Mumbai:The Maharashtra State Consumer Disputes Redressal Commission has ordered to Thane based builder to pay Rs.7.5L for irregularities and practicing fake business practice. According to the senior officials said that, M/S Animesh Enterprises to pay Mangesh Ghadge a total of Rs 7.5 lakh for providing smaller flat than the promised.
The builder has made contract with Ghadge on June 6, 2009. The builder was ready to sell the property measuring 600sq ft on the 3rd floor of the proposed building. The 222.4 sq mtr land at Lohar Lane, Thane, on which the construction was set to take place, belonged to Ghadge. The agreement also provided that the completed flat would be handed over on or before November 27,2001.
As per the deed Ghdage only have to pay Rs.6L to builder as he was owner of the land and will get flat on discounted rate. Whereas, there was delay in possession of flat and he got only 450 sq ft flat instead of promised 600 sq ft in 2003. In the aftermath of this Ghadge filed a complaint with Thane District Forum in 2004.

Kushal K. Bangia vs. ITO (ITAT Mumbai) – In principle, though the scope of “income” in s. 2(24) is very wide, a capital receipt is not chargeable to tax as income unless there is a specific provision to that effect. As the residential flat owned by the assessee in the society’s building was a capital asset in his hands, the compensation was a capital receipt.

The department’s argument that the cash compensation was a “share in profits earned by the developer” is not acceptable because it proceeds on the fallacy that the nature of payment in the hands of the payer determines the nature in the hands of the recipient. However, as the said receipt reduced the cost of acquisition of the new flat, it had to be taken into when computing the gains from a transfer thereof in the future

INCOME TAX APPELLATE TRIBUNAL, MUMBAI

I.T.A No.2349/ Mum/2011 Assessment year: 2007-08

Kushal K Bangia

Vs

Income Tax officer

Date of pronouncement : 31 .01.2012

ORDER

Per Pramod Kumar:

1. By way of this appeal, the assessee has called into question correctness of CIT(A)’s order dated 9th December, 2010, in the matter of assessment under section 143(3) of the Income tax Act, 1961, for the assessment year 2007-08 on the following grounds:

“1. The ld CIT(A) has erred in confirming the addition at Rs.11,75,000 received by the assessee as cash compensation. He has further erred in confirming the said addition to the income under the head income from other source. The reasons assigned by him doing the same are wrong and insufficient. Provisions of the act ought to have been properly construed and applied. Regard being had to the facts and the circumstances of the case, the said addition ought to have been deleted, being in the nature of capital receipt.

2. Without prejudice to ground No.1, and as an alternative ground of appeal, the ld CIT(A) has erred in confirming the addition of rs.11,75,000 received by the assessee as cash compensation under the head income from other sources, instead of long term capital gain. The reasons assigned by him doing the same are wrong and insufficient. Provisions of the act ought to have been properly construed and applied. Regard being had to the facts and the circumstances of the case, the said addition ought to have been assessed as capital gains.”

2. The issue in appeal lies in a narrow compass of undisputed facts. The assessee before us is an individual and he had received a sum of Rs.11,75,000 on account of what he now terms as, ‘cash compensation’. It is taxability of this amount of Rs.11,75,000 which is in dispute before us, and it is, therefore, necessary to understand the back ground in which this amount was received. The assessee was member of a housing society by the name of Vile Parle Ramesh CHS Ltd. This housing society, alongwith it’s members, entered into an agreement with a developer, and, under the said agreement, the developer was to demolish the residential building owned by the housing society, and reconstruct a new multistoried building by using the FSI arising out of the property, and by utilizing outside TDR under Development control Regulations. Under this arrangement, the assessee, as a member of the housing society, received a slightly larger flat in the new building, which had an additional area of 173 Sq. ft, a displacement compensation of Rs.6,12,000, which was computed @ Rs.34,000 p.m. for the period of construction of the new building, and an additional compensation of Rs.11,75,000. On these undisputed facts, the Assessing Officer was of the opinion that the cash compensation of Rs.11,75,000 is required to be treated as ‘casual income’, and, accordingly, taxable in the hands of the assessee. The Assessing Officer also brought to tax estimated value of additional area in the new flat, but since CIT(A) has deleted the same and revenue is stated to be not in appeal against the same, we are not really concerned with the same. Aggrieved, inter alia, by this addition of Rs.11,75,000 on account of cash compensation, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is in further appeal before us.

3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.

4. In our considered view, it is only elementary that the connotation of income howsoever wide and exhaustive, take into account only such capital receipts are specifically taxable under the provisions of the Income tax Act. Section 2(24)(vi) provides that income includes “any capital gains chargeable under section 45”, and, thus, it is clear that a capital receipt simplicitor cannot be taken as income. Hon’ble Supreme Court in the case of Padmraje R. Kardambande vs CIT (195 ITR 877) has observed that “..,, we hold that the amounts received by the assessee during the financial years in question have to be regarded as capital receipts, and, therefore, (emphasis supplied by us), are not income within meaning of section 2(24) of the Income tax Act….” This clearly implies, as is the settled legal position in our understanding, that a capital receipt in principle is outside the scope of income chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of revenue receipt or is brought within the ambit of income by way of a specific provision in the Act. No matter how wide be the scope of income u/s.2(24) it cannot obliterate the distinction between capital receipt and revenue receipt. It is not even the case of the Assessing Officer that the compensation received by the assessee is in the revenue field, and rightly so because the residential flat owned by the assessee in society building is certainly a capital asset in the hands of the assessee and compensation is referable to the same. As held by Hon’ble Supreme Court, in the case of Dr. George Thomas K vs CIT(156 ITR 412), “the burden is on the revenue to establish that the receipt is of revenue nature” though “once the receipt is found to be of revenue character, whether it comes under exemption or not, it is for the assessee to establish”. The only defence put up by learned Departmental Representative is that cash compensation received by the assessee is nothing but his share in profits earned by the developer which are essentially revenue items in nature. This argument however proceeds on the fallacy that the nature of payment in the hands of payer also ends up determining it’s nature in the hands of the recipient. As observed by Hon’ble Supreme Court in the case of CIT vs. Kamal Behari Lal Singha (82 ITR 460), “it is now well settled that, in order to find out whether it is a capital receipt or revenue receipt, one has to see what it is in the hands of the receiver and not what it is in the hands of the payer”. The consideration for which the amount has been paid by the developer are, therefore, not really relevant in

By CA.Dr.Rajendrakumar Jain

Until few years ago it was a popular notion that “wealth tax” is for super rich citizens and not for common people. But rising prices of property, gold, silver have changed the scenario. Now a decent flat costs nearly crore rupees, gold costs 2800 a gram, this price rise made majority middle class people overnight “Crorepati” this change will bring a majority of the citizens in the wealth tax net. Hence, it is imperative to know about wealth tax.

Background: How to raise revenue has always been a challenge for any government. Particularly at the time of independence, our country had scarce resources, moreover, “95% of the nation’s wealth was in the hands of 5% people and remaining 5% wealth was with 95% people”. This uneven distribution of wealth was a great challenge for the government. In order to make the equitable distribution of wealth and to raise the source of revenue, in 1957 the Government had for the first time introduced the Wealth Tax, and subsequently it became a permanent feature of Direct Tax. Even the forthcoming Direct Tax code proposes to continue with wealth tax , so it seems that now wealth tax has occupied permanent place on statute book and we have to live with it .

It is customary that in every budget some changes are incorporated in the direct taxes provisions as per the need and thought process of the law makers. In wealth tax too, from its introduction every year some or the other changes have been incorporated. But in 1992, the then Finance Minister brought about a revolutionary change in budget proposal. It was announced that, “ in order to boost the economy and build the capital, wealth tax will be levied only on non-productive assets and exemption limit of wealth tax was raised from the then existing Rs. 2,50,000/- to Rs. 15,00,000/- and the tax rate was also changed from progressive tax to uniform tax rate i.e.1%”.

As compared to the 1992 scenario, the situation turned completely in 2011. The gold prices shot up from 4200 tola to 28000 per tola, silver prices inflated from 6000 Kg. to 62000 Kg. Real estate prices touched the sky, and started quoting in Crores. Whereas wealth tax exemption limit which was 15 lac in 1992, it has been raised to 30 lacs in 2010.

With the growth of economy the wealth has started flowing in the hands of the masses and as a result a second flat / farm house / second car, are become a common feature. The flip side of this growth is it brought most of the people in the wealth tax net.

It is expected that tax laws should be easy and simple to comply and understand , but Our Direct Tax Laws are flooded with deeming fictions, these deeming fictions give very “irrational and unbelievable “ meaning to a word, which makes tax laws and its compliance complicated . Inspite of all the claims made by the government for simplification of the law, it is a nightmare for a common man to comply with tax laws. And non compliance attracts very heavy penalty and harassment. Therefore, it is better to get acquainted with legal provisions .

Wealth tax is applicable only on three entities – Individuals, HUF and companies (both private limited and public limited).

Under wealth tax only specified assets are taxable and not all the assets held by the assessee. Taxable assets are defined in Sec.2(ea) of Wealth Tax Act, Rest all assets irrespective of its value are exempt from wealth tax.

Following are the specified taxable assets .

Land and building – [sec 2 (ea)(1)]
Under sec 2 (ea)(1) each and every building or part of a building / flat is covered whether used for residential or commercial purpose or for the purpose of maintaining a guest house Including a farm house situated within twenty five kilometers from local limits of any municipality ( whether known as municipality , municipal corporation , or by any other name ) or a cantonment board.”

As explained earlier, the law makers wanted to tax only non productive assets. A few exceptions have been provided in this section like Residential house given by a company to its employees , house / flat held as stock-in-trade or house used in own business or profession or residential house given on rent for minimum 300 days during the previous year.

This is the most disputed and controversial taxable asset class which raises so many questions like, what will be tax position if the possession of the property is taken for the first time and it has been rented out for less than 300 days or what will be the tax treatment in case of deemed let out house property or using the house property for own business but not forming a part of the block of depreciable assets.
Motor cars – [sec.2(ea)(ii)]
Any motor car is an asset except motor cars used by the assessee in the business of running them on hire, and motor cars treated as stock-in-trade. It is irrelevant whether you own a single motor car or a fleet of motor cars, whether a car is meant for personal use or business purpose it will be added to your wealth. But motorbikes are exempt from the clutches of wealth tax.

Jewellery, bullion, utensils of gold, silver etc. – [Sec.2(ea)(iii)]
Indians are known for their love for precious metal especially gold and silver. For a middle class Indian family to hold 50- 60 tolas of gold is very common. This section covers gold, silver, any precious metal, stone or its alloys or any combination of it, excluding items held as stock-in-trade.

Gold ETF (Equity Traded Fund) are out of the purview of wealth tax i.e. gold traded funds are the funds and not the gold, people are holding the fund certificate and not gold as defined in the act even though the underlying asset in the certificate is gold.

Yachts, boats and aircrafts – [sec.2(ea)(iv)]
It is not very fashionable except for super rich people to keep yachts, boats and aircrafts hence not elaborated on it .
Urban land – [sec.2(ea)(v)]
With growing urbanization and increasing prices of land, this asset class will have great impact on your wealth tax liability. Urban land includes both, agricultural and non agricultural land, which are situated within municipal limits or with in the radius of 8 km of municipal limit.

To this section the following exceptions are provided

Land on which construction is not permissible under any law like, land reserved for public purpose like play ground, garden etc.
Land occupied by any building which has been constructed with the approval of the appropriate authority.
Any industrial land upto 2 years from the date of its acquisition.
Any land held for stock-in-trade for a period of 10 years from the date of its acquisition.

Cash in hand – [sec.2(ea)(vi)]
Cash held, more than Rs.50, 000 by individual and HUF is taxable and in the case of companies, any amount not recorded in the books of accounts. Therefore, unlike individuals and HUF there is no monitory limit for companies to hold cash.

While computing taxable wealth in addition to above assets “deemed assets” are also included and “exempted assets” are excluded. Also debts ( loan /borrowing ) in relation to taxable assets will be deducted from taxable wealth .

Under sec. 5 of the act various assets have been exempted. But the most important is sub section VI whereby one house or part of house belonging to either Individual or HUF is made exempt.

Secondly, a plot of land comprising of an area of 500sq.mtrs or less is out of the purview of taxable assets, this is a great respite to public at large.

Valuation of assets

The wealth tax liability depends on the market or net realizable value of the asset on the valuation date. The valuation date is 31st March of any year. Now the question arises, how to do valuation of asset? The valuation of asset shall be taken in the manner laid down in the schedule III of the act. Various formulas are given in the said schedule, like, In case of house property the valuation depends on gross maintainable rent and net maintainable rent. Actual price of the property or book value of the property or Market price or ready reckoner price has no relevance for calculating taxable value of the property.

While valuing gold ornaments all the factors which are considered while selling gold need to be considered, ornaments are generally made in 22 caret gold and not 24 carets. There is always a rate difference in gold sale rate and buy rate, while selling gold, 7 to 8 % is deductable on account of impurity / mixing in the gold ornaments.

Another important feature of tax scheme is, it is not necessary that all the assets must appear in the balance sheet of the assessee, but asset must belong to him. Wealth tax is always payable by the owner of the asset. Few exception of deemed assest is given in the statute where the assessee has to pay tax for the property held by other person .

Incidence of wealth tax depends on two criteria-

Residential status and
citizenship
In case of an Indian citizen, who is a resident, his global wealth is taxable in India. In all other cases only their local wealth (i.e. wealth situated in India) is taxable.

We have DTAA (Double Tax Avoidance Agreement) for wealth tax with few countries. In countries with which India doesn’t have a treaty, but the citizens of India pay wealth tax in that country, a relief can be claimed by such citizens while paying Indian taxes.

The author CA.Dr.Rajendrakumar Jain is a Mumbai based practicing chartered accountant and can be contacted on rajendra.jain@rijainca.com or mob. 9869081100

By Accommodation Times (www.accommodationtimes.com)

Mumbai:
Bombay High Court has recently ordered that now onwards homer buyers will have to pay extra amount for property, as it is legal to be levied service tax on constructions of flats and different properties. On this Friday a division bench of justices comprising Justices D.Y Chandrachud and A.A Sayed has delivered an order answering to writ petition filed by the Maharashtra Chamber of Housing Industry (MCHI) challenging the constitutional validity of the Centre to levy service tax. They said the power to levy tax on land and building lies with the state government.
To proving that construction was a service bustle and Union government having right to charge service tax on it, Additional Solicitor General Darius Khambata has given the reference of Supreme Court’s judgement. He said that “according to the provisions mentioned in the Maharashtra Ownership of Flat Act (MOFA), flats have to be registered before the completion of construction, so all the amenities which have been provided by the realtors would definitely be considered as services. Builders scared of fall in sales of new flats.
Reacting on the HC order MCHI president Paras Gundecha has expressed his views that levy service tax as “disappointing’’. He added that yet industry hasn’t decided to challenge order in Supreme Court.

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36. We have heard both sides and perused the material available on record. The above additions treating the agricultural incomes disclosed as income from other sources have been made, in view of the finding of the assessing officer for the assessment year 2007-08, that the lands in question of the assessee are of non-agricultural nature. Inasmuch as we have upheld the view taken by the lower authorities that the lands in question are of non­agricultural nature, while dealing with the contentions of the assessee on that aspect in the context of appeal ITA No.425/Hyd/2011 for the assessment year 2007-08, vide para Nos.23 and 24 hereinabove, the issue involved in these appeals has to be decided in against the assessee and consequently, the impugned additions made by the Assessing Officer, treating the agricultural income disclosed by the assessee for these years as income from other sources, are liable to be upheld. We do so accordingly.
37. In the result, all the five appeals in ITA Nos. 420, 421, 422, 423 and 424/Hyd/2011 are dismissed and ITA No. 425/Hyd/2011 is partly allowed for statistical purposes.
Order pronounced in the court on 16th December, 2011

Read more: Joint Development Agreement – If Developer has performed or willing to perform his part of the contract, then the transaction would qualify as ‘transfer’ http://taxguru.in/income-tax-case-laws/joint-development-agreement-if-developer-has-performed-or-willing-to-perform-his-part-of-the-contract-then-the-transaction-would-qualify-as-transfer.html#ixzz1ifkSeMBF

Madurai: The latest Judgment delivered by Madras High Court, Justice K Chandru dismissed the petition filed by builder and refused to set aside the order of the Madurai District Consumer Disputes Redressal Forum directing a builder to pay Rs 63,000/- to the consumer towards dificiency of services besides Rs 17,000/- as compensation for mental agony and monetary loss. In the said the Builder had entered into an agreement with the consumer and there the consumer forum had complete jurisdiction to award compensation and pass an appropriate order, which could be challenged only before the State Consumer Forum, the court said.
In one another case The Maharashtra State Consumer Disputes Redressal Commission found builder guilty of ‘Deficiency in Service’ and directed the Builders to pay Rs 7.86 lakh as damages to the aggrieved party and hand over possession of the flat.
However, the members of the Co-operative Housing Societies always face several problems of deficiency in services provided by builder. The services provided by the builder to the members are comes under the Consumer Protection Act, 1986. A member can approach the Consumer Forums for claiming compensation and damages against the builder for rendering deficient in services.
If Builder used defective raw materials for the construction and because of that reason leakage problem started then aggrieved party can go to the consumer court but it should be within two years from the day of the possession.

The Maharashtra State has inserted new Section bearing No.354AA to the BMC Act, 1888 with effect from 3rd April 2011 and fixed ‘Responsibility of keeping and maintaining exterior of building in Mumbai in good condition by the owner or occupier of a building in Mumbai’. Similar law was also passed for buildings under other Municipal Corporations of State of Maharashtra.
Under the new provisions, it is provided that it is the responsibility of the owner or occupier of a building to ensure that exterior of the building is kept and maintained in good condition and is not in a state of disrepair or spoiled on account of cracks stains shabby enclosures hanging wires of cables or keeping of unwholesome articles which spoil the appearance of a building or part of it.
This provision is not applicable for area declared under Slum Act and buildings for which redevelopment plan is sanctioned or under consideration by the competent authority.
The Commissioner of BMC may issue Notice to the owner or occupier to carryout necessary works as specified in the Notice within 30 days.
After the Notice period, if owner/occupier of the building fails to repair, the BMC will repair and collect the expenses incurred within 30 days of receipt of Notice from the owner/occupier with interest @ 24% p.a.
Under the said amendment, if the owner/occupier is disputing the demanded amount he can file an appeal (within 21 days of demand) before Chief Judge of Small Causes only after deposit of full demanded amount with B.M.C.
If the Court reduces the claim amount, the said excess amount will be adjusted by B.M.C. against next Property Tax payable on the said building.
The introduction of said new Section 354AA is one more burden levied on the owner/occupier of the building in Mumbai and in other Municipal Corporations of Maharashtra State.

“Real estate prices down 20%.” “Real estate players forced to release stockpiled property due to funds crunch.”
Headlines like these just about summarize the reason why real estate players need genuine branding and genuine brands – instead of advertising-based logos and promotional gimmickry.
The reality is that, up to now, most real estate players have been living in a cloud-cuckoo land of endless lines of buyers. They’ve been happily reaping the benefits of living in a seller’s market and ignored branding almost totally – replacing it with advertising.
Until a few months ago, all a promoter had to do is buy land, design a building, release an advertisement in the newspapers concerning an upcoming project and there would be takers. The next step would be to release yet another advertisement saying ‘project overbooked’ and then go on to build the structure.
There was no thought behind the design of the apartments or the building complex.
A mall would be built because it sounded like a good idea.
Who was going to stay in the apartment complex? Who was going to use the mall? The target audience was ill-defined or not defined at all.
As a result, it wasn’t clear whom you should target, it wasn’t clear where advertising should be placed and it wasn’t clear what kinds of shops would be in the mall.
With the near-collapse of the US economy – and therefore the world’s economy – this situation has changed. And real estate players must acknowledge the fact.
The selling of real estate must become more brand-oriented.
It’s as simple or as complicated as that.
In sum real estate players – from large to small – have to complete a four-step program to make sure they can sell their product, even in these hard times.
The four steps are seemingly simple:
1. They need to find out who their best customers are, why they buy real estate and what makes them tick
2. Put together a way to talk to them in a language they understand with a promise they’ll buy
3. Communicate that promise to them through brand activation and communication
4. Measure how the branding strategy is working
The first step is to understand that a brand in the real estate area is a lot more than just the name. (Although it’s interesting to see how real estate barons are undoing what our politicians did and giving their projects names like Dorchester, Windsor, Picadilly and so on.)
Defining the target audience will begin with why they buy. Is it an investment? Is it to stay in? To work in? Why?
That knowledge will lead to calculated decisions as to which facilities are important to which target audience and which are not. Is a swimming pool really necessary in a city like Bangalore where the water is arctic most of the year? Does the complex need wireless connectivity? How much parking will it need for guests and visitors?
Do people like openness? Or do they want more light? Do they like small windows or big ones?
Currently all this is left to the architect’s whims and fancies.
I was at a meeting recently where the architect was waxing eloquent about how his building was going to ‘promote communal living’ by making the common areas more inviting. He felt that people wanted to go back to the ‘old times’ when neighbors were all your friends.
I asked him whether he had bothered to check whether consumers actually wanted ‘communal living’ or a return to the ‘old times’. In my experience most young people want to move out of the ghettos of religion and caste where their parents stayed.
The answer was no, but he felt that this was a good idea.
Whoops. Maybe, maybe not – I don’t know; and I wouldn’t venture an opinion until I’ve checked it with a large enough sample of consumers.
And that’s the point – nobody in the real estate industry has really spoken to consumers. And it’s definitely time they did.
Once they have, they’ll know whether consumers actually want a flat in a complex built to ‘imitate the waterways of Venice’. Or if they would they simply see it as a breeding ground for mosquitoes.
Once they’ve done their research, they will come to conclusions which will undoubtedly influence the design of the buildings they construct.
This is important because a real estate brand is not merely a function of advertising and communication – it’s also a function of the buildings that come up.
So if your buildings have to reflect your brand, it is essential that you understand what kind of brand and product consumers will buy in bad times.
In recessionary times, to sell apartments like potatoes and onions is to ask for trouble.
The next step in brand activation must take into account the fact that there is more to be done than just the basics.
It is no longer enough to be good and well-priced – every product needs the ‘wow’ factor. And since it is really no longer possible to wow people with your product you have to wow people with your service.
Apollo Hospitals has been wondering why, since all patients rate them as the best in clinical care and as the go-to place in an emergency, patients still rate them needing improvement. The answer can be summed up in one word: service.
And that’s the reality of every product in every product category – brand activation must include improvement of service standards.
Where do consumers go to book an apartment? Who takes them across to see the model flat? How will they be transported there? Can they trust the company to deliver on time, with all the amenities promised?
It’s all going to be very important. In today’s climate, the brand’s behavior is going to sell real estate – not mere availability.
Finally, the real estate giants need to find out how consumers view their brands on an ongoing basis. If they’re seen as rapacious, greedy companies set up to make a few people rich they’re bound to find the going tough in hard times. On the other hand, if they’re seen as friendly people who actually bring people affordable and desirable dwelling places, they’ll find the going easier.