Shree Yogeshwarnagar Co.Op. Hsg.So.Ltd., Ahmedabad V. The ACIT., Circle-9, Ahmedabad

ITA 2129/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9080 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-08-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 28-09-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGRAWAL
• Assessee Lawyers: S N SOPAKAR
• Keywords: Business income; Initiation of penalty proceedings; Revised return; Ignorance of law; Set aside
• Section: 271(1)(c); 143(3); 80P; 143(2); 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 28.08.09 DRAFTED ON:1.09.09 ITA NO.2129/AHD/2005 ASSESSMENT YEAR : 2002-03 SHREE YOGESHWARNAGAR CO. OP. HOUSING SOCIETY LTD. 111, YOGESHWARNAGAR SOCIETY, BHATTHA, PALDI, AHMEDABAD VS. ACIT, CIRCLE-9, AHMEDABAD. PAN/GIR NO. : AABASO781L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI S.N.SOPAKAR A.R. RESPONDENT BY: SHRI RAJEEV AGRAWAL, D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL IS FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE LD. CIT(A)XV, AHMEDABAD, DATED 13.07.2005. 2. THE ASSESSEE HAS TAKEN AN ADDITIONAL GROUND OF A PPEAL WHICH READS AS UNDER: 1. ALTERNATIVELY AND WITHOUT PREJUDICE TO ANY OF T HE GROUNDS RAISED IN THE ORIGINAL APPEAL MEMO AGAINST THE LEASE RENT AL INCOME, NECESSARY EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING SUC H LEASE INCOME MAY KINDLY BE ALLOWED. ITA NO. ASST . YEAR 2002-03 - 2 - 3. AFTER HEARING BOTH THE PARTIES, THE ADDITIONAL G ROUND OF APPEAL TAKEN BY THE ASSESSEE WAS ADMITTED BY THE BENCH AND PARTIES WERE ALLOWED TO MAKE THEIR SUBMISSIONS THEREON. 4. THE SOLE ISSUE INVOLVED IN GROUND NOS. 1 TO 4 OF THE APPEAL OF THE ASSESSEE IS THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN LAW AND FACTS IN CONFIRMING THE ORDER OF LEARNED ASSESSING OFFICER IN NOT HOLDING THAT THE ASSESSEE IS A MUTUAL CONCERN A ND GOVERNED BY THE CONCEPT OF MUTUALITY AND THEREFORE ITS ENTIRE INCOM E IS EXEMPT FROM TAXATION. ALTERNATIVELY, AND WITHOUT PREJUDICE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN NO T GRANTING DEDUCTION UNDER SECTION 80P(2)(C) OF THE ACT. ALTE RNATIVELY AND WITHOUT PREJUDICED, THE LEARNED COMMISSIONER OF INCOME TAX( APPEALS) ERRED IN TAXING PREMIUM RECEIPT FROM THE MEMBERS RS.1 LAC AS INCOME OF ASSESSEE. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELL ANT HAD RECEIVED RENTAL INCOME OF RS.1,68,012/- AND INTEREST INCOME OF RS.77,680/-AS PER THE RETURN OF INCOME. FURTHER THE APPELLANT HAD GIV EN OPEN PLOT OF LAND ON LEASE OF 99 YEARS @ RS.14,001/-MONTHLY LEASE REN T. THE SAID PLOT HAS BEEN DEVELOPED BY THE LESSEE BY CONSTRUCTING RESIDE NTIAL UNITS AND SOLD TO PROSPECTIVE BUYERS. THE APPELLANT HAS CLAIMED DE DUCTION OF RS.50,000/- UNDER SECTION 80P AS RENTAL INCOME. THE ASSESSING OFFICER HELD THAT DEDUCTION UNDER SECTION 80P(2)(C) OF THE ACT WAS NOT ALLOWABLE AS LETTING OUT OF SURPLUS SPACE IN THE BUILDING OWN ED AND USED BY THE APPELLANT IS NOT IN ACTIVITY FALLING UNDER SECTION 80P(2)(C) WHICH IS ITA NO. ASST . YEAR 2002-03 - 3 - NORMALLY INTENDED TO COVER RECEIPTS FROM SOURCES OT HER THAN THE ACTUAL CONDUCT OF THE BUSINESS. 6. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) THE ASSESSEE SUBMITTED THAT THE APPELLANT IS A CO-OPERA TIVE HOUSING SOCIETY AND HAS NOT CARRIED ON ANY ACTIVITY FOR PROFITS AND THE APPELLANT HAD CARRIED ON ACTIVITIES ONLY FOR THE BENEFIT OF ITS M EMBERS AND THEREFORE, THE APPELLANTS ENTIRE INCOME IS EXEMPT UNDER THE C ONCEPT OF MUTUALITY. IT WAS SUBMITTED THAT ITS ENTIRE INCOME IS EXEMPT U NDER THE CONCEPT OF MUTUALITY AND THEREFORE, IT HAS TO BE ASSESSED AT NIL INCOME EVEN THOUGH IT HAS SHOWN INCOME OF RS.1,18,010/- IN ITS RETURN OF INCOME UNDER A MISTAKEN BELIEF. THE AUTHORISED REPRESENTATIVE HAS EXPLAINED WHAT IS MUTUALITY AND HOW IT AFFECTS THE TAXABILITY BY QUOT ING FROM HALSBURY LAWS OF ENGLAND, 4 TH EDITION, REISSUE VOL.23 PARAS 161 AND 162. THE APPELLANT IS A REGISTERED CO-OPERATIVE SOCIETY REGI STERED UNDER THE GUJARAT CO-OPERATIVE SOCIETIES ACT AND THE MAIN PUR POSE AND OBJECT OF THE APPELLANT IS TO MANAGE, ADMINISTER, OPERATE AND SUPERVISE AND MAKE AVAILABLE THE COMMON AMENITIES AND FACILITIES IN RE SPECT OF THE HOUSING SOCIETY BUILD FOR ITS MEMBERS. AFTER COMPLETION OF THE PROJECT, MEMBERS OF THE NTC THROUGH THIS COMMON MEDIUM OF NTC, MAINT AIN BUILDING PREMISES AND COMMON AMENITIES FOR A BENEFIT OF THEM SELVES BY COLLECTING FUNDS OF MAINTENANCE DEPOSIT FROM MEMBER S IN ADVANCE AND KEEPING THE SAME WITH ANY BANK/GOVERNMENT ORGANIZAT ION/COMPANY FOR THE PURPOSE OF EARNING INTEREST THEREON AND VARIOUS MAINTENANCE EXPENSES WERE MET OUT OF THIS INTEREST INCOME OR BY PERIODICAL COLLECTION FROM THE MEMBERS TO MEET THE MAINTENANCE EXPENSES O R BY RENTING OUT ITA NO. ASST . YEAR 2002-03 - 4 - PART OF THE SOCIETY AND FROM THE RENT INCOME ALL TH E MAINTENANCE EXPENSES HAVE BEEN MET. THUS, THE APPELLANT HAS RE NTED OUT PART OF THE LAND OWNED BY IT AND HAD INCURRED VARIOUS EXPENSES FOR MAINTAINING THE SOCIETY FROM THE RENTED INCOME. IT WAS SUBMITTED TH AT THE APPELLANTS ISSUE IS SQUARELY COVERED BY THE DECISIONS OF HONB LE SUPREME COURT IN THE CASES OF CIT VS. BANKIPUR CLUB LTD. REPORTED IN 226 ITR 97 AND CHELMSFORD CLUB VS. CIT REPORTED IN 243 ITR 89 WHER EIN IT WAS CLEARLY SPELT AS TO WHAT IS MUTUALITY AND WHEN IT IS APPLIC ABLE. THE HONBLE SUPREME COURT HAS HELD THAT THE EXCESS OF RECEIPTS OVER THE EXPENDITURE AS A RESULT OF MUTUAL ARRANGEMENT, CANNOT BE SAID T O BE INCOME FOR THE PURPOSE OF THE ACT. THE AUTHORISED REPRESENTATIVE H AS ARGUED THAT EVEN THOUGH THE APPELLANT HAS OFFERED THE RECEIPTS TO TA X THERE IS NO BAN IN LAW OF IN EQUITY TO WITHDRAW THE SAME. IT WAS SUBMI TTED THAT UNDER THE SCHEME OF THE I.T.ACT, AN ASSESSEE HAS TO PAY TAX O N THE INCOME EARNED BY HIM AND HE CANNOT BE CALLED UPON TO PAY TAX MERE LY BECAUSE OF IGNORANCE OF LAW IF HE HAS NOT EARNED ANY INCOME. T HE LEARNED AUTHORISED REPRESENTATIVE HAS REFERRED TO OLD CBDT S CIRCULAR NO.14 OF 1955 DATED 11.04.1955 AND HAS ALSO REFERRED TO DEC ISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CHOKSHI METAL REF INERY VS. CIT REPORTED IN 107 ITR 63(GUJARAT) AND HAS PLEADED THAT ADDITIO N IN THE HANDS OF THE APPELLANT DESERVES TO BE DELETED. IT WAS ALSO SUBMI TTED THAT HONBLE SUPREME COURT HAS ACCEPTED THIS PRINCIPLE IN THE CA SE OF NTPC VS. CIT (229 ITR 383) WHERE THE ASSESSEE HAD NOT RAISED THE CLAIM BEFORE THE ASSESSING OFFICER OR BEFORE THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS) OR BEFORE THE ITAT, AT THE TIME OF FIL ING APPEAL WAS FOUND ENTITLED TO RAISE SUCH A CLAIM, CONTRARY TO HIS RET URN, FOR THE FIRST TIME BY ITA NO. ASST . YEAR 2002-03 - 5 - MOVING AN ADDITIONAL GROUND BEFORE ITAT IN THE PEND ING APPEAL. THE LEARNED AUTHORISED REPRESENTATIVE ALSO REFERRED TO THE DECISION OF ANDHRA PRADESH HIGH COURT IN THE CASE OF CWT VS. N. B. ATAULLA KHAN REPORTED IN 217 ITR 17 AND DECISION OF ANDHRA PRADE SH HIGH COURT IN THE CASE OF CIT VS. BAKELITE HYLAM LTD. REPORTED IN 237 ITR 392. IN THESE DECISIONS IT HAS BEEN HELD THAT EVEN THOUGH THE ASS ESSEE DID NOT MAKE A CLAIM IN THE RETURN OF WEALTH, HE COULD CLAIM THE S AME DURING THE APPELLANT PROCEEDINGS AND THAT THAT THE ASSESSING O FFICER CAN GO BEYOND THE RETURN OF INCOME AND GRANT RELIEF WHICH HAS NOT BEEN CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME BY HOLDING THAT A SSESSED INCOME UNDER SECTION 143(3) COULD BE LESS THAN RETURNED INCOME. IT WAS SUBMITTED THAT THE TOTAL EXPENDITURE OF THE APPELLANT IS MORE THAN THE TOTAL INCOME OF THE APPELLANT AND AT THE END OF THE YEAR THERE IS D EFICIT TO THE TUNE OF RS.23,107/-. THE AUTHORISED REPRESENTATIVE CITED TH E DECISION OF HONBLE ITAT IN THE CASE OF GULMARG ASSOCIATION VS. ITA (IT A NOS. 389/AHD/2001 & OTHERS) DATED 28.05.2004. ACCORDINGLY, IT WAS PLE ADED THAT THE ENTIRE INCOME OF THE APPELLANT SHOULD BE TREATED AS NIL. 7. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS, OBSERVED THAT THE CONC EPT OF MUTUALITY DOES NOT APPLY IN A CASE WHERE THE ASSESSEE HAS REC EIVED RENTAL INCOME FROM THIRD PARTIES WHO ARE NOT MEMBERS OF THE SOCIE TY. THUS, THERE IS NO IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS WHEREAS IN THE CASE OF CHELMSFORD CLUB (SUPRA) REFERRED TO BY THE ASSES SEE , HONBLE SUPREME COURT HELD THAT WHAT IS REQUIRED TO BE SEEN IS WHETHER THERE IS A COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PA RTICIPATORS. AS THERE ITA NO. ASST . YEAR 2002-03 - 6 - IS NO IDENTITY BETWEEN CONTRIBUTORS AND PARTICIPATO RS, THE CONCEPT OF MUTUALITY DOES NOT HOLD GOOD IN THE ASSESSEES CASE . FURTHER, ASSESSEE HAS OFFERED INCOME OF RS.1,68,012/- AS RENTAL INCOM E AND CLAIMED DEDUCTION UNDER SECTION 80P OF RS.50,000/-. THE PU RPOSE OF SCRUTINY ASSESSMENT BY ISSUING NOTICE UNDER SECTION 143(2) O F THE ACT IS NOT HELP THE ASSESSEE TO MAKE A CLAIM AND REDUCE THE RETURN INCOME BELOW THE RETURNED INCOME. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE THAT INCOME OF THE ASSESSEE SHOULD BE TAKEN AS NIL IS NO T ACCEPTED. FURTHER, THE LEARNED ASSESSING OFFICER HAS RIGHTLY DENIED DE DUCTION UNDER 80P OF RS.50,000/- AS THE SAID SECTION DOES NOT COVER REC EIPTS FROM SOURCES OTHER THAN THE BUSINESS RECEIPTS. THE DECISION RELI ED ON BY THE ASSESSEE IN THE CASE OF CHOKSHI METAL REFINERY (SUPRA) IS IN RESPECT OF RELIEF UNDER SECTION 80J WHICH IS AVAILABLE TO THE ASSESSEE AND NOT IN A CASE WERE ASSESSEE OMITTED TO CLAIM THE SAME. THUS, THE DECIS ION IS ON DIFFERENT FACTS AS DEDUCTION UNDER SECTION 80J IS A BENEFICIA L. FURTHER THE CBDTS CIRCULAR CITED AND THE DECISION OF THE HONBLE GUJA RAT HIGH COURT IN THE CASE OF CHOKSHI METAL REFINERY (SUPRA) ARE IN RESPE CT OF GIVING RELIEF TO THE ASSESSEE WHERE DUE TO IGNORANCE OF LAW THE ASSE SSEE DID NOT CLAIM RELIEF AS PER THE ACT AND IT WAS OBSERVED BY THE LE ARNED ASSESSING OFFICER OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF IGNORA NCE OF AN ASSESSEE AS TO HIS RIGHTS. IT IS ONE OF THE DUTY TO ASSESSED A TAX PAYER IN EVERY REASONABLE WAY PARTICULARLY IN THE MATTER OF CLAIMI NG AND SECURING RELIEF. IN THE CASE OF ASSESSEE, THE FACTS ARE DIFFERENT AN D ASSESSEE IS ASSISTED BY LEGAL EXPERT IN FILING THE RETURN OF INCOME AND HAS RIGHTLY OFFERED RENTAL INCOME TO TAX. IN THE APPEAL STAGE, THE ASSESSEE CL AIMED THAT INCOME WAS NOT LIABLE TO TAX. ON THE PRINCIPLE OF MUTUALIT Y. ALTERNATIVELY, THE ITA NO. ASST . YEAR 2002-03 - 7 - ASSESSEE CLAIMED THAT DEDUCTION UNDER SECTION 80P S HOULD BE ALLOWED. THE ASSESSEE HAS NOT FILED A REVISED RETURN. IF THE ASSESSEE WAS SURE OF EXPLAIN THAT HE WAS NOT TAXABLE THEN HE SHOULD HAVE FILED A REVISED INCOME SHOWING NIL INCOME. THE ASSESSEE TRIED TO M AKE A CLAIM AT THE APPELLATE STAGE TO GET RELIEF OF DEDUCTION OR EXEMP TION. THEREFORE, IT IS HELD THAT CONCEPT OF MUTUALITY IS NOT APPLICABLE TO THE FACTS O THE ASSESSEE CASE AND THE LEARNED ASSESSING OFFICER H AS RIGHTLY ASSESSED THE INCOME AT RS.2,68,012/- WITHOUT ALLOWING DEDUCT ION UNDER SECTION 80P(2)(C) OF THE ACT. 8. FURTHER LEARNED ASSESSING OFFICER HAS OBSERVED T HAT ASSESSEE HAS RECEIVED A SUM OF RS.1 LAC FROM SHRI NITINBHAI A. A ND CHANDRAKANT R. SHAH AS PREMIUM AND THIS AMOUNT HAS BEEN CREDITED I N BALANCE SHEET WITHOUT ROUTING IT TO THE INCOME AND EXPENDITURE AC COUNT. THE LEARNED ASSESSING OFFICER HELD THAT THE SAME WAS INCOME OF THE ASSESSEE AS CONSTITUTION OF SOCIETY DOES NOT PROVIDE FOR CHARGI NG SUCH PREMIUM FROM THE MEMBERS OF THE SOCIETY AND THE PAYMENT OF PREMI UM IS A PRECONDITION FOR BECOMING MEMBER OF THE SOCIETY. TH EREFORE, THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE BY THE LEAR NED ASSESSING OFFICER. 9. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS), THE ASSESSEE SUBMITTED THAT THE CASE OF THE ASSESSEE WA S DIRECTLY COVERED IN ITS FAVOUR BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF ADARSH COOPERATIVE HOUSING SOCIETY LTD. 213 ITR 677 . ITA NO. ASST . YEAR 2002-03 - 8 - 10. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERV ED THAT PREMIUM WAS COLLECTED FROM THE MEMBER PRIOR TO BECOMING THE MEMBERS OF THE SOCIETY. SO, WHEN PREMIUM WAS RECEIVED THE PERSONS WERE NOT MEMBERS. THEREFORE, AT THE TIME OF RECEIPT OF PREMI UM, CONCEPT OF MUTUALITY DID NOT EXIST. THE DECISION OF HONBLE GU JARAT HIGH COURT IN THE CASE OF ADARSH CO-OPERATIVE HOUSING SOCIETY IS ON D IFFERENT FACTS, WHERE AMOUNTS WERE COLLECTED AT THE TIME OF EXECUTION OF LEASE DEEDS ENTERED WITH THE MEMBERS AND ON TRANSFER OF LEASE F ROM ONE MEMBER TO AN ANOTHER MEMBER AND THE AMOUNT WERE UTILIZED FOR EXTENDING COMMON AMENITIES TO MEMBERS. IT WAS HELD THAT THE T EST OF RETURN OF SURPLUS TO THE CONTRIBUTORS VIZ. MEMBERS WERE SATIS FIED THEREFORE IT WAS HELD THAT PRINCIPLE OF MUTUALITY WAS APPLICABLE. IN THE CASE OF ASSESSEE, PREMIUM WAS COLLECTED WHEN THE PERSONS WERE NOT MEM BERS. THEREFORE, AT THE TIME OF RECEIPT OF PREMIUM, IDENT ITY BETWEEN CONTRIBUTORS AND PARTICIPATORS DID NOT EXIST. THERE FORE, IT WAS HELD THAT LEARNED ASSESSING OFFICER HAS RIGHTLY ASSESSED THE PREMIUM AT RS.1,00,000. 11. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE OF THE ASSESSEE CONTENDED THAT TRANSFER FEE OF RS.1 LAC RE CEIVED FROM NEW MEMBER IS NOT TAXABLE INCOME IN ITS HAND ON THE CON CEPT OF MUTUALITY. HE RELIED UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF C.I.T . VS. ADARSH CO-OPERATIVE HOUSING SOCIETY LTD . (GUJ) 213 ITR 677 AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE SIND CO-OP. HOUSING SOCIETY & OTHERS VS. ITO, WARD 1(7), PUNE IN INCOME TAX APPEAL ITA NO. ASST . YEAR 2002-03 - 9 - NO.931/2004 IN ORDER DATED 17.07.2009. FURTHER, LEA RNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED UPON THE DECI SION OF THIS TRIBUNAL IN THE CASE OF GULMARG ASSOCIATION & ANOTHER VS. IT O WARD 8(7), AHMEDABAD IN ITA NO.389, ETC. /AHD/2009 ASSESSMENT YEAR 1994-95 ORDER DATED 28.05.2004 FOR HIS CONTENTION THAT THE RENT RECEIVED OF RS.1,68,012/- BY THE ASSESSEE COOPERATIVE SOCIETY I S ALSO NOT LIABLE TO TAX. FURTHER, THE LEARNED AUTHORISED REPRESENTATIVE OF T HE ASSESSEE SUBMITTED THAT IN THE ALTERNATIVE DEDUCTION OF RS.5 0,000/- SHOULD BE ALLOWED TO THE ASSESSEE SOCIETY UNDER SECTION 80P ( 2)(C) OF THE ACT. STILL FURTHER IT WAS SUBMITTED THAT IN THE ALTERNATIVE TH E ASSESSEE SOCIETY SHOULD BE ALLOWED THE DEDUCTION OF EXPENSES INCURRE D TOWARDS EARNING OF RENTAL INCOME. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN THE INSTANT CASE, THE ASSESSEE IS A REGISTERED CO-OPERA TIVE SOCIETY REGISTERED UNDER THE GUJARAT CO-OPERATIVE SOCIETIES ACT. THE M AIN OBJECT OF THE ASSESSEE SOCIETY IS TO MANAGE, ADMINISTER, OPERATE AND SUPERVISE AND MAKE AVAILABLE THE COMMON AMENITIES AND FACILITIES IN RESPECT OF THE HOUSING SOCIETY BUILD FOR ITS MEMBERS. THE ASSESSE E SOCIETY FOR MEETING THE MAINTENANCE EXPENSES OF THE HOUSING SOCIETY COL LECTED DEPOSITS FROM ITS MEMBERS AND INVESTED AND EARNED INTEREST I NCOME THEREON. TO MEET THE FURTHER EXPENSES OF MAINTENANCE, THE ASSES SEE SOCIETY LET OUT ITA NO. ASST . YEAR 2002-03 - 10 - A PART OF THE LAND OF THE HOUSING SOCIETY AND EARNE D RENTAL INCOME OF RS.1,68,012/- DURING THE YEAR. THE ASSESSEE SOCIETY ALSO RECEIVED RS.1,00,000/- AS TRANSFER FEE FROM THE NEW MEMBER. IN THE RETURN FILED THE ASSESSEE HAD SHOWN TOTAL INCOME OF RS.1,18,012/ -, BUT DURING THE COURSE OF ASSESSMENT PROCEEDING, CLAIMED THAT IN VI EW OF CONCEPT OF MUTUALITY THE ENTIRE INCOME OF THE CO-OPERATIVE SOC IETY IS NOT TAXABLE. THE LEARNED ASSESSING OFFICER REJECTED THE CONTENTI ON OF THE ASSESSEE AND ASSESSED TOTAL INCOME OF THE ASSESSEE AT RS.2,6 8,012/- AFTER ALLOWING DEDUCTION OF RS.77,680/- IN RESPECT OF INTEREST INC OME UNDER SECTION 80P(2)(D). ON APPEAL, LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) UPHELD THE ORDER OF THE LEARNED ASSESSING OFFICER. BEFORE US THE ASSESSEE CONTENDED THAT TRANSFER FEE OF RS.1 LAC RE CEIVED FROM NEW MEMBER IS NOT TAXABLE INCOME IN ITS HAND ON THE CON CEPT OF MUTUALITY. HE RELIED UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF C.I.T . VS. ADARSH CO-OPERATIVE HOUSING SOCIETY LTD . (GUJ) 213 ITR 677 AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE SIND CO-OP. HOUSING SOCIETY & OTHERS VS. ITO, WARD 1(7), PUNE IN INCOME TAX APPEAL NO.931/2004 IN ORDER DATED 17.07.2009. WE FIND THAT THE QUESTION BEFORE THE HONBLE BOMBAY HIGH COURT IN THE AFORESA ID CASE WAS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ANY PART OF TRANSFER FEES RECEIVED BY THE ASSESSEE SOCI ETIES WHETHER FROM OUTGOING OR INCOMING MEMBERS IS NOT LIABLE T O TAX ON THE GROUND OF MUTUALITY? 14. THE HONBLE BOMBAY HIGH COURT HELD AS UNDER: 21. WE MAY NOW DEAL WITH SOME OTHER SUBMISSIONS AD VANCED ON BEHALF OF THE REVENUE. IT WAS CONTENDED THAT THE CL ASS OF MEMBERS MEANS, MEMBERS SUCH AS PERMANENT, TEMPORARY, HONORA RY ETC. THIS IS ITA NO. ASST . YEAR 2002-03 - 11 - BASED ON THE ASSUMPTION THAT THERE CAN BE DIFFERENT CLASSES OF MEMBERS. IN A COOPERATIVE HOUSING SOCIETY THERE CAN BE MEMBERS AND ASSOCIATE MEMBERS. WE HAVE ALREADY QUOTED FROM THE JUDGMENTS WHERE REFERENCE IS TO MEMBERS AS A CLASS AND THAT C LASS MAY BE DIMINISHED BY MEMBERS GOING OUT OR INCREASED BY THE MEMBERS COMING IN. BUT THE CLASS REMAINS THE SAME. AS ALREADY NOTE D BY THE SUPREME COURT IN BANKIPUR CLUB (SUPRA), THE IDENTITY MUST B E AS A CLASS OF CONTRIBUTORS AND PARTICIPANTS AND IT DOES NOT MATTE R THAT THE CLASS MAY; BE DIMINISHED OR INCREASED BY MEMBERS GOING OUT OR COMING IN. SIMILARLY, IT IS NOT NECESSARY THAT EACH MEMBER SHO ULD CONTRIBUTE OR EACH MEMBER SHOULD PARTICIPATE IN THE SURPLUS AND G ET BACK FROM THE SURPLUS . WHAT HE HAS PAID, AS LONG AS THEY HAVE CONTROL OVER THE SURPLUS. 22. IT WAS ALSO SOUGHT TO BE CONTENDED THAT THE PA YMENT IS NOT VOLUNTARY AND AT ANY RATE THE EXCESS AMOUNT CHARGE THAN WHAT IS PERMITTED IN THE BYE-LAWS WILL BE EXIGIBLE TO TAX. FIRSTLY, WHETHER IT IS VOLUNTARY OR NOT WOULD MAKE NO DIFFERENCE TO THE PR INCIPLE OF MUTUALITY. SECONDLY PAYMENTS ARE MADE UNDER THE BYE-LAWS WHICH CONSTITUTES A CONTRACT BETWEEN THE SOCIETY AND ITS MEMBERS WHICH IS VOLUNTARILY ENTERED INTO AND VOLUNTARILY CONDUCTED AS A MATTER OF CONVENIENCE AND DISCIPLINE FOR RUNNING OF THE SOCIETY. IF IT IS THE CASE THAT THE AMOUNTS MORE THAN PERMISSIBLE UNDER THE NOTIFICATION HAD BE EN RECEIVED UNDER PRESSURE OR COERCION OR CONTRARY TO GOVERNMENT DIRE CTIONS, THEN CONSIDERING SECTION 72 OF THE CONTRACT ACT, THAT AM OUNT WILL HAVE TO BE REFUNDED. AT ANY RATE IF THE SOCIETY RETAINS THE AM OUNT IN EXCESS OF BINDING GOVERNMENT NOTIFICATION OR THE BYE-LAWS THA T AMOUNT WILL BE EXIGIBLE TO TAX AS IT HAS AN ELEMENT OF PROFITEERIN G. 23. IT WAS THEN SOUGHT TO BE CONTENDED THAT THE PRE MIUM CHARGED IS A PROFIT. AS WE HAVE ALREADY NOTED AND CONSIDERING THE BYLAWS, THE SOCIETY IS REGISTERED WITH THE OBJECT PRINCIPALLY O F LOOKING AFTER THE PROPERTY INCLUDING BUILDING THEREON. THERE IS NO TR ADING OR BUSINESS TRANSACTIONS. THE MEMBER BY ADOPTING THE BYLAWS AGR EE AMONGST THEMSELVES THAT A FEE FOR TRANSFER OF FLAT/TENEMENT WHEN IT IS SOLD WOULD BE PAID TO THE SOCIETY. IT MAY BE THAT BOTH INCOMIN G OR OUTGOING MEMBER HAVE TO CONTRIBUTE TO THE COMMON FUND OF THE SOCIETY. THE AMOUNT PAID HOWEVER, IS TO BE EXCLUSIVELY USED FOR THE BENEFITS OF THE MEMBERS AS A CLASS. 24. IT WAS NEXT CONTENDED THAT THERE IS NO LEGAL B AR FOR THE ASSESSEE TO EARN PROFITS. THERE CAN BE NO DISPUTE ON THAT PR OPOSITION BUT THE PROFIT MUST COME FROM A COMMERCIAL ACTIVITY IN THE NATURE OF TRADE, ITA NO. ASST . YEAR 2002-03 - 12 - BUSINESS OR THE LIKE IN WHICH EVENT THE ASSESSEE TH EN WILL HAVE TO PAY TAX ON SUCH PROFITS. CHARGING OF TRANSFER FEES AS PER B Y-LAWS HAS NO ELEMENT OF TRADING OR COMMERCIALITY. THERE THEREFORE, BEING NO TAINT OF COMMERCIALITY, THE QUESTION OF EARNING PROFITS WOUL D NOT ARISE WHEN THE HOUSING SOCIETY FROM THE FUNDS RECEIVED APPLIES THE MONEYS TOWARDS MAINTENANCE OF THE SOCIETY AND PROVIDING THE MEMBER S WITH USUAL PRIVILEGES, ADVANTAGES AND CONVENIENCES. 25. IT WAS ALSO CONTENDED THAT THE CASE SHOULD BE C OVERED BY SECTION 28(3) OF THE INCOME TAX ACT. SECTION 28(3) WOULD HA VE NO APPLICATION TO THE FACTS OF THE CASE AS IT DEALS WITH THE INCOME D ERIVED BY THE MEMBER FROM PROFESSIONAL OR SIMILAR ASSOCIATION FROM THE S PECIFIC SERVICES PERFORMED FOR ITS MEMBERS. A COOPERATIVE SOCIETY HA S NOT SIMILARITY WHATSOEVER WITH A PROFESSIONAL ASSOCIATION. IN CIT V.S APSARA (SUPRA) THE CALCUTTA HIGH COURT, THERE HELD THAT EVEN IF TH E CASE OF MEMBER OR PROFESSIONAL ASSOCIATION, GENERAL FEES LEVIED BY TH E ASSOCIATION ON ITS MEMBERS BY WAY OF ENTRANCE FEES OR PERIODICAL SUBSC RIPTION OR OTHERWISE WOULD NOT CONSTITUTE BUSINESS. SINCE, THE SE ARE NOT RELATED TO ANY SPECIFIC SERVICES RENDERED BY ITS MEMBERS. WE A RE IN RESPECTFUL AGREEMENT WITH THAT VIEW. 26. IN SO FAR AS SECTION 80P IS CONCERNED, THE DEDU CTION IS AVAILABLE IN RESPECT OF THE CHARGES FROM CERTAIN COMMERCIAL ACTI VITIES BY THE COOPERATIVE HOUSING SOCIETY. THAT IS NOT RELEVANT F OR THE ISSUE BEING ANSWERED. 27. AN ARGUMENT HAS BEEN ADVANCES THAT THE SOCIETIE S ARE CHARGING MORE THAN THE AMOUNT AS NOTIFIED OR PERMITTED BY TH E GOVERNMENT NOTIFICATION DATED 9.08.2001. THE CASE BEFORE US AR E FOR THE ASSESSMENT YEAR PREVIOUS TO THAT. EARLIER NOTIFICATION ON 20. 12.1989 PROVIDED THAT ONLY IF THE BYE-LAWS WERE AMENDED IN TERMS OF THE N OTIFICATION DATED 27.11.1989, THEN THE SOCIETY COULD NOT CHARGE MORE THAN WHAT WAS SET OUT IN THE NOTIFICATION. WE REALLY WOULD NOT BE CON CERNED THEREFORE, IN THIS GROUP OF CASES WITH NOTIFICATION AS NOW NOTIFI ED BY THE GOVERNMENT. IF THEREFORE, ANY AMOUNT HAS BEEN RECEIVED BEYOND T HE AMOUNT NOTIFIED BY THE GOVERNMENT AND THAT AMOUNT HAS NOT BEEN REFU NDED TO THE MEMBERS TO THAT EXCESS AMOUNT AS ALREADY HELD, THE PRINCIPLE OF MUTUALITY WILL APPLY. 28. LET US NOW APPLY THE VARIOUS TESTS WHICH ARE TO BE CONSIDERED FOR APPLYING THE PRINCIPLE OF MUTUALITY TO A CASE OF TH E COOPERATIVE HOUSING SOCIETY BASED ON OUR EARLIER DISCUSSION. ITA NO. ASST . YEAR 2002-03 - 13 - (1) IS THERE ANY COMMERCIALLY INVOLVED. THIS HAS TO BE FOUND FROM THE BYE-LAWS OF THE COOPE RATIVE HOUSING SOCIETY. IN CASE OF THE COOPERATIVE HOUSING SOCIETY, ADMITTEDLY THERE IS NO COMMERCIALLY INVOLV ED. ONCE THERE IS NO COMMERCIALLY INVOLVED THE FIRST TE ST OF PROFITABILITY DOES NOT EXIST. THE FIRST REQUIREMENT OF MUTUALITY IS THEREFORE, MET. (2) FROM THE MONEYS RECEIVED ARE THE SERVICES OFFER ED IN THE NATURE OF PROFIT SHARING OR PRIVILEGE, ADVANTAGES A ND CONVENIENCES. IN CASE OF A COOPERATIVE HOUSING SOCIETY, THE ONLY ACTIVITIES WHICH IT CAN CARRY OUT IN TERMS OF ITS BYE-LAWS ARE BASICALLY MAINTENANCE OF ITS PROPERTY WHICH INCLUDES BUILDING OR BUILDINGS. THE SUBSCRIPTION AND OR CONTRIBUTIONS RE CEIVED BY THE MEMBERS CAN ONLY BE EXPENDED FOR THE PURPOSE S OF MAINTENANCE AND PROVIDING OTHER PRIVILEGES, ADVANTA GES AND CONVENIENCES TO ITS MEMBERS IN TERMS OF ITS BYE LAWS. ANOTHER TEST OF MUTUALITY IS THUS SATISFIED. (3) ARE THE PARTICIPANTS AND CONTRIBUTORS IDENTIFIA BLE AND BELONG TO THE SAME CLASS IN THE CASE OF THE COOPERA TIVE HOUSING SOCIETY. THE CLASS OF MEMBERS ARE CLEARLY IDENTIFIABLE. MEMBERS ARE ORDINARY MEMBERS OF ASSOCIATE MEMBERS. THE PARTICIPANTS AND CONTRIBUTORS ARE THE MEMBERS. THE MEMBERS MAY COME IN OUR GO OUT. THE FACT THAT ONLY SOME MEMBERS FROM THOSE WHO CONTRIBUTED MAY PARTICIPATE IN THE SURPLUS, AS HELD BY THE SUPREME COURT IS IRRELE VANT AS LONG AS THE CLASS IS IDENTIFIABLE. THIS TEST IS ALS O SATISFIED IN THE CASE OF A HOUSING COOPERATIVE SOCIETY. (4) DO THE MEMBERS HAVE THE RIGHT TO SHARE IN THE S URPLUS AND DO THEY HAVE A RIGHT TO DEAL WITH ITS SURPLUSES. IN TERMS OF THE BYE LAWS, IT IS ONLY THE MEMBERS W HO HAVE A RIGHT TO SHARE IN THE SURPLUS. UNDER THE M.C.S. A CT, NO PART OF THE FUNDS, AS PROVIDED IN SECTION 64 CAN BE PAID BY WAY OF BONUS OR DIVIDEND OR OTHERWISE DISTRIBUTED A MONG ITS MEMBERS EXCEPT AS PROVIDED THEREIN. UNDER SECTI ON 67, THERE IS A LIMIT ON THE DIVIDEND TO BE PAID ON LIQU IDATION . UNDER SECTION 110 OF THE M.C.S. ACT. THE SURPLUS CA N ONLY ITA NO. ASST . YEAR 2002-03 - 14 - BE DEALT WITH IN THE MANNER PROVIDED THEREIN WHICH INCLUDES ANY MEMBER OR DEVOTED TO OBJECTS PROVIDED BY THE BYE-LAWS OR BE TRANSFERRED TO ANOTHER SOCIETY W ITH SIMILAR OBJECT. RULE 90 OF THE RULES PROVIDE HOW TH E SURPLUS IS TO BE DIVIDED. THE SURPLUS THEN CAN BE DISTRIBUTED IN TERMS OF THE BYE-LAWS TO MEMBERS AND OR BY OPERATION OF LAW TO ANOTHER SOCIETY HAVING THE SAME OBJECTIVE. IN OTHER WORDS YET ANOTHER TEST OF MUTUA LITY IS SATISFIED. 29. ONCE THESE TESTS ARE SATISFIED, IN OUR OPINION, THERE CAN BE NO DOUBT THAT THE PRINCIPLE OF MUTUALITY WILL APPLY TO A COOPERATIVE HOUSING SOCIETY WHICH HAS ITS PREDOMINANT ACTIVITY, THE MAI NTENANCE OF THE PROPERTY OF THE SOCIETY WHICH INCLUDES ITS BUILDING OR BUILDINGS AND AS LONG AS THERE IS NO COMMERCIALITY, TRADE OR BUSINES S. 30. FOR ALL THE AFORESAID REASONS, THE QUESTIONS AS FRAMED WILL HAVE TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE. 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD N OT SIGHT ANY GOOD REASON FOR NOT FOLLOWING BY US THE ABOVE CITED ORDER OF THE HONBLE BOMBAY HIGH COURT. WE THEREFORE RESPECTFULLY FOLLOW ING THE ABOVE DECISION ARE OF THE VIEW THAT TRANSFER FEE OF RS.1 LAC RECEIVED BY THE ASSESSEE SOCIETY FROM INCOMING MEMBER IS NOT INCOME LIABLE TO TAX ON THE GROUND OF MUTUALITY IN THE HANDS OF THE ASSESSE E COOPERATIVE SOCIETY. 16. FURTHER, LEARNED AUTHORISED REPRESENTATIVE OF T HE ASSESSEE RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF G ULMARG ASSOCIATION & ANOTHER VS. ITO WARD 8(7), AHMEDABAD IN ITA NO.389, ETC. /AHD/2009 ASSESSMENT YEAR 1994-95 ORDER DATED 28.05.2004 FOR HIS CONTENTION THAT THE RENT RECEIVED OF RS.1,68,012/- BY THE ASSESSEE COOPERATIVE SOCIETY IS ALSO NOT LIABLE TO TAX. WE FIND THAT IN THE AFORESA ID DECISION, THE TRIBUNAL HAS HELD AS UNDER: ITA NO. ASST . YEAR 2002-03 - 15 - .WE FIND THAT IN THE CASE UNDER CONSIDERATION, THE ASSESSEE HAS REDUCED THE COST OF MAINTENANCE WHICH WAS TO BE CON TRIBUTED BY THE MEMBERS. IT IS USEFUL TO REFER THE RULING LAID DOWN BY THE APEX COURT IN THE CASE OF CIT VS. BOKARO STEELS LTD. 236 ITR 315 (SC) WHEREIN IT HAS BEEN HELD THAT THE ACTIVITIES OF THE ASSESSEE WERE DIRECTLY CONNECTED WITH OR INCIDENTAL TO THE WORK OF CONSTRUCTION OF I TS PLANT UNDERTAKEN BY THE ASSESSEE. THE RECEIPTS HAD BEEN ADJUSTED AGAINS T THE CHARGES PAYABLE TO THE CONTRACTORS AND HAD GONE TO REDUCE T HE COST OF CONSTRUCTION. IN THE CASE UNDER CONSIDERATION THE A SSESSEE CREATED A FUND FOR MEETING THE MAINTENANCE EXPENDITURE, ON TH E BASIS OF ABOVE RULING OF THE APEX COURT THE ASSESSEE IS ENTITLED F OR REDUCTION OF MAINTENANCE EXPENSES. THE INTEREST INCOME IS FIRST ADJUSTABLE AGAINST EXPENSES AND IF SURPLUS IS FOUND THAT AMOUNT IS CER TAINLY TAXABLE. IF IT IS FOUND OTHERWISE, WE ARE OF THE VIEW THAT SUCH INTER EST IS NOT TAXABLE. 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD N OT CITE ANY GOOD REASON FOR NOT FOLLOWING THE ABOVE ORDER OF THE TRI BUNAL IN THE INSTANT CASE. AS NO OTHER CONTRARY DECISION WAS CITED AND A S NO DISTINGUISHING FEATURES IN RESPECT OF THE FACTS WERE POINTED OUT, WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL HOLD T HAT THE RENT RECEIVED BY THE ASSESSEE COOPERATIVE SOCIETY TO THE EXTENT A CTUALLY UTILISED FOR MAINTENANCE OF THE SOCIETY WILL NOT BE TREATED AS I NCOME LIABLE TO TAX AND THE SURPLUS, IF ANY, ALONE WILL BE THE INCOME O F THE ASSESSEE LIABLE TO TAX. 18. IN RESPECT OF DEDUCTION CLAIMED UNDER SECTION 80P(2)(C) OF RS.50,000/-, WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS HELD THAT THIS DEDUCTION IS NOT AL LOWABLE TO THE ASSESSEE SOCIETY AS NO COMMERCIAL ACTIVITY WAS UNDE RTAKEN BY THE ASSESSEE SOCIETY. WE FIND THAT THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE COULD NOT POINT OUT ANY ERROR IN THE D ECISION OF THE LEARNED ITA NO. ASST . YEAR 2002-03 - 16 - COMMISSIONER OF INCOME TAX(APPEALS). THEREFORE, WE DO NOT FIND ANY FORCE IN THIS CONTENTION OF THE ASSESSEE. 19. FURTHER, IN VIEW OF ABOVE DECISION, THE ISSUE R AISED BY THE ASSESSEE IN THE ADDITIONAL GROUND TAKEN AS AN ALTERNATIVE GR OUND DO NOT SURVIVE FOR SEPARATE ADJUDICATION. 20. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND DIRECT THE LEARNED ASSESSING OFFICE R TO REFRAMED THE ASSESSMENT IN THE LIGHT OF THE DISCUSSION MADE HERE INABOVE AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE A SSESSEE. 21. GROUND NO.5 OF THE APPEAL OF THE ASSESSEE RELAT ES OF CHARGING OF INTEREST UNDER SECTION 234A, 234B, AND 234C OF THE ACT. 22. AT THE TIME OF HEARING, NO ARGUMENTS WERE MADE BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. WE HOLD THAT CHARGING OF INTEREST IS CONSEQUENTIAL AND ACCORDINGLY DISPOSE O F THIS GROUND OF APPEAL OF ASSESSEE. 23. GROUND NO.6 OF THE APPEAL RELATES TO CONFIRMING THE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. WE HOLD THAT THIS GROUND OF APPEAL IS PREMATURE AND ACCORDINGLY THE SAME IS DISMISSED. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS ABOVE. ITA NO. ASST . YEAR 2002-03 - 17 - ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 11.09.2009. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 11/09/2009 PARAS# COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD.CIT(A)XV, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD