Denial of deduction claimed u/s 80P(2)(d) by invoking another sub-section of 80P unjustified

Middle Income Group Co. Op. Hsg. Soc. Ltd Vs ITO (ITAT Mumbai)

ITAT Mumbai held that deduction claimed u/s. 80P(2)(d) of the Income Tax Act cannot be denied by invoking another sub-section of 80P. Accordingly, disallowance of deduction claimed u/s 80P deleted.

Facts- Assessee is co-operative housing society, filed its return of income on 22.12.2017. Case of the assessee was selected for complete scrutiny and a notice u/s. 143(2) was issued and duly served on the assessee. During the assessment proceedings AO came to know about the claim of the assessee u/s. 80P and an AIR information about payment of Rs. 3,91,77,500/- by some developer MIG (Bandra) Realtors & Builders Pvt. Ltd towards stamp duty charges in terms of development agreement. Show cause was issued to treat the same as income of society and also for disallowance of claim u/s. 80P.

Post submission from the assessee, AO made addition and assessed the case. CIT(A) confirmed the addition. Being aggrieved, the present appeal is filed.

Conclusion- Co-ordinate bench in MIG Co-op. Society Group-II had held that the assessee had made a claim deduction of Rs.47.08 lakhs and Rs.50,000/- u/s. 80P(2)(d) and 80P(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.

Held that respectfully following the above judgement AO is directed to reverse the disallowance made against deduction claimed by the assessee u/s. 80P.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. These appeals by assessee are directed against the order of National Faceless Appeal Centre (NFAC), Delhi dated 30.12.2022 and 27.12.2022 u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2016-17 and 2017-18 respectively. The assessee has raised the following grounds in ITA No. 541/Mum/2023 for AY 2016-17:-

2. The Brief facts of the case are that assessee is co-operative housing society, filed its return of income on 22.12.2017. Case of the assessee was selected for complete scrutiny and a notice u/s. 143(2) was issued and duly served on the assessee. During the assessment proceedings AO came to know about claim of the assessee u/s. 80P and an AIR information about payment of Rs. 3,91,77,500/-by some developer M/s. MIG (Bandra) Realtors & Builders Pvt. Ltd. Towards stamp duty charges in terms of development agreement. Show cause was issued to treat the same as income of society and also for disallowance of claim u/s. 80P. Assessee responded both the show cause notices, but AO was not agreed with the same and made addition and assessed the case. Assessee being aggrieved with the same preferred an appeal before the Ld. CIT (A), who in turn confirmed the order passed by the AO.

3. Assessee being further aggrieved with the order of Ld. CIT (A) preferred this present appeal before us for adjudication. We have gone through the order of AO, order of Ld. CIT (A) and submissions of the assessee. In addition to these order, assessee drew our attention to the order of coordinate bench order vide ITA No. 492/ Mum/2018, A.Y. 2011-12 in assessee’s own case. It is observed that order of coordinate bench was placed on record by assessee during the assessment proceeding as well as hearing of appeal before Ld. CIT (A), this fact is not under challenge by the revenue and the said order was not considered at all by both the authorities.

4. It is also observed that issues under consideration were fully covered in the order of coordinate bench mentioned (supra), still intentionally avoided by the authorities below for sake of their own convenience and interpretation. Ground wise adjudication of the matter is as under:

5. Ground Nos. 1, 2, 3 and 4 are interrelated, pertains to disallowance of deduction u/s. 80P, hence adjudicated together for sake of clarity and better understanding. As the issue relating to deduction u/s. 80P is identical in each year in the case of assessee, facts need not be narrated again for this year. Rather, finding of coordinate bench for A.Y. 2011-12, we are reproducing herein below which covers all the facts of the matter as well as ratio laid down in favour of the assessee:-

“13. Ground No. 10 relates to disallowance of deduction under section 80P of 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.

14. On the contrary the ld. DR for the revenue supported the order of the authorities below

15. We have considered the rival submissions of the ld. AR and Ld. DR and 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 Ld. 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) and 80P(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) cannot be denied the assessee. Upholding his order, we dismiss the ground raised by the AO.”

6. As the issue decided earlier in assessee’s own case was similar in terms of facts and law, respectfully following the same Ground Nos. 1, 2, 3 and 4 raised by the assessee is allowed and AO is directed to reverse the disallowance made against deduction claimed by the assessee u/s. 80P.

7. Ground No. 5 pertains to payment of Rs. 3, 91, 77,500/- by developer M/s. MIG (Bandra) Realtors & Builders Pvt. Ltd. towards stamp duty charges in terms of development agreement. This issue, i.e., payment by developer to society was also found to be covered by the decision of coordinate bench mentioned (supra). In this decision of coordinate bench, it was decided that compensation received in cash or in kind is to be taxable in the hands of members and not in the hands of society. Relevant part of decision is reproduced herein below as under:

5. The assessee society on behalf of its members entered in agreement dated 17th September 2010 with a builder for redevelopment of the property by demolishing all the old structure. Accordingly, the assessee society and its member granted the developer right to redevelop the said property by utilising the FSI available as on date on the said property after demolishing the 16 building in the society in the manner set out in accordance with their agreement and in accordance with DC Regulation and MHADA Regulations. As per the agreement the members of type “A” flats, (40 member) each member is entitled to an amount of Rs. 80 lakh, the members of Type “B” flats, (48 members) each entitled to Rs. 64,32,000/- and Type “D”, (80 members) entitled to Rs. 62,05,000/-. In additions to compensation all member/ allottees were also entitled for flat in the redeveloped project/ buildings. All the payments of compensation were paid to the members in term of the Agreement. The Developer/Builder was also entitled for built-up area over and above the area of existing flats almost 100% than the original area as compensation to the builder for redevelopment. The MHADA was paid Rs. 43, 32,028/- for sale price of the land vide sale deed dated 19.10.2010. Therefore, as 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.

9. We have considered the rival submissions of the ld. AR and ld. DR and 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 Co­operative 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 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 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. 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. 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 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.

8. As per the above discussion coordinate bench has already settled a position of law based on the facts of the matter that, society is simply an instrumental to carry out certain transactions with developer on behalf of assessee and real beneficiaries are member of the society. Here in this year, issue pertains to stamp duty paid by developer with reference to development agreement. Applying the above analogy as decided by the coordinate bench (supra), same is taxable in the hands of members, if at all taxable. So, there is no question at all making taxable the same in the hands of assessee society.

9. Over and above this assessee supplied us the copy of “The Maharashtra Stamp Act, 1958”, as amended by Mah.3 of 2021, dated: 12.03.2021. As per this document, section 30, sub-section (b), In the absence of an agreement to the contrary, the expenses of providing the proper stamp shall be borne: –

“In the case of a conveyance, (including a re-conveyance of mortgage property) by the grantee; in the case of lease of agreement to lease, by the lessee or intended lessee. With this reference, we have examined the copy of Development Agreement between assessee and developer. As per Article 4, Part (b) of this document it was specifically provided as under: –

10. In view of specific provision in development agreement and provisions of “The Maharashtra Stamp Act, 1958”, it can be reasonably concluded that as per Law, developer was under obligation to pay stamp duty on the transaction and rather covenants of development agreement also confirmed the provision of Law only and no otherwise understanding was there, i.e., society/members will pay stamp duty. On these specific facts and position of law, the finding of authorities below that “The amount is nothing but liabilities and obligations that should have been paid by the society from its fund. The society has received a benefit by way of dis-charge of liabilities which were otherwise dischargeable by the society from its own fund. Hence, an obligation which is met directly or indirectly by any other person shall amount to a payment to the person concerned and shall fit in the concept of income within the meaning of section 2(24) (iva) of the Act, as it is a benefit paid by any person but for which payment would have been payable by the society.”

11. The basic foundation itself was wrong, as the stamp duty has to be paid by the developer as per the “The Maharashtra Stamp Act, 1958” and there is no understanding contrary to it in the agreement between the parties. In addition to this, if we talk about members even, they received certain sums in cash and flat in kind for entering into this development agreement, beyond this they have not received any amount in cash or in kind and nothing accrues to them by virtue of this development agreement. As per law, it was the obligation of developer to bear this expense and pay the same to State Exchequer, where is the question of taxability of the same in the hands of society/members. In view of this, Ground No. 5 raised by the assessee is allowed and AO is directed to delete the addition of Rs. 3,91,77,500/- made under the head “Income from other sources”.

12. In the result, appeal filed by the assessee is allowed.

ITA No. 542/Mum/2023 for AY 2017-18

13. In this year, the only issue involved pertains to disallowance of deduction claimed by the assessee u/s. 80P. Since we have already decided the similar grounds of appeal raised by the assessee in ITA No. 541/Mum/2023 for AY 2016­17 and the facts of this appeal are exactly similar and are applicable to mutatis mutandis. Hence, this appeal of assessee is also allowed.

14. In the result, both the appeals of the assessee are allowed.

Order pronounced in the open court on 27^th day of July, 2023.