M/s. Jalvayu Sehkari Awas Samiti Ltd., Noida V. JCIT, Noida

ITA 6783/DEL/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5394 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 15-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K C SINGHAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI J.S.REDDY, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 6783/DEL/2014 (ASSESSMENT YEAR : 2010-11) JALVAYU SEHKARI AWAS SAMITI LTD., SOCIETY OFFICE COMPLEX, SECTOR-21, NOIDA-201301. PAN-AAATJ4438M VS JCIT, RANGE-1, NOIDA. (APPELLANT) (RESPONDENT) APPELLANT BY SH. K.C.SINGHAL, CA RESPONDENT BY SH. AMIT JAIN, SR.DR DATE OF HEARING 03.04.2018 DATE OF PRONOUNCEMENT 03.04.2018 ORDER PER J.S.REDDY, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDE R OF LD.CIT(A), NOIDA DATED 29.08.2014 FOR AY 2010-11 PASSED U/S 250 OF T HE INCOME TAX ACT, 1961 (IN SHORT ACT) ON THE FOLLOWING GROUNDS:- 1. THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.9,10,000/- ON ACCOUNT OF TRANSFER FEE RECEIVED B Y THE APPELLANT FROM THE OUTGOING AND INCOMING MEMBERS. THE ISSUE INVOLVED I S COVERED BY HIGH COURT DECISIONS AND THUS CIT(A) WAS NOT JUSTIFIED I N IGNORING THE SAME WITHOUT GIVING ANY REASONS. 2. THE CIT(A) WAS ALSO NOT JUSTIFIED IN NOT ALLOWIN G THE VARIOUS ADMINISTRATIVE AND OTHER EXPENSES INCURRED BY THE A PPELLANT IN COURSE OF ITS ACTIVITIES. 3. THE CIT(A) WAS ALSO NOT JUSTIFIED IN NOT A LLOWING BROUGHT FORWARD LOSSES OF RS. 1,65,993/-. ITA NO. 6783/DEL/2014 2. THE FACTS LEADING TO GROUND NO.1 ARE BROUGHT BY LD.CIT(A) AT PAGE 17 OF HIS ORDER. THE SAME IS EXTRACTED FOR READY-REFEREN CE:- REVISED GROUND NO.5: TRANSFER CHARGES OF RS.9,10,1 00/- FROM OUT GOING MEMBERS TREATED AS TAXABLE. (THIS GROUND IS THE SA ME AS GROUND NO.3 ORIGINALLY TAKEN HENCE THIS IS NOT A NEW GROUND). DURING THE COURSE OF ASSESSMENT THE AO NOTICED THAT THE SOCIETY HAS RECEIVED TRANSFER CHARGES FROM OUT GOING MEMBERS AM OUNTING TO RS.9,10,100/- AND THE AO HELD THESE RECEIPTS OUT SI DE THE PURVIEW OF PRINCIPLE OF MUTUALITY ON THE GROUND THAT THESE ARE FROM OUT GOING/ OUT GONE MEMBERS WHO ARE SELLING THEIR FLATS. ACCORDIN G TO AO THE TRANSFER CHARGES HAVE BEEN COLLECTED BY THE ASSESSEE FROM TH E TRANSFEROR WHO LEFT THE SOCIETY BY SELLING THEIR FLAT HENCE THERE IS NO APPLICATION OF THESE RECEIPTS BY WAY OF MUTUAL PRIVILEGE TO OUT GOING ME MBERS AS HIS MUTUALITY CEASES TO REMAIN IN THE SOCIETY AS THEY ARE NO MORE MEMBERS OF THE SOCIETY. 3. WE FIND THAT THE ISSUE IS COVERED BY THE DECISIO N OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SIND CO-OP. HSG. SOCIETY VS ITO, WARD-1(7), PUNE [2 009] 182 TAXMAN 346 (BOMBAY) WHEREIN IT IS HELD AS FOLLOWS:- THE TRANSFER FEE RECEIVED BY THE HOUSING CO-OPERAT IVE SOCIETIES GOVERNED BY THE PROVISIONS OF THE MAHARASHTRA CO-OP ERATIVE SOCIETIES ACT, 1960 [1960 ACT) AND THE MAHARASHTRA CO-OPERATIVE SO CIETIES RULES, 1960 [1960 RULES} CAN BE APPROPRIATED ONLY IF THE TRANSF EREE IS ADMITTED TO MEMBERSHIP. THE FACT THAT A PROPOSED TRANSFEREE MAY MAKE PAYMENT IN ADVANCE, BY ITSELF, IS NOT RELEVANT. THE AMOUNT CAN ONLY BE APPROPRIATED ON THE TRANSFEREE BEING ADMITTED AS A MEMBER. AS IT IS A TRANSFER FEE, IF THE TRANSFEREE IS NOT ADMITTED AS A MEMBER, THE AMOUNT RECEIVED WILL HAVE TO BE REFUNDED, AS THE AMOUNT IS PAYABLE ONLY ON A TRA NSFER OF RIGHTS OF THE TRANSFEROR IN THE TRANSFEREE. IF IT IS HELD THAT PA YMENT OF TRANSFER FEES IS BY A STRANGER, IT WILL CERTAINLY BE IN THE NATURE OF G IFT AND NOT INCOME. IF AN ITA NO. 6783/DEL/2014 AMOUNT IS RECEIVED MORE THAN WHAT IS CHARGEABLE UND ER THE BYE-LAWS OR THE GOVERNMENT DIRECTIONS, THE SOCIETY IS BOUND TO REPAY THE SAME AND IF IT RETAINS THE AMOUNT, IT WILL BE IN THE NATURE OF PRO FIT MAKING AND THAT SPECIFIC AMOUNT WILL BE EXIGIBLE TO TAX. CONSIDERIN G THE BYE-LAWS, AS THE MAIN ACTIVITY OF A CO-OPERATIVE HOUSING SOCIETY IS TO MAINTAIN THE PROPERTY OWNED BY IT AND TO RENDER SERVICES TO ITS MEMBERS B Y WAY OF USUAL PRIVILEGES, ADVANTAGES AND CONVENIENCES, THERE IS N O PROFIT MOTIVE INVOLVED IN THESE ACTIVITIES. THE AMOUNT LEGALLY CHARGEABLE AND RECEIVED GOES INTO THE FUND OF THE SOCIETY WHICH IS UTILIZED FOR THE R EPAIRS OF THE PROPERTY AND COMMON BENEFITS TO ITS MEMBERS. [PARA 20] IT WAS CONTENDED BY THE REVENUE THAT THE CLASS OF M EMBERS MEANS MEMBERS SUCH AS PERMANENT, TEMPORARY, HONORARY, ETC . THIS WAS BASED ON THE ASSUMPTION THAT THERE CAN BE DIFFERENT CLASSES OF MEMBERS. IN A CO- OPERATIVE HOUSING SOCIETY THERE CAN BE MEMBERS AND ASSOCIATE MEMBERS. FURTHER, THE CLASS MAY BE DIMINISHED BY MEMBERS GOI NG OUT OR INCREASED BY THE MEMBERS COMING IN, BUT THE CLASS REMAINS THE SAME. AS HELD BY THE SUPREME COURT IN CIT V. BANKIPUR CLUB LTD. [1997] 2 26 ITR 97/92 TAXMAN 278, THE IDENTITY MUST BE AS A CLASS OF CONTRIBUTOR S AND PARTICIPANTS AND IT DOES NOT MATTER THAT THE CLASS MAY BE DIMINISHED OR INCREASED BY MEMBERS GOING OUT OR COMING IN. [PARA 21] IT WAS ALSO CONTENDED BY THE REVENUE THAT THE PAYME NT OF TRANSFER FEES WAS NOT VOLUNTARY AND AT ANY RATE THE EXCESS A MOUNT WAS CHARGED THAN WHAT WAS PERMITTED IN THE BYE-LAWS AND WOULD B E EXIGIBLE TO TAX. FIRSTLY, WHETHER IT WAS VOLUNTARY OR NOT WOULD MAKE NO DIFFERENCE TO THE PRINCIPLE OF MUTUALITY. SECONDLY, PAYMENTS WERE MAD E UNDER THE BYE-LAWS WHICH CONSTITUTED A CONTRACT BETWEEN THE SOCIETY AN D ITS MEMBERS WHICH WAS VOLUNTARILY ENTERED INTO AND VOLUNTARILY CONDUC TED AS A MATTER OF CONVENIENCE AND DISCIPLINE FOR RUNNING OF THE SOCIE TY. IF IT WAS THE CASE THAT THE AMOUNTS MORE THAN PERMISSIBLE UNDER THE NO TIFICATION HAD BEEN RECEIVED UNDER PRESSURE OR COERCION OR CONTRARY TO THE GOVERNMENT DIRECTIONS, THEN CONSIDERING SECTION 72 OF THE CONT RACT ACT THAT AMOUNT ITA NO. 6783/DEL/2014 WOULD HAVE TO BE REFUNDED. AT ANY RATE, IF THE SOCI ETY RETAINED THE AMOUNT IN EXCESS OF THE BINDING GOVERNMENT NOTIFICATION OR THE BYE-LAWS, THAT AMOUNT WOULD BE EXIGIBLE TO TAX AS IT HAD AN ELEMEN T OF PROFITEERING. [PARA 22] IT WAS FURTHER CONTENDED BY THE REVENUE THAT THE PR EMIUM CHARGED WAS A PROFIT. THE ASSESSEE-SOCIETY WAS REGISTERED W ITH THE OBJECT PRINCIPALLY OF LOOKING AFTER THE PROPERTY INCLUDING BUILDING THEREON. THERE WERE NO TRADING OR BUSINESS TRANSACTIONS. THE MEMBE RS, BY ADOPTING THE BYE-LAWS, AGREED AMONGST THEMSELVES THAT A FEE FOR TRANSFER OF FIAT/TENEMENT WHEN IT WAS SOLD WOULD BE PAID TO THE SOCIETY. IT MIGHT BE THAT BOTH, INCOMING OR OUTGOING MEMBER, HAD TO CONT RIBUTE TO THE COMMON FUND OF THE SOCIETY. THE AMOUNT PAID, HOWEVER, WAS TO BE EXCLUSIVELY USED FOR THE BENEFITS OF THE MEMBERS AS A CLASS. [PARA 2 3] IT WAS NEXT CONTENDED BY THE REVENUE THAT THERE WAS NO LEGAL BAR FOR THE ASSESSEE TO EARN PROFIT. THERE COULD BE NO DISP UTE ON THAT PROPOSITION, BUT THE PROFIT MUST COME FROM A COMMERCIAL ACTIVITY IN THE NATURE OF TRADE, BUSINESS OR THE LIKE IN WHICH EVENT THE ASSESSEE WO ULD HAVE TO PAY TAX ON SUCH PROFITS. CHARGING OF TRANSFER FEES AS PER BYE- LAWS HAD NO ELEMENT OF TRADING OR COMMERCIALITY. THERE BEING NO TAINT OF C OMMERCIALITY, THE QUESTION OF EARNING PROFITS WOULD NOT ARISE WHEN TH E HOUSING SOCIETY APPLIED THE MONEYS RECEIVED TOWARDS MAINTENANCE OF THE SOCIETY AND PROVIDING THE MEMBERS WITH USUAL PRIVILEGES, ADVANT AGES AND CONVENIENCES. [PARA 24] FOLLOWING TESTS ARE TO BE CONSIDERED FOR APPLYING T HE PRINCIPLE OF MUTUALITY TO A CASE OF A CO-OPERATIVE HOUSING SOCIE TY : (1) IS THERE ANY COMMERCIALITY INVOLVED OUT?-THIS H AS TO BE FOUND OUT FROM THE BYE-LAWS OF THE CO-OPERATIVE HOUSING SOCIETY. I N CASE OF THE CO-OPERATIVE HOUSING SOCIETY, ADMITTEDLY, THERE IS NO COMMERCIAL ITY INVOLVED. ONCE THERE IS NO COMMERCIALITY INVOLVED, THE FIRST TEST OF PRO FITABILITY DOES NOT EXIST. THE FIRST REQUIREMENT OF MUTUALITY IS, THEREFORE, M ET IN THE CASE OF A HOUSING CO-OPERATIVE SOCIETY. ITA NO. 6783/DEL/2014 (2) FROM THE MONEYS RECEIVED, ARE THE SERVICES OFFE RED IN THE NATURE OF PROFIT SHARING OR PRIVILEGES, ADVANTAGES AND CONVEN IENCES? IN CASE OF A CO-OPERATIVE HOUSING SOCIETY, THE ONLY ACTIVITY, WHICH IT CAN CARRY OUT IN TERMS OF ITS BYE-LAWS, IS BASICALL Y MAINTENANCE OF ITS PROPERTY WHICH INCLUDES BUILDING OR BUILDINGS. THE SUBSCRIPTIONS AND/OR CONTRIBUTIONS RECEIVED BY THE MEMBERS CAN ONLY BE E XPENDED FOR THE PURPOSES OF MAINTENANCE AND PROVIDING OTHER PRIVILE GES, ADVANTAGES AND CONVENIENCES TO ITS MEMBERS IN TERMS OF ITS BYE-LAW S. ANOTHER TEST OF MUTUALITY IS, THUS, SATISFIED. (3) ARE THE PARTICIPANTS AND CONTRIBUTORS IDENTIFIA BLE AND BELONG TO THE SAME CLASS IN THE CASE OF CO-OPERATIVE HOUSING SOCI ETY? THE CLASS OF MEMBERS IS CLEARLY IDENTIFIABLE. MEMBE RS ARE ORDINARY MEMBERS OR ASSOCIATE MEMBERS. THE PARTICIPANTS AND CONTRIBUTORS ARE THE MEMBERS. THE MEMBERS MAY COME IN OR GO OUT. THE FAC T THAT ONLY SOME MEMBERS FROM THOSE WHO CONTRIBUTED MAY PARTICIPATE IN THE SURPLUS, IS IRRELEVANT AS LONG AS THE CLASS IS IDENTIFIABLE. TH IS TEST IS ALSO SATISFIED IN THE CASE OF A HOUSING CO-OPERATIVE SOCIETY. (4) DO THE MEMBERS HAVE THE RIGHT TO SHARE IN THE S URPLUS AND DO THEY HAVE A RIGHT TO DEAL WITH ITS SURPLUSES? IN TERMS OF THE BYE-LAWS, IT IS ONLY THE MEMBERS WH O HAVE A RIGHT TO SHARE IN THE SURPLUS. UNDER THE 1960 ACT, NO PART O F THE FUNDS, AS PROVIDED IN SECTION 64 OF THE 1960 ACT, CAN BE PAID BY WAY O F BONUS OR DIVIDEND OR OTHERWISE DISTRIBUTED AMONG ITS MEMBERS EXCEPT AS P ROVIDED THEREIN. UNDER SECTION 67 OF THE 1960 ACT, THERE IS A LIMIT ON THE DIVIDEND TO BE PAID ON LIQUIDATION. UNDER SECTION 110 OF THE 1960 ACT, THE SURPLUS CAN ONLY BE DEALT WITH IN THE MANNER PROVIDED THEREIN WHICH INC LUDES ANY MEMBER OR DEVOTED TO OBJECTS PROVIDED BY THE BYE-LAWS OR BE T RANSFERRED TO ANOTHER SOCIETY WITH SIMILAR OBJECT. RULE 90 OF THE 1960 RU LES PROVIDES HOW THE SURPLUS IS TO BE DIVIDED. THE SURPLUS THEN CAN BE D ISTRIBUTED IN TERMS OF THE BYE-LAWS TO MEMBERS AND/OR BY OPERATION OF LAW TO ANOTHER SOCIETY ITA NO. 6783/DEL/2014 HAVING THE SAME OBJECTIVE. IN OTHER WORDS, YET ANOT HER TEST OF MUTUALITY IS SATISFIED. [PARA 28] ONCE THE AFORESAID TESTS ARE SATISFIED, THERE CAN B E NO DOUBT THAT THE PRINCIPLE OF MUTUALITY WILL APPLY TO A CO-OPERATIVE HOUSING SOCIETY OF WHICH PREDOMINANT ACTIVITY IS MAINTENANCE OF THE PROPERTY OF SOCIETY, WHICH INCLUDES ITS BUILDING OR BUILDINGS AND THERE IS NO TAINT OF COMMERCIALITY, TRADE OR BUSINESS. [PARA 29] IN VIEW OF ABOVE DISCUSSION, ANY PART OF TRANSFER F EES RECEIVED BY THE ASSESSEE, WHETHER FROM OUTGOING OR FROM INCOMING ME MBERS, WAS NOT LIABLE TO TAX ON THE GROUND 0/ MUTUALITY. [PARA 30] 4. HONBLE SUPREME COURT IN THE CASE OF ITO, MUMBAI VS VENKATESH PREMISES CO-OPERATIVE SOCIETY LTD. [2018] 91 TAXMAN N.COM 137 (SC) AT PARA 20 HELD AS UNDER:- 20. ANY DIFFERENCE IN THE CONTRIBUTIONS PAYABLE BY OLD MEMBERS AND FRESH INDUCTEES CANNOT FALL FOUL OF THE LAW AS SUFF ICIENT CLASSIFICATION EXISTS. MEMBERSHIP FORMING A CLASS, THE IDENTITY OF THE IND IVIDUAL MEMBER NOT BEING RELEVANT, INDUCTION INTO MEMBERSHIP AUTOMATIC ALLY ATTRACTS THE DOCTRINE OF MUTUALITY. IF A SOCIETY HAS SURPLUS FS I AVAILABLE, IT IS ENTITLED TO UTILIZE THE SAME BY MAKING FRESH CONSTRUCTION IN ACCORDANCE WITH LAW. NATURALLY SUCH ADDITIONAL CONSTRUCTION WOULD ENTAIL EXTRA CHARGES TOWARDS MAINTENANCE, INFRASTRUCTURE, COMMON FACILITIES AND AMENITIES. IF THE SOCIETY FIRST INDUCTS NEW MEMBERS WHO ARE REQUIRED TO CONTRIBUTE TO THE COMMON FUND FOR AVAILING COMMON FACILITIES, AND THE N GRANTS ONLY OCCUPANCY RIGHTS TO THEM BY DRAW OF LOTS, THE OWNER SHIP REMAINING WITH THE SOCIETY, THE RECEIPTS CANNOT BE BIFURCATED INTO TWO SEGMENTS OF RECEIPT AND COSTS, SO AS TO HOLD THE FORMER TO BE OUTSIDE T HE PURVIEW OF MUTUALITY CLASSIFYING IT AS INCOME OF THE SOCIETY WITH COMMER CIALITY. 5. RESPECTFULLY FOLLOWING THE SAME, AS WELL AS THE PROPOSITION OF LAW LAID DOWN BY THE ITAT, MUMBAI BENCH (SPECIAL BENCH) IN T HE CASE OF WALKESHWAR ITA NO. 6783/DEL/2014 TRIVENI CO-OP. HOUSING SOCIETY LTD. VS ITO [2004] 8 8 ITD 159 (MUM.), WE ALLOW THIS GROUND OF THE ASSESSEE. GROUND NOS.2 & 3 ARE DISMISSED AS NOT PRESSED AS NO SPECIFIC ARGUMENTS HAVE BEEN ADVANCED ON THE SAME. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 03.04.2018. SD/- SD/- (AMIT SHUKLA) (J.S.REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE:- 03 RD APRIL, 2018 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI