ITO, Gurgaon V. M/s Karam Hi Dharam Co-op Group Housing Society, Gurgaon

ITA 4884/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81739 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 23-09-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 16-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Share purchase agreement; Additional evidence
• Section: 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI A.T. VARKEY : JUDICIAL MEMBER ITA NO. 4884 & 4885 /DEL/2013 ASSTT. YR: 200 2 - 03 & 2003 - 04 INCOME - TAX OFFICER, VS. KARAM HI DHARAM CO - OP GROUP WARD 3, GURGAON. HOUSING SOCIETY, PLOT NO. 84, SECTOR 55, GURGAON. ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI VIVEK NANGIA SR. DR ASSESSEE BY : SHRI GAURAV JAIN CA DATE OF HEARING : 23 - 09 - 2014 DATE OF ORDER : ______ - 09 - 2014. O R D E R PER S.V. MEHROTRA, A.M: - TH ESE APPEAL S , PREFERRED BY THE REVENUE, ARE DIRECTED AGAINST SEPARATE ORDER S DATED 1 4 - 0 6 - 2013 PASSED BY THE LD. CIT(A), FARIDABAD RELATING TO A.Y RS . 200 2 - 03 & 2003 - 04 . COMMON GROUNDS TAKEN IN BOTH THE APPEALS ARE AS UNDER: 1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS RIGHT IN ADMITTING ADDITIONAL EVIDENCE DESPITE THE FACT THAT NONE OF THE CONDITIONS LAID DOWN IN RULE 46A ARE AP PLICABLE TO THIS CASE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS RIGHT IN TREATING RECEIPTS FROM NON MEMBERS AS ARISING OUT OF MUTUAL ACTIVITY, THUS BEING NON TAXABLE? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS RIGHT IN CONDONING THE DELAY IN FILING APPEAL BY ACCEPTING ASSESSEE S SUBMISSION WITHOUT VERIFYING THE FACT S AVAILABLE ON RECORDS AS NOTICES ISSUED DURING THE ASSESSMENT PROCEEDINGS & PENA LTY PROCEEDINGS WERE SENT THROUGH REGISTERED 2 POST AT THE SAME ADDRESS AND COMPLIED BY THE ASSESSEE IN PENALTY PROCEEDINGS. 2. BRIEF FACTS OF THE CASE FOR A.Y. 2002 - 03 ARE THAT DURING ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT ASSESSEE SOCIETY WAS NOT F ILING ITS RETURN FROM ITS INCEPTION. IT WAS NOTICED THAT SOCIETY WAS HAVING RECEIPTS FROM NON MEMBERS DURING F.Y. 2001 - 02 & 2002 - 03 RELEVANT TO A.Y. 2002 - 03 & 2003 - 04 . THEREFORE, NOTICE U/S 148 WAS ISSUED. IN RESPONSE, THE PRESIDENT OF THE SOCIETY SUBMITTE D THAT IT WAS A NON PROFIT MAKING CO - OPERATIVE GROUP HOUSING SOCIETY AND THE ACTUAL EXPENDITURE INCURRED ON SOCIETY MAINTENANCE WAS EQUALLY CONTRIBUTED BY THE MEMBERS AND AMOUNT COLLECTED. THERE WAS NO SCOPE OF MAKING ANY PROFIT . SINCE THERE WAS NO INCOME IN THE SOCIETY, THE RETURN WAS NOT FILED. THE AO OBSERVED THAT ASSESSEE COULD NOT BE SAID TO BE EXEMPT FROM FILING OF RETURN ON THE GR OUND OF MUTUALITY CONCEPT. ACCORDING TO HIM, FROM THE RECEIPT AND DISBURSEMENT ACCOUNT OF THE ASSESSEE FOR F.Y. 2002 - 03 IT COULD BE SEEN THAT T HE ASSESSEE HAD RECEIVED NON - MEMBER DEPOSITS WORTH RS. 20,90,500/ - DURING THE YEAR. HE FURTHER POINTED OUT THAT THE MAINTENANCE AND OTHER CHARGES RECEIVED FROM TENANTS AS PER ASSOCIATION RULES, RESULTED INTO PROFIT ON ACCOUNT OF EXCESS CHARGES WHICH WAS REFUNDABLE ONLY TO MEMBERS AND IT W A S ALSO AN INSTANCE OF PROFIT MAKING BY THE AOP. THE AO HELD THAT SOCIETY S MOTIVE WAS NOT NON - PROFIT. ACCORDINGLY, AMOUNT OF RS. 1,87,52,416/ - RECEIVED FROM NON - MEMBERS WAS TREATED TO BE THE TAXABLE INCOME OF THE SOCIETY. 2.1. BEFORE LD. CIT(A), THE ASSESSEE HAD FILED ADDITIONAL EVIDENCE, WHICH WAS SENT TO THE AO FOR EXAMINATION. IN THE REMAND REPORT THE AO STATED AS UNDER: AS ADDITIONAL EVIDENCE BEFORE YOU GOODSELF, THE ASSESSEE HA SUBMIT TED COPIES OF NON MEMBERS DEPOSIT A/C, MEMBERS DEPOSITS A/C AND CASH BOOK. PERUSAL OF THE SAME DOES NOT ESTABLISH THAT DEPOSITS FROM NON MEMBERS SHOULD NOT BE TAXABLE. DEPOSITS FROM NON MEMBERS DO NOT FALL WITHIN THE AMBIT OF MUTUALITY. FURTHER, IT IS MENT IONED IN THE ASSESSEE RECEIPT AND DISBURSEMENT ACCOUNT THAT OUT OF TOTAL NON - MEMBERS DEPOSITS RS. 1,97,15,416/ - HAS BEEN DISBURSED TO NON MEMBERS. THIS HAS NOT BEEN SUPPORTED BY ANY 3 EVIDENCE EVEN AT THE APPELLATE STAGE. PERUSAL OF NON MEMBERS DEPOSIT A/C R EVEALS THAT DEBIT BALANCE DOES NOT ADD UPTO RS. 1,87,52,416/ - . NOR HAS THE ASSESSEE SUBMITTED EVIDENCE IN FAVOUR OF DISBURSEMENT OF NON MEMBERS DEPOSITS. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT NON - MEMBERS DEPOSITS HAVE RIGHTLY BEEN TREATED AS TAXABLE IN THE ASSESSMENT ORDER 2.2. THE ASSESSEE IN ITS REBUTTAL, INTER ALIA, SUBMITTED THAT RECEIPTS UNDER CONSIDERATION WERE MERELY THE CONSTRUCTION COST RECEIVED FROM POTENTIAL MEMBERS WHO WERE GRANTED MEMBERSHIP LATER ON. IT WAS FURTHER SUBMITTED THAT FROM THE DETAILED CHART EVIDENCING THAT THE AMOUNT RECEIVED ALONG WITH ITS UTILIZATION MAKE IT CLEAR THAT THE AMOUNT RECEIVED FROM POTENTIAL MEMBERS WAS TRANSFERRED TO THE MEMBERS ACCOUNT ON THEIR APPROVAL OF THE MEMBERSHIP. IT WAS FURTHER SUBMITTED THAT NO SURPLUS WAS DISTRIBUTED AMONG THE PARTICIPATORS. IT WAS ONLY THE PARTICIPATION AMOUNT RECEIVED FROM THE PARTICIPATORS THAT HAD BEEN TRANSFERRED TO MEMBERS ACCOUNTS OR RETURNED BACK AND, THEREFORE, THE CONCEPT OF MUTUALITY HAD NOT BEEN BROKEN OR VIOLATED. THE ASSESSEE RELIED ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF BANKIPUR CLUB LTD. THE ASSESSEE FURTHER POINTED OUT AS UNDER: 2.3. AS REGARDS OTHER CONTENTIONS POINTED OUT IN THE REMAND REPORT THE ASSESSEE FURTHER POIN TED OUT AS UNDER: IN THIS REGARD IT IS SUBMITTED THAT ASSESSING OFFICER HAD FAILED TO APPRECIATE THAT ALL THE DISBURSEMENT FROM NON MEMBERS ACCOUNT ARE BEING REFLECTED IN THE MEMBERS ACCOUNT ON SIMILAR DATES ALONG WITH THE DETAIL OF ALL NON MEMBERS WHO HA D BEEN OFFERED THE MEMBERSHIP. THE BOOKS OF ACCOUNT OF THE SOCIETY ARE DULY AUDITED BY THE AUDIT APPOINTED BY THE REGISTRAR OF CO - OPERATIVE SOCIETY. THE WORDS OF ASSESSING OFFICER THAT TOTAL OF DEBIT SIDE DOES NOT MATCH IS NOT TENABLE AS THERE IS NO MISMAT CH OF ANY KIND AS STATED BY ASSESSING OFFICER. THE CHART PLACED ON RECORDS VIA OUR SUBMISSION DATED 29.05.2013 IS DUPLICATE WORKING OF NON MEMBERS ACCOUNT WHEREIN THE FIGURE OF RS.1,87,52,416/ - IS APPEARING. THE CONTAINS DETAIL ABOUT THE NAME OF ALL THE PE RSON WHOSE HAVE APPLIED FOR MEMBERSHIP AND ARE TREATED AS NON MEMBERS INITIALLY, ALONG WITH 4 MONEY CONTRIBUTED BY THEM, DATE OF CONTRIBUTION AND DATE OF THEIR AMOUNT BEING TRANSFERRED TO MEMBERSHIP ACCOUNT. FURTHER TO JUSTIFY OUR CLAIMS THAT THE PERSONS NA ME IN NON MEMBERS ACCOUNT ARE MEMBERS OF THE APPELLANT SOCIETY ENCLOSED ARE THE SHARE CERTIFICATES ALLOTTED TO THEM ON ACCEPTANCE OF THEIR MEMBERSHIP. IN VIEW OF ABOVE SUBMISSIONS IT IS PRAYED THAT THE ADDITION OF RS. 1,87,52,416/ - MADE BY THE LEARNED ASS ESSING OFFICER ONLY ON SELF - JUDGEMENT BASIS WITHOUT BRINGING ON RECORD ANY CORROBORATIVE MATERIAL, MAY KINDLY BE DELETED. ' 2.4. LD. CIT(A), INER ALIA, RECORDED FOLLOWING FINDINGS: AS PER THE DETAILED CHART OF THE AMOUNT RECEIVED FROM NON - MEMBERS SUBMI TTED BY THE APPELLANT SOCIETY, IT RECEIVED THE SAID AMOUNT FROM 38 NON - MEMBERS AMOUNTING IN ALL TO RS.1,97,65,416/ - . DURING THE COURSE OF THE YEAR 33 OF THESE NON - MEMBERS BECAME MEMBERS AND THE TOTAL AMOUNT RECEIVED FROM THEM WAS TRANSFERRED TO MEMBERS' AC COUNT AMOUNTING TO RS.1,83,04,196/ - AND THE REMAINING AMOUNT RS.4,48,220/ - WAS RETURNED BACK SINCE THE PERSONS CONTRIBUTING THIS AMOUNT FAILED TO BECOME MEMBERS. THE BALANCE AMOUNT OF RS.10,13,000/ - REPRESENTING THE EXCESS OF RS.1,97,65,416/ - OVER A SUM OF RS.1,83,04,196/ - AND RS. 4,48,220/ - WAS TAKEN AS THE CLOSING BALANCE. THIS WAS THE AMOUNT CONTRIBUTED BY MRS. LALITA KAPOOR AND SHILPI BANSAL TOWARDS THE END OF THE YEAR WHICH WAS SUBSEQUENTLY TRANSFERRED TO MEMBERS ACCOUNT NEXT YEAR. THUS, OUT OF A TOTAL AMOUNT OF RS.1,97,65,416/ - , RECEIVED BY THE APPELLANT SOCIETY FROM NON - MEMBERS, ONLY RS.4,48,220/ - WAS NOT TRANSFERRED TO THE MEMBERS' ACCOUNT EITHER DURING THE CURRENT OR SUBSEQUENT YEAR. THE APPELLANT PROVIDED NECESSARY SUPPORTS IN THE FORM OF SHARE CER TIFICATES OF THE MEMBERS AUTHENTICATING THEIR MEMBERSHIP AND THE LEDGER ACCOUNT OF MEMBERS SHOWING RECEIPT OF AMOUNT BY CHEQUE FROM THEM, INITIALLY IN NON - MEMBERS ACCOUNT AND LATER ON GETTING IT TRANSFERRED TO MEMBERS' ACCOUNT. THE APPELLANT ALSO SUBMITTED A COPY OF AUDITOR'S REPORT AS PER WHICH THE APPELLANT SOCIETY RECEIVED AN AMOUNT OF RS.1,97,15,416/ - DURING THE YEAR FROM NON - MEMBERS OUT OF WHICH ONLY RS.4,48,220/ - WAS RETURNED BACK TO THE NON - MEMBERS, THE REMAINING AMOUNT HAVING BEEN TRANSFERRED TO MEM BERS' ACCOUNT. HENCE, IT IS CRYSTAL CLEAR THAT OUT OF THE TOTAL AMOUNT OF RS.1,87,52,416/ - ADDED BACK TO THE INCOME OF THE APPELLANT SOCIETY BY THE AO ON THE GROUND OF IT HAVING BEEN 5 RECEIVED FROM NON - MEMBERS, RS.1,83,04,196/ - REPRESENTED AMOUNT TRANSFERRE D TO MEMBERS' ACCOUNT WHILE RS.4,48,220/ - WAS REFUNDED BACK TO NON - MEMBERS. .. . 6.5 APPLYING THE PRINCIPLE OF MUTUALITY IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS CITED ABOVE TO THE FACTS OF THE PRESENT CASE, IT IS FOUND THAT OUT OF THE TOTAL AMOU NT OF RS.1,87,52,416/ - ADDED BACK TO THE INCOME OF THE APPELLANT SOCIETY BY THE AO, RS.1,83,04,196/ - HAS BEEN CONTRIBUTED BY THE MEMBERS TO BE USED FOR THE CONSTRUCTION WORK. AS REGARDS THIS AMOUNT, THERE IS IDENTITY OF CONTRIBUTORS AND PARTICIPANTS AND TH US THE PRINCIPLE OF MUTUALITY IS ATTRACTED. HOWEVER, AS REGARDS RS.4,48,220/ - , THERE IS NO IDENTITY BETWEEN CONTRIBUTORS AND PARTICIPANTS, SINCE THE AMOUNT CONTRIBUTED WAS RETURNED BACK TO THE NON - MEMBERS. SINCE THE AMOUNT WAS RETURNED BACK, THE INCOME BY WAY OF INTEREST WHICH ACCRUED TO THE APPELLANT SOCIETY ON THIS CORPUS IS HELD TO BE TAXABLE, WHICH COMES TO RS.53,786/ - AFTER APPLYING AN INTEREST RATE OF 12% ON THE SAID AMOUNT. HENCE AFTER A CAREFUL CONSIDERATION OF THE FACTS OF THE CASE TOGETHER WITH T HE SUBMISSIONS OF THE APPELLANT AND THE REPORT OF THE AO, THE ADDITION GETS REDUCED TO RS.53,786/ - . THE APPELLANT GETS RELIEF ACCORDINGLY. 2.5. FOR THE VERY SAME REASONS , THE LD. CIT(A) RESTRICTED THE ADDITION TO RS. 85,920/ - AS AGAINST RS. 20,90,500/ - MADE BY THE A.O. IN A.Y. 2003 - 04. 2. 6 . AGGRIEVED, THE REVENUE IS IN APPEAL FOR BOTH THE ASSESSMENT YEARS IN QUESTION BEFORE US. 3. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. IT IS SETTLED LAW TH A T PRIN CIPLE OF MUTUALITY APPLIES IN CASE OF MEMBERS OF SOCIETY. IN THE CASE OF MUNICIPAL MUTUAL INSURANCE LTD. VS. HILLS 16 TC 430 (HL), AS REGARDS THE TEST OF MUTUALITY, IT WAS HELD THAT THE CARDINAL REQUIREMENT IS THAT ALL THE CONTRIBUTORS TO THE COMMON FUND MUST BE ENTITLED TO PARTICIPATE IN THE SURPLUS AND THAT ALL THE PARTICIPATORS IN THE SURPLUS MUST BE CONTRIBUTORS TO THE COMMON FUND. IN OTHER WORDS, THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. THE HON BLE 6 SUPREME COUR T IN CIT VS. LOYAL WESTERN INDIA TURF CLUB LTD. 24 ITR 551 H A S L AID DOWN THAT AN INCORPORATED COMPANY, WHICH CARRIE S ON A BUSINESS AND REALIZES MONEY BOTH FROM MEMBERS AND NON MEMBERS FOR THE SAME CONSIDERATION, NAMELY , THE GIVING OF THE SAME OR SIMILAR F ACILITIES TO ALL ALIKE IN THE COURSE OF ONE AND THE SAME BUSINESS CARRIED ON BY IT, CANNOT BE REGARDED AS A MUTUAL CONCE RN . 3.1. THEREFORE, THE RECEIPTS FROM NON - MEMBERS COULD NOT BE TREATED AS NOT TAXABLE ON THE GROUND OF CONCEPT OF MUTUALITY , WHICH WAS , ACCORDINGLY , TREATED BY AO. HOWEVER, BEFORE LD. CIT(A), THE ASSESSEE HAD DULY EXPLAINED THAT THE RECEIPTS WERE FROM POTENTIAL MEMBERS WHO WERE GRANTED MEMBERSHIP LATER ON. LD. CIT(A), AFTER CALLING FOR THE REMAND REPORT FROM AO, HAS GIVEN SPECIFIC FINDIN G THAT DURING THE YEAR UNDER CONSIDERATION THE SOCIETY RECEIVED RS. 1,97,15,416/ - FROM THESE POTENTIAL MEMBERS UNDER THE NON MEMBERS ACCOUNT OUT OF WHICH A SUM OF RS. 1,87,52,416/ - WAS TRANSFERRED TO MEMBERS ACCOUNT ON THEIR BECOMING MEMBERS OF THE SOCI ETY OR RETURNED BACK TO THE POTENTIAL MEMBERS WHOSE MEMBERSHIP WAS REJECTED. LD. CIT(A) HAS ALSO POINTED OUT THAT THE SUM OF RS. 4,48,220/ - WAS RETURNED BACK TO THE NON MEMBERS AS THEY FAILED TO BECOME MEMBERS AND THEREFORE THE INTEREST WHICH WAS EARNED WI TH REFERENCE TO THE RETURNED CORPUS OF RS. 53,786/ - WAS HELD TO BE TAXABLE. THESE FINDINGS OF LD. CIT(A) HAVE NOT BEEN FACTUALLY CONTRADICTED BY THE DEPARTMENT. THEREFORE, THERE WAS CLEAR IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS IN THE FUNDS AND THE RECIPIENTS THEREOF. 3. 2 . LD. CIT(A) HAS RELIED ON THE DECISION IN THE CASE OF BANKIPUR CLUB LTD., WHEREIN IT HAS BEEN HELD AS UNDER: 'WHERE A NUMBER OF PERSONS COMBINE TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OBJE CT AND NOT WITH A VIEW TO EARN PROFIT AND IN THIS RESPECT HAVE NO DEALING OR RELATION WITH ANY OUTSIDE BODY, THEN ANY SURPLUS RETURNED TO THOSE PERSON CANNOT BE REGARDED IN ANY SENSE AS PROFIT. THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND T HE PARTICIPATORS. IF THESE REQUIREMENTS ARE FULFILLED, IT IS IMMATERIAL WHAT PARTICULAR 7 FORM THE ASSOCIATION TAKES. TRADING BETWEEN PERSONS ASSOCIATING TOGETHER IN THIS WAY DOES NOT GIVE RISE TO PROFIT WHICH ARE CHARGEABLE TO TAX. ' 3. 3 . WE ARE OF THE OPINION THAT THESE DECISIONS ARE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. FACTS OF THE CASE FOR BOTH THE ASSESSMENT YEARS IN QUESTION REMAINING THE SAME, WE SEE NO REASON TO INTERFERE IN THE ORDER S OF CIT(A) AND THE SAME ARE UPHE LD. 4. IN THE RESULT, REVENUE S APPEAL S ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 09 - 2014. SD/ - SD/ - ( A.T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 - 09 - 2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 8