RASHI COOPERATIVE GROUP HOUSING SECIETY LTD.,DELHI vs. ITO WARD-43(5), NEW DELHI

The assessee has raised the following grounds of appeal:- “1. That both the orders passed by the Ld. CIT(Appeal-15), New Delhi and the assessment order passed by the Ld. Assessing Officer, 1TO, Ward 43(5), New Delhi are bad in law, suffer from serious defects and are against the facts of the case.

The ld. Counsel of the assessee submitted that the assessee filed nil return of income and the AO completed the assessment at an income of Rs.3,54,312/- making two additions: one on account of rental income and the second on account of interest income and by allowing deduction of Rs.50 lakhs under Rule 80P(2)(c) of the Act. The ld. Counsel submitted that the rental income has been earned by the assessee letting out ATM and milk both for the mutual benefits of the residence only, hence, the principle of mutuality exists and should be applied and the same cannot be taxed in the hands of the assessee as per the judgement of the Hon’ble Supreme Court in the case of ITO, Mumbai vs. Venkatesh Premises Cooperative Society Ltd. in Civil Appeal No.2706 of 2018. The ld. AR also submitted that the AO has charged double tax on both rental and interest income since the letting out of milk booth and ATM is for the benefit of members and mutuality stands established. The ld. AR submitted that alternatively, the AO should be directed to recalculate the tax on rental income and interest income only once and to recomputed the income of the assessee as per law.

Replying to the above, the ld. Sr. DR strongly supported the action of the authorities below and submitted that the theory of mutuality does not apply to the present case.

Placing rejoinder to the above, the ld. AR drew our attention to para 4 of the assessment order and submitted that the assessee has properly explained the facts and circumstances pertaining to rental and interest income before the AO which clearly reveals that the theory of mutuality applies to both the receipts as the ATM and milk booth are for the benefit of the residents and the interest has been charged on the amount outstanding to the members. Therefore, it qualifies the test of mutuality since the contributors are the same persons, thus, no addition is called for in this regard in the hands of the assessee.

On careful consideration of the rival submissions, first of all, I may point out that for the purpose of establishing the theory of mutuality, it is the duty of the assessee to establish that the receipts arose from the transactions were undertaken between the assessee and the cooperative society and its members and the assessee has submitted proper explanation and submissions in this regard. In the case of ITO Mumbai vs. Venkatesh Premises Cooperative Society Ltd.(supra), the Hon’ble Supreme Court has observed as follows:-

In view of the above, from the orders of the authorities below, I further note that it is not the case of the AO that the impugned amount of interest was not accrued to the assessee from its members. So far as the rental income is concerned, para 4.1 of the assessment order reveals that the case of the assessee was reopened u/s 147 of the Act due to the reason of non-declaration of rental receipts by the 3 assessee. It is also the argument of the ld. Counsel of the assessee that even if the assessee is not entitled for exemption under the principles of mutuality, then also the assessee has shown rental income and interest income in its income & expenditure account for the year ended on 31st March, 2011 wherein there was no surplus that could be taxed in the hands of the assessee.

The ld. Sr. DR strongly opposed and submitted that the relief claimed by the assessee, i.e., benefit on the basis of principle of mutuality cannot be allowed in absence of relevant documentary evidence. I am also constrained to agree with the contention of the ld. AR that the theory of mutuality applies to the rental and interest income accrued to the assessee during the relevant financial period.

However, the uncontroverted copy of the balance sheet reveals that the expenditure and income during the relevant financial period 2010-11 pertaining to AY 2011-12 i.e., Rs.62,26,957.00 leaves no surplus in the hands of the assessee which could be taxed. From the entries in the income side, I clearly note that the assessee has shown income of interest earned and bank charges of Rs.4,04,039/- and the rent receipt of Rs.5,59,445/- which is inclusive in the total income declared by the assessee. Therefore, as agreed by the ld. Representatives of both the sides, without expressing any conclusion on the applicability of theory of mutuality, to the impugned receipts of rental and interest income, I conclude that when the assessee has included the entire amount of rental and interest income and there was no surplus which could be taxed in the hands of the assessee, then, if further addition is made in the hands of the assessee on account of rental and interest receipts/income, then, that would certainly amount to double addition and, therefore, the AO is directed to delete the addition. Accordingly, the appeal of the assessee is allowed on alternative ground. Before I part with the order, I make it clear that the issue of applicability of principle of mutuality to both the issues of the assessee have been left open without any adjudication and relief is being granted on account of a fact that no surplus have been accrued to the assessee as per income and expenditure account.