Developer payments held as income of individual society members; s.50C inapplicable; Rs3.50 crore seen as capital gains; 80P deductions upheld

ITAT MUMBAI held for the assessee: the amounts paid by the developer constituted income of individual society members (development rights transferred), not the society, so double taxation could not be sustained and s.50C did not apply to treat it otherwise. A receipt of Rs.3.50 crore during the year was assessable as capital gains, not income from other sources. Payments made to the housing authority were allowed as expenditures because income was diverted before reaching the society. Deductions under ss.80P(2)(d) and 80P(2)(c)(ii) were upheld and related grounds were dismissed.

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Issues Involved:
1. Reopening of assessment under Section 147.
2. Taxability of compensation received from the developer.
3. Taxability of corpus fund received from the developer.
4. Taxability of the amount paid by the developer to MHADA.
5. Deduction under Section 80P of the Income Tax Act.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee argued that the reopening of the assessment under Section 147 was invalid as the time limit for issuing notice under Section 143(2) had not expired. The FAA held that the AO had valid reasons for reopening the assessment as the assessee had not filed its return on time and had not disclosed the income from the redevelopment agreement. The Tribunal upheld the FAA's decision, stating that the AO had acted within the legal framework and the reopening was justified.

2. Taxability of Compensation Received from the Developer:
The assessee contended that the compensation received by the individual members of the society should not be taxed in the hands of the society. The Tribunal referred to the case of Raj Ratan Palace Co-operative Housing Society, where it was held that the society merely gave permission to the developer and did not transfer any rights in the property. The compensation received by individual members was taxed in their hands, and thus, it should not be taxed again in the hands of the society. The Tribunal concluded that the compensation received by the members could not be taxed in the hands of the society and ruled in favor of the assessee.

3. Taxability of Corpus Fund Received from the Developer:
The AO had treated the corpus fund received from the developer as income from other sources. The FAA upheld this view but limited the taxable amount to Rs. 3.50 crores received during the year under consideration. The Tribunal, however, held that the corpus fund should be taxed under the head capital gains and not as income from other sources. The Tribunal ruled in favor of the assessee, stating that the amount received during the year should be assessed under capital gains.

4. Taxability of the Amount Paid by the Developer to MHADA:
The AO treated the amount paid by the developer to MHADA on behalf of the society as income from other sources. The Tribunal disagreed, stating that the payment made to a government agency in pursuance of an agreement cannot be treated as income of the assessee. The Tribunal held that the amount paid by the developer was diverted before it reached the assessee and should be allowed as an expenditure. The Tribunal ruled in favor of the assessee on this issue as well.

5. Deduction under Section 80P of the Income Tax Act:
The AO denied the deduction under Section 80P, arguing that the society had violated the principles of mutuality. The FAA allowed the deduction, stating that the society was still registered as a co-operative housing society and the provisions of Section 80P(2) were applicable. The Tribunal upheld the FAA's decision, stating that the different sub-sections of Section 80P operate in different fields and the deduction claimed by the assessee could not be denied. The Tribunal ruled in favor of the assessee, allowing the deductions under Section 80P.

Conclusion:
The Tribunal ruled in favor of the assessee on all major issues, allowing the appeal partly and dismissing the appeal of the AO. The order was pronounced in the open court on 17th February, 2017.

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