The Legend Condominium Association, Gurgaon V. ITO WARD - 4(1), Gurgaon

ITA 7162/DEL/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4812 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 30-08-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ASHWANI GARG

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SH. N. K. BILLAIYA, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO.7162/DEL/2019 & 471/CHANDI/2018 ASSESSMENT YEAR: 2014-15 THE LEGEND CONDOMINIUM ASSOCIATION, TOWER D-3, SUSHANT LOK-III, SECTOR-57, GURGAON-122001 PAN NO.AABTT8507G VS ITO WARD- 4 (4) GURGAON (APPELLANT) (RESPONDENT) APPELLANT BY SH. ASHWANI GARG, ADVOCATE RESPONDENT BY SH. VIPUL KASHYAP, SR. DR DATE OF HEARING: 27/09/2021 DATE OF PRONOUNCEMENT: 30/09/2021 ORDER PER N. K. BILLAIYA, AM: ITA NO.471/CHANDI/2018 AND 7162/DEL/2019 ARE TWO SEPARATE APPEALS BY THE ASSESSEE PREFERRED AGAINST THE ORDER OF THE CIT(A)-1, GURGAON DATED 08.01.2018 PERTAINING T O A.Y.2014-15. 2. AT THE VERY OUTSET COUNSEL FOR THE ASSESSEE STAT ED THAT THE APPEAL IN ITA NO.7162/DEL/2019 HAS BEEN FILED INADV ERTENTLY AND THE ASSESSEE MAY BE ALLOWED TO WITHDRAW THE SAID AP PEAL. 2 3. ON THIS CONCESSION ITA NO.7162/DEL/2019 IS DISMI SSED AS WITHDRAWN. 4. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE AS SESSEE IN ITA NO.471/CHANDI/2018 IS THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.41,71,334/- MADE ON ACCOUNT OF I NTEREST ON FDR, INTEREST ON SB ACCOUNT AND INTEREST FROM CLARI ON PROPERTIES. 5. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT DU RING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS THE AO NOTIC ED THAT THE ASSESSEE HAS RECEIVED FOLLOWING AMOUNTS FROM NON ME MBERS :- 1. INTEREST ON FDR 8,47,188/- 2. INTEREST ON SB ACCOUNT 60,615/- 3. INTEREST FROM CLARION PROPERTIES 32,63,531/- TOTAL 41,71,334/- 6. ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE I NCOME FROM COMMERCIAL ACTIVITIES AND NON MEMBERS BE NOT BROUGH T TO TAX IN VIEW OF JUDGMENT OF THE HONBLE SUPREME COURT IN TH E CASE OF CIT VS. BANGALORE CLUB 350 ITR 509. NO PLAUSIBLE REPLY WAS GIVEN BY THE ASSESSEE THE ONLY REPLY GIVEN BY THE ASSESSEE I S THAT ON THE BASIS OF INCOME EARNED AND EXPENSES INCURRED, THE A OP HAS FILED THE ITR AND DUE TAXES HAS BEEN PAID SHOWING INCOME UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS AND PROFESSION AS WELL AS INCOME FROM OTHER SOURCES. 3 7. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS THE AO CONCLUDED AS UNDER :- THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED BUT F OUND NOT ACCEPTABLE. THE SOCIETY IS A RESIDENT WELFARE SOCIE TY AND NO BUSINESS ACTIVITY CARRIED OUT BY IT, BEING AN AOP W ITH THE MAIN OBJECTIVE TO PROVIDE MAINTENANCE SERVICES, SECURITY SERVICES, POWER BACKUP SERVICES TO ITS CLIENTS VIZ. THE FLAT OWNERS , VILLA OWNERS, TENANTS RESIDENT IN FLATS AND VILLAS, SHOPKEEPERS, OTHER COMMERCIAL PROPERTY HOLDERS AND TENANTS OF COMMERCIAL PROPERTI ES IN THE RESIDENTIAL COMPLEX OF THE SOCIETY. THE ASSESSEE HA S DEBITED CERTAIN EXPENSES AGAINST THE RECEIPT OF INTEREST ON FDR, IN TEREST ON SAVING BANK ACCOUNT AND INTEREST INCOME RECEIVED FROM CLAR ION PROPERTIES, WHICH IS NOT AN ALLOWABLE AS THESE RECEIPTS ARE FRO M NON-MEMBERS AND THE SAME ARE LIABLE TO TAX IN VIEW OF VERDICT O F HONBLE APEX COURT IN THE CASE OF BANGLORE CLUB VS COMMISSIONER OF INCOME TAX. 3.2 KEEPING IN VIEW THE WRITTEN REPLY OF THE ASSESS EE AND DISCUSSION AND ALSO IN VIEW THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BANGLORE CLUB VS C1T, MENTIONED* SUP RA, THE INCOME SO EARNED FROM THE NON-MEMBERS AMOUNTING TO RS. 41, 71,334/- IS BROUGHT TO LAX. HOWEVER, THE ASSESSEE HAS SHOWN AN INCOME OF RS. 11,480/- AGAINST WHICH ASSESSMENT IS FRAMED AT RS. 41,71,334/- RESULTING THEREBY AN ADDITION OF RS. 41,59,854/-. 8. ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) AN D REITERATED WHAT HAS BEEN STATED BEFORE THE AO DURIN G THE COURSE OF THE ASSESSMENT PROCEEDINGS. AFTER CONSID ERING THE FACTS AND THE SUBMISSION THE CIT(A) HELD AS UNDER : - I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMISSI ONS. I HAVE ALSO PERUSED THE COPY OF THE AGREEMENT DATED 16.07.20 17 FILED 4 BY THE APPELLANT. THIS AGREEMENT IS BETWEEN THE FOL LOWING FOUR PERSONS I) M/S CLARION PROPERTY LIMITED. II) THE OWNERS/ USERS III) THE LEGEND CONDOMINIUM ASSOCIATION IV) M/S AJANTA BUILDER PVT. LTD. 3.7PARA C & D OF THIS AGREEMENT READS AS UNDER:- C. AFTER THE COMPLETION OF THE COMPLEX, AN ASSOCIAT ION OF THE OWNERS OF VARIOUS UNITS IN THE COMPLEX WAS FORMED UN DER THE HARYANA APARTMENT OWNERSHIP ACT AND THE DEVELOPER HA NDED OVER THE MAINTENANCE OF COMMON AREAS COMPRISED IN TH E AREA FALLING UNDER THE SHARE OF THE DEVELOPER OTHER THAN THE RESTRICTED COMMON AREAS TO THE ASSOCIATION. D. THE SAID ASSOCIATION VIDE THE PRESENT AGREEMENT IS DESIROUS OF APPOINTING THE FOURTH PARTY AS THE MAINT ENANCE AGENCY FOR UNDERTAKING MAINTENANCE SERVICES OF THE C OMMON AREAS. 3.8 FURTHER PARA F OF THE AGREEMENT READS AS UNDER: - F. THE USER HAS APPROACHED ASSOCIATION/MCO WITH A RE QUEST TO PROVIDE MAINTENANCE SERVICES AND ON THE ASSURANC ES THAT THE USER SHALL ABIDE BY THE TERMS AND SHALL PROMPTLY PAY THE BILLS RAISED BY THE MCO OR ITS NOMINATED AGENCY THE P ARTIES HAVE NOW DECIDED TO EXECUTE THIS AGREEMENT ON THE TE RMS AND CONDITIONS RECORDED HEREUNDER. 3.9 IT MAY ALSO BE RELEVANT TO REFER TO THE PROVISI ONS OF PARA 5.2 OF ARTICLE-5 OF THE AGREEMENT WHICH READS AS UNDER: - THAT THE SECOND PARTY SHALL BEAR AND PAY THE COST OF MAINTENANCE AND OPERATION OF COMMON FACILITIES AND SE RVICES 5 AND SHALL FURTHER ALSO PAY A ONETIME INTEREST FREE MAINTENANCE DEPOSIT (IFMD) @ RS. 538/- PER SQ. MTR PAYABLE AT SU CH RATE FOR TOTAL SUPER AREA OF THE SAID UNIT, WHICH DEPOSIT SHA LL BE PAYABLE BEFORE OR AT THE TIME OF EXECUTION OF THIS AGREEMENT TO THE ASSOCIATION. IFMD COLLECTED BY THE ASSOCIATION/T HIRD PARTY FROM DIFFERENT USERS/OWNERS INCLUDINGS THE 2 ND PARTY HEREIN BY THE SOCIETY SHALL BE HANDED OVER BY THE THIRD PARTY/A SSOCIATION TO THE FIRST PARTY/DEVELOPER @ 6% SIMPLE INTEREST P ER ANNUM FOR 15 YEARS AND THE INTEREST EARNED SHALL BE UTILIZE D TOWARDS THE MAINTENANCE EXPENSES. AT THE END OF THE 15 YEARS THE FIRST PARTY/DEVELOPER SHALL HAND OVER THE ENTIRE AMOUNT OF IFMD TO THE THIRD PARTY/ASSOCIATION WITHIN 2 MONTHS OF BEING CALLED UPON TO DO SO BY THE THIRD PARTY ASSOCIATION. 3.10 IT IS APPARENT FROM THE READING OF THE AFORESA ID PROVISIONS OF THE AGREEMENT THAT THE INTEREST FREE MAINTENANCE DEPOSIT WAS GIVEN BY THE OWNERS TO THE ASSOCIATION AND NOT TO THE BUILDER. IT WAS THE ASSOCIATION WHICH HAS THEREAFTE R DEPOSITED THE MONEY WITH THE BUILDER ON WHICH THE ASSOCIATION WAS TO RECEIVE INTEREST @ 6%. FURTHER, THERE WAS NO OBLIGATION ON THE PART OF THE BUILDER TO PROVIDE THE MAINTENANCE SERVIC ES AS SUBMITTED BY THE APPELLANT. THE DEPOSIT MADE BY THE ASSOCIATION WITH THE BUILDER @ 6% INTEREST PER ANNU M IS SIMILAR TO A DEPOSIT WITH THE BANK. SUCH RECEIPTS OF INTERES T FROM THE BUILDER BY THE ASSOCIATION EVEN IF USED FOR THE PURP OSE OF MAINTENANCE OF THE CONDOMINIUM ARE NOT COVERED BY TH E PROVISION OF MUTUALITY. THE ISSUE IS SQUARELY COVER ED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BANGALORE 6 CLUB (SUPRA). THE ADDITION BY THE ASSESSING OFFICER IS ACCORDINGLY CONFIRMED. THESE GROUNDS OF APPEAL DISMI SSED. 9. BEFORE ME THE COUNSEL FOR THE ASSESSEE VEHEMENTL Y STATED AT THE TIME OF HANDING OVER OF POSSESSION THE BUILDER EXECUTED WITH EACH OWNER A MAINTENANCE AGREEMENT AS PER WHICH THE OWNERS WERE REQUESTED TO PAY ONE TIME INTEREST FREE MAINTE NANCE DEPOSIT (IFMD) TOWARDS MAINTENANCE OF THE SOCIETY FOR WHICH THE BUILDER WAS ENTITLED TO USE INCOME FROM THE SAID DEPOSIT AT THE RATE OF 6% PER ANNUM TOWARDS THE PROVISION OF MAINTENANCE SERV ICE. IT IS THE SAY OF THE COUNSEL THAT AS PER THE AGREEMENT TH E BUILDER WAS REQUIRED TO PROVIDE FOR SERVICES FOR 15 YEARS AND A FTER THE EXPIRY 15 YEARS THE IFMD WAS TO BE TRANSFERRED TO THE ASSO CIATION. THE COUNSEL CONTENDED THAT THE REIMBURSEMENT RECEIVED B Y THE ASSOCIATION WAS NOT TAXABLE IN THE HANDS OF THE ASS OCIATION AS IFMD WAS NOT A VOLUNTARY DEPOSIT MADE BY THE APARTM ENT OWNERS WITH THE OBJECT OF EARNING AN INCOME BUT WAS A COMP ULSORY CONDITION FOR RECEIVING POSSESSION OF THE APARTMENT . 10. PER CONTRA THE DR SUPPORTED THE FINDINGS OF THE AO AND READ THE RELEVANT FINDINGS OF THE CIT(A). 11. I HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. AT THE VERY OUTSET I WOULD LIKE TO REFER TO THE 7 JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F BANGALORE CLUB (SUPRA). THE RELEVANT PART OF THE JUDGMENT RE AD AS UNDER :- FOR A RECEIPT TO BE EXEMPT ON THE PRINCIPLES OF MUT UALITY, THREE CONDITIONS HAVE TO BE SATISFIED. THE FIRST IS THAT THERE MUST BE A COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PART ICIPATORS. THE SECOND IS THAT THE ACTIONS OF THE PARTICIPATORS AND CONTRIBUTORS MUST BE IN FURTHERANCE OF THE MANDATE OF THE ASSOCIATION . THE THIRD IS THAT THERE MUST BE NO SCOPE OF PROFITEERING BY THE CONTR IBUTORS FROM A FUND MADE BY THEM WHICH COULD ONLY BE EXPENDED OR R ETURNED TO THEMSELVES. ON FACTS, THOUGH THE INTEREST WAS ENTER ED FROM BANKS WHICH WERE CORPORATE MEMBERS OF THE CLUB, IT WAS NO T EXEMPT ON THE GROUND OF MUTUALITY BECAUSE (I) THE ARRANGEMENT LAC KS A COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS . WITH THE FUNDS OF THE CLUB, MEMBER BANKS ENGAGED IN COMMERCIAL OPE RATIONS WITH THIRD PARTIES OUTSIDE OF THE MUTUALITY, RUPTURING T HE 'PRIVITY OF MUTUALITY', AND CONSEQUENTLY, VIOLATING THE ONE TO ONE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS, (II) TH E SURPLUS FUNDS WERE NOT USED IN FURTHERANCE OF THE OBJECT OF THE C LUB BUT WERE TAKEN OUT MUTUALITY) WHEN THE MEMBER BANKS PLACED THE SAM E AT THE DISPOSAL OF THIRD PARTIES, THUS, INITIATING AN INDE PENDENT CONTRACT BETWEEN THE BANK AND THE CLIENTS OF THE BANK, A THI RD PARTY, NOT PRIVY TO THE MUTUALITY & (III) THE BANKS GENERATED REVENUE BY PAYING A LOWER RATE OF INTEREST TO THE ASSESSEE-CLUB AND L OANING THE FUNDS TO THIRD PARTIES, THE INTEREST ACCRUED ON THE SURPLUS DEPOSITED BY THE CLUB LIKE IN THE CASE OF ANY OTHER DEPOSIT MADE BY AN ACCOUNT HOLDER WITH THE BANK. A FAADE OF A CLUB CANNOT BE CONSTR UCTED OVER COMMERCIAL TRANSACTIONS TO AVOID LIABILITY TO TAX. SUCH SETUPS CANNOT BE PERMITTED TO CLAIM DOUBLE BENEFIT OF MUTUALITY. 8 12. IN THE LIGHT OF THIS JUDGMENT OF THE HONBLE SU PREME COURT I FIND THAT THE FIRST APPELLATE AUTHORITY HAS EXAMINE D THE RELEVANT PART OF THE AGREEMENT BETWEEN CLARISON PROPERTY, TH E OWNERS/ USERS, THE LEGEND CONDOMINIUM ASSOCIATION, M/S. AJA NTA BUILDER PVT. LTD. THE RELEVANT FINDINGS OF THE AGREEMENT H AS BEEN EXTRACTED ELSEWHERE IN THE FINDINGS OF THE CIT(A). 13. CONSIDERING THE RELEVANT PART OF THE AGREEMENT IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT (SUPRA). I DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE CIT(A ). 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.09.2021. SD/- (N. K. BILLAIYA) ACCOUNTANT MEMBER *NEHA* DATE:- 30.09.2021 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGI STRAR ITAT NEW DELHI 9 D ATE OF DICTATION 2 7 .09.2021 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 30.09.2021 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 30.09.2021 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS 30.09.2021 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 30.09.2021 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 30.09.2021 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 30.09.2021 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.09.2021 DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER