INCOME TAX

Circular No. 1

Dated 27/1/1969

Ownership flats of members of tenant co-partnership societies - Whether exempt under clause (iv) of sub-section (1)

1. Under the existing instructions, the Wealth-tax Officers do not allow the exemption under section 5(1)(iv), in the cases of members of co-operative societies of the tenant co-partnership type, on the ground that the legal ownership over the flats vests with the society and not with the individual members. It has been represented to the Board that these societies are usually only lessees of the flats, the legal ownership of which really vests with the individual members. The normal procedure in such cases is that an agreement is entered into between the builder and each purchaser of flat in the building proposed to be constructed. The purchaser pays the entire cost of the flat in instalments spread over the period of construction. As soon as the building is completed, the builder gives the possession of the flats to the various purchasers, who then join together to form a co-operative society. The builder who had originally taken the land on lease or free-hold, transfers the land and the building thereon to the co-operative society. The society then allots the tenancy in the flats to the members in such a way that each member gets the tenancy rights over the flats which he has purchased.

2. The Board are advised that under this arrangement the legal ownership in the flats vests with the individual members and that the exemption under section 5(1)(iv) would be available to the members of such a society. The cases of the tenant co-partnership societies would be scrutinised by the Wealth-tax Officers to see that the co-operative society is only a lessee and the individual members are the real owners. If it is found that this is so, the owners of the flats would not be denied exemption under section 5(1)(iv).

Circular : No. 1 [F. No. 4/28/68-WT], dated 27-1-1969.