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G. S. Homes & Hotels P. Ltd vs. CIT (Supreme Court)
September, 22nd 2016

Refundable deposits received by a housing company for allotment of flats and future maintenance is business income. However, share capital received for allotment of flats is a capital receipt and not income. The principles of mutuality does not apply to such transactions

The Karnataka High Court held, following Shree Nirmal Commercial vs. CIT 193 ITR 694 (Bom) and 213 ITR 361 (FB), that share capital and refundable deposits received by a housing company from its shareholders in consideration of allotting area to them is assessable as business profits. It was also held that the principles of mutuality are not applicable. It was also held that deposits received from the shareholders for future maintenance is assessable as business income. On appeal to the Supreme Court HELD:

After hearing the leaned counsels for the parties and perusing the relevant material, we modify the order of the High Court by holding that the amount (Rs.45,84,000/-) on account of share capital received from the various share-holders ought not to have been treated as business income. The High Court, therefore, in our considered view, fell into error in reversing the order of the Tribunal on the aforesaid issue. Insofar as the issue of short term capital gains with respect to property T1 and T2 and maintenance deposit is concerned, we do not find any infirmity in the order of the High Court so as to require any modification.

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