Income Tax Appellate Tribunal - Delhi
Jalvayu Sehkari Awas Samiti Ltd., Noida vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'I' NEW DELHI)
BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER
AND
SHRI B.K. HALDAR, ACCOUNTANT MEMBER
I.T.A. No.829,830 &831/Del/2011
Assessment year : 2001-02, 02-03 & 04-05
Addl. ACIT, Jalvayu Sehkari Awas Samiti
Noida Range, Ltd., Q-6A, Sector-21,
Noida. V. Noida.
AND
C.O. No. 78, 79 and 80/Del/2011
I.T.A.829,830 & 831/Del/2011
Assessment years:2001-02,02-03 & 04-05
Jalvayu Sehkari Awas Addl. CIT,
Samiti Ltd., Q-6A, Noida Range,
Sector-21, Noida. V. Noida.
(Appellant) (Respondent)
PAN /GIR/No.AAATJ
/GIR/No.AAATJ-
AAATJ-4438-
4438-M
Department by : Shri Rohit Garg, Sr. DR.
Assessee by : Shri Sanjay Kumar.
ORDER
PER BENCH:
These are three appeals filed by the revenue against the orders of Ld CIT(A), Ghaziabad all dated 2.11.2010 for assessment year 2001- 02, 02-03 & 2004-05 and the corresponding cross objections filed by the assessee . For the sake of convenience, all these appeals are being disposed off by this common order.
ITA
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2. In all the appeals of the revenue, it is disputing the finding of the Ld CIT(A) that interest income the assessee from FDR and taxable bonds is exempt from income tax on application of principles of mutuality.
3. The assessee is a registered society under the Uttar Pradesh Cooperative Societies Act, 1965. The objects of the society as narrated in the assessment order are as under:-
1. For helping its members to complete the construction of building after making provision for the land for the construction of building, the building material and other necessary facilities.
a) To acquire land under the Land Acquisition Act or otherwise.
b) The Samiti will enter into an agreement to purchase the land and send a copy of that agreement to the Registrar.
c) To lay out and develop the land so acquired.
d) To get the map and budget estimate prepared for the construction of houses on this land; and
e) To construct or cause to be constructed residential building or other buildings according to the convenience of the members.
2. To extend loan to its members for the purchase of plot.
3. To provide the buildings constructed by the Samiti on hire purchase or rent.
4. To keep the land, site, building and all the other movable and immovable property in its possession, sell, mortgage, let out or dispose of...
5. To secure loan from the U.P. Cooperative Housing board ltd. Lucknow for the construction/purchase of the building.
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6. U.P. Avas Avam Vikas Parishad to extend loan to the members for the purchase/ construction of the flats.
1. To develop a cooperative colony and in case it is necessary to do so to establish and maintained for the facility and benefit of its members consume5rs store, canteen, transport services and other recreational and educational institutions.
2. To make available and arrange for the benefit of the members the following facilities:-
i) Lighting arrangement on the fixed places on the road.
ii) Distribution and disposal of water.
iii) Facility of Dispensary
iv) Cleaning and maintenance of buildings, gardens, public roads
and streets.
v) Security arrangements.
3. To do such other acts which are necessary or suitable for the convenience and welfare of the members of the Samiti and the achievement of the aforesaid objects of the Samiti.
4. The Assessing Officer held that the assessee society was being run as a mutually beneficial club by its Members and for that purpose funds were collected from members and spent on them. However, it was held by him that some activities were undertaken by the assessee to earn profit and thus the same are not covered by the doctrine of mutuality. It was noted by him that the assessee received amounts from parties who were not members of the society. One such receipt was interest from bank deposit and receipt from some taxable bonds.
The Assessing Officer, therefore, held that interest received by the 3 ITA 4 No829,830&831,CO 79,80&81/Del/11 assessee from such bank deposits and bonds would not be entitled to exemption by application of doctrine of mutuality. However, the expenses claimed relatable to earning such income under the head "LT Maintenance Fund" was allowed and the net amount was held to be chargeable to tax.
5. In addition to the above, it was noted by the Assessing Officer that the assessee received some income on account of the following:-
a) Receipt from vendors.
b) Receipt from cable operator.
c) Lease rent of MI Room
d) Misc. income.
6. After allowing an estimated expenditure incurred by the assessee on account of the above income, the net of such receipt was considered by the Assessing Officer as chargeable to tax. Aggrieved, the assessee filed appeals before the Ld CIT(A).
7. Before the Ld CIT(A), it was contended by the assessee that for the relevant period, the assessee was holding a valid certificate u/s 12A of the Act. Such certificate was issued on 1.7.1997. The first notice from the Competent Authority for cancellation of the said certificate was received by the assessee on 8.12.2003 and the certificate was cancelled on 16.1.2004. Thus, for assessment year 2001-02 and 2002-03 at the time of filing of the return of income, the assessee held a valid certificate u/s 12A of the Act. Subsequent cancellation of the said certificate by the ld CIT could not have applied to the assessment of these two assessment years.
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8. It was further contended that the society is a Cooperative Housing Society and therefore it is a mutual concern. Thus, the subscription collected from the members and other type of receipts which were to be utilized for the object of the society are exempt from tax on the principle of mutuality. Reliance was placed on the following case laws:-
1. Chemsford Club v. CIT 243 ITR 89 (SC).
2. CIT v. Bankeypur Club Ltd. 226 ITR 97 (SC).
9. Factually, it was submitted that no persons were allowed to come inside the premises of the society without valid certificate. The vendors who were house maid, sweepers, washer-men, electrician, carpenters, plumbers etc. worked for the residents/members of the society. Such vendors received their wages from the members and paid only part of it to the society. Similarly, vendors who sell their goods and the cable operator charged the residents for the goods/services provided and paid small amount to the society. Thus, the amounts received from the vendors and the cable operator indirectly came from the members of the society. In such cases, the receipt fulfills the condition of mutuality. Reliance was placed on the following case laws:-
1. Somvihar Apartments Owners Housing Maintenance Ltd. 60 ITD 392.
10. As regards receipt of lease rent on account of MI Room, it was submitted that an Air force Doctor visited the MI room daily between 7.30 am to 1.30 pm and provided free consultancy to all who were in service and ex-service men and their dependents. The rent for the 5 ITA 6 No829,830&831,CO 79,80&81/Del/11 said room was paid by the Air Force Board. The society incurred expenditure for maintenance and upkeep of the same room. The Society also earned some meager income on account of display on Notice Board from the members who wanted to buy some goods or sell any of their belongings. This was shown as misc. income. It was contended that such receipts are also exempt as per jurisdictional High Court's decision in the case Noida Golf Course.
11. The Ld CIT(A) held that the society was not engaged in any charitable activity and therefore rejected the claim of the assessee that it is entitled to benefit of section 11 & 12 of the Act. He, however, held that the interest income received from bank would be exempt from tax in view of the Hon'ble jurisdictional High Court's decision in the case of Shivalika Cooperative Group Housing Society and Noida Golf Course Society. It was held by him that interest income from investment of surplus funds generated from member receipts in the bank, FDR, bonds etc. would not be taxable. However, it was held by him that following receipts would be taxable:-
1. Lease rent from MI Room.
2. Receipt from vendors.
3. Receipt from cable operator.
4. Any other receipt received from non members excluding interest from banks etc. as mentioned earlier.
12. Aggrieved, the revenue has filed appeals before the Tribunal and the assessee has filed corresponding cross objection.
13. Before us the Ld DR, in addition to relying on the order of the Assessing Officer, submitted that the interest received from FDR and 6 ITA 7 No829,830&831,CO 79,80&81/Del/11 other taxable bonds are not receipts from members of the society. It is only receipts from the constituent members of the society which are exempt as per the principle of mutuality. Referring to the findings of the ld CIT(A) on this issue, it was contended by him that it cannot be said that the issue involved in the present case has been finally settled. In support of the above contention, the Ld DR relied on the following case laws:-
1. CIT v. I.I.T. Employees Death & Superannuation Relief Fund 234 ITR 308 (Karnataka).
2. CIT v. Common Effluent Treatment Plant (Thane Belapur) Association 328 ITR 362 (Bom.).
14. The Ld AR for the assessee, in addition to relying on the order of the ld CIT(A), submitted that the assessee is entitled to exemption by application of principle of mutuality in view of the ratio laid down in the following cases:-
1. CIT v. Noida Golf Course Society in I.T.A. N0. 36 of 2003 dated 26.5.2010.
2. Shivalika Cooperative Group Housing Society Ltd. v. ITO 289 ITR (AT) 105 (Del.).
3. Gulmarg Association & Another v. ITO 19 TTJ (Ahd.) 184.
4. Bombay Gymkhana Ltd. v. ITO 115 TTJ (Mum.) 639.
5. Delhi Gymkhana Club Ltd. v. DCIT 131 TTJ (Del.) 329.
6. Director of Income Tax (Exmp.) v. All India Oriental Bank of Commerce Welfare Society 184 CTR (Del.). 274.7
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15. In the rejoinder, it was contended by the Ld DR that the case of Shivalika Cooperative Group Housing Society Ltd. v. ITO is distinguishable on facts.
16. We have heard the parties and perused the record. We have also gone through the case laws cited by both the parties. At the outset, we would like to discuss the important case laws on the issue involved.
17. In the case of Chemsford Club (supra), the Hon'ble Supreme Court held that "the law recognizes the principle of mutuality excluding the levy of Income tax from the income of such business to which the -
----principle is applicable. " Adverting to the judgment of Privy Council in the English and Scottish Joint Cooperative Wholesale Society Ltd. v. Commissioner of Agriculture IT 16 ITR 270 (PC), the Supreme Court adopted the existence of the following principles as establishing mutuality:-
i) the identity of the contributor to the funds and the recipients from the funds;
ii) the treatment of the company have incorporated as a mere entity for the convenience of the members and policy holder, in other words, as an instrument obedient to their mandate; and
iii) the impossibility that contributor should derive profit from the contributions made by themselves to a fund which could only be expended or returned to themselves".
18. Thus, one of the important criteria that is required to be fulfilled for excluding any income by application of principle of mutuality is that the income must arise out of contribution made by the constituents.
8ITA 9 No829,830&831,CO 79,80&81/Del/11 The basic concept is that one cannot earn profit from one self. The Hon'ble Supreme Court in the said case has not laid down that if any income is earned by investing the surplus available with the mutual concern out of the contribution made by the constituents, with third parties who were non members would be exempt by application of principle of mutuality. A person can definitely earn profit from somebody else. Merely because such profit is utilized for the benefit of the members would not lead to the conclusion that the principle of mutuality is attracted in such cases.
19. In the case of Noida Golf Course Society (supra), the Standing Counsel for the Income Tax Department had conceded that the issue involved was squarely covered by the decision of the Hon'ble Allahabad High Court in the case of CIT v. Cawnpur Club Ltd. which decision was upheld by the Hon'ble Supreme Court in the case No.4777, 4778, 4534/1991 and 80-46/1995. However, in the case of CIT v. Cawnpur Club Ltd. 146 ITR 181 (Alld.), the facts on the basis of which the decision was given was that the receipts were also from the members. The Hon'ble Apex Court dismissed the revenue's appeal as the finding of the Hon'ble Allahabad High Court that income of the said assessee was exempt on application of the principle of mutuality was not challenged by the revenue before the Apex Court. What was disputed by the revenue was the head of income of the receipts from the members on account of rooms let out to members on monthly rent basis. The Hon'ble Supreme Court declined to answer the question being academic in nature. Thus, the case of Cawnpur Club Ltd. have no where laid down that receipts from non members are exempt by the application of principle of mutuality. In the case of Noida Golf Course Society, the decision of the Hon'ble jurisdictional High Court 9 ITA 10 No829,830&831,CO 79,80&81/Del/11 can, therefore, be said to be based on the concession made by the Departmental counsel.
20. In the case of Delhi Gymkhana Club Ltd. (supra), the Hon'ble Tribunal held that income from investment of money made by the Club not immediately required would not be business income of the assessee and the same could not attract application of section 115 JB of the Act. The dispute before the Hon'ble Tribunal was applicability of section 115JB of the Act in the case of the assessee who was registered as a company. The Hon'ble Tribunal relied on the following case laws:-
1. Country Club (I.T.A. No. 84 of 2003) decided by the Hon'ble Delhi High Court as per their order dated 112.5.2007.
2. DIT (Exemption) v. All India Oriental Bank of Commerce Welfare Society 184 CTR (Del.) 274.
3. CIT v. Delhi Gymkhana Club Ltd. 155 ITR 377 (Del.).
21. In the case of Shivalika Cooperative Group Housing Society (supra), it was held by the Hon'ble Tribunal that the interest income earned by an assessee on surplus funds of a mutual society deposited with the banking institution is covered by the principle of mutuality. Reliance was placed by the Hon'ble Tribunal on the following case law:-
1. DIT (Exmption) v. All India Oriental Bank of Commerce Welfare Society 184 CTR 274.
22. In the case of ITI employees Death & Superannuation Relief Fund (supra), the Hon'ble Karnataka High Court held that income earned by making deposit by way of investment in the bank could not attract the principle of mutuality. Reliance was placed on the following case laws:-
10ITA 11 No829,830&831,CO 79,80&81/Del/11
1. CIT v. Ranchi Club Ltd., 196 ITR 137 (Pat.) (Full Bench)
2. Sports Club of Gujarat Ltd, v. CIT 171 ITR 504 (Guj.).
23. In the case of Common Effluent Treatment Plant (supra), it was held by the Hon'ble Bombay High Court that the interest income from fixed deposit with bank would not be exempt by application of the principle of mutuality being on account of transaction with a third party. In the said decision the Hon'ble Bombay High Court dissented from the judgment of the Hon'ble Karnataka High Court in the case of Canara Bank Golden Jubilee Staff Welfare Fund v. CIT 308 ITR 202.
24. From the above discussion, it is quite clear that on the issue as to whether the interest income, earned from bank by investing surplus funds available with a mutual concern out of contributions received from members, is exempt or not on application of principle of mutuality there are two opposite views. As the view of the Hon'ble jurisdictional High Court in favour of the assessee, we hold that the Ld CIT(A) was justified in holding that interest income earned from investment in bank and other taxable bonds is exempt from tax on application of principle of mutuality. Ground No.1 taken by the revenue in appeals for assessment year 2001-02, 2002-03 & 2004-05 are rejected. Thus, all the appeals of the revenue are dismissed.
25. Now we take up the cross objections raised by the assessee for all the three assessment years namely 2001-02, 2002-03 & 2004-05. Most of the issues agitated in all the cross objections are identical and only the quantum of relief claimed vary.
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26. The first ground raised in all the cross objections for all the years relate to the finding of Ld CIT that the society was not engaged in any charitable activity.
27. The fact of the case is that the assessee was registered u/s 12A of the Income Tax Act, 1961 as per the order of CIT, Meerut dated 1.7.1997. As per the assessment proceedings u/s 143(3) for assessment year 2000-01, it was noticed by the Assessing Officer that the assessee was neither carrying out any work of charity nor was any charitable activity included in the main or subsidiary objects of the society. The Assessing Officer was of the view that the society was involved in commercial activity for the benefit of its members. The Assessing Officer, therefore, filed a reference through the Addl., CIT, Noida to the CIT, Ghaziabad for review of the registration granted to the society u/s 12A of the Act.
28. The CIT, Ghaziabad issued a notice dated 8.12.2003 to the assessee requiring it show cause as to why registration granted to it u/s 12A of the Act should not be withdrawn. After giving the assessee adequate opportunity of being heard, the ld CIT, Ghaziabad vide his order dated 16.1.2004 withdrew the order of registration u/s 12A issued on 1.7.1997. The assessee did not contest the above order of withdrawal dated 16.1.2004. It appears that subsequently the assessee moved rectification application before the Ld CIT for rectifying the said order dated 16.1.2004. As per the clarification given by the Ld AR for the assessee, the appellate proceedings arising out of rejection of such rectification application moved by the assessee has attained finality. Thus, as of date, the said order dated 16.1.2004 stands.
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29. We have heard the parties and perused the record on the impugned issue. However, in the facts narrated above, it is to be held that the order of Ld CIT dated 16.2.2004 withdrawing registration granted to the assessee u/s 12A of the Act on 1.7.1997 is a valid order. The above order has not been struck down by due process of law. Thus, the Assessing Officer could not have granted relief u/s 11 or 12 of the Act. This being the factual position, the assessee cannot contend that relief under the above section should be allowed to it because it is carrying on charitable activity. In this view of the matter, we do not find any merit in ground No.1 raised in the cross objections for all the impugned assessment years and reject the same.
30. As regards ground No.2 raised by the assessee, we find that the misc. receipts of all the years are on account of amount received from the members of the society for using the Notice Board facility. Thus ,the amounts were received from the members only. This being the case, we hold that the principle of mutuality would apply to such receipts. We, therefore direct that the misc. income shown by the assessee on account of receipts from the members of the society for using the Notice Board facility should be considered to be exempt by application of principle of mutuality.
31. As regards the other receipts namely receipts from members, receipts from cable operator, lease rent of MI room, it is not disputed that the same have been received from third parties and are also not income arising out of surplus funds generated out of members contributions. In this view of the matter, we hold that such income was not exempt by application of principle of mutuality. The Ld. Authorized Representative for the assessee has contended that the society has spent more for earning the above income than the estimated 13 ITA 14 No829,830&831,CO 79,80&81/Del/11 expenditure allowed by the assessing officer. However, there is nothing on record to support the above claim. We, therefore, decline to interfere with the concurrent findings of the authorities below on this issue. Thus, ground No.2 & 3 raised by the assessee in all the cross objections are partly allowed.
32. In assessment year 2004-05 the assessee has taken a further ground being ground No.4 which reads as under:-
"Because the Ld CIT(A) has erred in law and on facts in restricting the relief allowable to the extent of `.10,69,450/- being the income declared in the return filed by the assessee society. "
33. We have heard the parties and perused the record. For assessment year 2004-05, the interest/dividend earned from banks/mutual funds and others excluding interest free deposits and investment amounted to `.18,73,266/-. However, the assessee itself returned an income of `.10,69,450/-. The same return was not revised .If assessee got full relief of `.18,73,266/- on application of principle of mutuality, only an amount of `.7,07,47/- was assessable. The Ld CIT held that he could not have reduced the total income of the assessee below the returned income. He, therefore, allowed relief to the assessee on account of interest received to the extent so that the returned income should not be reduced. The Ld. A.R. contends that the appellate authorities can give relief to the assessee which may result in reduction of returned income. However, the above issue is settled in favour of the revenue by the decision of Hon'ble Supreme Court in the case of Goetze India Ltd. v. CIT 284 ITR 323 (SC). We are of the opinion that the ratio laid down in the above case applies to the appellate 14 ITA 15 No829,830&831,CO 79,80&81/Del/11 authorities also. In view of the above, we reject ground No.4 for assessment year 2004-05 taken by the assessee.
34. We clarify that in view of the relief granted by us on account of misc. receipts, the returned income in any of the assessment year would not be reduced.
35. In the result, all the appeals of the revenue are dismissed whereas the cross objections filed by the assessee are allowed in part.
36. Order pronounced in the open court on the 30 th day of September, 2011.
Sd/- Sd/- (U.B.S. BEDI) (B.K. HALDAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dt. 30.9.2011. HMS Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy.
By Order (ITAT, New Delhi).
15 ITA 16 No829,830&831,CO 79,80&81/Del/11 Date of hearing Date of Dictation Date of order signed by the Hon'ble" Member. Date of order Sent to the concerned Bench 16