Gujarat State Federation of Co.Op.Sugar Factories Ltd., Gandhinagar V. The Income tax Officer, Ward-2, Gandhinagar

CO 15/AHD/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6041 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M J SHAH
• Assessee Lawyers: B L YADAV
• Keywords: Business income; Opportunity of being heard

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI M.K. SHRAWAT, JM AND D.C.AGRAWAL, AM INCOME-TAX OFFICER, WARD- 2, GANDHINAGAR. VS. GUJARAT STATE FEDERATION OF CO-OP. SUGAR FACTORIES LTD.,PLOT NO.274, SARDAR SAHKARI KHAND BHAVAN, SECTOR 16, GH ROAD, GANDHINAGAR. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- MR. B.L. YADAV, SR. DR RESPONDENT BY:- SHRI M. J. SHAH, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS:- (1) THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE AS SESSEE AS ELIGIBLE FOR EXEMPTION ON THE BASIS OF PRINCIPLE O F MUTUALITY. (2) THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE IN TEREST INCOME OF RS.7,75,813/- AS BUSINESS INCOME INSTEAD OF INCO ME FROM OTHER SOURCES. (3) THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE RE NTAL INCOME OF RS.2,41,414/- FROM REST HOUSE AS BUSINESS INCOME INSTEAD OF INCOME FROM HOUSE PROPERTY. WHEREAS THE ASSESSEE HAS FILED THE CROSS OBJECTION RAISING FOLLOWING GROUNDS :- ITA NO.3427/AHD/2009 ALONG WITH CO NO.15/AHD/2010 ASST. YEAR 2006-07 ITA NO.3427/AHD/2009 ALONG WITH CO NO.15/AHD/2010 ASST. YEAR 2006-07 2 (1) THE CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS.38 ,200/- OUT OF THE OVERALL INCOME OF RS.2,41,414/- ARISING FROM REST HOUSE. (2) THE CIT(A) ERRED IN NOT ALLOWING THE EXPENDITURE IN CURRED FOR MAINTENANCE OF REST HOUSE, THE INCOME FROM WHICH WA S EXEMPT UNDER MUTUALITY AND AS HAS BEEN SO ALLOWED BY THE C IT(A). (3) THE CIT(A) ERRED IN TAXING THE RENTAL INCOME FROM P ROPERTY GIVEN ON RENT INSTEAD OF CONSIDERING IT TO BE EXEMP T INCOME UNDER THE CONCEPT OF MUTUALITY AS THE MONEYS TO CON STRUCT THE PROPERTY WERE CONTRIBUTED BY THE MEMBERS OF THE FED ERATION AND THE INCOME THEREFROM WAS APPLIED FOR THE MEMBERS ON LY. (4) THE CIT(A) ERRED IN NOT ALLOWING THE OVERALL EXPEND ITURE INCURRED FOR THE PURPOSE OF EARNING SUCH INCOME. (5) THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.5,68,000/- WHICH WAS THE PROVISION MADE BY THE A SSESSEE FOR THE PURPOSE OF RESEARCH AND DEVELOPMENT EXPENSES TO BE INCURRED. 2. THUS THE ISSUE INVOLVED IN THE APPEAL FILED BY T HE REVENUE IS WHETHER EXEMPTION SHOULD BE ALLOWED TO INTEREST INC OME OF RS.7,75,813/- ON THE BASIS OF PRINCIPLE OF MUTUALITY/OR SHOULD IT BE ASSESSED AS INCOME FROM OTHER SOURCES. THE SECOND ISSUE IS WHETHER EXE MPTION TO INCOME FROM HOUSE PROPERTY IS TO BE ALLOWED ON THE PRINCIP LE OF MUTUALITY OR TO BE TAXED UNDER THAT HEAD. 3. IN THE CROSS OBJECTION THE ASSESSEE CHALLENGED T HE SUSTAINING OF THE ADDITION OF RS.38,200/- OUT OF TOTAL ADDITION MADE BY THE AO OF RS.2,41,414/- ARISING FROM THE GUEST HOUSE WHICH IS COVERED UNDER THE SECOND ISSUE RAISED BY THE REVENUE. ITA NO.3427/AHD/2009 ALONG WITH CO NO.15/AHD/2010 ASST. YEAR 2006-07 3 4. THE ASSESSEE HAS CLAIMED THAT IT IS A MUTUAL ASS OCIATION AND ITS MEMBERS ARE CO-OPERATIVE SOCIETIES OF THE STATE OF GUJARAT. INITIALLY AN OBJECTION WAS RAISED BY THE AO IN ASST. YEAR 2003-0 4 THAT THE SURPLUS, IN THE EVENT OF DISSOLUTION OF THE FEDERATION, WAS NOT RETURNABLE TO THE MEMBERS. THE CLAIM OF THE ASSESSEE WAS THAT THE SUR PLUS IS COVERED BY SECTION 115 OF THE GUJARAT CO-OPERATIVE SOCIETIES A CT AND IS NOT REQUIRED TO BE DISTRIBUTED AMONG THE MEMBERS. HOWEVER, ON 11 TH MARCH, 2011 IN THE ANNUAL GENERAL BODY MEETING THE FEDERATION PASS ED A RESOLUTION AS UNDER :- RESOLUTION NO.6 MODIFICATION IN BYE-LAWS OF THE FE DERATION: IN CASE OF LIQUIDATION OF THE FEDERATION, AFTER CLE ARANCE OF OUTSTANDING DUES/LIABILITIES BY THE LIQUIDATOR, REMAINING PROPE RTY/ASSETS CAN BE DISTRIBUTED AMONGST INSTITUTIONAL MEMBERS I.E. MEMB ER SUGAR FACTORIES, THERE IS NO PROVISION IN BY-LAWS OF THE FEDERATION. THE EXECUTIVE BODY MEETING OF THIS FEDERATION WHICH WAS HELD ON 22.06. 2010 VIDE RESOLUTION NO.12 PROPOSED TO GENERAL BODY AND HENCE IT HAS BEE N UNANIMOUSLY DECIDED TO MAKE PROVISION IN BY-LAWS OF THIS FEDERA TION AS INDICATED BELOW: 9(A) IN CASE OF LIQUIDATION OF THE FEDERATION, AFT ER CLEARANCE OF ALL OUTSTANDING DUES/LIABILITIES BY THE LIQUIDATOR, REM AINING PROPERTY/ASSETS WILL BE DISTRIBUTED AMONGST INSTITUTIONAL MEMBERS I .E. MEMBER SUGAR FACTORIES IN PROPORTION OF FINANCIAL CONTRIBUTION M ADE BY THEM. ON THE BASIS OF ABOVE RESOLUTION IT WAS PLEADED THA T THE OBJECTION TO APPLICABILITY OF PRINCIPLE OF MUTUALITY HAS BEEN TA KEN CARE OF. CONSIDERING THIS AMENDMENT, THE TRIBUNAL FOR ASST. YEAR 2003-04 TO 2005-06 RESTORED THE MATTER TO THE LD. AO FOR DECIDING AFRESH THE AP PLICABILITY OF PRINCIPLE ITA NO.3427/AHD/2009 ALONG WITH CO NO.15/AHD/2010 ASST. YEAR 2006-07 4 OF MUTUALITY AND ACCORDINGLY THE EXEMPTION TO VARIO US ITEMS OF INCOME UNDER DISPUTE. THE TRIBUNAL FOR THESE THREE YEARS H AD OBSERVED AS UNDER :- 7. ON CONSIDERATION OF THE SUBMISSIONS OF THE PART IES, IN THE LIGHT OF RESOLUTION NO.6 OF THE ASSESSEE (SUPRA) WE SET ASIDE THE ORDER S OF THE AUTHORITIES BELOW AND RESTORE BOTH THE ISSUES TO THE FILE OF THE AO FOR R ECONSIDERATION OF THE ISSUES AFRESH. THE MAIN REASON FOR REJECTING THE CLAIM OF THE ASSE SSEE WAS THAT THE ASSESSEE HAS NOT FULFILLED THE CONDITION REGARDING DISTRIBUTION OF S URPLUS ASSETS ONLY AMONGST THE MEMBERS OF THE ASSOCIATION ON ITS DISSOLUTION. IN T HE ABSENCE OF CLEAR CUT PROVISIONS FOR DISTRIBUTION OF SURPLUS, CLAIM OF THE ASSESSEE ON BOTH THE GROUNDS OF APPEAL WAS REJECTED. THE ASSESSEE HAS HOWEVER, MODIFIED THE BY E-LAWS BY ADDING CLAUSE 9 (A) REFERRED TO ABOVE WHICH WAS ACCORDED SANCTION BY DI RECTOR OF SUGAR, GANDHINAGAR AND ACCORDINGLY IT WAS PUT IN FORM NO.4 ALSO. THES E PAPERS WERE NOT BEFORE THE AO FOR CONSIDERATION. THEREFORE, THE LEARNED COUNSEL F OR THE ASSESSEE RIGHTLY CONTENDED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE AO ON BOTH THE GROUNDS FOR RECONSIDERATION IN ACCORDANCE WITH THE ABOVE NEW DE VELOPMENT BY MODIFYING THE BYE- LAWS OF THE FEDERATION. THE LEARNED DR HAS NO OBJEC TION FOR RESTORING THE MATTER TO THE FILE OF THE AO ON BOTH THE GROUNDS OF APPEAL. ACCOR DINGLY, THE ORDERS OF THE AUTHORITIES ARE SET ASIDE AND BOTH THE GROUNDS ARE RESTORED TO THE FILE OF THE AO FOR RECONSIDERATION IN THE LIGHT OF THE DOCUMENTS NOW P LACED ON RECORD BY THE LEARNED COUNSEL FOR THE ASSESSEE ABOVE. THE AO SHALL PASS R EASONED ORDER BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.1129/AHD/2007 FOR ASSESSME NT YEAR 2003-04 IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.3427/AHD/2009 ALONG WITH CO NO.15/AHD/2010 ASST. YEAR 2006-07 5 8. THE LEARNED CIT(A) FOLLOWED THE SAME ORDER IN TH E REMAINING ASSESSMENT YEARS 2004-05 AND 2005-06. BY FOLLOWING THE ORDER I N ASSESSMENT YEAR 2003-04, THE REMAINING ORDERS OF THE AUTHORITIES BELOW ARE ALSO SET ASIDE AND THE MATTER IN ISSUES ARE RESTORED TO THE FILE OF THE AO FOR RECONSIDERAT ION AFRESH AS DIRECTED ABOVE. 9. IN THE RESULT, ALL THE APPEALS OF THE REVENUE AR E ALLOWED FOR STATISTICAL PURPOSES. 5. AT THE OUTSET THE LD. AR SUBMITTED THAT FOR DECI DING THE APPLICABILITY OF PRINCIPLE OF MUTUALITY THE AO HAS TO CONSIDER THE ABOVE AMENDMENT IN THE RESOLUTION AND THEREAFTER DECIDE A LL THE ISSUES AFRESH ON THE EXEMPTION OF VARIOUS ITEMS OF INCOME CLAIMED BY THE ASSESSEE AS EXEMPT. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT AME NDMENT IS MADE IN MARCH, 2011, THEREFORE, IT COULD BE APPLIED ONLY PR OSPECTIVELY. HE REFERRED TO THE DECISION OF HON. MADRAS HIGH COURT IN THE CASE OF WANKANER JAIN SOCIAL WELFARE SOCIETY VS. CIT 260 IT R 241 (MAD) WHEREIN AMENDMENT IN THE CONSTITUTION OF THE SOCIET Y WAS NOT HELD RETROSPECTIVE. 7. HE FURTHER REFERRED TO THE DECISION OF HON. BOMB AY HIGH COURT IN THE CASE OF CIT VS. COMMON EFFLUENT TREATMENT PLANT , THANE, BELAPUR ASSOCIATION (2010) 5 TAXMAN .COM 110 (BOM) FOR THE PROPOSITION THAT ITA NO.3427/AHD/2009 ALONG WITH CO NO.15/AHD/2010 ASST. YEAR 2006-07 6 MUTUALITY IN RESPECT OF RECEIPTS OF CONTRIBUTION FR OM ITS MEMBERS DOES NOT NECESSARILY LEAD TO THE CONCLUSION THAT EVERY ACTIV ITY OF THE CONCERN SPECIFIES TEST OF MUTUALITY. THEREFORE, HE SUBMITTE D THAT EACH ACTIVITY HAS TO BE EXAMINED INDEPENDENTLY FOR COMING TO THE CONC LUSION THAT PROFIT ARISING THEREFROM IS EXEMPT. HE ALSO REFERRED TO TH E JUDGMENT OF HON. KARNATAKA HIGH COURT IN THE CASE OF CIT VS. BANGALO RE CLUB (2006) 287 ITR 263 (KAR) WHEREIN IT IS HELD THAT INCOME FROM D EPOSITS IN BANK FROM MUTUAL CONCERNS IS TAXABLE AS INCOME. 8. WE HAVE HEARD THE RIVAL PARTIES. SINCE THE ISSUE OF MUTUALITY IS PRIMARILY RESTORED TO THE FILE OF AOFOR ASST. YEARS 2003-04 TO 2005-06 THEN FOLLOWING THE SAME THE ISSUES ARISING IN ASST. YEAR 2006-07 ARE REQUIRED TO BE RESTORED TO THE FILE OF AO FOR DECID ING AFRESH AFTER CONSIDERING THE AMENDMENT IN THE CONSTITUTION, WHET HER IT IS A RETROSPECTIVE AND ACCORDINGLY IT WOULD BE APPLICABL E TO EARLIER YEARS AND IF THE ASSESSEE IS HELD TO BE A MUTUAL CONCERN IN T HIS YEAR THEN FURTHER, WHETHER INTEREST INCOME OR INCOME FROM HOUSE PROPER TY AS CLAIMED BY THE ASSESSEE WOULD BE EXEMPT ON ACCOUNT OF PRINCIPLE OF MUTUALITY. IN OUR CONSIDERED VIEW ALL THE ISSUES ARE KEPT WIDE OPEN F OR DECIDING AFRESH BY THE AO AFTER HE TAKES DECISION ON THE APPLICABILITY OF PRINCIPLE OF MUTUALITY TO THE ASSESSEE. AS A RESULT, THE APPEAL FILED BY THE REVENUE AS ITA NO.3427/AHD/2009 ALONG WITH CO NO.15/AHD/2010 ASST. YEAR 2006-07 7 WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE B OTH ARE ALLOWED BUT FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE A ND THE CROSS OBJECTION FILED BY THE ASSESSEE BOTH ARE ALLOWED BU T FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 17.06.2011. SD/- SD/- (M. K. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 17.06.2011. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.3427/AHD/2009 ALONG WITH CO NO.15/AHD/2010 ASST. YEAR 2006-07 8 1.DATE OF DICTATION 2/6/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 7/6/2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..