ASST CIT 18(2), MUMBAI vs. LAXMI FINANCE & LEASING COMPANIES COMMERICAL PREMISES CO OP SOC. LTD, MUMBAI

आदेश / O R D E R PER BENCH:

ITA No.4138/Mum/2014 to 4144/Mum/2014 Assessment Year :2004-05 to 2010-11)

These appeals in ITA Nos. 4138/Mum/2014 to 4144/Mum/2014 for A.Y.2004-05 to 2010-11 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-25, Mumbai in appeal No. CIT(A)-25/IT- 327/14(1)(4)/2011-12 to CIT(A)-25/IT-333/14(1)(4)/2011-12 respectively dated 13/03/2014 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)(ii) r.w.s.147 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2011 by the ld. Income Tax Officer 14(1)(4), Mumbai (hereinafter referred to as ld. AO).

ITA No.4708/Mum/2015 (Assessment Year :2011-12) ITA No.4709/Mum/2015 (Assessment Year :2012-13) ITA No.3250/Mum/2017 (Assessment Year :2013-14)

These appeals in ITA Nos. 4708/Mum/2015, 4709/Mum/2015, & 3250/Mum/2017 for A.Y.2011-12 to 2013-14 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-29, Mumbai in appeal No.CIT(A)-29/IT-68 & 144/ACIT-18(2)/14-15, CIT(A)-29/IT-420/ACIT-

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18(2)/2015-16 respectively dated 29/06/2015 & 27/02/2017 respectively (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 07/03/2014, 20/02/2015 & 23/02/2016 respectively by the ld. Asst. Commissioner of Income Tax-14(1) / ld. Asst. Commissioner of Income Tax-18(2) , Mumbai (hereinafter referred to as ld. AO).

ITA No.3711/Mum/2014 to 3717/Mum/2014 Assessment Year :2004-05 to 2010-11)

These appeals in ITA Nos. 3711/Mum/2014 to 3717/Mum/2014 for A.Y.2004-05 to 2010-11 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-25, Mumbai in appeal No. CIT(A)-25/IT- 327/14(1)(4)/2011-12 to CIT(A)-25/IT-333/14(1)(4)/2011-12 dated 13/03/2014 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)(ii) r.w.s.147 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2011 by the ld. Income Tax Officer 14(1)(4), Mumbai (hereinafter referred to as ld. AO).

1.1. As identical issues are involved in all these appeals, they are taken up together and disposed of by this common order for the sake of convenience. With the consent of both the parties, the cross appeals for A.Y.2004-05 are taken as the lead case and the decision rendered thereon would apply with equal force for other assessment years in respect of identical facts except with variance in figures.

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by allowing further proportionate cost amounting to Rs.1,33,57,500/- claimed by the assessee in the facts and circumstances of the case.

2.1. We have heard rival submissions and perused the materials available on record. The assessee is a society registered under Maharashtra Government Societies Act, 1960 on 17/02/1994. The assessee society is a conglomerate of private financial bodies such as M/s. Enam Financial and Consultants Pvt. Ltd, Tata Finance Ltd., Federal Bank Ltd., ICICI Bank Ltd, L & T Finance Ltd, Vijaya Bank Ltd, Eureka Finstock Pvt. Ltd, etc. The main object of the formation of society was to construct office premises to be utilised by its members with contribution of funds by Indian corporate bodies at equal rates for the purchase of flat of land from MMRDA either owned or on long term lease. Accordingly, assessee society constructed office premises for the commercial purpose on the land taken on lease for 99 years from MMRDA. The assessee received occupancy certificate on 02/11/2002, the building completion certificate on 05/06/2003 and BMC water connection on 08/05/2003. On completion of the project, it was left with 23,450 sq.ft of vacant premises with parking lots comprising of 6 offices. The entire cost of construction was met out from the contribution made by the approved members who had come together for this purposer. As far as the members are concerned, they are given the office premises at cost, no profit was derived, but with regard to surplus vacant office premises, it was sold to non-member i.e. the third party at market rate by execution of a sale deed. The ld. AO observed that with regard to transaction carried out with a non-member, profit motive was involved and the said profit motive cannot be covered by the “concept of mutuality” as claimed by the assessee society.

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2.2. During the year, the assessee had sold one of its vacant premises to M/s Khosla Investment Pvt. Ltd., vide sale agreement dated 31/01/2004 for sum of Rs.1,37,49,500/- being amount received towards members contribution and Rs.500 towards membership fees. No income was offered to tax by the assessee society.

2.3. The ld. AO treated the amount of Rs.1,37,49,500/- less cost of construction as submitted by the assessee vide letter dated 16/11/2011 i.e. Rs.45,45,000/-. Accordingly, the ld. AO proceeded to treat the amount received in the sum of Rs.1,37,49,500/- less cost of construction of Rs.45,45,000/- as income of the assessee and accordingly, brought the balance gain of Rs.92,04,500/- as income from capital gains in the hands of the assessee society.

2.4. The assessee clarified the fact before the ld. CIT(A) that the assessee society was originally formed with 47 members and these 47 members were responsible for acquiring construction of the premises through mutual contribution made by each member. Thus, the complete cost of construction including land cost was met by the original members. The assessee society during the year admitted a new member i.e. M/s. Khosla Industries Pvt. Ltd., as per the procedure laid down in the bye- laws of the society. The new member was allotted an office premises at a consideration of Rs.1,37,49,500/-. This amount was credited by the society in the members contribution account. As identity of contributors and participators are known who are member of the society, the assessee pleaded that income would be exempt on the principle of mutuality. Hence, it was submitted that, assessee had sold vacant office premises to a non-member (as stated by the ld. AO), is factually incorrect. The assessee further pleaded that when the new member M/s. Khosla

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Investment Pvt. Ltd., was admitted, the consideration received from it was Rs.1,37,49,500/- which also included the cost of land besides the cost of construction. The cost of land comes to Rs.88,17,500/- and cost of construction comes to Rs.45,45,000/- totaling to Rs.1,33,62,500/-. Thus, it was pleaded that the total cost that needs to be deducted from the consideration would be Rs.1,33,62,500/- as against Rs.45,45,000/ done by the ld. AO. In other words, it was submitted that the ld. AO had not given deduction for the cost of land. It was also submitted that the assessee had vide letter dated 19/12/2011 filed before the ld. AO gave a complete working of capital gains wherein assessee had claimed cost of Rs.5343/- per sq.ft which include the cost of land, building and other assets and worked out the capital gains at Rs.3,92,000/-. No infirmity had been pointed out by the ld. AO on the said workings. The ld. CIT(A) sought for a remand report in respect of these clarifications made by the assessee. Ld. AO gave his remand report on 31/12/2013, wherein he had mentioned that he has no comments to offer on this issue.

2.5. The ld. CIT(A) on examining the submissions of the assessee, remand report of the ld. AO and the rejoinder to the remand report submitted by the assessee, observed that the new member i.e. M/s. Khosla Investment Pvt. Ltd., was admitted as a member after the sale of office premises by the assessee society and hence, at the time of sale M/s. Khosla Investment Pvt Ltd, was an outsider. Accordingly, the concept of mutuality cannot be made applicable on the said transaction. Accordingly, he held that the profit arising from the sale transaction shall be chargeable to tax in the hands of the assessee society. The ld. CIT(A) directed the ld. AO to compute the capital gains at Rs.3,92,000/- as under:-

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Sale Consideration Rs.13,749,500/- Sales Cost of Land Rs.88,17,500/- Sales Cost of Rs.45,45,000/- Construction Capital Gains Rs.3,92,000/-

2.6. The ld. CIT(A) while determining the capital gain at Rs.3,92,000/- had categorically observed that the ld. AO had accepted the said computation in the remand proceedings which is quite evident from the fact that the ld. AO had no comments to offer in his remand report in respect of this issue.

2.7. Aggrieved by this finding of the ld. CIT(A) granting relief to the assessee, the Revenue is in appeal before us.

2.8. We find from the perusal of the remand report that the ld. AO had categorically stated that he has no comments to offer on the submissions made by the assessee before the ld. CIT(A). Hence, it could be safely concluded that the ld. AO had nothing adverse to state on the submissions made by the assessee. Having accepted the contentions of the assessee in the remand report, the Revenue ought not to have preferred any appeal on this issue before us. Reliance in this regard is placed on the decision of the Hon‟ble Madras High Court in the case of B Jayalakshmi vs. ACIT reported in 258 Taxman 318 (Mad) dated 13/07/2018. Accordingly, the ground No.1 raised by the Revenue is dismissed.

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3.1. We have heard rival contentions and perused the materials available on record. We find that during the year under consideration, the assessee had rented out this vacant / unsold office premises to M/s. Lupin Ltd. The details of the property lay out to M/s. Lupin Ltd are as under:- S.No. Name of the Area Car Lease Rent Per Period for Company Rented Parking Month Offered which Space for Taxation rented Allotted 1. M/s. Lupin Ltd., Rs.5000/- 4 Rs.3.50 lakhs More than per sq.ft 18 months

3.2. The ld. AO observed that identical premises had been rented out by the assessee society during A.Y.2007-08 to M/s. Trans Expo Trade Pvt. Ltd., on a rent of Rs.10,25,000/- per month. Accordingly, the ld. AO by applying the provisions of Section 23(1)(a) of the Act sought to treat the rent of Rs.10,25,000/- to be the fair rental value of the property let out and substituted the same as fair rental value in place of annual rent received by the assessee at Rs.3,50,000/- per month and made addition accordingly under the head „income from house property‟. In other words, the ld. AO determined the fair rental value of rented out property by taking the rent derived by the assessee in A.Y.2007-08 from different party and applied that rent to be the fair rental value for A.Y.2004-05 in respect of property let out to M/s. Lupin Ltd., and made addition under the head „income from house property‟ in the hands of the assessee.

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While doing so, ld. AO gave flat reduction of 25% from fair rental value to be made applicable for A.Y.2004-05.

3.3. It was pleaded by the assessee before the ld. CIT(A) that there is no provision available in the Income Tax Act which empowers the ld. AO to take Annual Lettable Value (ALV) of the subsequent year. Properties are given on rent in accordance with demand and supply and there is a rent agreement between the assessee society and M/s. Lupin Ltd. Several factors i.e. demand, supply, need of the tenant and suitability of the tenant to the society play decisive factors in giving properties on rent. It was also stated that the rental income actually earned by the assessee is much more than the municipal valuation. The ld. CIT(A) observed that assessee had contended that the municipal value represents the same for which the property might reasonably be expected to let from year to year as contemplated in Section 23(1)(a) of the Act. The ld. CIT(A) directed the ld AO to adopt Municipal value for the property to be the fair rental value in respect of property let out to M/s. Lupin Ltd. However, since the annual rent actually received by the assessee is more than the municipal value, the ld. CIT(A) directed the ld. AO to adopt the rental income offered to tax by the assessee in respect of property let out to M/s. Lupin Ltd. Against this direction, the Revenue is in appeal before us.

3.4. We find that the ld. AR vehemently argued that in the year 2007, substantial development took place which had contributed for the enhanced rental value that could be derived by the assessee from a different tenant i.e. Trans Expo Trade Pvt. Ltd. In any case, the ld. AR argued that municipal value should be adopted in place of actual rent received. We find that the ld. AO had adopted the annual rent derived by the assessee in A.Y.2007-08 for the similar extent of property let out to a

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completely different party i.e. Trans Expo Trade Pvt. Ltd., at Rs.10,25,000/- per month and had discounted 25% from such value in order to arrive at the fair rental value of the property let out to M/s. Lupin Ltd., in A.Y.2004-05. This in our considered opinion, is not correct approach. The ld. AO ought to have determined the fair rental value in the year under consideration based on certain comparable data. Since that was not done by the ld. AO and also in view of the fact that the actual rent received by the assessee is also more than the municipal value for the year under consideration, which fact is not disputed by the Revenue before us, we hold that actual rent received by the assessee at Rs.3,50,000/- per month in respect of property let out to M/s. Lupin Ltd., should be considered as annual value for the purpose of taxability under the head „ income from house property‟. This is the precise direction given by the ld. CIT(A) also by considering the provisions of the Act, on which we do not find any infirmity. Accordingly, the ground No.2 raised by the Revenue is dismissed.

4.1. We have heard rival submissions and perused the material available on record. At the outset, we find that assessee has raised by way of additional ground challenging the addition made on account of ALV in respect of vacant properties. We find that this ground was inadvertently omitted to be raised before us in the original grounds of appeal by the assessee. Hence, the same was raised as an additional ground. In any case, this issue is also the subject matter of dispute before us in ground No.3 of the Revenue appeal. Since all the facts relatable to this issue are

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already on record, we are inclined to admit the additional ground raised by the assessee and take it up for adjudication together with ground No.3 and 4 of the Revenue‟s appeal.

4.2. As stated earlier, the assessee had six office premises which was lying unsold with it. Out of that, one office premise was let out to M/s. Lupin Ltd., during the year under consideration. The remaining 5 properties were indeed lying vacant during the A.Y.2004-05. The details of properties remaining vacant are as under:- Office No.2, A Wing, 6th Floor (5000 sq.ft) Vacant Office No.2, A Wing, 4th Floor (5000 sq.ft) Vacant Office No.10, B Wing, 2nd Floor (5000 sq.ft) Vacant 9B, C Wing, 2nd Floor (2500 sq. ft) Vacant B Wing, 9th Floor (960 sq.ft) Vacant

4.3. The ld. AO proceeded to determine the deemed rental income in respect of this vacant properties on the basis of rent of Rs.10,25,000/- received by the assessee from Trans Expo Trade Pvt. Ltd. in A.Y.2007-08 considering the same to be the ALV of the vacant property during the year and applied 25% discount to bring it down to the ALV as applicable for A.Y.2004-05. By this process, he determined the deemed rental income of five vacant properties at Rs.3,40,69,080/- and made addition under the head „income from house property‟. This was done on the basic premise that assessee‟s case falls under the provisions of Section 23(1)(a) of the Act and accordingly, the ld. AO observed that he is entitled to consider the fair rental value even for the vacant property.

4.4. The ld. CIT(A) on analysing the various case laws relied upon by the ld. AO in his assessment order as well as by the assessee before him,

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held that in respect of vacant properties, annual value will be the municipal value u/s.23(1)(a). The assessee pleaded before the ld. CIT(A) that though these five properties as tabulated supra were remaining vacant during the year under consideration, most of them were indeed let out in subsequent years. In fact the assessee genuinely intended to let out these properties but could not find out a suitable tenant thereon. Hence, the property remained vacant for the reason which was beyond the control of the assessee herein. It was also specifically pleaded that the said properties could not be used by the assessee for any other purpose other than letting out hence, intention to let out those properties, was proved. The ld. CIT(A) brushed aside this argument of the assessee stating that the same does not have any merit, since in his opinion, the meaning of word “let” in section 23(1)(c) cannot be equated with “intended to let” and more so, the intention to let cannot be verified. Accordingly, he held that the assessee‟s case does not come under the ambit of section 23(1)(c) of the Act and falls u/s.23(1)(a) of the Act and also directed the ld. AO to calculate the annual value based on the proportionate municipal value of vacant properties. Against this finding, the Revenue is in appeal before us to substitute municipal value with fair rental value as determined by the ld. AO. The assessee is in appeal before us stating that no annual value per se could be added in respect of vacant properties and it should be determined at Rs. Nil u/s.23(1)(c) of the Act.

4.5. We find that the ld. AR placed reliance on the decision of this Tribunal in the case of Sachin R Tendulkar vs. DCIT reported in 172 ITR 266 and in the case of Somu Realtors Pvt. Ltd., vs. DCIT reported in 173 ITR 82 wherein it was held that in respect of vacant properties annual value need to be determined in accordance with Section 23(1)(c) of the Act if property remains vacant for the whole of the year.

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4.6. Per contra, the ld. DR placed reliance on the decision of the Hon‟ble Andhra Pradesh High Court in the case of Vivek Jain vs. ACIT reported in 14 Taxmann.com 146. When the Bench confronted the ld. AR as to whether there is any other High Court decision contrary to the decision of the Hon‟ble Andhra Pradesh High Court quoted by the ld. DR, the ld. AR answered in negative. Accordingly, we are inclined to follow the decision of the Hon‟ble Andhra Pradesh High Court relied upon by the ld. DR supra wherein it was held as under:- “10. While interpreting a statute, the court may not only take into consideration the purpose for which it had been enacted, but also the mischief it seeks to suppress. Sneh Enterprises v. Commissioner of Customs [2006] 7 SCC 714. It is evident that clause (c) has been inserted as a protection to the assessee in cases where, on account of vacancy, the rent received or receivable on a property which has been let out is less than the sum referred to in clause (a ). Prior to its amendment, even in such cases it was the sum referred to in clause (a) which was to be taken as the annual value of the property. 11. In order to attract section 23(l)(c), the following requirements must be fulfilled (i) the property, or any part thereof, must be let; and (ii) it should have been vacant during the whole or any part of the previous year ; and (iii) owing to such vacancy the actual rent received or receivable by the owner in respect thereof should be less than the sum referred to in clause (a ). It is only if these three conditions are satisfied would clause (c) of section 23(1) apply in which event the amount received or receivable, in terms of clause (c) of section 23(1), shall be deemed to be the annual value of the property. Clause (c) does not apply to situations where the property has either not been let out at all during the previous year or, even if let out, was not vacant during the whole or any part of the previous year. Under the Explanation to section 23(1), for the purposes of clause (b) or (c), the amount actually received or receivable by the owner shall not include the amount of rent which the owner cannot realize. Self-occupation by the owner of a house would require the annual value of such house, or part of the house, to be taken as nil under section 23(2)(a) and, where the house cannot actually be occupied by the owner on account of his employment, business or profession, as nil under section 23(2)(b) provided that, in terms of section 23(3)(a), the house or part of the house had not actually been let during the whole or any part of the previous year. As a legal fiction is created the word "actually", as used in section 23(3)(c), does not find mention in section 23(1) of the Act. 12. The construction placed on section 23(l)(c), by Sri B. Chandrasen Reddy, learned counsel for the petitioner, that if there is an intention to let out the property during the relevant year, coupled with efforts being made for letting it

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out, it must be held the property is let, would necessitate reading words into section 23(1)(c) which do not exist. The words "where the property is let" cannot be read as "where the property is intended to be let". The provisions of a tax statute must be strictly construed. The words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning. Gurudevdatta VKSSS Maryadit v. State of Maharashtra [2001] 4 SCC 534. The Legislature may be safely presumed to have intended what the words plainly say. - Bhaiji v. Sub-Divisional Officer, Thandla [2003] 1 SCC 692. The intention of the legislation must be found in the words used by the Legislature itself. The question is not what may be supposed and has been intended but what has been said - Unique Butyle Tube Industries (P.) Ltd. v. Uttar Pradesh Financial Corpn. [2003] 113 Comp. Cas. 374 (SC). The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed. It cannot imply anything which is not expressed ; it cannot import provisions in the statute so as to supply any assumed deficiency. The object of this rule is to prevent a taxing statute being construed "according to its intent, though not according to its words". It has even been said that "if the provision is so wanting in clarity that no meaning is reasonably clear, the courts will be unable to regard it as of any effect - Gursahai Saigal v. CIT [1963] 48 ITR 1 (SC); Cape Brandy Syndicate v. IRC [1921] 1 KB 64 ; Bethlehem Hospital In re [1875] L.R. 19 Eq 457; A.V. Fernandez v. State of Kerala 1957 SCR 837 ; IRC v. Bladnoch Distillery Co. Ltd. [1948] 1 All ER 616 ; CST v. Modi Sugar Mills Ltd. [1961] 12 STC 182 (SC); CIT v. V. MR. P. Firm, Muar, AIR 1965 SC 1216 ; CED v. Kantilal Trikamlal [1976] 105 ITR 92 (SC); Aphali Pharmaceuticals Ltd. v. State of Maharashtra [1989] 4 SCC 378 ; Baidyanath Ayurved Bhawan (P.) Ltd. v. Excise Commissioner AIR 1971 SC 378. The question as to what is covered must be found out from the language according to its natural meaning fairly and squarely read. IRC v. Duke of Westminster [1936] AC 1 (HL), A.V. Fernandez's case (supra) Saraswati Sugar Mills v. Haryana State Board [1992] 1 SCC 418). The meaning and intention of a statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to that is just or expedient. The expressed intention must guide the court. CIT v. Shahzada Nand & Sons [1966] 60 ITR 392 (SC). The Legislature does not waste its words. Ordinary, a grammatical meaning is to be assigned to the words used while interpreting a provision to honour the rule. The Legislature chooses appropriate words to express what it intends and, therefore, must be attributed with such intention as is conveyed by the words employed so long as this does not result in absurdity or anomaly or unless material— intrinsic or external—is available to permit a departure from the rule. Harbhajan Singh v. Press Council of India [2002] 3 SCC 722. 14. The contention that, as clause (c) provides for an eventuality where a property can be vacant during the whole of the relevant previous year, both situations, i.e., "property is let" and "property is vacant for the whole of the relevant previous year" cannot co-exist does not merit acceptance. Clause (c) encompasses cases where a property is; let out for more than a year in which event alone would the question of if being vacant during the whole of the previous

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year arise. A property let out for two or more years can also be vacant for the whole of a previous year bringing it within the ambit of clause (c) of section 23(1) of the Act. 15. The contention that, if the owner had let out the property even for a day, it would acquire the status of "let out property" for the purpose of clause (c) for the entire life of the property even without any intention to let it out in the relevant year is also not tenable. The circumstances in which the annual let out value of a house property should be taken as nil is as specified in section 23(2) of the Act. Under section 23(l)(c), the period for which a let out property may remain vacant cannot exceed the period for which the property has been let out. If the property has been let out for a part of the previous year, it can be vacant only for the part of the previous year for which the property was let out and not beyond. For that part of the previous year during which the property was not let out, but was vacant, clause (c ) would not apply and it is only clause (a) which would be applicable, subject of course to sub-sections (2) and (3) of section 23 of the Act. Such a construction does not lead to any hardship, inconvenience, injustice, absurdity or anomaly and, therefore, the rule of ordinary and natural meaning being followed cannot be departed from. Sneh Enterprises' case (supra). We are in agreement with the interpretation of section 23(1)(c) by the Tribunal, and are of the opinion that the benefit thereunder cannot be extended to a case where the property was not let out at all. 16. We find no merit in the submission that the words "property is let" are used in clause (c) to take out those properties which are held by the owner for self- occupation from the ambit of the said clause. As noted hereinabove, section 23(2)(a) takes out a self-occupied residential house, or a part thereof, from the ambit of section 23(1) of the Act. Likewise, under section 23(2)(b ), where a house cannot actually be occupied by the owner, on account of his carrying on employment, business or profession at any other place requiring him to reside at such other place in a building not belonging to him, the annual value of the property is also required to be treated as nil, thereby taking it out of the ambit of section 23(1) of the Act. Section 23(3)(a) makes it clear that section 23(2) would not apply if the house, or a part thereof, is actually let during the whole or any part of the previous year. Thus, only such of the properties which are occupied by the owner for his residence, or which are kept vacant on account of the circumstances mentioned in clause (b) of section 23(2), fall outside the ambit of section 23(1) provided they are, as stipulated in section 23(3)(a), not actually let during the whole or part of the previous year. Clause (c) was not inserted to take out from its ambit properties held by the owner for self- occupation inasmuch as section 23(2)(a) provides for such an eventuality. It is only to mitigate the hardship faced by an assessee, and as clause (b) does not deal with the contingency where the property is let and, because of vacancy, the actual rent received or receivable by the owner is less than the sum referred to in clause (a), was clause (c) inserted. In cases where the property has not been let out at all, during the previous year under consideration, there is no question of any vacancy allowance being provided thereto under section 23(l)(c) of the Act.”

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4.7. We find that the aforesaid decision of Hon‟ble Andhra Pradesh High Court also considers the fact that intention to let out is of no relevance and same cannot be equated with the word “let” in Section 23 of the Act. Hence, the argument advanced by the ld. AR in this regard that “intention to let out” is to be seen, stands dismissed, in the light of the decision of the Hon‟ble Andhra Pradesh High Court referred to supra.

4.8. Now coming to the determination of annual value by the ld. AO in respect of vacant properties based on the actual rent received by the assessee for let out property in A.Y.2007-08 is concerned, we have already held that the actual rent received by the assessee in respect of let out property to some other tenant in subsequent assessment year cannot be used as a fair rental value for an earlier assessment year in respect of property that is let out to different tenant. While that has been held for a let out property, the same principle would indeed be applicable for vacant property also. We have also held in ground No.2 of the Revenue hereinabove that in such a scenario, municipal value should be adopted with the actual rent and higher of those two should be considered as the annual value. We find that the ld. CIT(A) has also directed the ld. AO to consider only the municipal value as the annual value in respect of vacant properties, on which finding, we do not find any infirmity. Accordingly, the ground Nos. 3 & 4 of the Revenue are dismissed and additional ground raised by the assessee is dismissed. In effect, the order of the ld. CIT(A) with regard to determination of annual value for the vacant properties is upheld.

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6.1. We have heard rival submissions and perused the materials available on record. During the year under consideration, the assessee collected a sum of Rs.5,25,060/- comprising of Rs.25,060/- for transfer fee and Rs.5 lakhs for other amenities from one of the members of the society i.e. Apple Finance Ltd., in respect of property admeasuring 5000 sq.ft. at office No.6, Tower-C, 4th Floor transferred by the member to Federal Bank. The ld. AO was of the view that the receipt of Rs.5 lakhs is taxable under the Act. The assessee submitted before the ld. AO that the transfer / entrance fee is collected equally from transferor and transferee and same is not taxable at all in the hands of the assessee society in view of the various decisions of the Tribunal and Hon‟ble High Courts listed in the assessment order as well as in the order of the ld. CIT(A). The Ld. AO ignored all the above decisions and added Rs.5 lakhs as income of the assessee. Before the ld. CIT(A), assessee submitted that Rs.5 lakhs is not taxable as per the „principle of mutuality‟ as the amount received thereon comes to the members contribution account of the society and the same is in turn utilized for the mutual benefits of all the members of the society. All the members are identified and they only participate in the affairs of the society and get benefit of the funds. Contributors and participants both are members of the society. Accordingly, it was pleaded that the benefit flowing from the receipts are available to all the members including the members who contributed Rs.5 Lakhs voluntarily for other amenities. The ld. CIT(A) sought for a remand report from the ld. AO. In the remand report dated 31/12/2013, the ld. AO referred to the State

18 ITA No.4708/Mum/2015 and other appeals M/s. Laxmi Finance & Leasing Companies Commercial Premises Co-op Housing Society

Government regulation vide notification dated 09/08/2001 issued u/s. 79A of the Maharashtra Housing Societies Act for Co-operative Housing societies. He observed that whatever consideration required for maintaining essential amenities are already paid by the members and there is no rationale for charging fresh fees from the incoming members. Accordingly, he stated that fees collected by the society as tainted by commercial motive and it should be treated as income. The assessee filed a rejoinder to the remand report vide letter dated 03/03/2014 before the ld. CIT(A) stating that the concept of mutuality as stated in the case of M/s. Sind Co-operative Housing Pvt. Ltd., vs. ITO by the Hon‟ble Jurisidictional High Court reported in 317 ITR 47 and the decision of the Hon‟ble Supreme Court in the case of Bangalore club vs. CIT reported in 350 ITR 509 had laid down four questions to be answered:- 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. 6.2. The assessee stated that the aforesaid four conditions are mutually duly satisfied in the instant case as under:- “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 purpose of

19 ITA No.4708/Mum/2015 and other appeals M/s. Laxmi Finance & Leasing Companies Commercial Premises Co-op Housing Society

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 Supreme Court in the case of flub vs. CIT, we would like to state that nowhere it is seen that the funds which was received from the transferor or transferee have been utilized for the .purpose other than the purpose of Society. In the case of Bangalore Club, the contribution from the Members were deposited with the Member Co- operative Banks. Therefore, it was seen that the fund was utilized for the purpose of the Society which is based on concept of mutuality. Since neither 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.”

6.3. Assessee further submitted that clause (H)(g) pertaining to transfer of shares and interest in the capital/ property of the Society of the bye- laws of the assessee permits the collection of donations paid voluntarily by the member. Voluntary donations are acceptable by the Society. The transfer fee received of Rs.5,00,000/- is only voluntarily received as per the bye-laws of the Society and has gone into the accounts of the Society to be utilized for the welfare of the members. The principle of mutuality

20 ITA No.4708/Mum/2015 and other appeals M/s. Laxmi Finance & Leasing Companies Commercial Premises Co-op Housing Society

has also been fully complied with, in respect of this receipt. Such receipts are not in the nature of an income and therefore, cannot be brought to tax.

6.4. The ld. CIT(A) on analysing the submissions of the assessee, remand report of the ld. AO and the rejoinder filed by the assessee to the remand report observed that the issue in dispute is covered by the decision of this Mumbai Tribunal in the case of Hatkesh Co-op Housing Society Ltd., vs ACIT in ITA Nos. 494-500/Mum/2011 dated 04/09/2013 which in turn had considered the decision of the Hon‟ble Jurisdictional High Court in the case of Sind Co-operative Housing Society vs. ITO reported in 317 ITR 47 wherein it was held that the transfer fee shall be tax exempt as mutual to the extent of the extant rate as applicable to the class of municipality under which the assessee society falls as per the relevant / current notification issued by the Government. The ld. CIT(A) observed that since in the present case, the transfer fee of Rs.5 lakhs was received in addition to the permissible monies transfer fee of Rs.25,000/- excess sum of Rs.5 lakhs would be taxable in the hands of the assessee. Aggrieved by this finding, the assessee is in appeal before us.

6.5. The ld. AR placed reliance on the decision of the Hon‟ble Supreme Court in the case of ITO vs. Venkatesh Premises Co-operative Society Ltd., reported in 402 ITR 670 wherein this issue has already been decided in favour of the assessee. The facts of that case and decision rendered thereon are as under:-

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

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Notification issued under section 79A of the Maharashtra Co- operative 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 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

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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 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.  In the result, appeal preferred by the revenue is dismissed.” 6.6. We find that in the aforesaid decision, the Hon‟ble Supreme Court had categorically held in para 24 of the notification dated 09/08/2001 which has been heavily relied upon by the ld. AO in the instant case before us. It is applicable only to Co-operative housing societies and not applicable to a premises society (like assessee herein). Hence, reliance

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placed by the ld. AO on the said notification does not advance the case of the revenue.

6.7. The ld. DR also pointed out that the decision of Mumbai Tribunal in the case of Hatkesh Co-operative Housing Society Ltd., relied upon by the ld. CIT(A) in ITA Nos. 494-500/Mum/2011 dated 04/09/2013 has been subsequently reversed by the Hon‟ble Bombay High Court reported in 75 Taxmann.com 39. The Revenue had preferred a Special Leave Petition against the said decision before the Hon‟ble Apex Court and the same has been admitted by the Hon‟ble Supreme Court which is reported in 84 Taxmann.com 240. We find that this argument of the ld. DR need not be gone into at all in view of the fact that as on date, the issue in dispute before us is already decided by the Hon‟ble Apex Court in the case of ITO vs. Venkatesh Premises Co-operative Society Ltd., reported in 402 ITR 670. Respectfully following the aforesaid decision of Hon‟ble Supreme Court, we hold that the receipt of Rs.5 lakhs on account of transfer fee / amenities fee cannot be brought to tax as income of the assessee. Accordingly, the ground No.1 raised by the assessee is allowed.

6.8. In the result, appeal of the assessee for A.Y.2004-05 is partly allowed and appeal of the Revenue for A.Y.2004-05 is dismissed.

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small variation with regard to the fact of letting out of property in each of the assessment years in respect of issue adjudicated in A.Y.2004-05 with regard to determination of annual value for vacant properties. The same could be explained by way of the chart given below:- 2009-10 2004- 2005- 2006- 2007- 2008- 2010- 05 06 07 08 09 11 Area status status Premises Status Status status status status 5000 vacant Rented Rented Rented Office No.2,"A" Wing Vacant vacant Rented 6th Floor 5000 Vacant Rented Office No.2,"A" Wing Vacant Vacant Rented Rented Rented 4th Floor

5000 rented rented Rented Office No.2,"B" Wing Rented Rented Rented Rented 7th Floor 5000 Vacant Office No. 1 0,"B" Vacant Vacant Rented Rented Rented Rented Wing 2nd Floor 9B,"C" wing 2nd floor 2500 Vacant Rented Reined Vacant Rented Rented Vacant

"B," Wing 9th Floor 960 Vacant Vacant Vacant Vacant Vacant Vacant Vacant 27 18 18 20 14 18 Page no. of C1T(A) 19 order

7.1. We would like to state that the aforesaid chart is relevant only for the limited purpose of understanding which property was let out during each of the assessment years and which property was remaining vacant during each of the assessment years. The principle laid down by us for the purpose of determination of annual value for let out property as well as the vacant property in A.Y.2004-05 would apply for other assessment years also.

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Order pronounced on 07/09 /2021 by way of proper mentioning in the notice board.

Sd/- Sd/- (PAVAN KUMAR GADALE) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 07/09/2021 KARUNA, sr.ps

Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. 6. Guard file. //True Copy//

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai