LOTUS COURT CHS. LTD, MUMBAI V. ITO 18(1)(2), MUMBAI

ITA 4212/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2098 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 09-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM GAUR
• Assessee Lawyers: KANTILAL B PAREKH
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI. BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER. I.T.A. 4212 /MUM/2009. ASSESSMENT YEAR : 2005-06. LOTUS COURT CHS LTD., THE INCOME TAX OFFICER, 12-A, DR. A.B. ROAD, VS. 18(1)(2), MUMBAI. WORLI, MUMBAI 400018. PAN AAATL0815A APPELLANT RESPONDENT APPELLANT BY : SHRI KANTILAL B. PAREKH. RESPONDENT BY : SHRI VIKRAM GAUR. O R D E R PER J. SUDHAKAR REDDY, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-XVIII, MUMBAI DATED 23-04 -2009 FOR ASSESSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS : 1. ON THE FACTS, CIRCUMSTANCES AND LEGALITY OF THE CAS E, THE LEARNED C.I.T.(A) ERRED ION NOT ALLOWING THE RENTAL INCOME OF RS.9,95,266/- RECEIVED FROM HUTCHISON MAX TELECOM LTD. FOR RENTIN G OUT THE SPACE ON THE APPELLANTS BUILDING TERRACE FOR ALLOWING TH E INSTALLATION OF TELECOMMUNICATION EQUIPMENT AS INCOME FROM HOUSE P ROPERTY 2. ON THE FACTS, CIRCUMSTANCES AND LEGALITY OF THE CAS E, THE LEARNED C.I.T.(A) ERRED IN NOT GRANTING THE EXEMPTION FROM INCOME TAX ON THE INTEREST OF RS.1,51,509/- RECEIVED FROM BANK (F .D.) AND THE INTEREST OF RS.2,019/- ON ICICI BOND AS THE SAME WE RE RECEIVED ON AMOUNT INVESTED OUT OF COLLECTIONS FROM THE MEMBERS OF THE SOCIETY AND SPECIFICALLY IN VIEW OF THE HONBLE I.T.A.T. MU MBAI BENCH DECISION IN CASE OF I.T.O. V. SAGAR SANJOG CO.OP. H OUSING SOCIETY LTD. 2 3. ON THE FACTS, CIRCUMSTANCES AND LEGALITY OF THE CAS E, THE LEARNED C.I.T.(A) ERRED IN TREATING THE TRANSFER FEES OF RS .2,66,872/- LIABLE TO INCOME TAX DESPITE THE FACT THAT THE SAME HAVE BEEN RECEIVED FROM THE MEMBERS OF THE APPELLANT SOCIETY AND HENCE NOT TAXABLE ON THE PRINCIPLE OF MUTUALITY BASED ON CONTRIBUTOR AND PAR TICIPANTS BEING THE SAME. 2. FACTS IN BRIEF: THE ASSESSEE IS A REGISTERED COOPERATIVE HOUSING SOCIETY AND IT FILED ITS RETURN OF INCOME ON 24-10-2005 DE CLARING A TOTAL INCOME OF RS.1,10,775/-. THE AO PASSED AN ORDER U/S 143(3) AND BROUGHT TO TAX RENT RECEIVED FROM M/S HUTCHISON MAX TELECOM LTD., A CELLULAR MOBILE COMPANY, FOR RENTING OUT TERRACE SPACE FOR SETTING UP TELECOMMUNICATION EQUIPMENTS SUCH AS ANTENNA AND RECEIVING STATIONS. SIMILARLY THE RENT RECEIVED FROM ADVERTISING AGENCY FOR DISPLAY OF ADV ERTISEMENT BALLOON WAS ALSO BROUGHT TO TAX. THE AMOUNT RECEIVED AS TRA NSFER FEE FROM THE MEMBERS WAS BROUGHT TO TAX ON THE GROUND THAT WHAT THE MEMBER PAID WAS NOT A VOLUNTARY CONTRIBUTION. INTEREST ACCRUED ON FDRS WAS ALSO BROUGHT TO TAX. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. FURT HER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD MR. KANTILAL B. PAREKH, LEARNED C OUNSEL FOR THE ASSESSEE AND SHRI VIKRAM GAUR, LEARNED DR. IT W AS SUBMITTED BEFORE US THAT ALL THE ISSUES ARISING IN THIS APPEAL, WERE CONSIDERED IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING Y EAR 2004-05 IN ITA NO. 1137/MUM/2008, ORDER DATED 03-11-2009, BY THE I TAT, MUMBAI BENCH-A. A COPY OF THE SAME HAS BEEN FURNISHED. ON GOING THROUGH THE SAME, WE HOLD AS FOLLOWS. 3 4. AS FAR AS GROUND NO. 1 IS CONCERNED, THE TRIBUN AL AT PAGE 3 PARA 9 OF ITS ORDER, FOLLOWED THE DECISION OF THE C ORRESPONDING BENCH IN THE CASE OF M/S SHARDA CHAMBER PREMISES CO-OP. SOCI ETY LTD. VS. ITO IN ITA NO.1234/M/08 DATED 01-09-2009 AND OTHER CASES, AND HELD THAT THE INCOME FROM RENTING OUT THE TERRACE, HAS TO BE ASSE SSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. RESPECTFULLY FOLLOWIN G THE SAME, WE ALLOW THIS GROUND OF THE ASSESSEE AND DIRECT THE AO TO BRING TO TAX, THE RENT IN QUESTION, UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 5. IN THE RESULT, GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 6. COMING TO GROUND NO.2, THE ISSUE IS WHETHER THE INCOME FROM INTEREST EARNED ON FDRS, BY THE ASSESSEE SOCIE TY, IS TO BE EXEMPT UNDER THE PRINCIPLES OF MUTUALITY. AT PARA 19 AND 2 0 OF PAGE 8 AND 9 OF THE ORDER OF THE TRIBUNAL IN ITA NO. 1137/MUM/2008, THE TRIBUNAL HELD AS FOLLOWS : 19. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS CREDITED THE ABOVE INCOME FROM INTEREST IN ITS INCOME AND EXPENDITURE ACCOUNT . HOWEVER, THE CLAIM OF THE ASSESSEE IS THAT AFTER CREDITING ITS I NCOME, THE EXPENSES INCURRED ON THE MAINTENANCE OF THE SOCIETY AGAINST THIS INCOME ARE TO BE ALLOWED. THE ASSESSING OFFICER INVOKED THE PR OVISIONS OF SECTION 57(III) OF THE ACT AND WAS OF THE VIEW THAT THE EXPENSES CLAIMED BY THE ASSESSEE ARE NOT ALLOWABLE. HOWEVER, THE LD. CIT(A) WITHOUT CONSIDERING THE FACTS OF THE PRESENT CASE T O THE FACTS OF THE CASE OF SAGAR SANJOB C.H.S. LTD. VS. ITO (SUPRA) H AS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER . IN SAGAR S ANJOG C.H.S. LTD. VS. ITO (SUPRA), THE TRIBUNAL FOLLOWING THE DE CISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN GULMARG ASSOCIAT ES AND ANOTHER VS. ITO (SUPRA), DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. IN GULMARG ASSOCIATES AND ANOTHE R VS. ITO SUPRA, THE FACTS ARE THAT THE SOCIETY WAS FORMED FO R THE MAINTENANCE 4 OF RESIDENTIAL SOCIETY OF THE MEMBERS; MAINTENANCE CHARGES ARE MUTUALLY COLLECTED FROM THE MEMBERS. THE OBJECT WAS NOT TO EARN ANY PROFIT AND DISTRIBUTION THEREOF TO THE MEMBERS. EVEN ON DISALLOWANCE THE SURPLUS WILL NOT BE DISTRIBUTED TO THE MEMBERS. FOR THE PURPOSE OF THE OBJECT OF THE SOCIETY, I.E., MAINTENANCE, THE SOCIETY CREATED A FUND LIKE CONSTRUCTION FUND AND M AINTENANCE FUND. THE MAINTENANCE FUND WAS DEPOSITED WITH BANK AND OTHERS; THE INTEREST INCOME RECEIVED. BOTH THE LOWER AUTHOR ITIES HAVE ACCEPTED THE PRINCIPLES OF MUTUALITY IN RESPECT OF CONTRIBUTION FROM MEMBERS WHICH IS NOT UNDER DISPUTE. ON THE BASIS OF THAT PRINCIPLE, THE ASSESSING OFFICER HAS NOT CHARGED TAX ON SURPL US. THE DISPUTE IS ONLY IN RESPECT OF INTEREST INCOME. IT HAS BEEN HELD THAT THE INTEREST FROM DEPOSIT OF MAINTENANCE FUND OF ASSESS EE HOUSING SOCIETY WHICH WAS DIRECTLY CHARGEABLE TO MAINTENANC E FUND ITSELF WAS NOT TAXABLE. 20. WHEREAS IN THE CASE BEFORE US, THE FACTS HAVE N OT BEEN PROPERLY EXAMINED INASMUCH AS THE OBJECTS OF THE SO CIETY ARE NOT ON RECORD. THIS BEING SO WE CONSIDER IT FAIR AND RE ASONABLE THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY THE R EVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTE R TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME AFR ESH AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE REVE NUE IS THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE I SSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. THE AO SHALL FOLLOW THE DIRECTIONS OF THE TRIBUNAL IN ITA NO.1137/M/2008 (SUPRA). 7. IN THE RESULT, GROUND NO. 2 IS ALLOWED FOR STAT ISTICAL PURPOSES. 8. GROUND NO. 3 IS ON THE ISSUE OF TAXABILITY OF T RANSFER FEE RECEIVED. THE TRIBUNAL IN ITS EARLIER ORDER HAS FOL LOWED THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SIND COOPERATIVE HOUSING SOCIETY VS. ITO 317 ITR 47 (BOM) AND GRANTED RELIE F. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ISSUE TO THE F ILE OF THE AO TO GRANT 5 EXEMPTION OF THE TRANSFER FEE RECEIVED, ON THE GROU ND OF MUTUALITY, IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COU RT IN THE CASE OF SIND COOPERATIVE HOUSING SOCIETY (SUPRA). WHILE DOING SO , THE AO SHALL KEEP IN MIND THE FOLLOWING OBSERVATIONS OF THE HIGH COUR T : HELD, ALLOWING THE APPEAL, (I) THAT WHETHER THE F EE WAS VOLUNTARY OR NOT WOULD MAKE NO DIFFERENCE TO THE PRINCIPLE OF MATURITY. PAYMENTS WERE MADE UNDER THE BYE-LAWS OF THE ASSESS EE WHICH CONSTITUTED A CONTRACT BETWEEN THE ASSESSEE AND ITS MEMBERS WHICH WAS VOLUNTARILY ENTERED INTO AND VOLUNTARILY CONDUC TED AS A MATTER OF CONVENIENCE AND DISCIPLINE FOR RUNNING OF THE AS SESSEE-SOCIETY. IF ANY AMOUNT WAS RECEIVED MORE THAN WAS CHARGEABLE UNDER THE BYE-LAWS OR THE GOVERNMENT NOTIFICATION, THE ASSESS EE WAS BOUND TO REPAY THE AMOUNT AND IF IT RETAINED THE AMOUNT I T WOULD BE IN THE NATURE OF PROFIT MAKING THAT SPECIFIC AMOUNT EXIGIB LE TO TAX. UNDER THE BYE-LAWS, CHARGING OF TRANSFER FEES HAD N O ELEMENT OF TRADING OR COMMERCIALITY. SINCE THERE WAS NO TAINT OF COMMERCIALITY THE QUESTION OF EARNING PROFITS WOULD NOT ARISE WHEN THE ASSESSEE FROM THE FUNDS RECEIVED APPLIED THE MO NEYS RECEIVED TOWARDS MAINTENANCE OF THE SOCIETY AND PROVIDING TH E MEMBERS WITH USUAL PRIVILEGES, ADVANTAGES AND CONVENIENCES. THUS, THE PRINCIPLE OF MUTUALITY WAS APPLICABLE TO THE ASSESS EE WHICH HAD AS ITS PREDOMINANT ACTIVITY, THE MAINTENANCE OF THE PR OPERTY OF THE SOCIETY WHICH INCLUDED ITS BUILDING(S) AND AS LONG AS THERE WAS NO TAINT OF COMMERCIALITY, TRADE OR BUSINESS, THE RECE IPT OF TRANSFER FEES WAS NOT LIABLE TO TAX. 9. IN THE RESULT, THIS GROUND OF THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED IN PART. ORDER PRONOUNCED ON THIS 14 TH DAY OF MAY, 2010. SD/- SD/- (VIJAY PAL RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI, DATED : 14 TH MAY, 2010. 6 COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI. WAKODE