SINDHI IMMIGRANTS CO OP HSG LTD, MUMBAI V. ITO 22(2)(2), MUMBAI

CO 112/MUM/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 6882 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 29-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Gift; Business income
• Section: 56

Judgement Text

1 THE SINDHI IMMIGRANTS COOP HSG SOC LTD IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI I II I BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI T R SOOD T R SOOD T R SOOD T R SOOD, ,, , AM & AM & AM & AM & SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 5732/MUM/2009 ( ASST YEAR 2006 5732/MUM/2009 ( ASST YEAR 2006 5732/MUM/2009 ( ASST YEAR 2006 5732/MUM/2009 ( ASST YEAR 2006- -- -07) 07) 07) 07) CROSS OBJECTION NO.112/MUM/2010 CROSS OBJECTION NO.112/MUM/2010 CROSS OBJECTION NO.112/MUM/2010 CROSS OBJECTION NO.112/MUM/2010 THE INCOME TAX OFFICER WARD 22(2)( 2), MUMBAI VS THE SINDHI IMMIGRANTS COOP HSG SOC LTD LITTLE MALABAR HILL, SINDHI SOCIETY CHEMBUR MUMBAI 71 (APPELLANT (APPELLANT (APPELLANT (APPELLANT/RESPONDENT /RESPONDENT /RESPONDENT /RESPONDENT ) )) ) (RESPONDENT (RESPONDENT (RESPONDENT (RESPONDENT/CROSS OBJECTOR /CROSS OBJECTOR /CROSS OBJECTOR /CROSS OBJECTOR) )) ) ITA NO. ITA NO. ITA NO. ITA NO. 246 246 246 246/MUM/20 /MUM/20 /MUM/20 /MUM/2010 1010 10 (ASST (ASST (ASST (ASST YEAR 2006 YEAR 2006 YEAR 2006 YEAR 2006- -- -07) 07) 07) 07) THE SINDHI IMMIGRANTS COOP HSG SOC LTD LITTLE MALABAR HILL, SINDHI SOCIETY CHEMBUR MUMBAI 71 VS THE INCOME TAX OFFICER WARD 22(2)( 2), MUMBAI (APPELLANT (APPELLANT (APPELLANT (APPELLANT/RESPONDENT /RESPONDENT /RESPONDENT /RESPONDENT ) )) ) (RESPONDENT (RESPONDENT (RESPONDENT (RESPONDENT/CROSS OBJECTOR /CROSS OBJECTOR /CROSS OBJECTOR /CROSS OBJECTOR) )) ) PAN NO. PAN NO. PAN NO. PAN NO. AAATT0524E AAATT0524E AAATT0524E AAATT0524E ASSESSEE BY SH VIMAL PUNMIYA REVENUE BY SH A K NAYAK DT.OF HEARING 29 TH DEC 2011 DT OF PRONOUNCEMENT 6 TH , JAN 2012 ORDER ORDER ORDER ORDER PER PER PER PER VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, , , , JM JMJM JM THESE CROSS APPEALS AND THE CROSS OBJECTIONS BY TH E ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 12 TH AUG 2009 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2 IN APPEAL ITA NO. 5732/MUM/2009, THE REVENUE HAS RAISED THE ONLY GROUND AS UNDER: 2 THE SINDHI IMMIGRANTS COOP HSG SOC LTD ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN TAKING THE VIEW THAT THE GYMKHA NA IS CLUB RUN ON THE CONCEPT OF MUTUALITY AND INTEREST EARNED ` 7 .95 LACS ON DEPOSITS WOULD QUALITY FOR EXEMPTIONS ON GROUNDS OF MUTUALITY AND HE FAILED TO APPRECIATE THE FACTS THAT THE INTEREST IS EARNED ON THE CONTRIBUTIONS/DEPOSITS FROM OUTSIDERS WHICH WILL NO T COME UNDER MUTUALITY. 2.1 THE ASSESSEE IS A COOPERATIVE SOCIETY AND ALSO RUNNING GYMKHANA, WHICH IS OPENED TO ITS MEMBERS AND EX-MEMBERS AS WELL AS OUTSIDERS ALSO MADE MEMBERS OF THE GYMKHANA BY ACCEPTING DEPOSITS. DUR ING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT FOR P ROVIDING A GOOD NUMBER OF FACILITIES, CONTRACTORS ARE APPOINTED AND GYMKHANA HAS TAKEN TRADE DEPOSITS FROM THE CONTRACTORS. THE ASSESSEE PREPARES SEPARA TE INCOME & EXPENDITURE ACCOUNT AND BALANCE SHEET FOR GYMKHANA AND COOPERAT IVE HOUSING SOCIETY AND THEN CONSOLIDATED ACCOUNTS. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE DEPOSITS ARE RECEIVED IN THE ORDINARY COURSE OF RUNNING THE BUSINESS OF GYMKHANA, THE INTEREST RECEIVED ON SUCH DEPOSITS PA RTAKE THE CHARACTER OF BUSINESS INCOME. ACCORDINGLY, THE ASSESSING OFFICE R WAS OF THE VIEW THAT THE INTEREST EARNED ON SUCH DEPOSITS AMOUNTING TO ` 7,9 5,497/- IS TO BE TAXED UNDER THE HEAD BUSINESS. 2.2 THE ASSESSEE CLAIMED DEDUCTION U/S 80P IN RESPE CT OF THE INTEREST RECEIVED, WHICH WAS REJECTED BY THE ASSESSING OFFIC ER AND THE SAID INTEREST EARNED ON THE DEPOSITS RECEIVED FROM NON-MEMBERS AN D TRADE DEPOSITS AMOUNTING `.7,95,497/- WAS ASSESSED TO TAX. 2.3 ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AND HELD THAT THE GYMKHANA IS A CLUB AND RUN ON THE CONCEPT OF MUTUAL ITY. THEREFORE, THE INTEREST EARNED ON THE DEPOSITS RECEIVED DURING THE COURSE O F RUNNING THE GYMKHANA, AS PER CIT(A), WOULD QUALITY FOR EXEMPTION ON THE GR OUND OF MUTUALITY. 3 THE SINDHI IMMIGRANTS COOP HSG SOC LTD 3 BEFORE US, THE LD DR HAS SUBMITTED THAT IT IS NOT THE INTEREST ON MONEY RECEIVED BY THE ASSESSEE FROM ITS MEMBERS BUT IT IS THE INTEREST RECEIVED THAT TOO ON DEPOSITS FROM NON-MEMBERS. THEREFORE, THE CONCEPT OF MUTUALITY WOULD NOT APPLY ON SUCH INTEREST. HE HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. COM MON EFFLUENT TREATMENT PLANT, (THANE-BELAPUR) ASSOCIATION REPORTED IN 328 ITR 362 . 3.1 THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT TH E SOCIETY HAS DEVELOPED GYMKHANA FOR RECREATIONAL ACTIVITIES OF ITS MEMBERS , IN THE MEAN WHILE, THE SOCIETY HAD ALLOWED OTHERS AND TAKEN THEM AS NOMINA L AND SYMPATHIZER MEMBERS OF THE SOCIETY AND ALLOWED THEM TO USE THE GYMKHANA. THE LD AR HAS SUBMITTED THAT IT IS NOT A BUSINESS BUT SERVICE OF THE SOCIETY TO PROMOTE RECREATIONAL FACILITY, SO THAT THE MEMBERS REMAIN F IT IN THEIR HEALTH. 3.2 REGARDING THE ENJOYMENT FACILITY BENEFIT SERVIC ES AND PRIVILEGES OF THE SOCIETY BY THE ALLEGED NON-MEMBERS, THE LD AR OF TH E ASSESSEE AS SUBMITTED THAT THE LOWER AUTHORITIES HAVE A WRONG NOTION ABOUT THE USE OF CLUB BY THE NON- MEMBERS. THE FACILITIES OF THE SOCIETY ARE USED ONL Y BY THE MEMBERS OR THEIR RELATIVES OR BY THEIR GUESTS. NO PERSON CAN EVEN E NTER INTO THE PREMISES OF THE SOCIETY WITHOUT THE RECOMMENDATION OF THE MEMBER. I T IS ONLY THE MEMBERS WHO TAKE THEIR RELATIVES OR GUESTS TO THE CLUB. 3.3 HE HAS FURTHER SUBMITTED THAT AS PER THE PROVI SION OF THE MAHARASHTRA CO- OPERATIVE HSG SOC., ANY INTEREST INCOME EARNED CAN BE FURTHER CLASSIFIED INTO INTEREST EARNED FROM INVESTMENTS MADE IN COOPERATIV E BANKS & INTEREST FROM OTHER INVESTMENTS. THEREFORE, INTEREST EARNED FROM ANY INVESTMENT MADE IN CO- OPERATIVE BANKS QUALIFIES FOR DEDUCTION @ 100% UNDE R SECTION 80P(D) . THUS, THE 4 THE SINDHI IMMIGRANTS COOP HSG SOC LTD INTEREST RECEIVED BY THE ASSESSEE SOCIETY IS ELIGIB LE FOR DEDUCTION U/S 80P OF THE ACT. 4 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE INTEREST RE CEIVED BY THE ASSESSEE ON THE DEPOSITS. THEREFORE, IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMON EFFLUENT TREATMENT PLAN T, (THANE-BELAPUR) ASSOCIATION (SUPRA), PRINCIPLE OF MUTUALITY IS NOT APPLICABLE. THE HONBLE JURISDICTIONAL HIGH COURT IN PARAS 29,30 & 32 HAS HELD AS UNDER: 29 IN ORDER TO FULFIL THE REQUIREMENT OF MUTUALITY , A MUTUAL ASSOCIATION HAS TO ESTABLISH, AS AN ESSENTIAL REQU IREMENT, THE IDENTITY BETWEEN PARTICIPATORS AND CONTRIBUTORS TO THE FUND. HOWEVER, THE FACT THAT AN ASSOCIATION SATISFIES TH E NORM OF MUTUALITY IN RESPECT OF THE RECEIPTS OF CONTRIBUTIONS FROM IT S MEMBERS DOES NOT NECESSARILY LEAD TO THE CONCLUSION THAT EVERY ACTIV ITY OF THE ASSOCIATION SATISFIES THE TEST OF MUTUALITY. AN ASS OCIATION MAY ENGAGE IN ACTIVITIES WHICH CAN BE DESCRIBED AS MUTUAL AND IN OTHER ACTIVITIES WHICH ARE NOT MUTUAL. THE GUJARAT HIGH COURT RECOGN IZED THIS IN ITS DECISION IN SPORTS CLUB OF GUJARAT LTD. [1988] 171 ITR 504 ; [1988] 37 TAXMAN 38. ADVERTING TO THE DECISION IN CIT V. MADRAS RACE CLUB [1976] 105 ITR 433 (MAD), THE COURT NOTED THAT THE APPLICATION OF THE PRINCIPLE OF MUTUALITY IS NOT DESTROYED BY THE PRE SENCE OF TRANSACTIONS WHICH ARE NON-MUTUAL IN CHARACTER. HO WEVER, IN SUCH A CASE, THE PRINCIPLE OF MUTUALITY HAS TO BE CONFINED TO TRANSACTIONS WITH MEMBERS POSSESSING THE ESSENTIAL CHARACTER OF MUTUALITY. THE TWO ACTIVITIES CAN IN APPROPRIATE CASES BE SEPARATE D AND THE PROFITS DERIVED FROM TRANSACTIONS WHICH DO NOT FULFIL THE R EQUIREMENTS OF MUTUALITY CAN BE BROUGHT TO TAX. 30.THE ASSESSEE IN THE PRESENT CASE UTILIZES ITS SU RPLUS FUNDS FOR INVESTMENT IN FIXED DEPOSITS WITH BANKS. THE INTER EST THAT IS GENERATED ON THE INVESTMENT OF SUCH FUNDS IS NOT IN COME WHICH IS RECEIVED FROM THE MEMBERS OF THE ASSESSEE BUT FROM THIRD PARTIES SUCH AS THE BANKS WITH WHOM THE FUNDS ARE INVESTED . SECTION 35(1) OF THE BOMBAY PUBLIC TRUSTS ACT, 1950 PROVIDES THA T WHERE THE TRUST PROPERTY CONSISTS OF MONEY AND WHICH CANNOT BE APP LIED IMMEDIATELY OR AT AN EARLY DATE TO THE PURPOSES OF THE PUBLIC TRUST, THE TRUSTEES SHALL BE BOUND TO DEPOSIT THE MONEY, N OTWITHSTANDING ANYTHING CONTAINED IN THE INSTRUMENT OF THE TRUST I N A SCHEDULED BANK, IN A POSTAL SAVINGS BANK OR IN A CO-OPERATIV E BANK APPROVED BY THE STATE GOVERNMENT OR TO INVEST IN PUBLIC SECURI TIES. WHAT SUB- SECTION (1) OF SECTION 35 MANDATES IS THAT MONEYS W HICH ARE NOT 5 THE SINDHI IMMIGRANTS COOP HSG SOC LTD REQUIRED TO BE UTILIZED IMMEDIATELY OR AT AN EARLY DATE FOR THE PURPOSE OF THE TRUST SHOULD BE DEPOSITED IN ONE OF THE FORMS WHICH THE LEGISLATURE HAS CONSIDERED TO BE SAFE TO PROTE CT THE TRUST. SECTION 35(1) IN ANY CASE DOES NOT CONTAIN A MANDAT E THAT MONEYS WILL HAVE TO BE INVESTED IN A FIXED DEPOSIT. WHERE MONEYS ARE INVESTED IN FIXED DEPOSITS OF BANKS, THE INTEREST T HAT IS RECEIVED ON A DEPOSIT DOES NOT POSSESS THE SAME CHARACTER OF MUTU ALITY AS THE SURPLUS FUNDS DERIVED BY THE ASSESSEE FROM THE CON TRIBUTIONS OF ITS MEMBERS. THE PRINCIPLE OF MUTUALITY APPLIES TO SUR PLUS FUNDS GENERATED FROM THE CONTRIBUTION OF MEMBERS FOR THE REASON THAT THE FUNDS ARE CONTRIBUTED BY THE MEMBERS OF THE SOCIET Y AND THERE IS AN IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIP ATORS IN THE FUND. THE DECISION TO INVEST THE FUNDS OF THE ASSOCIATIO N IN BANK FIXED DEPOSITS IS A PRUDENT COMMERCIAL DECISION MOTIVATED BY THE DESIRE TO EARN INTEREST THAT WOULD NOT BE AVAILABLE ON MONEYS MAINTAINED IN ORDINARY, CURRENT OR SAVINGS ACCOUNTS. SUCH INTERES T DOES NOT FULFIL THE REQUIREMENT OF MUTUALITY. WHILE INVESTING THE F UNDS WITH A BANK OR A FINANCIAL INSTITUTION, THE ASSESSEE ASSUMES TH E CHARACTER OF A CUSTOMER OF THE BANK OR INSTITUTION AND THE RELATI ONSHIP THAT IS ENGENDERED IS THAT BETWEEN A BANKER AND ITS CUSTOM ER. THE FACT THAT THE FUNDS WHICH ARE INVESTED HAVE THEIR SOURCE IN T HE CONTRIBUTION BY THE MEMBERS OF THE ASSESSEE CANNOT BE DISPOSITIVE O F THE NATURE OF THE RECEIPT OBTAINED BY THE ASSESSEE ON ACCOUNT OF THE INTEREST PAYMENTS ON THE DEPOSITS MADE. IN DETERMINING THE EXIGIBILITY TO TAX OF RECEIPTS ON ACCOUNT OF INTEREST, IT IS THE CHAR ACTER OF THE RECEIPT AS INTEREST THAT MUST PLAY A DETERMINATIVE ROLE. A PA YMENT ON ACCOUNT OF INTEREST BY THE BANK OR A PARTY WITH WHOM THE D EPOSIT IS PLACED IS AN ARM'S LENGTH TRANSACTION WITH A THIRD PARTY. THE RECOMPENSE WHICH IS RECEIVED BY THE ASSESSEE BY AND AS A RESUL T OF THE TRANSACTION DOES NOT FULFIL THE CONDITION OF MUTUAL ITY TO WHICH THE CONTRIBUTIONS RECEIVED FROM THE MEMBERS OF THE ASSE SSEE ARE SUBJECT. 32 AT THIS STAGE, IT WOULD BE NECESSARY FOR THE COU RT TO ADVERT TO A RECENT JUDGMENT OF THE SUPREME COURT TOTGAR'S CO-O PERATIVE SALE SOCIETY LIMITED V. ITO [2010] 322 ITR 283. IN THAT CASE, THE ISSUE BEFORE THE SUPREME COURT RELATED TO THE DEDUCTION UNDER SECTION 80P. THE SUPREME COURT DEALT WITH INTEREST WHICH H AD ACCRUED ON FUNDS WHICH WERE NOT REQUIRED IMMEDIATELY BY THE A SSESSEE WHICH WAS A CO-OPERATIVE CREDIT SOCIETY, FOR THE PURPOSES OF ITS BUSINESS AND WHICH CAME TO BE INVESTED IN SPECIFIED SECURITI ES AS INVESTMENT. THE ASSESSEE HAD CONTENDED BEFORE THE SUPREME COURT THAT UNDER THE PROVISIONS OF THE KARNATAKA CO-OPERATIVE SOCIET IES ACT, 1959, A STATUTORY OBLIGATION WAS IMPOSED ON CO-OPERATIVE CR EDIT SOCIETIES TO INVEST THEIR SURPLUS FUNDS IN SPECIFIED SECURITIES AND THE SUBMISSION WAS THAT IN VIEW OF THE STATUTORY OBLIGATION, INCO ME DERIVED FROM SHORT-TERM DEPOSITS AND SECURITIES MUST BE CONSIDE RED AS INCOME DERIVED FROM BUSINESS ACTIVITIES. THE ASSESSEE MARK ETED THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS WERE AT TIMES RE TAINED BY THE ASSESSEE AND THE COURT WAS CONCERNED WITH THE TAX TREATMENT OF THAT AMOUNT. THE SUPREME COURT HELD THAT SUCH INTEREST INCOME WOULD FALL WITHIN THE CATEGORY OF INCOME FROM OTHER SOUR CES AND THAT IT WAS 6 THE SINDHI IMMIGRANTS COOP HSG SOC LTD CORRECTLY HELD TO BE TAXABLE UNDER SECTION 56 BY TH E ASSESSING OFFICER. IN ADVERTING TO THE JUDGMENT IN THE CASE O F TOTGAR'S COOPERATIVE SALE SOCIETY [2010] 322 ITR 283 (SC), W E MUST NOTE THAT THE PRINCIPLE OF MUTUALITY AS SUCH DID NOT ARISE FO R CONSIDERATION BEFORE THE SUPREME COURT IN THAT CASE. THE SUBMISS ION THAT FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS WERE INVESTED IN SPECIFIED SECURITIES/DEPOSITS UNDER A STATUTORY OBLIGATION AN D THE RECEIPT ON ACCOUNT OF INTEREST WOULD NOT CONSTITUTE INCOME FRO M OTHER SOURCES WAS A SPECIFIC ISSUE WHICH WAS RAISED BEFORE THE SU PREME COURT. THE SUPREME COURT HELD THAT SUCH INTEREST WOULD FALL FO R TAXATION AS INCOME FROM OTHER SOURCES. 5.1 IT IS CLEAR FROM THE DECISION OF THE HONBLE JU RISDICTIONAL HIGH COURT THAT THE INTEREST INCOME ON DEPOSITS DOES NOT FULFIL THE CONDITIONS OF MUTUALITY. 6. AS REGARDS THE CLAIM U/S 80P IS CONCERNED, IF AN Y INCOME BY WAY OF INTEREST OR DIVIDEND DERIVED BY THE COOPERATIVE SOC IETY FROM ITS INVESTMENT WITH ANY OTHER COOPERATIVE SOCIETIES, THEN DEDUCTION U/S 80P IS ALLOWABLE IN RESPECT OF THE SAID INCOME. WE QUOTE SECTION 80P(2)(D) AS UND ER: 80P: DEDUCTION IN RESPECT OF INCOME OF COOPERATIVE SOCIETIES: DEDUCTION IN RESPECT OF INCOME OF COOPERATIVE SOCIE TIES: DEDUCTION IN RESPECT OF INCOME OF COOPERATIVE SOCIE TIES: DEDUCTION IN RESPECT OF INCOME OF COOPERATIVE SOCIE TIES: (1) (2)THE SUMS REFERRED TO IN SUB-SEC (1) SHALL BE THE FOLLOWING, NAMELY: .. (D) IN RESPECT OF ANY INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY THE COOPERATIVE SOCIETY FROM ITS INVESTMENTS WIT H ANY OTHER COOPERATIVE SOCIETY, THE WHOLE OF SUCH INCOME. 6.1 AS PER CLAUSED OF SUB.SEC (2) OF SEC 80P, IF THE INTEREST INCOME IS FROM THE DEPOSITS MADE WITH THE COOPERATIVE SOCIETY, TH EN THE SAME IS ELIGIBLE FOR DEDUCTION U/S 80P. 7 IN THE CASE IN HAND, THIS ASPECT HAS NEITHER BEEN CLAIMED NOR BEEN EXAMINED BY THE LOWER AUTHORITIES; THEREFORE, WE RE MAND THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSES T O VERIFY WHETHER THE INTEREST RECEIVED BY THE ASSESSEE ON THE DEPOSITS MADE WITH THE OTHER COOPERATIVE SOCIETY/COOPERATIVE BANK, THEN THE CLAIM OF THE ASS ESSEE IS ALLOWABLE. 7 THE SINDHI IMMIGRANTS COOP HSG SOC LTD CROSS OBJECTION NO. 112/MUM CROSS OBJECTION NO. 112/MUM CROSS OBJECTION NO. 112/MUM CROSS OBJECTION NO. 112/MUM/2010 /2010 /2010 /2010 8 THE ASSESSEE HAS RAISED THE FOLLOWING GROUND IN I TS CROSS OBJECTION: THE LD CIT(A) HAS RIGHTLY ALLOWED DEDUCTION U/S 80 P OF THE ACT, OF INTEREST EARNED OF `. 7,95 LACS FROM OTHER COOPERAT IVE BANKS, BASED ON FACT AND CIRCUMSTANCES OF THE CASE. 9 THE ASSESSEE HAS NOT RAISED ANY SEPARATE ISSUE IN THE CROSS OBJECTION BUT ONLY SUPPORTED THE ORDER OF THE CIT(A) ON THE ISSUE RAISED IN THE REVENUES APPEAL REGARDING THE DISALLOWANCE OF INTEREST ON D EPOSITS. THEREFORE, IN VIEW OF OUR FINDINGS ON THE ISSUE, THE CROSS OBJECTION FILE D BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND DISPOSED OFF ACCORDINGLY. ITA NO. 246/MUM/20 ITA NO. 246/MUM/20 ITA NO. 246/MUM/20 ITA NO. 246/MUM/2010 1010 10 ( ASST YEAR 2006 ( ASST YEAR 2006 ( ASST YEAR 2006 ( ASST YEAR 2006- -- -07) 07) 07) 07) 10 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS IN THIS APPEAL: 1 THE LD CIT(A) OUGHT NOT HAVE CONFIRMED THE AMOUN T OF RS. 24,69,052/- BEING AMOUNT COLLECTED OVER RS.25,000/- PER MEMBER, AS TRANSFER OF PROPERTIES, AS AMOUNT COLLECTED IS E XEMPTED UNDER THE PRINCIPLE OF MUTUALITY. 2.THE LD CIT(A) OUGHT NO0T HAVE CONFIRMED THE FUND COLLECTED IN THE NAME OF INFRASTRUCTURE FUND FOR GIVING APPROVAL FOR UTILIZING ADDITIONAL FSI UNDER TDR RULES. THE AMOUNT COLLECTE D IS NOT TAXABLE UNDER PRINCIPLE OF MUTUALITY. 11 GROUND NO.1 IS REGARDING THE DISALLOWANCE OF TRA NSFER FEE COLLECTED OVER AND ABOVE ` 25,000/- PER MEMBER. 11.1 THE ASSESSING OFFICER HAS NOTED THAT THE ASSES SEE HAS COLLECTED ` 34,57,652/- FROM THE TRANSFERORS OF PLOTS/UNITS/SHO PS OF THE ASSESSEE. THIS AMOUNT WAS NOT CREDITED IN TO THE INCOME & EXPENDI TURE ACCOUNT BUT THE SAME HAS BEEN TRANSFERRED TO THE RESERVE ACCOUNT UNDER THE HEAD AMENITY FUND. THE ASSESSEE CLAIMED THAT THIS AMOUNT IS NOT TAXABL E ON THE PRINCIPLE OF 8 THE SINDHI IMMIGRANTS COOP HSG SOC LTD MUTUALITY. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND DISALLOWED THE AMOUNT OVER AND ABOVE ` 25,000/- PER TRANSFER. ACCORDINGLY, A SUM OF ` 18,64,772/- WAS TAXED AS IN COME OF THE ASSESSEE. 11.2 ON APPEAL, THE CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 12 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE BYE-LAWS OF THE SOCIETY PERMITS TO RECEIVE TRANSFER FEE. THEREFORE, IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SIND CO-OPERATIVE HOUSING SOCIETY V. INCOM E-TAX OFFICER REPORTED IN 317 ITR 47, THE PRINCIPLE OF MUTUALITY WOULD APPLY ON T HIS AMOUNT. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF MITTAL COURT PREMISES. 12.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THA T AS PER THE GOVERNMENT NOTIFICATION, TRANSFER FEE UPTO ` 25,000/- IS PERMI TTED AND THEREFORE, THE SAME IS COVERED UNDER THE PRINCIPLE OF MUTUALITY AND BALANC E IS LIABLE TO TAX. HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 13 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL AS RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE FIND THAT THIS ISSUE HAS BEEN ADJUDICATED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SI ND COOPERATIVE HSG LTD (SUPRA) WHEREIN THEIR LORDSHIPS HAVE OBSERVED IN PARAA 35 & 36 AS UNDER: CONSIDERING THESE PRINCIPLES, THE QUESTION IS WHET HER ON THE FACTS BEFORE US, THE PRINCIPLE OF MUTUALITY WOULD BE ATT RACTED IN RESPECT OF THE TRANSFER FEE RECEIVED BY THE HOUSING CO-OPE RATIVE SOCIETIES GOVERNED BY THE PROVISIONS OF THE MAHARASHTRA CO-OP ERATIVE SOCIETIES ACT AND THE RULES. IN WALKESHWAR TRIVENI CO-OP. HOUSING SOCIETY LTD. [2004] 267 ITR (AT) 86 ; [2004] 88 IT D 158 (MUM) [SB], THE TRIBUNAL ITSELF HAS HELD THAT THE AMOUNT RECEI VED FROM THE TRANSFEROR MEMBER WOULD NOT BE EXIGIBLE TO TAX. IT IS ONLY THE AMOUNT RECEIVED FROM THE TRANSFEREE, THAT IS EXIGIB LE TO TAX. WE 9 THE SINDHI IMMIGRANTS COOP HSG SOC LTD HAVE NOTED THAT IN SO FAR AS SIND CHS AND NATIONAL CHS LTD. THEIR BYE-LAWS PROVIDE THAT THE AMOUNT HAS TO BE PAID BY THE TRANSFEROR MEMBER. THE ISSUE, THEREFORE, OF THE TRANSFEROR OR THE TRANSFEREE FOR THOSE ASSESSEES REALLY DOES NOT ARISE. HOWEVER, WE WILL HAVE TO ANSWER THE ISSUE CONSIDERI NG WHAT WAS CONSIDERED IN THE CASE OF WALKESHWAR [2004] 267 ITR (AT) 86 (BOM) AND CONSIDERING THE MODEL BYE-LAWS WHICH ARE NOW A DOPTED BY MOST HOUSING SOCIETIES. WE HAVE NOTED THE BYE-LAWS AS ALSO THE PROVISIONS UNDER THE ACT AND THE RULES. THE TRANSFE R FEE CAN BE APPROPRIATED ONLY IF THE TRANSFEREE IS ADMITTED TO MEMBERSHIP. THE FACT THAT A PROPOSED TRANSFEREE MAY MAKE PAYMENT IN ADVANCE BY ITSELF IS NOT RELEVANT. THE AMOUNT CAN ONLY BE APPR OPRIATED ON THE TRANSFEREE BEING ADMITTED AS A MEMBER. AS IT IS A TRANSFER FEE, IF THE TRANSFEREE IS NOT ADMITTED AS A MEMBER, THE AMO UNT RECEIVED WILL HAVE TO BE REFUNDED, AS THE AMOUNT IS PAYABLE ONLY ON A TRANSFER OF RIGHTS OF THE TRANSFEROR IN THE TRANSFE REE. IF IT IS HELD THAT PAYMENT OF TRANSFER FEES IS BY A STRANGER, IT WILL CERTAINLY BE IN THE NATURE OF GIFT AND NOT INCOME. IF AN AMOUNT IS RECE IVED MORE THAN WHAT IS CHARGEABLE UNDER THE BYE-LAWS OR GOVERNMENT DIRECTIONS, THE SOCIETY IS BOUND TO REPAY THE SAME AND IF IT RE TAINS THE AMOUNT IT WILL BE IN THE NATURE OF PROFIT MAKING AND THAT SPECIFIC AMOUNT WILL BE EXIGIBLE TO TAX. CONSIDERING THE BYE-LAWS, AS TH E MAIN ACTIVITY OF A CO-OPERATIVE HOUSING SOCIETY IS TO MAINTAIN THE P ROPERTY OWNED BY IT AND TO RENDER SERVICES TO ITS MEMBERS BY WAY OF USUAL PRIVILEGES, ADVANTAGES AND CONVENIENCES, THERE IS NO PROFIT MOT IVE INVOLVED IN THESE ACTIVITIES. THE AMOUNT LEGALLY CHARGEABLE AND RECEIVED GOES INTO THE FUND OF THE SOCIETY WHICH IS UTILIZED FOR THE REPAIRS OF THE PROPERTY AND COMMON BENEFITS TO ITS MEMBERS. 6 SINCE IN THE CASE IN HAND, THE AMOUNT HAS NOT REC EIVED UNDER PRESSURE OR COERCION OR CONTRARY TO THE BYE-LAWS OF THE SOCIETY; THEREFORE, PRINCIPLES OF MUTUALITY WILL APPLY. ACCORDINGLY, F OLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F SIND COOPERATIVE HSG LTD (SUPRA), WE ALLOW THE CLAIM OF THE ASSESSEE. 13.1 SINCE IN THE CASE IN HAND, THE ASSESSEE HAS C LAIMED THAT THE BYE-LAWS OF THE SOCIETY HAS BEEN AMENDED FROM TIME TO TIME AND UNDER THE AMENDED BYE- LAWS, THE ASSESSEE IS ALLOWED TO RECEIVE THE TRANS FER CHARGES WITHOUT ANY RESTRICTION OF ` 25,000/-. SINCE THE AMENDED BYE-L AWS HAS NOT BEEN PRODUCED BEFORE US AND AS PER THE OLD BYE-LAWS, TRANSFER CHA RGES UPTO ` 25,000/- WAS PERMITTED TO RECEIVE BY THE ASSESSEE. THEREFORE, TH IS ISSUE IS REMANDED TO THE 10 THE SINDHI IMMIGRANTS COOP HSG SOC LTD RECORD OF THE ASSESSING OFFICER TO VERIFY WHETHER THE AMENDED BYE-LAWS OF THE SOCIETY PERMITS TO RECEIVE THE TRANSFER CHARGES AS CLAIMED BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE AS PER LAW IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SIND CO-OP ERATIVE HOUSING SOCIETY (SUPRA). ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 14 NEXT GROUND IS REGARDING THE AMOUNT RECEIVED FOR UTILISED FOR ADDITIONAL FSI UNDER TDR RULES. 14.1 THE ASSESSEE WAS GRANTED ADDITIONAL FSI BY WAY OF PURCHASE OF TDR. THE ASSESSEE HAS COLLECTED `. 60/- PER SQ.FT FROM ITS M EMBERS TOTALLING TO ` 7,08,491/- FROM THREE OF SUCH MEMBERS FOR ALLOWING THEM TO UT ILISE THE ADDITIONAL FSI. THIS AMOUNT HAS BEEN SHOWN IN THE BALANCE SHEET UNDER TH E HEAD INFRASTRUCTURE FUND. THE ASSESSING OFFICER OBSERVED THAT AS O N 31.3.2006, THE AMOUNT AVAILABLE UNDER THE INFRASTRUCTURE FUND IS ` 23 LAC S AND THE STATE AND THE MUNICIPAL AUTHORITIES WHO ACTUALLY PROVIDE INFRAS TRUCTURAL FACILITIES TO THE PUBLIC COLLECT ONLY NOMINAL CHARGES OF ABOUT ` 5/- PER SQF .T DEPENDING UPON THE LOCALITY. THEREFORE, THE ASSESSING OFFICER HELD THAT THE AMOU NT OF `60/- PER SQ.FT COLLECTED BY THE ASSESSEE SOCIETY FROM ITS MEMBERS, WHO ARE M AKING ADDITIONAL CONSTRUCTION IN THEIR OWN PLOTS IS NOT FOR ANY REA L INTENTION OF PROVIDING INFRASTRUCTURE FACILITIES TO ITS MEMBERS BUT RECEI VED AT SUCH A HIGHER RATE FOR ADDITIONAL FSI. ACCORDINGLY TAXED THE SAID AMOUNT O F ` 7,08 491/- AS INCOME OF THE ASSESSEE. 14.2 ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER. 15 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITT ED THE MAIN FUNCTION OF ASSESSEE SOCIETY IS TO MANAGE, MAINTAIN AND ADMINIS TER THE PROPERTY OF THE 11 THE SINDHI IMMIGRANTS COOP HSG SOC LTD SOCIETY AND ALSO TO RAISE THE NECESSARY FUNDS FOR A CHIEVING THE AFORESAID PURPOSES AND THE OBJECTS OF THE SOCIETY. FURTHER, T HE ASSESSEE IS TO UNDERTAKE AND PROVIDE THE AMENITIES AND FACILITIES FOR THE BE NEFITS OF ITS MEMBERS ETC. THE LD AR HAS SUBMITTED THAT NEITHER THE SOCIETYS OBJE CT ALLOWS NOR DOES THE SOCIETY ENGAGE INTO ANY TRADING OR PROFIT MAKING ACTIVITIES AND IT IS PURELY AND SIMPLY A MUTUAL ASSOCIATION OR AN ORGANIZATION OF PERSONS WH O OWN PLOT PREMISES IN THE SOCIETY KNOWN AS SINDHI IMMIGRANTS COOP SOCIETY LTD . 15.1 THE LD AR OF THE ASSESSEE HAS FURTHER SUBMITTE D THAT ANY CONTRIBUTION MADE BY PRESENT MEMBERS TOWARDS ANY FUND SUCH AS SI NKING FUND, COMMON AMENITY FUND, REPAIR FUND ETC IRRESPECTIVE OF WHETH ER THE BENEFIT ACCRUES TO THE SAME PRESENT MEMBERS OR OTHER MEMBERS IN FUTURE DOE S NOT IMPLY PROFIT IN THE HANDS OF THE SOCIETY, SINCE A COOP SOCIETY IS A BOD Y OF PERSONS HAVING NO MOTIVE OF PROFIT OR COMMERCIAL ACTIVITY. IN CASE OF SOCIET Y, CONTRIBUTION BY MEMBERS IS ALWAYS FOR THEIR MUTUAL BENEFIT. THE LD AR HAS CONT ENDED THAT NOWHERE, IN THE INCOME TAX. ACT, TIME/PERIOD OF BENEFIT ACCRUAL TO THE MEMBER IS MENTIONED. FURTHER IT WAS SUBMITTED THAT MUTUALITY SIMPLY MEAN S FOR THE BENEFIT OF THE ASSOCIATE PERSONS. THE ACT DOES NOT REQUIRE REGISTR ATION OF SUCH ASSOCIATION OF PERSONS IN ANY FORM. MUTUALITY CONCERN REQUIRES THA T ALL PARTICIPATORS IN THE SURPLUS OF THE SOCIETY SHOULD BE THE CONTRIBUTORS B UT IT IS NOT NECESSARY THAT ALL CONTRIBUTORS ARE THE PARTICIPATORS IN THE SURPLUS. 15.2 THE LD AR HAS FURTHER SUBMITTED THAT NO PERSON TRADE WITH HIMSELF AND MAKE AN ASSESSABLE PROFIT. IF DIFFERENT PERSONS COM BINE THEMSELVES INTO DISTINCT AND A SEPARATE LEGAL ENTITY FOR THE PURPOSE OF REND ERING SERVICES TO THEMSELVES, THE RESULTING SURPLUS IS NOT ASSESSABLE TO TAX, IF THE SURPLUS IS REFUNDABLE TO MEMBERS. IT IS IMMATERIAL WHETHER THE SURPLUS IS PA ID BACK TO THE MEMBERS IN CASH OR IS PUT TO REVENUE WITH THE SOCIETY FOR ITS DEVELOPMENT AND FOR PROVIDING 12 THE SINDHI IMMIGRANTS COOP HSG SOC LTD BETTER AMENITIES TO ITS MEMBERS IMMEDIATELY OR IN F UTURE. HE HAS RELIED UPON THE DECISIONS OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS ADARSH COOP HSG SOC. LTD REPORTED IN 213 ITR 677 (GUJ) AND IN THE CASE OF CIT VS SHREE JARI MERCHANTS ASSO REPORTED IN 106 ITR 542 (GUJ). 15.3 ON THE OTHER HAND, THE LD DR HAS SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE IS COL LECTING THIS FUND BY ALLOWING THE MEMBERS TO UTILISE THE ADDITIONAL FSI AND CONST RUCTION OF ADDITIONAL AREA. THEREFORE, THIS FUND IS NOT FOR ANY FACILITY OR INF RASTRUCTURE FOR THE MEMBERS OF THE SOCIETY. HENCE, PRINCIPLE OF MUTUALITY IS NOT APPLI CABLE. 16 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE AMOUNT IN QUESTION HAS BEEN COLLECTED BY THE ASSESSEE SOCIETY FROM ITS MEMBERS. THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE RATE OF ` 60/- PER S Q.FT IS HIGHER THAN THE RATE CHARGED BY THE LOCAL AUTHORITY FOR PROVIDING THE SA ME FACILITIES. WHEN THERE IS NO PROFIT MOTIVE OR BUSINESS BY COLLECTING SUCH FUND B Y THE ASSESSEE SOCIETY, THEN ONLY BECAUSE OF THE RATE CHARGED BY THE ASSESSEE SO CIETY FROM ITS MEMBERS IS HIGHER THAN THE RATE OF LOCAL BODY CANNOT BE A GROU ND FOR REJECTING THE PRINCIPLE OF MUTUALITY. WHEN THE AMOUNT IS COLLECTED FROM TH E MEMBERS AND HAS TO BE UTILISED FOR PROVIDING THE FACILITIES AND INFRASTRU CTURE TO THE MEMBERS OF THE SOCIETY, THEN IT IS ESTABLISHED THAT THERE IS CLOSE NEXUS BETWEEN THE CONTRIBUTION AND UTILISATION OF THE FUND FOR ITS MEMBERS. ACCORD INGLY, IT FULFILS THE CHARACTER OF MUTUALITY AS THE FUND HAS BEEN COLLECTED FROM THE C ONTRIBUTION OF THE MEMBERS. ACCORDINGLY, WE ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF THE COLLECTION MADE FROM THE MEMBERS UNDER INFRASTRUCTURE FUND. 13 THE SINDHI IMMIGRANTS COOP HSG SOC LTD 17 IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSE WHEREAS THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 6 TH , DAY OF JAN 2012. SD/ SD/- ( ( ( ( T R SOOD ) T R SOOD ) T R SOOD ) T R SOOD ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) ( VIJAY PAL RAO ) ( VIJAY PAL RAO ) ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 6 TH , JAN 2012 RAJ* RAJ* RAJ* RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI