Case Law Details
ITO Vs M/s. Presidency Co-op. Housing Society Ltd. (ITAT Mumbai)
Amounts received by the appellant Society from its members as TDR and transfer fees should not be chargeable to Income Tax on the principle of mutuality. Therefore, assessing officer is directed to delete the addition of Rs. 34,44,474 on account of TDR and transfer fees received from the members.
FULL TEXT OF THE ITAT JUDGMENT
This is an appeal filed by the Revenue against the order of Commissioner (Appeals) for the assessment year 2007-08.
2. The grievance of Revenue relates to deleting addition of Rs. 7,64,271 made by assessing officer on account of transfer fees and addition made on account of premium received by assessee from its members on utilization of Transfer of Development Rights.
3. The rival contentions have been heard and records perused.
4. Facts in brief are that the assessee society is a Cooperative Housing Society. During the year under review the assessee society has received an aggregate amount of Rs. 7,64,271 incidental to the transfer of the plots in the society as contribution from its members. Further the assessee society has also received an aggregate amount of Rs. 26,80,203 as contribution from its members pursuant to the construction on Plots using Transfer of Development Rights (TDR). The said TDR rights he been acquired by the members directly and the Society has merely received contribution from its members. The assessee Society had offered the aforesaid receipt as income and filed the return of income on 31-10-2007. However during the course of the assessment proceedings the assessee society filed a revised computation before the assessing officer vide letter dated 2-12-2009 and claimed the aforesaid receipt as exempt based on Principal of Mutuality. However the assessing officer did not accept the revised claim filed by the assessing society and assessed the income as per the original return filed.
5. The learned Commissioner (Appeals) confirmed the action of the assessing officer against which assessee approached to the Tribunal and the Tribunal vide its order dated 16-5-2014 restored the matter back to the file of the learned Commissioner (Appeals) for deciding in terms of the directions given in its order.
6. In the second round of litigation the learned Commissioner (Appeals) allowed assessee’s claim on both the counts after observing as under:
“5.2 The appellant Society is a Cooperative Housing Society. During the year under the assessee society has received an amount of Rs. 7,64,271 on account of transfer of the plots in the society as contribution from its members. Further the assessee society has also received an aggregate amount of Rs. 26,80,203 as contribution from its members pursuant to the construction on Plots using Transfer of Development Rights (TDR). The said TDR rights have been acquired by the members directly and the Society has received contribution from its members. The appellant Society had offered the aforesaid receipt as income and filed the return of original return of income on 31-10-2007. However during the course of the assessment proceedings the assessee society filed a revised computation before the assessing officer vide letter dated 2-12-2009 and claimed the aforesaid receipt as exempt based on Principal of Mutuality. However the assessing officer did not accept the revised claim filed by the assessing society and assessed the income as per the original return filed.
5.3 The appellant has filed appeal before the Commissioner (Appeals), the same was dismissed in appeal vide order dated 23-11-2011,The Assessee Society further filed an appeal before the Hon’ble ITAT. The Hon’ble ITAT Bench ‘C’ vide its order dated 16-5-2014 No. ITA-4051/M/2011 has restored the matter with Commissioner (Appeals) to decided afresh based on the merits and after taking into consideration the various relevant decisions of the Tribunal.
5.4 During the year under review the assessee received Rs. 7,64,271 from incoming Members. The assessee during the year has disclosed the above receipts as exempt from tax on the basis of Principle of Mutuality. During the appellate proceedings, appellant has stated that the appellant received contribution from its members on the transfer of lease of the plots by such members to other new members. Such amounts received belong absolutely to the society and the benefit thereof was receivable only by the members of the society. Since the contributors to the fund and the participants thereof are both members of the society the test of mutuality being the complete identity of the contributors with the participants is clearly established and the principle of mutuality is applicable to the society.
5.5 The cardinal requirement for application of the doctrine of mutuality is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund. For the comparison of the contributors and the participators to the common fund such comparison should be as ‘a class’ and not of an individual contributor or participator. This reasoning is supported by the following observation of the Andhra Pradesh High Court in the case of CIT v. Merchant Navy Club (supra). The relevant part of observation are as under:–
The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. What is required is that the members as a class should contribute to the common fund and participators as a class must be able to participate in the surplus.
5.6 The Hon’ble Bombay High Court in the case of Sindh Co-operative Housing Society v. ITO 317 ITR 47 (Born) is held that the class of members are 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, as held by the Supreme Court, is irrelevant as long as the class is identifiable. This test is also satisfied in the case of a housing co-operative society. Therefore the principle of mutuality would apply irrespective of whether the amount is received from an incoming or outgoing member.
5.7 Following the order of the jurisdictional Bombay High Court/the Hon’ble ITAT Bench ‘F’ in its order dated 22-10-2010 in case of Friends Co-operative Housing Society Limited for assessment year 2004-2005 has held that the transfer fees is exempt from tax on the basis of principle of mutuality. The appellant relies on the order of the Hon’ble ITAT Bench ‘B’ in case of Nutan Laxmi Co-operative Housing Society Limited for assessment year 200405 and assessment year 2005-06, The Hon’ble ITAT, Mumbai in case of Friends Co. Operative Housing Society Limited has held transfer fees as exempt. The Hon’ble ITAT Bench ‘B’ in case of New Breach Candy Co-op. Hosing Society Limitedwherein the transfer fees have been held exempt.
At the time of hearing before us, the learned Representatives of both the sides have agreed that the issue involved in ground No. 1 of the Revenue’s appeal relating to taxability of the amount of trans charges is squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court in assessee ‘s own case for the 4earier years wherein the decision of the Tribunal holding that voluntary contribution received by the assessee society from its members as transfer charges is not liable to tax on the basis of principle of mutuality was upheld by the Hon’ble Bombay High Court in IT Appeal 3345 of 2010 (dated 6th July, 2011) following its earlier decision rendered in the case of Sind Co-Operative Housing Society v. ITO reported in 317 ITR 47. Respectfully following the said decision of the Hon’ble Bombay High Court in assessee’s own case on similar issue, we uphold the impugned order of the learned Commissioner (Appeals) deleting the addition made by the assessing officer on account of transfer charges received from its members and dismiss ground No. 1 of Revenue’s appeal.
6. Further, the appellant society has received an aggregate amount of Rs. 26,80,203 as the said Contribution pursuant to use of TDR. The assessee has claimed that the aforesaid contribution is not chargeable to tax. The Contribution from members is exempt from the tax under the Principle of Mutuality. The aforesaid contributions have been received from the members of the Society incidental to the use of the T.D.R. on their respective plots. The contributing members continue to be the members of the Society even after such contribution. The persons entitled to the benefit of the aforesaid contribution are also all the members of the Society, in their capacity as members. Therefore, the aforesaid receipts would be completely covered by the principle of mutuality. This contention of the assessee has been upheld by the Hon’ble ITAT Bench ‘B’ in the case of The Nutan Laxmi Co-op. Housing Society Ltd. for assessment year 2004-05 and 2005-2006.
6.1 The contention of the appellant society is upheld by the Hon’ble ITAT Bench ‘H’ in the case of Navyug CHS Ltd. The contribution of TDR are exempt from tax following the decisions of the Bombay High Court in the case of New Sindh Cooperative Housing Society Limited 317 ITR (47) Bom and Mittal Court Premises CHS Limited 321 ITR 414, The relevant part of the decision of Sindh Cooperative Society Ltd.are as under :–
In the Sing Co-operative Housing Soc. (supra) it has been held as under (Placitum 44-46, page 62-63 of 3l7 ITR):
“Let us now apply the various tests which are to be considered fir applying the principle of mutuality to a case of a co-operative housing society based on our earlier discussion.
(1) Is there any commerciality involved.
This has to be found from the bye-laws of the co-operative housing society. In the case of the cooperative housing society, admittedly, there is no commerciality involved. Once there is no commerciality involved the first test of profitability does not exist. The first requirements of mutuality is, therefore, met.
(2) From the moneys received are the services offered in the nature of profit sharing or privileges, advantages and conveniences.
In the case of a co-operative housing society the only activities which it can carry out in terms of its bye-laws are basically maintenance of its property which includes building or buildings. The subscription 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 cooperative housing society.
The class of members are clearly identifiable. Members are ordinary members or associate members. The participants and contributors are the members. The members from those who contributed may participate in the surplus, as held by the Supreme Court, 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 by laws it is only the members who have a right to share in the surplus. Under the Maharashtra Co-operative Societies Act, no part of the funds, as provided in section 64 can be paid by way of bonus of dividend or otherwise distributed among its members except as provided therein. Under section 67, there is a limit on the dividend to be paid on liquidation Under section 110 of the Maharashtra Co-operative Societies 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 transferred to another society with similar object. Rule 90 of the Rules provide how the surplus is to be divided. The surplus thus 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.
Once these tests are satisfied, in our opinion, there can be no doubt that the principle of mutuality will apply to co-operative housing society which has as its predominant activity, the maintenance of the property of the society which includes its buildings or buildings and as long as there is no taint of commerciality, trade or business.
For all the aforesaid reasons, the questions as framed will have to be answered in favour of the assessee and against the Revenue.”
In the absence of any distinguishing feature brought on record by the learned DR we respectfully following the decision of Hon’ble Jurisdictional High Court (supra), hold that the amount of transfer fee of Rs. 5,81,000 and TDR premium amount of Rs. 5,97,725 are not taxable on the principle of mutuality and accordingly we are inclined to uphold the finding of the learned Commissioner (Appeals) in deleting both the additions made by the assessing officer. The grounds taken by the revenue are, therefore, rejected.
However, The said issue has already been decided in favour of the appellant by the Hon’ble ITAT in the assessee’s own case vide Order dated 30-3-2011 in ITA No, 3440/M/2005 for A.Y.2001-02 and Order dated 26-4-2011 ITA No. 1953 to 1957/M/2010 for assessment years 1990-91, 1992-93, 1995-96, 1999-2000 and 2004-05 respectively. However, in the appellant’s own case the CIT Appeals-32, Mumbai, has decided the similar issue that TDR premium received from members as exempt from tax vide Order dated 30-12-2009 for A.Y.2003-04. The relevant part of decision are as under:–
On both the counts as narrated above, the AR, of the appellant submitted that the impugned receipt received by the appellant as premium on the exploitation of TDR by its members resulting in extra burden on the existing structure and its utilization have the direct impact on the maintenance charges raised by the appellant society. The said receipt is, therefore, not exigible to tax for the following reasons.
(a) That it is not tainted with commerciality, rather fails under the concept of mutuality. Therefore, not liable to be taxed.
(b) That under the cannons of taxation, the receipts which are a capital nature are not exigible to tax In the case of the appellant the impugned receipts arising on account of premium on TDR it purely a capital receipt and therefore, outside the purview of tax charge.
(c) That it cannot be taxed under section 45 as no Capital Gains could be levier on this right having no cost of acquisition. Therefore, not liable to tax under Capital Gains. This view is supported by two recent decisions of the Mumbai ITAT.
(i) ITO v. Lotia Court CHS Ltd. (2008) 12 ITR (Mumbai-Trib) 290
(ii) M/s. New Shailaja CHS Ltd. v. ITO, ITA No. 512/Mum/2017, assessment year 2003-04 date of Order 2-12-2008
Before me, the authorised representative of the appellant has place the recent judgment of High Court of Bombay in case of Sing Co.-Op. Housing Society Limited (317 ITR 47) in which the principle of mutuality has been dealt with in detail.
I have considered the arguments of the appellant and have carefully gone through the judgment cited above. Respectfully following the judgment of Singh Co.-Op. Housing Society Limited (317 ITR 47), it is held that the amount received by the appellant of Rs. 50,40,775 as premium towards usage of transferable development rights is not taxable in the hands of the appellant on the grounds of mutuality. Accordingly, ground No. 3 of the appeal is allowed.
6.2 After considering the totality of facts, rival submissions, the applicable law and on the basis of discussion mentioned above, I find force in the argument of the appellant and draw strength from the decision of Bombay High Court, and Tribunal and predecessor’s order, I have come to the conclusion that the amounts received by the appellant Society from its members as TDR and transfer fees should not be chargeable to Income Tax on the principle of mutuality. Therefore, assessing officer is directed to delete the addition of Rs. 34,44,474 on account of TDR and transfer fees received from the members. This ground is allowed.
7. In the result, appeal is allowed.”
7. Against the above order of learned Commissioner (Appeals) Revenue is in further appeal before us.
8. I have considered the rival contentions and carefully gone through the orders of the authorities below and found from record that learned Commissioner (Appeals) relied on the order of Tribunal in assessee’s own case for the assessment year 2004-05 dated 29-4-2011. The learned Commissioner (Appeals) has also relied upon the decision of Hon’ble Bombay High Court as stated hereinabove and accordingly directed the assessing officer to delete the addition of Rs. 34,44,474 on account of TDR and also on account of transfer fee of Rs. 7,64,271. The detail finding so recorded by the learned Commissioner (Appeals) has not been controverted by learned D.R. by bringing any positive material on record. Accordingly, I do not find any reason to interfere in the order of learned Commissioner (Appeals).
9. In the result, appeal of the Revenue is dismissed.
