The ACIT, Central Circle-1(2), Ahmedabad V. M/s. Bopal Shobhan Co.O.hsg. So Ltd., Ahmedabad

ITA 318/AHD/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9151 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-08-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 08-02-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M SHUKLA SENIOR
• Keywords: Business expenditure; Deemed to accrue or arise in india; Revenue expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.318/AHD/2006 (ASSESSMENT YEAR: 2002-03) THE ASSISTANT COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE-1(2), AHMEDABAD V/S M/S BOPAL SHOBHAN CO-OP. HOUSING SOCIETY LTD., BASANT BAHAR, BOPAL, AHMEDABAD (APPELLANT) (RESPONDENT) PAN NO.: AAAAB 0418 J APPELLANT BY :- SHRI P M SHUKLA, SENIOR DR RESPONDENT BY:- SHRI ASEEM L THAKKAR O R D E R PER P K BANSAL (ACCOUNTANT MEMBER) : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A ) DATED 28 TH NOVEMBER, 2005 BY TAKING THE FOLLOWING TWO EFFECTIV E GROUNDS OF APPEAL: 1 THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTI NG THE ADDITION OF RS.63,000/- MADE ON ACCOUNT OF ADVANCE RENT ON T HE GROUND THAT THIS ADVANCE RENT CONSTITUTED A LIABILITY AS IT WAS TO BE ADJUSTED AGAINST THE RENT OF LAST THREE YEARS OF THE LEASE P ERIOD IGNORING THE FACT THAT THE VERY LONG PERIOD OF LEASE ITSELF I.E. 999 YEARS RENDERED SUCH CONDITION OF ITS ADJUSTMENT AGAINST THE RENT O F LAST THREE YEARS OF LEASE I.E. AFTER 996 YEARS, AS PRACTICALLY REDUN DANT. 2 THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTI NG TO DELETE THE ADDITION OF RS.50,10,000/- MADE ON ACCOUNT OF REJEC TION OF THE ASSESSEES CLAIM FOR TREATING THE INVESTMENT MADE I N PURCHASE OF 2 SHARES OF GALA GYMKHANA PVT. LTD., OUT OF PROFIT EA RNED FROM BASANT BAHAR SCHEME AS REVENUE EXPENDITURE OF THE C URRENT YEAR IGNORING THE FACT THAT THE INVESTMENT MADE IN THE P URCHASE OF SHARES DOES NOT CONSTITUTE THE BUSINESS EXPENDITURE AS THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF SHARE TRADING AND , THEREFORE, SUCH EXPENDITURE DID NOT QUALIFY FOR DEDUCTION IN CALCUL ATING THE PROFITS OF THE ASSESSEES BUSINESS WHICH IS CONSTRUCTION OF BUILDINGS. 2 THE BRIEF FACTS OF THE CASE IN RELATION TO GROUN D NO.1 ARE THAT THE AO PROPOSED TO MAKE THE ADDITION ON TH E GROUND THAT FOR ALL PRACTICAL PURPOSES IT MAY BE CONSIDERED THA T THERE IS NO LIABILITY TO RETURN THIS ADVANCE AND THIS IS AN INC OME RECEIVED DURING THE YEAR. THE ASSESSEE SUBMITTED DETAILED RE PRESENTATION AT THE TIME OF ASSESSMENT BUT THE AO WAS NOT SATISF IED WITH THE CONTENTIONS AND WITHOUT GIVING ANY REASON MADE THE IMPUGNED ADDITION. WHEN THE MATTER WENT BEFORE THE CIT(A), T HE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- GROUND OF APPEAL NO.3 RELATES TO THE AOS REJECTIO N OF THE CLAIM OF RS.63,000/- AS ADVANCE RENT FOR 3 YEARS TO BE ADJUS TED AGAINST THE ANNUAL RENT PAYABLE FOR THE LAST 3 YEARS OF THE LEA SE PERIOD. THE AO HAS REPRODUCED THE ASSESSEES SUBMISSIONS IN PARA 3.4 OF THE ASSESSMENT ORDER BUT HAS NOT DEALT WITH THE SUBMISS IONS IN DETAIL WHILE MAKING THE ADDITION OF RS.63,000/-. THE AO SHOULD H AVE DEALT WITH THE APPELLANTS SUBMISSIONS IN DETAIL IN THE ASSESS MENT ORDER BEFORE MAKING THE IMPUGNED ADDITION. IT IS RELEVANT TO REP RODUCE THE APPELLANTS SUBMISSIONS HERE AGAIN AS REGARDS THE TREATMENT OF ADVANCE RENT OF RS.63, 000/- THE AO HAD ISSUED A SHOW CAUSE NOTICE WHICH IS CONTAINED IN PA RA 3.3.2 AND PROPOSED TO MAKE THE ADDITION ON THE GROUND THAT FO R ALL PRACTICAL PURPOSES IT MAY BE CONSIDERED THAT THERE IS NO LIAB ILITY TO RETURN HIS ADVANCE AND THIS IS AN INCOME RECEIVED DURING THE Y EAR. IN PARA 3.4.3 OF THE ORDER THE DETAILED REPRESENTATION MADE AT TH E TIME OF ASSESSMENT HAS BEEN PRODUCED. HOWEVER, THE SAME HAS BEEN CONVENIENTLY IGNORED WHILE COMPLETING THE ASSESSMEN T AFTER MAKING THE ADDITION. THEREFORE, IT SEEMS APPARENT THAT THE AO WAS SATISFIED 3 REGARDING THE CONTENTIONS RAISED AT THE TIME OF ASS ESSMENT AND HAS HOWEVER, CONVENIENTLY CHOSE TO IGNORE THE VARIOUS A RGUMENTS AND HAS NOT PASSED ANY SPEAKING ORDER AS TO WHY THE VAR IOUS CONTENTIONS RAISED ARE NOT ACCEPTABLE WHILE MAKING THE ADDITION . WHAT IS THE BASIS FOR NOT ACCEPTING THE VARIOUS TERMS AND CONDI TIONS AS LAID DOWN IN THE LEASE AGREEMENT HAVE NOT BEEN MADE KNOWN WHI LE MAKING THE ASSESSMENT ORDER. THE SAID TERMS AND CONDITIONS ARE BINDING ON BOTH THE PARTIES AND SUCH ADVANCE RENTAL PAYMENTS ARE IN CONSONANCE WITH NORMAL PRACTICES ASSOCIATED WITH ANY LEASE OR HIRE PURCHASE AGREEMENT. THIS IS NOT UNUSUAL OR ABNORMAL. THE AO HAS NOT GONE BEHIND THE AGREEMENT NOR HAS ARRIVED ANY CONCLUSION THAT THE AGREEMENT IS SHAM OR BOGUS. MERELY RAISING OBJECTIO NS AND MAKING ADDITIONS IN CONTRADICTION OF THE WRITTEN AGREEMENT IS NOT JUSTIFIABLE. IT IS AN ACCEPTED FACT THAT THE METHOD OF ACCOUNTIN G EMPLOYED BY THE ASSESSEE SOCIETY IS MERCANTILE AND IN PERUSING SUCH METHOD OF ACCOUNTING THE AMOUNT HAS CORRECTLY BE SHOWN AS ADV ANCE RENTAL INCOME. THE SAID RECEIPT SHALL ACCRUE AS INCOME ONL Y AS PER THE TERMS AS LAID DOWN IN THE AGREEMENT. THE CONCEPT OF REAL INCOME HAS TO BE FOLLOWED WHILE TAXING THE APPELLANT. THE CONCEPT OF DEEMED INCOME HAS NO PURPOSE AND THE ASSUMPTION OF SUCH NOTIONAL INCOME BEING CONSIDERED AS REAL INCOME IS NOT A JUSTIFIABLE STAN D TAKEN BY THE AO. REFERENCE IS INVITED IN THE CASE OF D S BIST & SONS V CIT (1984) 149 ITR 276 (DEL) WHEREIN IT WAS HELD THAT THE INCOME T AX AUTHORITIES HAVE TO INTERPRET A COMMERCIAL AGREEMENT ON ITS OWN TERMS AS CONTAINED IN THE DOCUMENT. IT IS ONLY IF AND WHEN T HERE IS SOLID MATERIAL TO HOLD A TAINT OF COLLUSION OR SHAMMNESS OR UNGENUINENESS, ETC., THAT THE INCOME TAX AUTHORITIES MAY DISREGARD THE TERMS OF THE AGREEMENT AND TO DECIDE THE MATTER ON THE BASIS OF THE TOTALITY OF THE CIRCUMSTANCES. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES THE AD DITIONS MADE BY THE AO DESERVES TO BE DELETED. SINCE THE AO HAS NOT DOUBTED THE GENUINENESS OF TH E AGREEMENT IN QUESTION BETWEEN THE PARTIES, IN VIEW OF THE DELHI HIGH COURT RULING IN D S BIST & SONS VS. CIT (149 ITR 276), IT IS HEL D FOLLOWING THAT JUDGMENT, THAT THE IT AUTHORITIES HAVE TO INTERPRET A COMMERCIAL AGREEMENT ON ITS OWN TERMS AS CONTAINED IN THE DOCU MENT. NOW, AS PER THE AGREEMENT, THIS ADVANCE RENT REQUIRES TO BE ADJ USTED AGAINST THE LEASE RENT LIABILITY AT THE END OF THE LEASE AGREEM ENT. HENCE, THIS AMOUNT OF RS.63,000/- CANNOT BE TERMED AS A LIABILI TY THAT HAS CEASED TO EXIST IN THE RELEVANT YEAR UNDER APPEAL. HENCE, THE AOS ACTION CANNOT BE UPHELD. HENCE GROUND OF APPEAL NO.3 STAND S ALLOWED. 3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE O RDER OF THE 4 TAX AUTHORITIES BELOW. WE NOTED THAT THE CIT(A) HAS FOLLOWED THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF D S BIST & SONS (SUPRA) FOR THE PROPOSITION THAT SUCH ADVANC E RENT REQUIRES TO BE ADJUSTED AGAINST THE LEASE RENT LIAB ILITY AT THE END OF THE LEASE AGREEMENT. WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY OBSERVED THAT SINCE THE AO HAS NOT DOUBTED THE GENUINENESS OF THE AGREEMENT IN QUESTION BETWEEN TH E PARTIES, IN VIEW OF THE SAID DECISION OF THE DELHI HIGH COURT, THAT THE INCOME-TAX AUTHORITIES HAVE TO INTERPRET A COMMERCI AL AGREEMENT ON ITS OWN TERMS AS CONTAINED IN THE DOCUMENT. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) A ND UPHOLD THE SAME IN THIS REGARD. THUS, GROUND NO.1 TAKEN THE RE VENUE STANDS DISMISSED. 4 THE FACTS OF THE CASE RELATING TO GROUND NO.2 AR E THAT THE ASSESSEE-SOCIETY CONSISTS OF VARIOUS MEMBERS WH O HAVE AGREED TO GET THE HOUSE CONSTRUCTED FROM M/S GALA B UILDERS, PROJECT CONSULTANT AND THEREAFTER THE HOUSE ALONG W ITH THE LAND THEREON IS ALLOTTED AMONGST THE MEMBERS. THE SUBJEC T MATTER OF CONTROVERSY IS WITH REGARD TO THE GALA GYMKHANA MEM BERSHIP FEE OF RS.50,10,000/-. THE AO ISSUES A SHOW CAUSE N OTICE TO THE ASSESSEE STATING THAT THE RECEIPT AND EXPENSES ACCO UNT OF BASANT BAHAR SOCIETY SCHEME SUBMITTED BY GALA BUILDERS SHO WS THAT THEY HAVE PASSED ON THE EXCESS OF RECEIPT OVER EXP ENSES TO THE ASSESSEE AND THAT THE ASSESSEE HAS PURCHASED THE SH ARES OF GALA GYMKHANA PVT. LTD. WORTH RS.50,10,000/- OUT OF THE PROFIT MADE IN BASANT BAHAR SOCIETY SCHEME. THE ASSESSEE WAS RE QUIRED TO EXPLAIN WHY THIS AMOUNT OF RS.50,10,000/- SHOULD NO T BE TAXED AS PROFIT OUT OF BASANT BAHAR SOCIETY SCHEME. THE ASS ESSEE SUBMITTED A DETAILED EXPLANATION / SUBMISSIONS. HOW EVER, THE AO 5 NOT ACCEPTING THE CONTENTION THAT THE AMOUNT OF RS. 50,10,000/- BEING EXPENDED FOR THE PROVISION OF CLUB FACILITY T O THE MEMBERS WHICH WAS PART OF THE SCHEME, HELD THAT IT IS NOT A N EXPENDITURE BUT AN INVESTMENT AND MADE THE IMPUGNED ADDITION BE ING PROFIT OUT OF BASANT BAHAR SOCIETY SCHEME. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) REPRODUCED THE EXPLAN ATION / SUBMISSIONS MADE BEFORE THE AO IN DETAIL AND DELETE D THE ADDITION BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF THE APP ELLANT. I HAVE ALSO PERUSED THE AOS ASSESSMENT ORDER. FROM A PERUSAL OF THE BALANCE SHEET OF M/S. GALA GY MKHANA PVT. LTD. FOR THE PERIOD ENDING 31/3/2002, IT IS SEEN THAT TH E GROSS BLOCK OF FIXED ASSETS AS OH 3 I /3/200K AND 3 1/3/2002 IS AS FOLLOWS: GROSS BLOCK OF FIXED ASSETS 31/3/2001 31/3/2002 AS PER SCHEDULE OF BALANCE SHEET OF M/S GALA GYMKHANA RS.92.78 LAKHS RS.96.80 LAKHS INCREASE IN FIXED ASSETS =RS.4.02 LAKHS HENCE THE AOS OBSERVATION IN THE ASSESSMENT ORDER THAT THE INCREASE IN FIXED ASSETS IS RS.30 LAKHS IS NOT BORNE OUT BY THE FACT. IT WOULD ALSO NOT BE CORRECT TO RELATE THE INCREASE IN THESE ASSETS IN LATER SUBSEQUENT YEARS TO RS.80 LAKHS AND RS.93 LAK HS, AS STATED BY THE AO, TO THE PRESENT YEAR UNDER APPEAL, IN THE ABSENC E OF ANY CLEAR CUT LINK IDENTIFIED BY THE AO IN THE ASSESSMENT ORDER. [HE SHARE INVESTMENT OF RS.50.10 LAKHS IN THE PRESENT YEAR HA S NOT BEEN PROPERLY LINKED TO THE LATER YEARS BY THE AO TO DRAW ANY CON CLUSION RELATABLE TO THE INCOME OF THIS YEAR. THE APPELLANTS ARGUMENT TO THE EFFECT THAT IF THE AOS REASONING IS TO BE ACCEPTED THAT RS.50.10 LAKHS IS AN INVESTMENT AN D NOT AN EXPENDITURE, THEN IN THAT CASE, THE PROJECT EXPENSE S SO INCURRED IN RESPECT OF THE MATERIAL, LABOUR, ON THE RESIDENTIAL UNIT SHOULD ALSO NOT HAVE BEEN ALLOWED BY THE AO, IS ALSO A LOGICAL EXTE NSION OF THE AOS ACTION. HOWEVER, THE AO HAS ALLOWED SUCH EXPENDITUR E IN THE 6 ASSESSMENT ORDER. 1HE APPELLANT HAS SUBMITTED THAT SIMILAR TREATMENT SHOULD ALSO BE GIVEN TO THE CLUB MEMBERSHIP AND SHA RE HOLDING EXPENSES. THE APPELLANT HAS STATED THAT ADOPTING SU CH A TREATMENT BY THE AO WHEREBY MEMBERSHIP LEES HAVE BEEN TREATED AS AN INVESTMENT, THOUGH BEING PART OF THE SAME PROJECT, IS NET A COR RECT APPROACH ON THE AOS PART. THE BASIC ARGUMENT OF THE APPELLANT IS THAT THE MEM BERS OF THE SOCIETY ARE ENTITLED TO THE CLUB FACILITIES AS PER THE COMM ITMENT MADE AT (LIE TIME OF FLOATING THE SCHEME. THE LAND WAS ALSO EAR- MARKED FOR THE PROJECT. SINCE THE CLUB WAS NOT CONSTRUCTED BY THE ASSESSEE, THE SHARES WORTH RS.50.10 LAKHS WERE PURCHASED OF M/S. GALA GY MKHANA LTD., WHICH WOULD ENABLE THE MEMBERS TO AVAIL OF THE BENE FITS OF THE CLUB MEMBERSHIP. THE APPELLANT HAS DRAWN ATTENTION TO TH E AUDIT REPORT OF M/S. GALA GYMKHANA LTD., IN WHICH RS.96.80 LAKHS HA S BEEN EXPANDED TOWARDS THE ESTABLISHMENT OF THE CLUB. THE APPELLANT HAS ARGUED THAT HAD M/S. GALA GYMKHANA NOT SPENT THIS A MOUNT, THE APPELLANT SOCIETY BOPAL SHOBHAN CO-OP. HOUSING SOCI ETY LTD. WOULD HAVE HAD TO SPEND THIS SUM FOR THE ESTABLISHMENT OF THE CLUB. IN THAT CASE, THE ENTIRE SUM WOULD HAVE BEEN TREATED AS A R EVENUE EXPENDITURE AND PART OF THE SCHEME. ALTERNATIVELY, THE APPELLANT HAS ARGUED THAT IF THE APPELLANT SOCIETY HAD NOT CONSTRUCTED THE CLUB BUT PAID FOR THE MEMBERSHI P RIGHTS OF AN INDEPENDENT THIRD PARTY RECREATIONAL CLUB, THEN ALS O THIS SUM WOULD HAVE BEEN A REVENUE EXPENDITURE. THE APPELLANT SOCIETY HAS ARGUED THAT SINCE IN THOS E CASES, THE EXPENDITURE WOULD HAVE BEEN TREATED AS A REVENUE EX PENDITURE., IN THE PRESENT CASE ALSO, BY DOING SO, THE SOCIETY HAS GIV EN ITS MEMBERS THE RIGHT TO MEMBERSHIP IN A CLUB, WHICH WAS PART OF TH E SCHEME WHEN IT WAS FLOATED. THE APPELLANT HAS FURTHER STATED THAT HAD THE APPEL LANT SOCIETY ITSELF EXPENDED THE AMOUNT OF RS.96.30 LAKHS, IT WOULD HAV E RESULTED IN A LOSS, SINCE IT IS FAR IN EXCESS OF THE PRESENT SUM OF RS.50.10 LAKHS FOR THE CLUB MEMBERSHIP RIGHTS. THE ABOVE ARGUMENTS OF THE APPELLANT ARE LOGICAL AN D CARRY A LOT OF WEIGHT. THE AO HAS NOT BEEN ABLE TO MAKE OUT A COGE NT CASE AS TO HOW THE APPELLANT SOCIETY CANNOT BE SAID TO BE DISCHARG ING ITS OBLIGATIONS TO ITS MEMBERS BY EXPENDING RS.50.10 LAKHS FOR PUR POSES OF ALLOWING ITS MEMBERS TO AVAIL OF CLUB FACILITIES, IN (LIE AB SENCE OF IT BEING ABLE TO CONSTRUCT AND OFFER THE SAME TO ITS MEMBERS. 7 THE APPELLANTS FOLLOWING SUBMISSION IS ALSO VERY R ELEVANT:- AS PER THE DEVELOPMENT AGREEMENT ENTERED INTO BETW EEN TTHE ASSESSEE SOCIETY AND M/S GALA BUILDERS, M/S GALA BU ILDERS WAS ENTITLED TO A DEVELOPMENT FEES OF RS.10 LAKH PER YE AR. IN ADDITION TO THIS IT WAS AUTHORIZED TO COLLECT THE BOOKING AMOUN T FROM VARIOUS MEMBERS AND EXPEND VARIOUS AMOUNTS SO REQUIRED FOR THE CONSTRUCTION OF THE SCHEME. AS A PANT OF THE SCHEME IT WAS PROMISED TO THE MEMBERS THAT AN ULTRA MODERN CLUB HOUSE WOUL D BE PROVIDED FOR THE BENEFIT OF THE MEMBERS. THIS IS ALSO NOT DI SPUTED BY THE AO. SO ALSO ALL THE EXPENSES HAVE BEEN CROSS VERIFIED A ND ULTIMATELY THE INCOME HAS BEEN ACCEPTED IN THE OF M/S. GALA BUILDE RS BY THE VERY SAME AO. THE A.O. HAD ORIGINALLY ISSUED A NOTICE IN THE HANDS OF M/S. GALA BUILDERS PROPOSING TO MAKE AN ADDITION OF RS.50.10 LAKH ON ACCOUNT OF THE AMOUNTS TRANSFERRED TO THE ASSESS EE COMPANY FOR ACQUIRING THE MEMBERSHIP FACILITIES IN GALA GYMKHAN A PVT. LTD. ON FURNISHING OUR EXPLANATION OUR CONTENTIONS WERE ACC EPTED THAT NO INCOME HAS ARISEN . A LETTER NO. CIT(A)-1(2)/CC.1(2)/20/05-06 DATED 26/ 10/05 WAS SENT BY ME TO THE AO TO FORWARD THE ASSESSMENT ORDER IN THE CASE OF M/S. GALA BUILDERS TO THIS OFFICE. FILL DATE, NO REPLY HAS BEEN RECEIVED SO FAR FROM THE AO. IN THE ABSENCE OF ANY REPLY FROM THE AO, THE APPELLANTS ABOVE CONTENTION CANNOT BE REJECTED. HE NCE, THE ABOVE SUBMISSION OF THE APPELLANT IS ACCORDINGLY TAKEN IN TO CONSIDERATION WHILE ADJUDICATING THIS ISSUE. THE AOS ORDER ALSO SUFFERS FROM ANOTHER INFIRMITY SINCE THE INCREASE IN FIXED ASSETS IS ONLY RS.4 LAKHS ON 3 1/3/02 AS C OMPARED TO 3 1/3/01 AS DISCUSSED ABOVE, INSTEAD OF RS.30 LAKHS STATED B Y THE AO. THE APPELLANTS ARGUMENTS ABOUT THE AO ALLOWING THE RELATED PROJECT EXPENDITURE WHILE DISALLOWING THE SUM OF RS.50.10 L AKHS, THOUGH THEY RELATE TO THE SAME PROJECT, IS ALSO SOUND THE OBJEC TIVE OF THE IMPUGNED EXPENDITURE IS CLEARLY TO ALLOW THE SOCIETY MEMBERS ACCESS TO CLUB FACILITIES. THE EXPENDITURE OF RS.50.10 LAKHS IS CL EARLY AN ALLOWABLE EXPENDITURE SEEN IN THIS LIGHT. ANOTHER COMPELLING ARGUMENT PUT FORWARD BY THE APPE LLANT IS THAT THE AOS TERMING THE EXPENDITURE OF RS.50.10 LAKHS AS A N INVESTMENT, WOULD ATTRACT THE PRINCIPLE OF MUTUALITY ON THE FAC TS OF THE CASE. THE CONTRIBUTORS TO THE COMMON FUND AND THE PARTICIPANT S IN THE SURPLUS MUST BE AN IDENTICAL BODY. BUT THE IMPORTANT FACTOR IS THAT MEMBERS AS 8 A CLASS SHOULD CONTRIBUTE TO THE COMMON FUND AND PA RTICIPATORS AS A CLASS MUST BE ABLE TO PARTICIPATE IN THE SURPLUS. S INCE THE APPELLANT SOCIETY IS NOT CARRYING OUT ANY BUSINESS, SUCH A MU TUAL BENEFIT ASSOCIATION CANNOT BE TAXED. THE APPELLANT HAS RELIED ON THE FOLLOWING DECISIONS ON THE PRINCIPLE OF MUTUALITY WHEREIN IT HAS BEEN HELD THAT INCOME OF S UCH AN ASSOCIATION CANNOT BE TAXED. (I) CIT VS. BANKIPUR CLUB LTD. (1997)226 ITR 97 (S .C) (II) CIT VS. ADASSL CO.OP. HOUSING SOCIETY LTD. 213 ITR 677 (G.H.C.) THE APPELLANT HAS GIVEN PARTICULAR EMPHASIS TO THE RULING OF THE SUPREME COURT III THE CASE OF BANKIPUR CLUB LTD. WH EREIN IT WAS HELD THAT WHERE THE TRADE OR ACTIVITY IS MUTUAL, THE FAC T THAT, AS REGARDS CERTAIN ACTIVITIES, CERTAIN MEMBERS ONLY OF THE ASS OCIATION TAKE ADVANTAGE OF THE FACILITIES WHICH IT OFFERS, DOES N OT AFFECT THE MUTUALITY OF THE ENTERPRISE. REGARDING THE ABOVE GUJARAT I UGH COURT RULING, THE APPELLANT HAS EMPHASIZED THE RULING OF THE JURISDICTIONAL HIGH CO URT WHEREIN IT REFERES TO THE THREAD OF AGENCY FOR ACTING FOR THE CONTRIBUTORS FOR ACHIEVING THE OBJECTIVES. THE IDENTITY OF THE INDIV IDUALS AS CONTRIBUTORS AND PARTICIPANTS IS NOT ESSENTIAL, HUT WHAT IS ESSENTIAL IS THE IDENTITY OF THE CHARACTER OF CONTRIBUTORS AND P ARTICIPANTS. THIS TEST IS SATISFIED IN THE PRESENT CASE, AS PER THE APPELL ANT. CONSIDERING ALL THESE ARGUMENTS, IT BECOMES CLEAR T HAT THE AOS REASONING FOR MAKING THE IMPUGNED ADDITION OF RS.50 ,10,000/- CANNOT BE UPHELD. HENCE, THE ADDITION OF RS.50,10,000/- IS DELETED. GROUND OF APPEAL NO.4 STANDS ALLOWED. 5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THE CIT(A) HAS FOLLOWED THE DECISION OF THE JURISDICTIONAL HIGH COURT AND HAS R IGHTLY HELD THAT THE AO HAS NOT BEEN ABLE TO MAKE OUT A COGENT CASE AS TO HOW THE ASSESSEE SOCIETY CANNOT BE SAID TO BE DISCH ARGING ITS OBLIGATIONS TO ITS MEMBERS BY EXPENDITURE OF RS.50. 10 LAKHS FOR 9 THE PURPOSE OF ALLOWING ITS MEMBERS TO AVAIL OF CLU B FACILITIES, IN THE ABSENCE OF IT BEING ABLE TO CONSTRUCT AND OFFER THE SAME TO ITS MEMBERS AND THAT THIS IS ALSO NOT DISPUTED BY THE A O. WE, THEREFORE, DO NOT SEE ANY REASON TO INTERFERE WITH THE FINDINGS GIVEN BY THE CIT(A). WE ACCORDINGLY UPHOLD THE ORDE R OF THE CIT(A) IN THIS REGARD. THUS, THE GROUND RAISED BY T HE REVENUE STANDS DISMISSED. 6 IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04-09-2009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 04-09-2009 COPY OF THE ORDER FORWARDED TO : 1. M/S BOPAL SHOBHAN CO-OP. HOUSING SOCIETY LTD., B ASANT BAHAR, BOPAL, AHMEDABAD 2. THE ACIT, CENTRAL CIRCLE-1(2), AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-I, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R /AR, ITAT, AHMEDABAD