Cooperative housing society redevelopment receipts taxable in members not society; LTCG addition deleted and deductions remitted after verification

Classification between tenant ownership and tenant co-partnership societies determines legal versus beneficial ownership of flats; where legal ownership vests in individual flat owners, consideration received from redevelopment or developer for additional construction rights accrues to members and not to the society, hence cannot be taxed as long-term capital gain in the society addition deleted. Transferable development rights created by DCR/FSI changes without ascertainable cost of acquisition do not give rise to capital gains in the society. Claim for cooperative-society interest deduction was remitted for verification of receipt and allowed provisionally; assessment status corrected from AOP to society for tax purposes.

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Issues: (i) Whether the receipt of Rs. 2,28,00,000 paid by a developer in relation to additional FSI/TDR is taxable as capital gains in the hands of the co-operative housing society; (ii) Whether the assessee's claim of deduction under section 80P can be allowed; (iii) Whether the assessee has been assessed under the correct status (society v. AOP) for tax purposes.

Issue (i): Whether the amount of Rs. 2,28,00,000 paid by the developer in respect of TDR/FSI is taxable as long-term capital gain in the hands of the society.

Analysis: The payment was made by the developer directly to the individual 40 members by separate cheques and the society's bank statements do not show receipt of the Rs. 2.28 crore. The society is a tenant co-partnership (flat-owner) type in which legal ownership of flats vests in individual members. The incremental FSI arose by amendment to Development Control Rules (DCR) and there was no cost of acquisition of the rights under section 55 for the society. Precedents and the CBDT circular treating receipts in such redevelopment arrangements as belonging to members are relied on to determine the proper taxable person and the nature of the receipt.

Conclusion: The Rs. 2,28,00,000 is not taxable as capital gains in the hands of the society; the addition made by the assessing officer is deleted (decision in favour of the assessee on this issue).

Issue (ii): Whether the assessee is entitled to deduction under section 80P in respect of interest income.

Analysis: The claim was not made in the original return but may be considered afresh by appellate/assessing authorities. Verification of the interest receipts from co-operative banks/societies is necessary to determine entitlement under section 80P.

Conclusion: The matter is remitted to the assessing officer for verification of interest receipts and allowance of deduction under section 80P if supported by verification (allowed for statistical purposes/remand in favour of the assessee).

Issue (iii): Whether the assessee has been assessed in the wrong status (as AOP instead of a cooperative society).

Analysis: The assessee is incorporated under the Co-operative Societies Act and functions as a cooperative housing society with distinct legal identity; it is not engaged in business activities that would make it an AOP for assessment purposes.

Conclusion: The assessing officer is directed to consider and assess the appellant in the status of a society (decision in favour of the assessee).

Final Conclusion: The appeal is partly allowed by deleting the capital gains addition in the society's hands, remitting the section 80P deduction claim for verification, and directing assessment to be made in the status of a society; consequential and ancillary issues are disposed accordingly.

Ratio Decidendi: Where incremental development rights (TDR/FSI) originate from statutory amendments and no cost of acquisition is shown for the society, and the monetary consideration is paid directly to individual flat-owners who are the beneficial/legal owners under the tenant co-partnership doctrine, such consideration is not taxable as capital gains in the hands of the cooperative society.

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