Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI AMIT SHUKLA
The aforesaid appeal has been filed by the assessee against the impugned order dated 29.01.2016 passed by the ld. CIT(A)-I, Noida for the quantum of assessment passed under section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) for the assessment year 2012-13. 2. In the grounds of appeal, the assessee has raised the following grounds :-
2. That the addition of Rs.8,27,80/- (Rupees Eight Lac Twenty Seven Thousand Eight Hundred Only) as Room rent charges as confirmed by the Learned Commissioner Income Tax (Appeals) over looked the principle of mutuality which is applicable in the present case since this is a housing society and works only towards the welfare of its members;
3. That the addition of Rs.19,86,000/- (Rupees Nineteen Lac Eighty Six Thousand Only) as erne Charges as confirmed by the Learned Commissioner Income Tax (Appeals) over looked' the principle of mutuality. The said amount is collected from the new members of the society for compulsory levy of transfer charges in case of dwelling unit is sold to third party;
4. That the addition of Rs.27,13,863/- (Rupees Twenty Seven Lac Thirteen Thousand Eight Hundred and Sixty Three Only) as Transfer charges as confirmed by the Learned Commissioner, Income Tax (Appeals) over looked the principle of mutuality. This amount is collected from the member in case of transfer by way of sale purchase to other members.
5. That the addition confirmed of Rs.82,955/- (Rupees Eighty Two Thousand Nine Hundred Fifty Five Only) received from its members for providing the services such as electrical and, carpenter, overlooking the principle of mutuality.
6. Because the Learned Commissioner Income Tax (Appeals), has admitted that the appellant is mutual benefit society and not carrying on any business for profit and collect money from its members and use it exclusively for the benefits and welfare of the members.
That the receipt from the members does not fall within the ambit of the definition of word Income as defined under section 2(24) of the Income Tax Act, 1961.”
The fats in brief in respect of the aforesaid grounds are that the assessee is a Resident Welfare Association registered under the Registrar of Societies, Meerut. As per the income and expenditure account, assessee declared gross receipts of Rs.6,99,51,734/- and has claimed expenses of Rs.7,29,59,334/- and accordingly, net loss was declared at Rs.30,07,600/-. Insofar as additions raised in ground nos.2, 3, 4 & 5, the brief reasons given by the AO for making the additions are as under :- “The assessee has discussed rental income received from shops amounting to Rs.8,27,800/- and rent from Airtel Tower amounting to Rs.74,794/- totaling to Rs.9,02,594/-. Similarly room rent of Rs.5000/- and of Rs 81,800 is also shown as counter rent income and claimed exempt on the principal of mutuality. These amounts / income did not fall within principal of mutuality, as the venders are not a member but a 3rd party and therefore liable to be taxed separately. Considering the above facts the rental income amounting to Rs.9,89,394/- is added in the income of the assessee. Penalty proceedings u/s 271(1)(c) are initiated separately for submitting inaccurate particulars of income. (Addition of Rs.9,89,394/-) …..
The assessee has shown a sum of Rs.19,86,000/- as welcome charges from new members. This is sort of a compulsory levy/ charges. This amount is also not supported by Bye- laws of society. This cannot be take character of mutual principal. The same amount of Rs.19,86,000/- is added to the income of assessee. Penalty proceedings u/s 271(1)(c ) are initiated separately for submitting inaccurate particulars of income. (Addition of Rs.19,86,000/-) …..
The assessee has shown a sum of Rs.27,13,863/- as transfer (NOC) charges. Actually, any members sale/ purchase any flat in the society, is liable to pay the charges to assessee society from obtaining NOC. This charge from new members.
4 This is sort of a compulsory levy/ charges. This amount is also not supported by Bye-haws of society. This cannot be take character of mutual principal. The same amount of Rs.27,13,863 is added to the income of assessee. Penalty proceedings u/s 271 (1)(c ) are initiated separately for submitting inaccurate particulars of income. (Addition of Rs.27,13,863) ……… Miscellaneous income 82,955/, is not fall within the ambit of Mutuality Principle and will be subject to Income Tax in the hands of the assessee. (Addition of Rs.82,955)”
Ld. CIT (A) has confirmed these additions after observing and holding as under :- “19. The next ground of addition was an amount of Rs.9,89,394/- which was the rental income receipts from various persons. The ld. AO held that the rental income will not be covered by the principle of mutuality and therefore is liable to be added to taxable income of the appellant. The ld. counsel for the appellant on 28/04/2015 filed a letter where it gave the breakup of the rental income which was claimed to be 9,89,381/- as against the figure of Rs.9,89,394/- taken by the Id. AO. Perusal of this breakup shows that an amount of Rs.8,27,800/- was the shop rent, Rs. 81,800/- was counter rent, Rs.5,ooo/- was room rent and Rs.74,794/- as rent from Airtel Tower. The ld. counsel claimed that out of this, only rent from Airtel Tower and counter rent receipts from petty venders was taxable while other receipts were not taxable.
The shop rent was stated to be rent received by the appellant by letting out various shops which were built by the appellant society for running various utilities and other activities. The Memorandum of Association as filed by the appellant does not permit or provide such an activity. In any case the rent is not being received from the members of the society the provisions of Clause-14, para B of the Memorandum of Association which provides for members of the appellant society does not contain a tenant to be a member of the society. Therefore, any income received from 5 a tenant in any manner whatsoever is liable to be included in the taxable income of the appellant. The amount of Rs.8,27,800/- is therefore taxable receipt and AO. has correctly included this receipt in the taxable income of the appellant. The addition of Rs.8,27,800/- as rent received from tenants of the shop is therefore confirmed.
………..
The next ground of addition is Rs. 19,86,0001- which was received as welcome charges from new members of the appellant society. The ld. AO held that the memorandum. of association and the byelaws of the society does not provide for levy of penalty any such charges on its members. The basic question which arises here for consideration is whether any amount collected from the members outside the purview of the Memorandum of Association can be said to be covered by the principle of mutuality. A member of the society is bound to pay to the society whatever dues are provided in the Memorandum of Association and the byelaws of the society. Any such receipt will be covered by the principle of mutuality as the same was paid in the capacity of the member. A payment outside the purview of Memorandum of Association and the byelaws of the society cannot be considered to be payment as member of the society. A person can have various capacities which may include one such capacity to be that of the member of the society. Merely because one person is member of the society any and every payment from that person to the society will not qualify as payment by that person as member of the society. A person may be making payment to the society as its member as well as in other capacities. Since in the present case the payment is outside the purview of the Memorandum of Association and the byelaws of the society the same cannot be held to be payment as members of the society. It is neither necessary nor permissible in law to the revenue to go into correctness of the act of the society in collecting levies outside the purview of the Memorandum of Association and the byelaws of the society. It is sufficient for the revenue if the money has been received by the society and the same is not as the member of the society. In view of these facts and circumstances, I do not find any infirmity in 6 the act of the ld. AO in treating the amount of Rs.19,86,000/- collected from the members of the society outside the purview of the Memorandum of Association and the byelaws of the society as taxable receipt. The same is therefore confirmed.
The next ground of addition of Rs.27,13,863/- is on account of transfer charges received from new members on account of sale/ purchase of fiats in the society. The ld. AO has held that this is not provided in the byelaws of the society and therefore it cannot come under the purview of the principle of mutuality. The basic question here is whether the payment is received from a member or otherwise. From the material on record it seen that this is the amount received from incoming members as condition precedent to become member of the society. As without making such payment a person cannot become the member of the society, it cannot be held to be payment from a member as this is a payment by a person prior to the stage when he 1 she becomes the member of the society. In view of this the principle of mutuality will not be available to the appellant society on this issue. The addition of Rs.27,13,863/- is therefore, confirmed.
The next ground of addition is Rs.82,955 on account of miscellaneous income. The ld. AO has held that the principle of mutuality will not apply to this income and same is therefore liable to be taxed. As this income is not coming from the members the same is correctly brought to the taxable portion of the income of the appellant. The same is confirmed.”
After considering the submission made by the parties and on perusal of the relevant documents referred to before us, specifically Memorandum of Association and Bye-laws of the assessee society, we find that insofar as addition of Rs.8,27,800/- which is on account of rent received from the tenants of the shops, AO has held that same do not fall under the principle of mutuality as the vendors are not a member but a third party. The ld. CIT (A) has held that shop rent was 7 stated to be rent received by the assessee by letting out various shops which were built by the assessee society for running various utilities and other activities for the members of the society. However, he observed that Memorandum of Association does not permit to provide such an activity and in any case, the rent was not received from the members of the society. Before us, ld. counsel for the assessee submitted that the Memorandum of Association clearly had a clause of renting of shops and assessee is only claiming rent given to the members only. This is clearly borne out from clause 18 at page 63 of the appeal set which deals with renting out of the dwelling units/shops. The RWA was responsible for the management of the central facilities, shopping complex and any other commercial activities in the society and society was to ensure that the allotment of the shops is given to the members and preference is to be given to the ex-servicemen and widows of army personnel and the allottee must reside in the society. Thus, the findings of the ld. CIT (A) is not correct.
On the other hand, ld. DR for the Revenue submitted that this matter can be restored back to the AO to examine whether the shops were rented out to the members of the society.
7. On going through the findings of the AO and ld. CIT (A), we find that it is not a dispute that assessee’s income is governed by the principle of mutuality. The only objection raised by the ld. CIT (A) was that Memorandum of Association does not permit such an activity whereas this fact is contrary to the clauses of Memorandum of Association filed before us. Accordingly, we agree with the submission of the ld. DR for the Revenue to restore the matter to AO to examine whether shops have been rented to the members of the society and the 8 rent received is used only for the purpose of the welfare association and its members. If the shops have been rented to the members and income used for the welfare of the residents, then same cannot be taxed.
Insofar as addition of Rs.19,86,000/- as Welcome Charges, the case of the AO is that Memorandum of Association and Bye-laws does not support the levy of penalty or such charges. Ld. CIT (A) has held that payment is outside of the purview of Memorandum of Association and Bye-laws and same cannot be held as payment from members of the society.
Ld. Counsel for the assessee submitted that these charges are again part of the Memorandum of Association and Bye-laws and these charges have been taken from the new members of the assessee society. Therefore, the addition made by the AO is not based on proper appreciation of facts.
Looking to the nature of charges which have been in the nomenclature of new members, ostensibly the charges have been taken from the members to be utilized for the welfare of the members residing in the society and if that is so, the principle of mutuality is definitely attracted. However, this issue is also remanded back to the file of the AO and assessee is directed to demonstrate as to how Memorandum of Association and Bye-laws authorizes such kind of charges to new members and if it is found in accordance with the Memorandum of Association and Bye-laws then the addition cannot be made.
Similarly, as regards addition of Rs.27,13,863/- on account of transfer charges received from new members on account of sale/purchase of flats in the society, it is an amount received from incoming members as a condition precedent to become the member of the society. Such a payment will definitely fall within the principle of mutuality because it is not a source of regular income received from outside members albeit from the incoming members coming into fold of members of society. This has also been provided in Bye-laws and clause 18 provides that initial subscription be paid at the time of allotment and sale/resale or transfer of dwelling unit of a permanent life member of the society. This addition of Rs.27,13,863/- is thus deleted.
Lastly, insofar as addition of Rs.82,955/- on account of misc. income, we agree with the observations made by the ld. CIT(A) that such income is not coming from the members and, therefore, it is not govern by principle of mutuality and accordingly this addition is confirmed.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order was pronounced on 23rd day of February, 2022.