The Income Tax Appellate Tribunal, Mumbai, has clarified that a cooperative housing society cannot be taxed on the notional value of a redevelopment agreement when no actual consideration has been received, no performance has occurred, and ownership of the property remains with individual members. This ruling reinforces the principle that tax liability arises only upon real economic benefit, not contractual stipulations.
Background & Facts
The Dispute
The dispute centers on whether the value of a redevelopment agreement entered into by Suraj Heights B Co. Op. Housing Society Limited (the assessee-society) with M/s. Concepts Infrastructure Consultants Private Limited (Sub-Developer) and M/s. Dattani Construction (Developer) constitutes taxable income in the hands of the society for the assessment year 2016-17. The Assessing Officer treated the agreement value of Rs. 11,38,67,000 as income under the head 'Income from Other Sources', despite no payment being received and no redevelopment having taken place.
Key Facts
- The assessee is a cooperative housing society registered under the Maharashtra State Cooperative Societies Act, 1960, formed exclusively for the maintenance of 35 residential flats owned by individual members.
- On 08.09.2015, the society entered into a redevelopment agreement with the Developer and Sub-Developer for demolition of the existing building and construction of a new structure.
- The agreement stipulated that the Developer and Sub-Developer would bear all demolition and construction costs, provide enhanced carpet area to each member, and offer temporary rental compensation during redevelopment.
- The agreement value of Rs. 11,38,67,000 was adopted solely for the purpose of calculating stamp duty, which was paid in the amount of Rs. 57 lakh.
- No payment of any kind was received by the society from the Developer or Sub-Developer.
- The society did not receive any additional flats, land, or consideration in return.
- The society submitted bank statements showing no inflow of funds related to the agreement.
- The society also submitted a legal notice dated 02.09.2024, sent to the Developer and Sub-Developer, seeking termination of the agreement due to non-performance and lack of municipal permits.
- The Sub-Developer responded to the legal notice.
- Repair work on the building (plaster, terrace, plumbing) was carried out between July 2023 and January 2024, funded by the society, with invoices submitted as evidence.
- The building was never handed over for demolition; no new construction occurred; members continued to occupy their flats.
Procedural History
- 08.09.2015: Redevelopment agreement executed between the society and the Developer/Sub-Developer.
- 26.04.2023: Notice under Section 148 issued by the Assessing Officer based on information from the Insight portal regarding registration of an immovable property transaction exceeding Rs. 30 lakh.
- 27.03.2024: Assessing Officer passed order under Sections 147, 144, and 144B, treating Rs. 11,38,67,000 as income of the society.
- 24.12.2025: Learned Commissioner of Income Tax (Appeals) deleted the addition, holding the agreement value as notional and not constituting real income.
- 13.05.2026: ITAT Mumbai dismissed the Revenue’s appeal, upholding the CIT(A)’s order.
The Parties' Positions
For the Assessee (Society): The society argued that it is not the owner of the flats or the land; ownership vests with individual members. The agreement value is merely a notional figure for stamp duty purposes. No payment was received, no redevelopment occurred, and the agreement was effectively abandoned due to lack of approvals. The society acted only as an administrative body.
For the Revenue (Income Tax Department): The Revenue contended that the society, as the legal owner of the land, derived a benefit from the redevelopment agreement. The payment of stamp duty on Rs. 11,38,67,000 proves enforceability. The society received substantial non-monetary benefits including enhanced amenities, savings on demolition/construction costs, and avoidance of temporary rental expenses. The absence of cancellation documents, the Revenue argued, renders the society’s claim of non-performance unsubstantiated.
Relief Sought
The Revenue sought to restore the addition of Rs. 11,38,67,000 as income in the hands of the society under the head 'Income from Other Sources'. The society sought dismissal of the appeal and confirmation of the CIT(A)’s order deleting the addition.
The Legal Issue
The central question was whether the notional agreement value of Rs. 11,38,67,000, adopted solely for stamp duty purposes and without any actual receipt, performance, or transfer of ownership to the cooperative housing society, can be treated as taxable income under the Income Tax Act, 1961.
Arguments Presented
For the Appellant (Revenue)
The Revenue relied on the principle that stamp duty payment on a registered agreement evidences enforceability and commercial reality. It argued that the society, as the legal owner of the land, benefited from the redevelopment by virtue of enhanced property value, avoidance of construction costs, and receipt of modern amenities. The Revenue contended that the burden of proving non-performance lay with the assessee, and since no formal cancellation document was produced, the agreement must be deemed operative. It cited CIT v. M/s. Sardar Sarovar Narmada Nigam Ltd. to argue that benefit in kind constitutes income.
For the Respondent (Assessee-Society)
The society relied on the fact that it is a representative body with no ownership interest in the flats. It submitted that the agreement value was a mere accounting figure for stamp duty, not a consideration. It produced bank statements showing no inflow, legal notice of termination, and evidence of self-funded repairs. It relied on the precedent in ITO v. Lotia Court Co-op Housing Society Ltd. (2009) 27 SOT 36 (Mum) (URO), where the Tribunal held that a cooperative society cannot be taxed on TDR-related receipts when it is not the owner of the property and receives no benefit.
The Court's Analysis
The Tribunal emphasized that tax liability under the Income Tax Act arises only upon accrual or receipt of income. The mere existence of a registered agreement, even with stamp duty payment, does not by itself create taxable income. The Tribunal noted that the society had no ownership over the flats, and the redevelopment was intended to benefit individual members, not the society.
"The assessee is merely a Cooperative Housing Society and was not the owner of any of the flats in the building."
The Tribunal found that the Rs. 11,38,67,000 figure was a notional valuation for stamp duty purposes, not a consideration received. No payment was made, no possession was transferred, and no construction occurred. The society’s submission of a legal notice seeking termination, coupled with the Sub-Developer’s response and the continued occupation of flats by members, established non-performance.
The Tribunal further held that the Revenue’s reliance on the absence of a cancellation document was misplaced. The burden of proving income lies with the Revenue, and mere suspicion or assumption cannot substitute for evidence of actual benefit. The Tribunal distinguished the facts from cases involving transfer of development rights or sale of land, where the assessee is the owner and receives direct consideration.
It explicitly adopted the reasoning in Lotia Court Co-op Housing Society Ltd., affirming that a cooperative housing society acting as a representative body for its members cannot be taxed on transactions that directly benefit the individual flat owners, especially when no income flows to the society.
The Verdict
The Revenue’s appeal was dismissed. The Tribunal upheld the order of the learned CIT(A) dated 24.12.2025, deleting the addition of Rs. 11,38,67,000. The Tribunal confirmed that the notional agreement value, without actual receipt, performance, or transfer of ownership to the society, does not constitute taxable income. No costs were awarded.
What This Means For Similar Cases
Notional Agreement Values Are Not Taxable Without Realization
- Practitioners must argue that stamp duty valuation alone cannot establish income; actual receipt or performance is mandatory.
- In redevelopment cases involving cooperative societies, the focus must be on whether the society received any benefit, not whether the agreement was registered.
Cooperative Societies Are Not Taxable Entities for Member-Benefit Transactions
- If a cooperative society acts purely as an administrative agent for members, and no income flows to the society, tax liability cannot be imposed on it.
- Any tax demand must be directed at the individual members if they receive direct benefits (e.g., additional carpet area), not the society.
Burden of Proof for Non-Performance Lies with the Revenue
- The mere absence of a cancellation document does not validate an income assessment.
- Evidence of non-performance - such as bank statements, repair invoices, legal notices, and continued possession - is sufficient to rebut presumptions of enforceability.
- The Revenue must prove actual accrual or receipt; it cannot rely on speculative assumptions based on registration or stamp duty payment.
