JAL DARSHAN CHS LTD, MUMBAI V. ITO WD 16(2)(1), MUMBAI

ITA 2330/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8938 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 06-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 22-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ISHWAR PRAKASH RATHI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI RAJEANDRA SINGH , AM & SHRI VIJAY PAL RAO, JM ITA NO. 2330/MUM/2011 (ASST YEAR 2007-08 ) JAL DARSHAN CHS LTD 512 L JAGMOHANDASMARG NEPEAN SEA ROAD MUMBAI 400 036 VS THE INCOME TAX OFFICER WARD 16(2)(1), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAAAJO884E ASSESSEE BY SH ISHWAR PRAKASH RATHI REVENUE BY SH K N KUTTY DT.OF HEARING 6 TH SEPT 2012 DT OF PRONOUNCEMENT 21 ST , SEPT 2012 PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED27.1.2011 OF THE COMMISSIONER OF INCOME TAX(APPEALS) FOR THE ASS ESSMENT YEAR 2007-08. 2 THE ONLY GROUND RAISED BY THE ASSESSEE IN THIS AP PEAL IS AS UNDER: THAT THE COMMISSIONER OF INCOME TAX(APPEALS) HAS E RRED IN CONFIRMING THE TAXABILITY OF ` 29.00,000 BEING AMOUNT RECEIVED FROM MEMBERS ON ACCO UNT OF CONTRIBUTIONS TOWARDS COMMON AMENITIES, WHEREAS THE A PPELLANT HAS CLAIMED THE3 SAME AS EXEMPT ON THE PRINCIPLE OF MUTU ALITY. 2.1 THE ASSESSING OFFICER HAS NOTICED THAT THE ASSE SSEE RECEIVED A SUM OF ` 30,75,000/- ON ACCOUNT OF TRANSFER FEES FROM THE OUTGOING MEMBERS. THE TRANSFER FEES INCLUDES ` 29 LACS RECEIVED AS VOLUNTARY CONTRIBUTION RANGING FROM ` 1 LAC TO ` 3 LACS FROM 7 MEMBERS AND ` 1,75,000/- RECEIVED AS TRANSFER FEE @ ` 25,000/- EACH FROM THESE MEMBERS. THE ASSESSING OFFICER ACCORDING LY DISALLOWED ` 29 LACS RECEIVED AS VOLUNTARY CONTRIBUTION AND HELD TO BE N OT EXEMPT FROM TAX. ITA NO. 2330/M/2011 JAL DARSHAN CHS LTD 2 2.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 3 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE JURISDICTIONAL HIGH COURT IN THE CASE OF SIND COOPERATIVE HOUSING SOCIETY VS ITO RE PORTED IN 317 ITR 47. HE HAS FURTHER SUBMITTED THAT THE COORDINATE BENCH OF THIS TRIBUNAL, BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF SIND COOPERATIVE HSG SO LTD HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. HE HAS RELIED UPON THE ORDER DATED 26.11.2010 OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS MALABAR CHS LTD IN ITA NO. 688/MUM/2010 AS WELL AS IN THE CASE OF ITO VS M/S PARADI CHS LTD IN ITA NO.521/MUM/2010 VIDE ORDER DA TED 27.8.2010. 3.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DULY CONSIDERED THE DECISION OF T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SIND COOPERATIVE HSG SO LTD (S UPRA) AND ACCORDINGLY HELD THAT ONLY UPTO ` 25,000/- AS PERMITTED BY NOTIFICATION DATED 9/8/20 01 IS EXEMPTED UNDER THE PRINCIPLE OF MUTUALITY AND THE REMAINING AMOUNT IS TAXABLE. HE HAS RELIED UPON THE IMPUGNED ORDER OF THE LD COMMISSIONER OF INCOME TAX(APPEALS). 4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF M/S GRAND PARADI CHS LTD (SUPRA) HAS CONSIDERED AND DECIDED THE IDENTICAL ISSUE IN PARAS 9 TO 12 AS UNDER: 9. WITH REGARD TO THE TRANSFER FEE AND VOLUNTARY CONT RIBUTION WE FIND MERIT IN THE PLEA OF THE ID. COUNSEL FOR THE ASSESSEE THAT TH E ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBL E JURISDICTIONAL HIGH COURT IN SIND CO-OPERATIVE HOUSING SOCIETY VS. ITO (2009) 317 ITR 47 (BORN.) WHEREIN IT HAS BEEN HELD (AT PLACITUM 44 TO 46 AT PAGE 62,63 O F THE ITR) AS UNDER: ITA NO. 2330/M/2011 JAL DARSHAN CHS LTD 3 LET US NOW APPLY THE VARIOUS TESTS WHICH ARE TO BE CONSIDERED FOR APPLYING THE PRINCIPLE OF MUTUALITY TO A CASE OF A CO-OPERATIVE HOUSING SOCIETY BASED ON OUR EARLIER DISCUSSION. (1) IS THERE ANY COMMERCIALITY INVOLVED. THIS HAS TO BE FOUND FROM THE BYE-LAWS OF THE COOPER ATIVE HOUSING COOPERATIVE SOCIETY. IN THE CASE OF THE CO-OPERATIVE HOUSING SOCIETY, ADMITTEDLY, THERE IS NO COMMERCIALITY INVOLVED. ONCE THERE IS NO COMMERCIALITY INVOLVED THE FIRST TEST OF PROFITABILI TY DOES NOT EXIST. THE FIRST REQUIREMENT OF MUTUALITY IS, THEREFORE, MET. (2) FROM THE MONEYS RECEIVED ARE THE SERVICES OFFERED I N THE NATURE OF PROFIT SHARING OR PRIVILEGES, ADVANTAGES AND CONVENIE NCES. IN THE CASE OF A CO-OPERATIVE HOUSING SOCIETY, THE O NLY ACTIVITIES WHICH IT CAN CARRY OUT IN TERMS OF ITS BYE-LAWS ARE BASIC ALLY MAINTENANCE OF ITS PROPERTY WHICH INCLUDES BUILDING OR BUILDINGS. THE SUBSCRIPTION AND/OR CONTRIBUTIONS RECEIVED BY THE MEMBERS CAN ONLY BE EX PENDED FOR THE PURPOSES OF MAINTENANCE AND PROVIDING OTHER PRIVILEGE S, ADVANTAGES AND CONVENIENCES TO ITS MEMBERS IN TERMS OF ITS BYE -LAWS. ANOTHER TEST OF MUTUALITY IS THUS SATISFIED. (3) ARE THE PARTICIPANTS AND CONTRIBUTORS IDENTIFIAB LE AND BELONG TO THE SAME CLASS IN THE CASE OF CO-OPERATIVE HOUSING SOCI ETY. THE CLASS OF MEMBERS ARE CLEARLY IDENTIFIABLE. MEMB ERS ARE ORDINARY MEMBERS OR ASSOCIATE MEMBERS. THE PARTICIPANTS AND CO NTRIBUTORS ARE THE MEMBERS. THE MEMBERS MAY COME IN OR GO OUT. THE FACT THAT ONLY SOME MEMBERS FROM THOSE WHO CONTRIBUTED MAY PARTICIPA TE 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 HOUSING CO- OPERATIVE SOCIETY. (4) DO THE MEMBERS HAVE THE RIGHT TO SHARE IN THE SU RPLUS AND DO THEY HAVE A RIGHT TO DEAL WITH ITS SURPLUSES. IN TERMS OF THE BYE LAWS IT IS ONLY THE MEMBERS WHO HAVE A RIGHT TO SHARE IN THE SURPLUS. UNDER THE MAHARASHTRA COOPERATIVE SOCIETIES ACT, NO PART 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 MA HARASHTRA CO- OPERATIVE SOCIETIES ACT, THE SURPLUS CAN ONLY BE DE ALT WITH IN THE MANNER PROVIDED THEREIN WHICH INCLUDES ANY MEMBER OR DE VOTED TO OBJECTS PROVIDED BY THE BYE-LAWS OR BE TRANSFERRED TO ANOTHER SOCIETY WITH SIMILAR OBJECT. RULE 90 OF THE RULES PROVIDE HO W THE SURPLUS IS TO BE DIVIDED. THE SURPLUS THUS 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 MU TUALITY IS SATISFIED. ONCE THESE TESTS ARE SATISFIED, IN OUR OPINION, THE RE CAN BE NO DOUBT THAT THE PRINCIPLE OF MUTUALITY WILL APPLY TO A CO-O PERATIVE HOUSING SOCIETY WHICH HAS AS ITS PREDOMINANT ACTIVITY, THE MAINTENANCE OF THE PROPERTY OF THE SOCIETY WHICH INCLUDES ITS BUILDING OR BUILDINGS AND AS LONG AS THERE IS NO TAINT OF COMMERCIALITY, TRADE OR BUSINESS. FOR ALL THE AFORESAID REASONS, THE QUESTIONS AS FRAMED WILL HAVE TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE RE VENUE. ITA NO. 2330/M/2011 JAL DARSHAN CHS LTD 4 10. THE ABOVE DECISION HAS BEEN FOLLOWED BY THEIR L ORDSHIPS IN SHYAM CO- OPERATIVE HOUSING SOCIETY LTD. VS. CIT IN INCOME TA X APPEAL NOS. 92,93, AND 206 OF 2008 DATED 17.7.2009 WHEREIN ON THE QUESTION WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ANY PART OF TRA NSFER FEE RECEIVED BY THE ASSESSEE SOCIETIES WHETHER FROM OUTGOING OR INCOMIN G MEMBERS- IS NOT LIABLE TO TAX ON THE GROUND OF MUTUALITY? IT HAS BE EN HELD AS UNDER: IN INCOME TAX APPEAL NO.92,93, 2006 OF 2008 IN ADD ITION IT IS SUBMITTED THAT THE DEMANDS ARE IN RESPECT OF THE ASS ESSMENT YEARS 1999-2000, 2000-2001, 2001- 2002. THE TRANSFE R PREMIUM WAS CHARGED BASED ON THE GOVERNMENT CIRCULAR DATED 27.11.1989 AND 20.12.1989. IT IS SUBMITTED THAT CLA USE 40(D)(7) OF THE MODEL BYE LAWS DRAFTED ON 2.7.2001 AND THE CIRCU LAR DATED 9.8.2001 WERE THEREFORE, NOT APPLICABLE TO THE CASE OF THE APPELLANT. BY OUR JUDGMENT DATED 17TH JULY, 2009 IN INCOME TAX APPEAL NO.93 1 OF 2004 IN THE CASE OF SIND COOP. HSG. SOC. VERSUS THE INCOME TAX OFFICER, WE HAVE HELD THAT BOTH CONTRIBU TIONS BY THE OUTGOING AND INCOMING MEMBERS ARE SUBJECT TO PRINCIP LE OF MUTUALITY. WE HAVE ALSO DISCUSSED THE EFFECT OF THE GOVERNMENT CIRCULAR DATED 27.11.1989 AND 20.12.1989. IN THE LIG HT OF THAT, THE QUESTION HAS TO BE ANSWERED IN THE AFFIRMATIVE IN F AVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 11. SIMILAR VIEW WAS TAKEN BY THEIR LORDSHIPS IN SU PRA BHAT COOPERATIVE HOUSING SOCIETY LTD. VS. ITO IN INCOME TAX APPEAL N O.1972 OF 2009 WHEREIN ON THE QUESTIONS OF LAW 1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLATE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT THE PRINCIPLE OF MUTUALITY DOES NOT APPLY TO VARIOUS AMOUNTS RECEIVED BY THE APPELLANT? 2) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE SUM OF RS. 7,44,000/- RECEIVED FROM ITS MEMBERS IS LIABLE TO BE TAXED AS INCOME OF THE APPELLANT? 3) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE SUM OF RS 20,695/- RECEIVED AS INTEREST IS LIABLE TO BE TAXED A S INCOME OF THE APPELLANT? IT HAS BEEN HELD 5. BOTH PARTIES AGREE THAT THE AFORESAID THREE QUEST IONS ARE COVERED BY THE JUDGMENT OF THE OF DIVISION BENCH OF THIS COURT DATED 17TH JULY, 2009 IN INCOME TAX APPEAL NO. 931/ 2004 (SIND CO-OP. HSG. SOCIETY V. INCOME TAX OFFICER) REPORTED IN [2009] 26 DTR (BOM.) 149. ACCORDINGLY, ALL THE THREE QUESTION S ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE RE VENUE. APPEAL IS DISPOSED OF IN TERMS OF THIS ORDER WITH NO ORDER AS TO COSTS. ITA NO. 2330/M/2011 JAL DARSHAN CHS LTD 5 12. IN THE ABSENCE OF ANY OTHER CONTRARY DECISION PLAC ED ON RECORD BY THE REVENUE AND KEEPING IN VIEW THAT THE DECISION RELIED ON BY THE ASSESSING OFFICER IN CIT VS. PRESIDENCY CO OP. HOUSING SOCIETY LTD. (1995) 216 ITR 321 (BORN.) HAS ALREADY BEEN CONSIDERED AND DISTINGUISHE D BY THEIR LORDSHIPS IN THE CASE OF SIND CO-OPERATIVE HOUSING SOCIETY SUPRA, BY OBSERVING THAT THE ISSUE OF MUTUALITY WAS NEITHER ARGUED OR CONSIDERED, WE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE ARE SUBJECT TO PRINCIPLE OF MUTUALITY AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING OF THE ID. CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER 4.1 FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL, CITED SUPRA, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFFICER IS DELET ED. 5 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 21 ST ,AY OF SEPT 2012. SD/- SD/ - ( RAJENDRA SINGH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 21 ST , SEPT 2012 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI