ITO 5(1)(4), MUMBAI V. HILL PROPERTIES LTD, MUMBAI

ITA 6223/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1084 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2005-2006
• Appeal Filed On: 02-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C P PATHAK
• Assessee Lawyers: F V IRANI
• Keywords: Reassessment proceedings
• Section: 143(3); 143(1); 147; 148; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI T.R. SOO D, AM I.T.A. NO.6223/MUM/2009 (ASSESSMENT YEAR : 2005-06) THE INCOME TAX OFFICER-5(1)(4), AAYAKAR BHAVAN, R.NO.569, 5 TH FLOOR, M.K.ROAD, MUMBAI. VS. M/S. HILL PROPERTIES LTD. HILL PARK ESTATE, A.G.BELL ROAD, MALABAR HILL, MUMBAI-400 006. PAN:AABCH7578L (APPELLANT) (RESPONDENT) & I.T.A NO.6249/MUM/2009 (ASSESSMENT YEAR : 2005-06) M/S. HILL PROPERTIES LTD. HILL PARK ESTATE, A.G.BELL ROAD, MALABAR HILL, MUMBAI-400 006. PAN:AABCH7578L VS. THE INCOME TAX OFFICER-5(1)(4), AAYAKAR BHAVAN, R.NO.569, 5 TH FLOOR, M.K.ROAD, MUMBAI-20. (APPELLANT) (RESPONDENT) REVENUE BY : MR. C.P.PATHAK, ADDL.CIT DR ASSESSEE BY : MR. F.V.IRANI O R D E R PER R.V.EASWAR, PRESIDENT: THESE ARE CROSS APPEALS RELATING TO THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS A C OMPANY INCORPORATED IN 1950. IT CONSTRUCTED BUILDINGS, FLA TS IN WHICH HAVE BEEN ALLOTTED TO THE SHAREHOLDERS. THE APPEAL S ARISE OUT OF THE REASSESSMENT ORDER PASSED ON 17.12.2007 UNDER S ECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT. 2. THE ASSESSEE FILED A RETURN OF INCOME ON 27.10.2 005 DECLARING TOTAL INCOME OF RS. NIL. THE RETURN WAS P ROCESSED UNDER SECTION 143(1) BUT SUBSEQUENTLY NOTICE UNDER SECTION 148 WAS ISSUED IN RESPONSE TO WHICH THE ASSESSEE STATED THAT THE RETURN FILED ORIGINALLY MAY BE CONSIDERED AS HAVING BEEN FILED ALSO IN RESPONSE TO THE SAID NOTICE. IN THE COURSE OF ITA NOS.6223 & 6249/M/09 2 REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOT ICED FROM THE INCOME AND EXPENDITURE ACCOUNT AND THE COMPUTAT ION OF THE INCOME THAT DURING THE YEAR THE ASSESSEE HAD COLLEC TED SHARE TRANSFER FEES OF RS.62,20,000/- NOMINEE OCCUPANCY C HARGES AND REPAIRS OF RS.3,00,000/-, SECURITY DEPOSITS (NON-RE FUNDABLE) OF RS.5,85,000/- BESIDES INTEREST AND DIVIDEND OF RS.1 1,95,577/-. THE ASSESSEE HAD CLAIMED EXEMPTION IN RESPECT OF TH ESE RECEIPTS ON THE BASIS OF THE PRINCIPLE OF MUTUALITY. THE ASS ESSING OFFICER REJECTED THE CLAIM HOLDING THAT THE PRINCIPLE APPLI ES ONLY TO CO- OPERATIVE BODIES AND SINCE THE ASSESSEE WAS AN INCO RPORATED COMPANY, THE PRINCIPLE WAS NOT APPLICABLE. AS REGAR DS THE EXEMPTION CLAIMED IN RESPECT OF THE TRANSFER FEES, THE ASSESSING OFFICER NOTICED THAT THE SAME WAS COLLECTED FROM IN COMING MEMBERS WHO INTENDED TO PURCHASE THE SHARES OF THE COMPANY TOGETHER WITH THE RIGHT OF OCCUPANCY OF THE FLATS A ND NOT FROM EXISTING MEMBERS. HE RELIED ON THE ORDER OF THE SP ECIAL BENCH OF THE TRIBUNAL, MUMBAI IN THE CASE OF WALKESHWAR T RIVENI CHS LTD. VS. ITO, 88 ITD 159 AND HELD THAT THE SHARE TR ANSFER FEES COLLECTED FROM THE TRANSFEREE OF THE FLAT, WHO IS Y ET TO BECOME A MEMBER OF THE SOCIETY WAS EXIGIBLE TO TAX. AS REGA RDS THE NOMINEE OCCUPANCY CHARGES AND INTEREST, THE ASSESSI NG OFFICER HELD THAT SINCE THE PRINCIPLE OF MUTUALITY WAS NOT APPLICABLE, THESE AMOUNTS WERE ALSO TAXABLE. WHILE COMING TO T HIS CONCLUSION THE ASSESSING OFFICER ALSO NOTICED THAT EVEN THOUGH FOR THE ASSESSMENT YEARS 1998-99, 2000-01, AND 2001 -02, THE TRIBUNAL HAS DECIDED THE APPEAL IN FAVOUR OF THE AS SESSEE, SINCE THE DEPARTMENT HAS BEEN AUTHORISED TO FILE FURTHER APPEAL BEFORE THE HIGH COURT, CONSISTENT WITH THE STAND TAKEN BY THE DEPARTMENT IN THE EARLIER YEARS, THESE AMOUNTS ARE BROUGHT TO TAX FOR THE YEAR UNDER APPEAL ALSO. 3. ON APPEAL, THE CIT(A) HELD THAT THE ASSESSEE WAS A MUTUAL CONCERN AND THE FACT THAT IT IS AN INCORPORA TED COMPANY ITA NOS.6223 & 6249/M/09 3 DOES NOT AFFECT THE APPLICABILITY OF THE PRINCIPLE. HE HELD THAT SO LONG AS THE CONTRIBUTORS TO THE COMMON FUND ARE ALS O ENTITLED TO PARTICIPATE IN THE SURPLUS, THE PRINCIPLE OF MUTUAL ITY WILL APPLY AND THE PARTICULAR FORM WHICH THE ASSOCIATION TAKES IS NOT RELEVANT. AS REGARDS THE SHARE TRANSFER FEE, HE NO TICED THAT ACCORDING TO THE JUDGEMENT OF THE HONBLE BOMBAY HI GH COURT IN THE CASE OF SIND CO-OPERATIVE HOUSING SOCIETY (I N ITA NO. 1063 OF 2004), THE TRANSFER FEE HAS TO BE COLLECTED AS PER THE ARTICLES OF ASSOCIATION. HE ACCORDINGLY ASKED THE A SSESSEE TO CLARIFY WHETHER THE ARTICLES OF ASSOCIATION PERMITT ED THE ASSESSEE TO COLLECT TRANSFER FEES FROM INTENDING PURCHASERS . THE ASSESSEE PRODUCED THE ARTICLES OF ASSOCIATION WHICH SHOWED T HAT IT HAD COLLECTED THE TRANSFER FEES FROM THE INTENDING PURC HASERS OF THE FLATS @ 2% OF TRANSFER PRICE OR RS.10 LAKHS WHICHE VER IS LESS, AS PER ARTICLE 72. AFTER OBTAINING THIS CLARIFICATION , THE CIT(A) FOLLOWING THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT CITED ABOVE HELD THAT THE TRANSFER FEE COLLECTED FROM INT ENDING PURCHASERS OF THE FLATS ARE ALSO COVERED BY THE CO NCEPT OF MUTUALITY AND HENCE NOT TAXABLE. 4. AS REGARDS THE TAXATION OF THE NON-REFUNDABLE SE CURITY DEPOSITS OF RS.5,85,000/-, THE CIT(A) NOTICED THAT THEY WERE COLLECTED BY THE ASSESSEE FROM MEMBERS WHO WANTED T O CARRY OUT SOME REPAIRS IN THEIR FLATS. THE DEPOSITS WERE COLLECTED ONLY FROM THE MEMBERS AND WERE NOT REFUNDABLE. THE CIT( A) HELD, TAKING NOTE OF THE ABOVE POSITION, THAT THE AMOUNTS ARE CONTRIBUTED BY THE MEMBERS WHO ARE ALSO ENTITLED TO PARTICIPATE IN THE SURPLUS AND THUS COVERED BY THE PRINCIPLE OF MUTUALITY. HE ACCORDINGLY HELD THAT THE ASSESSING OFFICER WAS NOT RIGHT IN TAXING THE NON-REFUNDABLE SECURITY DEPOSIT COLLECT ED BY THE ASSESSEE FROM THE MEMBERS. 5. AS REGARDS THE NOMINEE OCCUPANCY CHARGES OF RS.3 LAKHS COLLECTED BY THE ASSESSEE FROM THE MEMBERS WHO HAVE LET OUT ITA NOS.6223 & 6249/M/09 4 THEIR RESIDENTIAL FLATS TO OUTSIDERS, THE CIT(A) HE LD THAT SUCH MEMBERS OF THE ASSESSEE COMPANY ARE ALSO COLLECTING THE CHARGES FROM THE TENANTS IN THE FORM OF RENT WHICH AFFECTS THE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPA NTS OF THE SURPLUS. ACCORDING TO THE CIT(A), THE TENANTS WHO R EIMBURSE THE NOMINEE OCCUPANCY CHARGES TO THEIR LANDLORDS WHO AR E MEMBERS OF THE ASSESSEE COMPANY INDIRECTLY BECOME CONTRIBUT ORS TO THE COMMON FUND THUS AFFECTING THE PRINCIPLE OF MUTUALI TY. IN THIS VIEW OF THE MATTER, HE UPHELD THE ASSESSMENT OF THE NOMINEE OCCUPANCY CHARGES. 6. AS REGARDS THE INTEREST OF RS.11,73,754/- RECEIV ED ON ACCOUNT OF FIXED DEPOSITS WITH BANK, ICICI BONDS, B EST DEPOSITS AND ON INCOME-TAX REFUND, THE ASSESSEE RELIED ON TH E DECISION OF THE CIT(A) FOR THE ASSESSMENT YEAR 2004-05 AND ALSO THE JUDGEMENT OF THE KARNATAKA HIGH COURT IN THE CASE O F CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND VS. DCIT., 3 08 ITR 202 TO CONTEND THAT IT IS EXEMPT FROM TAX ON THE PRINCI PLE OF MUTUALITY. THE CIT(A) HOWEVER HELD THAT THE CONTRIB UTORS TO THE COMMON FUND IN SUCH CASES ARE THE ICICI BANK AND OT HER BANKS, INCOME-TAX DEPARTMENT AND BEST WHO ARE NOT M EMBERS OF THE ASSESSEE COMPANY AND HENCE NOT ENTITLED TO P ARTICIPATE IN THE SURPLUS. ACCORDING TO THE CIT(A), THIS DESTROYS THE PRINCIPLE OF MUTUALITY SO FAR AS THE INTEREST INCOME IS CONCE RNED AND FOLLOWING THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF RAJPATH CLUB LTD., 213 ITR 677 HELD THAT THE INTERE ST INCOME WAS NOT EXEMPT. 7. THE DEPARTMENT IS IN APPEAL WITH REGARD TO THE ASSESSMENT OF THE TRANSFER FEES OF RS.62,20,000/- AND THE NON- REFUNDABLE SECURITY DEPOSIT OF RS.5,85,000/-. 8. WE HAVE HEARD THE RIVAL CONTENTIONS. THE BASIC QUESTION WHETHER THE PRINCIPLE OF MUTUALITY IS APPLICABLE TO A COMPANY ITA NOS.6223 & 6249/M/09 5 HAS ALREADY BEEN ANSWERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL (SMC) FOR THE ASSESSMENT YEAR 1995-96 IN ITA NO.7128/MUM/97 DATED 9 TH NOVEMBER, 2000. IN THIS ORDER, A COPY OF WHICH HAS BEEN FILED BEFORE US, IT WAS HE LD THAT IN THAT YEAR EVEN THE ASSESSING OFFICER ACCEPTED IN PRINCIP LE THAT THE ASSESSEE IS A MUTUAL CONCERN AS WAS EVIDENT FROM TH E FACT THAT THE SURPLUS SHOWN IN THE INCOME AND EXPENDITURE ACC OUNT AND TRANSFERRED TO THE BALANCE SHEET WAS NOT BROUGHT TO TAX BY THE ASSESSING OFFICER. ACCORDING TO THE TRIBUNAL, THIS ACTION OF THE ASSESSING OFFICER SHOWED THAT THE ASSESSING OFFICER HIMSELF ACCEPTED THAT THE PRINCIPLE OF MUTUALITY WOULD APPL Y EVEN TO A COMPANY. THIS ORDER OF THE TRIBUNAL WAS FOLLOWED BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2004-05 IN ITS ORDE R DATED 3 RD AUGUST, 2009 IN ITA NO.2991/MUM/2008. IN PARAGRAPH 7 OF THIS ORDER, THE TRIBUNAL REFERRED TO ITS EARLIER OR DER FOR THE ASSESSMENT YEAR 1995-96 AND OBSERVED THAT EARLIER THE TRIBUNAL HAD ACCEPTED THAT THE PRINCIPLE OF MUTUALI TY IS APPLICABLE IN THE CASE OF THE ASSESSEE BEING A COMP ANY. THUS, WE HAVE TWO ORDERS OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE HOLDING THAT THE PRINCIPLE OF MUTUALITY IS APPLICAB LE TO THE ASSESSEE, WHICH IS AN INCORPORATED COMPANY. IN THE CASE OF CIT VS. BANKIPUR CLUB LTD., (1997) 226 ITR 97, THE SUPR EME COURT REFERRED TO HALSBURY LAWS OF ENGLAND, 4 TH EDITION IN WHICH IT WAS OBSERVED THAT IF THERE IS COMPLETE IDENTITY BET WEEN THE CONTRIBUTORS TO THE FUND AND THE PARTICIPATORS THER EOF AND THERE ARE NO DEALINGS OR RELATION WITH ANY OUTSIDE BODY, IT IS IMMATERIAL WHAT PARTICULAR FORM THE ASSOCIATION TAK ES IN ORDER THAT THE PRINCIPLE OF MUTUALITY MAY APPLY. RESPECTF ULLY FOLLOWING THE ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CA SE AND THE RULING OF THE SUPREME COURT(SUPRA), WE AFFIRM THE D ECISION OF THE CIT(A) THAT THE PRINCIPLE OF MUTUALITY IS APPLI CABLE TO THE ASSESSEE EVEN THOUGH IT IS AN INCORPORATED COMPANY. ITA NOS.6223 & 6249/M/09 6 9. SO FAR AS THE TRANSFER FEES OF RS.62,20,000/-IS CONCERNED, THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF SIND CO-OPERATIVE HOUSING SOCIETY (COPY FILED) APPL IES IN FAVOUR OF THE ASSESSEE. IN THIS JUDGEMENT, IT HAS BEEN HEL D THAT THE TRANSFER FEES RECEIVED BY AN ASSESSEE BEING MUTUAL CONCERN WHETHER FROM OUTGOING OR FROM INCOMING MEMBERS IS N OT LIABLE TO TAX BECAUSE OF THE PRINCIPLE OF MUTUALITY. THE CIT(A) HAS FOLLOWED THIS JUDGEMENT, AS HE IS BOUND TO DO, IN D ECIDING IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE JUDGEMENT CITED ABOVE, WE UPHOLD THE DECISION OF THE CIT(A). THUS GROUND NO.1 IS DISMISSED. 10. GROUND NO.2 RELATES TO THE ASSESSMENT OF THE NO N- REFUNDABLE SECURITY DEPOSITS OF RS.5,85,000/-. WE H AVE ALREADY NOTED THAT THIS IS COLLECTED FROM THE MEMBERS OF TH E ASSESSEE WHO WANTED TO CARRY OUT SOME REPAIRS IN THEIR FLATS . THESE MEMBERS ARE ALSO ENTITLED TO PARTICIPATE IN THE SUR PLUS. SINCE THE IDENTITY OF THE CONTRIBUTORS AND THE PARTICIPAN TS IN THE SURPLUS IS PRESERVED, THE CIT(A) HAS RIGHTLY EXEMPT ED THE RECEIPT FROM TAX ON THE PRINCIPLE OF MUTUALITY. THERE IS N O INFIRMITY IN HIS DECISION WHICH IS UPHELD AND THE GROUND IS DISM ISSED. 11. GROUND NOS. 3 TO 5 ARE REALLY ARGUMENTATIVE IN NATURE, THE MAIN ARGUMENT BEING THAT THE CONCEPT OF MUTUALITY W ILL NOT APPLY TO AN INCORPORATED COMPANY. WE HAVE ALREADY H ELD THAT SUCH AN ARGUMENT IS NOT SOUND HAVING REGARD TO THE LEGAL POSITION ADUMBRATED IN TWO ORDERS OF THE TRIBUNAL I N THE ASSESSEES OWN CASE AND IN THE JUDGEMENT OF THE SU PREME COURT IN THE CASE OF BANKIPUR CLUB LTD. (SUPRA). 12. GROUND NO.4 RAISES THE POINT THAT THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SIND CO-OP ERATIVE HOUSING SOCIETY LTD. (SUPRA) IS NOT APPLICABLE TO T HE ASSESSEE WHICH IS A COMPANY AND ITS APPLICABILITY IS LIMITED TO A CO- ITA NOS.6223 & 6249/M/09 7 OPERATIVE SOCIETY. THIS GROUND IS ALSO WITHOUT MER IT ONCE IT HAS BEEN HELD THAT THE PRINCIPLE OF MUTUALITY IS APPLIC ABLE TO A CONCERN, IRRESPECTIVE OF THE FORM IT TAKES, PROVIDE D THE OTHER CONDITIONS ARE SATISFIED. 13. IN THE 5 TH GROUND IT IS STATED THAT THE ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1995-96 TO 1998- 99, 2000- 01 AND 2001-02 WERE APPEALED AGAINST BY THE DEPARTM ENT BEFORE THE HIGH COURT AND THE APPEALS WERE DISMISSE D ON THE GROUNDS OF DELAY AND NOT ON MERITS. SO FAR AS WE AR E CONCERNED, THE ORDERS OF THE TRIBUNAL FOR THESE YEARS ARE BIND ING ON US. THIS GROUND IS ALSO WITHOUT MERIT. THUS GROUND NOS. 3 TO 5 ARE DISMISSED. 14. THUS, THE APPEAL FILED BY THE DEPARTMENT IS DIS MISSED. 15. IN THE APPEAL BY THE ASSESSEE, OBJECTION IS FIR ST TAKEN TO THE DECISION OF THE CIT(A) RELATING TO THE TAXATION OF THE NOMINEE OCCUPATION CHARGES OF RS.3 LAKHS RECEIVED FROM THE MEMBERS. THIS GROUND IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF MITTAL COURT PREMISES CO-OPERATIVE SOCIETY LTD. VS. ITO, (2009) 184 TAXMAN 292. IN THIS CASE, IT WAS HELD THAT SINC E THE OBJECT OF CONTRIBUTION IN THE FORM OF NON-OCCUPATION CHARG ES WAS FOR THE PURPOSE OF INCREASING THE FUNDS OF THE SOCIETY WHICH COULD BE USED FOR THE OBJECTS OF THE SOCIETY, SUCH CHARGE S WERE NOT TAXABLE IN THE HANDS OF THE ASSESSEE BEING GOVERNED BY THE PRINCIPLE OF MUTUALITY. RESPECTFULLY FOLLOWING THE JUDGEMENT, WE HOLD THAT THE CIT(A) WAS NOT RIGHT IN UPHOLDING THE ASSESSMENT OF THE NOMINEE OCCUPANCY CHARGES OF RS.3 LAKHS RECE IVED FROM THE MEMBERS. THE ASSESSING OFFICER IS DIRECTED TO E XEMPT THE SAME. THE GROUND IS ALLOWED. 16. THE SECOND GROUND RELATES TO THE ASSESSMENT OF INTEREST INCOME OF RS.11,72,061/-. THIS ISSUE IS TO BE DECID ED IN FAVOUR ITA NOS.6223 & 6249/M/09 8 OF THE ASSESSEE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2004-05(SUPRA). IN PARAGRAP H 6 OF THIS ORDER, IT HAS BEEN HELD FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF BOMBAY GYMKHANA LTD. IN ITA NO.7624/MUM/200 7 DATED 20 TH APRIL, 2009 THAT THE INTEREST EARNED BY THE MUTUAL ASSOCIATION FROM BANKS, BONDS ETC. ON THE SURPLUS FUNDS IS NOT LIABLE TO TAX. THE TRIBUNAL IN ITS ORDER HAS ALSO R EFERRED TO AND FOLLOWED THE JUDGEMENT OF THE DELHI HIGH COURT IN DIT(EXEMPTIONS) VS. ORIENTAL BANK OF COMMERCE WELFA RE SOCIETY, (2003) 130 TAXMAN 575 AND THAT OF KARNATAK A HIGH COURT IN THE CASE OF CANARA BANK GOLDEN JUBILEE STA FF WELFARE FUND VS. DCIT (2008) 222 CTR 286. RESPECTFULLY FOLL OWING THIS ORDER IN THE ASSESSEES OWN CASE, WE DIRECT THE ASS ESSING OFFICER TO EXAMINE THE INTEREST INCOME AND ALLOW THE GROUND . THE APPEAL OF THE ASSESSEE IS ALLOWED. 17. TO SUM UP, THE APPEAL OF THE DEPARTMENT IS DISM ISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF JULY, 2010. SD/- ( T.R. SOOD ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 16 TH JULY, 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-5,MUMBAI. 4. THE CIT(A)-9, MUMBAI 5. THE DR H BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI