Income Tax Appellate Tribunal - Mumbai
Ito 21(3)(1), Mumbai vs Raheja Altantis Cooperative Housing ... on 21 March, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "D", MUMBAI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND
SHRI GAGAN GOYAL, ACCOUNTANT MEMBER
ITA No. 1975/Mum/2019 (A.Y.2014-15)
ITO-21 (3) (1),
Room No.207, 2nd Floor,
Piramal Chambers, Lalbaug,
Mumbai- 400 012 ...... Appellant
Vs.
Raheja Altantis Cooperative Housing Society Ltd.
Ganpat Rao Kadam Marg,
Lower Parel,
Mumbai-400 013
PAN:AABAR1504J ..... Respondent
Appellant by : Shri Rajesh Shah
Respondent by : Smt. Mahita Nair, Sr. AR, CIT
Date of hearing : 18/01/2023
Date of pronouncement : 21/03/2023
ORDER
PER GAGAN GOYAL, A.M:
This appeal by assessee is directed against the order ofLd. Commissioner of Income Tax Appeals-33, Mumbai (for short "Ld. CIT (A)") dated 2 ITA NO. 1975/MUM/2019 RAHEJA ALTANTIS COOPERATIVE HOUSING SOCIETY LTD.
09.01.2019 u/s. 143(3) of the Income Tax Act, 1961 (for short 'the Act') for A.Y. 2014-15. The Revenue has raised the following grounds of appeal:
"1."Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in allowing the deduction u/s. 80P(2)(d) of the Income Tax Act 1961 amounting to Rs.74,45,552/- for without appreciating the action of the AO in this regard?"
2 "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that since the assessee fulfils the conditions laid down u/s. 56(c)(ccv) of the Part V of Banking Regulation Act, 1949, it is to be considered as a co-operative bank and therefore under the purview of a co-operative bank the assessee is not eligible for deduction us 80P(2)(d) of the Income Tax Act. 1961?"
3 "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) IS justified in allowing the deduction u/s. 80P(2)(d) of the Income Tax Act, 1961 as per the ground of appeal of the assessee, without appreciating the fact that in the instant assessment year, the assessee has failed to substantiate the source of bank from which it has earned interest income Further in assessee's own case, it is noticed that assessee earned interest from Cooperative Banks".
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in allowing exemption claimed by the assessee of Rs.89,50,000/- received towards major repair funds, on the ground of principle of mutuality as per the ground of appeal of the assessee, without appreciating the fact that in the instant case the identity between contributors ad participators did not exist as a contributor went out after executing transfer and in his place a new person came and therefore, amount of transfer fee received by the assessee was eligible to tax."
5. "The appellant prays that the order of the Ld.CIT (A) on the above grounds be set-aside and that of the Assessing Officer be restored."
6. "The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary."
2. Brief facts of the case are that the assessee is a cooperating housing society deriving income from interest from saving bank account and interest 3 ITA NO. 1975/MUM/2019 RAHEJA ALTANTIS COOPERATIVE HOUSING SOCIETY LTD.
on fix deposit and income from house property as rent from Airtel Rs. 1,54,000/-. During the year, assessee has declared gross total income of Rs. 75, 99,552/- and has claimed deduction u/s. 80P (2) (d) of the Act of Rs. 74, 45,552/- being interest received from cooperative banks. Return of income was filed on 19.09.2014. Case of the assessee was selected for scrutiny and an addition of Rs. 1,63,95,552/- was made on account of interest income of Rs. 74,45,552/- earned and claimed exempt u/s. 80P (2) (d) of the Act and Rs. 89,50,000/- received towards major repair funds and claimed exempt only ground of mutuality.
3. Assessee being aggrieved with this order of AO preferred an appeal before the Ld. CIT (A). In his order, Ld. CIT (A) allowed the appeal of the assessee and both the additions were deleted. Now, Department being aggrieved with this order of Ld. CIT (A) preferred this appeal before us. We have carefully gone through the order of AO, order of Ld. CIT (A) and submissions of the assessee.
4. We observed that AO has relied on the decision of Totagar Cooperative Sales Society Ltd. vs. ITO, (2010) 322 ITR 283 (SC). Wherein, the Hon'ble Apex Court had dealt with section 80P (2) (a) (i) of the Act and not in the context of claim u/s. 80P (2) (d) of the Act. Time and again it's a consistent view of ITAT that cooperative bank is also a type of cooperative society under the Cooperative Societies Act, 1912 or under any other law for the time being in force in any state for the registration of cooperative societies. Secondly, the decision of Hon'ble Apex Court in the case of Totagar was rendered with reference to business income vs. Income from other sources for the purposes of claiming deduction u/s. 80P (2)(a) (i) vis-a-vis section 80P (2) (d).
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5. Further it is also observed that the objections raised by the Revenue on the case are not acceptable and tenable in purview of judgments of various authorities wherein it has been held that interest received from the Co-op. banks by the Coop. Credit Societies partakes the character of the "interest received from a Credit Co-op. Society" and the Courts have allowed the deduction of 80P (2) (d). Similar view has also be taken by the Hon'ble ITAT Mumbai 'SMC' Bench in the case of Kaliandas Udyog Bhavan Premises Co-op. Society Ltd. Vs. Income Tax Officer- 21(2)(1), Mumbai (2018) 94 taxmann.com 15 (Mumbai-Trib.). The decision of Hon'ble Supreme Court in the case of Totgar's Co-op, Sales Society Ltd. Vs. ITO (210) 322 ITR 283 (SC) relied/quoted by the Revenue is having distinguishable facts, thus, it has been wrongly been relied upon. The adjudication by the Hon'ble Apex Court in the aforesaid case was in the context of section 80P (2) (a) (i) and not on the entitlement of a co-operative societies towards deduction u/s. 80(P) (2)
(d) of the Act. Further in the judgment of State Bank of India vs. CIT (2016) 309 ITR 578 (Guj.), it has been held that the interest income earned by co- operative society on its investment with co-op., banks would be eligible for claim of deduction u/s. 80P (2) (d) of the Act. In a recent judgment in the case of Rena Sahakari Sakhar Karkhana Ltd. vs. Pr. Commissioner of Income Tax-2, Aurangabad being ITA No. the Hon'ble ITAT Pune vide its order pronounced on 07.01.2022 has decided the identical issue in the favour of the assessee and against the Department. In that case, the Ld. PCIT-2, Aurangabad vide order dated 27.03.2018 u/s. 263 set aside the order of AO dated 07.03.2016 wherein the AO had allowed the interest income amounting to Rs. 75,38,534/- received from FDs with Co-operative Banks which was claimed by the assessee as deduction u/s. 80P(2)(d) of the Act. The Hon'ble Tribunal relying on the judgment of Hon'ble High Court of Gujarat in the case of State Bank of India Vs. CIT (2016) 389 ITR 578 (Guj.) wherein the Hon'ble High Court observed that the interest income earned by a co- operative society on its investment held with a co-operative bank would be eligible for claim of deduction u/s. 80P (2) (d). Therefore, 5 ITA NO. 1975/MUM/2019 RAHEJA ALTANTIS COOPERATIVE HOUSING SOCIETY LTD.
considering the aforesaid judicial pronouncements, the objection raised by the Revenue is not acceptable.
6. The words 'Co-operative Banks' are missing in clause (d) of sub section (2) of section 80P. Even though a co-operative bank may have the corporate body or skeleton of a co-op society, but its business is entirely different and that is the banking business, which is governed by the provisions of the Banking Regulations Act, 1949. The Co-operative Housing Society with their limited work of providing facilities to its members continued to be governed by the ambit and scope of deduction u/s. 80P of the Act. The banking business, even though run by co-op Bank is excluded from the beneficial provisions of exemptions or deduction u/s. 80P of the Act, by way of sub section 4 in section 80P.
7. In view of the above factual and legal discussion, we do not see any reason to disturb the findings of Ld. CIT (A) and in the result Ground Nos. 1, 2 and 3 raised by the Revenue is dismissed.
8. Ground no. 4 pertains to the issue of mutuality. During the year under consideration, the assessee has received Rs. 89.5 lacs towards major repair funds from the members which assessee claimed as exempt on the ground of mutuality, but AO made an addition treating the same as income from other sources. To substantiate his decision, AO relied upon the decision of Hon'ble High Court Bombay in the case CIT vs. Bombay Oilseeds and Oil exchanged Ltd, (1993) 202 ITR 198 and ITAT Mumbai in the case of Hatkesh Cooperative Housing Society vs. ITO, (1997) 60 ITD 662 (Mumbai). According to the AO, as per the orders issued by the Government of Maharashtra, Department of Cooperation specifying new premium rates to be paid while transferring flats in cooperative housing societies cannot exceed Rs.25,000/-. According to the AO, the society charged more than but was prescribed under the law which 6 ITA NO. 1975/MUM/2019 RAHEJA ALTANTIS COOPERATIVE HOUSING SOCIETY LTD.
has to be offered for tax. The AO has relied on the decisions in the case of CIT Vs Bombay Oilseed & Oil Exchange Ltd., (1993) 202 ITR 198/71 Taxman 351 wherein the cardinal requirement is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participator in the surplus must be contributors to the common fund In the present case the contributor is the outgoing member who is not there to enjoy the benefits of the society At the time when the transfer fee is paid by the outgoing member i.e. the transferor ceases to be a member of the society and his identity is not the same as that of the participator i.e. replacement to the outgoing member. The principle of mutuality is not satisfied. The AO has relied on the decision of the Hon'ble ITAT in the case of Hatkesh Co-operative Housing Society Vs ITO(1997)50 ITD 662(Mumbai) wherein it is held that transfer fees received by a co-operative society by an outgoing member are taxable receipts and the concept of mutually does not apply. In view of the above since the principle of mutuality was not satisfied, contribution of Rs 89.50,000/ received towards major repair funds is treated as Income from 'Other Sources" and added to the income of the assessee by the AO.
9. We have considered the version of AO along with the submissions of the assessee and order of the Ld. CIT (A) on this issue. The assessee was collecting transfer fee 50% from incoming members and 50% from the outgoing members. In our considered view identity between contributors and participators did not exist as both are contributing as a member. We have gone through the case laws relied upon by the assessee and found to be relevant on the facts of the present appeal as under:
[2018] 91 taxmann.com 137 (SC.) ITO, Mumbai v. Venkatesh Premises Co- operative Society Ltd.
"The doctrine of mutuality, based on common law principles, is premised on the theory that a person cannot make a profit from himself. An amount received from oneself, therefore, cannot be regarded as income and taxable. Section 2(24) defines taxable 7 ITA NO. 1975/MUM/2019 RAHEJA ALTANTIS COOPERATIVE HOUSING SOCIETY LTD.
income. The income of a cooperative society from business is taxable under section 2(24)
(vii) and will stand excluded from the principle of mutuality. The essence of the principle of mutuality lies in the commonality of the contributors and the participants who are also the beneficiaries. The contributors to the common fund must be entitled to participate in the surplus and the participants in the surplus are contributors to the common fund. The law envisages a complete identity between the contributors and the participants in this sense.
The principle postulates that what is returned is contributed by a member. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities. A common feature of mutual organizations in general can be stated to be that the participants usually do not have property rights to their share in the common fund, nor can they sell their share. Cessation from membership would result in the loss of right to participate without receiving a financial benefit from the cessation of the membership. [Para 14] The proceedings in the instant appeal relate to different assessment years based on information gathered by the Assessing Officer pursuant to notice under section 133(6) of the Act. Transfer charges are payable by the outgoing member. If for convenience, part of it is paid by the transferee, it would not partakes the nature of profit or commerciality as the amount is appropriated only after the transferee is inducted as a member. In the event of non-admission, the amount is returned. The moment the transferee is inducted as a member the principles of mutuality apply. Likewise, non-occupancy charges are levied by the society and is payable by a member who does not himself occupying the premises but lets it out to a third person. The charges are again utilised only for the common benefit of facilities and amenities to the members.
Contribution to the common amenity fund taken from a member disposing property is similarly utilised for meeting sudden and regular heavy repairs to ensure continuous and proper hazard free maintenance of the properties of the society which ultimately ensures to the enjoyment, benefit and safety of the members. These charges are levied on the basis of resolutions passed by the society and in consonance with its bye-laws. The receipts in the present case have indisputably been used for mutual benefit towards maintenance of the premises, repairs, infrastructure and provision of common amenities. [Para 19] Any difference in the contributions payable by old members and fresh inductees cannot fall foul of the law as sufficient classification exists. Membership forming a class, the identity of the individual member not being relevant, induction into membership automatically attracts the doctrine of mutuality. If a society has surplus FSI available, it is entitled to utilise the same by making fresh construction in accordance with law. Naturally such additional construction would entail extra charges towards maintenance, infrastructure, 8 ITA NO. 1975/MUM/2019 RAHEJA ALTANTIS COOPERATIVE HOUSING SOCIETY LTD.
common facilities and amenities. If the society first inducts new members who are required to contribute to the common fund for availing common facilities, and then grants only occupancy rights to them by draw of lots, the ownership remaining with the society, the receipts cannot be bifurcated into two segments of receipt so as to hold the former to be outside the purview of mutuality classifying it as income of the society with commerciality. [Para 20]"
[2009] 184 Taxman 292 (Bom.) Mittal Court Premises Co-operative Society Ltd. v. ITO "The bye-laws of the society were nothing but the contract between the society and the members. Under those bye-laws, it was the member who had to make the payment. Any inter se arrangement between the incoming members and the transferee was irrelevant insofar as the society was concerned. There was an agreement by which the amount was paid by the transferee. Insofar as the assessee-society was concerned, even if receipt was issued in the name of transferee, it was in the nature of admission fee which could be appropriated only on the transferee being admitted. Merely because the amount might be appropriated earlier, it would not lose the character of the amount being paid by a member. In those circumstances, the identity of the contributor and beneficiary being satisfied and considering the provisions of the Maharashtra Co-operative Societies Act and the Rules framed there under, surplus could be disposed of in favour of the members only or for the objects for which they would specify. In those circumstances, the Tribunal erred in holding that the contribution to common amenity fund repairs and welfare fund being the first contribution made by the existing/new member was transfer fee. [Para 7] "So far as non-occupation charges were concerned, bye-laws of the society themselves provided for non-occupation charges. The contribution, therefore, was by the member. Object of the contribution was for the purpose of increasing the society's funds, which could be used for the objects of the society. Object of the society was to provide services, amenities and facilities to its members. In those circumstances, the principle of mutuality must also apply. There was no element of profiteering. The matter had been remanded by the Tribunal. The Tribunal had directed the Assessing Officer to treat non-occupancy charges received by the assessee-society, which was a premises society, over and above the 10 per cent of the maintenance charges as non-taxable in its hands as the same was governed by the principles of mutuality. [Para 8] Apart from that, even assuming that the Government notifications were applicable, if the society could not have charged excess amount, it would have to be refunded to the members. A member is not prohibited from gifting any amount to the society for the objects of the society. The principle of mutuality would not cease on account of those aspects. At the highest, authorities under the Co-operative Societies Act and Rules, if any action is taken, may direct an additional amount to be refunded. Therefore, in respect of contribution by way of non- occupancy charges, principle of mutuality would apply." [Para 9] 9 ITA NO. 1975/MUM/2019 RAHEJA ALTANTIS COOPERATIVE HOUSING SOCIETY LTD.
10. If an amount is received more than what is chargeable under the bye-laws or the Government directions, the society is bound to repay the same and if it retains the amount, it will be in the nature of profit making and that specific amount will be exigible to tax. Considering the bye-laws, as the main activity of a co-operative housing society is to maintain the property owned by it and to render services to its members by way of usual privileges, advantages and conveniences, there is no profit motive involved in these activities. The amount legally chargeable and received goes into the fund of the society which is utilized for the repairs of the property and common benefits to its members.
11. In a co-operative housing society there can be members and associate members. Further, the class may be diminished by members going out or increased by the members coming in, but the class remains the same. As held by the Supreme Court in CIT v. Bankipur Club Ltd. [1997] 226 ITR 97/92 Taxman 278, the identity must be as a class of contributors and participants and it does not matter that the class may be diminished or increased by members going out or coming in. The assessee-society was registered with the object principally of looking after the property including building thereon. There were no trading or business transactions. The members, by adopting the bye-laws, agreed amongst themselves that a fee for transfer of flat/tenement when it was sold would be paid to the society. It might be that both, incoming or outgoing member, had to contribute to the common fund of the society. The amount paid, however, was to be exclusively used for the benefits of the members as a class.
12. The profit must come from a commercial activity in the nature of trade, business or the like in which event the assessee would have to pay tax on such profits. Charging of transfer fees as per bye-laws had no element of trading or commerciality. There being no taint of commerciality, the question of earning profits would not arise when the housing society applied the moneys received towards maintenance of the society and providing the members with usual privileges, advantages and conveniences.
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13. Following tests are to be considered for applying the principle of mutuality to a case of a co-operative housing society:
(1) Is there any commerciality involved out?--This has to be found out from the bye-laws of the co-operative housing society. In case of the co-operative housing society, admittedly, there is no commerciality involved. Once there is no commerciality involved, the first test of profitability does not exist. The first requirement of mutuality is, therefore, met in the case of a housing co- operative society.
(2) From the moneys received, are the services offered in the nature of profit sharing or privileges, advantages and conveniences?
In case of a co-operative housing society, the only activity, which it can carry out in terms of its bye-laws, is basically maintenance of its property which includes building or buildings. The subscriptions and/or contributions received by the members can only be expended for the purposes of maintenance and providing other privileges, advantages and conveniences to its members in terms of its bye-laws. Another test of mutuality is, thus, satisfied.
(3) Are the participants and contributors identifiable and belong to the same class in the case of co-operative housing society?
The class of members is clearly identifiable. Members are ordinary members or associate members. The participants and contributors are the members. The members may come in or go out. The fact that only some members from those who contributed may participate in the surplus, is irrelevant as long as the class is identifiable. This test is also satisfied in the case of a housing co- operative society.
(4) Do the members have the right to share in the surplus and do they have a right to deal with its surpluses?
In terms of the bye-laws, it is only the members who have a right to share in the surplus. Under the 1960 Act, no part of the funds, as provided in section 64 of the 1960 Act, can be paid by way of bonus or dividend or otherwise distributed among its members except as provided therein. Under section 67 of the 1960 Act, there is a limit on the dividend to be paid on liquidation. Under section 110 of the 1960 Act, the surplus can only be dealt with in the manner provided therein which includes any member or devoted to objects provided by the bye-laws or be 11 ITA NO. 1975/MUM/2019 RAHEJA ALTANTIS COOPERATIVE HOUSING SOCIETY LTD.
transferred to another society with similar object. Rule 90 of the 1960 Rules provides how the surplus is to be divided. The surplus then can be distributed in terms of the bye-laws to members and/or by operation of law to another society having the same objective. In other words, yet another test of mutuality is satisfied.
14. Once the aforesaid tests are satisfied, there can be no doubt that the principle of mutuality will apply to a co-operative housing society of which predominant activity is maintenance of the property of society, which includes its building or buildings and there is no taint of commerciality, trade or business. In view of above discussion, any part of transfer fees received by the assessee, whether from outgoing or from incoming members, was not liable to tax on the ground of mutuality.
15. In view of the above facts and judicial pronouncements relied upon from various Hon'ble High Courts and Apex Court, we are of the considered view that, order of Ld. CIT (A) guided by well settled principles of law and does not require any interference from our side. In the result Ground No. 4 raised by the revenue is dismissed.
16. In the result appeal of the revenue is dismissed.
Order pronounced in the open court on 21st day of March, 2023.
Sd/- Sd/-
(AMIT SHUKLA) (GAGAN GOYAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, दिन ां क/Dated: 21/03/2023
Mahesh R. Sonavane
12
ITA NO. 1975/MUM/2019
RAHEJA ALTANTIS COOPERATIVE HOUSING SOCIETY LTD.
Copy of the Order forwarded to:
1. अपील र्थी/The Appellant ,
2. प्रदिव िी/ The Respondent.
3. आयकर आयुक्त CIT
4. दवभ गीय प्रदिदनदि, आय.अपी.अदि., मु बांई/DR, ITAT, Mumbai
5. ग र्ड फ इल/Guard file.
BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai