M/s. Belvedere Estates Tenants Association, Kolkata V. ITO, Ward - 34(1), Kolkata, Kolkata

ITA 1156/KOL/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8075 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 08-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHA
• Assessee Lawyers: SANJAY KR KEJRIWAL
• Section: 234B; 28

Judgement Text

I.T.A. NO.:1156/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER), AND SHRI MAHAVIR SINGH (JUDICIAL MEMBER) I.T.A. NO.: 1156/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 M/S. BELVEDERE ESTATES TENANTS ASSOCIATION, .APPELLANT 21, OLD COURT HOUSE STREET, CENTRE POINT, ROOM NO. 440, KOLKATA-700 001 [PAN : AAAAB 2901 Q] -VS.- INCOME TAX OFFICER, ..RESPONDENT, WARD-34(1), KOLKATA, PODDAR COURT, 18, RABINDRA SARANI, KOLKATA-700 001 APPEARANCES BY: SANJAY KR. KEJRIWAL, A.R., FOR THE APPELLANT R.K. SAHA, D.R. FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : OCTOBER 16, 2012 DATE OF PRONOUNCING THE ORDER : OCTOBER 1 9, 2012 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE-APPELLANT HA S CHALLENGED COMMISSIONER OF INCOME TAX (APPEALS)S ORDER DATED 22 ND JULY, 2011, FOR THE ASSESSMENT YEAR 2006-07 ON THE FOLLOWING GR OUNDS :- (1) THAT THE LD. CIT(A) WAS UNJUSTIFIED IN HOLDING THAT THE INCOME OF THE APPELLANT IS NOT EXEMPT FROM TAXATION ON GROUND OF MUTUALITY. I.T.A. NO.:1156/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 PAGE 2 OF 8 (2) WITHOUT PREJUDICE TO GROUND NO. 1, THE LD. CIT( A) WAS UNJUSTIFIED IN CONFIRMING THE ADDITION OF RS.2,16,0 00/- ON ACCOUNT OF UNDISCLOSED RENT. (3) WITHOUT PREJUDICE TO GROUND NO. 1, THE LD. CIT( A) WAS UNJUSTIFIED IN CONFIRMING THE ADDITION OF RS.3,50,0 00/- ON ACCOUNT OF TRANSFER FEE. (4) THAT THE LD. CIT(A) WAS UNJUSTIFIED IN HOLDING, CHARGING OF INTEREST U/S. 234A, 234B & 234C OF THE I.T. ACT, 19 61 BY A.O. (5) THAT THE ORDER OF THE LD. CIT(A) IS BASED ON WR ONG APPRECIATION OF FACTS OF THE CASE AND IS BAD IN LAW . 2. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE A SSESSEE INSTITUTION WAS FORMED BY THE TENANTS OF A BUILDING AT 8/8, ALI PUR ROAD, KOLKATA- 700 027, OWNED BY BELVEDERE ESTATE INDIA LTD. THE A SSESSEE WORKS FOR THE COMMON INTERESTS OF ITS MEMBERS AND TAKES CARE OF MAINTENANCE OF THE BUILDING AND ALLIED ACTIVITIES. WHILE THE ASSES SEE CLAIMED THE TAX EXEMPT STATUS ON THE GROUND OF MUTUALITY, THE ASSES SING OFFICER DECLINED THE CLAIM ON THE GROUNDS THAT, INTER ALIA , (I) THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THAT IT IS WORKING ONL Y FOR ITS MEMBERS; (II) THE MEMBERS HAVE DEDUCTED TAX AT SOURCE WHILE MAKING PAYMENTS TO THE ASSESSEE; (III) THE ASSESSEE IS TAXABLE U/S. 28(III) OF THE INCOME TAX ACT; AND THAT (IV) THE FACTS OF THE ASSESSEES CASE ARE NOT IN PARI MATERIAL WITH THE CASE OF CHEMSFORD CLUB VS.- CIT (243 ITR 89). AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(APPEALS) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. I.T.A. NO.:1156/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 PAGE 3 OF 8 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE AS ALSO THE APPLICABLE LEGAL POSITION. 4. WE HAVE NOTED THAT THE CIT(APPEALS) HAS CONFIRME D THE ACTION OF THE ASSESSING OFFICER PRIMARILY ON THE GROUND THAT THE LEARNED A.R. COULD NOT EXPLAIN THE PROVISIONS UNDER WHICH THE IN COME OF THE APPELLANT ASSOCIATION WAS EXEMPT AND HAS, ON THIS BASIS, SIMPLY BRUSHED ASIDE THE EXEMPTION ON THE GROUND OF MUTUALITY. THE LAW IS FA IRLY WELL SETTLED ON THE ISSUE. IN THE CASE OF CIT VS.- BANKIPUR CLUB L TD. (226 ITR 97), HONBLE SUPREME COURT HAS OBSERVED AS FOLLOWS :- 6. UNDER THE I.T. ACT (HEREINAFTER REFERRED TO A S THE ACT) WHAT IS TAXED IS, THE INCOME, PROFITS OR GAINS EARNED OR ARISING, ACCRUING TO A PERSON. THE QUESTION IS WHETHER IN THE CASE OF MEMBERS CLUBSA SPECIES OF MUTUAL UNDERTAKINGIN R ENDERING VARIOUS SERVICES TO ITS MEMBERS WHICH RESULT IN A S URPLUS, THE CLUB CAN BE SAID TO HAVE EARNED INCOME OR PROFITS IN O RDER TO ANSWER THE QUESTION, IT IS NECESSARY TO HAVE A BACKGROUND OF THE LAW RELATING TO MUTUAL TRADING OR MUTUAL UNDERTAKING AND A MEMBERS CLUB. 7. IN HALSBURY LAWS OF ENGLAND, 4 TH EDN. REISSUE VOL. 23 PARAS 161 AND 162 (PAGES 130 AND 132), THE RELEVANT LAW IS STATED THUS :- WHERE A NUMBER OF PERSONS COMBINE TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SO ME VENTURE OR OBJECT AND WILL IN THIS RESPECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN ANY SURPLU S RETURNED TO THOSE PERSONS CANNOT BE REGARDED IN ANY SENSE AS PROFIT. THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. IF THESE REQUIR EMENTS ARE FULFILLED, IT IS IMMATERIAL WHAT PARTICULAR FOR M THE ASSOCIATION TAKES. TRADING BETWEEN PERSONS ASSOCIAT ING TOGETHER IN THIS WAY DOES NOT GIVE RISE TO PROFITS WHICH ARE CHARGEABLE TO TAX. I.T.A. NO.:1156/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 PAGE 4 OF 8 WHERE THE TRADE OR ACTIVITY IS MUTUAL, THE FACT THA T, AS REGARDS CERTAIN ACTIVITIES, CERTAIN MEMBERS ONLY OF THE ASSOCIATION TAKE ADVANTAGE OF THE FACILITIES WHICH IT OFFERS DOES NOT AFFECT THE MUTUALITY OF THE ENTERPRISE. MEMBERS CLUBS ARE AN EXAMPLE OF MUTUAL UNDERTAKING ; BUT, WHERE A CLUB EXTENDS FACILITIES TO NON-MEMBERS , TO THAT EXTENT THE ELEMENT OF MUTUALITY IS WANTING (EMPHASIS, ITALICISED IN PRINT, SUPPLIED) SIMONS TAXES VOL. B, 3 RD EDN., PARAGRAPHS BI.218 AND BI.222 (PAGES 159 AND 167), FORMULATE THE LAW ON THE POINT , THUS: IT IS SETTLED LAW THAT IF THE PERSONS CARRYING ON A TRADE DO SO IN SUCH A WAY THAT THEY AND THE CUSTOME RS ARE THE SAME PERSONS, NO PROFITS OR GAINS ARE YIELDED B Y THE TRADE FOR TAX PURPOSES AND THEREFORE NO ASSESSMENT IN RESPECT OF THE TRADE CAN BE MADE. ANY SURPLUS RESUL TING FROM THIS FORM OF TRADING REPRESENTS ONLY THE EXTEN T TO WHICH THE CONTRIBUTIONS OF THE PARTICIPATORS HAVE P ROVED TO BE IN EXCESS OF REQUIREMENTS. SUCH A SURPLUS IS REGARDED AS THEIR OWN MONEY AND RETURNABLE TO THEM. IN ORDER THAT THIS EXEMPTING ELEMENT OF MUTUALITY SHOU LD EXIST IT IS ESSENTIAL THAT THE PROFITS SHOULD BE CA PABLE OF COMING BACK AT SOME TIME AND IN SOME FORM TO THE PE RSONS TO WHOM THE GOODS WERE SOLD OR THE SERVICES RENDERED.. IT HAS BEEN HELD THAT A COMPANY CONDUCTING A MEMBE RS(AND NOT A PROPRIETARY) CLUB, THE MEMBERS OF THE COMPANY AND O F THE CLUB BEING IDENTICAL, WAS NOT CARRYING ON A TRADE OR BUS INESS OR UNDERTAKING OF A SIMILAR CHARACTER FOR PURPOSES OF THE FORMER CORPORATION PROFITS TAX. A MEMBERS CLUB IS ASSESSABLE, HOWEVER, IN RESPECT OF PROFITS DERIVED FROM AFFORDING ITS FACILITIES TO NON-MEMBER S. THUS, IN CARLISLE AND SILLOTH GOLF CLUB VS. SMITH [1913(3) K .B. 75], WHERE A MEMBERS GOLF CLUB ADMITTED NON-MEMBERS TO PLAY O N PAYMENT OF GREEN FEES IT WAS HELD THAT IT WAS CARRYING ON A BU SINESS WHICH COULD BE ISOLATED AND DEFINED, AND THE PROFIT OF WH ICH WAS ASSESSABLE TO INCOME TAX. BUT THERE IS NO LIABILITY IN RESPECT OF I.T.A. NO.:1156/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 PAGE 5 OF 8 PROFITS MADE FROM MEMBERS WHO AVAIL THEMSELVES OF T HE FACILITIES PROVIDED FOR MEMBERS. (EMPHASIS, ITALICISED IN PRINT, SUPPLIED) IN BRITISH TAX ENCYCLOPEDIA (I) 1962 EDN. (EDITED B Y G.S.A. WHEATCROFT) AT PAGES 1200 AND 1201, DEALING WITH MUTUAL TRADIN G OPERATIONS, THE LAW IS STATED, THUS : IN SEVERAL EARLY CASES THERE WERE DICTA TO THE EFF ECT THAT A MAN COULD NOT MAKE A PROFIT BY TRADING WITH HIMSELF; TH IS DEVELOPED INTO THE PROPOSITION THAT WHEN PERSONS CONTRIBUTE T O A COMMON FUND IN PURSUANCE OF A SCHEME FOR THEIR MUTUAL BENE FIT, HAVING NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THE Y CANNOT BE SAID TO HAVE MADE A PROFIT WHEN THEY FIND THEY HAVE OVERCHARGED THEMSELVES AND THAT SOME PORTION OF THEIR CONTRIBUT IONS MAY BE SAFELY REFUNDED. IT HAS ALSO BEEN ESTABLISHED THAT THE SAME PRINCIPLE APPLIES ALTHOUGH THE CONTRIBUTORS INCORPO RATE THEMSELVES INTO A SEPARATE ENTITY TO CARRY OUT THE MUTUAL SCHEME AND THE SURPLUS CONTRIBUTIONS ARE PUT TO RESERVE AN D NOT IMMEDIATELY RETURNED. FOR THIS DOCTRINE TO APPLY IT IS ESSENTIAL THAT ALL THE CONTRIBUTORS TO THE COMMON FUND ARE EN TITLED TO PARTICIPATE IN THE SURPLUS AND THAT ALL THE PARTICI PATORS IN THE SURPLUS ARE CONTRIBUTORS, SO THAT THERE IS COMPLETE IDENTITY BETWEEN CONTRIBUTORS AND PARTICIPATORS. THIS MEANS IDENTITY AS A CLASS, SO THAT AT ANY GIVEN MOMENT OF TIME THE PERS ONS WHO ARE CONTRIBUTING ARE IDENTICAL WITH THE PERSONS ENTITLE D TO PARTICIPATE; IT DOES NOT MATTER THAT THE CLASS MAY BE DIMINISHED BY PERSONS GOING OUT OF THE SCHEME OR INCREASED BY OTHERS COMING IN.. THE DOCTRINE NOW HAS APPLICATION IN THREE AREAS. FI RST, IT APPLIES TO MUTUAL INSURANCE COMPANIES; SECONDLY, IT APPLIES TO CERTAIN MUNICIPAL UNDERTAKINGS AND, THIRDLY, TO MEMBERS CL UBS, AND MUTUAL ASSOCIATIONS GENERALLY, WHETHER INCORPORATED OR UNINCORPORATED, EXCEPT REGISTERED INDUSTRIAL AND PR OVIDENT SOCIETIES.. (EMPHASIS, ITALICISED IN PRINT, SUPPLIED) IT SHOULD BE NOTICED THAT IN THE CASE OF MUTUAL SO CIETY CONCERN (INCLUDING A MEMBERS CLUB), THERE MUST BE COMPLE TE IDENTITY BETWEEN THE CLASS OF CONTRIBUTORS AND THE CLASS OF PARTICIPATORS. THE PARTICULAR LABEL OR FORM BY WHICH THE MUTUAL AS SOCIATION IS KNOWN, IS OF NO CONSEQUENCE. THE SAID PRINCIPLE WHI CH HAS BEEN LAID DOWN IN THE LEADING DECISIONS AND EMPHASISED I N THE LEADING ENGLISH TEXT BOOKS MENTIONED ABOVE HAS BEEN EXPLAIN ED WITH I.T.A. NO.:1156/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 PAGE 6 OF 8 REFERENCE TO INDIAN DECISIONS IN THE LAW AND PRACT ICE OF INCOME TAX (8 TH EDN. VOL. I, (1990) BY KANGA & PALKHIVALA AT PAGE 113, THUS : ..THE CONTRIBUTORS TO THE COMMON FUND AND THE PARTICIPATORS IN THE SURPLUS MUST BE AN IDENTICAL B ODY. THAT DOES NOT MEAN THAT EACH MEMBER SHOULD CONTRIBU TE TO THE COMMON FUND OR THAT EACH MEMBER SHOULD PARTICIPATE IN THE SURPLUS OR GET BACK FROM THE SUR PLUS PRECISELY WHAT HE HAS PAID. THE MADRAS, ANDHRA PRADESH AND KERALA HIGH COURTS HAVE HELD THAT THE T EST OF MUTUALITY DOES NOT REQUIRE THAT THE CONTRIBUTORS TO THE COMMON FUND SHOULD WILLY-NILLY DISTRIBUTE THE SURPLUS AMONGST THEMSELVES: IT IS ENOUGH IF THEY HA VE A RIGHT OF DISPOSAL OVER THE SURPLUS, AND IN EXERCISE OF THAT RIGHT THEY MAY AGREE THAT ON WINDING UP THE SURPLUS WILL BE TRANSFERRED TO A SIMILAR ASSOCIATIO N OR USED FOR SOME CHARITABLE OBJECTS.. 8. THE CRUCIAL ISSUE THAT ARISES FOR CONSIDERATION IN CASES WHERE IT IS CLAIMED THAT ON THE BASIS OF THE PRINCIPLE OF MUTUALITY, THE RECEIPTS BY THE SOCIETY OR CLUB IS EXEMPT FROM TAXATION, HAS BEEN SUCCINCTLY STATED BY THE JUDICIAL COMMITTEE OF THE PRIVY. COUNCIL IN FLETCHER VS- INCOME TAX COMMISSIONER 1971 (3) ALL ER 1185 AT PAGE 1189], THUS : IS THE ACTIVITY, ON THE ONE HAND, A TRADE, OR AN ADVENTURE IN THE NATURE OF TRADE, PRODUCING A PROFI T, OR IS IT, ON THE OTHER, A MUTUAL ARRANGEMENT WHICH, AT MO ST, GIVES RISE TO A SURPLUS? IN SUBSTANCE, THE ARRANGEMENT OR RELATIONSHIP BETWE EN THE CLUB AND ITS MEMBERS SHOULD BE OF A NON-TRADING CHARACTE R. 5. AS FAR THE REFERENCES TO SECTION 28(III), THIS C AN COME INTO PLAY ONLY WHEN THERE IS AN INCOME DERIVED BY THE ASSES SEE, BUT AS EXPLAINED BY HONBLE SUPREME COURT, NO INCOME CAN A RISE IN THE CASE OF MUTUALITY. SECTION 28 DEALS WITH CLASSIFICATION OF AN INCOME, AND NOT WITH THE SCOPE OF EXPRESSION INCOME. TO DECIDE TH E SCOPE OF INCOME IN THE LIGHT OF SECTION 28(III) THEREFORE WILL BE P UTTING CART BEFORE THE HORSE. THE PLEA OF THE AUTHORITIES BELOW, THEREFORE , LACKS LEGALLY SUSTAINABLE MERITS. I.T.A. NO.:1156/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 PAGE 7 OF 8 6. ON THE FACTS OF THE PRESENT CASE, WE HAVE NOTED THAT THERE IS NO FINDING BY ANY OF THE AUTHORITIES BELOW THAT SERVIC ES ARE RENDERED TO NON-MEMBERS. THERE IS A REFERENCE TO THE SERVICES R ENDERED TO THE OUTSIDERS IN THE ORDERS OF THE AUTHORITIES BELOW, B UT IT IS IN THE CONTEXT OF ANALYSIS OF JUDICIAL PRECEDENTS, AND, THEREFORE, NOTHING TURNS ON THAT. AS LONG AS SERVICES ARE RENDERED TO THE MEMBERS, EV EN FOR A REMUNERATION, THE SAME WILL BE COVERED BY THE PRINC IPLES OF MUTUALITY. AS FAR THE ALLEGATION THAT MEMBERS HAVE DEDUCTED AT SOURCE FROM PAYMENTS TO THE ASSESSEE AND FOR THIS REASON, THE R ECEIPT IS TO BE TAKEN AS TAXABLE RECEIPT, IT IS ONLY ELEMENTARY THAT COND UCT ON THE PART OF THE PERSON MAKING PAYMENT CANNOT DETERMINE CHARACTER OF RECEIPT IN THE HAND OF RECIPIENT. THAT APART, IT IS ALSO A FACT OF LIFE THAT SOMETIMES TAXPAYERS ERR ON THE SIDE OF EXCESSIVE CAUTION AND DEDUCT TAXES AS A MEASURE OF ABUNDANT CAUTION. THE MERE DEDUCTION OF TAX AT SOURCE BY PERSON MAKING THE PAYMENT IN OUR HUMBLE UNDERSTANDI NG, CANNOT LEAD TO THE CONCLUSION THAT RECEIPT WAS TAXABLE IN NATUR E. IT IS TOO NAVE TO THE ACCEPTED OR TO BE EVEN GIVEN A SERIOUS CONSIDER ATION. THE FACTORS RELIED UPON BY THE AUTHORITIES BELOW, IN REJECTING ASSESSEES PLEA, ARE NOT GERMANE TO THE CONTEXT AND DEVOID OF LEGALLY SU STAINABLE MERITS. THE PLEA OF THE ASSESSEE FOR TAX EXEMPTION ON THE G ROUND OF MUTUALITY, THEREFORE, MUST SUCCEED. WE UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 19 TH DAY OF OCTOBER, 2012. SD/- SD/- MAHAVIR SINGH PRAMOD KUMAR (JUDICIAL MEMBER) (ACC OUNTANT MEMBER) KOLKATA, THE 19 TH DAY OF OCTOBER, 2012 I.T.A. NO.:1156/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 PAGE 8 OF 8 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.