Garden Estate Residents Welfare Association, Gurgaon V. ITO Ward-2, Gurgaon

ITA 3180/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0007 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-06-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 21-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHEELA CHOPRA
• Assessee Lawyers: C S AGGARWAL
• Section: 143(3); 274; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSA L ITA NO. 3180(DEL)/2008 ASSESSMENT YEAR: 2003-04 GARDEN ESTATE RESIDENTS WELFARE INCOME-TAX OFFICER, ASSOCIATION, GARDEN ESTATE, VS. WARD-2, GURGAON. DLF CITY, GURGAON. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI C.S. AGGARWAL, SR. ADVO CATE & SHRI RAVI PRATAP MALL, ADV. RESPONDENT BY : SM T. SHEELA CHOPRA, SR. DR ORDER PER K.G. BANSAL : AM THIS APPEAL OF THE ASSESSEE EMANATES FROM THE OR DER OF COMMISSIONER OF INCOME-TAX (APPEALS)-PANCHKULA, P ASSED ON 4.8.2008 IN APPEAL NO. 174/GGN//05-06 AND IT PERTAINS TO ASSESSMENT YEAR 2003- 04. THE CORRESPONDING ORDER OF ASSESSMENT WAS FRAMED BY THE INCOME-TAX OFFICER, WARD-2, GURGAON, ON 25.2.2006 UNDER THE PROVISIONS OF SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. GROUND NO. 1 IS TO THE EFFECT THAT THE LEARNED CIT(APPEALS) ERRED IN UPHOLDING THE ORDER OF THE AO IN BRINGI NG THE ENTIRE RECEIPT OF THE ASSESSEE TO TAX AS INCOME AND IN DOING SO HE FAILED TO APPRECIATE ITA NO. 3180(DEL)/2008 2 THE PRINCIPLE OF MUTUALITY UNDER WHICH RECEIP TS FROM THE MEMBERS DID NOT CONSTITUTE INCOME IN THE HANDS OF THE ASS ESSEE-SOCIETY. IT IS MENTIONED THAT HE FOLLOWED THE ORDER OF IMMEDI ATELY PRECEDING YEAR AND DID NOT ASSIGN ANY INDEPENDENT REASON AND, THUS, THE ORDER WAS PASSED WITHOUT APPLICATION OF MIND. 2.1 IN THIS CONNECTION, THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 2 OF THE ASSESSMENT ORDER, WHERE IT IS MENTION ED THAT THE GROSS RECEIPT OF THE ASSESSEE AMOUNTED TO RS. 1,37,01,512/- AGAINST RS. 1,23,28,520/- IN THE IMMEDIATELY PRECEDING YEAR. FURTHER, HE REFERRED TO THE PROFIT AND LOSS ACCOUNT, PLACED ON PAGE 35 OF THE PAPER BOOK, WHICH FURNISHES THE DETAILS OF THE RECEIPT OF RS. 1,23,28,520/-. THIS AMOUNT INCLUDES OTHER INCOME OF RS. 38,51,817/-. THE DETAILS OF THIS INCOME ARE FURNISHED IN SCHEDULE-8. ON PERUSAL OF THE SCHEDULE, IT IS FO UND THAT THE AFORESAID INCOME INCLUDES INTEREST AMOUNTING TO RS. 6,65,45 8/- FROM THE BANK. ON CONSIDERING VARIOUS FACTS, THE AO CAME TO THE CO NCLUSION THAT AN AMOUNT OF RS. 5,17,008/-, BEING EXCESS COLLECTION F ROM THE MEMBERS FROM PAINTING THE EXTERIOR OF THE BUILDING, (RS. 1 8,90,000/- - RS. 13,72,992/-) WAS LIABLE TO BE ADDED TO THE TOTAL INCOME R ETURNED BY THE ASSESSEE FOR THE PURPOSE OF TAXATION. IT WAS ALSO FOUND THA T THE ASSESSEE HAD INCURRED ITA NO. 3180(DEL)/2008 3 EXPENDITURE OF RS. 3,76,758/- FOR INSTALLING WAT ER FILTRATION AND SOFTENING PLANT. THE ASSESSEE HAD ALSO INCURRED EXPENDIT URE OF RS. 5,12,750/- ON INSTALLING WATER HARVESTING SYSTEM. THESE EXPENS ES WERE HELD TO BE CAPITAL IN NATURE AND, THUS, ADDED TO THE TOTAL INCOME RETURNED BY THE ASSESSEE. THUS, THE TOTAL INCOME WAS COMPUTED AT RS. 14,06,890/- AGAINST RETURNED INCOME OF RS. 370/-. 2.2 BEFORE THE LEARNED CIT(APPEALS), IT WAS AR GUED THAT THE INCOME OF THE ASSESSEE WAS NOT LIABLE TO BE TAXED ON THE PRINCIPLES OF MUTUALITY. THIS ISSUE WAS EXAMINED BY HIS PREDECESSOR IN THE IMMEDIATELY PRECEDING YEAR. IT WAS MENTIONED THAT THE ASSESSEE GOT REVENUE NOT ONLY FROM MEMBERS BUT ALSO FROM NON-MEMBERS. IN VIEW THEREOF, IT WAS HELD BY HIM THAT THE ENTIRE INCOME OF THE ASSESSEE IS N OT COVERED BY THE PRINCIPLES OF MUTUALITY. IN PARTICULAR, IT WAS HELD THAT INTEREST INCOME EARNED FROM THE BANK IS NOT COVERED BY CONCEPT O F MUTUALITY AS THERE WAS NO IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. IN VIEW OF THE AFORESAID, IT WAS HELD THAT INTEREST IN COME WAS LIABLE TO BE TAXED. THE LD. COUNSEL REFERRED TO THE DISCUSSION ON PA GE 7 AND 8 IN THIS REGARD, WHICH FURNISHED THE FIGURES OF OTHER INCOMES FOR EARLIER TWO YEARS. IT WAS HELD THAT INTEREST RECEIVED FROM THE BAN K IS LIABLE TO BE TAXED. ITA NO. 3180(DEL)/2008 4 2.3 THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE CONSOLIDATED ORDER OF THE TRIBUNAL IN ITS CASE F OR ASSESSMENT YEAR 2002- 03 BEARING ITA NOS. 4430(DEL)/2005, 1030(CH)/200 7 AND 2118(DEL)/2007 DATED 27.3.2009, A COPY OF WHICH WAS PLACED IN THE PAPER BOOK ON PAGES 177 TO 197. IN PARAGRAPH 39 OF THAT ORDER, IT WAS HELD THAT THE INCOME OF A MUTUAL ASSOCIATION BY WAY OF INTEREST ON SURPLUS FUND DEPOSITED WITH A BANK IS COVERED BY MUTUAL A CTIVITY, AS HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF DIREC TOR OF INCOME-TAX (EXEMPTION) VS. ALL INDIA ORIENTAL BANK OF COMME RCE WELFARE SOCIETY (2003) 184 CTR (DEL) 274. THE TRIBUNAL HAD AL SO FURNISHED THE DETAILS OF INCOME INCLUDED IN SCHEDULE 8 AS OTHER INCOME FOR THE IMMEDIATELY PRECEDING YEAR. ON CONSIDERING TH E NATURE OF INCOME AND THE AFORESAID DECISION, IT WAS ALSO HELD T HAT THE SOCIETY IS EXISTING PRIMARILY AND SOLELY FOR THE BENEFIT OF MEMBERS . SINCE THERE IS A COMPLETE IDENTITY BETWEEN CONTRIBUTORS AND PAR TICIPATORS, ITS INCOME WAS NOT LIABLE TO BE TAXED ON THE PRINCIPLE OF MUTUAL ITY. THE CASE OF THE LD. COUNSEL WAS THAT IN VIEW OF THE AFORESAID FIND ING OF THE TRIBUNAL, THE FINDING OF THE LEARNED CIT(APPEALS) FOR ASSESS MENT YEAR 2002-03, FOR WHICH RELIANCE WAS PLACED IN THE IMPUGNED O RDER, NO LONGER SUBSIST. ITA NO. 3180(DEL)/2008 5 THEREFORE, IT WAS ARGUED THAT THE INCOME OF T HE ASSESSEE FROM THE BANK AS WELL AS OTHER INCOME ARE NOT LIABLE TO BE TAXED. 2.4 IN REPLY, THE LD. DR REFERRED TO THE FIN DING OF THE LEARNED CIT(APPEALS) ON PAGES 6, 7 AND 8 OF HIS ORDER T O THE EFFECT THAT THERE IS NO IDENTITY BETWEEN THE CONTRIBUTORS AND PAR TICIPATORS IN SO FAR AS INTEREST FROM THE BANK IS CONCERNED. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE FIND THAT THE ISSUE REGARDING THE ASSESSEE BEING A MUTUAL ASSOCIATION AND NON-TAXABILITY OF EVEN INTEREST INCOME FROM THE BANK STANDS COVERED BY THE ORDER OF THE TRIBUNAL F OR ASSESSMENT YEAR 2002- 03 IN PARAGRAPHS 39 TO 41 ON PAGES 19 AND 2 0. THESE PARAGRAPHS ARE REPRODUCED BELOW FOR THE SAKE OF READY REFEREN CE:- 39. IN THE CASE OF SHIVALIKA COOPERATION GR OUND HOUSING SOCIETY VS. ITO (SUPRA), IT HAS BEEN HELD THAT INTEREST INCOME EARNED BY ASSESSEE ASSOCIATION EVEN ON THE SURPLUS FUND OF MUTUAL SOCIETY DEPOSITED IN THE BANK IS COVERED BY THE PRINCIPLE OF MUTUALITY. HON 'BLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX (E XEMPTION) VS. ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIE TY (2003) 184 CTR (DEL) 274 HAS HELD THAT THE EARNIN G OF INTEREST ON SURPLUS FUNDS AVAILABLE WITH THE SOCIETY OUT OF CONTRIBUTION RECEIVED FROM THE MEMBERS AND DEPOSITED ITA NO. 3180(DEL)/2008 6 WITH THE BANK WAS NOT GOING TO AFFECT THE MUTUALITY. FURTHER, THE HYDERABAD BENCH OF ITAT IN THE CASE OF FATEH MAIDAN CLUB VS. ACIT (2003) 81 TTJ (HYD .) 831 HAS TAKEN A VIEW THAT PLACING OF SURPLUS FUND S WITH BANK AS PER MEMORANDUM OF ASSOCIATION AND BY-LAWS OF THE CLUB DOES NOT TANTAMOUNT TO INDULGE IN TRADING ACTIVITIES OR CARRYING ON OF BUSINESS. 40. HAVING REGARD TO THE OBJECT OF THIS AS SOCIATION, WHICH IS TO PROMOTE AND PROTECT AND TO FURTHER THE INTERESTS OF ITS MEMBERS, IT CANNOT BE SAID THE A SSESSEES CASE IS NOT COVERED BY THE PRINCIPLE OF MUTUALITY AND PARTICULARLY IN VIEW OF THE VARIOUS ACTIVITIES UNDERTAKEN BY THE ASSESSEE FOR THE BENEFIT AND USE OF ITS MEMBE RS AS ALREADY DISCUSSED ABOVE. 41. IN THE LIGHT OF THE FACTS SO FOUND TH AT FROM THE DETAILS OF INCOME AS REPRODUCED AND DISCUSSED A BOVE, IT IS CLEAR THAT NO RECEIPT HAS BEEN RECEIVED B Y THE ASSESSEE ASSOCIATION FROM ANY NON-MEMBER, THAT THE ASSESSEE SOCIETY IS EXISTING PRIMARILY AND SOLELY FOR THE BENEFIT OF THE MEMBERS OF THE SOCIETY, WHO ARE OWNERS OF THE DWELLING UNITS IN THE COMPLEX, AND THAT THE ASSESSEE SOCIETY IS NOT ENGAGED IN CARRYING ON ANY COMMERCIAL OR BUS INESS ACTIVITY, AND IN THE LIGHT OF THE FACT THAT A N IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS IS VERY WELL EXISTING, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEES INCOME IS NOT LIABLE TO BE TAXE D ON THE PRINCIPLE OF MUTUALITY. THEREFORE, THE VARIOUS ADDITIONS MADE BY THE AO AND FURTHER CONFIRMED BY THE LD . CIT(APPEALS), WHICH HAS BEEN CHALLENGED BY THE ASSESSEE IN THIS APPEAL, HAVE NO LEG TO STAND ON THE G ROUND OF PRINCIPLE OF MUTUALITY. WE, THEREFORE, DELETE THE SAME FOR THIS REASON ALSO. ITA NO. 3180(DEL)/2008 7 FOLLOWING THIS ORDER, IT IS HELD THAT THE ASSES SEE IS A MUTUAL ASSOCIATION AND ITS INCOME FROM BANK IS NOT LI ABLE TO BE TAXED. THUS, GROUND NO. 1 IS ALLOWED. 4. GROUND NO. 2 REGARDING NON-TAXATION OF INTER EST INCOME ALSO STANDS DECIDED IN THE ORDER ON GROUND NO. 1 (SUP RA). THUS, THIS GROUND IS ALSO ALLOWED. 5. GROUND NO. 3 IS TO THE EFFECT THAT THE LEAR NED CIT(APPEALS) OUGHT TO HAVE DELETED THE ENTIRE ADDITION OF RS. 5 ,17,008/- REPRESENTING THE AMOUNT RECEIVABLE FROM THE MEMBERS FOR SPECIF IC PURPOSE OF PAINTING THE BUILDING INSTEAD OF DIRECTING THE AO TO VERIFY THE FACTS. IN THIS CONNECTION, OUR ATTENTION WAS DRAWN TO PARAG RAPH 4.3 ON PAGE 14 OF THE ORDER OF THE LEARNED CIT(APPEALS), WHEREIN I T IS MENTIONED THAT THE AMOUNT WAS COLLECTED FROM MEMBERS FOR PAINTIN G THE EXTERIOR OF THE BUILDING AND THE EXCESS AMOUNT HAD BEEN REFUND ED TO THE MEMBERS. OUR ATTENTION WAS ALSO DRAWN TO PAGE 85 OF THE P APER BOOK, WHICH IS A PART OF THE MINUTES OF THE MEETING OF THE EXECU TIVE COMMITTEE OF THE SOCIETY HELD ON 20.12.2002. IT IS MENTIONED THAT THE COMMITTEE AUTHORIZED THE TREASURER TO REFUND THE AMOUNT VIA ADJUSTMENT IN BILLS ITA NO. 3180(DEL)/2008 8 FOR THE LAST QUARTER OF THE YEAR 2002-03. THE REFUND HAS ALREADY BEEN APPROVED AT A GENERAL BODY MEETING. THE CASE OF THE LD. COUNSEL WAS THAT THE EXCESS AMOUNT COLLECTED WAS APPROVE D TO BE REFUNDED AND THE REFUND WAS GRANTED BY WAY OF ADJUSTMENT IN T HE BILLS RAISED FOR THE LAST QUARTER OF THIS YEAR. THE CASE OF THE LD . DR WAS THAT THE LD. CIT(APPEALS) DIRECTED THE AO TO MERELY VERI FY THE FACTS. HAVING CONSIDERED FACTS OF THE CASE AND RIVAL SUBM ISSIONS, WE ARE OF THE VIEW THAT NO SPECIFIC DECISION NEED BE GIVEN O N THIS GROUND FOR THE REASON THAT THE LEARNED CIT(APPEALS) MERELY AS KED THE AO TO VERIFY THE AFORESAID FACTS. EVEN OTHERWISE, THE RECEIPTS OF THE ASSESSEE FROM MEMBERS IS NOT LIABLE TO BE TAXED ON PRI NCIPLES OF MUTUALITY. THEREFORE, NO INTERFERENCE IS MADE WITH THE OB SERVATIONS OF THE LEARNED CIT(APPEALS). HOWEVER, IN VIEW OF NON-TAXABILIT Y OF THE AMOUNTS UNDER PRINCIPLES OF MUTUALITY, THIS GROUND IS TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 4 IS TO THE EFFECT THAT THE EXP ENDITURE INCURRED ON INSTALLING WATER HARVESTING PLANT, AMOUNTING TO RS. 5,12,750/- WAS REVENUE IN NATURE AND NO BENEFIT OR ADVANTAGE O F ENDURING NATURE WAS ENJOYED BY THE ASSESSEE. THE ONLY ARGUMENT ADVANCED BY THE LD. ITA NO. 3180(DEL)/2008 9 COUNSEL WAS THAT IN THE ORDER FOR LAST YEAR TH E EXPENDITURE INCURRED ON GENERATOR WAS HELD TO BE REVENUE IN NATURE AND, THEREFORE, IT WAS URGED THAT THE EXPENDITURE INCURRED ON WATER H ARVESTING MAY BE HELD TO BE REVENUE IN NATURE. THE CASE OF THE LD. DR WAS THAT THE EXPENDITURE BROUGHT A NEW ASSET INTO EXISTENCE WHICH A LSO GRANTED A BENEFIT OF ENDURING NATURE BY INCREASING THE SUPPLY OF WATER OVER A LONG PERIOD OF TIME. 6.1 WE HAVE CONSIDERED THE FACTS OF THE CA SE AND SUBMISSIONS MADE BEFORE US. THE QUESTION BEFORE THE TRIBU NAL IN ASSESSMENT YEAR 2002-03 WAS REGARDING REPAIR OF GENERATOR WHICH HAD GONE INTO DIS- USE. IT WAS ALSO AGITATED BEFORE THE TRIBUN AL THAT THE OWNERSHIP OF THE GENERATOR DID NOT VEST IN THE ASSESSEE. THE TRIBUNAL FOUND AS A MATTER OF FACT THAT CERTAIN PARTS OF THE GENERATOR WERE REPLACED. THEREFORE, IT WAS HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE. THE FACTS THIS YEAR ARE THAT A WATER HARVESTING PLANT WAS INSTALLED FOR THE FIRST TIME WITH AN EXPENDITURE OF RS. 5,12,750/-. I T IS NOT A CASE OF REPAIR OF AN EXISTING WATER HARVESTING PLANT OR THE PL ANT WHICH HAD GONE INTO DIS-USE BY EFFLUX OF TIME. THEREFORE, THE E XPENDITURE IS CLEARLY OF CAPITAL NATURE. THUS, THIS GROUND IS DISMISSED . ITA NO. 3180(DEL)/2008 10 7. GROUND NO. 5 WAS NOT PRESSED BY THE LD. COUNSE L AS MATTERS STATED THEREIN WERE TAKEN UP BY THE AO U/S 154 OF THE ACT. THUS, THIS GROUND IS ALSO DISMISSED AS NOT PRESSED. 8. GROUND NO. 6 WAS NOT ARGUED ON THE GROUND THAT IT WAS CONSEQUENTIAL IN NATURE. THUS, THIS GROUND DO ES NOT REQUIRE ANY DECISION FROM US. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWE D. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 7TH AUGUST, 2009. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 7TH AUGUST, 2009. SP SATIA COPY OF THE ORDER FORWARDED TO: GARDEN ESTATE RESIDENTS WELFARE ASSOCIATION, GURGA ON. ITO, WARD-2, GURGAON. CIT(A) CIT, THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.