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No Capital Gain Tax On Society Redevelopment

admin — Thu, 02 Feb 2012 07:24:02 +0000

By Accommodation Times Bureau

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

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

Handing Over the Charge to New Committee

nawaz — Wed, 16 Nov 2011 12:36:51 +0000

As per Sec. 2(7) of the Maharashtra Co-Operative Societies Act, Committee means the Committee of management or board of directors or other directing body, by whatever name called, in which the management of the affairs of a society is vested under section 73.
As per the Bye-law No. 3 (iv), the term “Committee” means the committee of management or other directing body to which management of the affairs of the society is entrusted.
The Chairman, Secretary and Treasurer of the society shall hold office for a period of 5 years from the date on which he is elected. After appointment it is obligatory for the members of the Managing Committee to sign a Indemnity bond and M-20 bond within stipulated period to the effect that they are individually and severally liable for the decision taken by the Society.
The Managing Committee Member can be removed if he becomes a defaulter and if he remains absent in the Managing Committee Meeting.
After completion of tenure, the Managing Committee Member has to prepare list of record and handover the charge to the new Committee. As per Sec. 73-H (2) of the Maharashtra Co-Operative Sicieties Act 1960, the Committee shall cease to function on the expiration of its term.
Sometime after expiration of tenure, the earlier Committee refuses to handover the charge of the records of the Society to the new Managing Committee in such cases the office bearers of the newly elected Committee may request the Chairman and Secretary of the outgoing committee to prepare the list of the inventories and to handover the same to the Chairman of the society.
The office bearers may also write to the Registrar of Co-operative Society. The Registrar may make the necessary inquires and may empower any person on his behalf to receive the charge of the records of the Society. On receipt of a written directive from the Registrar the Ex- Chairman should handover the records. If the Ex-Chairman does not comply with the abovesaid directive then on conviction he can be punished with simple imprisonment which may extend upto one month or with a fine or both.
The Registrar or person authorized by him may also apply to the Executive Magistrate within whose Jurisdiction the society is functioning for seeking and taking possession of the records and property of the society. If the Magistrate is satisfied that immediate action is required then he may authorize any Police Officer above the rank of Sub- Inspector to enter and search any place where the record and property are kept or likely to be kept and to seize them and handover the possession thereof to the Registrar or the person authorized by him as the case may be.

Whether Defaulter having right to vote?

nawaz — Wed, 19 Oct 2011 12:55:25 +0000

When member termed as a defaulter?
The member who fails to make required payment within the due date of bill, then he can be categorized as a defaulter. In such circumstances Society can also charge interest. It is important that there should be a demand upon the member by the society time to time by orally or by written notices.
Can a defaulter contest the election?
A defaulter can not contest the election. As per Bye-law No. 118 no person shall be eligible for being elected as a member of the Committee or co-opted on it, if he/she defaults the payment of dues to the society. A defaulter can propose a second candidate for the election.

How to recover the amount from defaulter?
If the defaulter does not respond to the request made by the society then the society obviously does not have any other alternative but to recover the dues from the defaulting member. The enquiry fees and court fees stamps have to be paid on the amount of claim as made out against the defaulting member.
What is the procedure to recover the amount from defaulter?
Before going with the procedure under section 101 of Maharashtra Co-Operative Societies Act, 1960 the Office bearer should try to discuss out the issue with the defaulters. Even after the discussion the defaulters do not wish to pay the dues then the office bearers should issue notice for recovery of dues, Inspite of the same if the defaulters do no pay the dues than a suit can be filled before the Asstt. Registrar/ Deputy Registrar u/s. 101 for recovery of dues.
The procedures for recovery of dues are as under:-
1. The Society should issue a notice to defaulting member with giving him an opportunity to make payment of dues within the period mentioned in the notice.
2. The Managing Committee has to pass a resolution for talking action under section 101 of the Act and to recover the dues in the Meeting.
3. The Hon. Secretary/ Chairman has to make an application to the Registrar along with all such other documents as are required to be submitted along with the application.

4. On receipt of such an application, the Registrar would give a hearing to the defaulting member/s and after verification of the records if the Registrar is satisfied about the dues, a certificate will be issued by him to the society, as he may deem fit. The notice to be issued after proper inquiry by the Registrar or such other officer who exercise the powers under Sec. 101 of this Act. If no such inquiry is made prior to the granting of such a recovery certificate granted is liable to be quashed.

5. On receipt of the certificate, the Recovery officer send demand notice to the sales officer for sale of the movable property of the defaulting member.

6. The sale officer, on receipt of the recovery papers visits the flat of the members.

7. If the amount is not paid, the Sale Officer will seize the movable property as per the inventory and hand it over to the Chairman/ Secretary or any other person for safe custody.

8. The sale officer will then fix the date, time and place for auction of the movable property seized. The same will be auctioned and the proceeds of the sale will be given to the society, in satisfaction of the dues outstanding against the defaulting member.

Misconduct by office bearers:-
Sometimes office bearers disconnect essential services like electricity, water supply, etc., of defaulters, who refuse to pay the societies dues inspite of repeated requests. The office-bearers should not disconnect the essential supplies even there is disputes with defaulter. If the member refuse to pay the dues then society can recover by filing a suit under section 101 of Maharashtra Co-Operative Societies Act, 1960 against the defaulter. If office bearers disconnect essential services the aggrieved party (Defaulter) files a criminal complaint and if the person found guilty for disconnecting the essential service/s can be punished with imprisonment which can extent up to a period of three months and/or fine.

When Society can issue Duplicate share certificate?

nawaz — Wed, 19 Oct 2011 12:54:04 +0000

Share Certificate is one of the most important documents issued to the members of the Co-operative housing society. The member who has lost his Original Share Certificate should make an application to the Society with Indemnity bond stating that he has misplaced/ lost his Original Share Certificate. On receipt of the application the Secretary should call a Managing Committee Meeting for issuance of duplicate Share Certificate to the members. The member must agree to indemnify the society for all cost, expenses that with regards to the issue of a Duplicate Share Certificate. The member should also give an undertaking that he has not mortgage or pledged the Share Certificate with any financing agency. It is important that the society may invite objections by affixing a notice on the notice board of the society. If no objections are received within fifteen days from the date of affixing the notice on the notice board of the society then the society may proceed to issue a Duplicate Share Certificate. Sometime society should insist for a public notice for issuing Duplicate Share Certificate. The Society can charge to the member for issue of public notice before allotting a Duplicate Share Certificate.

Nescessity of M-20 Bond

nawaz — Wed, 19 Oct 2011 12:53:07 +0000

The Managing Committee members must execute bond after their appointment within 15 days of their assuming the office under the Maharashtra Co-operative Societies Act 1960. The provision is important because if the bond is not executed within 15 days of his assuming the office or if the member fails to execute the bond he shall be deemed to have vacated his office as a member of the Managing Committee.
Under the provisions of new Model Bye-laws no. 138 and after amendment Section 73(1AB) of the Maharashtra Co-operative Societies Act 1960 is reproduced below :
“The Members of the Committee shall be jointly and severally responsible for all the decisions taken by the committee during its term relating to the business of the society. The members of the committee shall be jointly and severally responsible for all the acts and ommissions detrimental to the interest of the society. Every such member shall execute a bond to that effect within fifteen days of his assuming the office, in the form as specified by the State Government by general or special order. The member who fails to execute such bond within the specified period shall be deemed to have vacated his office as a member of the committee.”
Under Rule 58-A of the Maharashtra Co-operative Societies Rules 1961 “The bond must be made as per the format of Form M-20 on Rs. 100 stamp paper purchased in the Society’s name.The expenditure on stamp paper shall be borne by the society. The Chief Executive Officer / secretary of the society shall receive such bonds and keep them on record of the society and accordingly inform the Registrar within Fifteen days from the formation of the Committee.”

Formation of Co-operative Housing Society

nawaz — Wed, 19 Oct 2011 12:50:42 +0000

By Adv. Vinod Sampat
a) Formation of Co-operative Housing Society
Practically every developer has to form a Co-operative Housing Society at one point of time or another. With the limited amount of options available with regard to management of the affairs of the building i.e. (a) Condominium (b) Private Limited Company and (c) Co-operative Society, (excluding the unrealistic rental housing), it will not be an exaggeration to state that in atleast 90% cases particularly in Mumbai the Promoters and/or the Builders have formed a Co-operative Housing Society. The basic requirements for Registration of Co-operative Housing Society normally is not known to the flat purchasers. It is here that apart from the statutory obligations cast upon the builder, the builder as a friend, philosopher and guide of promoters helps in forming a Co-operative Housing Society.
There are basically four types of Co-operative Housing Societies connected with the housing.
(a) Open Plot Societies
(b) Flat Owners Societies
(c) Tenant Societies
(d) Housing Board Societies.
In Open Plot Societies, members purchase or take one lease a plot of land and themselves construct the building. Due to bureaucratic formalities and lack of specialised knowledge, a few societies are formed under the head of open Plot Societies. When a builder constructs flats and sells them to Flat Owners, the Society when formed is called Flat Owner’s Society. When Landlord forms a Society of tenants, it is called Tenants Society. When a Society is formed by Allottees of flats and building is constructed by the Housing Board Authorities, i.e. Mumbai Housing and Development Board, then the Society so formed is of the type of Housing Board Society. The procedure that should be followed for formation of societies of the above said types is different for different types of Societies. Members who wish to form Co-operative Housing Societies are generally ignorant of the procedural aspects and as a result of the same they have to run from place to place and get entangled in bureaucratic delays.
The procedure for Registration of a society begins with electing a Chief Promoter in a meeting of the Promoter. The builder under the Flat Owners type of co-operative society has the first right to act as the chief promoter. The developer/flat purchasers should call for a meeting of the Promoters by issuing the notice under Agenda of the meeting given at least 14 days notice to the Promoters. In this meeting, a Chief Promoter is elected who can exercise such powers and carry out such functions as are mentioned in the minutes of the Promoters of the proposed Co-operative Society. After electing the Chief Promoter, the proposed name of the society has to be decided by the Promoters.
Normally, the name reservation proposal should be accompanied with the signature of atleast 10 Promoters who have attended the meeting. It is a common belief that the Society should consist of atleast 10 members. If the number is less than 10 then special permission from Governmetn has to be taken. In such cases, the garages/car parking may be allotted to other relatives of the promoter to reach number of 10. It would be of interest to note that the model byelaws define flat as a ‘Flat means a separate set and self-contained set of premises used or intended to be used or intended to be used for residence, or office or show-room, or shop, or godown and includes a garage, or dispensary, or consulting room, or clinic, or flour mill, the premises forming part of a building and includes an apartment’. On allotment of name and permission to open a bank account by the Registrar, the Chief Promoter has to collect Share Capital, Entrance Fees from promoters and deposit the same in the branch of the bank permitted by the Registrar. It should be noted that the amount cannot be withdrawn from the Bank till the Society is Registered or its Registration is refused, except with prior written permission of the Registrar. The Chief Promoter should submit Registration Proposal to the Registering Authority within a period of 3 months from the date of issue of Letter of Reservation in the name of the proposed Society. The documents that are normally to be submitted to the Registering Authorities are as under :-
1. Application for registration of Society in Form A along with Statement A. Enclosure to application for Registration as per Rule 4(1) of Maharashtra Co-operative Societies Rules, 1961.
2. Information about proposed society in Statement ‘B’ (vide Govt. Circular dated 2-5-1980).
3. Information about promoter members of the proposed society in Statement ‘C’ (vide Govt. Circular dt. 2-5-1980).
4. A Statement of Accounts as per Form D.
5. Model Bye-laws.
6. Bank Balance Certificate.
7. R.B.I. / Treasury Challan for payment of Registration Fee of Rs. 500/-.
8. Title Clearance Certificate from an Advocate
9. A true copy of the approved Building Plan.
10. Letter of Authority Granting permission to commence construction work/Completion Certificate (if applicable).
11. Affidavit on Rs. 20/- Stamp Paper from atleast 10 promoter members to the effect that they are residing in the area of operation of the Society (Proposed), made before a Competent Authority.
12. Affidavit from the Chief Promoter on Stamp Paper of Rs. 20/- executed before the Competent Authority in form ‘Y’.
13. Certified True Copy of agreement made on Stamp paper and registered between the builder, promoter and purchasers of flat.
14. Where the promoter members are firms/ companies, a letter of authority from such firms/companies authorising the promoter to sign on behalf of firm/company.
15. In case of such proposed societies, names of 60% of the flat holders of the total number of flats constructed or proposed to be constructed as per the plan approved, must be included in Statement ‘A’ to be attached to the Registration Proposal.
It is the duty of the Registrar to register the society and on registration of the society it becomes a separate legal entity. Thereafter, the management of the affairs of the society is carried out by the managing committee which is elected by the general body meeting of the society. It may be of interest to note that in a co-operative society the principle is one member one vote. In a co-operative society the right to be exercised in the general body meeting is a personal right. This is one of the reasons why even a person holding a power of attorney cannot attend the general body meeting of the society. THE quantum of the capital being introduced by the member is not of much importance. Preference should be given for formation of a private limited company if one member propose to acquire majority of the flats in the building.
b) Stamp duty
Present rates of stamp duty for residential premises in the city of Mumbai are RS. 38,750/- on Rs. 10,00,000/-. Thereafter it is @ 8% for the additional value. The rate of stamp duty for shops/Galas/office Premises and Garage even if used for car parking is 10% in Mumbai Stamp duty has to be paid on the agreement Value or the market value of the property whichever is higher. Stamp duty has to be paid every time the flat is being sold. Stamp duty has to be paid even if it is a transfer within family. If the authorities are demanding more stamp duty than the agreement value then a representation should be made to the authorities emphasising the below mentioned points (as may be applicable)
(a) Possession of the premises will be acquired at a later date. (10% reduction in the market value is normally given by the town planners if possession is not given to the purchaser at the time of execution of the agreement)
(b) The duty has to paid on built up are and not super built up area.
(c) If payments have been made in say 1995 and the agreement has been executed in 1998 then the market value of the year 1995 has to be taken as per the principles of Land Acquisition Act.
(d) There are reductions in the market value if the size of the shop is big.
(e) The area is lacking in infrastructural facilities.
(f) There is a defect in the title of the property and therefore, market value will also be reduced.
(g) The officer should be told to inspect the premises and the only the market value should be fixed.
Inspite of a fall in the property prices in the last few years the market value as mentioned in ready reckoner by government has increased by more than 50%. Earlier, for old buildings, land plus construction cost method of valuation was followed by many officers. On account of the different systems of valuations the stamp duty liability could differ substantially as can be seen from the following example.
As per land plus construction cost system of valuation for a commercial property in a building which is six years old situated at A-ward Sr. No. 4(a) (i.e. Madam Cama Road) the market value would be (land cost Rs. 4,200 + 50% Rs. 2,100/- for commercial and Rs. 250/- for construction) Rs. 6,550/-. However as per another system the same would work out for the same year to (Rs. 14,000/- less 20% depreciation) Rs. 11,200/-. For the same premises for the year 1998 the market value would be (Rs. 28,750/- less depreciation 5%) Rs. 27,312/-. Presently, land plus construction cost system of valuation has been stopped. Secondly the market value per sq.foot has been increased and thirdly the quantum of depreciation given for old buildings has been reduced thereby.
At times, it is advisable to file an appeal. The benefit of filing an appeal as per the provisions of the Bombay Stamp Act 1958 is that as of date one can file an appeal without paying any amount as stamp duty. Only a sum of Rs. 300/- has to be paid as appeal fees. The recurring amnesty schemes being introduced by the government helps the duty payers in paying the amount at a later date. As of date the penalty irrespective of the period of default is just 2% per month till the time the appeal has been finalised. The prevailing market value for the year 1999 as is being planned for the city of Mumbai is almost same as in 1998. Marginal relief is given in some of the suburban areas. The recovery figures from stamp duty and registration for the last few years for the state of Maharashtra are as under :
Year Amount in Crores
1990-91 293.93
1990-92 363.56
1990-93 478.12
1990-94 613.08
1990-95 1,157.60
1990-96 1,239.97
1990-97 1,305.17
1990-98 1,658.53
c) Registration of Documents
d) There is a proposal to simplify the Indian Stamp Act & the Indian Registration Act. With the introduction of computers in the stamp offices, the recovery notices are being received faster b the stamp duty payers. AS per section 17 of the Indian Registration Act 1908, if the value of immovable property exceeds RS. 100/- if subject to the exemptions if any right is proposed to be created or extinguished then the instrument has got to be compulsorily registered. The documents has to be registered. The documents has to be registered within a period of fours months from the date of its execution. The parties can go to the office of the Joint Sub-Registrar individually /collectively to register the document. If for certain reasons the parties cannot attend the office of the sub- Registrar within a period of the four months then in such cases the parties can execute a deed of confirmation and complete the registration formalities. The parties should carry their voter card/ passport along with the Alternately, they will have to ensure that two witnesses accompany the. Th registration fee is 1% of the market value of property or Rs. 20,000/- whichever is less. If the value of the document exceeds Rs. 5,00,000/- and the possession has been parted then in such cases the Joint Sub-Registrar can insist for Income Tax Clearance Certificate of the Vendors. It may be emphasised that the courts have held that if the confirming Party has not received financial consideration then in such circumstances the income Tax Clearance Certificate of the Confirming Party cannot be insisted upon by the Joint Sub-registrar. The reasons for the parties not getting back their original documents are
(a) not paying the stamp duty on market value of property
(b) not submitting the Income Tax Clearance Certificate
(c) not submitting the ULC Clearance and
(d) one of the parties not going to the Sub-Registrar’s office to register the document.
After completion of the abovesaid formalities the documents gets indexed. Earlier after indexing the documents used to go to Pune for microcilming. Now the documents are handed over much faster. As per the government guidelines, if all the formalities are completed then the documents should be returned to the parties as far as possible within a period of fifteen days. As far as possible the parties should insist for the certified true copy of the document. THE same is available on payment of a nominal fee after the document has been indexed. It may be of interest to note that the parties can register as many copies of the agreement as they desire with the Joint Sub-Registrar. The documents have to be registered with the Joint Sub-Registrar of Assurances in whose jurisdiction the property is situated. If there is a document for exchange of property then the document can be registered with any of the Joint Sub-Registrars who is entitled to register the document. Apart from the same, for a property situated anywhere in India the same can be registered at any of the four metro offices (i.e., Bombay, Delhi, Calcutta and Madras) of the Joint Sub-Registrar. If a Joint Sub-Registrar refuses to register the documents then the aggrieved party has a right to appeal against such a decision. If one of the parties has not remained present for registration then the aggrieved party can request the Joint Sub-Registrar to issue a summons to ensure that the party attends the Joint Sub-Registrar’s office.
A question that is regularly asked by the person purchasing the property is what is the time limit within which the authorities can recover stamp duty. If an individual had paid the adjudication fee and also paid stamp duty as demanded by the stamp authorities, whether the same is binding upon the department? Well, as per the provisions of the stamp Act even if an individual had adjudicated the document and had also paid the stamp duty as demanded by the authorities then also as per section 53 A, the said matter could be reopened by the authorities within a period of six years. If one has lodged the document for registration without getting the same adjudicated then the authorities can reopen the same at any point of time. As per law as it stands today as per section 32A(5) of the Bombay Stamp act 1958, the time lag is eight years since the date of indexing.
e) Stamp paper
As per the amendment of section 34 of the Bombay Stamp Act 1958, the stamp paper should be in the name of one of the parties executing the document.

Tenancy Rights

nawaz — Wed, 19 Oct 2011 12:48:55 +0000

NON – Taxability of surrender of tenancy rights prior to 1-4-94
By Vimal Punmiya, Chartered Accountant

The issue regarding taxability/non-taxability of surrender of Tenancy rights is giving sleepless nights to millions of Tenants, especially in city like Mumbai where Pugree system is in great vogue.
The decision of the Special Bench constituted by the Bombay Tribunal in the case of Cadell Wvg. Mill Co. (P) Ltd. V/s. ACIT reported in (1995) 55 ITD 137 (Bom.) sent shocking waves to millions where in the Tribunal had taken stand that the amount received on surrender of tenancy right was casual income and taxable and that only where permission was granted to the tenant at any time by the Landlord under the terms of the contractual tenancy or where any permission to sub-lease was obtained by the tenant from the Landlord, the surrender of tenancy rights even by the statutory tenant is a valid transfer of capital asset.

Recently on similar facts and issues the Special Bench constituted under the Delhi Tribunal in the case
The amount received on surrender of Tenancy rights is a Capital Receipt.
It can be charged to tax only under Capital Gains.

But chargeability failed because of the decision of the Apex Court in the case of BC Srinivas Shetty reported in 128 ITR 294/5 Taxman 1(c) provisions cannot be applied was regarded as never intended by section 45 to be subject of charge.

That the amendment made in section 55(2) by the Finance Act 1994 taxing the receipts as Capital Gains was only prospective in operation.

For arriving at the aforesaid decision the Delhi Court decision and distinguished the issues with the High Court which have taken a contrary view.

In order to treat the receipts as Capital receipts reliance was placed in the case of BAWA SHIV Charan Singh V/s. CIT (1984) 149 ITR 29 (Delhi) where it was held Property is a term of widest import and it signifies every possible interest which a person can acquire, hold and enjoy. Tenancy right is a Capital Asset. When the interest of the Lessor is a parted with, the price paid would be premium or salami, but the periodical payments by the lessee for continous enjoyment of the benefits under the lease are in the nature of rent, the former is a capital receipt the letter a revenue receipt.

The apex court in Universal Radiators V/s. CIT (1993) 201 ITR 800 /68 Taxmann 45 (SC) has held that the eligibility to tax is different from liability to pay tax. Since the amount falls within the ambit of eligibility to tax the same is outside the purview of exempt income. The Allahabad Court in Smt. Anand Bala Bhusan V/s. Cit (1995) 83 Taxmann 548 (all.) has stated that Section 10(3) applies to casual and non-recurring income which are not chargeable U/s. 45 of the Act. The term All receipts in Section 10(3) cannot enlarge the scope of Section 10(3). Similarly the Delhi High Court has distinguished the decision of the Bombay Tribunal is Cadell wvg. Case stating that the said case was rendered with reference to the provision of the Bombay Rents, Hotels, Lodging House Rates Control Act, 1947. Section 12 thereof only entitled the statutory tenant to continue to be in possession till standard rent or permitted increase are paid. Therefore, the statutory tenant did not have an estate or interest capable of being transferred placing reliance in the case of Anan Niwas P.Ltd. V/s. Anandji Kalyanji pedhi AIR 1979 SC 144. The said Section of the Bombay Act entitlked statutory tenant to continue to be in possession till standard rent or permitted increases are paid, nothing further whereas under DRC Act, rights of a statutory tenant were held to be heritable.

The Delhi Tribunal has also held that the decision of the Allahabad High Court in CULABCHANDS case reported in 192 ITR 495 wherein it was held the receipts were of casual and non-recurring nature and provisions of section 10(3) are applicable is not correct because the said decision is revered by the Calcutta High Court in B.K. Roy (P) Ltd. V/s. CIT (1997) 211 ITR 500, Karnataka High Court in Joy ICW Creams (Bang.) P.Ltd and Cadell Wvg, Mills Coo. Pvt. Ltd. (Bom. Tribunal) also the same Allahabad High Court on similar facts in the case of Smt. Anand Bala Bhushan V/s. CIT (1995) 83 Taxmann 548 (all.) head held that the receipts of compensation was nto of the nature of ordinary income and, therefore, the question of treating the same as a casual receipt for the purposes of income tax did not arise.
The Delhi Tribunal has stated that under the Delhi Rent Control Act a tenant even after the determination of the tenantncy continues to have an interest in the tenanted premises as held in SMT. Gian Devi Anand V/s. Jeevan Kumar AIR 1985 SC 796.

Further under the following cases :

Surrender of tenancy rights in a premises for ownership rights in another premises does not constitute a transfer :

(1991) 192 ITR 382 (S.C.) A. Basper

(1984) 148 ITR 99 (Bom) Nila Products

(1981) 129 ITR 448 (Bom.) Mrs. Shirinbai P.Pundole

(1979) 117 ITR 581 (Cal.) A. Gasper

In view of the decision of the Delhi Tribunal I am of the view that on representations made the Bombay Tribunal may reconsider or review its decision because if section 5(3) of DRC Act prohibits the tenant from claiming or receiving payment in consideration of relinquishment transfer or assignment of his tenancy, and section 48(1)(b) of DRC Act prescribes penalty for contravention of the provisions of Section 5 of DRC Act the similar provisions are also available in the Bombay Rent Act and even under the Bombay Rent Act a tenant continues to have an interest in the tenanted premises.

Bye-Laws of the society

nawaz — Wed, 19 Oct 2011 12:46:24 +0000

By Chhaya Dhuri
“Bye-laws”:- means bye-laws registered under the Maharashtra Societies Act, 1960 for the time being in force and includes registered amendments of such bye-laws.
The bye-laws are meant for internal management of the society. The bye-laws of the society must be registered by the Registrar and it is binding on the society with the procedure. If the office bearers commits a breach of it on the ground that they were following a certain practice in the previous year and the society does not want to follow the new procedure prescribed by the bye-laws. It is necessary to change the procedure as earlier as possible the office bearers must take a step to amend it after passing and obtaining sanction of the Registrar.
Amendment of Bye- laws of the society:
It is the right of the Society to amend as well as to frame new bye-laws. However, any bye-laws that is proposed to be amended or is to be framed should not be against the provisions of the Maharashtra Co-Operative Societies Act, 1960 or Maharashtra Co-Operative Societies Rules, 1961.
As per the section 13 of the said Act no amendment of the bye-laws of a society shall be valid until registered. Every application for registration of an amendment of bye-laws shall be disposed of by the Registrar within a period of two months from the date of its receipt.
Procedure for amendment of Bye- laws:-
The Bye-laws of the Society can be amended by passing the Resolution in the General Body Meeting. The procedure is as under:-
a)The Resolution for amendment must be passed by 2/3 members who are present in the meeting.
b)The Resolution must be submitted to the Office of the Registrar within two months from the date of the meeting.
c)Following documents required at the time of application:
i.Copy of the relevant Bye-laws with the amendment/s proposed to be made in pursuance of the resolution together with reasons justifying the amendment.
ii.Four copies of the text of the Bye-laws as it will stand after amendment/s is/are signed by the office bearers duly authorized by the Managing Committee of the Society.
iii.A copy of the notice given to the members of the Society for the proposal to amend the Bye-laws.
d)On receipt of the above said information/s the Registrar shall normally dispose off the application within two months from the date of the receipt of the Application. If the Registrar is of the opinion that the proposed amendment may be accepted subject to any modification then he may suggest the modification to the Society. It may be emphasized that it is at the discretion of the Registrar to approve the amendment.
Power to direct amendment of bye-laws:
As per the Section 14 of the Maharashtra Co-Operative Societies Act, 1960,
1.If it appears to the Registrar that an amendment of the bye-laws of the society is necessary or desirable in the interest of such society, he may call upon the society, in the manner prescribed, to make the amendment within such time as he may specify.
2.If the society fails to make the amendment within the time specified, the Registrar may, after giving the society an opportunity of being heard and after consulting such State federal society as may be notified by the State Government, register such amendment and issue to the society a copy of such amendment and issue to the society a copy of such amendment certified by him. With the effect from the date of the registration of the amendment in the manner aforesaid, the bye-laws shall be deemed to have been duly amended accordingly; and the bye-laws as amended shall, subject to appeal (if any), binding on the society and its members.

Administrator appointed by Registrar

nawaz — Wed, 19 Oct 2011 12:42:02 +0000

The Act provides that every society has to maintain record/documents and accounts for smooth working of the society. There are different issues of disputes arises in every society between Managing Committee and members. It is advisable to solve the disputes amongst the members only and not to hand over the management of the society to the administrator. Sometime none of the members are interested in doing the administrative work then the society should employ a paid employee as a Administrator. The major decision should be taken by members themselves. When the management of the society is not functioning as per the provisions of the Maharashtra Co-Operative Societies Act, 1960 , Maharashtra Co-Operative Societies Rules, 1961 and the Bye –Laws of the Societies, then in such cases the Registrar has the discretion to appoint an administrator to carry out the management of the Society.
The Managing Committee is responsible to maintain smooth functions of the society. If any member aggrived by the Managing Committee for inspection of any document or record of the society can file an application to the Registrar. If Registrar satisfied that the record of the society is not maintain properly then the administrator is appointed normally for a period of six months. The administrator enjoys all the powers of the Managing Committee. He is also entitled to call a Special General Body Meeting to reconsider the decisions of the earlier Committee.
The remuneration of the administrator is fixed by the Registrar. At the end of the tenure of six months the administrator should hand over the charge either to another administrator if directed by the registrar or he should conduct an election and hand over the charge to the new Managing Committee. All acts done by the administrator in good faith are binding on the society irrespective of the amount of the expenses incurred by the administrator.

Registration of Society with less than 10 Promoters

Staff Reporter — Fri, 14 Oct 2011 07:44:33 +0000

By Advocate Chhaya Dhuri

Law Editor

The condition for the registration of Co-operative Society is that no society can be registered under the provisions of Section 6 (1) of the Maharashtra Co-Operative Societies Act, 1960. Normally minimum 60% of the flat purchasers/ promoters are required to join and sign the registration proposal if building is constructed by builder/developer.

Sometime in Co-operative Housing Society having less persons/ purchasers in such casses at least 10 persons/purchasers (each of such person being a member of a different family), who are qualified to be members under the Maharashtra Co-Operative Societies Act, 1960 and who reside in the area of operation of the society.

There are some provision in the Bye-laws that the number of members in the society should not exceed the number of flats. Sometimes a situation may arise when a building consist of less than 10 flats in such cases the registration becomes difficult. The Promoters, however, prefer only a Co-Operative Housing Society for the management of the property to any other form of Organization.

The Agricultural and Co-Operation Department of Government of Maharashtra by its Circular No. CHS-1094-/C R 277/14-C dated 10/03/1995 has laid down criteria for exempting Co-Operative Housing Societies from the operation of the condition of having minimum 10 persons for the purpose of registration.

Under section 7 of the Maharashtra Co-Operative Societies Act, 1960 it empowers the State Government to exempt any society or class of Societies, by general or special order from any of the requirment of the Maharashtra Co-Operative Societies Act, 1960 as to registration, subject to such conditions, if any, as it may impose. This section enables the State Government to allow registration of a Co-operative Housing Society with less than 10 promoters.

Conditions for registration of Society with less than 10 Promoters:-

That an Architect gives a certificate that the entire F.S.I. has been exhausted and no further construction is possible and that the carpet area of no flat in the building exceeds 700 sq.ft.
There should not be balance F.S.I