The cash-strapped agency, Mumbai Metropolitan Region Development Authority (MMRDA), has come under the scanner of the income tax (I-T) department over acquisition of government land and subsequent rehabilitation of the project-affected persons (PAPs).
The I-T department has deemed these two activities as taxable and slapped a Rs55 crore notice on the planning agency.
The agency had acquired the said land and built houses on it, which it later gave to those people who were displaced because of its ongoing infrastructure projects in the city.
"We have received a tax notice from the I-T department which wants us to pay the tax deducted at source (TDS) for the government land that we had acquired and also for the houses, which we had constructed and later gave to the project-affected people," metropolitan commissioner Rahul Asthana said on Tuesday.
The agency decided to challenge the tax notice served by the I-T department for which it had to approach the Income Tax Tribunal.
The planning agency, however, has had to deposit Rs5 crore with the income tax department before its appeal was accepted by the tribunal.
The tax notice has been served to the agency under section 194J of the Income Tax Act, following which a deduction of 10% is to be made from the payment to a resident as compensation for acquiring land.
The MMRDA has claimed that there has been no fresh acquisition and the agency has only been reclaiming government land.
"How can they tax us for reclaiming government land? The houses, which we gave to the tenants, were on a humanitarian basis," said Asthana.
The IT department, however, has asked the agency to pay tax only on a limited number of rehabilitation colonies.
The MMRDA has so far rehabilitated 30,000 families.
The agency will land into serious trouble if the I-T department decides to charge tax on all those rehabilitation houses. This will severely deplete the cash reserves of the agency, said an official.
The agency is already battling tax claims of more than Rs2,400 crore by the I-T department for land sale in the Bandra-Kurla Complex.