ITO 16(2)(1), MUMBAI V. DAMODAR BHUVAN CHS LTD, MUMBAI

ITA 1610/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55271 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 02-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUBAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Gift
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI T.R.SOOD (A. M) ITA NO.1610/MUM/2010(A.Y. 2005-06) THE INCOME TAX OFFICER 16(2)(1), MATRU MANDIR, TARDEO ROAD, MUMBAI 400 007 (APPELLANT) VS. M/S. DAMODAR BHUVAN CHS LTD., 2, BHULABHAI DESAI ROAD, MUMBAI 26. PAN:AAAAD0874C (RESPONDENT) APPELLANT BY : SHRI M.R.KUBAL RESPONDENT BY : SHRI B.V.JHAVERI DATE OF HEARING : 13/09/2011 DATE OF PRONOUNCEMENT : 16 /09/2011 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL B THE REVENUE AGAINST THE ORDER DATED 8/12/2009 OF CIT(A)-27, MUMBAI RELATING TO ASSESSMENT YEAR 2005- 06. THE GROUNDS OF APPEAL OF THE REVENUE READ AS FOLLOWS: 1.THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF TRANSFER CHARGES OF RS.15,00,000/- FOLLOWING THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF M/S. SHYAM CHS AND SUPRABH AT CHS WHEREIN IT HAS BEEN HELD THAT ALL AMOUNTS RECEIVED BY THE CHS ON THE GROUNDS OF TRANSFER CHARGES ARE EXEMPT UNDER THE PR INCIPLE OF MUTUALITY. THE DECISION HAS NOT BEEN ACCEPTED BY T HE DEPARTMENT AND THE ISSUE IS SUBJUDICE. 2. THE LD. CIT(A) ERRED IN DELETING THE ADDITION O N ACCOUNT OF NON- OCCUPANCY CHARGES OF RS.1,30,764/- FOLLOWING THE VA RIOUS DECISION OF THE HONBLE MUMBAI ITAT AND HONBLE HIGH COURT OF B OMBAY IN THE CASE OF MITTAL COURT CHS WHEREIN IT HAS BEEN HELD T HAT NON-OCCUPANCY CHARGES TAKEN FROM MEMBERS WHO HAVE LET OUT THEIR F LATS IS EXEMPT UNDER PRINCIPLE OF MUTUALITY. ITA NO.1610/MUM/2010(A.Y. 2005-06) 2 2. THE ASSESSEE IS A CO-OPERATIVE HOUSING SOCIETY ( HEREINAFTER CALLED THE SOCIETY) REGISTERED UNDER THE MAHARASHTRA CO-OPERA TIVE SOCIETIES ACT, 1960. FOR THE A.Y 2005-06, THE ASSESSEE FILED ITS RETURN OF INCOME ON 26/10/2005, DECLARING NIL INCOME. ALONG WITH THE RETURN OF INC OME, THE ASSESSEE ALSO FILED AUDITED BALANCE SHEET AND INCOME & EXPENDITUR E ACCOUNT FOR THE PREVIOUS YEAR ENDED 31/3/2005 RELEVANT TO THE ASSES SMENT YEAR UNDER CONSIDERATION. THE RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF THE INCOME-TAX ACT, 1961 (THE ACT) AND THEREAFTER THE C ASE WAS SELECTED FOR SCRUTINY. THE ASSESSMENT U/S. 143(3) WAS COMPLETED ON 30/11/2007, DETERMINING THE TOTAL INCOME OF THE SOCIETY AT RS. 16,10,760/-. THE AO, HELD THE FOLLOWING INCOMES OF THE SOCIETY AS NOT EXEMPT FROM TAX AND CONSEQUENTLY ADDED THEM TO THE INCOME OF THE ASSESS EE. 1. CONTRIBUTION TO HEAVY REPAIR FUND RS. 15,00,000/- 2. NON-SELF OCCUPANCY CHARGES RS. 1,30,764/- 3. ON APPEAL BY THE ASSESSEE THE CIT(A) RELYING ON THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SINDH CO -OPERATIVE HOUSING SOCIETY(INFRA) AND SHYAM CHS(INFRA) & SUPRABHAT CHS (INFRA) AS WELL AS THE DECISION IN THE CASE OF MITTAL COURT CHS(INFRA) HEL D THAT NEITHER THE TRANSFER CHARGES (WHICH IN THE PRESENT CASE IS COLLECTED IN THE NOMENCLATURE CONTRIBUTION TO HEAVY REPAIR FUND) NOR THE NON-OCCU PANCY CHARGES RECEIVED BY THE ASSESSEE SOCIETY CAN BE BROUGHT TO TAX AS TH ESE RECEIPTS ARE EXEMPT UNDER THE PRINCIPLE OF MUTUALITY. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN THE CASE OF SIND CO-OPERATIVE HOUSING SCIETY VS. INCOME-TAX OFFICER 317 ITR 47 (B OM), THE FACTS WERE THAT ITA NO.1610/MUM/2010(A.Y. 2005-06) 3 THE ASSESSEE, A CO-OPERATIVE HOUSING SOCIETY, WAS R EGISTERED WITH THE OBJECT PRINCIPALLY OF LOOKING AFTER THE PROPERTY INCLUDING BUILDING(S) THEREON. THE BYE-LAWS OF THE ASSESSEE PERMITTED IT TO CHARGE A T RANSFER FEE IN TERMS OF THE NOTIFICATION ISSUED BY THE GOVERNMENT OF MAHARASHTR A. BYE-LAW 38(3)(IX) PROVIDED THAT THE ASSESSEE CAN CHARGE TRANSFER FEE AND THE MEMBERS BY ADOPTING THE BYE-LAWS AGREED, AMONGST THEMSELVES, T HAT A FEE FOR TRANSFER OF FLAT/-TENEMENT WHEN IT WAS SOLD WOULD BE PAID TO TH E ASSESSEE. BOTH THE INCOMING OR THE OUTGOING MEMBER HAD TO CONTRIBUTE T O THE COMMON FUND OF THE ASSESSEE. THE AMOUNT PAID WAS TO BE EXCLUSIVELY USED FOR THE BENEFIT OF THE MEMBERS AS A CLASS. THE AMOUNT COULD ONLY BE AP PROPRIATED ON THE TRANSFEREE BEING ADMITTED AS A MEMBER. IF THE TRANS FEREE WAS NOT ADMITTED AS A MEMBER, THE AMOUNT RECEIVED WOULD HAVE TO BE REFU NDED, AS THE AMOUNT WAS PAYABLE ONLY ON A TRANSFER OF RIGHTS OF THE TRA NSFEROR IN THE TRANSFEREE. THE AMOUNT LEGALLY CHARGEABLE AND RECEIVED WENT INT O THE FUND OF THE ASSESSEE WHICH WAS UTILIZED FOR THE REPAIRS OF THE PROPERTY AND COMMON BENEFITS TO ITS MEMBERS. ON APPEAL CONTENDING THAT THE TRIBUNAL OVERLOOKED THE PRINCIPLE WHILE HOLDING THAT CONTRIBUTION BY TH E TRANSFEREE WOULD NOT ATTRACT THE PRINCIPLE OF MUTUALITY THE FOLLOWING QU ESTION OF LAW WAS RAISED BEFORE THE HONBLE HIGH COURT: ' WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, ANY PART OF TRANSFER FEES RECEIVED BY THE ASSESSEE-SOCIETIES -WHETHER FROM OUTGOING OR INCOMING MEMBERS-IS NOT LIABLE TO TAX O N THE GROUND OF MUTUALITY ?' THE HONBLE COURT HELD AS FOLLOWS: (I) THAT WHETHER THE FEE WAS VOLUNTARY OR NOT WOU LD MAKE NO DIFFERENCE TO THE PRINCIPLE OF MUTUALITY. PAYMENTS WERE MADE UNDER THE BYE-LAWS OF THE ASSESSEE WHICH CONSTITUTED A CO NTRACT BETWEEN THE ASSESSEE AND ITS MEMBERS WHICH WAS VOLUNTARILY ENTE RED INTO AND VOLUNTARILY CONDUCTED AS A MATTER OF CONVENIENCE AN D DISCIPLINE FOR RUNNING OF THE ASSESSEE-SOCIETY. IF ANY AMOUNT WAS RECEIVED MORE THAN WAS CHARGEABLE UNDER THE BYE-LAWS OR THE GOVERNMENT NOTIFICATION, THE ITA NO.1610/MUM/2010(A.Y. 2005-06) 4 ASSESSEE WAS BOUND TO REPAY THE AMOUNT AND IF IT RE TAINED THE AMOUNT IT WOULD BE IN THE NATURE OF PROFIT MAKING THAT SPE CIFIC AMOUNT EXIGIBLE TO TAX. UNDER THE BYE-LAWS, CHARGING OF TRANSFER FE ES HAD NO ELEMENT OF TRADING OR COMMERCIALITY. SINCE THERE WAS NO TAINT OF COMMERCIALITY THE QUESTION OF EARNING PROFITS WOULD NOT ARISE WHEN TH E ASSESSEE FROM THE FUNDS RECEIVED APPLIED THE MONEYS RECEIVED TOWARDS MAINTENANCE OF THE SOCIETY AND PROVIDING THE MEMBERS WITH USUAL PR IVILEGES, ADVANTAGES AND CONVENIENCES. THUS, THE PRINCIPLE OF MUTUALITY WAS APPLICABLE TO THE ASSESSEE WHICH HAD AS ITS PREDOMI NANT ACTIVITY, THE MAINTENANCE OF THE PROPERTY OF THE SOCIETY WHICH IN CLUDED ITS BUILDING(S) AND AS LONG AS THERE WAS NO TAINT OF CO MMERCIALITY, TRADE OR BUSINESS, THE RECEIPT OF TRANSFER FEES WAS NOT LIAB LE TO TAX. (II) THAT A CO-OPERATIVE HOUSING SOCIETY HAS NO SIM ILARITY WHATSOEVER WITH A PROFESSIONAL ASSOCIATION. SECTION 28(3) OF T HE INCOME-TAX ACT, 1961, HAD NO APPLICATION TO THE CASE OF THE ASSESSE E AS IT DEALS WITH THE INCOME DERIVED BY THE PROFESSIONAL OR SIMILAR A SSOCIATION FROM THE SPECIFIC SERVICES PERFORMED FOR ITS MEMBERS. 6. IN SUPRABHAT CO-OPERATIVE HOUSING SOCIETY LTD. VS. ITO ITA NO.1972 OF 2009 ORDER DATED 1-10-2009 AS WELL AS SHYAM CO-O PERATIVE HOUSING SOCIETY LTD. VS. CIT, ITA NO. 92 OF 2008, 93 OF 200 8 AND ITA NO.206 OF 2008, ORDER DATED 17.7.2009, THE ABOVE PRINCIPLES WERE RE ITERATED. IN MITTAL COURT PREMISES CO-OP SOCIETY VS. ITO 320 ITR 414, THE BOM BAY HIGH COURT HELD THAT NON-OCCUPATION CHARGES PAID BY A MEMBER TO A C OMMERCIAL CO-OP SOCIETY WAS COVERED BY THE PRINCIPLE OF MUTUALITY A ND SO WAS NOT CHARGEABLE TO TAX. IN THE LAST PARAGRAPH OF THE JUDGEMENT, THE COURT HELD THAT EVEN IF THE CHARGES WERE IN EXCESS OF THE LIMITS IMPOSED BY THE NOTIFICATION ISSUED BY THE GOVERNMENT, STILL THE PRINCIPLES OF MUTUALITY WOULD APPLY. THE RELEVANT OBSERVATIONS OF THE COURT IN THIS REGARD WERE AS FO LLOWS: APART FROM THAT EVEN ASSUMING THAT THESE GOVERNMEN T NOTIFICATIONS WERE APPLICABLE IF THE SOCIETY COULD NOT HAVE CHARG ED EXCESS AMOUNT IT WILL HAVE TO BE REFUNDED TO THE MEMBERS. A MEMBER I S NOT PROHIBITED FROM GIFTING ANY AMOUNT TO THE SOCIETY FOR THE OBJE CTS OF THE SOCIETY. THE PRINCIPLE OF MUTUALITY WOULD NOT CEASE ON ACCOU NT OF THESE ASPECT. AT THE HIGHEST, AUTHORITIES UNDER THE CO-OPERATIVE SOCIETIES ACT AND ITA NO.1610/MUM/2010(A.Y. 2005-06) 5 RULES IF ANY ACTION IS TAKEN MAY DIRECT AN ADDITION AL AMOUNT TO BE REFUNDED. IN OUR OPINION, THEREFORE, CONTRIBUTION B Y WAY OF NON OCCUPANCY CHARGES, PRINCIPLE OF MUTUALITY WOULD APP LY AND CONSEQUENTLY, IT IS THUS CLEAR FROM THE ABOVE JUDICIAL PRONOUNCEM ENTS THAT TAXABILITY OF THE RECEIPTS UNDER THE INCOME TAX ACT, 1961(ACT) WILL H AVE TO BE TESTED ON THE APPLICABILITY OF THE PRINCIPLE OF MUTUALITY. ONCE IT IS FOUND THAT PRINCIPLE OF MUTUALITY APPLIES THEN THE RECEIPT IN QUESTION CANN OT BE BROUGHT TO TAX AS ONE CANNOT MAKE PROFIT OUT OF HIMSELF. THE RESTRIC TION ON THE QUANTUM OF RECEIPT BY AN ASSOCIATION FROM ITS MEMBERS PRESCRIB ED BY ANY OTHER LAW REGULATING THE RELATIONSHIP BETWEEN MEMBERS AND ITS ASSOCIATION WILL NOT BE RELEVANT WHILE TAXING RECEIPTS UNDER THE ACT. IN O THER WORDS PRINCIPLE OF MUTUALITY WILL NOT CEASE TO EXIST IN RESPECT OF REC EIPTS FROM MEMBERS BY AN ASSOCIATION BEYOND THE QUANTUM RESTRICTED BY ANY LA W REGULATING THE RELATIONSHIP BETWEEN MEMBERS AND ITS ASSOCIATION. I N VIEW OF THE AFORESAID DECISIONS, WE DO NOT FIND ANY MERIT IN THIS APPEAL BY THE REVENUE AND THE SAME IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 16TH DAY OF SEPT., 2011. SD/- SD/- (T.R.SOOD ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 16 TH SEPT.2011 ITA NO.1610/MUM/2010(A.Y. 2005-06) 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RD BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.1610/MUM/2010(A.Y. 2005-06) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 13/9/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 14/9/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER