Mumbai ITAT annuls Rs 18.4 crore tax on housing society, says gains belong to flat owners

The Mumbai Income-tax Appellate Tribunal has deleted a Rs 18.4 crore tax addition imposed on a Cumballa Hill co-operative housing society, ruling that the society acted only as a representative for its members in a redevelopment deal. The tribunal held that reporting a transaction under the society'

The Mumbai Income-tax Appellate Tribunal (ITAT) has annulled a disputed Rs 18.4 crore tax addition imposed on a co-operative housing society (CHS) in Cumballa Hill, ruling that the society acted solely as a representative for its individual flat owners in the redevelopment transaction. The tribunal held that merely because the transaction was reported under the society's Permanent Account Number (PAN), it could not be treated as the society's own income, especially when no sale proceeds entered its bank account.

The CHS had entered into a Development Agreement (DA) with the developer, which specifically stated that only development rights were granted and that the society retained ownership of the land. The developer then signed Permanent Alternate Accommodation Agreements (PAAAs) with individual members, with the society acting only as a confirming party. The DA also included schedules listing the members and the hardship and displacement compensation payable to them.

The Income-tax Officer had treated the Rs 18.4 crore figure appearing in the Annual Information Report (AIR) as the society's long-term capital gain. The tribunal noted that the assessing officer relied primarily on the AIR data, but the society demonstrated that none of the sale consideration had been received in its bank account. The mere appearance of transactions under the society's PAN could not establish that the society itself had made a sale or received the consideration.

Under Section 79A of the Maharashtra Co-operative Societies Act, 1960, a housing society is required to execute the DA on behalf of its members, signing in a representative capacity and not on its own account, the ITAT observed. The tribunal also pointed out that for a subsequent financial year, reassessment proceedings on the same issue were dropped after the Income-tax Officer accepted the society's explanation.

The order could be particularly useful for co-operative housing societies undertaking redevelopment, where transactions are often reported to the tax department against the society's PAN even though the underlying rights, consideration and benefits belong to individual members. Such societies frequently face scrutiny or inquiries based on AIR information, especially where the registered DA or related PAAA values are substantial.