MEHTA JAISING DEVELOPERS, MUMBAI V. ADDL CIT RG 15(2), MUMBAI

ITA 286/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4979 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 12-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: SAMEER G DALAL
• Keywords: Charitable institution

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SRI H.L. KARWA, PRESIDENT, AND SHRI N.K.BILL AIYA, AM ./ I.T.A. NO. 286/MUM/2011 ( / ASSESSMENT YEAR : 2006-07) MEHTA JAISINGH DEVELOPERS, 398 KIRTI KUNJ, 14 TH RD. KHAR(W), MUMBAI-400052 / VS. ADDL. CIT, RANGE-15(2), MATRU MANDIR, MUMBAI-400007 !' $ ./ PAN :AABTM0713F ( '% / APPELLANT ) .. ( &''% / RESPONDENT ) '% ( ) / APPELLANT BY : SHRI SAMEER G. DALAL &''% ( ) / RESPONDENT BY : SHRI SURENDRA KUMAR ( *$ / DATE OF HEARING : 19-09-2013 +, ( *$ / DATE OF PRONOUNCEMENT : 19 -09-2013 -. / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS FILED AGAINST THE OR DER OF THE CIT(A)- 26, MUMBAI, DATED 27/12/2010, PERTAINING TO A.Y.2006 -07. 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS OF APPEAL. GROUNDS NO. 1 RELATES TO THE DISALLOWANCES ON ACCOU NT OF PROFESSIONAL FEES PAID RS.4 LAKHS AND GROUND NO. 2 RELATES TO THE DIS ALLOWANCE OF RS.6 LAKHS. BOTH THE DISALLOWANCES ARE BEING MADE U/S 4 0(BA) OF THE ACT. 2 ITA NO.286/MUM/2011 MEHTA JAISING DEVELOPERS 3. THE ASSESSEE IS IN THE BUSINESS OF CIVIL CONSTRU CTION FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING IN THE STATUS OF A. O.P. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO NOTI CED THAT THE ASSESSEE HAS DEBITED A TOTAL AMOUNT OF RS.4,90,500/- UNDER T HE HEAD OF PROFESSIONAL FEES. THE DETAILS ARE EXHIBITED AT PA GE 2 OF THE ASSESSMENT ORDER. THE AO OBSERVED THAT THE ASSESSEE HAS PAID RS.4 LAKHS TO THE FIVE MEMBERS OF THE A.O.P AT THE RATE OF RS.80,000/- PER MEMBER. THE AO SOUGHT EXPLANATION FROM THE ASSESSEE AS TO WHY THIS PAYMENT OF RS.4 LAKHS SHOULD NOT BE DISALLOWED. IN VIEW OF THE PRO VISIONS OF SECTION 40(BA) OF THE ACT, ASSESSEE FILED A DETAILED REPLY DATED 1 2.04.2008. THE AO WAS OF THE FIRM BELIEF THAT PROVISIONS OF SECTION 40(BA ) SQUARELY APPLY ON THE FACTS OF THE CASE AND ACCORDINGLY DISALLOWED RS.4 L AKHS. THE AO FURTHER DISCUSSED DISALLOWANCE OF RS.6 LAKHS ON ACCOUNT OF SALARY PAID TO THE MEMBER OF THE A.O.P. HOLDING THAT THIS PAYMENT IS COVERED BY THE PROVISIONS OF SECTION 40(BA) OF THE ACT. THE AO FU RTHER OBSERVED THAT SINCE THE ASSESSEE HAS NOT CLAIMED THE EXPENSES IN THIS Y EAR, THEREFORE, THE DISALLOWANCE WILL BE MADE IN THE ASSESSMENT YEAR OF THE PROJECT IS FINALLY COMPLETED AND WHEN THE ASSESSEE CLAIMS SUCH EXPENSE S. 4. ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) BU T WITHOUT ANY SUCCESS. 5. AGGRIEVED BY THIS ASSESSEE IS BEFORE US. 6. COUNSEL FOR THE ASSESSEE SUBMITTED THAT PROVISIO NS OF SECTION 40(BA) ARE NOT APPLICABLE IN VIEW OF THE DECISION OF THE T RIBUNAL BANGALORE BENCH IN THE CASE OF KODAGU ACADEMY FOR EDUCATION & CULTURE139 ITD 221 (B ANG). THE COUNSEL FURTHER SUBMITTED THAT THE TRUSTEES CAN NOT BE TREATED AS MEMBERS OF THE A.O.P. PER CONTRA, SUPPORTING THE FINDINGS OF THE LOWER AUTHORITIES, THE LD. DR STRONGLY CONTENDED THAT THE RE IS NO DIFFERENCE 3 ITA NO.286/MUM/2011 MEHTA JAISING DEVELOPERS BETWEEN TRUSTEES AND MEMBERS OF THE A.O.P. AND THER EFORE, THE CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISION OF THE TRIBUNAL RELIED UPON. WHILE CONSIDERING THE ISSUES ON IDENTICAL FAC TS, THE TRIBUNAL HAS HELD AS UNDER:- THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE UNDER SECTION 40(BA) OF THE ACT. THE PROVISIONS OF SECTION 40(BA) READ AS UNDER : 40(BA) IN THE CASE OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS [OTHER THAN A COMPANY OR A CO-OPERATIVE SOCIETY OR A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860(2) OF 1860), O R UNDER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF I NDIA], ANY PAYMENT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION , BY WHATEVER NAME CALLED, MADE BY SUCH ASSOCIATION OR BODY TO A MEMBE R OF SUCH ASSOCIATION OR BODY. 6.3 FROM A PLAIN READING OF THE AFORESAID PROVISION S, IT BECOMES CLEAR THAT THE INTEREST PAID TO A MEMBER OF AN AOP REQUIRES TO BE DISALLOWED IN TERMS OF THE AFORESAID PROVISIONS. THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE ON PAGE 4 OF HIS ORDER IS AS UNDER : IN VIEW OF THE ABOVE DECISION OF THE HON'BLE COURT I HOLD THAT THE TRUSTEES CANNOT BE TREATED AS MEMBERS OF THE AOP EVEN IF THE TRUST IS TO BE ASSESSED AS AN AOP FOR RATE PURPOSES. THE RELATIONSHIP BETWE EN THE SETTLER OF THE TRUST, THE TRUSTEES AND THE BENEFICIARIES IS NOT TH AT OF A MEMBERSHIP OF A COMMON ASSOCIATION. PROVISIONS OF SECTION 40(BA) CA NNOT BE INVOKED TO DISALLOW THE INTEREST PAID TO THE TRUSTEES IF THE T RUST DEED SO PROVIDES FOR. IN OTHER WORDS, THE LEARNED CIT(A) HAS NOT HELD THA T THE ASSESSEE MUST BE ASSESSED IN THE STATUS OF INDIVIDUAL. HE HAS APPL IED THE JUDGMENT OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF SHARADA BEN BHAGUSHER MAFATLAL PUBLIC CHARITABLE TRUST (SUPRA) TO CONCLUD E THAT THE TRUSTEES CANNOT BE CONSIDERED AS MEMBERS OF THE AOP. IN FACT, HON'B LE HIGH COURT OF KARNATAKA N THE CASE OF CIT VS. SHYAMARAJU (189 ITR 1) HAS ALSO HELD THAT THE TRUSTEES AS REPRESENTATIVE ASSESSEES CANNOT BE HELD ASSESSABLE AS AOP. THEREFORE, WHETHER OR NOT THE ASSESSEE IS ASSESSED IN THE STATUS OF AOP OR INDIVIDUAL, IT DOES NOT MATTER. THE DISALLOWANCE UN DER SECTION 40(BA) OF THE ACT, CAN BE MADE ONLY WITH REGARD TO THE INTEREST P AID TO THE MEMBERS OF THE AOP. THE TRUSTEES OF THE ASSESSEE TRUST CANNOT BE D ESCRIBED AS MEMBERS OF THE AOP BY ANY STRETCH OF IMAGINATION. HENCE, WE FI ND THAT THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE IS IN ACCORDANCE WITH LAW AND THEREFORE CONFIRM THE SAME. 4 ITA NO.286/MUM/2011 MEHTA JAISING DEVELOPERS FACTS ARE BEING IDENTICAL, FOLLOWING THE FINDINGS OF THE COORDINATE BENCH; THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.4 L AKHS. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 8. SINCE NO ADDITION WAS MADE ON ACCOUNT OF SALARY OF RS.6 LAKHS BY THE AO, THE CIT(A) GROSSLY ERRED IN SUSTAINING THE ADDITION WHICH IS UNCALLED FOR FOR THE YEAR UNDER CONSIDERATION. TO THIS EXTENT, ORDER OF THE CIT(A) IS VACATED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 19/09/2013 -. ( +, $ /- 19/09/2013 , , ( 0 SD/- (H.L.KARWA) SD/- (N.K.BILLAIYA) HONBLE PRESIDENT ACCOUNTANT MEMBER MUMBAI; /- /DATED : 19 TH SEPTEMBER, 2013. SHEKHAR. P.S. -. -. -. -. ( (( ( &*12 &*12 &*12 &*12 32 * 32 * 32 * 32 * / COPY OF THE ORDER FORWARDED TO : 1. '% / THE APPELLANT 2. &''% / THE RESPONDENT. 3. 4 ( ) / THE CIT- , MUMBAI. 4. 4 / CIT(A)- , MUMBAI 5. 250 &* , , / DR, ITAT, MUMBAI 6. 06 7 / GUARD FILE. -. -. -. -. / BY ORDER, '2* &* //TRUE COPY// 8 88 8 / 9 9 9 9 : : : : (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI