Capital gain taxed in hands of individual member cannot be taxed in society’s hand

Once capital gain taxed in hands of individual member of society, same cannot be taxed again in the hands of society

ABCAUS Case Law Citation
ABCAUS 3544 (2021) (08) ITAT

Important case law relied referred:
Corporation of India Ltd. – 187 ITR 688 (SC)
Mohinder Kaur Josh
Punjabi Coop House Building Society Ltd.

The ITAT in a recent judgment held that once capital gain taxed in hands of individual member of society, same cannot be taxed again in the hands of society. In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting the addition made by the Assessing Officer on account of long term capital gain.

The respondent assessee was a society. It filed its return of income declaring Nil income. 

The case was subject to scrutiny assessment and Notice u/s 143(2) was issued. On perusal of the detail filed by the assessee during the course of assessment proceedings, the Assessing Officer (AO) observed that assessee had escaped its liability to pay tax on long term capital gain arising out of sale on immovable property i.e.  land. 

On query, the assessee explained that the assessee society was merely acting as a facilitator and the capital gain on the sale of property was belonged to the individual members who were the real owners since the investment was made by those individual members.   

It was further submitted that the capital gain was fully disclosed in the return of income of the individual member and in the case of few members, the cases were selected for scrutiny and assessment were finalized u/s 143(3) of the Act.    

It was stated that in those cases, the Assessing Officer had accepted that the gain from the sale of land was rightly shown in the return of income by the individual members.

However, the AO did not agree with the submission of the assessee. The AO also stated that the copies of all the share certificates had not been submitted by the assessee for verification and the authenticity of share certificate was also doubtful.

The AO also pointed out that purchase deed was in the name of the assessee society and liability of tax payment lie in the society and not on the member.  

Therefore, the Assessing Officer treated the long term capital gain as taxable in the hands of the assessee society and added in its income.

However, the CIT(A) in view of the various case laws and In the light of the CBDT Circular No. 9 dated 25.03.1969 held that it was the individual members of the society  who were the real  owners and not  the  society  and  therefore  the  income ought to be included in the hands of the members of the society. Thus CIT(A) allowed the appeal of the assessee.

The Tribunal observed that members of the society had contributed funds for the purchase of the land.  The land was purchased by the society only after the introduction of the new members along with the old continuing members who were the real owners of the land. On sale of the land, the society had made distribution to the members in the proportion of the contribution made by the members at the time of the purchase of the land.

Further, the Tribunal opined that the genuineness of the member was established from filing of their income tax return and assessment made in some of the cases. The Assessing Officer has not brought on record any material which establish non-genuineness of the members of the society.   

The Tribunal noted that it was undisputed fact that all the members of the society were assessed to tax and in the case of the four members assessments have been made u/s. 143(3) of the Act, the capital gain shown by them in their return of income was duly accepted by the Assessing Officer, in all these four cases assessment were made in the jurisdiction of the same range wherein the case of the society was assessed.

The Tribunal held that under the circumstances, action of the Assessing Officer for taxing the long term capital gain arising on sale of land in the hands of the assessee society amounted to double taxation since the same had been taxed in the hands of individual members.

Accordingly, the Tribunal dismissed the appeal.

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