M/s. Surya Kiran Maintenance Society (Regd), New Delhi V. ITO, New Delhi

CO 58/DEL/2013

• Counselvise Citation: [2017] 119 COUNSELVISE.COM (IT) 3399 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 16-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 25-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

1 ITA NO. 4525/DEL/2012 & C.O. NO. 58/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO.4525/DEL/20 12 (A.Y 2008-09) ITO WARD-31(2), ROOM NO. 334A, C. R. BUILDING NEW DELHI (APPELLANT) VS SURYA KIRAN MAINTENANCE SOCIETY (REGD.) SURYA KIRAN BUILDING, 19, K. G. MARG NEW DELHI AACTS4927N (RESPONDENT) C.O NO.58/DEL/2013 (A.Y 2008-09) SURYA KIRAN MAINTENANCE SOCIETY (REGD.) SURYA KIRAN BUILDING, 19, K. G. MARG NEW DELHI AACTS4927N (APPELLANT) VS ITO WARD-31(2), ROOM NO. 334A, C. R. BUILDING NEW DELHI (RESPONDENT) APPELLANT BY SH. N.K. BANSAL, SR. DR RESPONDENT BY SH. M.P. RASTOGI, ADV MS. LALITHA KRISHNA MURTHY, C.A ORDER PER SUCHITRA KAMBLE, JM THE APPEAL AND CROSS OBJECTION ARE FILED AGAINST TH E ORDER DATED 11/06/2012 PASSED BY CIT(A)-XXVI, NEW DELHI. DATE OF HEARING 17.05.2017 DATE OF PRONOUNCEMENT 15.06.2017 2 ITA NO. 4525/DEL/2012 & C.O. NO. 58/DEL/2013 2. THE GROUND OF APPEAL ARE AS UNDER:- (ITA NO. 4525/DEL/2012) 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 44,19,859 /- ON ACCOUNT OF SURPLUS INCOME OVER EXPENDITURE FROM MEMBERS & NON MEMBERS, WHEN THE MIXTURE OF MEMBERS AND NON MEMBERS HERE VI OLATED THE PRINCIPLE OF MUTUALITY. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.3,82,888/- ON ACCOUNT OF INCOME FROM INTEREST ON FDR. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.2,77,775/- ON ACCOUNT OF INCOME FROM INTEREST FROM SAVING BANK ACCOUNT. 3. THE GROUNDS OF CROSS-OBJECTION ARE AS UNDER:- C.O NO.58/DEL/2013 REVISED GROUNDS OF CROSS OBJECTION 1. THAT WITHOUT PREJUDICE TO THE PRINCIPAL OF MUTUALIT Y AS CLAIMED BY THE ASSESSEE, AO OUGHT NOT TO HAVE TAXED THE RECEIPTS OF SUCH ASS ESSEE FOR MEETING THE MAINTENANCE AND UPKEEP COST OF SURYA KIRAN BUILDING ON A GROSS BASIS BUT SHOULD HAVE CONSIDERED AND REDUCED THE EXPENSES INC URRED ON SUCH MAINTENANCE AND UPKEEP FROM SUCH RECEIPTS, FOR WHIC H PURPOSE SUCH AMOUNT WAS RECEIVED. VIENNA 2. THAT WITHOUT PREJUDICE TO THE PRINCIPAL OF MUTUALIT Y AS CLAIMED BY THE ASSESSEE, AO OUGHT NOT TO HAVE TAXED THE RECEIPTS OF SUCH ASS ESSEE FOR MEETING THE MAINTENANCE AND UPKEEP COST OF SURYA KIRAN BUILDING ON A GROSS BASIS WHEN AFTER MEETING SUCH MAINTENANCE AND UPKEEP COST FROM THE COMMON POOL, THERE WAS IN FACT NO SURPLUS LEFT IN THE HANDS OF THE ASS ESSEE WELFARE ASSOCIATION, THAT WAS ESTABLISHED FOR THE WELFARE OF THE FLAT OWNERS OF SURYA KIRAN BUILDING. 3. THAT WITHOUT PREJUDICE THE INTEREST OF RS.3,82,888/ - BEING THE INTEREST ON FDRS MADE WITH BANKS FROM THE GROUND RENT RECEIPTS COLLE CTED BY THE ASSESSEE WELFARE ASSOCIATION FROM ITS MEMBERS AND BEING HELD BY IT O N BEHALF OF SUCH MEMBERS, FOR BEING SUBSEQUENTLY PAID TO THE BUILDER ANSAL PROPER TIES AND INDUSTRIES LIMITED / L & D O DO NOT BELONG TO THE ASSESSEE WELFARE ASSOC IATION BUT TO THE MEMBERS AND CONSEQUENTLY AO HAS ERRED IN TAXING SUCH AMOUNT OF INTEREST OF RS.3,82,888/- BEING THE INTEREST ON FDRS WITH BANKS NOT ACCRUED IN LAW IN THE HANDS OF THE ASSESSEE. 4. THAT WITHOUT PREJUDICE THE INTEREST OF RS.2,77, 775/- BEING THE INTEREST ON SAVINGS ACCOUNTS MADE WITH BANKS FROM THE GROUND RENT RECEI PTS AND THE SECURITY DEPOSIT RECEIPTS COLLECTED BY THE ASSESSEE WELFARE ASSOCIAT ION FROM ITS MEMBERS AND 3 ITA NO. 4525/DEL/2012 & C.O. NO. 58/DEL/2013 BEING HELD BY IT ON BEHALF OF SUCH MEMBERS, FOR BEI NG SUBSEQUENTLY PAID TO THE BUILDER ANSAL PROPERTIES AND INDUSTRIES LIMITED / L & D O / MEMBERS DO NOT BELONG TO THE ASSESSEE WELFARE ASSOCIATION BUT TO T HE MEMBERS AND CONSEQUENTLY AO HAS ERRED IN TAXING SUCH AMOUNT OF INTEREST OF RS.2,77,7 75/- BEING THE INTEREST ON SAVINGS ACCOUNTS WITH BANKS NOT ACCRUED IN LAW IN THE HANDS OF THE ASSESSEE. 4. THE BRIEF FACTS OF THE CASE ARE THE ASSESSEE IS A WELFARE ASSOCIATION FORMED FOR THE WELFARE OF ITS MEMBERS WHO ARE FLAT OWNERS IN A MULTISTORIED BUILDING CALLED SURYA KIRAN. THE ASSESSEE SOCIET Y WAS FORMED BY THE MEMBERS OF THE SOCIETY, WHO ARE ALSO FLAT OWNERS TO PROVIDE BASIC FACILITIES IN SURYA KIRAN BUILDING, LIKE FACILITY FOR LIFTS, ELEC TRICITY, WATER, SECURITY AND FIRE FIGHTING ETC. FOR PROVIDING THESE SERVICES THE SOC IETY RECEIVES SERVICE CHARGES FROM FLAT OWNERS TO MEET OUT THE EXPENSES. THE ASSE SSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 29/9/2008 DECLARING TOTAL INCOME AT NIL. THE ASSESSMENT IN THIS CASE WAS COMPLETED ON 13/12/2008 U/S 143(3) OF THE ACT, 1961 DETERMINING THE TOTAL TAXABLE INCO ME AT RS.50,80,520/- ON ACCOUNT OF FOLLOWING ADDITIONS MADE TO THE RETURNED INCOME AS THE INCOME WAS CLAIMED EXEMPT ON THE PRINCIPLE OF MUTUALITY OF RS. NIL. (I) CONTRIBUTION FROM MEMBERS AND NON-MEMBERS FOR UPKEEP OF THE BUILDING 44,19,859/- (II) INTEREST OF FDR 3,82,588/- (III) INTEREST ON SAVING BANK ACCOUNT 2,77,775/ - 50,80,522/- THE ASSESSING OFFICER REJECTED THE ASSESSEES CLAIM THAT ITS INCOME IS EXEMPT ON THE PRINCIPLE OF MUTUALITY FOLLOWING THE ASSESSMENT ORDER FOR ASSESSMENT YEARS 2004-05 AND 2007-08 AND ADDED THE ABOVE AMOUNTS OF CONTRIBUTIONS RECEIVED FROM MEMBERS AND NON-MEMBERS FOR MAINTENANCE AND UP KEEP OF THE BUILDING. 5. THE CIT(A) PARTLY ALLOWED THE ASSESSEES APPEAL BY HOLDING THAT WHILE THE ASSESSEE CLAIMED THE ENTIRE RECEIPTS AS EXEMPT FROM TAXATION ON THE PRINCIPLE OF MUTUALITY, THE ASSESSING OFFICER FOLLOWING THE ASSE SSMENT ORDERS FOR THE 4 ITA NO. 4525/DEL/2012 & C.O. NO. 58/DEL/2013 ASSESSMENT YEARS 2004-05 & 2007-08 BROUGHT THE SAME TO THE TAX. THE SAID ASSESSMENT ORDERS STATED THAT THE ITAT IN ASSESSESE S CASE BY FOLLOWING VARIOUS JUDICIAL PRONOUNCEMENTS HELD THAT THE ASSESSMENT OF THE ASSESSEE SOCIETY AND ITS INCOME WAS NOT JUSTIFIED AND THE INCOME OF THE ASSESSEE SOCIETY IS NOT TABLE ON THE PRINCIPLE OF MUTUALITY. THUS, THE CIT(A) DE LETED THE ENTIRE ADDITION RELATING TO RECEIPTS FROM MEMBERS AND NON-MEMBERS, INTEREST ON FDRS AND INTEREST ON SAVING BANK ACCOUNT. 6. THE LD. DR RELIED ON THE ASSESSMENT ORDER, BUT C OULD NOT DISTINGUISH THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR A.Y. 2 004-05 & 2007-08 BEING (ITA NOS. 2728 & 2837/DEL/2008 A.Y. 2004-05, ITA NO. 437 9/DEL/2010 WITH CO NO. 381/DEL/2011 IN A.Y. 2007-08 ORDER DATED 16. 12.2011) AND AS RELATES TO GROUND NO. 4 OF THE CROSS OBJECTION THE LD. DR RELIED ON THE HON'BLE SUPREME COURT DECISION IN CASE OF BANGALORE CLUB 35 0 ITR 509 WHEREIN IT WAS HELD THAT INTEREST IS TAXABLE. 7. THE LD. AR SUBMITTED IN RESPECT OF REVISED CROSS OBJECTION, GROUND NO. 4 WHICH IS RELATED TO INTEREST ON SAVINGS ACCOUNT MAD E WITH THE BANKS FROM THE GROUND RENT RECEIPTS AND THE SECURITY DEPOSIT RECEI PTS COLLECTED BY THE ASSESSEE WELFARE ASSOCIATION FROM ITS MEMBERS AND BEING HELD BY IT ON BEHALF OF SUCH MEMBERS, FOR BEING SUBSEQUENTLY PAID TO THE BUILDER ANSAL PROPERTIES AND INDUSTRIES LIMITED/L&DO/MEMBERS DO NOT BELONG TO TH E ASSESSEE WELFARE ASSOCIATION BUT TO THE MEMBERS, THAT SINCE IN THE P REVIOUS YEARS THE ITAT HAS HELD IN FAVOUR OF THE ASSESSEE, THE SAME STAND MAY BE TAKEN IN THIS ASSESSMENT YEAR. IN ALTERNATE, THE LD. AR SUBMITTED THAT THE ISSUE OF INTEREST ON SAVING DEPOSITS THE SAME MAY BE VERIFIED IN LIGH T OF THE HONBLE APEX COURT JUDGMENT IN CASE OF BANGALORE CLUB VS. CIT 350 ITR 509. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED RECOR DS. SINCE IN THE EARLIER YEARS, THE ITAT HAS DISMISSED THE APPEALS OF THE RE VENUE AND THE ISSUE HEREIN IS SIMILAR TO THAT IT IS JUST AND PROPER TO DISMISS THE APPEAL OF THE REVENUES 5 ITA NO. 4525/DEL/2012 & C.O. NO. 58/DEL/2013 WHEREIN THE ITAT HELD AS UNDER (ITA NOS. 2728 & 283 7/DEL/2008 A.Y. 2004- 05, ITA NO. 4379/DEL/2010 WITH CO NO. 381/DEL/2011 IN A.Y. 2007-08 ORDER DATED 16.12.2011). THE RELEVANT EXTRACT OF TH E ORDER IS AS FOLLOWS: PARA 7.5 IN THE LIGHT OF VIEW TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR AFORESAID DECISION IN THE CASE OF DI T (E) V. ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY, 130 TAXMAN 575, F OLLOWED IN SUBSEQUENT DECISIONS MENTIONED ABOVE, WE HAVE NO AL TERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A) CONCLUDING TH AT THE PRINCIPLE OF MUTUALITY APPLIED TO THE INTEREST INCOME DERIVED BY A CO-OPERATIVE SOCIETY FROM DEPOSITS MADE OUT OF CONTRIBUTIONS MADE BY THE MEMBERS OF THE SOCIETY. THEREFORE, GROUND RAISED BY THE REVENUE IN THESE TWO ASSESSMENT YEARS IN RELATION TO APPLICABILITY OF PRINCIPLE OF MUTUALITY TO INTEREST INCOME IS DISMISSED. THUS, THE APPEAL OF THE REVENUE IS DISMISSED. 9. AS RELATES TO THE ISSUE OF INTEREST ON THE DEPOS IT, THE HONBLE SUPREME COURT IN CASE OF BANGLORE CLUB OBSERVED THAT T HE ASSESSEE, A MUTUAL ASSOCIATION, CLAIMED THE INTEREST EARNED BY IT ON F IXED DEPOSITS KEPT WITH THE BANK (WHICH WAS A CORPORATE MEMBER) WAS NOT TAXABLE ON THE BASIS OF MUTUALITY. THE AO REJECTED THE CLAIM THOUGH THE CIT (A) AND TRIBUNAL UPHELD THE CLAIM. THE HIGH COURT REVERSED THE TRIBUNAL AND UPHELD THE STAND OF THE AO. ON APPEAL BY THE ASSESSEE TO THE SUPREME COURT, THE APEX COURT HELD BY DISMISSING THE APPEAL THAT F OR A RECEIPT TO BE EXEMPT ON THE PRINCIPLES OF MUTUALITY, THREE CONDITIONS HAVE TO BE SATISFIED. T HE FIRST IS THAT THERE MUST BE A COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PART ICIPATORS. THE SECOND IS THAT THE ACTIONS OF THE PARTICIPATORS AND CONTRIBUTORS M UST BE IN FURTHERANCE OF THE MANDATE OF THE ASSOCIATION. THE THIRD IS THAT THERE MUST BE NO SCOPE OF PROFITEERING BY THE CONTRIBUTORS FROM A FUND MADE B Y THEM WHICH COULD ONLY BE EXPENDED OR RETURNED TO THEMSELVES. ON FACTS, THOUG H THE INTEREST WAS EARNED FROM BANKS WHICH WERE CORPORATE MEMBERS OF THE CLUB , IT WAS NOT EXEMPT ON THE GROUND OF MUTUALITY BECAUSE (I) THE ARRANGEMENT LAC KS A COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS. WITH TH E FUNDS OF THE CLUB, MEMBER 6 ITA NO. 4525/DEL/2012 & C.O. NO. 58/DEL/2013 BANKS ENGAGED IN COMMERCIAL OPERATIONS WITH THIRD P ARTIES OUTSIDE OF THE MUTUALITY, RUPTURING THE PRIVITY OF MUTUALITY, AN D CONSEQUENTLY, VIOLATING THE ONE TO ONE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTIC IPATORS, (II) THE SURPLUS FUNDS WERE NOT USED IN FURTHERANCE OF THE OBJECT OF THE C LUB BUT WERE TAKEN OUT OF MUTUALITY WHEN THE MEMBER BANKS PLACED THE SAME AT THE DISPOSAL OF THIRD PARTIES, THUS, INITIATING AN INDEPENDENT CONTRACT B ETWEEN THE BANK AND THE CLIENTS OF THE BANK, A THIRD PARTY, NOT PRIVY TO TH E MUTUALITY & (III) THE BANKS GENERATED REVENUE BY PAYING A LOWER RATE OF INTERES T TO THE ASSESSEE-CLUB AND LOANING THE FUNDS TO THIRD PARTIES. THE INTEREST AC CRUED ON THE SURPLUS DEPOSITED BY THE CLUB LIKE IN THE CASE OF ANY OTHER DEPOSIT M ADE BY AN ACCOUNT HOLDER WITH THE BANK. A FAADE OF A CLUB CANNOT BE CONSTRUCTED OVER COMMERCIAL TRANSACTIONS TO AVOID LIABILITY TO TAX. SUCH SETUPS CANNOT BE PE RMITTED TO CLAIM DOUBLE BENEFIT OF MUTUALITY. THUS, THE ISSUE OF INTEREST IS REMITTED BACK TO THE CIT (A) FOR DECIDING A FRESH IN RESPECT OF THE HONBLE APEX COURT DECISION IN CASE OF BANGLORE CLUB. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN PROPER OPPORTUNITY OF HEARING. 10. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED AND THE CROSS-OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL P URPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 15/06/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 7 ITA NO. 4525/DEL/2012 & C.O. NO. 58/DEL/2013 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 17/05/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 18/05/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 15.06.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 5 .0 6 .2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.