HEWO APARTMENT ASSOCIATION, Gurgaon V. ITO, Gurgaon

ITA 2952/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1307 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-11-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 22-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANSHU SHUKLA
• Assessee Lawyers: V S AGGA RWAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. 2952/DEL/2009 ASSESSMENT YEAR : 2004-05 HEWO APARTMENT ASSOCIATION, FLAT NO.98, HEWO APARTMENTS, SECTOR-15, PART-II, GURGAON, HARYANA. PAN: AAABH0142C VS. ITO, WARD-2, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.S. AGGARWAL, ADVOCATE REVENUE BY : SMT. ANSHU SHUKLA PANDEY, DR O R D E R PER I.P. BANSAL, JUDICIAL MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ORDER OF CIT (A) DATED 16 TH MARCH, 2009 FOR ASSESSMENT YEAR 2004-05 GROUNDS O F APPEAL READ AS UNDER:- 1. THE ORDER OF THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS) HOLDING THE ORDER OF THE LD. ASSESSING OF FICER (AO) IS AGAINST THE FACTS OF THE CASE AND IS BAD IN LAW. 2. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS ) WAS WRONG IN HOLDING THE CONTENTION OF THE LD. ASSESSIN G OFFICER THAT THE APPELLANT SOCIETY WAS NOT A MUTUAL CONCERN 3. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS ) HAS GROSSLY IGNORED THE FACT THAT THE LD. A.O. HAS FAIL ED TO CONSTRUE THE AIMS & OBJECTS OF THE APPELLANT SOCIET Y AS INCORPORATED IN ITS MEMORANDUM OF ASSOCIATION AND R ULES & ITA NO.2952/DEL/2009 2 REGULATIONS. 4. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS ) WAS WRONG IN HOLDING THE CONTENTION OF THE LD. A.O. THA T THE APPELLANT SOCIETY IS A COMMERCIAL CONCERN AND IS EN GAGED IN THE ACTIVITIES OF TRADE OR AN ADVENTURE IN THE NATU RE OF TRADE SO AS TO EARN PROFIT AND THEREBY DENYING THE EXEMPTION FROM INCOME TAX TO THE APPELLANT SOCIETY ON THE BASIS OF PRINCIPLE OF MUTUALITY. 5. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS )WAS WRONG IN HOLDING THE ORDER OF THE ASSESSING OFFICER BEING TAXING THE SURPLUS OF RS.957592/- ARISING FROM THE MUTUAL ACTIVITIES. 6. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS ) HAS WRONGLY HELD THAT THE TRANSFER FEE OF RS.1190000/- AS RECEIVED DURING THE YEAR UNDER CONSIDERATION IS A TAXABLE INCOME. 7. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY IGNORED THE FACT THAT THE LD. A.O. HAS IN H IS ORDER COMPARED THE TRANSFER FEE RECEIVED BY THE APPELLANT SOCIETY WITH THE TRANSFER FEE CHARGED BY THE BUILDERS LIKE UNITECH LTD. WHICH ARE WORKING AS COMMERCIAL CONCERN WITH A PROF IT MOTIVE IN ACCORDANCE WITH THE OBJECTS AS INCORPORATED IN T HEIR MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATI ON. 8. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS )HAS GROSSLY IGNORED THE FACT THAT THE TRANSFER FEE OF R S.1129000/- RECEIVED BY THE APPELLANT SOCIETY DURING THE FINANC IAL YEAR 2003-04 RELEVANT FOR THE ASSESSMENT YEAR 2004-05, F ROM HEWO-PANCHKULA WAS FOR MEETING OUT THE MAINTENANCE EXPENSES BECAUSE OF SHORTAGE OF FUNDS. 9. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY IGNORED THE FACT THAT THE TRANSFER FEE OF R S.11,29000/- BY THE APPELLANT SOCIETY DURING THE FINANCIAL YEAR 2003-04 RELEVANT FOR THE ASSESSMENT YEAR 2004-05, WAS AGAIN ST AN UNDERTAKING TO THE HEWO-PANCHKULA THAT THE AMOUNT O F RS.960000/- IN RESPECT OF 48 CASES @ 20000/- PER CA SE, FALLING DUE TO THE ESTATE OFFICE-HUDA, GURGAON SHA LL BE PAID BY THE APPELLANT SOCIETY AND HENCE IS A LIABILITY W HICH HAS BEEN WRONGLY CREDITED TO THE INCOME & EXPENDITURE ACCOUNT, THEREBY RESULTING THE SURPLUS OF RS.957592/-. 10. THE HONBLE COMMISSIONER OF INCOME TAX (APPEAL S)HAS GROSSLY ERRED IN HOLDING THE INTEREST OF RS.174857/ - AS TAXABLE ITA NO.2952/DEL/2009 3 INCOME OF THE APPELLANT SOCIETY AND IS NOT COVERED BY DOCTRINE OF MUTUALITY. 11. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS ) HAS GROSSLY ERRED IN HOLDING THE CONTENTIONS OF THE LD. A.O. THAT THE APPELLANT SOCIETY HAS EARNED THE INTEREST OF RS .174857/- WITH A PROFIT MOTIVE AND IS TAXABLE INCOME OF THE A PPELLANT SOCIETY THEREBY IGNORING THE FACT THAT SUCH TYPE OF ORGANIZATION WHICH ARE NOT THE PROPRIETARY CONCERNS OF ANY INDIVIDUAL, USE TO KEEP THEIR FUNDS IN BANKS, ETC., TO PROTECT FROM LOSS/THEFT, ETC. 12. THAT THE APPELLANT CRAVES TO LEAVE TO ADD, ALT ER, AMEND, MODIFY, SUBSTITUTE, DELETE ANY OF THE GROUND(S) OF APPEAL AT OR BEFORE THE TIME OF THE FINAL HEARING OF THE APPEAL, IF NECESSARY. 2. THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE S OCIETIES REGISTRATION ACT, 1860 ON 24 TH APRIL, 2000. IN THE RETURN OF INCOME FILED, THE A SSESSEE HAD SHOWN A SUM OF RS.9,57,593/- BEING AN EXCESS OF INCOME OVER EXPENDITURE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER FOUND THAT THE ASSESSEE HAD RECEIVED A TRANSFER FEE OF RS.11,29,00 0/- FROM HUDA, PANCHKULA VIDE CHEQUE NO.58150 DATED 29 TH APRIL, 2003. THE INCOME WAS CLAIMED TO BE EXEMPT BY THE ASSESSEE ON THE BASIS OF PRINCIPLE OF MUTUALITY. IT IS IN THIS MANNER THE ASSESSING OFFICER TREATED THE SUM OF RS.11,29,0 00/- RECEIVED AS TRANSFER FEE AS AN INCOME NOT ARISING OUT OF MUTUALITY. ACCORDI NG TO THE ASSESSING OFFICER, THE COLLECTION OF THE SAID FEE IS NOTHING BUT A WAY OF INCREASING ITS RECEIPT AND A DEVICE TO EARN PROFITS FROM SALE OF FLATS WHICH INC IDENTALLY DO NOT BELONG TO THE SOCIETY, BUT TO THE INDIVIDUALS WHO ARE OWNER OF TH E FLATS. ACCORDING TO THE ASSESSING OFFICER, THIS WAS DONE WITH A STRONG PROF IT MOTIVE. THUS, THE ASSESSING OFFICER HELD THAT PRINCIPLE OF MUTUALITY WILL NOT A PPLY TO THE FACTS OF THE CASE AND THE SURPLUS INCOME OF RS.9,57,593/- WAS REQUIRED TO BE OFFERED FOR TAXATION WHICH IS BEING ADDED TO THE INCOME OF THE ASSESSEE. AN A LTERNATIVE PLEA WAS RAISED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER TO CONTEN D THAT TRANSFER FEES COLLECTED BY THE ASSESSEE WAS IN THE NATURE OF CAPITAL, THERE FORE, COULD NOT BE TAXED. HE ALSO REJECTED THE SAID CLAIM OF THE ASSESSEE. ITA NO.2952/DEL/2009 4 3. THE ASSESSING OFFICER FURTHER HELD THAT INTEREST RECEIVED BY THE ASSESSEE FROM SAVING BANK AMOUNTING TO RS.4,710/- AND INTERE ST RECEIVED ON FDRS AMOUNTING TO RS.1,70,147/- ALSO DOES NOT FORM PART OF THE INCOME TO BE CONSIDERED EXEMPTED ON THE PRINCIPLE OF MUTUALITY. IT IS IN THIS MANNER THE ASSESSING OFFICER HAS COMPUTED THE TAXABLE INCOME O F THE ASSESSEE AT RS.9,57,590/- AGAINST THE NIL INCOME. THE VIEW POI NT OF THE ASSESSING OFFICER HAS BEEN UPHELD BY THE CIT (A) VIDE THE IMPUGNED ORDER. THE ASSESSEE IS AGGRIEVED, HENCE, IN APPEAL. 4. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY T HE LD. AR THAT NONE OF THE OBJECTS OF THE ASSESSEE SOCIETY DEPICTS ANY PROFIT MOTIVE. HE SUBMITTED THAT EVEN ON DISSOLUTION OR OTHERWISE THE INCOME/SURPLUS CANNOT BE UTILIZED FOR THE PERSONAL BENEFIT OF ANY MEMBER OF THE SOCIETY. IT WAS SUBMITTED THAT THE AMOUNT OF TRANSFER FEE WAS RECEIVED BY THE ASSESSEE FROM I TS PARENT ORGANIZATION WHICH IS ASSOCIATE OF HUDA TOWN & COUNTRY PLANNING ETC. E MPLOYEES WELFARE ORGANISATION AND THEY HAD TRANSFERRED THIS AMOUNTS TO THE ASSESSEE RELATING TO THE APARTMENTS FALLING UNDER THE SOCIETY VIDE LETTE R DATED 19 TH DECEMBER, 2006 A COPY OF WHICH IS PLACED AT PAGE 14 OF THE PAPER BOO K. IT WAS SUBMITTED THAT DETAILS OF TRANSFER FEE RECEIVED FROM 49 MEMBERS IS INCORPORATED AT PAGE 15, THE TOTAL OF WHICH IS A SUM OF RS.21,29,000/-. COPY OF MEMORANDUM OF ASSOCIATION IS PLACED AT PAGES 16 TO 36 OF THE PAPER BOOK. REFERE NCE WAS MADE TO THE CLAUSE O WHICH READ AS UNDER:- O) THE INCOME & PROPERTY OF THE ASSOCIATION SHALL BE APPLIED SOLELY TOWARDS THE PROMOTION OF THE OBJECTS OF THE ASSOCIATION AS SET FORTH IN THE MEMORANDUM OF ASSOCIATION & NO POR TION THEREOF SHALL BE PAID OR TRANSFERRED DIRECTLY OR INDIRECTLY TO THE MEMBERS OF THE ASSOCIATION; 5. IT WAS SUBMITTED THAT THE ASSESSING OFFICER WAS WRONG IN HOLDING THAT TRANSFER FEE WILL NOT FALL WITHIN THE AMBIT OF INC OME FALLING UNDER THE CONCEPT OF MUTUALITY. REFERENCE IS MADE TO THE RECENT DECISIO N OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SIND COOPERATIVE HOUSING SOCIE TY VS. ITO 226 CTR 145 ITA NO.2952/DEL/2009 5 WHEREIN IT HAS BEEN HELD THAT FOR CHARGING OF TRANS FER FEE BY A COOPERATIVE SOCIETY THERE IS NO ELEMENT OF TRADING AND COMMERCIAL ACTIV ITY AS IT APPLIES THE MONIES RECEIVED TOWARDS MAINTENANCE OF THE PROPERTY OWNED BY IT AND TO RENDER SERVICES TO ITS MEMBERS BY WAY OF USUAL PRIVILEGES, ADVANTAG ES, CONVENIENCES, WITHOUT ANY PROFIT MOTIVE AND THE PARTICIPANTS AND CONTRIBU TORS TO THE FUND BELONG TO THE SAME IDENTIFIABLE CLASS I.E., MEMBERS AND, THEREFOR E, PRINCIPLE OF MUTUALITY IS APPLICABLE TO THE TRANSFER FEES RECEIVED BY A CO-OP ERATIVE HOUSING SOCIETY, WHETHER FROM OUTGOING OR INCOMING MEMBERS. THUS, I T WAS PLEADED THAT THE TREATMENT TO TRANSFER FEE GIVEN BY THE ASSESSING OF FICER IS NOT IN ACCORDANCE WITH THE LAW; THE SAME HAS TO BE TREATED TO BE EXEMPT UN DER THE CONCEPT OF MUTUALITY. 6. FURTHER, IT WAS SUBMITTED THAT ACTION OF THE ASS ESSING OFFICER TREATING THE SAVINGS BANK INTEREST AND FDR INTEREST AS INCOME N OT ARISING OUT OF PRINCIPLE OF MUTUALITY IS ALSO INCORRECT AS ACCORDING TO THE DEC ISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX VS. ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY 184 CTR (DEL) 274, WHEREIN THE INTEREST INCOME EARNED BY THE SOCIETY ON DEPOSITS MADE OUT OF CONTR IBUTIONS RECEIVED FROM THE MEMBERS WAS HELD TO BE EXEMPT ON THE PRINCIPLE OF M UTUALITY. 7. THUS, IT WAS SUBMITTED BY LD. AR THAT THE AMOUNT OF RS.9,57,590/- ASSESSED BY THE ASSESSING OFFICER ON THE GROUND THA T PRINCIPLE OF MUTUALITY WAS NOT APPLICABLE ON THE TRANSFER FEE AND INTEREST EAR NED BY THE ASSESSEE FROM SAVING BANK ACCOUNT AND FDRS IS NOT IN ACCORDANCE W ITH THE LAW AND THIS ADDITION SHOULD BE DELETED. 8. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THERE CANNOT BE ANY DIS PUTE SO AS IT RELATES TO THE FACT THAT AMOUNT OF RS.11,29,000/- IS IN THE NATURE OF TRANSFER FEE AS THE SAID AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE FROM HEWO PANCHKULA WHICH IS AN ITA NO.2952/DEL/2009 6 ASSOCIATE CONCERN OF HUDA URBAN ESTATE TOWN AND COU NTRY PLANNING . THIS IS ALSO CLEAR FROM THE LETTER PLACE AT PAGE 14 OF THE PAPER BOOK AND THE DETAILS GIVEN AT PAGE 15 OF THE PAPER BOOK. SO AS IT RELATES TO THE OBJECTS, IT HAS BEEN SHOWN THAT THE PROCEEDS COLLECTED BY THE SOCIETY CANNOT G O TO THE COFFERS OF MEMBERS PERSONALLY AS IT IS CLEAR FROM CLAUSE O REPRODUCE D FROM THE MEMORANDUM OF ASSOCIATION. IF IT IS SO, THE RATIO OF DECISION IN THE CASE OF SIND COOPERATIVE HOUSING SOCIETY (SUPRA) WILL CLEARLY APPLY AND, THE REFORE, THE AMOUNT OF TRANSFER FEE RECEIVED BY THE ASSESSEE CANNOT BE TREATED TO B E AN INCOME WHICH IS NOT EXEMPT ON THE CONCEPT OF MUTUALITY. SO AS IT RELAT ES TO INTEREST INCOME ALSO ACCORDING TO THE AFOREMENTIONED DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX VS. ALL INDIA ORIENTAL BA NK OF COMMERCE WELFARE SOCIETY (SUPRA), THE SAME CANNOT BE CONSIDERED AS I NCOME ARISING NOT ON THE PRINCIPLE OF MUTUALITY. THEREFORE, ON BOTH THE GRO UNDS THE ASSESSING OFFICER IS WRONG IS HOLDING THAT THESE INCOMES CANNOT BE CONSI DERED TO HAVE ARISEN ON THE CONCEPT OF MUTUALITY. THEREFORE, THE CLAIM OF THE ASSESSEE REGARDING NIL INCOME HAS TO BE ACCEPTED. WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER AND ALLOW THE APPEAL OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. . 11. THE ORDER PRONOUNCED IN THE OPEN COURT ON 13.11 .2009. [R.C. SHARMA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 13.11.2009. DK ITA NO.2952/DEL/2009 7 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES