amount of Rs, 1,81.81,64,744/- [Rs.182,16,37,000- Rs.34,72,256) as short term capital gain u/s. 45 allegedly on transfer of re-development rights on the alleged ground that the capital gain on transfer of property for re-development is chargeable in the hands of the Appellant. The Appellant therefore prays that file AO be directed to delete such addition. WITHOUT PREJUDICE TO GROUND NO.1, 2 AND 3, GROUND NO. 4: TREATING AMOUNT OF Rs. 34,72,256/- AS A COST OF ACQUSITION:

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

On facts and circumstances of the case, the Ld. CIT(A) erred in concluding that the amount of Rs. 34,72,256/- paid by the members of the Appellant under hire purchase arrangement was cost of acquisition of development rights along with TDR for the purpose of section 45 of the Act. The Appellant prays that in case ground no. 2 is decided against the Appellant holding it to be liable to pay short term capital gains, yet it be held that the hire charges paid by the members of the Appellant cannot be held as a cost of acquisition.

WITHOUT PREJUDICE TO GROUND NO. 1, 2 & 3, GROUND NO.5: PROVISION OF SECTION 50C ARE NOT APPLICABLE TO DEVELOPMENT AGREEMENTS: On facts and circumstance of the case and in law, the CIT(A erred in confirming the action of the AO, in applying the provisions of section 50C of the Act to a redevelopment agreement. The Appellant therefore prays it to be held that provisions of section 50C are not applicable to the development agreement.

WITHOUT PREJUDICE TO GROUND NO. 1,2 AND 3, GROUND NO. 6: PROV[SIONS OF SECTION 50C ARE NOT APPLICABLE TO LEASEHOLD PROPERTY: On facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO, in applying the provisions of section 50C of the Act to a leasehold property. The Appellant therefore prays it to b held that provisions of section 50C are not applicable to the leasehold property.

WITHOUT PR JUDICE TO GROUND NO. 1,2,3 AND 4, GROUND NO. 7: TREATING MEMBERS INCOME OF THE APPELLANT: On facts and circumstances of the case, the Ld. CIT(A) erred in confirming the action of the AO, in treating the income of the member of the Appellant as the income of the Appellant and taxing the same in the hands of Appellant, ignoring the cardinal principle of tax that the same income cannot be taxed twice. The Appellant prays that it be held that the members' income cannot be taxed again in the hands of the Appellant.

WITHOUT PREJUDICE TO GROU NO. 1,2,3 AND 4, GROUND NO. 8: ADDITION, IF AT ALL TO BE MADE, SHOULD BE MADE AS LONG TERM CAPITAL GAINS INSTEADOF SHORT TERM CAPITAL GAINS: On facts and circumstances of the case, the CIT(A) erred in confirming the action of the AO, in taxing the sum as short term capital gains instead of long term capital gains. The Appellant prays that that if at all sum under the development agreement is to be taxed in the hands of the Appellant, the same be held a taxable as long term capital gains.

WITHOUT PREJUDICE TO GROUND NO. 1,2,3,4 AND 8, GROUN NO. 9: APPLICABILITY OF COST OF ACQUI ITION AS ON 01.04.1981: 16

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

In case the Appellant is held liable to tax under long term capital gains, the Appellant prays that as per the provisions of section 55(2)(b) of the Act, tile Appellant ought to allowed a deduction of cost of acquisition of the property purchased or fair market value of the property subsisting on 01.04.1981 at the option of the Appellant.

WITHOUT PREJUDICE TO GROUND NO. 1 AND 2, GROUND NO.10: TAXING Rs. 3,00,00,000/- RECEIVABLE BY THE APPELLANT TOWRDS THE CORPUS AS CPAITAL GAINS IN THE ABSENCE OF COST OF ACQUISITON: On the facts and in the circumstances of the case and in law the CIT(A) erred in directing the AO to tax the sum of R .3 00,00,000/- receivable as capital gains for the year under consideration disregarding that the said urn is a capital receipt not chargeable to tax and in any event in the 'absence of cost of acquisition, computation mechanism u/s. 45 fails and therefore no capital gains can be taxed for the year under consideration. Appellant prays that the addition of Rs.3,00,00,000/- as capital gains as directed by the CIT(A) be deleted.

WITHOUT PREJUDICE TO GROUND NO. 1, 2 AND 10, GROUND NO.11: TAXING Rs. 3,00,00,000/- RECEIVABLE BY THE APPELLANT TOWARDS THE CORPUS AS CPAITAL GAINS: On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to tax the sum of Rs.3,00,00,000/- receivable as capital gain for the year under consideration disregarding the fact that the aid urn would be receivable by the Appellant in future only upon handing over of possession of new flats to the members and therefore nothing is taxable for the year under consideration. Appellant prays that the addition of Rs.3.00.00.000/- as capital gains as directed by the CIT(A) be deleted.

WITHOUT PREJUDICE OT GROUND NO.1 & 2, GROUND NO.12: TAXING Rs. 91,23,90,939/- AS INCOME FROM OTHER SOURCES: On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of taxing the sum of Rs.91,23,90,939/- as income from other sources disregarding that the said sum represent d diversion of income by overriding title since the developer paid the sum on behalf of the Appellant and no income accrued to the Appellant. The Appellant prays that the addition of Rs. 91,23,90,939/- as income from other source be deleted.

WITHOUT PREJUDICE TO GROUND NO. 1 & 2 & 12, GROUND NO.13: TAXING Rs. 91,23,90,939/- AS INCOME FROM OTHER SOURCES: On facts and in the circumstance of the case and in law, the CIT(A) erred in confirming the action of the AO of taxing the sum 01 Rs.91,23.90.939/- without allowing deduction of the sum since it represented the expenditure incurred by the Appellant in earning the alleged income of Rs. 3,00,00,000/-.

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

The appellant pray that if the sum of Rs, 91.23,90,939/- is held to be taxable. then the AO be directed to allow the sum of Rs.91.23.90.939/- as allowable expenditure incurred in connection with the earning of alleged income of Rs.3,00.00.000/-. WITHOUT PREJUDICE TO GROUND NO. 1 & 2, GROUND NO.14: DENIAL OF DEDUCTION Rs. 92,84,920/- U/S. 80P(2)(d): On the facts and in the circumstances of the case and in law, the CIT(A) erred in denying the deduction to the Appellant claimed u/s. 80P(2)(d) of the Act. The appellant prays that the deduction claimed u/s. 80P(2)(d) be allowed. 19. The assessee further vide its application dated 14th March 2018 has raised the following additional grounds of appeal;

(1) On the facts and in circumstances of the case and in law, the AO erred in issuing notice u/s. 148 and passing the consequential reassessment order u/s. 147 u/s. 143(3) of the Act, in the wrong name of the Assessee and hence, both notice as well as consequential reassessment order are void-ab-initio and therefore bad in laws. (2) The Appellant humbly prays that it be held that the notice u/s. 148 issued in the wrong name of the assessee be held as void-ab-initio and bad in law and therefore be quashed and consequently, reassessment order passed u/s. 1`43(3) rws 147 deserves to be quashed

the ground No. 3 to 9 of ITA No. 484/M/2018, which we have decided in

favour of the assessee, therefore, keeping in view the principal of

consistency these grounds of appeals are allowed mutatis mutandis.

we have allowed the grounds No. 6 to 9 of the appeal, therefore, the

discussions on ground No. 10 to 13 have become academic. Similarly, the

ground No. 1, 2, and additional ground No. 1 & 2 relates to validity of

reopening. As we have allowed the relief to the assessee on the merit of

the case, therefore, the discussion on these grounds have also become

academic. 18

ITA No. 492 & 484/M/2018- Middle Income Group Co. Op. Hsg. Soc. Ltd.

We have noted that this grounds of appeal is identical to the ground

No.10 of ITA No.484/M/2018, which we have allowed in favour of the

assessee, therefore, keeping in view the principal of consistency these

grounds of appeals are allowed mutatis mutandis.

Order pronounced in the open court on this 31st July, 2018.

Sd/- Sd/- (G.S. PANNU) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 31/07/2018 S.K.PS Copy of the Order forwarded to :