Posts Tagged ‘non-occupancy charges’

‘Society redevelopments do not attract Sec 50C’

Does Section 50C apply to the redevelopment project of a society in view of the recent tribunal decision? Should TDR be purchased in the name of the society? How can the taxation problems be addressed?
—B Manohar
Society redevelopment projects should not attract provisions of Section 50C of the Income Tax Act, 1961, notwithstanding the recent decision of the Income Tax Appellate Tribunal, Mumbai.
One is required to bring out clearly the relevant construction laws, property laws, limited scope of the provisions contained in Section 50C and the issue that only development rights are being transferred.
It is submitted that society redevelopments do not attract provisions of Section 50C as they deal with transfer of land or building, or both, whereas in redevelopments, there is a transfer of development rights only.

Transferable development rights (TDR) purchased in the name of the society would definitely augur well from a safety point of view, but care should be taken to ensure that before vacating the flats, the development right certificate is loaded in the name of the society in the records of the municipal authorities and stamp duty requirements are complied with, as otherwise, the society would face problems at a later stage. Loading of TDR will be subject to Development Control Regulations.
Taxation problems would have to be addressed while documenting the transaction only, as afterwards it would become only a post mortem exercise. From an income-tax point of view, it would be desirable that the taxable entity is an individual rather than the society. This would also reinforce the property rights of the individual members and their locus standi to take up the issues on their own. Documentation should provide protection to the society and the members against service tax and value added tax. Income-tax returns of the society must be filed disclosing complete particulars and bringing out the claim of tax-free incomes in the hands of the society as well as the individual members.

 

Property laws and taxes: Individual agreements necessary in redevelopment

We have entered into redevelopment agreement between the society and developer. We, as the members want individual agreements also but the society has taken a stand that members have only right to occupancy and agreement with the society is sufficient. Can we enforce our right to individual agreements?
– Pramod Bhasin
In the process of redevelopment, execution of individual agreements in respect of each member giving complete description or details of his entitlement to new flat under the scheme of redevelopment is absolutely necessary. Such an agreement will become the member’s title document in respect of the new flat. Such a document would also create a locus standi for enforcement of individual member’s rights.
The view that a member in a co-operative housing society has only right of occupancy is itself a questionable view. De facto, a member is the owner of his flat and his property rights are valuable. In fact, the entire scheme of redevelopment should recognise members as the owners of the property standing in the name of the society.

Such a stand would give proper recognition to the property rights of the members and would also enable in contending that the member being a taxable entity would be entitled to various exemption benefits under Income Tax Act, 1961 available to an individual.

In the context of income tax, as of today, some societies have succeeded in claiming up to tribunal level that on the theory of no cost, no capital gains, their transactions under the development agreements in respect of transferable development rights are not taxable, whereas, some societies have been taxed depending upon structure of the scheme and documentation.

However, all these cases have reached and have been admitted at high court. If the high court confirms the view that transaction of transferable development rights is per se not taxable on application of the principle of no cost, no capital gains.

However, in a possible adverse view that no cost, no capital gains theory is not applicable to such transactions, tax will become payable and if tax becomes payable, the cases in which individual members are the taxable entities will be far better placed than the cases in which societies are held as taxable entities because of various exemption benefits available to an individual.

I have purchased a flat in a cooperative society and due to some disputes, the society is not transferring the same in my name and has been charging non-occupancy charges. What is your opinion on this?
—V Ramprasad
A bonafide purchaser of a flat in a cooperative housing society cannot be levied with non-occupancy charges simply because of any reasons whatsoever, he has not been admitted as a member of the society.

Unstamped document no barrier to redevelopment benefit

My flat was bought by my late husband before December 10, 1985, under an agreement to sell on a stamp paper of Rs5.
Can the society general body meeting delegate power of appointment of statutory auditor to its managing committee?
—Ratan Verma
No. The powers and functions or the agenda prescribed for the annual general meeting or special general meeting under the provisions of the Maharashtra Co-operative Societies Act, 1960, or rules framed thereunder or in the bye laws of the society cannot be delegated to the managing committee or its office bearers and the members at the general body meeting would have to exercise or discharge the same.
My flat was bought by my late husband before December 10, 1985, under an agreement to sell on a stamp paper of Rs5. On his death, I, as a nominee, became member in the society. Now, the flat is going under redevelopment. Do I have to pay stamp duty on my earlier purchase to be eligible for a new flat under redevelopment? Can the society/ developer refuse to recognise my title to the existing flat on non-stamping of the document? —Anju Sharma
When your husband purchased the flat, that is before December 10, 1985, stamp duty on market valuation was not attracted on agreement to sell an immovable property.

Then after, the stamp law in Maharashtra was amended to provide that an agreement to sell an immovable property, in which possession of such property is transferred or agreed to be transferred, is deemed as conveyance and the stamp duty as applicable to conveyance of an immovable property is attracted. Consequently, your agreement to sell having been executed before such amendment was not liable to the stamp duty on market valuation of the flat.

By virtue of ownership of the flat, your husband was a member of the co-operative housing society. On his death, you, as a nominee, became member of the society. Subject to ownership rights being sorted out on the basis of testate or intestate succession upon the death of your husband, unstamped document before December 10, 1985, of your flat will not disentitle you to have new flat in the process of redevelopment envisaged by your society.

My flat is on leave and licence. Do I need to make licensee the nominal member of the co-operative housing society? —Ankita Rai
Model bye laws provide that a member letting the flat shall make the licensee a nominal member in the co-operative housing society. Such provision is also in your interest as once the licensee is made a nominal member, he also comes within the jurisdiction of co-operative authorities and the co-operative court. Nominal member’s name does not get entered on the share certificate and he is not entitled to any property rights whatsoever. Nominal member is not entitled to attend general body meetings of the society nor can he be a part of the managing committee.

Sale of your flat in a family would attract taxes and duties

A scheme of amalgamation is approved by a competent court in terms of exercise of jurisdiction under the Companies Act, 1956.
My brother wants to purchase my property at Thane and wants to avail a housing loan from a bank for such purchase. Will the sale attract capital gains tax? Do we have to take permission of the society for such family transaction? How do stamp duty and registration aspects apply to such a transaction? Will the bank grant a loan for such a transaction within the family?
— Ganesh
You are contemplating a property transaction within the family but absolutely on commercial terms and therefore all the implications under the provisions of the Bombay Stamp Act, 1958, under the Registration Act, 1908 and under the Income Tax Act, 1961 would apply as they apply to such transactions between outsiders.
The stamp duty would be attracted on the sale value stated by you in the agreement for sale or on ready reckoner value, whichever is higher. Although there is concession in respect of stamp duty on gift of an immovable property to a family member, there is no such concession on sale within the family. Registration charges would be attracted on value adopted and assessed or assessable for stamp duty purposes.

For income-tax purposes, to compute capital gains in your hands, the gross value of consideration would be the value as stated in the agreement for sale or the stamp valuation adopted and assessed or assessable, whichever is higher. However, the society transfer premium would not be attracted as the transfer is to a family member.

All forms applicable to a transfer would have to be filled in. The requirement of obtaining a no objection or an approval for transfer of flat in a co-operative housing society has been dispensed with under the model bye laws. The bank or financial institution generally advances loans on evaluation of the proposal based on value of the property and repayment capacity of the borrower over the term of the loan sought.

If the bank or financial institution is convinced on such aspects, then simply because it is a case of transaction within the family should not disentitle your brother to avail the loan.

Is stamp duty payable on transfer of immovable property in a scheme of amalgamation of companies under a court order?
A scheme of amalgamation is approved by a competent court in terms of exercise of jurisdiction under the Companies Act, 1956. Under such a scheme, the property is conveyed from one company to another.

An order of the court approving such a scheme to the extent it provides for conveyance of an immovable property would be subject to stamp duty under section 3 of the Indian Stamp Act, 1899. Statutory definition of the term “conveyance” u/s 2(10) of the Indian Stamp Act, 1899 is an inclusive definition of wide import.

 

Investment in a new house can be from any source

Can I adjust capital gain against purchase of the house? Will I get tax benefit of housing loan interest?
I have sold a depreciated factory and earned capital gain. The factory was owned by me since 1995. Before sale of the factory, I purchased a residential property out of bank loan and my accumulated savings. Can I adjust capital gain against purchase of the house? Will I get tax benefit of housing loan interest?
—Deven C
U/s 50 of the Income Tax Act, 1961, sale of a depreciated asset has given rise to deemed short-term capital gains in your hands. However, since the factory was held by you for more than 36 months and consequently it was a long-term capital asset in your hands, it was possible for you to invest net sale consideration in a residential house and claim exemption of such deemed short term capital gains.
Another issue arising in your query is that you have not used the sale proceeds of the factory for purchase of residential house. In this connection, you will have to submit before the income-tax authorities that for the purposes of section 54F, funds from any source including borrowed funds and accumulated savings can be utilised, as the said section does not specifically require that the sale proceeds be utilised for purchase of the house. At the same time, in your case, you should verify that you have purchased the house
within one year before transfer of factory and you may note that date of transfer for the purpose of the Income Tax Act may not always be the same as the date of sale agreement of the immovable property.

For interest payable on funds borrowed for acquisition of your house, you will be entitled to income tax benefit u/s 24(b) up to an amount of `1,50,000 per year in case the house is self-occupied, but if the house is rented or even notionally rented, the ceiling of `1,50,000 will not apply.

I had deposited a cheque with Rural Electrification Corporation for purchase of capital gains bonds on September 29, 2010 as I was required to invest within six months, expiring on September 30, 2010 after sale of my house. However, I was allotted bonds only on October 27, 2010. Will I get income-tax benefit?
—Toral Mehta
Section 54EC of the Income Tax Act, 1961 requires you to invest capital gains in capital bonds within 6 months of the date of transfer of a long-term capital asset. Under such benevolent provisions, your making the payment within the prescribed time limit would be a sufficient compliance to avail exemption, although legally, the date of allotment of the bonds is the date of acquisition and you will have to hold the bonds for a minimum three years from the date of allotment.

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