|CORAM:||Prafulla C. Pant J, Ranjan Gogoi J|
|SECTION(S):||28, 4, 45, 48, 56|
|CATCH WORDS:||capital vs. revenue receipt, mutuality|
|DATE:||August 9, 2016 (Date of pronouncement)|
|DATE:||September 21, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Refundable deposits received by a housing company for allotment of flats and future maintenance is business income. However, share capital received for allotment of flats is a capital receipt and not income. The principles of mutuality does not apply to such transactions|
The Karnataka High Court held, following Shree Nirmal Commercial vs. CIT 193 ITR 694 (Bom) and 213 ITR 361 (FB), that share capital and refundable deposits received by a housing company from its shareholders in consideration of allotting area to them is assessable as business profits. It was also held that the principles of mutuality are not applicable. It was also held that deposits received from the shareholders for future maintenance is assessable as business income. On appeal to the Supreme Court HELD:
After hearing the leaned counsels for the parties and perusing the relevant material, we modify the order of the High Court by holding that the amount (Rs.45,84,000/-) on account of share capital received from the various share-holders ought not to have been treated as business income. The High Court, therefore, in our considered view, fell into error in reversing the order of the Tribunal on the aforesaid issue. Insofar as the issue of short term capital gains with respect to property T1 and T2 and maintenance deposit is concerned, we do not find any infirmity in the order of the High Court so as to require any modification.
Quite unclear,-but prima facie there is a grave doubt,- whether the referred ‘housing company’ is a ‘company’ formed and registered strictly in accordance with the special state enactments governing construction and sale of the ‘units'(Flats/Apartments)of a housing project.
However,it is more than obvious, the courts (HC and SC) have not been addressed on the governing law and the peculiar characteristics of such properties, hence not considered it necessary to take those into account.
For more, anyone concerned, if so inspired, may usefully look up the host of material available in public domain,so also the case law on the foregoing aspects-either dealt with or similarly omitted to be done.
Incidentally,those could be of relevance in the context of the ongoing serious discussions in the matter of present levies of VAT and Service Tax , or Service Tax under the new GST Code,on the property of the kind if were under construction.
Instantly, as is remembered, a couple of instances in which the above indicated legal implications happen to have been considered; one is the SC Judgment in Hill Properties’ case.