Income Tax Appellate Tribunal - Mumbai
New India Co-Op Hsg. Soc. Ltd, Mumbai vs Department Of Income Tax on 28 October, 2001
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'G' MUMBAI
BEFORE SHRI J. SUDHAKKAR REDDY (AM) AND
SMT ASHA VIJAYARAGHAVAN (JM)
ITA Nos. 5846, 5847 & 5848/Mum/2009
(Assessment Years-2001-02, 2002-03 & 2005-06)
The ACIT, Cir. 21(1), M/s. New India Co.Op.
Pratyakshakar Bhavan, Hsg. Soc. Ltd.,
Bandra Kurla Complex, Sanjeev N.S. Road,
Bandra (E), Vs. JVPD Scheme,
Mumbai-400 051 Mumbai-400 049
PAN-AAABN 0003 E
(Appellant) (Respondent)
C.O. Nos. 123, 124 & 125/Mum/2010
(Arising out of ITA Nos. 5846, 5847 & 5848/Mum/2009
(Assessment Years-2001-02, 2002-03 & 2005-06)
The ACIT, Cir. 21(1),
M/s. New India Co.Op. Hsg. Soc. Pratyakshakar Bhavan,
Ltd., Bandra Kurla Complex,
Sanjeev N.S. Road, Vs. Bandra (E),
JVPD Scheme, Mumbai-400 051
Mumbai-400 049
PAN-AAABN 0003 E
(Cross Objector ) (Respondent)
Assessee by: Shri Prakash Jhunjunwala
Mrs. Ashima Gupta
Department by: Shri Rajkumar Jahu
ORDER
PER SMT. ASHA VIJAYARAGHAVAN (JM) The appeals are filed by the Revenue and the cross objections are filed by the assessee are directed against the orders of the Ld.CIT(A), Mumbai for the A.Yrs 2001-02, 2002-03 and 2005-06. As these appeals and cross objections were heard together and relate to connected issues, 2 Ne w India Co. Op. Hsg. Soc.
for the sake of convenience, all these appeals and the cross objections are being disposed off by this common order.
2. Before the Ld. CIT(A) the assessee had objected to the following additions on account of transfer fees made by the AO.
"In ground No. 2 & 3 the appellant has objected to the following additions on a/c of transfer fees.
A.Y. 2001-02 - Rs.90,00,000/-
A.Y. 2002-03 - Rs.1,50,00,000/-
A.Y. 2005-06 - Rs.2,50,00,000/-
Vide both the grounds the appellant has agitated the issue of society receiving transfer fees being taxable income. The appellant has claimed that the A.O. has ignored the principle of mutuality in doing so.
. The A.O. has stated that the transfer fee is nothing but the premium collected on transfer of shares and interest in the capital property of the society. The claim of the appellant that such consideration is covered by the principle of mutuality was not agreed upon by the A.O. for the following reasons:
i. The contributors as a class of members are not participators in the surplus.
ii. The premum is collected from transferers who are not members at the time of making payment of premium.
iii. The motive of profiteering is paramount as is evident from the fact that the assessee collected transfer premium at much higher rate (by more than 4 times) than the maximum permissible limit of Rs.25,000/- under its bye-laws.
iv. The premium collected is a part of the profit accrued on the sale of flats by the transferor members.
The payment of premium is not voluntary it is a recurring revenue receipt liable to tax in the hands of the assessee society.
3 Ne w India Co. Op. Hsg. Soc.
For the same reason the A.O. also held that income from other sources' is also not covered by mutuality and is taxable income of the appellant.
3. Before the Ld. CIT(A) the AR relied on the decision in the case of Sind Co-op Hsg. Society Vs. ITO, Pune and Others in which the Hon'ble Court have held that the transfer fee charged both from the transferor and transferee are covered by the principle of mutuality.
4. The Ld. CIT(A) held as follows:
"I have carefully considered the issue. The Hon'ble High Court, Mumbai in ITA No.931 of 2004 in the case of Sind Co-op Hsg. Society Vs. ITO Ward 1(7), Pune have held that he basic test for applying the principle of mutuality is whether any commerciality is involved in the transaction and whether from the monies recived the services are being offered in the nature of profit sharing or privileges, advantages and conveniences. Further tests are whether the participants and the contributors are identifiable and belong to the same class and, whether the members have the right to share in the surplus and a right to deal with its surpluses. Once these tests are satisfied the Court have held that the principle of mutuality applies to a Co-operative Housing Society which has its predominant activity, the maintenance of property of the society including its building as long as there is no taint of commerciality, trade or business. Thus, it is seen that in the latest judgement by the jurisdictional High Court, they have dealt with the issues decided by all previous judgements on the subject, and the matter has been settled in favour of the Housing Societies with regard to principle of mutuality. There is nothing in the case to suggest that the receipt of transfer fee by the appellant society had any trace of commerciality, trade or business. Therefore, respectfully following the ratio of the judgemet in the case cited supra, the A.O. is directed to delete the addition of Rs.90,00,000, Rs.1,50,00,000/- and Rs.2,50,00,000/- for A.Ys. 2001-02, 2002-03 and 2005-06 respectively made in respect of transfer fees. This ground of appeal is, accordingly, allowed."
5. For the A.Y. 2001-02, the appellant has objected to the disallowance of various expenses claimed in audited P & L A/c. of Rs.3,64,524/-.
6. For A.Y. 2002-03, the appellant has objected to the disallowance of expenses claimed in audited P & L A/c. of Rs.9,06,976/-, expenses of 4 Ne w India Co. Op. Hsg. Soc.
Rs.8,48,364/- during diwali celebration and repairs and maintenance expenses of Rs.28,00,000/-.
7. For A.Y. 2005-06, the appellant has objected to the disallowance of expenses claimed in audited P & L A/c. of Rs.24,59,440/-, expenses of Rs.21,26,250/- during diwali celebration and donation paid of Rs.20,05,000/-.
8. The Assessing Officer held that the expenses claimed by the assessee are not allowable. The order of the AO has been reproduced at para -14 of the CIT(A)'s order.
9. The Ld. CIT(A) held as follows:
"The question of allowability or otherwise of expenses would arise only if the appellant has a taxable income. Once the entire transfer fee has been held to be non-taxable being governed under the principle of mutuality, the appellant has no other income in respect of which expenditure is required to be set off. Therefore, the issue of allowability of expenditure is irrelevant. Accordingly, these grounds are considered as allowed for statistical purpose."
10. Aggrieved, Revenue is in appeal before us.
11. The Ld. Departmental Representative filed written submission dated 28.10.2001. The revenue contented that assessee had collected transfer fees in excess of Rs.25,000/-; whereas notification dated 09/08/2001 issued under Maharashtra Co-operative Society Act prescribed the maximum ceiling of transfer fees of Rs.25,000/-.
12. The assessee replied as follows:
Firstly, the notification dated 09/08/2001 issued under Maharashtra Co-operative Society Act does not apply in impugned case as assessee is a plot holder society whereas the notification is applicable only in respect of flat owner Society. A copy of notification is filed on record;
Secondly, the assessee society collected the transfer fees in accordance with Rule6A of Form B of its adopted Bye-laws (Please 5 Ne w India Co. Op. Hsg. Soc.
refer Pg.64 of the paper book). The Registrar of Co-operative Hsg. Soceity had approved such bye-laws. The Registrar had even approved the amendment in transfer fees proposed by the society on 09/06/2004. (Please refer Page 5 of the paper book)/ The amended clause is incorporated in amended bye-laws (Please refer page 38 of the paper book). The approval order dated 26/06/2004 issued by the registrar of co-operative society is reproduced as under. "On every permitted disposition of or dealing with any plot with or without any construction encumbrances thereon by virtue of these regulations the member shall pay to the society an amount equivalent to 10% of the market value of the plot as if it was vacant. Notwithstanding anything stated hereinabove, no amount is payable to the society should the plot and/or building or any part thereof devolve on a direct descendant or legal heir of the member."
13. The representative of Revenue has further contended by written submissions that the transfer fees received by the assessee society is not a Voluntary contribution.
14. The assessee countered objection by submitting that Voluntary contribution had been decided in the case of M/s. Sind Co-op. Hsg. Society vs. ITO (317 ITR 47 (Bom)) wherein Hon'ble High court held "that whether the fee was voluntary or not would make no difference to the principle of mutuality. Payments were made under the bye-laws of the assessee which constituted a contract between the assessee and its members which was voluntarily entered into and voluntarily conducted as a matter of convenience and discipline for running of the assessee- society."
Similar view is taken in the case of Mittal Court premises Co-op. Ltd. vs. ITO (184 Taxman 292 (Bom).
15. The representative of Revenue further contended that the transfer fees had been received from the incoming member, therefore, the principle of mutuality will not apply.
16. The assessee replied to the argument as follows:
"The fees received by the Society from the transferor or from the transferee will not make a difference as had been decided in the case of M/s. Sind Co-op. Hsg. Society wherein it is held that "Both 6 Ne w India Co. Op. Hsg. Soc.
the incoming or the outgoing member had to contribute to the common fund of the assessee. The amount paid was to be exclusively used for the benefit of the members as a class. The amount could only be appropriated on the transferee being admitted as a member. If the transferee was not admitted as a member, the amount received would have to be refunded, as the amount was payable only on a transfer of rights of the transferor in the transferee."
17. Finally the representative of Revenue objected that the amount collected is not spent entirely towards mutual benefit of all members. The assessee in reply stated as follows:
"The facts are that the assessee distributed Rs.10 lacs to certain members towards compensation of loss incurred due to devastating flood which occurred on 26/07/2005. The society compensated loss to resident members whose premises were damaged to carry essential external repairs of the premises. The society did not pay any amount to vacant plot owners as not loss was incurred by them on account of the flood. Further, such sum was distributed after passing a valide resolution at the general body meeting of the Society. The distribution of certain gifts being Gold coins, gold bars, bonds are the gratuitous gifts distributed every annually during annual function to various members who maintained discipline and abided laws of the Society. The distribution of small gifts to encourage members to maintain discipline will not adversely affect the mutuality.
The allegations made by 1-2 members of the Society were disputed by Soceity's office bearers and Hon'ble Divisional Registrar of Co- operative Society vide order dated 02/01/2008 (cop of order filed on record) discharged the office bearers and Society against all alleged charges.
Therefore it was prayed by the Ld. Counsel for the assessee that the authorities governing Co-operative Society laws found that there is no irregularities committed by the Society and its office bearers, thus the benefit of mutuality may kindly be allowed to the assessee society."
18. We heard both the parties. The grounds of appeal raised by Revenue for 2001-02 are as follows:
7 Ne w India Co. Op. Hsg. Soc.
1. (i) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting an addition of Rs.90 lacs on account of transfer fees received from Mrs. Heena Patel.
(ii) The Ld. CIT(A) failed to consider the fact that contribution received by assesseee Society from its member Smt. Heena Patel is taxable since Principle of Mutuality should not be applicable on the following grounds.
(a) It is not a voluntary contribution from the member but from a person who wants to become a member (i.e. transferee).
(b) The amount so collected has been distributed only among selected few members by way of distribution of gold coin, gold bars & ICICI Bank Bonds of Rs.50,000/- each and has not been shared by all members.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the various expenses claimed in P & L account of Rs.3,64,524/-.
3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer restored.
4. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary."
19. We find that the matter is no more res integra by the decision in the case of Sind Co. Op. Hsg. Soc. Vs ITO 317 ITR 47 and in the case of Mittal Court Premises Co. Op. Soc. Ltd. Vs ITO 320 ITR 414 (Mum), we confirm the view taken by the Ld. CIT(A) and therefore the Revenue's appeal in ground No. (i) & (ii) (a) is dismissed.
20. In ground No. (i)(b), the Revenue has objected on the ground that the amount collected from the transferees have been distributed only among selected new members by way of distribution of gold coin, gold bars & ICICI bank Bonds of Rs. 50,000/- and not shared by all members.
21. Before us the Ld. Counsel for the assessee produced the copy of the order dt. 2.1.2008 by the Divisional Registrar of the Co. Op. Soc, byt which the office bearers and the society were discharged against all alleged charges being that assessee distributed Rs. 10,00,000/- to certain members and not all members towards compensation of loss incurred due to devastating flood occurred on 26.7.2005.
8 Ne w India Co. Op. Hsg. Soc.
22. Since the authorities governing Co. Op. Soc. Laws found that there are no irregularities either by the society or the office bearers. We are of the opinion that the benefit of mutuality is allowed to the society. This ground of the Revenue is dismissed.
23. For the A.Y. 2002-03 Ground No. 2 & 3 reads as follows:
"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) without any justification erred in disallowing various expenses claimed in P&L account of Rs. 9,06,976/-.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) without any justification erred in disallowing of repairs & maintenance expenses of Rs. 28,00,000/-."
24. For the A.Y. 2005-06, the ground Nos. 2(i), 2(ii) and 2(iii) raised by the Revenue read as follows:
"2(i) On the facts and circumstances of the case and in law, the Ld.CIT(A) without any justification erred in disallowing various expenses claimed in P & L account of rs.24,59,440/-
(ii) On the facts and in the circumstances of the case and in law, the Ld(CIT) without any justification erred in disallowing expenses incurred of Rs.21,26,250/- during Diwali Celebrations.
(iii) On the facts and in the circumstances of the case and in law, the Ld(CIT) without any justification erred in disallowing of donation paid of Rs.20,05,000/-
25. As rightly held by the Ld. CIT(A) in all the assessment years before us the Revenue has raised the grounds regarding allowability of expenses claimed in the P & L account once the entire transfer fees has been held to be non taxable under the principle of mutuality, the assessee has no other income in respect of which expenditure is required to be set off. Hence the issue of allowability of expense is not relevant and therefore the grounds raised by the Revenue are dismissed. We fail to understand how the revenue is aggrieved with the decision of the Ld. CIT(A) not to allow the claim of the assessee for expenditure.
9 Ne w India Co. Op. Hsg. Soc.
26. The Cross objection No. 123, 124 & 125/M/2010 has not pressed by the assessee, therefore it is dismissed as not pressed.
Order pronounced on this 31st day of January, 2011.
Sd/- Sd/-
(J.SUDHAKAR REDDY) (ASHA VIJAYARAGHAVAN)
Accountant Member Judicial Member
Mumbai, Dated 31st January, 2011
Rj
Copy to:
1. The Appellant
2. The Respondent
3. The CIT-concerned
4. The CIT(A)-Central - I concerned
5. The DR 'G ' Bench
True Copy
By Order
Asst. Registrar, I.T.A.T, Mumbai
10 Ne w India Co. Op. Hsg. Soc.
Date Initials
1 Draft dictated on: 1.9..2010 Sr. PS/PS
2. Draft placed before author: 1.9.2010 ______ Sr. PS/PS
3. Draft proposed & placed before _________ ______ JM/AM
the second member:
4. Draft discussed/approved by _________ ______ JM/AM
Second Member:
5. Approved Draft comes to the Sr. _________ ______ Sr. PS/PS
PS/PS:
6. Kept for pronouncement on: _________ ______ Sr. PS/PS
7. File sent to the Bench Clerk: _________ ______ Sr. PS/PS
8. Date on which file goes to the _________ ______
Head Clerk:
9. Date on which file goes to AR _________ ______
10. Date of dispatch of Order: