The Sindhi Immigrants Co Op Hsg Society ... vs Assessee

The aforesaid appeal has been filed by the Assessee, against order dated 09.10.2012, passed by Ld. CIT(A)-33, Mumbai for the quantum of assessment passed u/s 143(3) for the A.Y. 2009-10, on the following grounds which reads as under:-

" The learned CIT(A) ought not to have confirmed the addition of Rs.29,24,910/-, being amenity fund, an amount collected on transfer of properties, as amount collected is exempted under the principle of mutuality.

The learned CIT(A) ought not to have confirmed the addition of Rs.32,26,025/- the membership fees for gymkhana, received fro non society members, as income of the society."

2 ITA No. 7360/Mum/2012 The Sindhi Immigrants CHSL, Little Malabar Hills

2. At the outset, the Ld. Counsel submitted that both the grounds are covered in favour of the assessee by the order of the Tribunal in assessee's own case for the A.Y. 2006-07, 2003-04, 2004-05 & 2007-08. So far as issue regarding ground no. 1, learned counsel submitted that, this matter has been restored back to the file of the AO and in the set aside proceedings the assessing officer has decided the issue in favour. The second issue has also been set aside to the file of the AO, which too has been decided by the assessing officer in the favour of the assessee. Ld. DR admitted the said contention of the learned counsel.

3. The assessee is a co-operative housing society, which is a plot owner society registered on 09.02.1948. So far as the issue of amenity fund transfer fees, assessing officer held that payment from the members up to Rs.25,000/- is not chargeable to tax and therefore, out of Rs.34,69,910/- only to Rs.5,45,000/- was less than Rs.25,000/- and the balance amount of Rs.29,24,910/- was to be added to the total income of the assessee. So far as the second issue is concerned, the AO held that Gymkhana life membership fees from others, the concept of principle of mutuality is not applicable hence same is to be added as income. This view of the AO has been confirmed by the Ld.CIT(A).

4. We find that the issue raised in ground no. 1, that is, addition on account of amenity fund transfer fees, has been decided by the Tribunal in the following manner:-

"We have considered the rival contention as well as relevant material on record. At the outset, we find that this issue has been adjudicated by the Hon'ble Jurisdictional High Court in the case of Sind Cooperative Hsg Ltd. (supra) wherein their Lordships have observed in para 35 & 36 as under: "Considering these principles, 3 ITA No. 7360/Mum/2012 The Sindhi Immigrants CHSL, Little Malabar Hills

the question is whether on the facts before us, the principle of mutuality would be attracted in respect of the transfer fee received by the housing co-operative societies governed by the provisions of the Maharashtra Co-operative Societies Act and the Rules. In Walkeshwar Triveni Co-op. Housing Society Ltd. (2004) 267 ITR (AT) 86 ; (2004) 88 ITD 158 (Mum) (SB), the Tribunal itself has held that the amount received from the transferor member would not be exigible to tax. It is only the Sind CHS and National CHS Ltd. their bye-laws provide that the amount has to be paid by the transferor member. The issue, therefore, of the transferor or the transferee for those assessees really does not arise. However, we will have to answer the issue considering what was considered in the case of Walkeshwar (2004) 267 ITR (AT) 86 (Bom) and considering the model bye-laws which are not adopted by most housing societies. We have noted the bye-laws as also the provisions under the Act and the Rules. The transfer fee can be appropriated only if the transferee is admitted to membership. The fact that a proposed transferee may make payment in advance by itself is not relevant. The amount can only be appropriated on the transferee being admitted as a member. As it is a transfer fee, if the transferee is not admitted as a member, the amount received will have to be refunded, as the amount is payable only on a transfer of rights of the transferor I the transferee. If it is held that payment of transfer fees is by a stranger, it will certainly be in the nature of gift and not income. If an amount is received more than what is chargeable under the bye-laws or 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."

6 Since in the case in hand, the amount has not received under pressure or coercion or contrary to the bye-laws of the Society; therefore, principles of mutuality will apply. Accordingly, following the decision of the Hon'ble jurisdictional High Court in the case of Sind Cooperative Hsg. Ltd. (supra), we allow the claim of the assessee." 13.1 Since in the case in hand, the assessee has claimed that the bye-laws of the society has been amended from time to time and under the amended bye-laws, the assessee is 4 ITA No. 7360/Mum/2012 The Sindhi Immigrants CHSL, Little Malabar Hills

allowed to receive the transfer charges without any restriction of Rs.25.000/-. Since the amended bye-laws has not been produced before us and as per the old bye-laws, transfer charges upto Rs.25,000/- was permitted to receive by the assessee. Therefore, this issue is remanded to the record of the Assessing Officer to verify whether the amended bye-laws of the society permits to receive the transfer charges as claimed by the assessee and thereafter decide the issue as per law in the light of the decision of the Hon'ble jurisdictional High Court in the case of Sind Co- operative Housing Society (supra). Accordingly, this ground of the assessee is allowed for statistical purpose."

5. In set aside proceedings, the assessing officer vide order dated 14.12.2012 has decided this issue in the following manner:

"5. Transfer Charges received from members in excess of Rs.25000/-

..................

I have gone through the submission of the assessee and direction of the Hon'ble ITAT and have verified the details submitted on record. The society has not adopted new bye laws and it is based on the resolutions passed by the society and it is clear that limit of Rs.25,000/- is not applicable. The entire amount received as transfer charges falls under the principal of mutuality and hence not taxable."

Further this issue is covered by other decisions of the Hon'ble Bombay High Court in the following cases:-

a) Sind Co-operative Housing Society Vs. Income-tax Officer (Bombay HC) 317 ITR 47

b) Mittal Court Premises Co-operative Housing Society Ltd. Vs. ITO (ITA No. 999 of 3=2004) (Bom HC)

c) Shyam CHS vide ITA No. 92, 93, 206 of 2009, dated 17.07.2009 (Bom HC) 5 ITA No. 7360/Mum/2012 The Sindhi Immigrants CHSL, Little Malabar Hills

6. Thus, in view of the aforesaid facts the issues raised in this year are covered by the earlier years precedence and accordingly, Ground No. 1 is treated as allowed.

7. Similarly, the issue raised, in ground no. 2 i.e. on account of Gymkhana life membership from others, the Tribunal in appeal or the A.Y. 2007-08, vide order dated 07.03.2012 has decided the issue in the following manner:

"We have heard both the parties and perused the record as well as gone through the orders of the authorities below. The case of the AO is that the assessee has received fees from the non- members of the society and here is an element of profit motive, therefore, the principles of mutuality has no application. We are of the view that neither the AO nor the CIT(A) discussed the issue elaborately with regard to the element of profit motive in receiving the membership fees from non-members of the society by the assessee and there is no finding that on what basis they come to the said conclusion. In our considered opinion the matter needs detailed verification and examination of the facts. We, therefore, set aside the order of he CIT(A) and restore the issue to the file of the AO with a direction to examine and decide the issue afresh keeping in view of the decision in 2000-01 and 2006- 07 and also the case law relied upon by the learned DR (supra) after providing reasonable opportunity of hearing to the assessee. Thus, this ground of appeal is allowed for statistical purpose in all three years under consideration."

8. In the set aside proceedings, the assessing officer has decided this issue in the favour of the assessee in the following manner:

"5. Life Membership fees for gymkhana received from non members of the society.

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I have gone through the submission of the assessee. The assessee has filed bye laws of the gymkhana, which states that every applicant is made sympathizer member of the society. Facts amount Madras Gymkhana as referred by Ld. DR are differed 6 ITA No. 7360/Mum/2012 The Sindhi Immigrants CHSL, Little Malabar Hills

from that of the assessee as the case referred is on investment of surplus fund in corporate entities and challenging the reopening of the case and hence the case is not applicable here. Considering the facts that every person is made a sympathizer member of the society and also considering the definition of the members as given in the above sighted case law, it is clear that receipts are from members and for members. The transaction is falling within the purview of the principle of mutuality and hence not taxable. Therefore the amount of Rs.7,98,000/- received towards life membership fees falls within the purview of principle of mutuality and hence not taxable."

9. In view of the above and consistent with the view taken in the earlier years, he hold that addition which as been confirmed by the Ld.CIT(A) is uncalled, as it is not taxable in view of the 'principle of mutuality'. Accordingly, ground no. 1 and 2 as raised by the assessee is allowed.

10. In the result, the appeal filed by the Assessee is allowed.

Order pronounced in the open court on this 27th day January, 2015.

Sd/- Sd/- (D. KARUNAKA RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 27.01.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "I" Bench //True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.