Astral Heights Owners Association, Hyd, Hyderabad V. ADIT (Exemption)-II, Hyd., Hyderabad

ITA 8/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6054 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 02-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-01-2016
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business expenditure; Capital receipt
• Section: 143(3); 12A; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 08/HYD/2016 ASSESSMENT YEAR: 2010-11 M/S. ASTRAL HEIGHT OWNERS ASSOCIATION, HYDERABAD [PAN: AABTA2325H] VS ASST. DIRECTOR OF INCOME TAX (EXEMPTIONS)-2, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHU RAM, AR FOR REVENUE : SMT. U. MINICHANDRAN, DR DATE OF HEARING : 08-11-2016 DATE OF PRONOUNCEMENT : 11-11-2016 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-9, HYDERABAD D ATED 10-11-2015. ASSESSEE HAS RAISED THE FOLLOWING GROUN DS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS FAILED TO DISTINGUISH THE BASIC DIFFERENCE BETWEEN A REVENUE RECEIPT AND A CAPITAL RECEIPT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY INTERPRETED THE COLLECTION OF RS. 9.50 LAKHS TOWARD S CAPITAL RECEIPT FUND AS REVENUE RECEIPT, EVEN THOUGH THE SAID COLLE CTION WAS NOT MADE ON MONTHLY BASIS AND ROUTINE REPAIRS WAS SHOWN AS EXPENDITURE IN INCOME AND EXPENDITURE ACCOUNT. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS IGNORED THE CONCEPT OF MUTUALITY BY TREATING THE ACTIVITI ES OF ASSOCIATION OF OWNERS OF COMMERCIAL COMPLEX AS A BUSINESS ACTIVIT Y AND THEREBY INVOKING THE PROVISIONS OF SECTION 40(A)(IA), WHICH ARE ONLY APPLICABLE FOR BUSINESS EXPENDITURE. GROUND NO. 4 IS GENERAL IN NATURE. I.T.A. NO. 08/HYD/2016 M/S. ASTRAL HEIGHT OWNERS ASSOCIATION :- 2 -: 2. BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE BEING A O WNERS ASSOCIATION OF ASTRAL HEIGHTS, A COMMERCIAL BUILDI NG IS A TRUST REGISTERED UNDER THE SOCIETIES ACT BUT NOT U/S. 12 / 12A OF THE INCOME TAX ACT [ACT]. ASSESSEE FILED ITS NIL RETURN O F INCOME DECLARING INCOME OF RS. 3,17,711/-, CLAIMING EXEMPTI ON ON THE PRINCIPLE OF MUTUALITY. IN THE ASSESSMENT ORDER COMP LETED U/S. 143(3) OF THE ACT, THE CLAIM OF MUTUALITY HAS NEITHER BE EN DISCUSSED NOR REJECTED. ASSESSING OFFICER (AO) HOWE VER, TAKEN THE INCOME IN THE RECEIPT AND EXPENDITURE A/C AS TOTAL INCO ME, EVEN THOUGH ASSESSEE HAS FILED NIL INCOME RETURN. IN THE A SSESSMENT ORDER APART FROM TAKING THE AMOUNT OF RS. 3,17,711/- AS TOTAL INCOME, AO HAS ADDED BACK AN AMOUNT OF RS. 5,20,283/ - PAID TOWARDS AMC CHARGES U/S. 40(A)(IA) OF THE ACT ON THE R EASON THAT ASSESSEE HAS NOT DEDUCTED ANY TAX. FURTHER, AN AMOUNT OF RS. 9.50 LAKHS RECEIVED BY ASSESSEE TOWARDS CAPITAL REPA IRS FUND AND SHOWN IN THE BALANCE SHEET, WAS ADDED AS REVEN UE RECEIPT ON THE REASON THAT ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 5,69,086/- UNDER THE HEAD REPAIRS AND MAINTENANCE. 3. BEFORE THE LD.CIT(A), IT WAS CONTENDED THAT PROVISION S OF SECTION 40(A)(IA) ARE NOT APPLICABLE AS ASSESSEE IS N OT IN THE BUSINESS AND ITS RECEIPTS ARE EXEMPT ON THE MUTUALITY C ONCEPT. WITH REFERENCE TO THE AMOUNT OF RS. 9.50 LAKHS, IT WAS CONTENDED THAT AO HAS FAILED TO TEST THE NATURE OF RECEIPTS IN RESPEC T OF MAINTENANCE CHARGES AND CAPITAL REPAIRS FUND WHICH WA S RECEIVED EXCLUSIVELY FOR ANY MAJOR CAPITAL WORKS OF THE COMPLE X AT A FUTURE DATE. SINCE THIS AMOUNT IS CAPITAL RECEIPT, THE SAME IS NOT TAXABLE. HOWEVER, LD.CIT(A) REJECTED BOTH THE CONTENTIONS AND DI SMISSED THE APPEAL. I.T.A. NO. 08/HYD/2016 M/S. ASTRAL HEIGHT OWNERS ASSOCIATION :- 3 -: 4. LD. COUNSEL SUBMITTED THAT PROVISIONS OF SECTION 40(A )(IA) CANNOT BE INVOKED AS ASSESSEE IS NOT IN THE BUSINESS . FURTHER, IT WAS SUBMITTED THAT THE REPAIRS WHICH ARE INCURRED ARE DA Y-TO-DAY MAINTENANCE REPAIRS SPENT OUT OF THE MAINTENANCE CHARGE S RECEIVED, BUT THE CORPUS FUND RECEIVED FOR FUTURE REPA IRS IS BEING ACCUMULATED IN THE BALANCE SHEET AND THIS AMOUNT CANN OT BE BROUGHT TO TAX. 5. LD. DR HOWEVER, RELIED ON THE ORDERS OF THE AO AND CIT(A) TO SUBMIT THAT ADDITIONS ARE CORRECTLY MADE. REFERRING TO THE BYE- LAWS OF THE ASSESSMENT PLACED ON RECORD BY ASSESSEE, IT WAS SUBMITTED THAT BUILDING IS NOT ASSESSEES PROPERTY AND A S SEEN FROM THE AIMS AND OBJECTS OF THE ASSESSMENT VIDE PARA 5 CAPITAL REPAIRS ARE NOT WITHIN THE DOMAIN OF ASSESSEE. ACCORD INGLY, THE AMOUNTS ARE TO BE CONSIDERED AS REVENUE RECEIPT ONL Y. 6. I HAVE CONSIDERED THE SUBMISSIONS AND EXAMINED THE DOCUMENTS PLACED ON RECORD. IT IS A FACT THAT EVEN THOU GH ASSESSEE HAS CLAIMED EXEMPTION ON PRINCIPLE OF MUTUALITY, THE AO HAS TAKEN THE TOTAL INCOME OF RS. 3,17,711/- WHICH IS NOTHING BU T SURPLUS IN THE INCOME AND EXPENDITURE A/C. AO SHOULD HAVE EXAMI NED THE PRINCIPLE OF MUTUALITY BEFORE CONSIDERING THE AMOUN T AS TOTAL INCOME. IN ADDITION, HE ALSO DISALLOWED THE AMOUNT U /S. 40(A)(IA), WHEN ASSESSEE IS NOT HAVING ANY BUSINESS ACTIVITY AND IS ONLY RECEIVING MAINTENANCE CHARGES TOWARDS MAINTAINING THE BUILDING. ASSESSEE ITSELF IS CONSTITUTED AS AN OWNERS ASSOCIATIO N AND MAIN OBJECT IS ONLY TO MAINTAIN THE BUILDING AND UTILISE TH E COMMON FACILITIES. SINCE NO BUSINESS ACTIVITY IS INVOLVED, PROVISIONS OF SECTION 40(A)(IA), WHICH ARE MEANT FOR COMPUTING THE B USINESS I.T.A. NO. 08/HYD/2016 M/S. ASTRAL HEIGHT OWNERS ASSOCIATION :- 4 -: INCOME DOES NOT APPLY. EVEN IF ONE WERE TO CONSIDER THE INCOME UNDER THE HEAD OTHER SOURCES, SECTION 58 OF THE ACT S PECIFICALLY INVOKES ONLY 40(A)(IIA) VIDE SUB-SECTION (1A) OF SEC TION 58. CONSEQUENTLY, PROVISIONS OF SECTION 40(A)(IA) CANNOT B E INVOKED EVEN IF INCOMES ARE ASSESSED UNDER THE HEAD OTHER SO URCES. ON THAT GROUND, ACTION OF THE AO CANNOT BE UPHELD. EVEN OTHERWISE, SINCE THE AMOUNT HAS ALREADY BEEN PAID, THE DECISION O F SPECIAL BENCH IN THE CASE OF MERLYN SHIPPING AND TRANSPORT L TD., VS. ACIT REPORTED AS 136 ITD 23 (SB) [16 ITR 1] (SB)(VISAKH A.)(TRIB.) WILL APPLY, AS THERE IS NO OUTSTANDING AMOUNT AT THE END OF THE YEAR. CONSIDERING THESE FACTS, I AM OF THE OPINION THAT THE DIS ALLOWANCE MADE BY THE AO, INVOKING THE PROVISIONS OF SECTION 40( A)(IA) WAS NOT CORRECT. ACCORDINGLY, GROUND NO. 3 OF ASSESSEE ON THIS ISSUE IS ALLOWED. 6.1. COMING TO THE ISSUE OF RS. 9.50 LAKHS IT IS SHOW N IN THE BALANCE SHEET ONLY AND IS NOT THE PART OF THE INCOME AN D EXPENDITURE STATEMENT. SINCE ASSESSEE HAS NOT REGISTER ED U/S. 12/12A, ITS INCOMES ARE TO BE CONSIDERED AS PER THE PR INCIPLES APPLICABLE TO ASSESSEES, OTHER THAN REGISTERED TRUSTS. P ROVISIONS OF SECTION 11 TO 13 DOES NOT APPLY. IT IS THE CONTENTION OF ASSESSEE THAT THE EXPENDITURES INCURRED AND CLAIMED IN THE INCOM E AND EXPENDITURE STATEMENT ARE ROUTINE EXPENDITURES SPENT OUT O F THE MAINTENANCE CHARGES COLLECTED BUT DOES NOT HAVE ANY RE LATION TO CORPUS FUND WHICH IS BEING COLLECTED AND KEPT SEPARA TELY. THIS ASPECT HAS NOT BEEN EXAMINED EITHER BY THE AO OR BY THE LD.CIT(A). IN CASE ASSESSEE IS COLLECTING SEPARATE CORPUS FUND AND IS ACCUMULATING FOR FUTURE USE, THE SAME CANNOT BE CONSI DERED AS INCOME OF THE YEAR. IT IS ALSO SEEN THAT ASSESSEE HA S COLLECTED IN I.T.A. NO. 08/HYD/2016 M/S. ASTRAL HEIGHT OWNERS ASSOCIATION :- 5 -: EARLIER YEARS AN AMOUNT TO AN EXTENT OF RS. 33,64,400 /- WHICH IS SHOWN AS OPENING BALANCE. LD. DR COULD NOT EXPLAIN WHETHER THE SAID AMOUNT WAS TREATED AS INCOME IN EARLIER YEAR, L IKE IN THIS YEAR. CONSIDERING THE FACTS OF THE CASE, I AM OF THE OPINIO N THAT THE CORPUS FUND IS NOT TAXABLE AS REVENUE RECEIPT. HOW EVER, WHETHER ANY NEXUS IS THERE WITH THE EXPENDITURE INCURRED IN TH E INCOME AND EXPENDITURE STATEMENT TOWARDS REPAIRS AS CONTENDED B Y THE AO IN THE ORDER IS REQUIRED TO BE EXAMINED. IN VIEW OF THAT, I AM OF THE OPINION THAT AO HAS TO RE-EXAMINE THE ENTIRE ISSUE B ASED ON THE FACTS OF THE CASE. HE IS ALSO DIRECTED TO GIVE FI NDINGS WHETHER ASSESSEES INCOME IS COVERED BY THE CONCEPT OF MUTUA LITY, AS ASSESSEE HAS CLAIMED EXEMPTION ON THAT PRINCIPLE WHICH WAS NOT CONSIDERED AT ALL BY THE AO. IN VIEW OF THAT, THE ISSUE OF RECEIPT OF RS. 9.50 LAKHS AND THE PRINCIPLE OF MUTUALITY ARE RES TORED TO THE FILE OF AO FOR EXAMINATION OF FACTS AND FRESH ADJUDIC ATION AS PER LAW AND FACTS ON THE ABOVE ISSUE. 7. IN THE RESULT, ASSESSEES APPEAL IS CONSIDERED ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH NOVEMBER, 2016 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 11 TH NOVEMBER, 2016 TNMM I.T.A. NO. 08/HYD/2016 M/S. ASTRAL HEIGHT OWNERS ASSOCIATION :- 6 -: COPY TO : 1. M/S. ASTRAL HEIGHT OWNERS ASSOCIATION, HYDERABAD . C/O. SHRI K. VASANT KUMAR, A.V. RAGHU RAM, P. VINOD & M. NEELIMA DEVI, ADVOCATES, FLAT NO. 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEER BAGH, HYDERABAD. 2. ASST. DIRECTOR OF INCOME TAX (EXEMPTIONS)-2 HYDE RABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-9, HYDERABAD 4. PR. COMMISSIONER OF INCOME TAX-6, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.