S. 45. According to Circular No. 9, the legal ownership in flats vests in individual members and not in the co-operative society – Flat owners have proportionate interest in the land and building – Amount received for permitting developer to construct add

ITAT ‘H’ Bench, Mumbai

A.Y. : 2004-05. Decided on :
31-3-2010

Counsel for assessee/revenue
: Tarun Ghia/

S. K. Pahwa

Vide development agreement
dated 15-2-2004 entered into between the assessee society, its members and the
developer, the assessee society allowed the developer to construct an additional
area aggregating to 30,000 sq.ft for a consideration of Rs. 10.41 crores. Of
this sum of Rs. 10.41 crores an amount of Rs. 15 lakhs was retained by the
assessee and the balance amount was distributed amongst its members in
proportion to area of the flat. The assessee in its revised return of income
declared amount received from developers as ‘Income from Other Sources’.

The Assessing Officer (AO)
was of the view that the assessee was the rightful owner of the land and the
legal ownership vested with it. Since the assessee was held to be the legal
owner, the capital gain was assessed as income of the assessee. The AO
considered the consideration of Rs. 10.26 crores received by flat owners to be
income of the assessee.

Aggrieved the assessee
preferred an appeal to the Commissioner of Income-tax (Appeals) who upheld the
assessment done by the AO.

Aggrieved the assessee
preferred an appeal to the Tribunal.

The Tribunal noted that the
assessee, co-operative housing society, was registered under the Maharashtra
Co-operative Societies Act, 1960 as a Tenant Co-partnership Hsg. Society under
Rule 10(1) Clause 5(b). It also noted that the flat owner members have
transferred their individual entitlement/right to TDR/FSI in favour of the
developers and were entitled to receive directly from the developers aggregate
compensation of Rs. 10.26 crores. All the individual flat owners offered for
taxation their share of compensation, in their respective return of income. The
Tribunal held as under :

“According to CBDT Circular
No. 9, dated 25-3-1969, the legal ownership in flats is vested in individual
members and not in the co-operative society. Further, the flat owners have
proportionate interest in the land and building. The society is only ostensible
owner and in reality and truth, the flat owners own the land and building for
which they have paid full consideration and amount received from the developer
by the flat owner in their individual capacity is the income of the individual
flat owner. The flat owners have relinquished their interest in the property.
The society has no right or control over such income of the individual owners.”

The Tribunal observed that
the benefit of additional TDR was derived and enjoyed by the members of the
assessee-society and no income has accrued to the society. Following the
decision of the Mumbai Bench of ITAT in the case of Jethalal D. Mehta v. DCIT,
which held that such rights do not have any cost of acquisition, the Tribunal
held that there is no merit in computing any capital gains on the sale of the
said TDR in the hands of the assessee society.

The appeal filed by the
assessee was allowed.