Telugu Cine Workers Co-op Housing Society Limited, Hyderabad V. Income Tax Officer, Ward-14(5), Hyderabad

ITA 1186/Hyd/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5235 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 30-04-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 06-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V RAJITHA
• Keywords: Capital receipt; Capital expenditure
• Section: 143(3); 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 1186 & 1553 / HYD/201 8 ASSESSMENT YEAR S : 20 14 - 15 AND 2015 - 16 TELUGU CINE WORKERS CO - OP HOUSING SOCIETY LTD., HYDERABAD. PAN A AAAA 7081 N VS. INCOME - TAX OFFICER, WARD 1 4 ( 5 ), HYDERABAD APPELLANT RESPONDENT ASSESSEE BY: S H RI K.C. DEVDAS REVENUE BY: S MT. V. RAJITHA DATE OF HEARING: 30 / 0 4 / 201 9 DATE OF PRONOUNCEMENT: 15 / 0 5 /201 9 O R D E R PER S. RIFAUR RAHMAN , AM: T H IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) 6 , HYDERABAD, FOR AY 20 14 - 1 5 AND 2015 - 16. AS IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS, THE SAME WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. ITA NO. 1186/ H YD/2018 FOR AY 2014 - 15 2. BRIEF FACTS OF THE CASE ARE, THE ASSESSEE IS A MUTUALLY AIDED CO - OPERATIVE SOCIETY, WITH THE MAIN OBJECT, BEING CONSTRUCTION OF RESIDENTIAL FLATS FOR ITS MEMBERS I.E. CINE WORKERS OF TELUGU FILM INDUSTRY. THE ASSESSEE SOCIETY FILED ITS RETURN OF INCOME FOR THE AY 2014 - 15 ON 24.09.2014 DECLARING A TAXABLE INCOME OF RS. 49,960/ - . THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE I.T.A. NO S . 1186 & 1553 /HYD/1 8 TELUGU CINE WORKERS CO - OP HOUSING SOCIETY LTD. 2 ACT VIDE ORDER DATED 19.08.2016, DETERMINING THE TAXABLE INCOME OF THE ASSESSEE AT RS. 18,55,90 0/ - . WHILE DOING SO, THE AO ASSESSED A SUM OF RS. 1 6,86,2 1 7/ - , BEING THE INTEREST ON FDRS OF RS. 14,40,506/ - AND INTEREST ON SB A /C OF RS. 2,45,711/ - , AS INCOME FROM OTHER SOURCES . 2.1 DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE A O FOUND THAT TH E ASSESSEE DEPOSITED SURPLUS FUNDS, WHICH ARE NOT IMMEDIATELY UTILIZED FOR CONSTRUCTION ACTIVITY, IN FIXED DEPOSITS WITH STATE BANK OF HYDERABAD. FURTHER, THE ASSESSEE HAS RECEIVED INTEREST ON FDRS OF RS.14,40,506 / - AND CREDITED THE SAME TO THE P & L ACCOU NT. AS THE CASE OF THE ASSESSEE IS COVERED UNDER PRINCIPLE OF MUTUALITY, THE A O OPINED THAT THE INTEREST INCOME ON FDRS RECEIVED FROM OUTSIDE BANKS CANNOT BE CONSTRUED AS INCOME COMING UNDER THE AMBIT OF PRINCIPLE OF MUTUALITY. THIS IS PRECISELY BECAUSE OF THE REASON THAT THE FDRS ARE MADE WITH OUTSIDE BANKS WHICH ARE NOT THE MEMBERS OF THE SOCIETY AND, THEREFORE, THERE IS NO IDENTITY BETWEEN THE CONTRIBUTORS OF THE INTEREST INCOME AND THE PERSONS WHO ARE ENJOYING THE I NTERE ST INCOME. ACCORDINGLY, THE AO EX CLUDED THE SAME FROM THE P & L ACCOUNT AND ASSESSED SEPARATELY AS INCOME FROM OTHER SOURCES. WHILE DOING SO, HE DID NOT ALLOW ANY EXPENDITURE DEBITED TO THE P&L ACCOUNT AGAINST SUCH INTEREST INCOME, AS SUCH EXPENDITURE HAS NO NEXUS WITH EARNING INTEREST ON FDRS AS ENVISAGED U/S. 57 OF THE ACT. ACCORDINGLY, THE ENTIRE AMOUNT OF INTEREST ON FDRS OF RS.14,40,506 / - , ALONG WITH INTEREST ON SB ACCOUNTS WAS BROUGHT TO TAX AS INCOME FROM OTHER SOURCES. ALSO, A PART OF P&L EXPENDITURE WAS ALSO INCLUDED AS INCOME OF THE ASSESSEE ON ACCOUNT OF CAPITAL EXPENDITURE IN NATURE. ACCORDINGLY, THE A O ASSESSED ALL THESE AMOUNTS AS INCOME FROM OTHER SOURCES. I.T.A. NO S . 1186 & 1553 /HYD/1 8 TELUGU CINE WORKERS CO - OP HOUSING SOCIETY LTD. 3 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT THE PRINCIPLE OF MUTUALITY IS APPLICABLE EVEN IN RESPECT OF INTEREST RECEIVED ON FDRS PARKED WITH BANKS. ALTERNATIVELY, IT WAS REQUESTED TO ALLOW SET OFF OF EXPENDITURE DEBITED TO TH E P&L A/C AGAINST IN COME FROM OTHER SOURCES. 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, RELYING ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SECUNDERABAD CLUB AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BANGALORE CL UB VS. CIT, DISMISSED THE ASSESSEES GROUND. 4.1 AS REGARDS THE SET OFF OF OPERATIONAL LOSS AGAINST INCOME FROM OTHER SOURCES, THE CIT(A) RELYING ON VARIOUS CASE LAW, HELD AS UNDER: 1) THE ACTIVITIES OF THE ASSESSEE WOULD FALL UNDER THE DOCTRINE OF PR INCIPLE OF MUTUALITY AND, THEREFORE, INCOME OR LOSS COMPUTED BY APPLYING THE PRINCIPLES OF MUTUALITY WILL NOT ENTER THE COMPUTATION OF TOTAL INCOME AS ENVISAGED U/S. 2(45) OF THE ACT. THUS, IF THERE IS ONLY LOSS ARISING FROM THE ACTIVITIES OF THE MEMBERS O F THE SOCIETY, SUCH LOSS CANNOT BE ALLOWED TO BE SET OFF AGAINST INCOME COMPUTED BY APPLYING THE REGULAR PROVISIONS OF THE INC OME TAX ACT UNDER THE HEADS INCOME FROM BUSINESS, INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES ETC. 2) THOUGH THE ACTIVITIES OF THE ASSESSEE WOULD FALL UNDER THE DOCTRINE OF PRINCIPLE OF MUTUALITY, BUT THE INTEREST INCOME RECEIVED BY THE ASSESSEE FROM FIXED DEPOSITS MADE WITH BANKS, BEING NON - MEMBERS OF THE SOCIETY, CANNOT BE CONSIDERED AS INCOME COMING UNDER THE PURVIEW OF PRINCIPLE OF MUTUALITY BY VIRTUE OF THE DECISION OF THE HON'BLE APEX COURT BY VIRTUE OF DECISION OF BANGALORE CLUB VS. CIT [2013/ 350 ITR 509 AND JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SECUNDERABAD CLUB [2012/ 340 ITR 121 I.T.A. NO S . 1186 & 1553 /HYD/1 8 TELUGU CINE WORKERS CO - OP HOUSING SOCIETY LTD. 4 3 ) INTEREST INCOME RECEIVED FROM THE BANKS OF RS. 16,86,217 / - (FD INTEREST OF RS. 14,40,506 + SB INTEREST OF RS. 2,45,711) SHOULD BE TAXED AS PER THE NORMAL PROVISIONS OF THE INCOME TAX ACT UNDER THE HEAD OTHER SOURCES. 4) LOSS COMPUTED, BEING THE EXPENDI TURE INCURRED TOWARDS ADMINISTRATION AND OTHER ACTIVITIES OF THE SOCIETY COMING UNDER THE PURVIEW OF PRINCIPLE OF MUTUALITY CANNOT ENTER THE COMPUTATION OF TOTAL INCOME AS ENVISAGED U/S. 2(45) OF THE ACT AND, THEREFORE, IT IS NOT ALLOWED TO BE SET OFF AGAI NST INCOME COMPUTED UNDER OTHER SOURCES. THUS, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DISMISSED AND THE ADDITION MADE BY THE AO IS CONFIRMED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROU NDS OF APPEAL: 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 12 HYDERABAD ('CIT(A)') IN SUSTAINING THE ADDITION OF RS.14,40,586/ - BEING THE INTEREST RECEIVED FROM TEMPORARY FIXED DEPOSITS WITH BANKS AND RS. 2,45,711 ON SAVINGS BANK ACCOUN T, IS UNSUSTAINABLE, BOTH IN LAW AND ON FACTS. 2. THE CIT(A) FAILED TO NOTE THAT THE LOSS COMPUTED, BEING ADMINISTRATION AND OTHER EXPENDITURE WAS EXIGIBLE TO BE SET OFF AGAINST THE INTEREST INCOME WHICH WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT AND TH US THE NET LOSS/PROFIT ALONE WAS TAXABLE. 3. THE CIT(A) FAILED TO NOTE THAT THERE WAS A REAL LIVE LINK AND SUBSTANTIAL NEXUS BETWEEN THE INTEREST EARNED AND EXPENDITURE INCURRED AND THEREFORE ERRED IN HOLDING THAT THE ENTIRE INTEREST INCOME AT RS. 16,86,217 (1440586 + 245711) WAS TAXABLE WITHOUT S ET OFF OF THE EXPENDITURE INCURRED. 4. WITHOUT PREJUDICE TO ANY OF THE THE AFORESAID GROUNDS THE CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE SURPLUS FUNDS WERE MERELY BEING INVESTED IN FIXED DEPOSITS RATHER THAN KEEPING THE FUNDS IDLE SO AS TO REDU CE ITS BURDEN. I.T.A. NO S . 1186 & 1553 /HYD/1 8 TELUGU CINE WORKERS CO - OP HOUSING SOCIETY LTD. 5 5. ANY OTHER GROUND(S) THAT MAY ARISE AT THE TIME OF HEARING. 6. BEFORE US, LD. AR SUBMITTED THAT ASSESSEE IS A SOCIETY FORMED FOR THE BENEFIT OF THE TELUGU CINE WORKERS. HE SUBMITTED THAT THE SOCIETY HAS ONLY SOURCE OF INCOME IS INTERE ST. THE AO HAS TREATED THE ABOVE INTEREST AS INCOME FROM SOURCE BY TREATING THE SOCIETY AS MUTUAL CONCERN. HE BROUGHT TO OUR NOTICE THE INCOME AND EXPENDITURE A/C OF THE SOCIETY, AS PER WHICH THERE WAS NO INCOME EXCEPT INTEREST INCOME AND ALL OTHER ADMIN ISTRATIVE EXPENSES WERE COVERED BY SUCH INTEREST INCOME. HE PRAYED THAT ASSESSEE IS ELIGIBLE TO CLAIM SET OFF AGAINST SUCH INCOME FROM O T HER SOURCES U/S 70 OF THE ACT. HE SUBMITTED THAT EVEN FOR A MOMENT, INTEREST IS TREATED AS INCOME U/S 56, THE EXPENDITU RE INCURRED SHOULD BE ALLOWED TO EARN SUCH INCOME. 7. LD. DR, ON THE OTHER HAND, SUBMITTED THAT LD. CIT(A) BROUGHT OUT DISTINCTION BETWEEN MUTUAL AND NON - MUTUAL TRANSACTIONS IN HIS ORDER AND HE RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTICED THAT ASSESSEE IS A REGISTERED COOPERATIVE SOCIETY UNDER ANDHRA PRADESH COOPERATIVE SOCIETIES ACT, 1964 WITH THE PRIMARY OBJECT TO BUILD HOUSES FOR ITS MEMBERS AND TO CARRY OTHE R OBJECTS LIKE TRADE OF BUILDING, HOUSING, SELLING, HIRING, LETTING AND DEVELOPING LAND IN ACCORDANCE WITH COOPERATIVE SOCIETY PRINCIPLES AND TO GIVE LOANS TO MEMBERS FOR CONSTRUCTION OF NEW DWELLING HOUSES. THE MEMBERS OF THE SOCIETY ARE CINE WORKERS, WHO ARE CONTRIBUTORS TO THE CAPITAL OF THE SOCIETY AND WHO DO NOT HAVE ANY HOUSE IN CITY IN HIS NAME/SPOUSE/MINOR CHILDREN. THE MEMBER CANNOT BE A MEMBER IN ANY OTHER SIMILAR SOCIETY IN I.T.A. NO S . 1186 & 1553 /HYD/1 8 TELUGU CINE WORKERS CO - OP HOUSING SOCIETY LTD. 6 THE SAME AREA. THIS SOCIETY IS RUN BY ELECT MANAGEMENT COMMITTEE. 8.1 TH IS SOCIETY IS ESTABLISHED WITH THE PURPOSE OF PROVIDING HOUSE FOR THE CINE WORKERS FOR A REASONABLE AND AFFORDABLE COST. NO DOUBT THE PROPERTY IS DEVELOPED WITH THE MUTUAL CONTRIBUTION. IMPORTANT IS, NOT ALL THE MEMBERS OF THE SOCIETY ARE PARTICIPATING IN THE PARTICULAR PROJECT, ONLY THE INVESTOR - CUM - BENEFICIARY OF THE PROJECT. ONCE THE PROJECT IS COMPLETE, THE ALLOTTEES WILL GET THE RESPECTIVE HOUSES. THE PARTICIPATION OF THE SAME MEMBER IN THE OTHER PROJECT IS VERY REMOTE. THIS IS BASICALLY CHARITABLE ACT IVITY WITH MUTUAL CONCEPT TO CARRY ON THE OBJECT OF PROVIDING AFFORDABLE HOUSES FOR THE MEMBERS. THIS ACTIVITY IS CARRIED ON CONTINUOUSLY BY THE GOVERNING COUNCIL. THE CAPITAL CONTRIBUTION COLLECTED FROM MEMBERS ARE APPLIED EXCLUSIVELY FOR THE PROJECT. TIL L THE PROJECT IS COMPLETED, THE ADDITIONAL FUNDS ARE KEPT IN THE BANKS FOR FUTURE APPLICATION. SOME TIMES, KEPT IN BANK FOR COMPLYING WITH THE COURT DIRECTION OR FOR GUARANT EE . AS SOON AS THE PURPOSE OF THE SOCIETY IS COMPLETE, THE FUNDS ARE WITHDRAWN FROM BANK. 8.2 THE AO APPLIED THE PRINCIPLE OF MUTUALITY BY RELYING ON THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF SECUNDERABAD CLUB [2012] 340 ITR 121. IN OUR VIEW, THERE ARE CONSIDERABLE DIFFERENCES IN BOTH TYPE OF ASSOCIATIONS. IN THE CASE OF SE CUNDERABAD CLUB, IT IS NOT REGISTERED SOCIETY BUT MUTUAL ASSOCIATION. IT COLLECTS SUBSCRIPTIONS FR O M ITS MEMBERS TO USE THE CLUB FACILITIES. IT DEPOSITS THE EXCESS FUNDS WITH ITS CORPORATE MEMBERS OF CLUB I.E. BANKS. IT CLAIMED EXEMPT FR O M TAX AS THE INTER EST WAS EARNED FROM ITS MEMBERS UNDER MUTUALITY CONCEPT. BUT IN THE GIVEN CASE, THE FUNDS ARE NOT SURPLUS, BUT, ADDITIONAL FUNDS WHICH ARE REQUIRED FOR COMPLETION OF THE PROJECT. THESE FUNDS COLLECTED FROM THE I.T.A. NO S . 1186 & 1553 /HYD/1 8 TELUGU CINE WORKERS CO - OP HOUSING SOCIETY LTD. 7 MEMBERS ARE IN THE NATURE OF CAPITAL. THE CAPI TAL REQUIRED FOR THE PROJECT ARE KEPT IN THE BANK AS A NECESSITY NOT FOR THE SOLE AIM OF MAKING ANY PROFIT. THE INTEREST EARNED BY THE SOCIETY ARE SURPLUS, WHICH CAN BE APPLIED FOR THE MAIN PURPOSE OF THE SOCIETY OR IT MAY REDUCE THE COST OF THE PROJECT. THEREFORE, APPLYING THE RATIO OF SECUNDERABAD CLUB, IN THE PRESENT CASE, IS NOT PROPER. 8.3 WE FURTHER NOTICE THAT THE ASSESSEE HAS NOT COLLECTED ANY CHARGES FROM THE PARTICIPANTS OF THE PROJECT TO CARRY OUT THE PROJECT, THE PARTICIPANTS/MEMBERS HAVE ONL Y CONTRIBUTED FOR THE PROJECT, ALL THE RELEVANT COST HAS TO BE ABSORBED FROM THE PROJECT INVESTMENT. THE PROJECT CAPITAL HAS EARNED CERTAIN INCOME I.E. INTEREST, WHICH CAN ONLY BE APPLIED FOR THE PROJECT AND SOCIETY NEVER CLAIMED ANYWAY AS THEY ARE FUNCTI ONING AS MUTUAL CONCERN. THEY EXIST BECAUSE OF MUTUAL OBJECT OF PROVIDING AFFORDABLE HOUSES FOR THE MEMBERS BUT THE ACTIVITIES ARE RESTRICTED TO COMPLETE THE HOUSING PROJECT. THE EARNING OF INTEREST IS INCIDENTAL , NOT THE PURPOSE TO EARN ADDITIONAL INCOME . THE INTEREST EARNED BY THE SOCIETY CAN ONLY BE TREATED AS CAPITAL RECEIPT, CAN BE APPLIED FOR THE PURPOSE OF MEETING ADMINISTRATION COST OF THE PROJECT OR CAN REDUCE THE CAPITAL COST OF THE PROJECT. 8.4 THEREFORE, IN OUR OPINION, APPLYING THE MUTUAL CO NCEPT RELYING ON THE DECISION OF SECUNDERABAD CLUB AND BENGALURU CLUB IS FARFETCHED. THEREFORE, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED AND THE ADDITION MADE BY THE ASSESSEE IS DELETED. I.T.A. NO S . 1186 & 1553 /HYD/1 8 TELUGU CINE WORKERS CO - OP HOUSING SOCIETY LTD. 8 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 10 . AS GROUNDS AND FACTS IN A Y 2015 - 16 ARE MATERIALLY IDENTICAL TO THAT OF AY 2014 - 15, FOLLOWING THE DECISION THEREIN, THE GROUNDS RAISED IN THIS AY ARE ALSO ALLOWED. 11. TO SUM UP, BOTH THE APPEALS UNDER CONSIDERATION ARE ALLOWED. PRONOUNCED IN THE OPE N COURT ON 15 TH M AY , 201 9. SD/ - ( P. MADHAVI DEVI ) JUDICIAL MEMBER SD/ - ( S. RIFAUR RAHMAN ) ACCOUNTANT MEMBER HYDERABAD, DATED 15 TH MAY , 201 9. KV COPY FORWARDED TO: 1. TELUGU CINE WORKERS CO - OP HOUSING SOCIETY LTD., C/O SEKHAR & CO., 133/4, RASHTRAPATHI ROAD, SECUNDERABAD 500 0 03 2 . ITO, WARD 1 4 ( 5 ), HYD . 3 . CIT (A) - 6 , HYDERABAD 4. PR. CIT 6 , HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE