FAQs

TAXATION
Q.1. How does the Co-operative Society apply for Permanent Account Number ?

Q.2. Explain the procedure with regard to deduction of tax at source by a Co-operative Society when the payment above Rs. 20,000/- have been paid to a contractor for repairs and maintenance ?

Q.3. Which are the challans that have to be submitted by the society to the Income-tax Authorities ?

Q.4. What are the penalties on a co-operative society if, it does not deduct TDS on payments made to Contractors ?

Q.5. What are the formalities as regards deduction of tax at Source ? Within how many days the same should be deposited in the bank ?

Q.6. On which of the items does the co-operative society have to pay Income-tax ?

Q.7. What are the deductions available to a co-operative society if it has taxable
income ?

Q.8. What are tax liability with regards to the quantum of capital gains tax that has to be paid by a flat purchaser if he purposes to purchase a office in a co-operative housing society ?

Q.9. Please submit a specimen of computation of income for Co-operative Society having taxable income.

Q.10. What must be HUF do so that it can enjoy the tax benefit and can simultaneously purchase a flat in a Co-operative Society ?

Q.11. What is the Income-tax position if a Co-operative society receives amount from a builder who proposes to build additional 3 floors on the Society’s building ?

Q.12. A builder has is willing to offer a sum of Rs. 50 lakhs to use additional FSI. In such circumstances what should the co-operative society do form the tax planning point of view ?

Q.13. The co-operative society has balance F.S.I. which it proposes to sell to a developer. Can society be taxed or individual members takes the liability ?

Q.14. Certain errors have been detected in the statement of final account. What should the co-operative society as well as auditor do to rectify?

Q.15. What is the liability of the auditor if he has not qualified ultra virus action of society in the audit report ?
Q.16. At what rate the stamp duty is payable on an Agreement for Transfer of a garage in a co-operative society?

Q.17. Please submit a specimen of computation of income for Co-operative Society having taxable income.

Q.18. What should be done if the Income Tax Officer is not taking a decision with regards to the issue of Income Tax Clearance Certificate?

Q.19. The agreement value of the property is Rs.4,75,000/-. The market value of the property is Rs.5,50,000/-. Will the party have to obtain the Income-Tax Clearance Certificate of the seller?

Q.20. Can one obtain Provisional Income Tax Clearance Certificate before signing the agreement ?

Q.21. Within how much period should an Income Tax Officer decide the Income Tax Clearance Application?

Q.22. How do I save capital gains tax on the a sale of my flat?

Q.23. I am an Indian living in the U.S. I inherited a house in Delhi last year from my Grandfather and now I wish to sell it. Do I need to keep it for a minimum of 3 years to avail of the benefit of the concessional rate for long-term capital gains?

Q.24. What are the benefits available to individuals if he does investment in real estate as per the amendment in the finance Bill 1999 ?

Q.25. What are the advantages to the builders if they carryout construction as per the provisions of the finance Bill 1999. What should the builder do to take maximum advantage from the tax planning point of view ?

Q.26. I am a tenant and I am in actual physical possession of a residential flat. The property is proposed to be developed by a Builder. The builder is offering a flat in nearby co-operative society. What shall be the tax liability on me ?

Q.27. Whether the judgement passed in the case of Commr. Of sales Tax V/s. H. M. Abdulali reported in 90 ITR 271 is a good law and whether the decision in the said case is binding on all assesses?

Q.28. Whether the expenditure incurred on payments made to Government Officials is an allowable expenditure?

Q.29. Whether amount paid for security charges are allowed as deduction?

Q.30. Disallowance under Regular Assessment whether can be made under Block Assessments too? Kindly explain with case laws?

Q.31. Penalties levied under regular assessment proceedings such as under 269SS/T for acceptance and Repayment of Loan in cash of Rs. 20,000/-or more whether can be levied in Block Assessment?

Q.32. Assessee owing vast Agricultural Lands and same reflected in accounts and regular assessment completed. Whether roving inquiries be made questioning the details of Agricultural land and income thereof?

Q.33. What would be the tax treatment in the case of on money received by a Builder, following Project completion method of accounting?

Q.1. How does the Co-operative Society apply for Permanent Account Number ?
Ans. A Co-operative Society is required to make an Application in Form No. 49A for allotment of Permanent Account Number.

Q.35. Explain the procedure with regard to deduction of tax at source by a Co-operative Society when the payment above Rs. 20,000/- have been paid to a contractor for repairs and maintenance ?

Ans. In case of payment to contractors by a co-operative society exceeding Rs. 20,000/- the tax is required to be deducted at the time of credit or payment, whichever is earlier. The rate of tax to be deducted at source is 2% in case of payment to contractor and 1% in case of payment to sub-contractor. The tax deducted at source should be deposited in Government Account within 1 week from the last day of the month in which the deduction is made.
The person deducting tax is required to file Annual return in form No. 76c by 30th June. The person deducting tax is also required to give certificate within one month from the end of the month during which credit/payment is made, in Form No. 16A to the payee.

Q.36. Which are the challans that have to be submitted by the society to the Income-tax Authorities ?
Ans. Challan No. 270 for payment of regular taxes if any. Challan No.271 for payment of the Tax deducted at source to the Central Government.

Q.37. What are the penalties on a co-operative society if, it does not deduct TDS on payments made to Contractors ?
Ans. If no tax is deducted at source on payment made to Contractors the person is liable to pay penalty U/s. 271C of 100% of the amount of tax which is required to be deducted at source.

Q.38. What are the formalities as regards deduction of tax at Source ? Within how many days the same should be deposited in the bank ? Please mention challan number in which the money has to be deposited on account of payment deducted on Contractors ? Does the society have to file an income tax return/Declaration ? if yes what is the number of the Income-tax return /Declaration ? if yes what is the number of the Income-tax return/declaration ?
Ans. Reply as regards TDS provisions is already covered in our earlier replies. As regards filing of income-tax return/Declaration it is compulsorily for all societies having taxable income to file their return of income. Return form No. 2 is required to be filed with the Income-tax officer.

Q.38. What are the formalities as regards deduction of tax at Source ? Within how many days the same should be deposited in the bank ? Please mention challan number in which the money has to be deposited on account of payment deducted on Contractors ? Does the society have to file an income tax return/Declaration ? if yes what is the number of the Income-tax return /Declaration ? if yes what is the number of the Income-tax return/declaration ?

Q.39. On which of the items does the co-operative society have to pay Income-tax ?
Ans. Co-operative is subject to tax on all incomes except as specified U/s. 80P of the Income-tax Act.

Q.40. What are the deductions available to a co-operative society if it has taxable
income ?
Ans. A co-operative society is eligible to claim, deduction under the following sections :
U/s. 80G & 80 GGA in respect of donations given by society.
U/s. 80HH Profits & gains from newly setup, Industrial undertaking or Hotels in backward areas.
U/s. 80HHA Profits of newly setup small scale industrial undertaking.
U/s. 80HHB Profits from projects outside India.
U/s. 80HHC Tax incentives for exports.
U/s. 80HHD Deduction in respect of earning in, convertible foreign exchange.
90HHE Profit form Export of Computer software.
80IA deduction in respect of Industrial undertaking setup on or after 1.4.91.
800 Deduction in respect of Royalties from certain foreign Enterprises
AND
80P Deduction in respect of income of a co-operative societies engaged in
Carrying on business of banking or providing Credit facilities to its members.
A cottage industry.
The marketing of the agricultural produce of its members.
the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purposes of supplying them to its members.
The processing without the aid of power, of the agricultural produce of its members.
The collective disposal of the labour of its members.
Fishing or allied activities, that is to say, the Catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipments in connection therewith for the purpose of supplying them to its members.

Q.41. Please explain with an example the tax liability with regards to the quantum of capital gains tax that has to be paid by a flat purchaser if he purposes to purchase a office in a co-operative housing society ?
Ans. Please note the question is very vague. We reply on the presumption that the flat owner has sold his residential flat. In this case the difference between sale proceeds and the cost of the flat sold would be the capital gains in the hands of the seller. In case if the flat seller has held the flat for more than 3 years then it would amount to long term capital gains and if he invests the entire capital gain in purchasing a new flat then the entire long term capital gains would be exempt from tax.
EX.
If the cost of the residential flat
purchased in 1980. Rs. 1,00,000/-
The sale proceeds of the flat
sold in 1998-99 Rs. 10,00,000/-
Investment in New Flat Rs. 10,00,000/-

The indexed cost would be worked out as under .
Since the flat is purchased before 1.4.1981 the value as on 1.4.81 is to be considered for indexation. The value as on 1.4.81 is assumed at Rs. 2,00,000/-

2,00,000 x 389/100 = 7,78,000/-

The long term capital gain would be 10,00,000- 7,78,0000
= 2,22,000/-

However he is not required to pay any capital gains tax as the entire sale proceeds is invested in purchasing a new flat.

Q.43. Please submit a specimen of computation of income for Co-operative Society having taxable income. The taxable income for the society is as under :-
Sale of well water Rs. 25,000/-
Transfer fees Rs. 2,00,000/-
Income from advertisement boarding Rs. 75,000/-
Sale of F.S.I. Rs. 25,00,000/-
Ans : Computation of Taxable income of Co-operative Society
1. Sale of Well water Rs. 25,000/-
Income from Advertisement Boarding Rs. 75,000/-
Sale of FSI Rs. 25,00,000/-

Gross total Income Rs. 26,00,000/-
Less : Deduction under section 80P(2) (c) (ii) Rs. 50,000/-
Total Taxable Income Rs. 25,50,000/-

Tax @ 35% Rs. 8,92,500/-

Note :
It is presumed that the society is a society other than consumer’s society.
Transfer fees is contribution from members for benefit of society so not taxable.

Q.45. As per the society’s Rules HUF cannot be a member of the society. What must be HUF do so that it can enjoy the tax benefit and can simultaneously purchase a flat in a Co-operative Society ?
Ans : Under the Hindu Law a Hindu Undivided family is represented by its Karta. Therefore in the society’s share certificate the name of the Karat should be given. The funds for the purchase of the flat should be given from the account of the Hindu undivided family and the flat. Should be reflected in the Balance sheet of HUF. As far as the Income-tax is concerned if the money is paid out of the funds of the HUF, the HUF becomes the owner of the flat and shares for all purposes.

Q.46 What is the Income-tax position if a Co-operative society receives amount from a builder who proposes to build additional 3 floors on the Society’s building ?
Ans. The amount received by a co-operative society form the builder who proposes to build additional 3 floors on the society’s building would be subject to capital gains tax in the hands of the co-operative society. If the construction of the building is 3 or more years old then the same would be treated as long term capital gains tax otherwise short term capital gains tax.

Q.47. A builder has approached the co-operative society with a proposal that he proposes to construct 3 additional floors and is willing to offer a sum of Rs. 50 lakhs. In such circumstances what should the co-operative society do form the tax planning point of view ?
Ans. As already replied aforesaid the amount received of RS. 50 lakhs form the builder would be subject to capital gains tax. IN case if it is short term capital gains tax the entire amount is subject to tax. However in case if it is long term capital gains tax then the society has option to invest either the sale proceeds on the gains and claim deduction U/s. 54EA/EB as the case may be, in order to avoid paying capital gains tax on the said amount.

Q.48. The co-operative society has balance F.S.I. which it proposes to sell to a developer ?
Whether the amount should be received shown by the Co-operative society ? or
Society allot coupons to members for the balance FSI and the members in turn directly sell the coupons to the builder so that the income is received directly by the member and not the society ?
Ans. The society should exercise option A only i.e. only the society can receive the sale consideration of FSI from the builder. Society has no right to allot coupons to its member.

Q.49. The accounts of a Co-operative Society have been audited by a statutory auditor. They have also been approved in the Annual General Body Meeting of the society. Thereafter certain errors have been deducted in the statement of account. What should the co-operative society as well as auditor do under such circumstances so that the accounts are rectified ?

Ans. The Auditor should prepare profit and loss appropriation account and pass the necessary rectifying entries so that the accounts stand rectified.

Q.50 The Co-operative society in exercise of the provisions of bye-laws recovered some Transfer fees. They are also charging compound interest which is not permitted by the society’s bye-laws. In such circumstances what is the liability of the auditor if he has not qualified the audit report ?

Ans. If the auditor has not qualified his report due to oversight there is not liability on him. An auditor is supposed to be a watch dog and not a blood hound.

Q.87. At what rate the stamp duty is payable on an Agreement for Transfer of a garage in a co-operative society?

Ans. The stamp authorities consider a garage to be non-residential and therefore, as in the case of shop stamp duty is payable at the rate of 10% of the true market value of the garage.

Q.92. Please submit a specimen of computation of income for Co-operative Society having taxable income. The taxable income for the society is as under :-
a) Sale of well water Rs. 25,000/-
b) Transfer fees Rs. 2,00,000/-
c) Income from advertisement boarding Rs. 75,000/-
d) Sale of F.S.I. Rs. 25,00,000/- ?
Ans : Computation of Taxable income of Co-operative Society
1. Sale of Well water Rs. 25,000/-
Income from Advertisement Boarding Rs. 75,000/-
Sale of FSI Rs. 25,00,000/-
Gross total Income Rs. 26,00,000/-
Less : Deduction under section 80P(2) (c) (ii) Rs. 50,000/-
Total Taxable Income Rs. 25,50,000/-
Tax @ 35% Rs. 8,92,500/-
Note :
1. It is presumed that the society is a society other than consumer’s society.
2. Transfer fees is contribution from members for benefit of society so not taxable.

Q.115 What should be done if the Income Tax Officer is not taking a decision with regards to the issue of I Income Tax Clearance Certificate?
Ans. If the party has complied with all the statutory formalities and if the Income Tax Officer is not granting the Income Tax Clearance Certificate then the Assessee should make an application to the Commissioner of Income Tax and forward the copy of the same to the Central Board of Direct Taxes (C.B.D.T).This should be done only after giving at least two or three reminders to the Income Tax Officer.

Q.141 The agreement value of the property is Rs.4,75,000/-. The market value of the property is Rs.5,50,000/-. Will the party have to obtain the Income-Tax Clearance Certificate of the seller?
Ans. Yes , since the market value of the property exceeds Rs.5,00,000/- the Vendor’s Income Tax Clearance Certificate u/s. 230A of The Income Tax Act,1961 will have to be obtained .

Q.142 Can one obtain Provisional Income Tax Clearance Certificate before signing the agreement ?
Ans. It is a common belief with regards to property dealings that some percentage of the amount is given in cash is not reflect in the transaction . At the time of sale of property the seller is always afraid that if he signs the papers & gives the same to the purchaser then there is a possibility that the purchaser may not pay the balance cash amount . Therefore the seller is reluctant to sign any paper unless he receives the total cash amount . Similarly , the purchaser is also afraid that in case there is a dispute then the seller will not return the amounts collected by the seller in cash .

Yes, application under section 230A of The Income Tax Act, 1961, can be filed & submitted before signing the agreement . It may be emphasized that while filing Form No-34A the purchaser’s name , price and unsigned agreement has got to be submitted to the authorities . However, there is a tendency amongst the professionals that the Income Tax Clearance Certificate formalities should be undertaken only after the execution of the document.

Q.144 Within how much period should an Income Tax Officer decide the Income Tax Clearance Application?
Ans. Within a period of sixty days from the date of submission ,the Income Tax Officer is duty bound to decide the matter with regards to Income Tax Clearance Certificate Application.
If all the earlier tax dues have been cleared then the Income Tax Officer must issue the Income Tax Clearance Certificate . The abovesaid fact is clearly mentioned in Rule 44-B of The Income Tax Rules.

Q 167. How do I save capital gains tax on the a sale of my flat?
Mrs. P. Thakkar
Answer: -The capital gains proceeds of sale of the property must be re-invested within two years if you are buying a ready flat. However if your monies are not utilized by the due date of your filing of your Income-Tax returns you will have to invest the capital gains in the Capital Gain Accounts until such time as you have purchased another property. This would have to be done in order to save the Capital Gain Tax.
If you do not wish to invest in a flat you would have to purchase certain bonds as prescribed under the Income Tax Act. However it has to be done within six months of the sale.

Q.172.: I am an Indian living in the U.S. I inherited a house in Delhi last year from my Grandfather and now I wish to sell it. Do I need to keep it for a minimum of 3 years to avail of the benefit of the concessional rate for long-term capital gains?
Mrs. N. Balkrishan
Ans: Yes. The law requires that an immovable property must be held for atleast 3 years for it to qualify as a Long Term capital asset which attracts a concessional rate of tax.

Conversely if an immovable property is held for less than three years it is classified as a short-term capital asset which is charged to tax at the normal rate

However you do not need to keep the house in your name for three years before you can avail of the beneficial rate for long-term capital gains.

Since the house has been inherited by you (please note that the position is the same if it was gifted), then the period of ownership by your grandfather (who was the previous owner) is taken into consideration and therefore it will qualify to be treated as a long term capital gain.

Q.197. What are the benefits available to individuals if he does investment in real estate as per the amendment in the finance Bill 1999 ?
Ans. Under the Finance Act, 1999 there are no special benefits conferred on an individual in respect of investment in real estate However the following benefits continue to exist.
Deduction U/s. 54 : If a person sells his residential house which is held by him for more than 3 years and invests the sale proceeds in purchasing a new residential house. This deduction is available only if the new asset is held by the Assessee for more than 3 years.
Deduction U/s. 54F : If a persons sells any capital asset which is held for more than 3 years other than Residential property and invests the sale proceeds in purchasing a new residential house either one year before or two years after sale if he does not own any other residential house.
54EA/54EB : If the amount of sale consideration is not utilised by the assessee for purchasing a new asset. Then the same can be invested in specified securities either for 3 years or 7 years depending upon the wish of the seller. If the sale proceeds is invested then the same should be invested for 3 years. However if only the capital gains invested then it should be invested for 7 years.

Q.198. What are the advantages to the builders if they carryout construction as per the provisions of the finance Bill 1999. What should the builder do to take maximum advantage from the tax planning point of view ?
Ans. In order to take the maximum benefit of the amendments made in the Finance Bill 1999 the builder should see to it that the individual units constructed by him does not exceed an area of 1500 sq.ft.

Q.199. I am a tenant and I am in actual physical possession of a residential flat. The property is proposed to be developed by a Builder. The builder is offering a flat in nearby co-operative society. What shall be the tax liability on me ?
Ans. The reply to this question upon the following facts :
whether tenancy tights surrendered is Transferable tenancy rights or non-transferable tenancy rights.
Whether tenancy rights is surrended prior to 1.4.1994 or after 1.4.1994.
In case of transferable tenancy rights prior to 1.4.94 as already stated the money’s received is treated as capital receipts in view of the various case laws.

In case of non-transferable tenancy rights of prior to 1.4.94 the money received is treaties as casual income and taxes in view of the following decided as case laws :
Gulabchand case decided by Allahabad High Court reported in 192 ITR 495 (All).
Cadell wvg. Mill co. (Pvt) Ltd . V/s. ACIT (1995) reported in 55 ITD 137 (Bom.)
J.C. Chandiok V/s. Dy CIT (Del.) Trib (1999) 69 ITD 75 (Delhi) (SB).

However in case of transferable tenancy rights form 1.4.94 and onwards the moneys received on surrender of tenancy rights is treated as capital gain and charged to tax as per the amended section 55(2) of Income-tax Act, 1961.
Here again has to distinguish the gain arising on surrender of tenancy rights, whether the same is short term capital gain or long term capital gain. If the surrendered tenancy rights is held for more than 3 years than the amount received on surrendered to tenancy rights is long term capital gains. If for less than 3 years then the same is treated as short term then the same is taxed after deducting the cost if any and in case if the gain is long term then the tenant may not have to pay long term capital gains tax on the alternate accommodation received if he satisfies the conditions laid down U/s. 54F of the Income-tax Act and in case of non-transferable tenancy rights from 1.4.94 the position remains the same whether transfer prior to 1.4.94 or after 1.4.94 and therefore the same is treated as casual income and charged to tax in view of the following decided case law.
Gulabchands case decided by Allahabad High Court reported in 192 ITR 495 (all).
Cadell Wvg. Mill CO. (Pvt Ltd., V/s. ACIT (1995) reported in 55 ITD 137 (Bom)
Different view it taken by Delhi Tribunal in the case of J.C. Chandiok V/s. Dy. Cit (Del. Trib.) 1999) 69 Itd 75 (Delhi) S.B. Delhi Tribunal have said that Amount received on surrender of tenancy right is not taxable.

Q. 218.Whether the judgement passed in the case of Commr. Of sales Tax V/s. H. M. Abdulali reported in 90 ITR 271 is a good law and whether the decision in the said case is binding on all assesses?
Reply: No, the said case the Apex Court had upheld the estimation of on Money receipts at a particular % and application of the said rate to all the shops sold by the assessee in order to determine the quantum of on Money. This decision cannot be applied universally as the facts of the said case were that no material was furnished before court and it was an Exporter assessment.

Q.219. Whether the expenditure incurred on payments made to Government Officials is an allowable expenditure?
Reply: Upto 31.3.2000 any expenditure incurred towards payments to Government officials were treated as allowable expenditure. However the law is amended from 1.4.2000 and how the same are treated as not an allowable expenditure.

Q.220. Whether amount paid for security charges are allowed as deduction?
Reply: Yes, Amount paid as security charges are distinguishable from amount paid as protection money to extortionists. Therefore legal and genuine business expenditures are allowed whereas illegal, unlawful and expenditures incurred against public policy are not allowed in view of the amended provisions of section 37(1) of Income-tax Act from 1.4.2000.

Q. 221. Disallowance under Regular Assessment whether can be made under Block Assessments too? Kindly explain with case laws?
Reply: No, under Block Assessment only undisclosed income in the form of unexplained cash, jewellery, and investments can be added. Regular assessment disallowances cannot be termed as undisclosed Income for the purpose of section 158-BB. Therefore such disallowance in a Block Assessment is unwarranted. The decision in the following case laws can be placed reliance upon: i) 65 ITD f108 (Mad.)—held addition made in regular assessment cannot be made the basis for addition in Block assessment. ii) 63 ITD 245 (Mum) Sunder Agencies V/s. ACIT—held A.O. cannot draw assumptions in respect of undisclosed Income. iii) ITA (SS) No. 17/Mum/1899 (Mum) –Pooja Bhatt V/s. ACIT – held routine additions made during normal assessment proceedings cannot be made under chapter XIV B. iv) 54 TTJ 207 (Pune) Sharma Associates—held there was no seizure of cash and/or Bullion to corroborate the addition.

Q.222. Penalties levied under regular assessment proceedings such as under 269SS/T for acceptance and Repayment of Loan in cash of Rs. 20,000/-or more whether can be levied in Block Assessment?
Reply: No. Regular Assessment is different from Block assessment for case laws.

Q.223. Assessee owing vast Agricultural Lands and same reflected in accounts and regular assessment completed. Whether roving enquiries be made questioning the details of Agricultural land and income thereof?
Reply: No. Under Block assessment no roving enquiries can be made in respect of completed assessments. Reliance is placed in the case of 68 ITD 407 (Jab). Agarwal Motors V/s. ACIT (1999).

Q.279. What would be the tax treatment in the case of on money received by a Builder, following Project completion method of accounting?
Reply: In the case of Builder following Project completion method of accounting, the on money component would be taxed as his business income in the year when the Project is completed. If the Assessee is liable to tax in the year of handing over possession then the on money component would also be taxed as his business in the year when the possession is handed over.







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One thought on “FAQs

  1. what would be the tax treatment in case the member of the coperative group housing society transfers his membership without actually getting the possession of the flat since the flats are in construction and the draw for the allotment has not been made, such membership has been held for more than 3 years??
    what would be the change in treatment if the member gets the possession of the flat and sells it immediately after that??

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