LAXMI FINANCE & LEASING COMPANIES COMMERCIAL PREMISES COOPERATIVE SOCIETY LTD,MUMBAI vs. ASST CIT 14(1), MUMBAI

PER PAVAN KUMAR GADALE JM: These are the appeals filed by the assessee against the common order of the Ld. CIT(A)-29, Mumbai passed u/s 143(3) and 250 of the Act.

Since the issues involved in these appeals are identical, and similar, hence they are clubbed, heard and consolidated order is passed.

For the sake of convenience, we shall take up the ITA No. 4521/Mum/2015. (A.Y.2011-12) as a lead case and facts narrated therein. The assessee has raised the following grounds of appeal.

Ground No. 1: On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) grossly erred in confirming the addition made by the A.O. of Rs.10,00,000/- received by the appellant on account of transfer fee, ignoring the vital favorable judicial pronouncements in the matter wherein it has been held that the transfer fee falls within the ambit of concept of mutuality and therefore not taxable. The appellant prays that the addition of Rs. 10,00,000/- may kindly be deleted. Ground No.2: On the facts and in the circumstances of the case and in law,

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai the Hon'ble CIT(A) erred in directing the A.O. to determine the ALV of the rented properties on the basis of the average rent received from Mls.Enam Securities and MIs.Trans Expo Trade Pvt.Ltd. as against the ALV offered of the rented properties by the appellant on the basis of actual rent received. The appellant prays that the A.O. may be directed to accept the ALV of the rented property on the basis of the actual rent received and offered to tax. Ground No.3: On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in directing the A.O. to determine the ALV of the vacant properties on the basis of average rent being received by the appellant from the MIs.Enam Securities and M/s.Trans Expo Trade Pvt.Ltd. and apply the average rate to determine the ALV of the vacant properties as against the appellant's contention that the ALV of the vacant properties may be taken at municipal ratable value. The appellant prays that the A.O. may be directed to determine the ALV of vacant properties on the basis of Municipal Ratable Value. Ground No.4: Without prejudice to our contentions raised in Ground Nos. 2 & 3 above and in case above contentions are not accepted then on the facts and in the circumstances of the case and in law, the Hon"ble CIT(A) erred in directing the A.O. to exclude the rent received from M/s.Lupin Ltd. while calculating the average rent to be applied in determining the ALV of all the properties i.e. rental as well as vacant Ground No.5: On the facts and in the circumstances of the case and in law, the Hon"ble CIT(A) erred in not allowing the vacancy allowance in respect of the vacant properties which were let out in the last previous year. The appellant prays that the vacancy allowance in respect of such vacant properties may be allowed. Ground No.6:

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai On the facts and in the circumstances of the case and in law, the Hodble CIT(A) en-ed in concluding that the properties are not covered under the Rent Control Act. Ground No.7: On the facts and in the circumstances of the case and in law, the Hodble CIT(A) erred in levying interest u/s.234B, 234C and 234D of the Income Tax Act.

“4.4 Subsequent to the discussion above, Plain terms of the statute would give a meaning that if it is evident that amount any property is reasonably expected to let from year to years is higher than the amount offered to tax then the same should be taken as annual lettable value. Further, the section also makes it clear that this applies whether or not the property has been actually let out or ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai not so consequently, properties which were vacant during the year would be covered by this deeming fiction of law.

Sl. Property Occupant Area AVL based AVL as per no details rented on rent AO (Rs. 230 received as per sw ft per per month) assessee 1 C-25, G Lupin Ltd 5000 1,02,00,000 1,38,00,000 Block, Office No. B/2, 7 th Floor (B- 2-7) 2 C-25, G Enam 5000 1,26,50,000 1,38,00,000 Block, Office Securitie No. A/2, 8 s th Floor (A- 2-4)

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai 3 C-25, G Trans 5000 71,75,000 1,38,00,000 Block, Office Espo No. B/10, Trade 2nd Floor Pvt ltd (B-10-7) 4 C-25, G 5000 0 1,38,00,000 Block, Office Vacant No. 9B, C Wing, 2nd Floor 5 C-25, G Vacant 5000 0 69,00,000 Block, Office No. A/11, 2nd Floor 6 C-25, G Vacant 5000 0 26,49,600 Block, Office B Wing, 9th Floor Total annual lettable value 3,00,25,000 6,47,49,600

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai the ambit of tax payment and consequently, the same is disallowed from the calculation.

Particulars Amount Annual lettable value of the 6,47,49,600 property Less unrealized rent 27,25,000 Add; recovery of BMC property tax 22,02,255 Less: property tax 22,28,994 Less: additional BMC Property Tax 22,02,255 5,97,95,606 Less: 30% standard deduction 1,79,38,682 Income from house property 4,18,56,924 4.8 Income offered by the assessee under the head is Rs. 1,82,91,836/- and consequently, and addition of Rs. 2,35,65,088/- is being made to the income of the assessee under the head of income from house property.

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai

“On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) grossly erred in holding that the annual value of the vacant property should be calculated on the basis of municipal ratable value.”

i) Is there any commerciality involved?

ii) From the moneys received are the services offered in nature of profit sharing or privileges or advantages and conveniences?

iii) Are the participants and the contributors are identifiable and belonged to the same class in the case of co-operative society?

iv) Do the members have the right to share the surplus and do they have any right to deal with the surplus.

“In this regard, the appellant would like to state that in our case, admittedly there is no commerciality involved, because the fund has been taken from both the transferor and transferee which has gone to the Members' contribution account of the Society and the same is utilized for the mutual benefit of all the Members of the Society. Therefore, the first requirement of mutuality is satisfied.

In regard to 2nd test, in the case of Co-operative Society, the only activities which it can carry out in terms of bye-laws are basically maintenance of its properties which includes building or buildings. The subscription and or contribution received by the Members can only be expanded for the ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai purpose of maintenance and providing other amenities, privileges, advantages and conveniences to its Members in terms of bye-laws. The same has been done by the appellant. Therefore, the second test of mutuality is also satisfied.

The third test which is regarding the identity of participants and contributors, it is stated that in the appellant's case both the participants and contributors are identifiable and belonged to same class in the Society. Since the Members are clearly identifiable, the third question of mutuality is also being satisfied.

Coming to the 4 test, in terms of the bye-laws, it is only the Members who have right to share the surplus under MCS Act, no part of the fund as provided in section 64 can be paid by way of bonus or dividend or otherwise distributed among its Members, except as provided therein. Under section 67, there is a limit on the dividend to be paid on liquidation. Under section 110 of MCS Act, the surplus can only be dealt with in the manner as provided therein which includes any member are devoted to the objectives provided by the bye-laws or be transferred to another society with similar objectives. Rule 90 of the Rules, provides how the surplus is to be divided. The surplus then can be distributed in terms of bye-laws to the Members and or by operation of law to another Society having same objectives. Thus, yet another test of mutuality is being satisfied. All the 4 test of mutuality is justified. The transfer fee has therefore no business motive.

Further, in relation to path breaking decision of Hon'ble ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai the funds of our Society was deployed somewhere else nor the assessee was in receipt of interest income that can be said to be utilized for the purpose other than the purpose as stated in the bye-laws. Therefore, the concept of mutuality was not breached in our case. Hence, we request your Honour that the view taken by the A.O. that the receipt of Rs.5,00,000/- should be taxed as it was tainted with commercial motive is baseless and unjustified.”

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai in the hands of the assessee. Aggrieved by this finding, the assessee is in appeal before us.

FACTS:

“In the course of assessment, the Assessing Officer held that receipt of non-occupancy charges by the assessee-society from its members, to the extent it was beyond 10 per cent of the service charges/maintenance charges permissible under the Government Notification issued under section 79A of the Maharashtra Cooperative Societies Act, 1960, stand excluded from the principle of mutuality and was taxable.

The Tribunal held that the Government Notification was applicable to cooperative housing societies only and did not apply to a premises society. It further held that the transfer fee paid by the transferee member was exigible to tax as the transferee did not have the status of a member at the time of such payment and, therefore, the principles of mutuality did not apply.

The High Court set aside the finding that payment by the transferee member was taxable while upholding taxability of the receipt beyond the limit specified in the Government Notification.

On appeal to the Supreme Court”

HELD:

“The doctrine of mutuality, based on common law principles, is premised on the theory that a person cannot make a profit

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai from himself. An amount received from oneself, therefore, cannot be regarded as income and taxable. Section 2(24) defines taxable income. The income of a cooperative society from business is taxable under section 2(24)(vii) and will stand excluded from the principle of mutuality. The essence of the principle of mutuality lies in the commonality of the contributors and the participants who are also the beneficiaries. The contributors to the common fund must be entitled to participate in the surplus and the participants in the surplus are contributors to the common fund. The law envisages a complete identity between the contributors and the participants in this sense. The principle postulates that what is returned is contributed by a member. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities. A common feature of mutual organizations in general can be stated to be that the participants usually do not have property rights to their share in the common fund, nor can they sell their share. Cessation from membership would result in the loss of right to participate without receiving a financial benefit from the cessation of the membership.

The proceedings in the instant appeal relate to different assessment years based on information gathered by the Assessing Officer pursuant to notice under section 133(6) of the Act. Transfer charges are payable by the outgoing member. If for convenience, part of it is paid by the transferee, it would not partake the nature of profit or commerciality as the amount is appropriated only after the transferee is inducted as a member. In the event of non-admission, the amount is ITA No.4708/Mum/2015 and other appeals M/s. Laxmi Finance & Leasing Companies Commercial Premises Co- op Housing Society 22 returned. The moment the transferee is inducted as a member the principles of mutuality apply. Likewise, non-occupancy charges are levied by the society and is payable by a member who does not himself occupy the premises but lets it out to a third person. The charges are ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai again utilised only for the common benefit of facilities and amenities to the members.

Contribution to the common amenity fund taken from a member disposing property is similarly utilised for meeting sudden and regular heavy repairs to ensure continuous and proper hazard free maintenance of the properties of the society which ultimately enures to the enjoyment, benefit and safety of the members. These charges are levied on the basis of resolutions passed by the society and in consonance with its bye-laws. The receipts in the present case have indisputably been used for mutual benefit towards maintenance of the premises, repairs, infrastructure and provision of common amenities.

Any difference in the contributions payable by old members and fresh inductees cannot fall foul of the law as sufficient classification exists. Membership forming a class, the identity of the individual member not being relevant, induction into membership automatically attracts the doctrine of mutuality. If a society has surplus FSI available, it is entitled to utilise the same by making fresh construction in accordance with law. Naturally such additional construction would entail extra charges towards maintenance, infrastructure, common facilities and amenities. If the society first inducts new members who are required to contribute to the common fund for availing common facilities, and then grants only occupancy rights to them by draw of lots, the ownership remaining with the society, the receipts cannot be bifurcated into two segments of receipt so as to hold the former to be outside the purview of mutuality classifying it as income of the society with commerciality.

There is no reason to take a view different from that taken by the High Court, that the Notification dated 09-08-2001 is applicable only to cooperative housing societies and has no application to a premises society which consists of non- residential premises.

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai In the result, appeal preferred by the revenue is dismissed.”

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai and the ground of appeal raised by the revenue was dismissed. We follow the judicial precedence and direct the A.O to allow the claim of the assessee..

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai of appeal on annual value of vacant properties, We find the similar grounds of appeal are raised as discussed in the order and the Honble tribunal has dealt extensively on the facts, law and decided on merits at page 10 to 16 Para 4 to 4.8 of the order and has granted the relief and the facts in the present appeal are similar and the decision is applicable and the appeal of the assessee is partly allowed.

ITA No. 4522/Mum/2015, A.Y 2012-13

Mumbai, Dated 31.01.2022

ITA No. 4521 & 4522/Mum/2015 M/s. Laxmi Finance leasing Companies Commercial Premises Co-op Society Ltd Mumbai KRK, PS

आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant