DCIT 9(1), MUMBAI V. MOHANBHAI I PATEL, MUMBAI

ITA 7757/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8748 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 11-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH JUNJUNWALA
• Keywords: Gift; Earning of tax free income; Capital receipt
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . , BEFORE SHRI D. MANMOHAN, VICE PRESIDENT / AND !'# , !$ %& SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 7757/MUM/2010 ' ' ' ' / ASSESSMENT YEAR 2006-07 DCIT RG. 9(1) , R.NO. 223, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20. VS. M/S. MOHANBHAI I PATEL, CHANDRIKA, NEW INDIA SOCIETY, 12 TH ROAD, JVPD SCHEME, VILE PARLE (W), MUMBAI-400 049 PAN: AAACP 7784 N ( () / APPELLANT ) ( *+() / RESPONDENT ) REVENUE BY : SHRI ABHINAY KUMBHAR ASSESSEE BY : SHRI PRAKASH JUNJUNWALA , -$ / DATE OF HEARING : 12-09-2012 .' , -$ / DATE OF PRONOUNCEMENT : 18-09-2012 %!/ / O R D E R PER RAJENDRA, A.M. THE APPELLANT HAS FILED THIS APPEAL AGAINST THE ORD ER DT. 08-09-2010 OF THE CIT(A)-19, MUMBAI ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 15,21,000/- RECEIVE D BY THE ASSESSEE FROM THE NEW INDIA CO-OPERATIVE HOUSING SOCIETY LTD., IGNORING T HE FACT THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE SOCIETY IS NOT COVERED BY THE CONCEPT OF MUTUALITY AS THE LATTER HAS NOT SPENT IT FOR COMMON GOOD BUT FOR THE PERSONAL BENEFIT OF SPECIFIED MEMBERS OF THE SOCIETY. ITA NO. 7757/MUM/2010 M/S. MOHANBHAI I PATEL 2 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. ASSESSEE, AN INDIVIDUAL, DERIVING INCOME FROM SALAR Y, INTEREST AND CAPITAL GAINS FILED HIS RETURN OF INCOME ON 31-10-2006 DECLARING TOTAL INCOME OF RS. 51,75,609/-. RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF THE I NCOME TAX ACT, 1961 (ACT) AND INTIMATION WAS ISSUED. LATER ON, THE CASE WAS SELE CTED FOR SCRUTINY UNDER COMPUTER ASSISTED SCRUTINY SYSTEM (CASS). ASSESSMENT WAS FIN ALISED U/S. 143(3) OF THE ACT ON 27-10-2008 DETERMINING THE TOTAL INCOME OF THE ASSE SSEE IS RS. 70.34 CRORES. 3. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICE R (AO) FOUND THAT INVESTIGATION WING OF THE DEPARTMENT HAD CONDUCTED CERTAIN ENQUIRIES IN THE CASE OF NEW INDIA CO-OPERATIVE HOUSING SOCIETY LTD., THAT T HE ASSESSEE WAS ONE OF THE MEMBERS OF THE SOCIETY. IT WAS ALSO INTIMATED TO T HE AO BY THE INVESTIGATION WING THAT THE ASSESSEE HAD RECEIVED BENEFITS IN CASH AND KIND FROM THE SOCIETY. AO FOUND THAT THE ASSESSEE HAD NOT PAID ANY TAXES ON THE SAI D BENEFITS RECEIVED. HE ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND AFTER CONSIDERING HIS SUBMISSIONS HE HELD THAT COMPENSATION/GIFTS WERE TAXABLE IN THE HANDS OF THE RECIPIENTS, THAT THE AMOUNT IN QUESTION WAS NOT A CAPITAL RECEIPT-BUT WAS MERELY A BENEFIT RECEIVED BY THE ASSESSEE IN MONETARY FORM OR IN KIND, THAT THE SOCIETY HAD GIVE N VARIOUS GIFTS TO THE MEMBERS, THAT THE BUILDINGS IN THE SOCIETY WERE THE PERSONAL PROP ERTIES OF THE MEMBERS, THAT ANY AMOUNT PAID TO THE MEMBERS RELATING TO THE BUILDING WAS NOT THE EXPENSES OF THE SOCIETY, THAT THERE WAS A CARTEL OF MEMBERS, THAT D ISTRIBUTION BEING MADE ONLY TO SELECTED CARTEL MEMBERS PROVED THAT PURPOSE OF DIST RIBUTION OF FUND WAS NOT PART OF COMMON EXPENSES. HE FINALLY HELD THAT DISTRIBUTION OF FUNDS MADE BY THE SOCIETY AMONG ITS SELECTED MEMBERS COULD NOT BE TREATED AS AN EXEMPT INCOME IN THE HANDS OF THE RECIPIENTS.AO FOUND THAT ASSESSEE HAD RECEIVED RS. 15.2 LAKHS IN CASH AND KIND FROM THE SOCIETY IN THE RELEVANT ASSESSMENT YEAR AN D HAD CLAIMED IT AS GIFT/CAPITAL RECEIPT.AO TREATED THE SAID INCOME AS INCOME FROM OTHER SOURCES. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD T HAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SIND CO-OPERATIVE HOUSING SOCIETY (317 ITR 47) SQUARELY APPLIED IN THE CASE OF THE APPELLANT, THAT PRINCIPLE OF MUTUALITY WERE APPLICABLE WITH REGARD TO TRANSFER-FEE RECEIVED BY THE CO-OPERATIVE HOUSING SOCIETY, THAT THE FACT THAT ONLY SOME MEMBERS FROM THE SOCIE TY RECEIVED IN THE SURPLUS WAS NOT RELEVANT FACTOR TO DECIDE THE MATTER, THAT PAYMENTS WERE MADE IN TERMS OF THE BY-LAWS, AS PER BY-LAWS ONLY A FEW MEMBERS HAD A RIGHT TO SH ARE IN THE SURPLUS, THAT UNDER THESE CIRCUMSTANCES, PRINCIPLE OF MUTUALITY WAS APP LICABLE. HE FURTHER HELD THAT PAYMENTS MADE TO THE ASSESSEE WAS RESULT OF THE RES OLUTIONS PASSED BY THE SOCIETY ON TWO OCCASIONS, THAT NO COMMERCIALITY WAS INVOLVED I N THE SAID TRANSACTIONS, THAT FROM THE FUNDS RAISED FROM THE MEMBERS CERTAIN AMOUNTS W ERE PAID TO OTHER MEMBERS, INCLUDING THE ASSESSEE TO CARRY OUT REPAIRS/RENOVAT ION AS AUTHORISED BY THE BY-LAWS OF THE SOCIETY. HE REFERRED TO THE CBDT CIRCULAR NO. 1 1/08 AND FINALLY HELD THAT AMOUNTS ITA NO. 7757/MUM/2010 M/S. MOHANBHAI I PATEL 3 IN QUESTION RECEIVED BY THE ASSESSEE WAS GOVERNED B Y THE PRINCIPLE OF MUTUALITY AND HENCE WAS NOT CHARGEABLE TO TAX. HE REFERRED TO CA SES OF UP STATE NAGRIA SAHAKARI BANK LTD.,(108 TTJ501); WALKESHWAR TRIVENI CHS (88 ITD 159). HE DELETED THE ADDITIONS MADE BY THE AO. 4. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDERS OF THE AO. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT C B ENCH OF ITAT MUMBAI VIDE ITS ORDER DT. 27-02-2012 (ITA NO. 3391/M/2010 A.Y. 2006 -07) HAS DECIDED THE ISSUE IN FAVOUR OF KARTIK M. PATEL, SON OF THE ASSESSEE. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND HAVE PERUSED THE MATERIAL. WE FIND THAT TRIBUNAL IN PARAS 7 & 8 OF THE ORDER OF KARTIK M PATEL (SUPRA) HAS HELD AS UND ER: 7. WE HAVE HEARD PERUSED THE COMPILATION FILED BY T HE ASSESSEE. THE ASSESSEE HAS FILED THE COPIES OF THE RESOLUTION PASSED BY THE SO CIETY. SO FAR AS AMOUNT OF RS.10 LAKHS PAID TO THE ASSESSEE TO MEET THE DAMAGES IS C ONCERNED, WE FIND THAT THE SAME IS DULY SUPPORTED BY THE RESOLUTION OF THE SOCIETY DAT ED 14.09.2005(PAGE NO 17 TO 20). SO FAR AS RS.6 LAKHS IS CONCERNED, WE FIND THAT EVE N THE BYE-LAWS OF THE SOCIETY, (COPY PLACED ON PAGE NO.27 TO 56) PERMITS THE SAID PAYMENT CLAUSE NO.66. SO FAR AS NEW INDIA SOCIETY IS CONCERNED, WHILE COMPLETING AS SESSMENT, ADDITIONS WERE MADE IN THE HANDS OF SAID SOCIETY FOR DISTRIBUTING RS.10 LAKHS TO CERTAIN MEMBERS TOWARDS THE COMPENSATION OF LOSS INCURRED DUE TO DEVASTATIN G FLOODS WHICH OCCURRED ON 26.07.2005 AND HENCE, THE ASSESSEE SOCIETY INCOME W AS HELD TAXABLE AND NOT COVERED UNDER THE MUTUAL BENEFITS. WHEN THE SOCIETYS CASE REACHED BEFORE THE TRIBUNAL IT WAS HELD THAT THE INCOME OF THE NEW INDIA SOCIETY WAS C OVERED UNDER THE PRINCIPLES OF MUTUALITY AND MERELY SOME OF THE MEMBERS WERE PAID OR DISTRIBUTED RS.10 LAKHS TO COMPENSATE THE LOSS INCURRED DUE TO DEVASTATING RAI N OCCURRED ON 26.6.2005, IT CANNOT BE SAID THAT THE ACTIVITIES OF THE SAID SOCI ETY WERE OUT OF THE PRINCIPLES OF THE MUTUALITY (COPY OF THE TRIBUNAL ORDER AT PAGES 6 TO 40) IN ITA NOS.5846, 5847, 5448/M/200.DATED 31.01.2011. IN OUR OPINION, THE AM OUNTS RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS AN INCOME WITHIN THE MEANING O F SEC.4 OF THE INCOME-TAX ACT WHICH IS CHARGING PROVISION. ADMITTEDLY, THE ENTIR E INCOME OF THE NEW INDIA SOCIETY IS COVERED UNDER THE PRINCIPLES OF MUTUALITY WHICH HAS BEEN CONFIRMED BY THE TRIBUNAL ALSO IN CASE OF NEW INDIA SOCIETY FOR THE A.YS. 2001-02, 2002-03 AND 2005- 06. THE ASSESSEE PAID OUT OF THE COMMON FUNDS AND ON THE PRINCIPLES OF MUTUALITY THE AMOUNT RECEIVED BY THE ASSESSEE CANNOT BE TREATED A S A BENEFIT IN NATURE OF PROFIT OR INCOME AS ASSESSEE IS ALSO PAYING MAINTENANCE CHARG ES AND OTHER LEVIES TO THE SOCIETY. WE DO NOT FIND ANY REASON TO INTERFERE WIT H THE ORDER OF THE LD. CIT (A). WE, ACCORDINGLY, CONFIRM THE SAME. 8. THE LD. COUNSEL SUBMITS THE DECISIONS OF THE TRI BUNAL IN THE CASE OF NEW INDIA SOCIETY WERE CHALLENGED BY THE REVENUE BEFORE THE H ONBLE JURISDICTIONAL HIGH COURT AND THE APPEALS FILED BY THE REVENUE HAVE BEEN DISM ISSED. THE LD. COUNSEL FILED THE COPIES OF THE TRIBUNAL ORDER OF THE HONBLE HIGH CO URT IN THE CASE OF NEW INDIA SOCIETY LTD. DATED 09.09.2011 AND 09.11.2011 RESPEC TIVELY WHICH ARE PLACED ON RECORD. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO. 7757/MUM/2010 M/S. MOHANBHAI I PATEL 4 RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDIN ATING BENCHES, WE DISMISS THE APPEAL FILED BY THE AO AND UP-HOLD THE ORDER OF THE FAA. APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER, 2012. SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !$ %& / ACCOUNTANT MEMBER MUMBAI, 0% DATE: 18 TH SEPTEMBER, 2012 TNMM %!/ %!/ %!/ %!/ , ,, , *-1 *-1 *-1 *-1 2!1'- 2!1'- 2!1'- 2!1'- / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE +1- *- //TRUE COPY// %!/ %!/ %!/ %!/ / BY ORDER, / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI