ITO WD 21(1)(2), MUMBAI V. THE HATKESH CO-OP. HSG. SOC. LTD, MUMBAI

ITA 6347/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49347 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 15-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 09-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Gift; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.6346/MUM/2009(A.Y.2003-04) ITA NO.6347/MUM/2009(A.Y. 2004-05) ITA NO.6348/MUM/2009(A.Y. 2005-06) THE ACIT, CIR. 21(1), 6 TH FLOOR, ROOM NO.601, PRATYAKSHAKAR BHAVAN, BKC, BANDRA (E), MUMBAI 51. (APPELLANT0 VS. M/S. THE HATKESH CO-OP. HSG. SOC. LTD. VISHNU PRASAD DESAI BHAVAN, OPP. MITHIBAI COLLEGE, VL MEHTA MARG, JVPD SCHEME, VILE PARLE (W), MUMBAI 56. PAN: AAALH0017Q (RESPONDENT) APPELLANT BY : SHRI V.V.SHASTRI RESPONDENT BY : DR. K.SHIVRAM ORDER PER N.V.VASUDEVAN, J.M, THESE ARE APPEALS BY THE REVENUE AGAINST COMMON O RDER DATED 24/9/09 OF CIT(A) 32 MUMBAI RELATING TO ASSESSMENT YEAR 2003-04,04-05 AND 05-06. THE GROUND OF APPEAL RAISED BY THE REVE NUE IN ALL THE APPEALS ARE COMMON. FOR THE SAKE OF READY REFERENCE GROUND OF APPEAL RAISED IN ASSESSMENT YEAR 2003-04 IS BEING REPRODUCED. 1(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING PREMIUM ON TRANSFE R FEES OF RS. 13,46,660/- & TDR PREMIUM RECEIVED OF RS.10,80,000/ - RELYING ON THE DECISION OF THE MUMBAI HIGH COURT IN THE CASE OF S IND CO-OP HSG. SOC. (2009) 26 DTR (BOM) 149. 2.(I) IN DOING SO, THE LD. CIT(A) HAS ERRED IN IGNO RING CERTAIN PARAS OF THE ABOVE CITED JUDGEMENT WHEREIN IT IS CATEGORICAL LY STATED THAT THIS CASE LAW WOULD PERTAIN TO THE ASSESSMENT YEARS PRIO R TO NOTIFICATION DATED 09-08-2001 OF GOVT. OF MAHARASHTRA FOR CO-OP. HSG. SOCIETIES. (II) IN THE INSTANT CASE, THE ASSESSMENT YEAR IN QU ESTION PERTAINS TO PERIOD AFTER THE NOTIFICATION DATED 09.08.2001 OF G OVT. OF MAHARASHTRA FOR C.H.S.. BY IGNORING THIS POINT, TH E LD. CIT(A) ITA NO.6346/MUM/2009(A.Y.2003-04) ITA NO.6347/MUM/2009(A.Y. 2004-05) ITA NO.6348/MUM/2009(A.Y. 2005-06 2 HAS FAILED TO APPRECIATE THAT PRINCIPLE OF MUTUALIT Y WILL NOT APPLY IN HE CASE OF PREMIUM ON TRANSFER FEES & TDR PREMI UM AS THE SOCIETY HAS CHARGED MORE AMOUNT THEN THE PERMISSIBL E LIMITS AS PER THE BYE-LAWS OF CO-OP. HSG. SOCIETIES OR GOVERN MENT NOTIFICATION & THEREFORE THE SOCIETY IS BOUND TO RE PAY THE SAME & IF IT RETAINS SUCH EXCESS AMOUNT, THEN IT WILL BE IN THE NATURE OF PROFIT MAKING & SUCH SUM WILL BE EXIGIBLE TO TAX . 2. GROUND OF APPEAL IN OTHER TWO ASSESSMENT YEARS A RE IDENTICAL EXCEPT FOR THE CHANGE IN THE QUANTUM OF TRANSFER FEES AND TDR PREMIUM RECEIVED. 3. FIRST WE SHALL TAKE UP THE ISSUE WITH REGARD TO TRANSFER FEES. THE ASSESSEE IS A CO-OPERATIVE HOUSING SOCIETY. THERE ARE ABOUT 81 PLOT OWNERS OF THE SOCIETY WHICH IS LOCATED IN JUHU VILE PARLE DEVELOPMENT SCHEME. THE ASSESSEE USED TO CHARGE A TRANSFER FEE WHENEVER THE RE IS A TRANSFER OF PLOT. ACCORDING TO THE ASSESSING OFFICER THE TRANSFER FEE RECEIVED BY THE SOCIETY WAS INCOME CHARGEABLE TO TAX IN THE HANDS OF THE SO CIETY. ACCORDING TO THE ASSESSEE THE TRANSFER FEE IS NOT CHARGEABLE TO TAX AND CANNOT BE REGARDED AS INCOME IN THE HANDS OF THE ASSESSEE BECAUSE OF THE APPLICABILITY OF THE PRINCIPLE OF MUTUALITY. THIS ISSUE HAS BEEN CONSID ERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2001-02,02-03, 96-97 AN D 2000-01 IN ITA NO.4893/M/03, 7677/M/03, 7463& 7464/M/02 BY ORDER D ATED 4/3/08. FURTHER IT IS ALSO NOTICED THAT HONBLE BOMBAY HIGH COURT HAS CONSIDERED THIS ISSUE IN THE CASE OF SINDH CO-OPERATIVE HOUSIN G SOCIETY VS. ITO 317 ITR 47(BOM). 4. IN THE CASE OF SIND CO-OPERATIVE HOUSING SCIETY VS. INCOME-TAX OFFICER 317 ITR 47 (BOM), THE FACTS WERE THAT THE ASSESSEE, A CO-OPERATIVE HOUSING SOCIETY, WAS REGISTERED WITH THE OBJECT PRINCIPALLY OF LOOKING AFTER THE PROPERTY INCLUDING BUILDING(S) THEREON. THE BYE-LAW S OF THE ASSESSEE PERMITTED IT TO CHARGE A TRANSFER FEE IN TERMS OF T HE NOTIFICATION ISSUED BY THE GOVERNMENT OF MAHARASHTRA. BYE-LAW 38(3)(IX) PROVID ED THAT THE ASSESSEE ITA NO.6346/MUM/2009(A.Y.2003-04) ITA NO.6347/MUM/2009(A.Y. 2004-05) ITA NO.6348/MUM/2009(A.Y. 2005-06 3 CAN CHARGE TRANSFER FEE AND THE MEMBERS BY ADOPTING THE BYE-LAWS AGREED, AMONGST THEMSELVES, THAT A FEE FOR TRANSFER OF FLAT /-TENEMENT WHEN IT WAS SOLD WOULD BE PAID TO THE ASSESSEE. BOTH THE INCOMI NG OR THE OUTGOING MEMBER HAD TO CONTRIBUTE TO THE COMMON FUND OF THE ASSESSEE. THE AMOUNT PAID WAS TO BE EXCLUSIVELY USED FOR THE BENEFIT OF THE MEMBERS AS A CLASS. THE AMOUNT COULD ONLY BE APPROPRIATED ON THE TRANSF EREE BEING ADMITTED AS A MEMBER. IF THE TRANSFEREE WAS NOT ADMITTED AS A M EMBER, THE AMOUNT RECEIVED WOULD HAVE TO BE REFUNDED, AS THE AMOUNT W AS PAYABLE ONLY ON A TRANSFER OF RIGHTS OF THE TRANSFEROR IN THE TRANSFE REE. THE AMOUNT LEGALLY CHARGEABLE AND RECEIVED WENT INTO THE FUND OF THE A SSESSEE WHICH WAS UTILIZED FOR THE REPAIRS OF THE PROPERTY AND COMMON BENEFITS TO ITS MEMBERS. ON APPEAL CONTENDING THAT THE TRIBUNAL OVERLOOKED T HE PRINCIPLE WHILE HOLDING THAT CONTRIBUTION BY THE TRANSFEREE WOULD N OT ATTRACT THE PRINCIPLE OF MUTUALITY THE FOLLOWING QUESTION OF LAW WAS RAISED BEFORE THE HONBLE HIGH COURT: ' WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, ANY PART OF TRANSFER FEES RECEIVED BY THE ASSESSEE-SOCIETIES -WHETHER FROM OUTGOING OR INCOMING MEMBERS-IS NOT LIABLE TO TAX O N THE GROUND OF MUTUALITY ?' THE HONBLE COURT HELD AS FOLLOWS: (I) THAT WHETHER THE FEE WAS VOLUNTARY OR NOT WOU LD MAKE NO DIFFERENCE TO THE PRINCIPLE OF MUTUALITY. PAYMENTS WERE MADE UNDER THE BYE-LAWS OF THE ASSESSEE WHICH CONSTITUTED A CO NTRACT BETWEEN THE ASSESSEE AND ITS MEMBERS WHICH WAS VOLUNTARILY ENTE RED INTO AND VOLUNTARILY CONDUCTED AS A MATTER OF CONVENIENCE AN D DISCIPLINE FOR RUNNING OF THE ASSESSEE-SOCIETY. IF ANY AMOUNT WAS RECEIVED MORE THAN WAS CHARGEABLE UNDER THE BYE-LAWS OR THE GOVERNMENT NOTIFICATION, THE ASSESSEE WAS BOUND TO REPAY THE AMOUNT AND IF IT RE TAINED THE AMOUNT IT WOULD BE IN THE NATURE OF PROFIT MAKING THAT SPE CIFIC AMOUNT EXIGIBLE TO TAX. UNDER THE BYE-LAWS, CHARGING OF TRANSFER FE ES HAD NO ELEMENT OF TRADING OR COMMERCIALITY. SINCE THERE WAS NO TAINT OF COMMERCIALITY THE QUESTION OF EARNING PROFITS WOULD NOT ARISE WHEN TH E ASSESSEE FROM THE FUNDS RECEIVED APPLIED THE MONEYS RECEIVED TOWARDS MAINTENANCE OF THE SOCIETY AND PROVIDING THE MEMBERS WITH USUAL PR IVILEGES, ITA NO.6346/MUM/2009(A.Y.2003-04) ITA NO.6347/MUM/2009(A.Y. 2004-05) ITA NO.6348/MUM/2009(A.Y. 2005-06 4 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 IN CLUDED ITS BUILDING(S) AND AS LONG AS THERE WAS NO TAINT OF CO MMERCIALITY, TRADE OR BUSINESS, THE RECEIPT OF TRANSFER FEES WAS NOT LIAB LE TO TAX. (II) THAT A CO-OPERATIVE HOUSING SOCIETY HAS NO SIM ILARITY WHATSOEVER WITH A PROFESSIONAL ASSOCIATION. SECTION 28(3) OF T HE INCOME-TAX ACT, 1961, HAD NO APPLICATION TO THE CASE OF THE ASSESSE E AS IT DEALS WITH THE INCOME DERIVED BY THE PROFESSIONAL OR SIMILAR A SSOCIATION FROM THE SPECIFIC SERVICES PERFORMED FOR ITS MEMBERS. 5. IN SU PRABHAT CO-OPERATIVE HOUSING SOCIETY LTD. VS. ITO ITA NO.1972 OF 2009 ORDER DATED 1-10-2009 AS WELL AS SHYAM CO-O PERATIVE HOUSING SOCIETY LTD. VS. CIT, ITA NO. 92 OF 2008, 93 OF 200 8 AND ITA NO.206 OF 2008, ORDER DATED 17.7.2009, THE ABOVE PRINCIPLES WERE RE ITERATED. IN MITTAL COURT PREMISES CO-OP SOCIETY VS. ITO 320 ITR 414, THE BOM BAY HIGH COURT HELD THAT NON-OCCUPATION CHARGES PAID BY A MEMBER TO A C OMMERCIAL CO-OP SOCIETY WAS COVERED BY THE PRINCIPLE OF MUTUALITY A ND SO WAS NOT CHARGEABLE TO TAX. IN THE LAST PARAGRAPH OF THE JUDGEMENT, THE COURT HELD THAT EVEN IF THE CHARGES WERE IN EXCESS OF THE LIMITS IMPOSED BY THE NOTIFICATION ISSUED BY THE GOVERNMENT, STILL THE PRINCIPLES OF MUTUALITY WOULD APPLY. THE RELEVANT OBSERVATIONS OF THE COURT IN THIS REGARD WERE AS FO LLOWS: APART FROM THAT EVEN ASSUMING THAT THESE GOVERNMEN T NOTIFICATIONS WERE APPLICABLE IF THE SOCIETY COULD NOT HAVE CHARG ED EXCESS AMOUNT IT WILL HAVE TO BE REFUNDED TO THE MEMBERS. A MEMBER I S NOT PROHIBITED FROM GIFTING ANY AMOUNT TO THE SOCIETY FOR THE OBJE CTS OF THE SOCIETY. THE PRINCIPLE OF MUTUALITY WOULD NOT CEASE ON ACCOU NT OF THESE ASPECT. AT THE HIGHEST, AUTHORITIES UNDER THE CO-OPERATIVE SOCIETIES ACT AND RULES IF ANY ACTION IS TAKEN MAY DIRECT AN ADDITION AL AMOUNT TO BE REFUNDED. IN OUR OPINION, THEREFORE, CONTRIBUTION B Y WAY OF NON OCCUPANCY CHARGES, PRINCIPLE OF MUTUALITY WOULD APP LY AND CONSEQUENTLY, ITA NO.6346/MUM/2009(A.Y.2003-04) ITA NO.6347/MUM/2009(A.Y. 2004-05) ITA NO.6348/MUM/2009(A.Y. 2005-06 5 IN VIEW OF THE ABOVE DECISIONS, WE DO NOT FIND ANY MERITS IN THESE APPEALS REGARDING THE GRIEVANCE OF THE REVENUE THAT TRANSF ER FEES ARE CHARGEABLE TO TAX. 6. AS FAR AS TDR PREMIUM RECEIVED BY THE ASSESSEE I S CONCERNED, IT IS SEEN THAT WHENEVER A MEMBER OF THE SOCIETY WANTS TO DEVELOP HIS PLOT, THE MEMBER IS REQUIRED TO SUBMIT THE CONSTRUCTION PLAN TO THE ASSESSEE SOCIETY. HE HAS ALSO TO PAY PREMIUM TO THE SOCIETY BASED ON THE AREA TO BE CONSTRUCTED. THE SOCIETY GIVES THE REQUIRED APPROV AL FOR THE PROPOSED CONSTRUCTION. THE AMOUNT RECEIVED BY THE ASSESSEE IS REFERRED TO AS TDR PREMIUM. IT IS RECEIVED FROM AN EXISTING MEMBER. ACCORDING TO THE ASSESSEE IT IS ALSO COVERED BY THE PRINCIPLE OF MUTUALITY. 7. ON A SIMILAR ISSUE IN ASSESSEES OWN CASE THE CI T(A) IN ASSESSMENT YEAR 2002-03, THE CIT(A), HELD AS FOLLOWS. 6. THE NEXT GROUND OF APPEAL RELATES TO THE TAXABI LITY OF TDR PREMIUM RECEIVED. THE APPELLANT HAS STATED THAT TDR PREMIU M WAS RECEIVED FROM EXISTING MEMBERS WHO WANTED TO DEVELOP THEIR P LOTS. A PREMIUM IS PAID TO THE SOCIETY BASED ON THE AREA TO BE CONS TRUCTED AND THE SOCIETY THEN GIVES ITS APPROVAL TO THE PROPOSED CON STRUCTION. SINCE THE TDR PREMIUM IS RECEIVED FROM THE EXISTING MEMBER IT SELF IT IS COVERED UNDER THE CONCEPT OF MUTUALITY. 7. I HAVE CONSIDERED THE ARGUMENTS OF THE APPELLANT AND FIND MERIT IN IT. THE SAME MEMBER WHO IS USING THE ADDITION FSI REMAINS A MEMBER IN THE CO-OPERATIVE SOCIETY. IN OTHER WORDS, THE S AME MEMBER IS PAYING ADDITIONAL AMOUNTS REQUIRED AS PER THE BYE-L AWS OF THE SOCIETY AS COMPENSATION FOR THE ADDITIONAL BURDEN THAT WOUL D BE PUT ON THE COMMON SERVICES. EFFECTIVELY IT MEANS THAT THE MEM BER IS REQUIRED TO PAY EXTRA FOR THE EXTRA FACILITIES IT WOULD AUTOMAT ICALLY BE ENJOYING AS RESULT OF ITS ENLARGED BUILDING SPACE. IT IS NOT T HAT THE APPELLANT HAS TO FORCE ITS MEMBERS TO MAKE THIS PAYMENT. THE RULES OF THE CO-OPERATIVE SOCIETY ARE MADE BY THE SAME MEMBERS. THEREFORE, T HERE CAN BE NO QUESTION OF FORCE OR COMPULSION INVOLVED IN OBSERVI NG THESE RULES. IT HAS BEEN HELD IN THE CASE LAWS CITED BY THE APPELLA NT THAT THE MAIN ITA NO.6346/MUM/2009(A.Y.2003-04) ITA NO.6347/MUM/2009(A.Y. 2004-05) ITA NO.6348/MUM/2009(A.Y. 2005-06 6 TEST OF MUTUALITY IS THAT THERE IS COMPLETE IDENTIT Y OF THE CONTRIBUTORS WITH THE RECIPIENTS. IF A MUTUAL CONCERN RECEIVES ANY INCOME, THE SURPLUS OF WHICH GOES BACK TO THE CONTRIBUTORS, THE INCOME REMAINS IN REALITY THE INCOME OF THE CONTRIBUTORS. IN SO FAR AS THE TDR PAYMENTS ARE CONCERNED, THERE IS NO CHANGE IN THE MEMBERSHIP OF THE CO- OPERATIVE SOCIETY AS A RESULT OF THIS PURCHASE OF A DDITIONAL FSI AND HENCE THERE IS COMPLETE IDENTITY WITH THE CONTRIBUT OR AND THE RECIPIENT. THEREFORE, THE AMOUNT RECEIVED BY THE APPELLANT ON ACCOUNT OF THE TDR PREMIUMS IS CONSIDERED TO BE NON-TAXABLE ON THE GROUND OF MUTUALITY. AS SUCH, ON THIS POINT THE APPEAL IS A LLOWED. 8. AGAINST THE AFORESAID ORDER OF THE CIT(A) THE R EVENUE FILED APPEAL BEFORE THE ITAT AND THE TRIBUNAL IN ITA NO.7452/M/03 DISMI SSED THE APPEAL OF THE REVENUE HOLDING AS FOLLOWS: 4. THE ONLY ISSUE IN THE PRESENT APPEAL IS THE TAX ABILITY OF TDR PREMIUM RECEIVED BY THE ASSESSE FROM ITS MEMBERS AV AILING THE ADDITIONAL FSI FACILITIES. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN WALKESHWAR TRIVENI CO-OP. HOUSING SOCIETY LTD. VS. ITO [88 ITD 159 (SB)]. RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL BEN CH, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GROUNDS OF APPE AL RAISED BY THE REVENUE. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 9. IN THE PRESENT ASSESSMENT YEAR, THE CIT(A) FOLLO WING THE AFORESAID ORDER OF THE ITAT HELD THAT ASSESSING OFFICER WAS N OT JUSTIFIED IN TREATING THE RECEIPT ON ACCOUNT OF TDR PREMIUM AS INCOME OF THE ASSESSEE AND THAT THE SAID RECEIPT IS NOT INCOME IN THE HANDS OF THE ASSE SSEE ON THE PRINCIPLE OF MUTUALITY. ITA NO.6346/MUM/2009(A.Y.2003-04) ITA NO.6347/MUM/2009(A.Y. 2004-05) ITA NO.6348/MUM/2009(A.Y. 2005-06 7 10. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DEC ISION OF THE TRIBUNAL REFERRED TO ABOVE THERE IS NO MERIT IN THE GRIEVANC E PROJECTED BY THE REVENUE IN THESE APPEALS REGARDING TAXABILITY OF TDR PREMIU M RECEIVED. WE, THEREFORE, REJECT THE CLAIM OF THE REVENUE IN THIS REGARD. 11. IN THE RESULT, ALL THE THREE APPEALS BY THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 24 TH DAY OF JUNE, 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 24 TH JUNE.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.6346/MUM/2009(A.Y.2003-04) ITA NO.6347/MUM/2009(A.Y. 2004-05) ITA NO.6348/MUM/2009(A.Y. 2005-06 8 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 15/6/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 17/6/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER