The redevelopment of property
in Mumbai has enriched 6 societies that lie in Bandra East. Each of
the flat owners who handed over his apartment for redevelopment has received at
least fifty lakh rupees from a builder and upon completion of the redevelopment
project, will receive a larger flat free of cost.
The Income Tax
Department’s Share
Despite the
middle-income society having handed over their current flats for redevelopment
to builders, the IT department wants its share of the windfall from flat
owners. Each of the 6 societies received between 30 to 200 crores from a
builder and each flat owner received between 50 lakhs and 1 crore from a
builder as well. The IT department has issued notices to the housing societies
and to individual homeowners.
Flat owners have been
granted some respite as they challenged the IT Department and received a
favourable ruling from the Income Tax Tribunal in one case. The flat owners
also received a stay order from the High Court in another case. Notably, the
Bandra Middle Income Group redevelopment project is the largest in Mumbai
today.
Is This Double Taxation?
A representative of the
Bandra residents has stated that because residents of the societies have
already settled their dues with the IT department, the IT Department, by
demanding that taxes be paid on the current windfall, is taxing residents
twice. They have stated the IT Department is first taxing the society and then
the individual members of the society which amounts to double taxation.
In the case of the
Middle Income Group Housing Society Number 4, the IT Department demanded that
it was owed taxes, including interest and penalty, amounting to 73 crore
rupees. The 168 members of this housing society were paid between 62 to 80 lakh
rupees each by the builder. All 168 members of this housing society now reside
in a new tower.
A member of Group
Housing Society Number 4 has stated that the society has challenged the notice
of the IT Department before the Commissioner of IT. The member has stated
before the Commissioner of IT that the society did not, in fact, receive the
sum from the builder. According to the member, the society was only the
custodian and it only negotiated on behalf of the members of the society.
You Win Some, You Lose
Some
In the case of Group
Housing Society Number 4; it was paid by one of the builders
in Mumbai and the IT notice states that under the cooperative
society rules the compensation they received would be used for the betterment
of the society. However, because the money received by the society was profit
that was distributed among the members of the society, it fell outside the
purview of the rules of the corporative society and was taxable because the
individual members received a share of the profit. Hence the society was
taxable.
Another society won its
case. Each member of the society received 53.5 lakh and the IT department
demanded 33 crores from the society, however, the IT tribunal ruled that once
members of the society have already received the income in their hands, the same
income in the hands of a society cannot be taxed again. Notably, glancing at a
list of those participating in the redevelopment projects one finds that the list
of builders in Mumbai active in such projects consists of
names of that are less well known.
