The ACIT, Circle-9, Ahmedabad V. Manekbaug Co.O.Hsg.So.Ltd., Ahmedabad

ITA 2133/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8862 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 09-10-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V C MODI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Depreciation; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.2133/AHD/2006 & C.O. NO.262/AHD/2006 ASSESSMENT YEAR:2003-04 DATE OF HEARING:3.3.10 DRAFTED:3.3.10 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-9, AHMEDABAD MANEKBAUG CO-OP. HOUSING SOCIETY LTD., DR. RADHAKRISHNA MARG, AMBAWADI, AHMEDABAD PAN NO.AAAAM0606P V/S . V/S . MANEKBAG CO-OP. HOUSING SOCIETY, LTD., DR. RADHAKRISHNA MARG, AMBAWADI, AHMEDABAD ACIT, CIRCLE-9, AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S.N.SOPARKAR & SMT. URVASHI SHODHAN, AR REVENUE BY:- SHRI V.C.MODI, ADDL. CIT-DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE AND CROSS OBJECTION (CO) BY THE ASSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APP EALS)-XV, AHMEDABAD IN APPEAL NO. CIT(A)-XV/ITO.WD.9(3)/40/06-07 DATED 20-07-2006 . THE ASSESSMENT WAS FRAMED BY THE INCOME-TAX OFFICER, WARD-9(3), AHMEDA BAD U/S.143(3) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 24-03-2006 FOR THE ASSESSMENT YEAR 2003-04. 2. THE FIRST AND SECOND TWO INTER-CONNECTED ISSUES IN THIS APPEAL OF THE REVENUE AND THE ISSUE THAT INCOME OF THE ASSESSEE IS, AT A LL NOT TAXABLE ON PRINCIPLE OF ITA NO.2133/AHD/2006 & CO 262/AHD/2006 A.Y. 2003-04 ACIT CIR-9 ABD V. MANEKBAG CO-OP. HSG. SO. LTD. PAGE 2 MUTUALITY AS RAISED BY THE ASSESSEE IN THE CO OF TH E ASSESSEE AGAINST THE ORDER OF CIT(A). FOR THIS, REVENUE HAS RAISED TWO GROUNDS , WHICH READ AS UNDER:- ITA NO.2133/AHD/2006 (BY THE REVENUE) 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN REDUCING THE DISALLOWANCE OF EXPENSES MADE BY THE ASSESSING OFFICER FROM RS.1 3,18,756 TO RS.7,61,826. 2. THE LD. CIT(A) HAS ALSO ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS.2,00,000/- BEING THE TRANSFER FEE ON TRANSFER OF PLOTS. AND THAT OF ASSESSEES CO THREE GROUNDS ARE AS UNDER:- CO NO.262/AHD/2006 (BY THE ASSESSEE) 1. THE C.I.T. (APPEALS)ERRED IN NOT ACCEPTING THE P LEA OF THE ASSESSEE THAT ON THE PRINCIPLE OF MUTUALITY, THE ASSESSEES INCOME I S NOT TABLE AT ALL. 2. IN ANY CASE, THE C.I.T (APPEALS) ERRED IN NOT GI VING THE DEDUCTION OF THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE AND IN N OT HOLDING THAT ONLY THE INCOME OF RS.4,02,182/-, WHICH WAS THE NET SURPLUS OF INCOME OVER EXPENDITURE COULD BE CONSIDERED FOR TAXABILITY. 3. THE C.I.T. (APPEALS) FAILED TO APPRECIATE THAT E VEN THE ABOVE SURPLUS OF RS.4,02,182/- WILL NOT BE TAXABLE BECAUSE THE INCOM E OF THE ASSESSEE BY WAY OF INTEREST FROM CO-OPERATIVE BANKS OF RS.4,78, 317/- WHICH IS EXEMPT U/S.80P(II) WAS MORE THAN RS.4,02,182/-. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE IS A CO- OPERATIVE HOUSING SOCIETY AND DERIVES INCOME FROM H IRING OF HALL, CATERING SERVICES, COMMISSIONS ETC. THE ASSESSEE HAS DECLARED GROSS R ECEIPTS AT RS.21,56,766/- AND DECLARED NET INCOME AT RS.4,02,182/-. THE ASSESSEE S MAIN ACTIVITIES ARE HIRING OF SANSKRITIK HALL NAMELY MANEKBAUG SANSKRITIK KENDRA, RECEIVED DEPOSITS FROM THE MEMBERS OF THE SOCIETY ON WHICH INTEREST IS EARNED AND INCURRED EXPENDITURE FOR MAINTENANCE OF HOUSING SOCIETY AND ASSESSEE ALSO RE CEIVED COMMISSION FROM DECORATORS AND CATERS FOR A SUM OF RS.8 LAKH AND RE NT FROM MANEKBAUG SANSKRITIK KENDRA AND OTHER RECEIPTS RELATED TO IT AND CLAIMED THAT INCOME RELATED TO HIRING OF HALL SHOULD BE ASSESSED AS BUSINESS INCOME. THE ASS ESSEE ALSO CLAIMED THE DEDUCTION ON THE PRINCIPLE OF MUTUALITY, I.E. ALL T HE EXPENSES CLAIMED BY THE ASSESSEE AND STATED THAT THE INCOME OF THE ASSESSEE SHOULD B E TAXED UNDER THE HEAD BUSINESS. THE ASSESSING OFFICER NOTED IN HIS ASSE SSMENT ORDER THAT THE ASSESSEE BEING A CO-OPERATIVE HOUSING SOCIETY CANNOT CARRY O N BUSINESS AND THEREFORE HELD THAT THE ENTIRE INCOME OF THE ASSESSEE IS TO BE TAX ED UNDER THE HEAD INCOME FROM OTHER SOURCES UNDER THE PROVISION OF SECTION 56(1) OF THE ACT. THE AO HELD THAT ITA NO.2133/AHD/2006 & CO 262/AHD/2006 A.Y. 2003-04 ACIT CIR-9 ABD V. MANEKBAG CO-OP. HSG. SO. LTD. PAGE 3 EXPENSES DEBITED IN ITS INCOME AND EXPENDITURE ACCO UNT, WHICH CANNOT BE SAID TO BE INCURRED FOR EARNING INCOME FROM OTHER SOURCES AND ACCORDINGLY HE ALLOWED EXPENSES TO THE EXTENT OF RS.4,36,328/- U/S.57(III) OF THE ACT AND BALANCE EXPENSES CLAIMED AT RS.13,18,256/- OUT OF THE TOTAL EXPENSES OF RS.17,54,584/- WAS DISALLOWED. AGGRIEVED, ASSESSEE PREFERRED APPEAL BE FORE CIT(A). THE CIT(A) REDUCED THE DISALLOWANCE AT RS.7,61,826/- OUT OF TH E TOTAL DISALLOWANCE MADE BY THE ASSESSING OFFICER AT RS.13,18,756/- BY GIVING FOLLO WING FINDING IN PARA-2.3 OF HIS APPELLATE ORDER:- 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHO RIZED REPRESENTATIVE CAREFULLY AND HAVE GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. I FIND THAT THE EXPENSES CLAI MED BY THE AUTHORIZED REPRESENTATIVE I.E. 90% OF SALARY AND BONUS SHOULD BE CONSIDERED AS ALLOWABLE AGAINST INCOME FROM SANSKRITIK HALL INSTE AD OF 50% ALLOWED BY THE ASSESSING OFFICER. THEREFORE, FURTHER REDUCTION OF 40% OF SALARY SHOULD BE ALLOWED AND 40% OF BONUS I.E. RS.3,964/- SHOULD BE ALLOWED. FURTHER THE WATER EXPENSES OF RS.1,56,650/- SHOULD BE ALLOWED A S DEDUCTION. SIMILARLY OTHER EXPENSES CLAIMED BY THE APPELLANT LIKE ADVERT ISEMENT EXPENSES OF RS.28,342/-, SERVICE TAX OF RS.16,998/-, STAFF MEDI CAL EXPENSES OF RS.5,250/-, MUNICIPAL TAX OF RS.77,036/-, AUDIT FEES OF RS.5,00 0/-, LEGAL FEES OF RS.64,000/-, 80% OF STATIONERY AND PRINTING EXPENSE S OF RS.13,865/-, INSURANCE PREMIUM OF RS.4,474/- DEPRECIATION ON ELE CTRICAL FITTING OF RS.243/-, DEPRECIATION ON DEAD STOCK AND FURNITURE OF RS.22,2 87/- AND DEPRECIATION ON SUBSTATION CONSTRUCTION OF RS.3,190/- SHOULD BE ALL OWED AS DEDUCTION AGAINST THE INCOME FROM HIRING OF SANSKRITIK HALL AND DECOR ATORS AND CATERERS COMMISSION. AS REGARDS THE OTHER SOURCE OF INCOME I .E. INTEREST FROM BANKS, FOLLOWING THE DECISION OF HONBLE ITAT, AHMEDABAD I N THE CASE OF M/S. GULMARG ASSOCIATION CITED BY THE AUTHORIZED REPRESE NTATIVE, AND AS PER THE SEGREGATION OF EXPENSES GIVEN BY THE AUTHORIZED REP RESENTATIVE, AS THERE IS SURPLUS OF RS.10,870/-, THE SAME IS DIRECTED TO BE TAXED INCOME FROM OTHER SOURCES. 4. AS REGARDS TO SECOND ISSUE OF ADDITION OF RS.2 L AKH OF TRANSFER FEE RECEIVED BY THE ASSESSEE ON TRANSFER OF BALANCE AS INCOME OF TH E ASSESSEE, THE CIT(A) DELETED THE SAID ADDITION RELYING ON THE TRIBUNALS DECISIO N OF C BENCH IN THE CASE OF GULMARG ASSOCIATION V. ITO WARD-8(7) AHMEDABAD DATED 28-05-2004 AS REGARDS TO THE ISSUE OF MUTUALITY RAISED BY THE ASSESSEE, L D. COUNSEL FOR THE ASSESSEE STATED THAT THE INCOME OF THE ASSESSEE IS NOT AT ALL TAXAB LE IN VIEW OF PRINCIPLE OF MUTUALITY AND HE STATED THAT THE CIT(A) HAS WRONGLY CONFIRMED THE DISALLOWANCE BY NOT GIVING THE DEDUCTION OF TOTAL EXPENDITURE INCURRED BY THE ASSESSEE. HE STATED THAT THE ENTIRE EXPENDITURE SHOULD BE ALLOWED AS INCURRED BY THE AS SESSEE ON ACCOUNT OF NET SURPLUS OF INCOME OVER EXPENDITURE, WHICH CANNOT BE CONSIDERED FOR TAXABILITY. HE ITA NO.2133/AHD/2006 & CO 262/AHD/2006 A.Y. 2003-04 ACIT CIR-9 ABD V. MANEKBAG CO-OP. HSG. SO. LTD. PAGE 4 STATED THAT THERE IS NO SURPLUS AND EVEN THE ABOVE SURPLUS AMOUNTING TO RS.4,02,182/- WILL NOT BE TAXABLE BECAUSE THE INCOM E OF THE ASSESSEE IS EARNED BY WAY OF INTEREST IN CO-OPERATIVE BANK AT RS.4,78,317 /- WHICH IS NOT EXEMPT U/S.80IB(2) OF THE ACT, WHICH WAS MORE THAN RS.4,02,182/-. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE CASE OF GULMARG ASSOCIATION (SUPRA) IN PARA-6 TO 8 , WHICH READS AS UNDER:- 6. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND GONE THROUGH THE DECISIONS CITED. THE ADMITTED OF THE CASE ARE THAT A SOCIETY IS FORMED FOR MAINTENANCE OF RESIDENTIAL SOCIETY OF THE MEMBERS, MAINTENANCE CHARGES ARE MUTUALLY COLLECTED FROM MEMBERS. THE OBJECT WAS NOT TO EARN ANY PROFIT AND DISTRIBUTION THEREOF TO THE MEMBERS. EVEN ON DISSOL UTION THE SURPLUS WILL NOT BE DISTRIBUTED TO MEMBERS. FOR THE PURPOSE OF THE OBJE CT OF SOCIETY I.E. MAINTENANCE, THE SOCIETY CREATED A FUND LIKE CONSTR UCTION FUND AND MAINTENANCE FUND. THE MAINTENANCE FUND WAS DEPOSITE D WITH BANK AND OTHERS, THE INTEREST INCOME RECEIVED. BOTH THE LOWE R AUTHORITIES HAVE ACCEPTED THE PRINCIPLES OF MUTUALITY IN RESPECT OF CONTRIBUT ION FROM MEMBERS WHICH IS NOT UNDER DISPUTE. ON THE BASIS OF THAT PRINCIPLE, THE AO HAS NOT CHARGED TAX ON SURPLUS. THE DISPUTE IS ONLY IN RESPECT OF INTER EST INCOME. THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF RAJPAT C LUB (SUPRA) IS DISTINGUISHABLE ON FACTS, IN THAT CASE SURPLUS FUND WAS INVESTED WITH THE INTENTION TO EARN INTEREST INCOME FURTHER ON DISSOL UTION SURPLUS SHALL BE DISTRIBUTED TO MEMBERS. WHEREAS IN THE CASE UNDER C ONSIDERATION THAT INTEREST INCOME WAS DIRECTLY CHARGED FOR THE MAINTENANCE EXP ENSES AND NOT TO EARN INTEREST AS INCOME. THIS OBSERVATION IS SUPPORTED BY THE FACTS OF THIS CASE THAT THIS INCOME WILL NOT BE GIVEN TO THE MEMBERS E VEN ON DISSOLUTION OF THE ASSOCIATION. UNDER THE CIRCUMSTANCES, WE FIND THAT THE LOWER AUTHORITIES HAVE NOT PROPERLY APPRECIATED THE FACTS OF THE CASE. THE PECULIAR FACT OF THE CASE IS THAT THE SOCIETY HAS DECIDED TO COLLECT ONE TIME FO UND FROM MEMBERS INSTEAD OF PERIODICAL COLLECTION FROM THE MEMBERS AND FURTH ER DECIDED THAT IN THE CASE OF INCOME FALLS SHORT, THE DEFICIT WILL BE COLLECTE D FROM MEMBERS. THE ABOVE FACTS ARE SUMMARIZED IN FIGURES FOR DIFFERENT YEARS AS UNDER:- GULMARG ASSOCIATION 94-95 95-96 96-97 97-98 98-99 TOTAL MAINTENANCE EXPENSES 187162 199414 271402 357259 382095 LESS: INTEREST 66268 65463 105868 122882 97250 BALANCE TO BE CONTRIBUTED BY 120894 133951 165534 234377 284845 MEMBERS ASHIMA ESTATE 94-95 96-97 97-98 TOTAL MAINTENANCE EXPENSES 1,92,265 2,59,21 5 3,34,610 ITA NO.2133/AHD/2006 & CO 262/AHD/2006 A.Y. 2003-04 ACIT CIR-9 ABD V. MANEKBAG CO-OP. HSG. SO. LTD. PAGE 5 LESS: INTEREST 79,174 1,21,587 1,15,577 BALANCE TO BE CONTRIBUTED BY MEMBERS 1,13,091 1,37,628 2,19,033 FROM THE ABOVE FACTS IT IS CLEAR THAT THE ASSOCIATI ON ASSESSEE HAS CREDITED CHARGE ON THE MAINTENANCE FUND COLLECTED FROM THE M EMBERS TOWARDS MAINTENANCE EXPENSES. SO TO THE EXTENT IT IS NOT IN COME BECAUSE IT HAS BEEN DIVERTED BY AN OVERRIDING TITLE. WE FIND THAT THE A CCRUAL OF INTEREST INCOME ITSELF IS FOR THE PURPOSE OF MAINTENANCE. AS PER THE OBJEC T AND DISSOLUTION CLAUSES AND CONNECTED RESOLUTION OF THE ASSOCIATION, THIS I NCOME IS NEVER TO BE DISTRIBUTED TO MEMBERS OF THE ASSOCIATION, THIS INC OME IS NEVER TO BE DISTRIBUTED TO MEMBERS OF THE ASSOCIATION AS INCOME OR OTHERWISE. APART FROM ABOVE WE FIND THAT IN THE CASE UNDER CONSIDERATION, THE ASSESSEE HAS REDUCED THE COST OF MAINTENANCE WHICH WAS TO BE CONTRIBUTED BY THE MEMBERS. IT IS USEFUL TO REFER THE RULING LAID DOWN BY THE APEX CO URT IN THE CASE OF CIT V. 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 ITS PLANT UNDERTAKEN BY THE ASSESSEE. THE RECEIPTS HAD BEEN ADJUSTED AGAINST THE CHARES PAYABLE TO THE CON TRACTORS AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. IN THE CASE UNDER CONSIDERATION THE ASSESSEE CREATED A FUND FOR MEETING THE MAINTENANCE EXPENDIT URE, ON THE BASIS OF ABOVE RULING OF THE APEX COURT THE ASSESSEE IS ENTI TLED FOR 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 INTEREST IS NOT TAXABLE. 7. THE CONTROVERSY UNDER CONSIDERATION CAN BE EXAMI NED FROM ONE MORE ANGLE THAT IS THAT, FOR THE SAKE OF ARGUMENT IT ASS UMED THAT THE ASSOCIATION CREATED A FUND FOR MAINTENANCE ON THE BASIS OF ONE TIME COLLECTION FROM THE MEMBERS AND INVESTED IN THE BANK & OTHERS. THIS CAN BE SAID TO BE ONE TYPE OF BUSINESS ACTIVITY OF THE ASSOCIATION. FOR THE PU RPOSE OF CALCULATION OF PROFIT THE ASSESSEE IS ENTITLED FOR EXPENDITURE PERTAINING TO THAT FROM THE INCOME/RECEIPT OF THAT ACTIVITY. IN THE CASE UNDER CONSIDERATION INTEREST INCOME IS INCOME/RECEIPT AND MAINTENANCE EXPENSE IS EXPEND ITURE OF THAT ACTIVITY. IF INCOME EXCEEDS THAN EXPENDITURE THAT SURPLUS IS SUB JECT TO TAX. IN THE CASE UNDER CONSIDERATION THERE WAS LOSS AS CALCULATED AB OVE. ON IDENTICAL SET OF FACT THE HOBLE DELHI HIGH COURT IN THE CASE OF DIR ECTOR OF INCOME TAX VS. ALL INDIA ORIENTAL BANK & COMMERCE WELFARE SOCIETY (200 3) 130 TAXMAN 575 (DEL) HAS DISCUSSED THE APPEAL OF REVENUE AS NO QUE STION OF LAW SURVIVES, WITH THE FOLLOWING OBSERVATIONS: AS IS EVIDENT FROM THE FORMAT OF THE QUESTIONS, TH E ONLY ISSUE RAISED BY THE REVENUE IS AS TO WHETHER THE INTEREST INCOME DE RIVED BY THE RESPONDENT/ASSESSEE ON THE CONTRIBUTIONS MADE BY TH E MEMBERS OF THE WELFARE SOCIETY IS TO BE TAXED IN THE HANDS OF THE SOCIETY OR NOT. SINCE IN OUR VIEW, THE ISSUE RAISED BY THE REVENUE IS LEG AL AND IS NO MORE RES INTEGRA, WE DEEM IT UNNECESSARY TO STATE THE FACTS. SUFFICE IT TO NOTICE THAT WHILE COMPLETING ASSESSMENT ON THE RESPONDENT ASSESSEE, A CO- OPERATIVE SOCIETY COMPRISING OF THE EMPLOYEES OF TH E BANK, THE AO HAD ITA NO.2133/AHD/2006 & CO 262/AHD/2006 A.Y. 2003-04 ACIT CIR-9 ABD V. MANEKBAG CO-OP. HSG. SO. LTD. PAGE 6 HELD THAT THE INTEREST INCOME EARNED BY THE SOCIETY ON THE CONTRIBUTIONS RECEIVED FROM THE MEMBERS WAS NOT EXEMPT ON THE PRI NCIPLE OF MUTUALITY. THE ISSUE WITH REGARD TO THE CONCEPT AND PRINCIPLE FOR MUTUALITY HAS BEEN ELABORATELY EXAMINED BY THE APEX COURT IN CHEI MSFORD CLUB VS. CIT (2000) 159 CTR (SC) 235: (2000) 243 ITR 89 (SC) . THEIR LORDSHIPS HAVE HELD THAT WHERE A NUMBER OF PERSONS COMBINE TOGETHER CONTRIBUTE TO A COMMON FOUND FOR THE FINANCING OF S OME VENTURE OR OBJECT AND IN THIS RESPECT HAVE NO DEALINGS OR RELA TIONS WITH ANY OUTSIDE BODY, THEN ANY SURPLUS GENERATED CANNOT IN ANY SENS E BE REGARDED AS PROFITS CHARGEABLE TO TAX. IT HAS BEEN OBSERVED THA T WHAT IS REQUIRED TO BE SEEN IS WHETHER THERE IS A COMPLETE IDENTITY BET WEEN THE CONTRIBUTIONS AND PARTICIPATORS. ONCE THE IDENTITY OF THE CONTRIBUTOR TO THE FUND OF THE RECIPIENTS OF THE FUNDS; THE TREATM ENT OF THE COMPANY, THOUGH INCORPORATED AS A MERE ENTITY FOR THE CONVEN IENCE OF THE MEMBERS, IN OTHER WORDS AS AN INSTRUMENTS OBTAINED TO THEIR MANDATE; AND THE IMPOSSIBILITY THAT THE CONTRIBUTORS SHOULD DERIVE PROFIT FROM CONTRIBUTIONS MADE BY THEMSELVES TO A FUND WHICH CO ULD ONLY BE EXPENDED OR RETURNED TO THEMSELVES IS ESTABLISHED, THE DOCTRINE, OF MUTUALITY IS ESTABLISHED. IT IS NOT THE REVENUES CASE THAT THE AFORE-NOTED T HREE CONDITIONS ARE NOT ESTABLISHED IN THE INSTANT CASE. AS A MATTER OF FACT, BEFORE THE TRIBUNAL, THE LD. DEPARTMENTAL REPRESENTATIVE HAD C ONCEDED THAT THE CONTROVERSY, SOUGHT TO BE RAISED AGAIN IN THIS APPE AL, STANDS CONCLUDED AGAINST THE REVENUE IN CHEIMSFORD CLUB VS. CIT (SUP RA). IN THIS VIEW OF THE MATTER, NO QUESTION OF LAW MUCH LESS A SUBSTANT IAL QUESTION OF LAW SURVIVES FOR OUR CONSIDERATION. 8. IN THE LIGHT OF THE ABOVE DISCUSSION AND UNDER T HE PECULIAR CIRCUMSTANCES, WE FIND THAT THERE IS NO JUSTIFICATION IN TAXING IN TEREST INCOME. WE THEREFORE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND THE C LAIM OF THE ASSESSEE IS ALLOWED. ACCORDINGLY, THE ADDITIONS MADE BY THE AO ARE DELETED. 5. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS OF THE CASE AS NARRATED ABOVE, WE ARE OF THE VIEW THAT THE ASSESSE E IS A REGISTERED CO-OPERATIVE UNDER THE GUJARAT CO-OPERATIVE SOCIETIES ACT. WE F IND THAT THE MAIN OBJECT OF THE SOCIETY IS TO MANAGE, ADMINISTER, OPERATE, SUPERVIS E AND MAKE AVAILABLE THE COMMON FACILITIES AND AMENITIES TO ITS MEMBERS. TO MEET THE EXPENSES ON ACCOUNT OF MAINTENANCE, THE HOUSING SOCIETY COLLECTED DEPOS ITS FROM ITS MEMBERS, MADE DEPOSITS AND EARNED INTEREST THERE ON FROM A CO-OPE RATIVE BANK. THE ASSESSEE ALSO, TO MADE OUT FURTHER EXPENSES OF MAINTENANCE, LET OU T THE MANEKBAUG SANSKRITIK KENDRA AND EARNED RENTAL INCOME AND ALSO EARNED INC OME FROM TRANSFER FEE FOR ENTERING NEW MEMBERS. WE FIND THAT THIS ISSUE IS SQ UARELY COVERED BY THE DECISION OF ITA NO.2133/AHD/2006 & CO 262/AHD/2006 A.Y. 2003-04 ACIT CIR-9 ABD V. MANEKBAG CO-OP. HSG. SO. LTD. PAGE 7 JURISDICTIONAL HIGH COURT IN THE CASE OF ADARSH CO-OPERATIVE HOUSING SOCIETY LTD. 213 ITR 677 (GUJ) AND HONBLE BOMBAY HIGH COURT IN THE CASE OF SIND CO-OP. HOUSING SOCIETY & OTHERS V. ITO WARD-1(7), PUNE IN ITA NO.931/PUN/2004 DATED 17- 07-2009. WE FIND THAT THE REVENUE COULD NOT DISTIN GUISH THE ABOVE DECISIONS REFERRED BY LD. COUNSEL FOR THE ASSESSEE THAT OF JU RISDICTIONAL HIGH COURT IN THE CASE OF ADARSH CO-OPERATIVE HOUSING SOCIETY LTD. (SUPRA) AND HONBLE BOMBAY HIGH COURT IN THE CASE OF SIND CO-OP. HOUSING SOCIETY & OTHERS (SUPRA) AND THAT ALSO OF THIS TRIBUNAL IN THE CASE OF SHREE YOGESHWARNAGAR CO-OP. HOUSING SOCIETY LTD. V ACIT CIRCLE-9 ABD IN ITA NO.2129/AHD/2005 DATED 11-09-2009. WE FEEL THAT THE INCOME EARNED BY THE SOCIETY ON ACCOUNT OF INTEREST , RENT AND OTHER MISCELLANEOUS INCOME FROM ITS MEMBERS IS EXEMPT IN VIEW OF THE PR INCIPLE OF MUTUALITY. WE FIND THAT 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 CLASS OF MEM BERS MEANS, MEMBERS SUCH AS PERMANENT, TEMPORARY, HONORARY ETC. THIS IS 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 MEM BERS AS A CLASS AND THAT CLASS MAY BE DIMINISHED BY MEMBERS GOING OUT OR INC REASED BY THE MEMBERS COMING IN. BUT THE CLASS REMAINS THE SAME. AS ALREA DY NOTED BY THE SUPREME COURT IN BANKIPUR CLUB (SUPRA), THE IDENTITY MUST B E AS A CLASS OF CONTRIBUTORS AND PARTICIPANTS AND IT DOES NOT MATTER THAT THE CL ASS MAY; BE DIMINISHED OR INCREASED BY MEMBERS GOING OUT OR COMING IN. SIMILA RLY, IT IS NOT NECESSARY THAT EACH MEMBER SHOULD CONTRIBUTE OR EACH MEMBER S HOULD PARTICIPATE IN THE SURPLUS AND GET BACK FROM THE SURPLUS . WHAT HE H AS 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 I S VOLUNTARY OR NOT WOULD MAKE NO DIFFERENCE TO THE PRINCIPLE OF MUTUALITY. SECOND LY PAYMENTS ARE MADE UNDER THE BYE-LAWS WHICH CONSTITUTES A CONTRACT BETWEEN T HE SOCIETY AND ITS MEMBERS WHICH IS VOLUNTARILY ENTERED INTO AND VOLUN TARILY 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 NO TIFICATION HAD BEEN RECEIVED UNDER PRESSURE OR COERCION OR CONTRARY TO GOVERNMENT DIRECTIONS, THEN CONSIDERING SECTION 72 OF THE CONTRACT ACT, TH AT AMOUNT 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 THAT AMOUNT WILL BE EXIGIBLE TO TAX AS IT HAS AN ELEMENT OF PROFITEERING. 23. IT WAS THEN SOUGHT TO BE CONTENDED THAT THE PRE MIUM CHARGED IS A PROFIT. AS WE HAVE ALREADY NOTED AND CONSIDERING TH E BYLAWS, THE SOCIETY IS REGISTERED WITH THE OBJECT PRINCIPALLY OF LOOKING A FTER THE PROPERTY INCLUDING ITA NO.2133/AHD/2006 & CO 262/AHD/2006 A.Y. 2003-04 ACIT CIR-9 ABD V. MANEKBAG CO-OP. HSG. SO. LTD. PAGE 8 BUILDING THEREON. THERE IS NO TRADING OR BUSINESS T RANSACTIONS. THE MEMBER BY ADOPTING THE BYLAWS AGREE AMONGST THEMSELVES THA T A FEE FOR TRANSFER OF FLAT/TENEMENT WHEN IT IS SOLD WOULD BE PAID TO THE SOCIETY. IT MAY BE THAT BOTH INCOMING OR OUTGOING MEMBER HAVE TO CONTRIBUTE TO T HE COMMON FUND OF THE SOCIETY. THE AMOUNT PAID HOWEVER, IS TO BE EXCLUSIV ELY 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 PROPO SITION BUT THE PROFIT MUST COME FROM A COMMERCIAL ACTIVITY IN THE NATURE OF TR ADE, BUSINESS OR THE LIKE IN WHICH EVENT THE ASSESSEE THEN WILL HAVE TO PAY TAX ON SUCH PROFITS. CHARGING OF TRANSFER FEES AS PER BY-LAWS HAS NO ELEMENT OF T RADING OR COMMERCIALITY. THERE THEREFORE, BEING NO TAINT OF COMMERCIALITY, T HE QUESTION OF EARNING PROFITS WOULD NOT ARISE WHEN THE HOUSING SOCIETY FR OM THE FUNDS RECEIVED APPLIES THE MONEYS TOWARDS MAINTENANCE OF THE SOCIE TY AND PROVIDING THE MEMBERS WITH USUAL PRIVILEGES, ADVANTAGES AND CONVE NIENCES. 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 HAVE NO APPLICATION TO THE FACTS OF THE CASE AS IT DEALS WITH THE INCOME DERIVED BY THE MEMBER FROM PROFESSIONAL OR SIMILAR ASSOCIATION FROM THE SPECIFIC SERVICES P ERFORMED FOR ITS MEMBERS. A COOPERATIVE SOCIETY HAS NOT SIMILARITY WHATSOEVER W ITH A PROFESSIONAL ASSOCIATION. IN CIT V.S APSARA (SUPRA) THE CALCUTTA HIGH COURT, THERE HELD THAT EVEN IF THE CASE OF MEMBER OR PROFESSIONAL ASS OCIATION, GENERAL FEES LEVIED BY THE ASSOCIATION ON ITS MEMBERS BY WAY OF ENTRANCE FEES OR PERIODICAL SUBSCRIPTION OR OTHERWISE WOULD NOT CONSTITUTE BUSI NESS. SINCE, THESE ARE NOT RELATED TO ANY SPECIFIC SERVICES RENDERED BY ITS ME MBERS. WE ARE 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 FOR 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 THE GOV ERNMENT NOTIFICATION DATED 9.08.2001. THE CASE BEFORE US ARE FOR THE ASSESSMEN T YEAR PREVIOUS TO THAT. EARLIER NOTIFICATION ON 20.12.1989 PROVIDED THAT ON LY IF THE BYE-LAWS WERE AMENDED IN TERMS OF THE NOTIFICATION DATED 27.11.19 89, THEN THE SOCIETY COULD NOT CHARGE MORE THAN WHAT WAS SET OUT IN THE NOTIFI CATION. WE REALLY WOULD NOT BE CONCERNED THEREFORE, IN THIS GROUP OF CASES WITH NOTIFICATION AS NOW NOTIFIED BY THE GOVERNMENT. IF THEREFORE, ANY AMOUNT HAS BEE N RECEIVED BEYOND THE AMOUNT NOTIFIED BY THE GOVERNMENT AND THAT AMOUNT H AS NOT BEEN REFUNDED 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. (1) IS THERE ANY COMMERCIALLY INVOLVED. ITA NO.2133/AHD/2006 & CO 262/AHD/2006 A.Y. 2003-04 ACIT CIR-9 ABD V. MANEKBAG CO-OP. HSG. SO. LTD. PAGE 9 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 INVOLVED. ONCE THERE IS NO COMMERCIALLY INVOLVED THE FIRST TEST OF PROFITABILI TY DOES NOT EXIST. THE FIRST REQUIREMENT OF MUTUALITY IS THEREFORE, ME T. (2) FROM THE MONEYS RECEIVED ARE THE SERVICES OFFER ED IN THE NATURE OF PROFIT SHARING OR PRIVILEGE, ADVANTAGES AND CONV ENIENCES. 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 RECEIVED BY T HE MEMBERS CAN ONLY BE EXPENDED FOR THE PURPOSES OF MAINTENANC E AND PROVIDING OTHER PRIVILEGES, ADVANTAGES AND CONVENIE NCES TO ITS MEMBERS IN TERMS OF ITS BYELAWS. ANOTHER TEST OF M UTUALITY IS THUS SATISFIED. (3) ARE THE PARTICIPANTS AND CONTRIBUTORS IDENTIFIA BLE AND BELONG TO THE SAME CLASS IN THE CASE OF THE COOPERATIVE HOUSI NG SOCIETY. THE CLASS OF MEMBERS ARE CLEARLY IDENTIFIABLE. ME MBERS ARE ORDINARY MEMBERS OF ASSOCIATE MEMBERS. THE PART ICIPANTS AND CONTRIBUTORS ARE THE MEMBERS. THE MEMBERS MAY C OME IN OUR GO OUT. THE FACT THAT ONLY SOME MEMBERS FROM TH OSE WHO CONTRIBUTED MAY PARTICIPATE IN THE SURPLUS, AS HELD BY THE SUPREME COURT IS IRRELEVANT AS LONG AS THE CLASS IS IDENTIFIABLE. THIS TEST IS ALSO SATISFIED IN THE CASE OF A HOUSIN G 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. ACT, NO P ART OF THE FUNDS, AS PROVIDED IN SECTION 64 CAN BE PAID BY WAY OF BONUS OR DIVIDEND OR OTHERWISE DISTRIBUTED AMONG ITS MEMBERS EXCEPT AS PROVIDED THEREIN. UNDER SECTION 67, THERE IS A LIMI T ON THE DIVIDEND TO BE PAID ON LIQUIDATION . UNDER SECTION 110 OF THE M.C.S. ACT. THE SURPLUS CAN ONLY BE DEALT WITH IN T HE MANNER PROVIDED THEREIN WHICH INCLUDES ANY MEMBER OR DEVOT ED TO OBJECTS PROVIDED BY THE BYE-LAWS OR BE TRANSFERRED TO ANOTHER SOCIETY WITH SIMILAR OBJECT. RULE 90 OF THE RULES P ROVIDE HOW THE SURPLUS IS TO BE DIVIDED. THE SURPLUS THEN CAN BE D ISTRIBUTED IN TERMS OF THE BYE-LAWS TO MEMBERS AND OR BY OPERATIO N OF LAW TO ANOTHER SOCIETY HAVING THE SAME OBJECTIVE. IN OTHER WORDS YET ANOTHER TEST OF MUTUALITY 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 COO PERATIVE HOUSING SOCIETY WHICH HAS ITS PREDOMINANT ACTIVITY, THE MAINTENANCE OF THE PROPERTY OF THE ITA NO.2133/AHD/2006 & CO 262/AHD/2006 A.Y. 2003-04 ACIT CIR-9 ABD V. MANEKBAG CO-OP. HSG. SO. LTD. PAGE 10 SOCIETY WHICH INCLUDES ITS BUILDING OR BUILDINGS AN D AS LONG AS THERE IS NO COMMERCIALITY, TRADE OR BUSINESS. 30. FOR ALL THE AFORESAID REASONS, THE QUESTIONS AS FRAMED WILL HAVE TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6. IN VIEW OF THE ABOVE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SIND CO-OPERATIVE HOUSING SOCIETY AND OTHERS (SUPRA), WE FEEL THAT IN THE PRESENT CASE, THE INCOME EARNED BY THE SOCIETY ON ACCOUNT O F INTEREST, RENT AND OTHER MISCELLANEOUS FROM ITS MEMBERS FOR THE PURPOSE OF M AINTENANCE WILL ATTRACT THE CONCEPT OF MUTUALITY AND ACCORDINGLY THE INCOMES WI LL BE SUBJECT TO EXEMPTION, IF ANY SURPLUS, IS THERE. ACCORDINGLY, THIS APPEAL OF THE REVENUE IS DISMISSED AND THAT OF CO OF ASSESSEE IS ALLOWED. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND TH AT OF ASSESSEES CO IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 05/03/2010 SD/- SD/- (D.C.AGRAWAL) (MAHAVI R SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED :05/03/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-XV, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD