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Facts
The assessee, a cooperative housing society, filed its return declaring Nil income after claiming deduction. The CPC processed the return and made an addition of Rs. 8,00,142/- on account of business income, while allowing a deduction u/s 80P(2)(d). The CIT(A) allowed the 80P deduction but did not grant relief on the business income addition.
Held
The Tribunal held that income from members collected by the managing committee, even with a surplus, falls under the principle of mutuality and is not taxable. Since the assessee was a registered cooperative society that fulfilled the conditions of mutuality and had not carried out any business activity, the addition was deleted.
Key Issues
Whether the surplus income of a cooperative housing society derived from its members, collected as maintenance and other charges, is taxable as business income or is exempt under the principle of mutuality.
Sections Cited
250, 143(1), 143(1)(a)(ii), 80P(2)(d), 80P
AI-generated summary — verify with the full judgment below
Before: SHRI SANDEEP SINGH KARHAIL & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: These two appeals by the assessee emanate from the orders passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 20.01.2025 and 22.01.2025 by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short, ‘CIT(A)’] for the assessment years (AYs) 2018-19 and 2019-20 respectively. Since the facts and grounds raised by the appellant are similar, with consent of parties, both cases were heard together and a common order is passed for sake of convenience and brevity.
is taken as the ‘lead case’. 2. The grounds of appeal raised by the assessee in are as under:
1. & 1888/MUM/2024/AYs.2018-19 & 2019-20 Chancellor Court Co-op Housing Society “1. The learned CIT Appeal, in the facts and circumstances of the case failed to appreciate that non-correction of mismatched in column number 1 and 3 of the schedule attached with the return of income. The disallowance of Rs.8,00,142/-arising out of principals of mutuality is not acceptable.
The learned CIT(A) while accepting exempt income of the appellant out of mutuality incorrect relied on finding of CPC that the mistake in column 1 and 3 of the schedule not rectified.
3. The CPC while disallowing claim of Rs.8,00,142/- has made the addition U/s [clause(a)(ii)] of the section 143(1).
The learned CIT(A) has failed to legally appreciate once co-operative society status with income arising from mutuality no claim can be disallowed on the minor technical issue.
The invocation of sub-section (1)(a)(ii) of section 143(i) does not empower the CPC to discard substantial issue like co-operative society status and income arising from mutuality on minor technical ground.
6. The Learned CIT(A) has already accepted the substantial ground like co- operative society status and exemption of income arising out of business activities with the member as permitted by and under MSC Act.”
Facts of the case in brief are that the assessee-society filed its return of income for AY.2018-19 on 12.098.2018, declaring total income of Rs. Nil after claiming deduction under Chapter VIA of Rs.7,234/-. The said return was processed by the Central Processing Centre (CPC) and intimation u/s 143(1) of the Act was issued on 30.09.2020, making certain adjustment and determining the total income at Rs.8,07,380/-. In the said intimation, deduction u/s 80P(2)(d) of the Act of Rs.7,234/- and business income of Rs.8,00,142/- were added.
4. Aggrieved by the order of AO, the assessee filed this appeal before the CIT(A). The CIT(A) allowed the deduction u/s 80P(2)(d) of the Act. He, however, did not allow any relief in respect of addition of Rs.8,00,142/- towards business & 1888/MUM/2024/AYs.2018-19 & 2019-20 Chancellor Court Co-op Housing Society income. The appellant in its submission had stated that it was a registered co- operative society and it had fulfilled all the conditions of the test of mutuality, as the investment utilized specifically are for the purpose for which it was created, which is furtherance of objectives and aims of association and nothing else. All the conditions in respect of test of mutuality are satisfied by the assessee. The CIT(A) did not accept the contention of the assessee by stating that in its submission, the appellant has not mentioned anything about the mismatches and mistakes of reporting figures in different columns of ITR.
5. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. Though the appellant has raised six grounds of appeal
, they are inter- connected and pertaining to addition of Rs.8,00,142/-. The learned Authorized Representative (ld. AR) of the assessee has filed various details including income and expenditure account for the year under consideration, balance sheet and submitted that the contributions appearing in the income and expenditure account are from the members of the assessee-society and therefore, the surplus arising after meeting various expenses of the society are covered under the principle of mutuality and not taxable. He also submitted that no business was carried on by the appellant during the year, which is evident from audited accounts submitted by it. He further submitted that there is no addition on the similar issue in the earlier year or subsequent years. He has relied on the decision as contended before the CIT(A) including decision & 1888/MUM/2024/AYs.2018-19 & 2019
20. Chancellor Court Co-op Housing Society of ITAT, Mumbai in case of Lands End Co-operative Housing Society Limited vs. ITO, in dated 15.01.2016.
On the other hand, learned Senior Departmental Representative (ld. Sr. DR) of the revenue supported the order of lower authorities.
We have heard both the parties and perused the material available on record. We have also deliberated upon the case laws relied on by the ld. AR. Under the Income-tax Act, the cooperative-societies are taxable entities. It falls under the category of an Association of Persons (AOP) which is a group of individuals (whether incorporated or not) who get together with a common purpose and have a legal entity. Under the Co-operative Societies Act, housing societies are granted a separate legal existence. But, not all income earned by the housing societies is taxable. Section 80P of the Act applies to Co-operative Housing Societies, providing rules of deduction in respect of income of co- operative societies. While the housing society has a number of sources that bring in finances, not all of their earnings are taxable. Their income can be roughly divided into two categories, i.e., (i) income that comes from the members and (ii) the income which comes from non-members. The main source of income of the housing society is the pulling together of the member’s financial contributions to pay for the services and amenities provided to its members. This includes a number of charges paid by the members such as maintenance expenses, water, electricity and service tax charges, life charges etc. All these are simply collected by the managing & 1888/MUM/2024/AYs.2018-19 & 2019-20 Chancellor Court Co-op Housing Society committee who acts as a collector and which, in turn, pays to various parties concerned. These are not taxable under the Income-tax Act. Even after charges have been paid by the society and there remains some surplus, it is not taxable and is categorized as an exemption under the “Principle of mutuality”. The essence of the doctrine of mutuality lies in the principle that what is returned is what a member contributes. A person cannot trade with himself; he cannot make taxable profit by dealing with himself. All the expenses are paid by the members towards a common fund which cannot be considered as income of any person. From the income of expenditure account, for the year ended 31.03.2018, it is seen that the income of the society includes maintenance charges received from members of the society, water charges, property tax collection, electricity charges, interest of savings account and interests from members. After meeting various expenses, such as property tax, electricity, water, security charges etc., there was a surplus of Rs.8,05,404/-. Hence, the excess of income falls under the concept of mutuality and is not liable to be taxed. It is also clear from the audited account that the assessee had not carried out any business activity during the year. In view of the discussion made above, the order of CIT(A) is set aside and the AO is directed to delete the addition of Rs.8,00,142/-. The grounds are, accordingly, allowed.
In the result, appeal of the assessee is allowed. (AY.2019-20):
& 1888/MUM/2024/AYs.2018-19 & 2019-20 Chancellor Court Co-op Housing Society 9. The facts and grounds are similar. Hence, following the findings in AY.2018-19, the grounds are allowed. Accordingly, appeal of the assessee is also allowed. 10. In the result, appeal of the assessee is allowed. 11. In the combined result, the appeals of the assessee are allowed. Order pronounced on 15/05/2025.