ITAT ruling likely to boost redevelopment of Mumbai

From now on, tax cannot be levied on the money paid by a builder to a housing society or private individual for redevelopment of property, the Income Tax Appellate Tribunal (ITAT) has said in a recent order. The verdict is expected to give a boost to the redevelopment business in Mumbai which has over 35,000 buildings slated for redevelopment.

The income-tax department has been sending notices to housing societies, which are in the process of redevelopment, demanding that tax be paid on the amount paid by the builder to the society.

New Shailaja Co-operative Housing Society, located in Ghatkopar (east) in Mumbai, which received such a notice, moved the ITAT after it failed to get a relief from the Com missioner (Appeal), the first appellate body on tax matters. The ITAT is the second appellate authority on tax issues.

With ITAT decision favouring the society, all property owners including housing societies and individuals embarking on redevelopment are likely to heave a sigh of relief.

“This order will be of immense help to those living in over 35,000 buildings in greater Mumbai, seeking redevelopment. This order gives a clarity on the issue of taxation in such cases,” Property Redevelopers’ Association’s chief spokesperson and general secretary Pujit Aggrawal said.

The tax demand on New Shailaja Co-operative Society was about Rs one crore. The Society’s 3 floor building was converted into a seven story building after the redevelopment.

Accepting the contentions of Tarun Ghia, the counsel appointed by New Shailaja Co-operative Housing Society for arguing its case before the ITAT, the Tribunal observed that Development Control Regulations vest the rights on the society to use TDR rights for additional construction. Even after the transfer of rights to additional FSI, the building and the land continue to belong to the housing society, Mr Ghia argued.

The Tribunal observed that before development agreement was struck, the society was the owner of the land and building and after the development was completed, the society continued to be the owner of the same land and building.

The society had sold the development rights to the developer but since development rights in this case had no “cost of acquisition”, there is no room for determining the capital gain, Mr Ghia argued.