A Mumbai Income-tax Appellate Tribunal ruling has deleted a Rs 18.4 crore long-term capital gains addition made to the income of a Cumballa Hill cooperative housing society, holding that the society acted as a representative of its members during redevelopment and was not the owner of the transaction.
The case concerned a development agreement entered into by the society with a developer. According to the ruling reported by the Times of India, the agreement granted development rights but specifically stated that the society continued to own the land. The developer separately entered into Permanent Alternate Accommodation Agreements with individual members, while the society signed as a confirming party.
The development agreement included schedules identifying the members and recording the hardship and displacement compensation payable to them. Despite this structure, the assessing officer treated Rs 18.4 crore appearing in the Annual Information Report as long-term capital gains belonging to the society.
The ITAT held that the transaction could not be attributed to the housing society merely because it had been reported against the society’s Permanent Account Number. The tribunal noted that the society had shown that no part of the sale consideration had been received in its bank account. The presence of a transaction in information reported under the society’s PAN, by itself, was therefore insufficient to establish that the society had sold an asset or received the consideration.
The ruling also relied on the statutory role assigned to housing societies under Section 79A of the Maharashtra Co-operative Societies Act, 1960. Under the Maharashtra Government’s directive, a cooperative housing society is required to execute the development agreement on behalf of its members. The ITAT observed that the society signs in a representative capacity and not on its own account.
The distinction is significant for redevelopment projects because the society often becomes the formal signatory to agreements even when individual members receive the accommodation, compensation and other benefits. Large values recorded in development agreements or related documents can consequently appear in tax information systems against the society’s PAN, creating the possibility of scrutiny or reassessment.
The tribunal also took note of a subsequent financial year involving the same issue. Reassessment proceedings for that year were dropped after the income-tax officer accepted the society’s explanation, according to the report.
For societies undertaking redevelopment, the ruling highlights the importance of maintaining an evidence trail showing their representative role. The records should include the development agreement, member-wise schedules of payments made to members and the society’s own bank statements. These documents can help establish whether consideration was received by the society or was payable directly to individual members.
The decision does not remove the need for societies and members to examine the tax treatment of their individual redevelopment benefits. Instead, it addresses the narrower question of whether a society can be taxed on a redevelopment transaction solely because the transaction was reported under its PAN. The tribunal’s finding indicates that the underlying ownership, consideration and receipt of funds must also be established.
The ruling is expected to be relevant to cooperative housing societies in Mumbai that are negotiating or implementing redevelopment agreements, particularly where registered documents contain substantial values. Societies will need to preserve agreements, payment records and banking evidence as their redevelopment projects proceed.
