NEW MAKER CHAMBER IV PREMISES CO.OP SOC. LTD, MUMBAI V. ITO 12(3)(2), MUMBAI

ITA 559/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8770 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 22-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARIGOVIND SINGH
• Section: 143(3)

Judgement Text

I.T.A NO.559/ MUM/2010 NEW MAKER CHAMBER IV PREMISES CO.OP.SOC. LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, MUMBAI. [ CORAM: D.MANMOHAN, V.P. AND PRAMOD KUMAR, AM ] I.T.A NO.559/ MUM/2010 ASSESSMENT YEAR: 2006-07 NEW MAKER CHAMBER IV PREMISES CO.OP.SOC. LTD. .. APPELLANT 222, NEW MAKER CHAMBER IV, NARIMAN POINT, MUMBAI-21. PA NO.AAAAN 2428 A VS INCOME TAX OFFICER -12(3)(2) ,. RESPONDENT MUMBAI. APPEARANCES: M.SUBRAMANIAN, FOR THE APPELLANT HARI GOVIND SINGH, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN UPHOLDIN G THAT THE CONTRIBUTION RECEIVED TOWARDS COMMON AREA FACILITY OF RS. 4,00,0 00, CONTRIBUTION TOWARDS USE OF DISH ANTENNA CHARGES RS.13,80,000 AND CONTRI BUTION TOWARDS USE OF TERRACE GARDEN CHARGES RS. 75,000, CAN BE TAXED IN THE HANDS OF THE ASSESSEE SOCIETY AND ARE NOT COVERED BY THE DOCTRINE OF MUTU ALITY. THE ASSESSMENT YEAR INVOLVED IS 2006-07 AND THE IMPUGNED ASSESSMENT ORD ER IS FRAMED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 2. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE L IKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NO TED THAT THE ASSESSEE HAS RECEIVED COLLECTION ON ACCOUNT OF USE OF COMMON ARE A FACILITY RS. 4,00,000, USE OF DISH ANTENNA CHARGES- RS.13,80,000 AND TERRACE G ARDEN CHARGES RS. 75,000. THE AO WAS OF THE VIEW THAT THESE RECEIPTS ARE TAXA BLE IN THE HANDS OF THE I.T.A NO.559/ MUM/2010 NEW MAKER CHAMBER IV PREMISES CO.OP.SOC. LTD 2 ASSESSEE SOCIETY AND THE ASSESSEE HAS NOT OFFERED T HE SAME FOR TAXATION. IN RESPONSE TO ASSESSING OFFICERS REQUISITION TO SHOW CAUSE AS TO WHY THESE RECEIPTS BE NOT BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE SOCIETY, IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNT RECEIVED FOR USE OF TERRACE GARDEN IS IN FACT CONTRIBUTION TOWARDS MAINTENANCE EXPENSE S ONLY INASMUCH AS THE ASSESSEE IS MAINTAINING ITS GARDEN DEVELOPED ON THE TERRACE OF THE SOCIETY AND ONLY MEMBERS ARE ALLOWED TO USE THE SAME FOR HOSTIN G THEIR FUNCTIONS OR MEETINGS ON PAYMENT OF NOMINAL FEES. AS REGARDS US E OF COMMON AREA FACILITY, IT WAS SUBMITTED THAT THE NATURE OF THESE RECEIPTS ARE BROADLY THE SAME AS FOR USE OF TERRACE GARDEN AND IT IS ALSO PROVIDED TO TH E MEMBERS OF THE ASSESSEE SOCIETY ON PAYMENT OF NOMINAL FEES. AS REGARDS DI SH ANTENNA CHARGES, ASSESSEES SUBMISSION WAS THAT THIS FACILITY WAS OF FERED TO THE MEMBERS ON PAYMENT OF NOMINAL FEES AND SOCIETY WAS RESPONSIBLE FOR THE DAY TO DAY MAINTENANCE OF THE DISH ANTENNAS INSTALLED ON THE T ERRACE OF THE SOCIETY. IT WAS ALSO SUBMITTED THAT THE BASIS OF COLLECTION FOR THE ALL THE CHARGES HAS BEEN DECIDED AND APPROVED BY THE MANAGING COMMITTEE OF T HE SOCIETY AND THE COLLECTIONS ARE USED BY THE SOCIETY FOR THE MAINTEN ANCE AND BETTERMENT OF THE ASSESSEE SOCIETY. NONE OF THESE SUBMISSIONS, HOWEV ER, IMPRESSED THE ASSESSING OFFICER. HE WAS OF THE VIEW THAT THE RECEIPTS ON A CCOUNT OF USE OF TERRACE GARDEN, COMMON AREA FACILITY AND USE OF DISH ANTENN A WERE TO BE TREATED AS TAXABLE RECEIPTS BECAUSE THESE WERE COLLECTED FROM SPECIFIC MEMBERS ONLY BY COMMERCIALLY EXPLOITING SOCIETYS PREMISES FOR FEW SELECTED MEMBERS. THE ASSESSING OFFICER TOOK NOTE OF THE FACT THAT THE S OCIETY DOES NOT COLLECT THESE CHARGES FROM ALL THE MEMBERS AND, THEREFORE, THESE ARE COMMERCIAL ACTIVITIES IN NATURE. HE FURTHER OBSERVED THAT COURTS HAVE COME DOWN HEAVILY AGAINST SUCH ASSESSES WHENEVER THEY FOUND THAT THE SOCIETIES ARE DOING BUSINESS IN THE GARB OF MUTUALITY. RELIANCE WAS PLACED ON HONBLE KERA LA HIGH COURTS JUDGEMENT IN THE CASE OF CIT VS TRVANDRUM CLUB, 282 ITR 505 ( KER), WHEREIN, IT WAS HELD THAT INCOME FROM LETTING OUT OF MARRIAGE HALL IS NO T COVERED BY MUTUALITY PRINCIPLE. IT WAS IN THIS BACKDROP THAT THE ASSESS ING OFFICER BROUGHT THE IMPUGNED RECEIPTS TO TAX. AGGRIEVED BY THE ACTION SO TAKEN BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. THE CIT (A) DISMISSED THE ASSESSEES APPEAL AND, INTER ALIA, OBSERVED AS FOLLOWS:- I HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSE SSING OFFICER HAS FOUND THAT CONTRIBUTIONS RECEIVED FOR THE USE OF TE RRACE GARDEN, USE OF I.T.A NO.559/ MUM/2010 NEW MAKER CHAMBER IV PREMISES CO.OP.SOC. LTD 3 COMMON AREA AND DISH ANTENNA CHARGES ARE BEING COLL ECTED FROM SPECIFIC MEMBERS ONLY FOR COMMERCIALLY EXPLOITING SOCIETYS PREMISES FOR A FEW SELECTED MEMBERS. THE LATTER HAVE UTILIZED SOCIETY PREMISES FOR THEIR PERSONAL BUSINESS ACTIVITIES. THERE IS COMMERCIAL EXPLOITATION OF THE SOCIETY PREMISES BY A FEW MEMBERS. THUS THERE IS A PROFIT MOTIVE INVOLVED. THUS THE PRINCIPLE OF MUTUALITY BREAKS D OWN. THE BYE-LAWS ALSO DO NOT PERMIT COLLECTION OF ABOVE CHARGES FROM MEMBERS. THIS POSITION HAS ALSO BEEN UPHELD BY THE ITAT DELHI IN A RECENT JUDGEMENT DATED 30.9.2009 IN ITA NO.3585 /DELHI/2006 IN DELHI DYMKHANA CLUB LTD VS DCIT, WHEREIN, IT HAS BEEN HELD THAT THE EXE MPTION ON ACCOUNT OF MUTUALITY WOULD BE UPHELD ONLY SO LONG AS ITS MUTUA L ASSOCIATION IS RETAINED AND ITS INCOME NOT TAINTED BY COMMERCIALIT Y. IN VIEW OF THE ABOVE POSITION, THE ADDITION MADE OUT OF COLLECTION FOR USE OF TERRACE GARDEN, OUT OF CONTRIBUTION OF USE OF COMMON AREA A ND OUT OF DISH ANTENNA CHARGES IS CONFIRMED. 3. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEF ORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS A LSO THE APPLICABLE LEGAL POSITION. 5. AS RIGHTLY NOTED IN THE ORDER OF THE CIT (A), A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DELHI GYMKHANA CLUB LTD V D CIT, 35 SOT 335 HAS OBSERVED THAT THE EXEMPTION ON ACCOUNT OF MUTUALITY WOULD BE UPHELD ONLY AS LONG AS ITS MUTUAL ASSOCIATION IS RETAINED AND ITS INCOME IS NOT TAINTED COMMERCIALITY, BUT ON THE CORE QUESTION REALLY IS A S TO WHETHER RECEIPTS ON THE GIVEN FACTS OF THE CASE, IT CAN BE SAID THAT THE AC TIVITIES OF THE ASSESSEE SOCIETY BY WAY OF GIVING TERRACE GARDEN ON HIRE, USE OF COM MON FACILITY OR DISH ANTENNA ARE TAINTED BY COMMERCIALITY. WE DO NOT THINK SO. WE HAVE NOTED THAT THESE FACILITIES ARE PROVIDED TO THE MEMBERS OF THE SOCIE TY AND IT IS NOT EVEN DISPUTED THAT NO OUTSIDER, I.E. A PERSON OTHER THAN THE MEMB ERS OF THE ASSESSEE SOCIETY, IS ALLOWED TO USE THESE FACILITIES. THE NOMINAL C HARGE IS COLLECTED FROM THE PERSONS WHO ACTUALLY USED THESE SERVICES OF THE SOC IETY TO ENSURE THAT THE RELATED EXPENSES ARE BORNE BY ONLY ACTUAL USERS OF THE RELATED SERVICES. IT IS NOT EVEN THE CASE OF THE ASSESSING OFFICER THAT CHA RGES FOR THESE FACILITIES ARE ON THE BASIS OF MARKET FORCES OR AFFECTED BY COMMER CIAL CONSIDERATION. THESE ACTIVITIES, IN OUR HUMBLE UNDERSTANDING, DO NOT HAV E ANY ELEMENT OF COMMERCIALITY. ON THESE FACTS, IT CANNOT BE SAID TH AT THE ELEMENT OF MUTUAL ASSOCIATION IS NOT RETAINED EVEN WHEN CHARGES ARE N OT RECOVERED FROM ALL THE MEMBERS BUT ONLY FROM THE MEMBERS WHO HAVE ACTUALLY USED THE RELATED I.T.A NO.559/ MUM/2010 NEW MAKER CHAMBER IV PREMISES CO.OP.SOC. LTD 4 SERVICES, IN VIEW OF THE HONBLE SUPREME COURTS JU DGEMENT IN THE CASE OF CIT V. BANKI CLUB, 226 ITR 97(SC). THE ELEMENT OF MUTUA LITY REMAINS INTACT. IN THIS VIEW OF THE MATTER, THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN HOLDING THAT THE RECEIPTS ON ACCOUNT OF USE OF TERRACE GARDEN, OUT OF CONTRIBUTION OF USE OF COMMON AREA AND OUT OF DISH ANTENNA CHARGES WILL NO T BE COVERED BY THE PRINCIPLE OF MUTUALITY AND WILL, ACCORDINGLY BE TAX ABLE IN THE CASE OF THE ASSESSEE SOCIETY. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSIDERED VIEW, THESE RECEIPTS ARE COVERED BY THE PRINCIPLES OF MUT UALITY AND, ACCORDINGLY, NOT LIABLE TO BE TAXED. WE UPHOLD THE GRIEVANCE OF TH E ASSESSEE AND DIRECT THE AO TO DELETE THE IMPUGNED ADDITIONS TO INCOME. 6. IN THE RESULT, THE APPEAL STANDS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 1 ST FEBRUARY, 2011 SD/- (D.MANMOHAN ) (VICE PRESIDENT) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 1 ST FEBRUARY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),23, MUMBAI 4. COMMISSIONER OF INCOME TAX, XII , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH B, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI FS I.T.A NO.559/ MUM/2010 NEW MAKER CHAMBER IV PREMISES CO.OP.SOC. LTD 5