ITAT Mumbai Sets Aside ₹2.28-Crore Capital Gains Tax On Housing Society For Developer Payments To Members
Pranav B Prem
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has set aside a ₹2.28 crore capital gains tax addition made against Colombia Co-operative Housing Society, holding that amounts paid by a developer directly to individual members pursuant to redevelopment cannot be taxed as income in the hands of the society. The Tribunal held that since the society itself never received the amount, it could not be subjected to capital gains tax on such payments.
A Bench comprising Judicial Member Sandeep Gosain and Accountant Member Girish Agrawal observed that the only amount credited to the society’s bank account was ₹36 lakh, which represented a refundable security deposit related to parking facilities and not consideration for transfer of development rights or Floor Space Index (FSI).
The assessee, a co-operative housing society registered under the Maharashtra Co-operative Societies Act, 1960, had entered into a development agreement in 2002 with a developer to utilise additional FSI made available following amendments to the Development Control Rules, 1991. Under this arrangement, the developer was permitted to carry out additional construction using Transferable Development Rights (TDR).
A supplementary agreement was later executed in April 2014 for completion of the remaining construction. Pursuant to this agreement, the developer paid an aggregate amount of ₹2.28 crore directly to the 40 original members of the society as compensation for hardship, inconvenience and suffering arising from redevelopment activity. The supplementary agreement specifically recorded that the payments were to be made individually to the members.
The tax department reopened the assessment for Assessment Year 2015-16 and treated the ₹2.28 crore as long-term capital gains in the hands of the society, alleging that the payments to members were made at the society’s direction and therefore constituted consideration received by the society.
The Tribunal, however, found that the developer had paid the amount directly from its bank account to each of the 40 members by issuing individual cheques. It noted that the society’s bank statements did not reflect receipt of the ₹2.28 crore, and that the two credits of ₹18 lakh each received by the society were towards refundable security deposits relating to parking, not towards transfer of FSI.
The Bench held that the amounts paid to individual members for “damages, inconvenience and sufferings,” as described in the supplementary agreement, could not be treated as consideration received by the society. It further observed that the redevelopment benefits arose solely due to amendments in the Development Control Rules and that there was no cost of acquisition paid or ascertainable for the additional FSI or TDR.
Relying on settled law, the Tribunal held that where there is no cost of acquisition for a capital asset, the machinery provisions for computation of capital gains fail, rendering such receipts non-taxable under the head “capital gains.” The Bench also referred to precedents of the Bombay High Court holding that additional FSI arising from statutory changes cannot give rise to capital gains tax.
The Tribunal further relied on a 1969 CBDT circular clarifying that in tenant co-partnership housing societies, legal ownership vests in individual members and not in the society. It noted that in the present case, the members had already disclosed their respective shares of the redevelopment compensation in their individual income tax returns and claimed applicable exemptions.
The Bench observed that taxing the same amount again in the hands of the society would result in impermissible double taxation and was not legally sustainable. It also held that the Assessing Officer had erred in treating the society as an association of persons (AOP), despite it being a distinct co-operative society under law. In view of these findings, the ITAT partly allowed the appeal, deleted the capital gains addition of ₹2.28 crore, and directed that the assessee be assessed in the correct status of a co-operative society. The issue relating to deduction under Section 80P was remitted for limited verification, while the capital gains demand was quashed in entirety.
Case Title: Colombia Co-operative Housing Society Ltd. v. ITO
Case Number: ITA No. 4222/MUM/2025 A.Y. 2015-16
Coram: Judicial Member Sandeep Gosain, Accountant Member Girish Agrawal
