India: Real Estate & Hospitality

Taxation of Non-Occupancy Charges and Transfer Fees

New Gulistan Co-op Housing Society, a south Mumbai housing society ("Housing Society") has won an appeal in a tax dispute relating to taxation of non-occupancy charges and transfer fees received by the Housing Society from its members.

The Housing Society had received transfer fees aggregating to INR 0. 5 million and non-occupancy and other charges aggregating to about INR 0.2 million during the financial year 2000-01. The Commissioner of Income-Tax (Appeals) had held in favour of the Housing Society that these sums would not be taxable. The income tax department went in for appeal before the Income-Tax appellate tribunal ("ITAT"). However, the ITAT dismissed the appeal and also held that these receipts would not be taxable in the hands of the Housing Society.

The Housing Society had received transfer fees aggregating to INR 0. 5 million and non-occupancy and other charges aggregating to about INR 0.2 million during the financial year 2000-01. The Commissioner of Income-Tax (Appeals) had held in favour of the Housing Society that these sums would not be taxable. The income tax department went in for appeal before the Income-Tax appellate tribunal ("ITAT"). However, the ITAT dismissed the appeal and also held that these receipts would not be taxable in the hands of the Housing Society.

Regulations for operationalisation of the Land Pooling Policy of Delhi Development Authority ("DDA") Approved

The Ministry of Urban Development, GOI has approved the regulations for operationalisation of the Land Pooling Policy of the DDA ("Regulations"). The approval has been given for the operationalisation of the Land Pooling Policy with certain amendments to ensure timely completion of real estate projects with all necessary infrastructures.

As per the Regulations, two categories of land pooling exist – Category I which includes land owners with land above 20 hectares and Category II which includes land owners with land between two and 20 hectares. The land returned to the developer entity in Category I will be 60 per cent while the remaining will be retained by DDA. The land returned to the developer entity in Category II will be 48 per cent while the remaining will be retained by DDA. Residents will be given an additional floor area ratio ("FAR") of 400 if they apply for re-development through the Land Pooling Policy of DDA. Further a developer who constructs housing units on a piece of land that has been re-developed under the Land Pooling Policy of DDA and returned to him by the DDA, he shall be obliged to constructs 15 per cent of the total housing units constructed by him for the economically weaker sections ("EWS") category housing. Of this 15 per cent, 7.5 per cent shall be handed over by the developer to DDA and the remaining shall be retained by the developer. The Developer shall construct the EWS housing as a separate block.

If there is any delay in completion of development of land by DDA (which is the land pooling agency) under the said Land Pooling Policy, DDA shall be liable to pay a penalty of 2 per cent of external development charges ("EDC") per year for the first two years and 3 per cent of EDC per year thereafter to the developer entities (farmers/land owners) for delay beyond the date of completion of the construction by such developer entities or five years whichever is later till the external development works are completed.

Maharashtra Government proposes to Dematerialize Transferable Development Rights ("TDRs")

According to the draft housing policy of the Government of Maharashtra ("Maharashtra Government"), all TDRs issued by civic and local bodies in Maharashtra will be made through an electronic system to be developed by the Maharashtra Government. In this direction, the Maharashtra Government has proposed to dematerialise TDRs issued to land owners and developers in exchange of development rights. The urban development department of the Maharashtra Government is evaluating the possibility of converting TDRs into a financial instrument that can be traded in an open market, thereby expanding the market for TDRs and preventing cartelisation. The principal secretary and urban development department of the Maharashtra Government will coordinate with SEBI to execute the concept of dematerialization of TDRs.

TDRs are certificates that allow a builder to construct buildings up to a specified floor space index ("FSI"), and the holder of TDRs can either develop the land himself or sell them to any other developer who needs additional FSI. These TDRs are usually traded among realty developers for use in their respective projects at a price.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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