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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI N. K. CHOUDHRY, JM
Appellant) : Respondent) Appellant/Assessee by : Ms. Manshi Padhiar, CA Revenue/Respondent by : Sh. Anurag Tripathi, DR Date of Hearing : 31.08.2023 Date of Pronouncement : 27.09.2023 O R D E R Per N. K. Choudhry, JM:
The Assessee/Appellant herein has preferred this appeal against the order dated 20.03.2023 impugned herein passed by Ld. Commissioner of Income Tax (Appeals)-32/National Faceless Appeal Centre (NFAC), Delhi {in short ‘Ld. Commissioner’} u/s 250 of the Income Tax Act 1961 (in short ‘the Act’).
In this case, the Assessee had received transfer fees of Rs. 1,00,000/- from outgoing members (Rs. 25,000/- each from 04 members) on account of share and block transfer fees and credited the same in its profit and loss account and adjusted against the expenses
Shree Vile Parle Gujarati Mandal CHSL debited. The Assessing Officer by observing that the treatment given by the Assessee is not as per provisions of law, asked the Assessee to explain, as to why transfer fees received from the members should not be disallowed and added back to the total income to the Assessee, as the same is not covered under the principle of mutuality.
The Assessee by a filling letter dated 23.12.2016 mainly claimed that transfer fee is the sum payable by member of society for transfer of his shares along with the occupancy right and the same in spent by the Assessee for the benefit and welfare of all the members of the Assessee’s society. Transfer fee is covered under the principle of mutuality. The Assessee before the assessing officer also relied upon the judgment passed by the Hon’ble Bombay High Court in the case of CIT v/s Darbhanga Mentions CHS limited (ITA No. 1474 of 2012 decided on 18.12.2014 (2015) (61 taxmann.com) and by the Hon’ble Tribunal in the case of McKinsey & Company vs Joint Director of Income-tax (ITA No. 1598/M/2014).
The assessing officer by relying upon the judgment passed by the Hon’ble Apex Court in the case of CIT Vs. Bankipur Club Limited (1997) 226 ITR 97 (SC) disallowed the said claim of the Assessee by holding as under: “From the above quoted decision of the Supreme Court, it is clear that there is a necessity that the participators in the surplus are contributors, In the instant case the transfer fees are given by the outgoing members therefore, it is very clear that they are not participators in the surplus and the amount paid by the transferors does not any right to them for participation in the surplus or enjoyment of any facilities offered by the society. Therefore, there is no concept of mutuality applicable in any way. Besides this, it is further reiterated that there is no concept of mutuality whether the transfer fees received from an incoming member or an outgoing member. As regards outgoing member, it is understood that the member to fulfill certain conditions so as to be admitted to the society's membership and become its shareholder. This aspect is clearly mentioned in the bye laws of the Society. Therefore, the transfer fees received
Shree Vile Parle Gujarati Mandal CHSL whether from an outgoing or an incoming member, it does not have any mutuality concept. It is purely an income that has to be taxed as income earned by the Society. It cannot be termed as a contribution. Therefore, even if the payment is come from an incoming member, it can be taken as "payment so as to be eligible for the purpose of participation and it is not payment from the participant. Therefore, the Assessee’s claim that mutuality concept is applicable is not accepted. In view of the above and with due respect to the disagreeing with the Courts in the case laws cited by the assessee, the concept of mutuality does not exist for receipts made on transfer. In view of the above, transfer fees received by the assessee Co-op Housing Society amounting to Rs. 1,00,000/- is treated as a Revenue Receipt and it is liable to tax as income and they are not exempted on the principle of Mutuality. In view of the above, the assessee has furnished inaccurate particulars to the extent of income of Rs.1,00,000/- Hence, penalty u/s 271(1)(c) read with Explanation 1 to sec. 271(1)(c) of the I. T. Act, 1961 is initiated.”
The Assessee being aggrieved challenged the said disallowance before the Ld. Commissioner in first appeal. The Ld. Commissioner noticed that the appeal was late by 54 days but the Assessee has not submitted any written submission/documentary evidence in this regard. Hence there was no reasonable cause of delay in filling of present appeal. The Assessee despite being given number of opportunities also not furnished any explanation in this regard. Section 249(3) of the Act discretionary in nature and the Assessee has to satisfy by explaining the sufficient cause for the delay. The Ld. Commissioner also observed that the Assessee has raised further grounds of appeal but in view of decision in respect of condonation delay, it is seen that there is no need for adjudication of other grounds of appeal. The Ld. Commissioner ultimately dismissed the appeal of the Assessee, against which the Assessee is an appeal before us.
I have heard both the parties and perused the material available on record. The Ld. Counsel Miss Manshi Padhiar out rightly claimed that the Assessee received the assessment order u/s 143(3) of the Act dated 11.03.2016, on dated 22.03.2016 and within the limitation period on Shree Vile Parle Gujarati Mandal CHSL 21.04.2016 filed first appeal before the Ld. Commissioner in physical form. Thereafter CBDT considered the following facts:
“Rule 45 of the Income Tax Rules, 1962, mandates compulsory e-filing of appeals before Commissioners of Income Tax (Appeals) with effect from 01.03.2016 in respect of persons who are required to furnish return of income electronically. It has come to the notice of the Central Board of Direct Taxes (hereinafter referred to as the Board) that in some cases the taxpayers who were required to e-file Form 35, were unable to do so due to lack of knowledge about e- filing procedure and/or technical issues in e-filing. Also, the EVC functionality for verification of e-appeals was made operational from 12.05.2016 for individuals and from 19.05.2016 for other persons. Word limit for filing grounds of appeal and mapping ofjurisdiction of Commissioners of Income Tax (Appeals) were also a cause of grievance in some cases.
2. The matter has been examined by the Board. While the underlying issues relating to e-filing of appeals have since been addressed and resolved, in order to mitigate any inconvenience caused to the taxpayers on account of the new requirement of mandatory e-filing appeals.”
And decided to extend the time limit upto 15.06.2016 for filing of such e-appeals, which were due to be filed upto 15.05.2016. T h e C B D T f u r t h e r d e c i d e d t h a t a ll e-appeals filed within this extended period would be treated as appeals filed in time. The CBDT further decided that in view of the extended window for filing e- appeals, taxpayers who could not successfully e-file their appeal and had filed paper appeals are required to file an e-appeal in accordance with Rule 45 before the extended period i.e. 15.06.2016. Such e-appeals would also be treated as appeals filed within time.
5.1 The Assessee without waiting for unnecessary delay filed its appeal in physical form on 21.04.2016 and thereafter immediately after of CBDT Circular No. 20/2016 and operation of the EVC functionality, immediately filed its E-appeal in the platform of the Revenue department on 15.06.2016, which was duly acknowledged by computer acknowledged
Shree Vile Parle Gujarati Mandal CHSL receipt dated 15.06.2016 (PB 35) and therefore facts goes to show that the appeals filed by the Assessee including by E-filling was within the limitation period as clarified by the CBDT Circular (Supra) hence impugned order on this score is liable to be set aside.
5.2 I have given thoughtful consideration to the peculiar facts and circumstances of the case. Considering this case as exceptional, because due to misconception about the time period of filling appeal through e- filling, the Ld. Commissioner dismissed the appeal of the Assessee in limine, which is un-sustainable, hence I am inclined to decide the appeal on merit. In this case, the Assessee society is AOP (co-operative housing society) and claimed to have adjusted amount of Rs. 1,00,000/- (Rs. 25,000/- each from 04 members) as transfer fees for transferring the flats to new members, which was disallowed by the assessing officer and treated as revenue receipt as taxable and not being exempted on the principle of mutuality on the basis of the judgment of the Hon’ble Apex Court in the case of Bankipur Club Limited (supra).
5.3 The question emerge as to whether transfer fee from outgoing or incoming member is liable to be taxed on the ground of principle of mutuality.
5.4 The Ld. AR claimed that the Hon’ble High Court of Bombay in the case of CIT v/s Darbhanga mentions CHS Ltd (2015) 370 ITR 443 (Bom) (HC) and the Hon’ble Tribunal in the case of The Casa Grande Co-op. Housing Society Ltd (ITA No. 4598/M/2014) dealt with the identical issue. 5.5 On the contrary the Ld. DR refuted the claim of the Assessee by relying upon the judgment passed by the Hon’ble Apex Court in the case of Secundrabad Club Etc. v/s CIT in Civil Appeal No. 5195-5201 of 2012 decided on 17.08.2023, whereas as per Ld. AR Miss. Manshi Padhiar,
Shree Vile Parle Gujarati Mandal CHSL infact this judgment is not applicable to the facts and issue involved in this case, as the Hon’ble Apex Court dealt with the following questions/issues:
“a) Whether the judgment of this Court in Bangalore Club would call for reconsideration in light of the "Order" of this Court in Cawnpore Club? b) Whether the interest on income earned by Clubs such as the appellants herein would be covered under the principle of mutuality and therefore be exempt from payment of tax? c) What Order?”
5.6 I am in concurrence with the contention raised by the Ld AR that the instant judgment as referred to above by the Ld. DR, is not at all applicable to the instant case, hence the contention of Ld. DR is unsustainable. I further observe that the Hon’ble Jurisdictional High Court in the case of Mittal Court Premises Co-operative Society Ltd vs. ITO Ward 12(3)(1) (2009) 184 taxmann.com 292 (Bombay) and in the case of Sind cooperative housing society v/s ITO ward 1(7) Pune (2009) (182) taxmann.com 346 (Mumbai) also dealt with the decision rendered by the Hon’ble Apex Court in the case of CIT Vs Bankipur Club Limited (supra) which has mainly been relied upon by the assessing officer for making the disallowance/declining the claim of the Assessee. The Hon’ble High Court in the aforesaid cases held that the transaction fee received from transferor would be governed by principle of mutuality and therefore would not be exigible to tax. Further, transfer fee from outgoing or incoming parties is not liable to tax on the ground of principle of mutuality. Hence, respectfully following the judgments of the Hon’ble Jurisdictional High Court, I am inclined to allow the claim of the Assessee and resultantly to delete the addition of Rs. 1,00,000/- by the AO and affirmed by the Ld. Commissioner, hence ordered accordingly.
Shree Vile Parle Gujarati Mandal CHSL
In the result, appeal filed by the Assessee stands allowed.