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Whether transfer fees received by Cooperative Housing Society from incoming & outgoing members (even in excess of limits) is exempt on ground of mutuality?

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Court :
Bombay High Court

Brief :
Assessee, a Co-operative Housing Society received a sum of Rs.39,68,000/- on account of transfer of flat and garage and credited it to 'general amenities fund' as well as 'repair fund'. This receipt of Rs.39,68,000/- has been claimed as exempted from tax by the Assessee. The Assessing Officer disallowed the exemption by holding that the principle of mutuality will not apply. Aggrieved by AO’s order, the society approached the Commissioner. CIT and Tribunal decided in favour of assessee by relyng on judgment in case of Sind Co-operative Housing Society vs. Income Tax Officer. Revenue thereby approached the High Court. High Court dismissed the appeal, held that repeatedly the Revenue has failed in convincing the Tribunal that Sind Co-operative Housing Society (supra) will not cover the Society's case. The contribution is made to the repair fund or to the general fund and credited as such. Though it isoccasioned by transfer of a flat and garage, merely because there was cap or restriction placed on the transferfees or the quantum thereof, in this case the principle of mutuality cannot be applied. The underlying principle and of a co-operative movement has been completely overlooked by the Counsel for the Revenue.

Citation :
CIT – Appellant – Versus - Darbhanga Mansion CHS Ltd. – Respondent

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL NO. 1474 OF 2012

The Commissioner of Income Tax – 16

Appellant.

Versus.

Darbhanga Mansion CHS Ltd.

Respondent.

Mr. A.R. Malhotraa/w Mr. N.A. Kazi for the Appellant.

Mr. F.V. Irani i/b Mr. Atul K. Jasani for the Respondent.

CORAM: S.C. DHARMADHIKARI AND A.A. SAYED, JJ.

DATED: 18 DECEMBER, 2014.

P.C. :

1. This Appeal by the Revenue challenges the order passed by the Income Tax Appellate Tribunal on 4th April, 2012.

2. Mr. Malhotra submits that the following question is a substantial question of law:

“Whether on the facts and circumstances of the case and in law, the ITAT was justified in upholding the CIT(A)'s order and rejecting the departmental appeal in accepting the Assessee's plea that the contribution of Rs.39,68,000/- paid towards 'heavy repair fund' is covered by the principle of mutuality and is not chargeable to tax.”

3 Mr. Malhotra complains that the Tribunal failed to notice the distinguishing features from the judgment of this Court in the case of Sind Co-operative Housing Society vs. Income-Tax Officer reported in (2009) 317 ITR 47. The Tribunal has applied and followed this judgment without adverting to the facts and circumstances therein and equally of the Assessee's case. Mr. Malhotra invites our attention to the order passed by the Assessing Officer and submits that the Assessing Officer has not committed any error in holding that the amount and which is to the tune of Rs.39,68,000/- has been rightly brought to tax. He submits that the contribution paid or made by the members is occasioned by transfer of the flat. It is nothing but transfer fees in terms of a Government Resolution which is extensively referred to by the Assessing Officer. The amount of transfer fees cannot exceed Rs.25,000/-. If it cannot so exceed then the judgment in the case of Sind Co-operative Housing Society (supra) was distinguishable. Mr. Malhotra has heavily relied upon the findings of the Assessing Officer. He submits that those findings are rendered after referring to the Resolution as also the bye laws of the Cooperative Housing Society. Mr. Malhotra has submitted despite the judgment of this Court in the case of Sind Co-operative Housing Society (supra) has admitted three Appeals on 18th February, 2013 and which are raising identical question. Therefore, the principle of mutuality which has been invoked and applied cannot be straightaway applicable. The Appeal, therefore, deserves to be admitted.

4. On the other hand, Mr. Irani appearing on behalf of the Respondent relied upon the order passed by this Court in the case of this very Society, namely Income Tax Appeal No.1453 of 2007 decided on 3rd August, 2010. Mr. Irani would submit that merely because the question as framed by the Tribunal and based on the ground raised by the Revenue does not bifurcate the amount of transfer fee and contribution to building heavy repair fund does not mean that the judgment in the case of Sind Co-operative Housing Society (supra) will not bind this Court. That squarely binds this Court and therefore, this Appeal does not raise any substantial question of law, it deserves to be dismissed.

5. He also relies upon an order passed on 11th October, 2010 by another Division Bench of this Court in the case of this very Assessee being Income Tax Appeal (Lodging) No.1906 of 2010. There the Revenue raised identical question but this Court held that the issue is answered already in favour of the Assessee and against the Revenue by the Division Bench Judgment in Sind Co-operative Housing Society (supra). For such reasons and in the case of this very Assessee this Court having already taken a view in favour of the Assessee, it should not proceed to admit this Appeal, more so, when it does not raise any Substantial question of law.

6. With the assistance of both advocates, we have perused the Memo of Appeal and all Annexures thereto. According to the Revenue, the Assessee is a Co-operative Housing Society. It received a sum of Rs.39,68,000/- on account of transfer of flat and garage and credited it to 'general amenities fund' as well as 'repair fund'. This receipt of Rs.39,68,000/- has been claimed as exempted from tax by the Assessee. The return of income was filed for Assessment Years 2005-2006 declaring nil income. The same was processed and later on upon compliance with the statutory formality the Assessment Officer held that if the Assessee's source of income is nothing but interest on fixed deposits and interest on saving bank account, then, this sum is nothing but receipt on account of transfer of flat and garage, namely Flat No.12B and 2A. The Assessing Officer disallowed the exemption by holding that the principle of mutuality will not apply. Once the bye laws of the society prohibit receipt of transfer fees Rs.25,000/- and that is the spirit of the Government Notification as well, then, the Society cannot claim any exemption from tax.

7. Aggrieved by such an order passed on 30th November, 2007 by  the Assessing Officer the Society carried the matter to the Commissioner. The Commissioner’s order is dated 15th March, 2011. He relied upon the judgment of the Division Bench in Sind Co-operative Housing Society (supra). What the Commissioner held in this case by relying upon all the orders of this Court even in the case of this very Assessee that the dispute raised by the Revenue for three Assessment Years 1999-2000, 2001-2002, 2003-2004 have been subject matter of legal proceedings. The same have been decided in favour of the Assessee and against the Revenue following the Division Bench judgment in the case of Sind Co-operative Housing Society vs. Income Tax Officer. Therefore, the order of the Assessing Officer was set aside by the First Appellate Authority.

To read the full judgment, please find the attached file :

Attached file :

http://bombayhighcourt.nic.in/generatenewauth.php?auth=cGF0aD0uL2RhdGEvb3JpZ2luYWwvMjAxNC8mZm5hbWU9SVRYQTEyNDcxMjE4MTIxNC5wZGYmc21mbGFnPU4=

 

Hetvi Sheth
on 24 December 2014
Published in Others
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