As large number of buildings owned by housing societies are queuing up for their redevelopment, the daily TOI has brought good news for co-op housing societies having properties older than 35-40 years.
The State Government liberalizes FSI from time to time luring the developers to take on redevelopment projects with attractive benefits. As usual where ever there is money there goes a tax man” rightly wrongly to be decided by higher ups. Fortunately ITAT Mumbai has earned a good reputation in coming out with far more clarity than the Departmental hierarchy.
However one important organization seems to go live to the present day demands. On one hand cooperative sector is struggling to find favours with Finance Mnister and in that the CBDT a giant organization can definitely play a visible role as a sympathizer. For example it should quicly go in to the rationale of the ITAT order which are favorable to Cooperative Society and issue advisory to put a seal on further litigation by the Department.
As per this report ITAT (Mumbai) held that not all payments received by a flat owner under redevelopment contracts are liable to tax. A very crucial observation of the Tribunal as regards taxability of any receipt is “what is the nature of income in the hands of the receiver and not the payer (redeveloper),“ This observation came up in response to an argument by I-T Department “that such compensation was the flat owner’s share in the profits earned by the redeveloper.” According to the Tribunal the compensation was towards the hardship which the flat owner would face owing to the redevelopment. It held such compensation to be in the nature of a “capital receipt“, which “is outside the scope of income that can be chargeable to tax“. However, the ITAT dealt with another sum of money received by the flat owner for payment of rentals while the redevelopment work was ongoing holding that it would not be taxed only to the extent it was actually utilised for rent payments. Any surplus would be treated as `income from other sources’.
The facts leading to this land mark judgment is as under:Reportedly one Mr. Jitendra Kumar Soneja had received a sum of Rs 30.55 lakh as compensation from the redeveloper including a sum of Rs 8.55 lakh for paying rent for an interim alternate accommodation while the redevelopment work was ongoing.
This receipt was not disclosed in his I-T returns for the concerned financial year 2006-07, the I-T officer treated it as `undisclosed income’ liable to I-T. as he could not succeed departmentally Soneja approached the ITAT.
In an interesting observation and as a word of caution the ITAT clarified that while the compensation was a capital receipt and not taxable, it would be reduced from the cost of acquisition of the flat. This would have a tax impact, in case the redeveloped flat was subsequently sold. As Soneji had incurred a rent expenditure of only Rs 6.80 lakh as against Rs 8.55 lakh received for this purpose, the balance of Rs 1.75 lakh was held liable to I-T.