TAHNEE HEIGHT CO.OP HOUSING SOCIETY LTD, MUMBAI V. ITO 16(2)(4), MUMBAI

ITA 5275/MUM/2009

• Counselvise Citation: 527519914 RSA 2009
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 05-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Section: 143(3)

Judgement Text

1 ITA NOS.5275&5948/NAG/2009 ASSESSMENT YEAR : 2006-07. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI N.V.VASUDEVAN, JUDICIAL MEMBER. I.T.A. NO. 5275/MUM/2009 ASSESSMENT YEAR : 2006-07. M/S TAHNEE HEIGHT CO-OP. HOUSING THE INCOME TAX OFFICER, SOCIETY LTD., PETI HALL, D-BUILDING, VS. 16(2)(4), MUMBAI. 66, NEPEAN SEA ROAD, MUMBAI 400 006. PAN : AABFT 7409D APPELLANT. RESPONDENT. AND I.T.A. NO. 5948/MUM/2009 ASSESSMENT YEAR : 2006-07. THE INCOME TAX OFFICER, M/S TAHNEE HEIGHT CO-OP. HOUSING 16-(2)(4), MUMBAI. VS. SOCIETY LTD., MUMBAI. APPELLANT RESPONDENT. ASSESSEE BY : SHRI VIJAY MEHTA. DEPAR TMENT BY: SHRI SATBIR SINGH. O R D E R PER P.M. JAGTAP, A.M. : THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING ITA NO. 5275/MUM/2009 AND OTHER FILED BY THE REVENUE BEING ITA NO. 5948/M UM/2009, ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(APPEALS)-XVI, MUMBAI DATED 19-8-2009. 2 ITA NOS.5275&5948/NAG/2009 ASSESSMENT YEAR : 2006-07. 2. THE ASSESSEE IN THE PRESENT CASE IS A COOPERATIV E HOUSING SOCIETY WHICH FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSI DERATION ON 30-10-2006 DECLARING TOTAL INCOME OF RS.5,04,955/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS RECEIVED T RANSFER PREMIUM ON SALE OF FLATS TO THE EXTENT OF RS.1,60,000/-. IN ADDITION TO THE SAID TRANSFER PREMIUM, CONTRIBUTION OF RS.83,89,482/- WAS ALSO RECEIVED BY THE ASSESSEE FROM THE VERY SAME MEMBERS WHO HAD TRANSFERRED THEIR FLATS TOWARD S MAJOR REPAIR WORK. ACCORDING TO THE AO, THE SAID AMOUNT AGGREGATING TO RS.85,59,482/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF TRANSFER PREMIUM WAS IN VIOLATION OF THE RELEVANT PROVISIONS OF MAHARASHTRA COOPERATIVE SOCIETIES ACT WHICH PROVIDES THAT TRANSFER CHARGES CANNOT BE RECOVERED BEYOND THE LIMIT OF RS. 25,000/- IN CASE OF EACH TRANSFER. ACCORDING TO THE AO, THERE WAS THUS A PRO FIT MOTIVE BEHIND THE RECOVERY OF TRANSFER CHARGES MADE BY THE ASSESSEE SOCIETY BE YOND THE LIMIT STIPULATED IN MAHARASHTRA COOPERATIVE SOCIETIES ACT. HE WAS ALSO OF THE OPINION THAT THE CONTRIBUTORS AND THE PARTICIPANTS NOT BEING THE SA ME, EVEN THE PRINCIPLE OF MUTUALITY WAS NOT APPLICABLE IN THE CASE OF TRANS FER CHARGES RECOVERED BY THE ASSESSEE SOCIETY. HE, THEREFORE, ADDED THE ENTIRE A MOUNT OF RS.85,59,482/- RECEIVED BY THE ASSESSEE SOCIETY ON ACCOUNT OF TRANSFER CHAR GES TO ITS TOTAL INCOME IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE ORDER DATED 27 -10-2008. IN THE SAID ASSESSMENT, HE ALSO ADDED A SUM OR RS.31,83,595/- R ECEIVED BY THE ASSESSEE AS NON OCCUPANCY CHARGES FROM THE MEMBERS WHO HAD GIVEN TH EIR FLATS ON RENT HOLDING THAT THE PRINCIPLE OF MUTUALITY WAS NOT APPLICABLE TO THE SAID AMOUNT. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) AND AF TER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS WELL AS MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT(APPEALS) HELD THAT THE TRANSFER CHARGES RECEIVE D BY THE ASSESSEE TO THE EXTENT 3 ITA NOS.5275&5948/NAG/2009 ASSESSMENT YEAR : 2006-07. OF RS.1,70,000/- BEING WITHIN THE LIMIT PRESCRIBED IN MAHARASHTRA COOPERATIVE SOCIETIES ACT, WERE COVERED BY THE PRINCIPLE OF MUT UALITY. THE ADDITION, THEREFORE, WAS DELETED BY HIM TO THAT EXTENT. THE BALANCE ADDI TION OF RS.83,89,482/- MADE BY THE AO ON THIS ISSUE, HOWEVER, WAS CONFIRMED BY THE LEARNED CIT(APPEALS) FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO.10 OF HIS I MPUGNED ORDER : I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E APPELLANT. ON GOING THROUGH THE DETAILS IT IS SEEN THAT THE AMOUNT OF R S.83,89,482/- HAS BEEN COLLECTED FROM TRANSFEREES ON TRANSFER OF FLATS, PA RKING LOT AND GARAGE AFTER THEY HAVE BEEN ADMITTED TO THE MEMBERSHIP. BUT THER E IS NO DISPUTE THAT THESE AMOUNTS WERE COLLECTED IN CONNECTION WITH THE SALE / TRANSFER OF THE FLATS IN THE BUILDING OWNED BY THE APPELLANT. AN AM OUNT OF RS.1,70,000/- HAS BEEN COLLECTED AS TRANSFER PREMIUM ON THE SAME TRAN SFER/SALE OF THESE FLATS/PARKING LOT. IT IS THE CONTENTION OF THE APPE LLANT THAT THESE AMOUNTS HAVE BEEN COLLECTED FROM MEMBERS AND THEREFORE THE PRINC IPLE OF MUTUALITY WOULD APPLY TO THE CONTRIBUTION RECEIVED FROM THE MEMBERS AND CREDITED TO THE MAJOR REPAIRS ACCOUNT. THE ITAT SPECIAL BENCH, MUMB AI IN THE CASE WALKESHWAR TRIVENI HOUSING SOCIETY LTD. VS. ITO (88 ITD 159) HAS OBSERVED AS FOLLOWS: IF THE PREMIUM IS CHARGED WITHIN THE LIMITS PRESCR IBED UNDER LAW, NO PROFIT MOTIVE CAN BE ATTRIBUTED TO THE SOCIETY. IT IS JUST TO ENSURE AN INCOME TO THE SOCIETY WHICH IS TO BE UTILIZED FOR T HE COMMON GOOD. HOWEVER, IF THE EXCESS AMOUNT IS CHARGED BE IT DO NATION OR PAYMENT UNDER ANY OTHER NOMENCLATURE- PROFIT MOTIVE WILL PE RVADE AND MUTUALITY WILL CEASE TO EXIST. EX CONSEQUINTI, THE PROFIT WILL BE EXIGIBLE TO TAX. AS INDICATED BY THE DECISION OF THE SP. BENCH IF EX CESS AMOUNT THAN WHAT IS PRESCRIBED BY THE LAW/RULES IS COLLECTED, PROFIT MO TIVE WOULD PERVADE AND MUTUALITY WOULD CEASE TO EXIST. THE GOVERNMENT OF M AHARASHTRA IN ITS CIRCULAR DATED 9.8.2001 (CITED SUPRA) HAD LAID DOWN THAT THE MAXIMUM AMOUNT OF PREMIUM WHICH CAN BE COLLECTED ON TRANSFE R/SALE OF A FLAT SHOULD NOT EXCEED RS.25,000/- IN RESPECT OF MUNICIPAL CORP ORATION AND AUTHORITY AREA. THE APPELLANT HAS COLLECTED MUCH IN EXCESS OF THE AMOUNT STIPULATED BY THE GOVERNMENT. OF COURSE IT HAS ACCOUNTED ONLY RS. 25,000/- AS THE PREMIUM IN CONNECTION WITH THE TRANSFER/SALE OF TH E FLAT AND THE BALANCE AMOUNT COLLECTED HAD BEEN SHOWN AS CONTRIBUTIONS TO BUILDING MAJOR REPAIR 4 ITA NOS.5275&5948/NAG/2009 ASSESSMENT YEAR : 2006-07. ACCOUNT. IN THIS CONNECTION I WOULD LIKE TO POINT O UT IT IS THE NATURE OF RECEIPT WHICH DECIDES ITS TAXABILITY. THE ACCOUNTING OF THE RECEIPTS WOULD NOT ALTER THE NATURE OF THE RECEIPT. THE AMOUNTS WHICH HAVE B EEN CREDITED TO THE MAJOR REPAIRS ACCOUNT HAVE BEEN COLLECTED IN CONNECTION W ITH THE TRANSFER/SALE OF THE FLATS AND THEREFORE THESE ARE IN THE NATURE PRE MIUM COLLECTED ON SALE/TRANSFER OF THE FLATS BY THE APPELLANT. AS A R ESULT AS STATED BY THE SP. BENCH OF THE ITAT PROFIT MOTIVE WOULD PERVADE THE R ECEIPTS AND THEREFORE THE PRINCIPLE OF MUTUALITY WOULD NOT APPLY. THEREFO RE, I HOLD THAT THE APPELLANT CANNOT RESORT TO THE CONTENTION THAT THE PRINCIPLE OF MUTUALITY WOULD APPLY TO THE CONTRIBUTIONS RECEIVED BY IT. AS A RESULT, THE APPEAL FILED BY THE APPELLANT ON THIS GROUND IS DISMISSED. THE A SSESSMENT TO TAX OF THE AMOUNT OF RS.83,89,482/- IS UPHELD. 4. AS REGARDS THE ADDITION MADE BY THE AO ON ACCOUN T OF NON OCCUPANCY CHARGES, THE LEARNED CIT(APPEALS) ACCEPTED THE CLAI M OF THE ASSESSEE THAT THE SAID CHARGES WERE NOT CHARGEABLE TO TAX IN ITS HANDS AND DELETED THE ADDITION MADE BY THE AO ON THIS ISSUE FOR THE FOLLOWING REASONS GIVE N IN PARAGRAPH 11 OF HIS IMPUGNED ORDER : THE AO ALSO BROUGHT TO TAX AN AMOUNT OF RS.31,83, 595/- BEING THE NON-OCCUPANCY CHARGES COLLECTED BY THE SOCIETY FROM ITS MEMBERS. THE A.O. ADDED THIS AMOUNT TO THE INCOME RETURNED FOR THE RE ASON THAT THE APPELLANT DID NOT PRODUCE THE LEAVE AND LICENSE AGREEMENT ENT ERED INTO BY THE MEMBERS WHO HAVE RENTED THEIR FLATS AND ALSO THE MI NUTES OF THE MEETINGS IN WHICH THE NON-OCCUPANCY CHARGES WERE FIXED BY THE M EMBERS OF THE SOCIETY. THE A.O. HAS NOT DISPUTED THE FACT THAT THIS AMOUNT WAS COLLECTED FROM THE MEMBERS. THE APPELLANT HAS FURNISHED DETAILS OF THE NON-OCCUPANCY CHARGES COLLECTED FROM MEMBERS LIKE THE FLAT NOS. AND THE M EMBERS FROM WHOM THESE WERE COLLECTED. IT HAS ALSO FURNISHED COPIES OF THE MINUTES OF THE MEETING OF THE MANAGEMENT COMMITTEE WHERE SOME OF T HE DECISIONS REGARDING NON-OCCUPANCY CHARGES WERE MADE. SO IT CA N BE SEEN THAT THE COLLECTIONS HAVE BEEN FROM MEMBERS AND THESE HAS BE EN COLLECTED ON THE BASIS OF DECISIONS TAKEN AT THE MEETING OF THE MANA GEMENT COMMITTEE. THEREFORE, I COME TO THE CONCLUSION THAT THE PRINCI PLE OF MUTUALITY WOULD APPLY TO THE COLLECTIONS MADE FROM MEMBERS AS NON O CCUPANCY CHARGES. THIS HAS BEEN COLLECTED FROM MEMBERS AND ON THE BASIS OF THE DECISION TAKEN AT THE MEETING OF THE MANAGEMENT COMMITTEE. IN VIEW OF THIS, THE ADDITION 5 ITA NOS.5275&5948/NAG/2009 ASSESSMENT YEAR : 2006-07. MADE TO THE RETURNED INCOME ON ACCOUNT OF NON OCCUP ANCY CHARGES OF RS.31,83,595/- IS DELETED. 5. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEAL S), THE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE THE TRIBUNAL AND THE GROUNDS RAISED BY THEM IN THEIR RESPECTIVE APPEALS READ AS UNDER : GROUND RAISED BY THE ASSESSEE: THE COMMISSIONER OF INCOME TAX (APPEALS)-XVI, MUMB AI ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFIC ER BEING CONTRIBUTION OF RS.83,89,482/- RECEIVED BY THE APPELLANT FROM ITS M EMBERS TOWARDS MAJOR REPAIR WORK; AS TAXABLE IN THE HANDS OF THE APPELLA NT. GROUND RAISED BY THE REVENUE. THE LD. CIT(A) ERRED IN CONCLUDING THAT THE PRINC IPLE OF MUTUALITY WOULD APPLY TO THE COLLECTIONS MADE FROM MEMBERS AS NON-O CCUPANCY CHARGES. WHEREAS, THE FACT IS THAT ALL PARTICIPANTS TO THE NON-OCCUPANCY COMMON FUND ARE NOT CONTRIBUTORS TO THE NON-OCCUPANCY COM MON FUND WHICH THUS DEFIES THE PRINCIPLE OF MUTUALITY. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE SOLITAR Y ISSUE RAISED IN THE ASSESSEES APPEAL RELATING TO TAXABILITY OF TRANSFER CHARGES I S SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS DECISIONS OF THE TRIBUNAL A S WELL AS THAT OF THE HONBLE BOMBAY HIGH COURT. IN ONE OF SUCH CASES, NAMELY, SI ND CO-OPERATIVE HOUSING SOCIETY VS. ITO 317 ITR 47, THE HONBLE BOMBAY HIGH COURT HAS DECIDED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE AND THE REL EVANT OBSERVATIONS RECORDED BY THEIR LORDSHIPS IN THIS CONTEXT ARE EXTRACTED BELOW : WHETHER THE FEE WAS VOLUNTARY OR NOT WOULD MAKE NO DIFFERENCE TO THE PRINCIPLE OF MUTUALITY. PAYMENTS WERE MADE UNDER TH E BYE-LAWS OF THE ASSESSEE WHICH CONSTITUTED A CONTRACT BETWEEN THE A SSESSEE AND ITS MEMBERS WHICH WAS VOLUNTARILY ENTERED INTO AND VOLUNTARILY CONDUCTED AS A MATTER OF CONVENIENCE AND DISCIPLINE FOR RUNNING OF THE ASSES SEE-SOCIETY. IF ANY AMOUNT WAS RECEIVED MORE THAN WAS CHARGEABLE UNDER THE BYE-LAWS OR THE 6 ITA NOS.5275&5948/NAG/2009 ASSESSMENT YEAR : 2006-07. GOVERNMENT NOTIFICATION, THE ASSESSEE WAS BOUND TO REPAY THE AMOUNT AND IF IT RETAINED THE AMOUNT IT WOULD BE IN THE NATURE OF PROFIT MAKING THAT SPECIFIC AMOUNT EXIGIBLE TO TAX. UNDER THE BYE-LAWS, CHARGIN G OF TRANSFER FEES HAD NO ELEMENT OF TRADING OR COMMERCIALITY. SINCE THERE WA S NO TAINT OF COMMERCIALITY THE QUESTION OF EARNING PROFITS WOULD NOT ARISE WHEN THE ASSESSEE FROM THE FUNDS RECEIVED APPLIED THE MONEYS RECEIVED TOWARDS THE MAINTENANCE OF THE SOCIETY AND PROVIDING THE MEMBER S WITH USUAL PRIVILEGES, ADVANTAGES AND CONVENIENCES. THUS, THE PRINCIPLE OF MUTUALITY WAS APPLICABLE TO THE ASSESSEE WHICH HAD AS ITS PREDOMI NANT ACTIVITY, THE MAINTENANCE OF THE PROPERTY OF THE SOCIETY WHICH I NCLUDED ITS BUILDING(S) AND AS LONG AS THERE WAS NO TAINT OF COMMERCIALITY, TRADE OR BUSINESS, THE RECEIPT OF TRANSFER FEES WAS NOT LIABLE TO TAX. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SIND CO-OP. HOUSING SOCIETY (S UPRA), WE DELETE THE ADDITION MADE BY THE AO AND SUSTAINED BY THE LEARNED CIT(APP EALS) ON ACCOUNT OF TRANSFER FEES AND ALLOW THE APPEAL OF THE ASSESSEE. 7. AS REGARDS THE APPEAL OF THE REVENUE, IT IS OBSE RVED THAT THE SOLITARY ISSUE INVOLVED THEREIN RELATING TO TAXABILITY OF NON-OCCU PANCY CHARGES RECEIVED BY THE ASSESSEE IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MITTAL COU RT PREMISES CO-OP. SOCIETY LTD. 320 ITR 414 WHEREIN IT WAS HELD THAT THE OBJEC T OF NON-OCCUPANCY CHARGES COLLECTED BY THE ASSESSEE SOCIETY FROM ITS MEMBERS AS PER BYE-LAWS WAS TO INCREASE ITS FUNDS WHICH COULD BE UTILIZED TO PROVIDE SERVIC ES, AMENITIES AND FACILITIES TO ITS MEMBERS. IT WAS HELD THAT THE PRINCIPLE OF MUTUALIT Y, THEREFORE, WAS APPLICABLE TO THE NON-OCCUPANCY CHARGES AND THE SAME WERE NOT TAX ABLE IN THE HANDS OF THE ASSESSEE-SOCIETY. RESPECTFULLY FOLLOWING THE SAID D ECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MITTAL COURT PREMISES CO. -OP. SOCIETY LTD. (SUPR), WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEAL S) DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF NON-OCCUPANCY CHARGES AND D ISMISS THE APPEAL OF THE REVENUE. 7 ITA NOS.5275&5948/NAG/2009 ASSESSMENT YEAR : 2006-07. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 13 TH DAY OF MAY, 2011. SD/- SD/- (N.V.VASUDEVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTA NT MEMBER MUMBAI, DATED: 13 TH MAY, 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH (TRUE COPY) BY ORDE R ASSTT. REGIST RAR, ITAT, MUMBAI BENCHES, MUMBAI.