Society is not a beneficial party in sale/ transfer of flats and membership rights

We have taken a plot of land on lease in the name of the society. Now we are constructing flats and shops. There are investors also, who transferred their investments for profit. Flats are of different sizes and members would pay extra amounts for different kinds of amenities and car parking facilities. Our turnover is a few crores of rupees. Can we make profits? How would these activities attract tax?

Contribution from members received by the society towards cost of land and building(s) and other amenities will be covered by the concept of mutuality and therefore, will not be an income in the hands of the society.

Even though profit is made by the society, tax would not be attracted because of the application of concept of mutuality.  A more pertinent question for you should be what will the society do of such profits. 

When a member sells his residential flat and transfers his membership rights in the society, under Income-Tax Act, 1961, such transaction would be on account of such member and therefore, the tax implications would arise upon such member.

The society is not a beneficial party in respect of the sale consideration in transactions involving sale and transfer of flats and membership rights.

The society would be receiving transfer premium in respect of such transactions. Such transfer premium will also get covered by the concept of mutuality. To the extent the society collects such transfer premium from the members and within the framework of its byelaws, such transfer premium would not be taxable in the hands of the society.

So far as payments to contractors and sub-contractors are concerned, the same would be subject to the provisions of tax deduction at source under Section 194C of the of Income-Tax Act, 1961.

The writer is a chartered accountant and can be contacted at ghiatarun@rediffmail.com