ITO, Ward-15(1), Hyderabad, Hyderabad V. Armed Forces Officers Co-operative Housing Society Limited, Secunderabad

ITA 81/HYD/2015

• Counselvise Citation: 8122514 RSA 2015
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 06-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-01-2015
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: B SHANTHI KUMAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1956/HYD/2014 2007-08 ARMED FORCES OFFICERS CO-OPERATIVE HOUSING SOCIETY LTD., SECUNDERABAD [PAN: AAATT3927H] INCOME TAX OFFICER, WARD-10(3), HYDERABAD 1957/HYD/2014 2008-09 80/HYD/2015 2007-08 INCOME TAX OFFICER, WARD-15(1), HYDERABAD THE ARMED FORCES OFFICERS CO-OPERATIVE HOUSING SOCIETY LTD., SECUNDERABAD [PAN: AAATT3927H] 81/HYD/2015 2008-09 FOR ASSESSEE : SHRI B. SHANTHI KUMAR, AR FOR REVENUE : SHRI RAJAT MITRA, DR DATE OF HEARING : 13-08-2015 DATE OF PRONOUNCEMENT : 26-08-2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE FOUR APPEALS BY ASSESSEE AND REVENUE PERTAIN TO AYS. 2007- 08 AND 2008-09 AGAINST THE COMMON ORDER OF THE COMM ISSIONER OF INCOME TAX(APPEALS)-VI, HYDERABAD DATED 29-09-2014. ASSESSEE FILED APPEALS WITH ONE DAY DELAY. CONSIDERING ASSESSEES EXPLANATION GIVEN IN THE CONDONATION PETITION AND AFTER CONSIDERING THE SUBMISSIONS OF THE COUNSEL AND THE DR, THE DELAY OF ONE DAY IN FILING THE APPEAL IS HEREBY CONDONED AND THE APPEALS ARE ACCORDINGLY ADMITTED. I.T.A. NOS. 1956 & 1957/HYD/2014 80 & 81/HYD/2015 THE ARMED FORCES OFFICERS CO-OP. HOUSING SOCIETY LTD :- 2 -: 2. BRIEFLY STATED, ASSESSEE IS A HOUSING CO-OPERATI VE SOCIETY AND HAS CLAIMED CERTAIN INCOMES AS EXEMPT ON PRINCIPLES OF MUTUALITY. ASSESSING OFFICER (AO) HOWEVER, DID NOT AGREE AND B ROUGHT TO TAX THE AMOUNT OF RS. 16,35,690/- IN AY. 2007-08 AND RS. 9, 25,475/- IN AY. 2008-09 AS TRANSFER FEE RECEIVED. IT WAS THE CONTE NTION OF THE AO THAT THE TRANSFER FEE CHARGED BY THE CO-OPERATIVE HOUSIN G SOCIETY ON THE MEMBERS TRANSFERRING THEIR PLOTS WAS NOT A VOLUNTAR Y CONTRIBUTION AND NO MUTUALITY AMONG THE MEMBERS EXISTED, SINCE THERE IS NO IDENTITY BETWEEN CONTRIBUTORS AND PARTICIPATORS. WHILE DENY ING EXEMPTION CLAIMED BY ASSESSEE ON THE ABOVE AMOUNTS, AO RELIED ON VARIOUS JUDICIAL DECISIONS ON THE ISSUE OF PRINCIPLES OF MUTUALITY . AS PER AO, THE TRANSFER FEE PAID BY PERSON WHO WOULD BE OUT GOING MEMBER CANNOT PARTICIPATE IN THE PROFITS, AS AGAINST TRANSFEREE W HO WOULD BE PARTICIPATING IN THE PROFITS, BUT NOT IN THE PAYMEN T. AS SUCH, IDENTITY BETWEEN THE CONTRIBUTOR AND PARTICIPANT IS LOST. 2.1 LD. CIT(A) FOLLOWING THE JUDGMENT OF HONBLE HI GH COURT IN THE CASE OF SIND CO-OPERATIVE HOUSING SOCIETY VS. ITO [ 317 ITR 47] (BOM HC) AND ITD DECISION IN THE CASE OF ITO VS. DAMODAR BHUVAN CHS LTD., [45 (11) ITCL 255] HELD THAT TRANSFER FEE PAID WOUL D BE EXEMPT FROM TAX ON THE PRINCIPLE OF MUTUALITY. REVENUE WAS AGGRI EVED AND IS CONTESTING THAT THE PRINCIPLES OF MUTUALITY DOES NOT APPLY TO THE TRANSFER FEE RECEIVED. 2.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USAL OF THE ORDER OF CIT(A), WE DO NOT SEE ANY REASON TO INTERFERE WITH THE SAME. LD. CIT(A) HAS IN FACT CONSIDERED NOT ONLY THE FACTS OF THE CA SE BUT ALSO THE JUDGMENT OF HONBLE BOMBAY HIGH COURT WHICH IS SQUA RELY APPLICABLE. HIS ORDER IS AS UNDER: I.T.A. NOS. 1956 & 1957/HYD/2014 80 & 81/HYD/2015 THE ARMED FORCES OFFICERS CO-OP. HOUSING SOCIETY LTD :- 3 -: 5.3 PERUSED THE SUBMISSIONS OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER. AS COULD BE SEEN FROM THE FACTS OF THE CASE, THE APPELLANT SOCIETY WAS COLLEC TING THE TRANSFER FEE FROM THE OUTGOING MEMBERS ON TRANSFERRING THE P ROPERTY LOCATED IN THE COLONY MAINTAINED BY IT, AS PER THE BYE-LAWS AND SUCH AMOUNT WAS SHOWN TO HAVE BEEN UTILIZED FOR THE COMM ON PURPOSES SUCH AS MAINTENANCE OF PROPERTY, ROADS, AND OTHER F ACILITIES, ETC. AS PER THE ASSESSING OFFICER, THE TRANSFER FEE CHARGED BY CO-OPERATIVE SOCIETY ON THE MEMBERS, WHO TRANSFER THEIR PLOTS WA S NOT VOLUNTARY AND THERE EXISTS NO MUTUALITY, SINCE THERE IS NO ID ENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS, WITH THE CONTRI BUTORS GOING OUT AND THE PARTICIPATORS COMING INTO THE CLUB. HOWEVE R, THE JUDICIAL DECISIONS IN THIS REGARD HELD THAT THE. AMOUNTS COL LECTED / PAID VOLUNTARILY OR NOT WOULD NOT MAKE ANY DIFFERENCE TO THE PRINCIPLE OF MUTUALITY, AS LONG AS THE SAME IS GOVERNED BY THE B YE-LAWS OF THE SOCIETY, AND THE ARRANGEMENTS MADE UNDER THE BYE-LA WS CONSTITUTE A CONTRACT BETWEEN THE SOCIETY AND THE MEMBERS, WHI CH IS VOLUNTARILY ENTERED INTO AND VOLUNTARILY CONDUCTED AS MATTER OF CONVENIENCE FOR RUNNING THE SOCIETY. HENCE, THE TRA NSFER FEE COLLECTED BY THE SOCIETY, FROM THE MEMBERS ON TRANSFER OF PRO PERTY, AS PER THE BYE-LAWS MAY NOT CHANGE THE PRINCIPLE OF MUTUALITY. THE OTHER ASPECT REFERRED BY THE ASSESSING OFFICER IS CLASS O F MEMBERS, SUCH AS CONTRIBUTORS AND PARTICIPATORS AND THE MEMBERS A S WELL AS ASSOCIATE MEMBERS. AS PER THE ASSESSING OFFICER THE OUTGOING MEMBER, WHO SELLS THE PROPERTY PAYS THE FEE, BUT DO ES NOT PARTICIPATE IN THE PROFITS AS A CONTRIBUTOR, WHEREA S THE INCOMING MEMBER AFTER PURCHASE OF PLOT PARTICIPATES IN PROFI TS, AS SUCH THERE IS NO PRINCIPLE OF MUTUALITY. HOWEVER, THIS ISSUE W AS ADDRESSED BY HIGH COURT OF BOMBAY IN THE CASE OF SIND CO-OP. HOU SING SOCIETIES VS. ITO (317 ITR 047), WHEREIN IT WAS HELD BY THE H ON'BLE HIGH COURT AS UNDER: 'WE MAY NOW DEAL WITH SOME OTHER SUBMISSIONS ADVANC ED ON BEHALF OF THE REVENUE. IT WAS CONTENDED THAT THE CL ASS OF MEMBERS MEANS, MEMBERS SUCH AS PERMANENT, TEMPORARY, HONORA RY, ETC. THIS IS BASED ON THE ASSUMPTION THAT THERE CAN BE DIFFERENT CLASSES OF MEMBERS. IN A CO-OPERATIVE HOUSING SOCIETY THERE CAN BE MEMB ERS AND ASSOCIATE MEMBERS. WE HAVE ALREADY QUOTED FROM THE JUDGMENTS WHERE REFERENCE IS TO MEMBERS AS A CLASS AND THAT CLASS MAY BE DIMI NISHED BY MEMBERS GOING OUT OR INCREASED BY THE' MEMBERS COMING IN. B UT THE CLASS REMAINS THE SAME. AS ALREADY NOTED BY THE SUPREME COURT IN BANKIPUR CLUB (SUPRA), THE IDENTITY MUST BE AS A CLASS OF CONTRIB UTORS AND PARTICIPANTS AND IT DOES NOT MATTER THAT THE CLASS MAY BE DIMINI SHED OR INCREASED BY MEMBERS GOING OUT OR COMING IN. SIMILARLY, IT IS NO T NECESSARY THAT EACH MEMBER SHOULD CONTRIBUTE OR EACH MEMBER SHOULD PART ICIPATE IN THE I.T.A. NOS. 1956 & 1957/HYD/2014 80 & 81/HYD/2015 THE ARMED FORCES OFFICERS CO-OP. HOUSING SOCIETY LTD :- 4 -: SURPLUS AND GET BACK FROM THE SURPLUS WHAT HE HAS P AID, AS LONG AS THEY HAVE CONTROL OVER THE SURPLUS.' THUS, BASED ON THE RATIO OF THE DECISION AND FACTS AS APPLICABLE TO THE CASE, IT IS REASONABLE TO HOLD TH AT THE MEMBERS AS CONTRIBUTORS AS WELL AS PARTICIPATORS, INCLUDING TH E NEW MEMBERS REMAIN AS A CLASS AND SUCH CLASS MAY INCREASE WITH NEW MEMBERS JOINING AND DIMINISHING WITH SOME OTHER MEMBERS GOI NG OUT, WITHOUT AFFECTING THE PRINCIPLE OF MUTUALITY. HENCE, THE EX EMPTION CLAIMED ON THE INCOME BY WAY OF TRANSFER FEE, HELD TO BE ALLOW ABLE TO THE ASSESSEE. ACCORDINGLY, THE ADDITIONS OF RS.16,35,69 0/- FOR A.Y. 2007-08 AND RS.9,25,475/- FOR A.Y. 2008-09, ARE HEL D TO BE UNSUSTAINABLE. THIS GROUND OF APPEAL FOR BOTH THE Y EARS, TREATED AS ALLOWED. 3. SINCE THE CIT(A) HAS FOLLOWED THE HONBLE BOMBAY HIGH COURTS ORDER AND CO-ORDINATE BENCH IS ALSO FOLLOWING THE SAME PRINCIPLE IN VARIOUS CASES, WE DO NOT SEE ANY REASON TO INTERFE RE WITH THE ORDER OF CIT(A). ACCORDINGLY, THE GROUNDS RAISED BY REVENUE ON THIS ISSUE ARE REJECTED AND BOTH THE APPEALS OF REVENUE IN ITA NOS . 80 & 81/HYD/2015 ARE ACCORDINGLY DISMISSED. 4. THE AO WHILE COMPLETING THE ASSESSMENT HAS ALSO NOTICED THAT THE APPELLANT-SOCIETY HAS EARNED INTEREST FROM DEPOSITS MADE WITH THE BANKS AND INTEREST ON BANK BALANCES AS EXEMPTION FROM TAX ON THE PRINCIPLES OF MUTUALITY. SUCH AMOUNTS WERE QUANTIFIED AT RS. 19,02,097/- FOR AY. 2007-08 AND RS. 19,85,909/- FOR AY. 2008-09. AO REL YING ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F SECUNDERABAD CLUB [340 ITR 121] DID NOT ALLOW ASSESSEES CLAIM. ASSE SSEE TRIED TO DISTINGUISH THE STATUS AND ACTIVITIES OF THE SAID C LUB FROM THAT OF A HOUSING SOCIETY AND ARGUED THAT THE DECISION OF SEC UNDERABAD CLUB [340 ITR 121] (SUPRA) DOES NOT APPLY TO ASSESSEES FACTS . LD. CIT(A) HOWEVER, BASED ON THE DECISION OF JURISDICTIONAL HIGH COURT HELD THAT INTEREST AMOUNT RECEIVED FROM THE BANKS ON SURPLUS FUNDS DOE S NOT COME INTO THE PURVIEW OF PRINCIPLES OF MUTUALITY AND THEREF ORE, THE ADDITION MADE I.T.A. NOS. 1956 & 1957/HYD/2014 80 & 81/HYD/2015 THE ARMED FORCES OFFICERS CO-OP. HOUSING SOCIETY LTD :- 5 -: BY AO WAS UPHELD. ASSESSEE IS AGGRIEVED AND RAISED AS MANY AS 10 GROUNDS ON THE ISSUE. THE GROUNDS ARE MORE OR LESS IN THE FORM OF WRITTEN SUBMISSIONS ON THE ISSUE AND THE ONLY ISSUE BEING AGITATED IS WHETHER INTEREST RECEIVED FROM BANK DEPOSITS/BALANC ES IS COVERED BY PRINCIPLES OF MUTUALITY OR NOT? 5. AFTER CONSIDERING THE RIVAL CONTENTIONS AND DETA ILED SUBMISSIONS MADE BY THE LD. COUNSEL ON THE ISSUE, WE ARE OF THE OPINION THAT THE ORDER OF CIT(A) IS TO BE UPHELD. HIS DETAILED ORDE R IN PARA 6.3 IS AS UNDER: 6.3 PERUSED THE SUBMISSIONS OF APPELLANT, AND THE OBSERVATIONS OF THE ASSESSING OFFICER. AS COULD BE NOTICED FROM THE FACTS OF THE CASE, THE APPELLANT SOCIETY HAS EARNED INTEREST FROM THE DEPOSITS MADE WITH BANKS AND INTEREST ON BALANCES W ITH THE CREDIT BALANCES IN THE SAVINGS BANK ACCOUNT AND CLAIMED EX EMPTION FROM TAX, ON THE PRINCIPLE OF MUTUALITY. SUCH AMOUNTS AR E QUANTIFIED AT RS. 19,02,097/- FOR A.Y. 2007-08 AND RS.19,85,909/- FOR A.Y. 2008- 09. HOWEVER, THE ASSESSING OFFICER RELIED ON THE D ECISION OF A.P. HIGH COURT IN THE CASE OF SECUNDERABAD CLUB, (340 I TR 121) (2012) AND NEGATED THE CLAIM OF THE ASSESSEE, WHEREAS THE APPELLANT TRIED TO DISTINGUISH THE STATUS AND ACTIVITIES OF CLUB FR OM THAT OF A HOUSING SOCIETY AND ARGUED ON THE NON-APPLICATION OF THE SA ID DECISION ON THE FACTS OF THE CASE, AND INSTEAD RELIED ON THE DE CISIONS OF DELHI HIGH COURT IN THE CASE OF TELANGANA CO-OP GROUP HOU SING SOCIETY 37 ITCL 119 (2011) AND DIT(E) VS. ALL INDIA ORIENTA L BANK OF COMMERCE WELFARE SOCIETY 184 CTR 274 (2013). IN THI S REGARD, IT IS RELEVANT TO REFER TO THE FACT THAT ON THE SAID ISSU E OF PRINCIPLE OF MUTUALITY IN THE CASE OF CIT VS. SECUNDERABAD CLUB, THE HON'BLE HIGH COURT OF ANDHRA PRADESH DISTINGUISHED THE DECI SIONS OF DELHI HIGH COURT IN THE CASE OF DELHI GYMKHANA CLUB (339 ITR 525) AND CONCURRED WITH THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF BANGALORE CLUB (257 ITR 263) AND THE DECISION OF KA RNATAKA HIGH COURT HELD TO BE FINAL WITH THE SLP FILED BY BANGAL ORE CLUB ON SIMILAR ISSUE REJECTED BY SUPREME COURT. ESSENCE O F THE DECISION OF HON'BLE HIGH COURT OF ANDHRA PRADESH, ON THE ISSUE, IN THE CASE OF SECUNDERABAD CLUB RUNS AS UNDER:- '34. READING THE ABOVE OBSERVATIONS, IT IS NOT POSS IBLE TO ACCEPT THE CONTENTION OF THE COUNSEL FOR THE ASSESSEE THAT INTEREST EARNED EVEN I.T.A. NOS. 1956 & 1957/HYD/2014 80 & 81/HYD/2015 THE ARMED FORCES OFFICERS CO-OP. HOUSING SOCIETY LTD :- 6 -: FROM THIRD PARTIES WOULD BE EXEMPT FROM THE CHARGE OF INCOME-TAX, IN ALL TYPES OF TRANSACTIONS. THE RATIO THEREIN IS THAT, I F AN INCORPORATED ENTITY IS ENGAGED IN TRADE, THE PROFIT FROM IT, EVEN IF THEY ARE TRANSACTIONS WITH MEMBERS, WOULD BE TAXABLE AND THE PRINCIPLE OF MUTU ALITY WOULD HAVE NO APPLICATION. 35. THE DECISION OF THIS COURT WAS LONG PRIOR TO BA NKIPUR CLUB LTD. (1997 ) 226 ITR 97 (SC) AND CHELMSFORD CLUB (2000) 243 ITR 89 (SC), AND NO REFERENCE WAS MADE THEREIN TO ROYAL WESTERN INDI A TURF CLUB. (1953) 24 ITR 551 (SC). AS WE HAVE CONSIDERED THESE CASES IN THE LIGHT OF THE LAW LAID DOWN BY THE SUPREME COURT IN THESE THREE JUDGM ENTS, WE DO NOT FEEL COMPELLED TO APPLY THE RATIO IN NATRAJ FINANCE CORP ORATION (1988) 169 ITR 732 (AP). WE, HOWEVER, HASTEN TO ADD THAT, IF AN AS SOCIATION OF PERSON RECEIVES CONTRIBUTION FROM ITS OWN MEMBERS AND EARN S INTEREST INCOME BY LENDING THE MONEY TO THEM FROM OUT OF THE CONTRIBUT ION, THE PRINCIPLE OF MUTUALITY MAY APPLY RENDERING SUCH INCOME NON-TAXAB LE. AS UNREGISTERED ASSOCIATION, LIKE THE SECUNDERABAD CLUB, PARKING TH EIR SURPLUS FUNDS WITH CORPORATE MEMBER BANKS TO EARN INTEREST IS ALTOGETH ER DIFFERENT FROM AN ASSOCIATION OF PERSONS LENDING MONEY ONLY TO ITS ME MBERS. FURTHER, AS HELD BY THE SUPREME COURT IN BANKIPUR CLUB LTD. (19 97) 226 ITR 97 (SC), 'A HOST OF FACTORS NEED TO BE CONSIDERED TO ARRIVE AT A CONCLUSION AS TO AT WHAT POINT DOES THE RELATIONSHIP OF MUTUALITY END, AND THAT OF TRADING BEGIN'. FURTHERMORE, THE NATURE OF THE TRANSACTION BETWEEN THE ASSESSEE AND THE BANK/BANKS WOULD DISQUALIFY APPLICATION OF THE PRINCIPLE OF MUTUALITY. WE ARE, THEREFORE, OF THE CONSIDERED OPI NION THAT THE IMPUGNED ORDERS OF THE INCOME TAX APPELLATE TRIBUNA L ARE LIABLE TO BE SET ASIDE. ' BASED ON THE RATIO OF THE DECISION OF HON'BLE HIGH COURT IN THE CASE OF SECUNDERABAD CLUB (SUPRA), AND APPLYING THE SAME TO THE FACTS OF THE CASE, I AM OF THE OPINION THAT THE DEC ISION OF HON'BLE HIGH COURT (SUPRA) IS ,SQUARELY APPLICABLE TO THE F ACTS OF THE CASE, AND THE INTEREST EARNED BY THE SOCIETY, FROM THE BA NKS, WOULD NOT BE ELIGIBLE FOR EXEMPTION FROM INCOME TAX. ACCORDINGLY , THE ADDITIONS OF RS.19,02,097/- AND RS.19,85,909/- MADE FOR A.YS. 20 07-08 AND 2008-09, RESPECTIVELY, ARE UPHELD. THUS, THIS GROUN D OF APPEAL FOR BOTH THE YEAR, TREATED AS DISMISSED. 6. SINCE JURISDICTIONAL HIGH COURT HAS CLEARLY HELD THAT INTEREST RECEIVED FROM THIRD PARTIES CANNOT BE EXEMPTED UNDE R THE PRINCIPLES OF MUTUALITY, WE REJECT ASSESSEES CONTENTIONS, AS TH E INTEREST EARNED IS NOT FROM THE MEMBERS BUT FROM THE THIRD PERSON I.E., BA NK IN WHICH I.T.A. NOS. 1956 & 1957/HYD/2014 80 & 81/HYD/2015 THE ARMED FORCES OFFICERS CO-OP. HOUSING SOCIETY LTD :- 7 -: ASSESSEES SURPLUS FUNDS ARE PLACED. SINCE THE INC OME RECEIVED IS FROM THIRD PARTY, WE ARE OF THE OPINION THAT PRINCIPLES OF MUTUALITY DOES NOT APPLY TO THE PRESENT FACTS. THERE IS NO MERIT IN A SSESSEES GROUNDS. ACCORDINGLY, THEY ARE REJECTED. CONSEQUENTLY, ASSE SSEES APPEALS ARE DISMISSED. 7. IN THE RESULT, BOTH APPEALS OF ASSESSEE AND REVE NUE IN RESPECTIVE YEARS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2015 SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED 26 TH AUGUST, 2015 TNMM COPY TO : 1. THE INCOME TAX OFFICER, WARD-15(1), ROOM NO. 1 24, 1 ST FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-10(3), HYDERABAD. 3. THE ARMED FORCES OFFICERS CO-OPERATIVE HOUSING S OCIETY LTD., SAINIKPURI, SECUNDERABAD. 4. CIT(APPEALS)-VI, HYDERABAD. 5. CIT-V, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.