Coromandel Towers Owners Association, CHENNAI V. ITO, CHENNAI

ITA 1778/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8054 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 24-11-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 13-06-2016
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATIJCIT D R
• Assessee Lawyers: D ANAND
• Keywords: Business income; Reasonable cause; Condonation of delay
• Section: 27

Judgement Text

, SMC/A , IN THE INCOME TAX APPELLATE TRIBUNAL SMC/A BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ I.T.A.NOS.1776,1777,1778 & 1779 /MDS./2016 ( ASSESSMENT YEARS :2003-04, 2004-05,2005-06 & 2006-07) COROMANDEL TOWERS OWNERS ACCOCIATION, COROMANDEL TOWERS, 816/817, P.H.ROAD, KILPAUK, CHENNAI-10. VS. THE ITO, RANGE XIII(1), CHENNAI-34. PAN AAAAC 1754 A ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.D.ANAND, / RESPONDENT BY : MR.ASHISH TRIPATI,JCIT, D.R ! '# $ % & / DATE OF HEARING : 24.11.2016 '()* % & /DATE OF PRONOUNCEMENT : 24.11.2016 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE FOUR APPEALS ARE FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE DIFFERENT ORDERS OF THE LEARNED COMMISS IONER OF INCOME TAX(A)-8, CHENNAI DATED 09.12.2015 PERTAINING TO TH E ASSESSMENT ITA NOS.1776 TO 1779 /MDS/2016 2 YEARS 2003-04 TO 2006-07 SINCE ISSUES INVOLVED IN ALL THESE ASSESSEES APPEAL ARE COMMON IN NATURE, THESE APPEA LS ARE CLUBBED TOGETHER, HEARD TOGETHER, DISPOSED OFF BY THIS COMM ON ORDER FOR THE SAKE OF CONVENIENCE. 2. AT THE OUTSET, THE LD.A.R SUBMITTED THAT THERE WAS A DELAY OF 96 DAYS FOR FILING THESE FOUR APPEALS BEFORE THE TRIBU NAL . THE ASSESSEE FILED A PETITION FOR CONDONATION OF DELAY STATING T HAT THE ORDER OF CIT(A) WAS RECEIVED BY THE ASSESSEE ON 18.01.2016 A ND THEY WERE MISPLACED AND ABLE TO TRACE OUT ONLY 30.05.2016. T HEREAFTER THE ASSESSEE HAD CONTACTED THE COUNSELS AND FILED THE A PPEAL ON 13.06.2016 BEFORE THE TRIBUNAL THAT CAUSED DELAY O F 96 DAYS. THE LD.A.R SUBMITTED THAT THE DELAY WAS NEITHER WILLFUL NOR WANTON AND PRAYED THAT DELAY HAS TO BE CONDONED. THE LD.D.R STRONGLY OPPOSED THE ADMISSION OF THESE APPEALS. 2. WE HAVE CAREFULLY GONE THROUGH THE REASONS ADVA NCED BY THE ASSESSEE, THE PETITION AS WELL AS AFFIDAVIT DT.07.0 7.2016 FILED BY THE ASSESSEE. IN OUR OPINION, THERE EXISTS REASONABLE CAUSE FOR FILING THE ITA NOS.1776 TO 1779 /MDS/2016 3 APPEAL BELATEDLY BEFORE THIS TRIBUNAL. AS THE REAS ON ADVANCED BY THE LD.A.R IS BONAFIDE, THE DELAY OF 96 DAYS IN FILING THE APPEALS BEFORE THIS TRIBUNAL IS CONDONED AND THE APPEALS ARE ADMIT TED FOR ADJUDICATION. 3. THE MAIN GRIEVANCE OF ASSESSEE IN ALL THESE AP PEALS IS WITH REGARD TO TREATMENT OF INCOME FROM DEPOSITS WITH BA NKS AS TAXABLE AS INCOME FROM OTHER SOURCES. 4. ACCORDING TO LD.A.R, THE ASSESSEE IS AN AOP, AN D A SOCIETY REGISTERED UNDER THE SOCIETY REGISTRATION ACT. THE MEMBERS OF THE AOP ARE THE OWNERS OF CORAMANDEL TOWERS CONSISTIN G OF RESIDENTIAL FLATS AND OFFICE SPACES. IT WAS INCORPO RATED ON FEBRUARY, 16 TH 1994 WITH THE OBJECTIVE TO MANAGE AND MAINTAIN THE COMMON PROPERTIES OF COROMANDEL TOWERS AND IT HAS RECEIV ED THE INCOME FROM MEMBERS. THE AMOUNT HAS BEEN DEPOSITED WITH TH E BANK WHEREIN THE BANK IS ALSO A MEMBER OF AOP. BEING THE INTEREST CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE IN VIEW OF TH E CONCEPT OF MUTUALITY AND IT IS TO BE EXEMPTED. ITA NOS.1776 TO 1779 /MDS/2016 4 5. ON THE OTHER HAND, LD.D.R SUBMITTED THAT INTERE ST EARNED FROM THE FIXED DEPOSITS (FD) WITH BANK CANNOT BE TREATED AS EXEMPTED INCOME BY APPLYING THE CONCEPT OF MUTUALITY AND THE ASSESSEE HAS EARNED INCOME SURPLUS FUNDS WITH THE BANK AND IT IS TO BE INCOME FROM OTHER SOURCES ONLY. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE HAS DEPOSITED SU RPLUS FUND WITH THE BANK AND EARNED INCOME BY ANY STRETCH OF IMAGINATIO N, IT CANNOT FALL UNDER THE PURVIEW OF CONCEPT OF MUTUALITY AS THE ASSESSEE IS NOT DEPOSITED FUND WITH ALL THE MEMBERS OF THE AOP. IT HAS DEPOSITED THE FUND WITH THE BANK WITH THE SOLE INTENTION OF EAR NING INTEREST INCOME AND INTEREST EARNED ON SUCH DEPOSITS TO BE ASSESSED AS INCOME FROM OTHER SOURCES ONLY. THE SIMILAR ISSUE CAME BEFORE THE APEX COURT IN THE CASE OF M/S.BANGALORE CLUB VS. CIT HYDERABAD R EPORTED IN 350 ITR 509(SC) WHEREIN HELD THAT:- (A) FIRSTLY, THE ARRANGEMENT LACKED COMPLETE IDENT ITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS. TILL THE STAGE OF G ENERATION OF SURPLUS FUNDS, THE FLOW OF MONEY, TO AND FRO, WAS MAINTAINED WITHI N THE CLOSED CIRCUIT FORMED BY THE BANKS AND THE CLUB, AND TO THAT EXTEN T, NOBODY WHO WAS NOT ITA NOS.1776 TO 1779 /MDS/2016 5 PRIVY TO THIS MUTUALITY, BENEFITED FROM THE ARRANGE MENT. HOWEVER, AS SOON AS THESE FUNDS WERE PLACED IN FIXED DEPOSITS WITH B ANKS, THE CLOSED FLOW OF FUNDS BETWEEN THE BANKS AND THE CLUB SUFFERED FROM DEFLECTIONS DUE TO EXPOSURE TO COMMERCIAL BANKING OPERATIONS. DURING T HE COURSE OF THEIR BANKING BUSINESS, THE MEMBER BANKS USED SUCH DEPOSI TS TO ADVANCE LOANS TO THEIR CLIENTS. HENCE, WITH THE FUNDS OF THE MUTU ALITY, MEMBER BANKS ENGAGED IN COMMERCIAL OPERATIONS WITH THIRD PARTIES OUTSIDE OF THE MUTUALITY, RUPTURING THE PRIVITY OF MUTUALITY, AND CONSEQUENTLY, VIOLATING THE ONE TO ONE IDENTITY BETWEEN THE CONTRIBUTORS AND TH E PARTICIPATORS AS MANDATED BY THE FIRST CONDITION. (B) THE SURPLUS FUNDS WERE NOT USED FOR ANY SPECIFI C SERVICE, INFRASTRUCTURE, MAINTENANCE OR FOR ANY OTHER DIRECT BENEFIT FOR THE MEMBERS OF THE CLUB. WHEN THE MEMBER BANKS PLACED THEM AT THE DISPOSAL O F THIRD PARTIES, AN INDEPENDENT CONTRACT BETWEEN THE BANK AND THE CLIEN TS OF THE BANK, A THIRD PARTY, NOT PRIVY TO THE MUTUALITY, WAS INITIATED. T HIS CONTRACT WAS NOT AN ACTIVITY OF THE CLUB IN PURSUIT OF ITS OBJECTIVES. (C) THE PRINCIPLE OF IMPOSSIBILITY THAT CONTRIBUTOR S SHOULD DERIVE PROFITS FROM CONTRIBUTIONS MADE BY THEMSELVES TO A FUND WHICH CO ULD ONLY BE EXPENDED OR RETURNED TO THEMSELVES REQUIRES THAT THE FUNDS M UST BE RETURNED TO THE CONTRIBUTORS AS WELL AS EXPENDED SOLELY ON THE CONT RIBUTORS. ALTHOUGH IN THE ASSESSEES CASE THE FUNDS DID RETURN TO THE CLUB, B EFORE THAT, THEY WERE EXPENDED ON NON-MEMBERS, I.E., THE CLIENTS OF THE B ANK. THE LOANING BY THE BANKS OUT OF FUNDS OF THE CLUB TO OUTSIDERS FOR COM MERCIAL REASONS SNAPPED THE LINK OF MUTUALITY. THE CLUB DID NOT GIVE, OR GE T, THE TREATMENT A CLUB GETS FROM ITS MEMBERS ; THE INTERACTION BETWEEN THE M CLEARLY REFLECTED ONE BETWEEN A BANK AND ITS CLIENT. THE INTEREST ACCRUED ON THE SURPLUS DEPOSITED BY THE CLUB LIKE IN THE CASE OF ANY OTHER DEPOSIT MADE BY AN ACCOUNT HOLDER WITH THE BANK. ITA NOS.1776 TO 1779 /MDS/2016 6 (D) THE ASSESSEE WAS ALREADY AVAILING OF THE BENEFI T OF THE DOCTRINE OF MUTUALITY IN RESPECT OF THE SURPLUS AMOUNT RECEIVED AS CONTRIBUTIONS OR PRICE FOR SOME OF THE FACILITIES AVAILED OF BY ITS MEMBERS, BEFORE IT WAS DEPOSITED WITH THE BANK. THE ASSESSEE COULD NOT BE PERMITTED TO CLAIM DOUBLE BENEFIT OF MUTUALITY. BEING SO, APPLYING THE ABOVE RATIO OF THE DECISION LAID DOWN BY THE SUPREME COURT, WE ARE OF THE OPINION THAT THE LOWER AUTHORITIES AE JUSTIFIED IN TREATING THE INCOME AS TAXABLE UNDER T HE HEAD INCOME FROM OTHER SOURCES. HENCE, THIS GROUND RAISED B Y THE ASSESSEE IN ALL THESE APPEALS IS DISMISSED. 7. THE NEXT COMMON GROUND IN THESE APPEALS IS WITH REGARD TO TREATMENT OF RENTAL INCOME EARNED FROM LETTING OUT THE SPACE FOR INSTALLING MOBILE TOWER. 8. THE LD.A.R SUBMITTED THAT THE RENTAL INCOME EAR NED FROM LETTING OUT SPACE FOR MOBILE TOWER TO BE CONSIDERED AS HOUS E PROPERTY U/S.22 OF THE ACT, NOT AS A BUSINESS INCOME OR INCOME FROM OTHER SOURCES. ITA NOS.1776 TO 1779 /MDS/2016 7 8.1 ON THE OTHER HAND, LD.D.R RELIED ON THE ORDER S OF LOWER AUTHORITIES STATING THAT IT SHOULD BE ASSESSED AS I NCOME FROM OTHER SOURCES. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, ASSESSEE HAS DERIVED RENTAL I NCOME FROM EXPLOITING PROPERTY OWNED BY THE ASSESSEE AND IT CA NNOT BE SAID THAT ASSESSEE DID ANY BUSINESS BY LETTING OUT ANY BUSINE SS ASSETS. HENCE, THE INCOME DERIVED BY EXPLOITING THE HOUSE P ROPERTY TO BE CONSIDERED AS INCOME FROM HOUSE PROPERTY U/S.22 OF THE ACT. CONSEQUENTLY, THE ASSESSEE IS ENTITLED FOR DEDUCTIO N AS PRESCRIBED UNDER SECTIONS 22 TO 27 OF THE ACT. FURTHER, THE A BOVE OUR VIEW IS FORTIFIED BY THE DECISION OF DELHI HIGH COURT IN TH E CASE OF M/S.NIAGARA HOTELS AND BUILDERS PVT LTD., REPORTED IN 286 CTR 9 4 WHEREIN IT WAS HELD THAT INCOME DERIVED FROM EXPLOITATION OF SPACE IN TERRACE FLOOR BY LETTING OUT SPACE FOR MOUNTING A TOWER/MAST AND ANT ENNA AND GENERATOR SET FOR INSTALLATION OF RADIO TRUNKING RE LATED EQUIPMENT ON RENTAL BASIS, IS TO BE ASSESSED UNDER THE HEAD INC OME FROM HOUSE ITA NOS.1776 TO 1779 /MDS/2016 8 PROPERTY. ACCORDINGLY, THIS ISSUE IS REMITTED TO THE FILE OF AO FOR FRESH CONSIDERATION TO DECIDE AS PER ABOVE. 10. IN THE RESULT, THE ALL THE APPEALS OF THE ASSES SEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 24 TH NOVEMBER, 2016 AT CHENNAI. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 24 TH NOVEMBER, 2016. K S SUNDARAM. + ,%-. / .)% / COPY TO: 1 . / APPELLANT 3. ! 0% () / CIT(A) 5. .#3 4 ,%,'56 / DR 2. / RESPONDENT 4. ! 0% / CIT 6. 4 78 9 $ / GF