Case Law Details
CA.V.Vivek Rajan
Brief– ITAT Mumbai held in the case of In the case of Lands End Co-operative Housing Society Limited vs ITO, that receipt of transfer fees, Non-occupancy charges and car parking charges are covered by the principle of mutuality. It Further held that deduction u/s 80P (2)(d) is available to Co-operative Housing Society on interest on FD with other co-operative banks.
Brief Facts of the Case
Receipt of Transfer Fees
a. The assessee, a co-operative society was formed to look after the maintenance of flats owned by its members.
b. The assessee received a sum of money from one member by way of transfer fee / contribution to amenities fund which was credited to the Common Amenities Fund.
Receipt of Non-Occupancy Charges
c. The assessee received a sum of money on account of Non-Occupancy charges from the members of the society.
d. The non-occupancy charges are received from those members who do not occupy their flats and let out the same to non-members.
e. As per byelaws of the society, a very nominal fee is received which is described as non-occupancy charges and spent on the building maintenance.
Deduction claimed u/s 80P (2)(d) on FD Interest
f. The assessee had claimed deduction u/s 80P (2)(d) in respect of interest on fixed deposits with Co-operative Banks
Receipt of Car Parking Charges
g. The assessee also received a sum from members towards car parking charges.
Question of Law
a. Whether the receipt of transfer fees, Non-occupancy charges and car parking charges are not covered by the principle of mutuality and thereby becoming taxable.
b. Whether deduction u/s 80P (2)(d) is available in case of interest on FD with other co-operative banks.
Contention of the Assessee
Receipt of Transfer Fees
a. The issue about the taxability of the above is covered in favour of the assessee by the ITAT’s own order in ITA No.6866/Mum/2007 Assessment Year 2004-05 vide order dated 27-09-2013 and also by the order of Jurisdictional HC in the case of CIT v/s Darbhanga Mansion CHS Ltd in ITA No.1474 OF 2012 dated 18-12-2014.
Receipt of Non-Occupancy Charges
b. The non-occupancy charges received from members were spent for the mutual benefits of the members. The assessee placed reliance on the decision of Bombay HC in Mittal Court Premises Co-operative Society Ltd. v/s Income Tax Officer 320 ITR 414.
Deduction claimed u/s 80P (2)(d) on FD Interest
c. The assessee distinguished the facts of its case with the decision in the case of Shiv Samrudhi Cooperative Housing Society in ITA No 1073/Mum/2012 (decision followed by the CIT(A)). In the said decision the ITAT relied on the decision of Supreme Court in the case of Totagar’s Co-operative Sale Society Ltd Vs ITO 322 ITR 283 and held that the interest income from the short term deposits and securities not immediately required in the business of the assessee is assessable under “Income from Other Sources” and no deduction u/s 80P(2)(a)(i) of the Act is allowable.
d. The criteria of claiming deduction u/s 80P(2)(a)(i) and 80P (2)(d) are totally different as the former is applicable in case of assessee carrying on the business of banking or credit facilities to its members whereas the latter is applicable in case of assessee ( being a co-operative society) having interest income (included in Gross Total Income) from investment in other co-operative society including co-operative bank.
e. Reliance was also placed on the decision of Himachal Pradesh HC in the case of CIT Vs. Kangra Co-operative Bank Ltd. (309 ITR 106).
f. Citing the above, the assessee prayed that deduction may kindly be allowed by reversing order of CIT (A)
Contention of the Revenue
Receipt of Transfer Fees
a. The AO added the same to the income on the ground that the same was not covered by the principle of mutuality.
Receipt of Non-Occupancy Charges
b. The AO added the same to the income on the ground that the same was not charged as prescribed and as per Government notification and such charges were collected with profit motive and therefore was not covered by the principle of mutuality.
Deduction claimed u/s 80P (2)(d) on FD Interest
c. The AO allowed the said deduction claimed by the assessee.
Appeals to CIT (A)
Receipt of Transfer Fees
a. The CIT (A) also confirmed the addition by holding that the transfer fee received was more than what has been prescribed under Government notification.
Receipt of Non-Occupancy Charges
b. The CIT (A) also confirmed the addition made by the AO
Deduction claimed u/s 80P (2)(d) on FD Interest
c. The CIT(A) enhanced the assessment by rejecting the claim of assessee by following the decision in the case of Shiv Samrudhi Cooperative Housing Society in ITA No 1073/Mum/2012.
Decision of the ITAT Mumbai
Receipt of Transfer Fees
a. The ITAT referring to the assessee’s own case of AY 2004-05 cited that though the amount was received in the form of contribution to common amenities fund it is essentially utilized for the benefit of common members and thus principles of mutuality are attracted.
b. The ITAT also referring to the Bombay HC decision in the case of CIT v/s Darbhanga Mansion CHS Ltd in ITA NO. 1474/Mum/2012, deleted the addition and allowed the appeal of the assessee.
Receipt of Non-Occupancy Charges
c. The charges are received at the prescribed rates as per the byelaws of the society and are spent for the common purposes of the society for the benefit of the members.
d. The object of the society was to provide service, amenities and facilities to its members. In these circumstances, the principle of mutuality would apply and therefore non-occupancy charges were not taxable.
e. The ITAT also followed the decision of Bombay HC in the case of Mittal Court Premises Co-operative Society Ltd. v/s Income Tax Officer 320 ITR 414.
f. Accordingly the ITAT deleted the addition on account of the non-occupancy charges.
Deduction claimed u/s 80P (2)(d) on FD Interest
g. It is amply clear that a cooperative society can only avail deduction u/s 80P(2)(d)(i) in respect of its income assessable as business income and not as income from other sources if it carries on business of the banking or providing credit facilities to its members and has income assessable under the head business, whereas for claiming u/s 80P(2)(d) it must have income of interest and dividend on investments with other Co-operative society may or may not be engaged in the banking for providing credit facilities to its members and the head under which the income is assessable is not material for the claim of deduction under this section.
h. The ITAT also accepted the contention of the assessee with respect to the difference between provisions of Section 80P(2)(a)(i) and 80P (2)(d).
i. In view of the above, the ITAT held that the assessee is entitled to deduction in respect of interest received.
Note by the author
The decision of the ITAT is silent on the taxability of car parking charges received. In the author’s view and based on the above, the same is also covered under the principles of mutuality.
