M/s. Sammay Association, Ahmedabad V. The DY. CIT., (OSD)-Circle-9, Ahmedabad

CO 147/AHD/2007

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4385 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-03-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 30-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 22-06-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Diversion of income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SH. MAHAVIR SINGH,JMAND SH. A N PAHUJA,AM) ITA NO.1534/AHD/2007 WITH C O NO.147/AHD/2007 (ASSESSMENT YEAR:-2004-05) THE DEPUTY COMMISSIONER OF INCOME-TAX (OSD), CIRCLE-9, AHMEDABAD V/S M/S SAMMAY ASSOCIATION, ATMA HOUSE, OPP. OLD RESERVE BANK OF INDIA, ASHRAM ROAD, AHMEDABAD [PAN:AAAAS4137R] [APPELLANT] [RESPONDENT] REVENUE BY :- SMT. NEETA SHAH, DR ASSESSE BY:- MS. URVASHI SHODHAN,AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AND THE CROSS- OBJECTION[CO] BY THE ASSESSEE AGAINST AN ORDER DATE D 27 TH FEBRUARY, 2007 OF THE LD. CIT(APPEALS)-XV, AHMEDABAD, RAISE T HE FOLLOWING GROUNDS: ITA NO.1534/AHD/2007 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D IRECTING THE AO TO ALLOW THE MAINTENANCE RELATED EXPENSES OF RS.9,73,203/- A GAINST INTEREST / OTHER INCOME AND ONLY IF SOME NET SURPLUS IS TO BE FOUND AFTER MAKING SUCH ADJUSTMENTS, THE NET SURPLUS WOULD ONLY REMAIN TAXABLE. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE SET ASIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. C O NO.147/AHD/2007 : 1 IN THE EVENT, IF IT IS HELD THAT MAINTENANCE RELA TED EXPENSES OF RS.9,73,203/- IS NOT ALLOWABLE AGAINST INTEREST / O THER INCOME, THEN SUCH INCOME / EXPENSES SHOULD BE TREATED AS NOT TO THE ACCOUNT OF THE APPELLANT BUT TO THE ACCOUNT OF MEMBERS IN VIEW OF PRINCIPLES OF ITA NO.1534/AHD/2007 C O NO.147/AHD/2007 2 DIVERSION OF INCOME AT SOURCE THROUGH OVERRIDING CH ARGE AND ALSO ON ACCOUNT OF FIDUCIARY CAPACITY AND ALSO EXPENSES CLA IMED WERE NOT INADMISSIBLE U/S 57(III) OF THE I.T. ACT. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT THE RETURN DECLARING LOSS OF RS.20,53,203/- FILED ON 24-08-200 5 BY THE ASSESSEE, A NON-TRADING ASSOCIATION, WAS REVISED ON 27-01-2006 DECLARING LOSS OF RS.1,49,690/-. THEREAFTER, THE SA ID RETURN WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 [THE ACT] ON 18-08-2006. AS IN THE PRECEDING ASSESSMENT YEARS, THE AO SHOWCAUSED THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AS TO WHY MAINTENANCE RELATED E XPENSES BE NOT DISALLOWED. AFTER CONSIDERING THE REPLY OF THE ASSE SSEE, THE AO, FOLLOWING HIS OWN ORDERS FOR THE PRECEDING ASSESSME NT YEARS, DISALLOWED THE CLAIM OF RS.9,73,203/- ON ACCOUNT OF MAINTENANCE RELATED EXPENSES. 3 ON APPEAL, THE LEARNED CIT(A), FOLLOWING THE ORDE R DATED 07- 12-2006 OF THE ITAT IN THE ASSESSEES OWN CASE IN I TA NO.2127 TO 2132/AHD/2006 FOR AYS 1997-98 TO 2003-04, ALLOWED T HE CLAIM OF THE ASSESSEE WITH THE OBSERVATION THAT ONLY IF SOME NET SURPLUS IS FOUND AFTER MAKING SUCH ADJUSTMENTS, THE NET SURPLUS WOUL D ONLY REMAIN TAXABLE. 4 THE REVENUE IS NOW IN APPEAL AGAINST THE AFORESAI D FINDINGS OF THE CIT(A) WHILE THE ASSESSEE IN THEIR CROSS OBJECT ION RAISED AN ALTERNATE PLEA THAT THE SAID EXPENDITURE BE TREATED TO THE ACCOUNT OF MEMBERS OF THE ASSOCIATION, IF IT IS NOT ALLOWABLE AGAINST INTEREST/OTHER INCOME. AT THE OUTSET, BOTH THE PART IES AGREED THAT THE ISSUE IS SQUARELY COVERED BY THE AFORESAID DECISION DATED 07-12- 2006 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AYS 1997-98 TO 2003-04, WHEREIN FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF ITA NO.1534/AHD/2007 C O NO.147/AHD/2007 3 M/S GULMARG ASSOCIATION, THE TRIBUNAL UPHELD THE FI NDINGS OF THE LD. CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE. 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE. WE FIND THAT THE ITAT VIDE THEIR AFORESAI D ORDER DATED 07- 12-2006 IN ITA NO.2127 TO 2132/AHD/2006 FOR THE AY S 1997-98 TO 2003-04, RELIED UPON THE DECISION DATED 28-05-2004 OF THE ITAT AHMEDABAD BENCH IN THE CASE OF M/S GULMARG ASSOCIAT ION IN ITA NO.389/AHD/2001, WHEREIN IT WAS HELD AS UNDER: THE FACTS OF THE CASE ARE THAT A SOCIETY IS FORMED FOR MAINTENANCE OF RESIDENTIAL SOCIETY OF THE MEMBERS, MAINTENANCE CHA RGES ARE MUTUALLY COLLECTED FROM MEMBERS. THE OBJECT WAS NOT TO EARN PROFIT AND DISTRIBUTION THEREOF TO THE MEMBERS* EVEN ON DISSOLUTION THE SUR PLUS WILL NOT BE DISTRIBUTED TO THE MEMBERS. FOR THE PURPOSE OF THE OBJECT OF SOCIETY I,E. MAINTENANCE, THE SOCIETY CREATED A FUND LIKE CONSTR UCTION FUND AND MAINTENANCE FUND. THE MAINTENANCE FUND WAS DEPOSITE D WITH BANK AND OTHERS, THE INTEREST INCOME RECEIVED. BOTH THE LOWE R AUTHORITIES HAVE ACCEPTED THE PRINCIPLE OF MUTUALITY IN RESPECT OF C ONTRIBUTION FROM MEMBERS WHICH IS NOT UNDER DISPUTE. ON THE BASIS OF THAT PR INCIPLE, THE AO HAS NOT CHARGED TAX ON SURPLUS. THE DISPUTE IS ONLY IN RESP ECT OF INTEREST INCOME. THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE C ASE OF RAJPATH CLUB (SUPRA) IS DISTINGUISHABLE ON FACTS, IN THAT CASE S URPLUS FUND WAS INVESTED WITH THE INTENTION TO EARN INTEREST INCOME, 'FURTH ER ON DISSOLUTION SURPLUS SHALL BE DISTRIBUTED TO MEMBERS. WHEREAS IN THE CAS E UNDER CONSIDERATION THAT INTEREST INCOME WAS DIRECTLY CHARGED FOR THE M AINTENANCE EXPENSES AND NOT TO EARN INTEREST, AS INCOME., THIS OBSERVAT ION IS SUPPORTED BY THE FACTS OF THIS CASE .THAT THIS INCOME WILL NOT BE GI VEN TO THE MEMBERS EVEN ON DISSOLUTION OF THE ASSOCIATION. UNDER THE CIRCUM STANCES, WE FIND -THAT THE LOWER AUTHORITIES HAVE NOT PROPERLY APPRECIATED THE FACTS OF THE CASE. THE PECULIAR FACT OF THE CASE IS THAT THE SOCIETY H AS DECIDED TO COLLECT ONE TIME FUND FROM MEMBERS INSTEAD OF PERIODICAL COLLEC TION FROM THE MEMBERS AND FURTHER DECIDED THAT IN CASE INCOME FALLS SHORT , THE DEFICIT WILL BE COLLECTED FROM MEMBERS. FROM THE ABOVE FACTS IT IS CLEAR THAT THE ASSOCIATION ASSESSEE HAS CREATED CHARGE ON THE MAIN TENANCE FUND COLLECTED FROM THE MEMBERS TOWARDS MAINTENANCE EXPE NSES. SO TO THE EXTENT IT IS NOT INCOME BECAUSE IT HAS BEEN DIVERTE D BY AN OVERRIDING TITLE. WE FIND THAT THE ACCRUAL OF INTEREST INCOME ITSELF IS FOR THE PURPOSE OF MAINTENANCE. AS PER THE OBJECT AND DISSOLUTION CLAU SES AND CONNECTED RESOLUTION OF THE ASSOCIATION, THIS INCOME IS NEVER TO BE DISTRIBUTED TO MEMBERS OF THE ASSOCIATION AS INCOME OR OTHERWISE. ITA NO.1534/AHD/2007 C O NO.147/AHD/2007 4 5.1 IN THE LIGHT OF VIEW TAKEN BY THE ITAT IN THEIR AFORESAID ORDER DATED 07-12-2006 FOR THE AYS 1997-98 TO 2003-04, WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE DECISION OF THE LD. CIT(A). CONSEQUENTLY, GROUND NO.1 IN THE APPEAL OF THE REVE NUE IS DISMISSED. 6 GROUND NOS.2 AND 3 BEING GENERAL IN NATURE, DO NO T REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . 7 GROUND RAISED IN THE CROSS OBJECTION WAS NOT PRES SED BEFORE US BY THE LD. AR ON BEHALF OF THE ASSESSEE. THEREFO RE, THIS GROUND IS ALSO DISMISSED. 8. IN THE RESULT, APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 30-03-2 010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-03-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S SAMMAY ASSOCIATION, ATMA HOUSE, OPP. OLD RES ERVE BANK OF INDIA, ASHRAM ROAD, AHMEDABAD 2. THE DCIT (OSD), CIRCLE-9, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XV, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR/ ASSISTANT REGISTRAR ITAT, AHMEDABAD