Queries By The Members

Solution From The Desk Of Mr. Umesh Bhat (FCA) 

Query 1 : A person wants to invest in the property .The society is willing to admit the person as a member.  In the next few months the property  is going to be redeveloped. Whether the person will be liable  to pay any Income tax on the amount received by him from the developer?

Solution: 

First issue is whether on facts of case, capital gains tax arises or not. Here if the development rights as arising from right to TDR are passed on to the developer, in most of the cases, the income tax liability should  not arise. Structure of the transaction and documenting the same is very relevant here. Under this analogy obviously the tax would not arise and therefore who is the taxable entity is not an issue at all. Going ahead, if taxability arises, then whether the society is the taxable entity or the members, once again would have basis upon the  manner in which the transaction is structured, carried through and documented. On facts of the case, each of the views is likely to succeed. If the member is considered as taxable entity, then in your case the resultant capital gains would be the short term capital gains.

Query 2 : A Society is receiving the rent  from the Telephone Towers installed on the terrace of the society.  The society is paying the Income tax on the rental income as income from house property and filing the Income Tax Returns regularly. Now the Society wants to gift certain amount  to the members from the Income of the Society. Can the society  do the same?

 Solution:

In strict sense gifting requires presence of natural love and affection. Under the bye laws also gifting by the society to members is not visualized. However, distribution as dividend is possible. Further by applying the  concept of mutuality one may argue that what is received by the society is received by the members and as the society has already paid tax on the impugned amount, once again the tax should not become payable on the same amount when distributed to members. As an abundant precaution, there   may  be better and more safe ways of giving benefits to the members.