Redevelopment Capital Gains Cannot Be Taxed in Society’s Hands: ITAT Mumbai

Hardinge House Co Op Hsg Soc Limited Vs ITO (ITAT Mumbai)

Summary: The Mumbai Bench of the Income Tax Appellate Tribunal allowed the appeal of Hardinge House Co Op Hsg Soc Limited for Assessment Year 2016-17 and deleted the addition of ₹18,40,18,300/- made as long-term capital gains in the hands of the cooperative housing society in connection with redevelopment of its property. The assessment had been completed under section 143(3) of the Income-tax Act, 1961 after the Assessing Officer relied upon Annual Information Return information showing immovable property transactions aggregating to ₹18,40,18,300/- under the society’s PAN. The society consisted of 14 members and had returned total income of ₹91,000/-. The assessee submitted that it had entered into a Development Agreement with Sambhavparshva Developers Pvt. Ltd. and had granted only redevelopment rights, while continuing to remain the owner of the land.

It contended that it had received no sale consideration from the developer and that the Permanent Alternate Accommodation Agreements were entered into between the developer and individual members, with the society acting only as a confirming party. The Tribunal examined the Development Agreement, including clauses recording that the society represented its members, and the schedules identifying the members, their existing premises, hardship compensation and displacement compensation. It also considered the Maharashtra Government directive issued under section 79A of the Maharashtra Co-operative Societies Act, 1960, including Clause 11 concerning redevelopment agreements. The Tribunal found that the society had executed the development agreement as a representative of its members and that no part of the sale consideration had been received in the society’s bank account. It held that direct tax liability could not be transferred or foisted upon another entity where the underlying transaction demonstrated that the rights in the flats belonged to the individual members.