JOIN USHousing co-ops now under I-T scanner
House Building Co-operative Societies (HBCS) using developers to purchase land to form their layouts not only violate the bylaws and the Karnataka Land Reforms Act, 1961, but also help people evade income tax.
Sources in the State Audit department said that a majority of the HBCS in the City have formed layouts on agricultural land. Almost all of them use developers or middlemen with agriculturist status to buy land from farmers and then sell it to the Societies.
The sale of thousands of acres of land and their utilisation for non-agricultural purposes has drawn the attention of the Income Tax department, which, sources said, is likely to launch a series of investigations.
Speaking to Deccan Herald, I-T Commissioner Chhina P S said: “We have heard about a few cases and they are under consideration. We are looking into the matter and nothing can be made public at this juncture.”
The matter is before the I-T department as formation of layouts - a non-agricultural activity on agricultural land, according to the Supreme Court - is subject to capital gains under Section 2(14) of the Income Tax Act.
Formation of layouts
The Supreme Court, while deciding the case ‘Sarifabibi Mohmed Ibrahim versus Commissioner Of Income-Tax,’ on September 14, 1993 had held that agriculture land sold to a housing co-operative society for the formation of layouts and construction of houses thereon is subject to capital gains.
Societies involved in formation of such layouts, however, use middlemen to conceal themselves. “We did not purchase agricultural land. What we got had already been converted,” the representative of a Society said.
Illegal employment
However, the Supreme Court, in another judgement, has held that “what is barred under law directly cannot be achieved indirectly in a circuitous manner,” implying that employment of middlemen is still illegal.
Further, going by the Supreme Court order, the farmers who have sold such land to developers and the developers who have, in turn, sold it to HBCS after conversion are both liable to pay income tax.
The farmers are supposed to pay 20 per cent in taxes, while the developers have to pay 30 per cent, a source said, adding that the I-T department has the powers to levy penalties up to 300 per cent on the defaulters.
Sources in the I-T department said most of these people have not paid any such taxes. “According to the information we have, such persons have been evading taxes and we are now in the process of scrutiny.”