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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER BENCH Assessment Year 2002-03 1. These are the bunch of appeals for different assessment years pertaining to New Vikash Cooperative House Building Society Ltd, Faridabad, Haryana involving common issues. These appeals are heard together and they are disposed of by this common order. 2. First we take up the appeal of the revenue for the Assessment Year 2002- 03 and state the facts of this year. The revenue has filed this appeal in ITA No. 2217/Del2008 raising following grounds of appeal:- “1. Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) was correct in holding that the activities of the Society were governed by the principle of mutuality, as such it was a mutual concern and its profits in question are not income as defined u/s 2(24) of the Income Tax Act, 1961 without appreciating that the Society itself declared its taxable income on account of bank interest voluntarily in its return of income filed by it ?
2. Whether in law it is still an open question that the compensation and/or enhanced compensation would be taxable only when it attained finality irrespective of the remedial provisions introduced in the Act from 1-4-2004 by insertion of sub clause (c) of sub-section (5) of section 45 read with sub-section (16) of section 155 and there is no more doubt that if the compensation and/or enhanced compensation is subsequently reduced, it would be assessed accordingly under these provisions?”
3. The brief facts of the case is that the assessee is a cooperative housing society. It did not file any return of income u/s 139 of the Act and later on the case of the assessee was reopened u/s 148 of the Act by issue of notice dated 17.03.2006. The assessee submitted its return of income in response to the notice u/s 148 of the Act on 12.06.2006 showing net loss of Rs. 157880/-. Subsequently, notice u/s 143(2) was issued. The reopening of the case was done for the reason that the assessee had received interest on enhanced compensation of Rs. 47068031/- during Page | 2 the FY 2002-03 i.e. Assessment Year 2003-04. The assessee did not offer any amount of interest on enhanced compensation. The assessee was under the belief that Government has filed an appeal before Hon'ble High Court, which is pending, and therefore, enhanced compensation received by the assessee is not final. Subsequently, the Hon'ble High Court decided the issue in favour of the Govt. However, the ld AO did not consider the request of the assessee in view of the provision of section 45(5) of the Act and hence, the amount of enhanced compensation was charged to tax in Assessment Year 2003-04. As the interest thereon is to be taxed based on regular accounting method followed by the assessee in view of the decision of the Hon'ble Supreme Court in Smt. Rama Bai vs. CIT vs. 181 ITR 400, ld AO asked the assessee to explain its method of accounting as well as bifurcation of interest. The assessee submitted that it follows mercantile system of accounting; further, the assessee did not furnish any year wise break up of interest. Therefore, the ld AO worked out the interest on its own. During the course of assessment proceedings it was further stated by the assessee that the assessee is not a person defined u/s 2(31) of the Act and therefore, it was stated that the original land purchased by the assessee is on behalf of the members and the assessee cannot be held to be the owner of the land. It was further stated that therefore, the income received by the assessee as compensation and interest thereon is for and on behalf of its member and cannot be charged to tax in the hands of the assessee. The ld AO rejected the contention of the assessee and accordingly he held that the interest of Rs. 12804783/- for enhanced compensation of land computed on accrual basis for Financial Year 2002-03 is charged to tax. Consequently, the total income of the assessee was computed at Rs. 12863000/-. The assessment u/s 143(3) read with Section 147 of the Act was passed on 27.10.2006.
4. Assessee aggrieved with the order of the ld AO preferred appeal before the ld CIT(A) contesting that income is not chargeable to tax in the hands of the assessee and further the activity of the assessee is governed by the principles of mutuality and hence it is even otherwise not chargeable Page | 3 to tax. The ld CIT (A) held that the assessee is governed by the Principles of mutuality and it is a mutual concern hence, the income defined u/s 2(24) of the Act is not chargeable to tax. With respect to the compensation he relying upon the decision of Jurisdictional High Court in case of CIT Vs. Prem Singh dated 17.01.2007 held that the amount of interest on late payment enhanced compensation is not taxable in the present year as the compensation itself is disputed as evident from the appeal filed by the Govt. of Haryana pending before the Hon'ble Punjab and Haryana High Court. Thereby, he held that a sum of Rs. 12863000/- for Assessment Year2002-03 is not chargeable to tax. The revenue aggrieved with the order of the ld CIT(A) has preferred appeal before us.
Ld. Department representative vehemently relied on the Ld. assessing officer and submitted that income of the assessee cannot fall within the definition of mutuality because it is interest income received. He further stated that the issue is now covered against the assessee in view of the decision of the Hon’ble Supreme Court in case of compensation received as well as amendment to section 45 (5) (a) of the act.
Ld. authorized representative submitted a written representation and submitted that the issue of compensation whether it is chargeable to tax on the receipt basis or not is now squarely covered against the assessee in view of the decision of the Hon’ble Supreme Court. With respect to the chargeability of the interest from banks, he stated that the issue is now covered in favour of the revenue by the decision of the Hon’ble Supreme Court in case of Bangalore club.
We have heard the rival contention and perused the orders of the lower authorities.
The first ground of appeal is against the finding of the ld CIT(A) is that the assessee is a mutual concern its profits are not income u/s 2(24) of the Act without appreciating that society itself has declared its taxable income u/s 2(24) of the Act on account of bank interest etc. We find now this issue is squarely covered against the assessee by the decision of the Hon'ble Supreme Court in case of Bangalore Club Vs. CIT 350 ITR 509 Page | 4 (SC), wherein, it has been held that the interest earned by the assessee club on certain fixed deposits kept with certain banks who are also corporate members of the assessee is not covered by the mutuality principles and would therefore, be chargeable to tax in the hands of the assessee. Therefore, in view of the above decision of the Hon'ble Supreme Court ground No. 1 of the appeal for Assessment Year 2002-03 is dismissed.
9. Ground No. 2 of the appeal wherein, it has been held by the ld CIT(A) that the compensation was enhanced compensation would be taxable only when it attained finality irrespective of the remedial provision included in the income w.e.f 01.04.2004 u/s 45(5)(c) of the Act. This issue has already been decided by the Hon'ble Supreme Court in case of CIT Vs. Ghanashyam (HUF) 315 ITR 1, wherein, it has been held that the enhanced compensation is liable to be taxed u/s 45(5) in the year of receipt and interest is also chargeable to tax in the year of receipt as interest on excess compensation u/s 28 of the land acquisition Act form part of the compensation only which is chargeable to tax u/s 45(5) in the year of receipt. However for the purposes of quantification the ld AO is directed to verify the exact amount of interest and compensation received . Therefore, ground No. 2 of the appeal of the revenue is allowed.
10. Accordingly, the appeal of the revenue is allowed. Assessment Year 2003-04 11. The appeal of the revenue for Assessment Year 2003-04 also involves the similar grounds, which were decided in appeal of the revenue for Assessment Year 2002-03. We have already given our reasons for deciding the above appeal and for similar reasons we allow ground Nos. 1 and 2 of the appeal of the revenue. However for the purposes of quantification the ld AO is directed to verify the exact amount of interest and compensation received .
Accordingly appeal of the revenue is allowed.
Accordingly, we allow appeal of the revenue for Assessment Year 2003- 04. Assessment Year 2003-04
In filed by the revenue the only contention raised is that direction of the ld CIT (A) has directed ld AO to give credit and refund of Rs. 4444333/- paid u/s 140A and TDS of Rs. 190535/- is incorrect. Vide ground No. 2 the revenue has challenged the direction of the ld CIT(A) to grant credit of Rs. 9884287/- of the TDS along with interest.
The issue in this appeal is that original assessment u/s 143(3) was passed wherein, enhanced compensation of Rs. 87393278/- was assessed to capital gain vide order dated 14.03.2006. On appeal before the ld CIT (A) it was held that assessee is a mutual concern and hence, its income is not chargeable. The coordinate bench confirmed the above order of the ld CIT (A). The revenue challenged it before the Hon'ble Punjab and Haryana High Court and vide order dated 09.01.2014 Hon’ble high court sent the appeal back to the coordinate bench which was decided by the order in ITA No. 2218/Del/2008. In that order we have already held that the bank interest is chargeable to tax in the hands of the assessee as it is not covered by the Principles of mutuality relying on the decision of the Hon'ble Supreme Court. With respect to the chargeability of the compensation and interest thereon we have held that it is chargeable to tax in the year in which it is received. Therefore, as we have already held that, there is an income, which is chargeable to tax in the hands of the assessee; this appeal of the revenue becomes infractuous in view of the chargeability of enhanced compensation of Rs. 8.73 crores and bank interest also. In view of this the amount of Rs. 444333/- paid by the assessee u/s 140A of the Act and the amount of TDS of Rs. 10074822/- is required to be adjusted against the tax liability of the assessee.
Therefore, we direct the ld AO to recompute the tax liability for assessment year 2003-04 after granting credit of the tax and TDS. 16. In the result of filed by the revenue is allowed.
ITA No. 1679/Del/2010 Assessment Year 2007-08 17. The revenue against the order of the ld CIT (A) prefers this appeal, Faridabad dated 24.02.2010. 18. The revenue has raised the following grounds of appeal in for the Assessment Year 2007-08:- “1. “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 32,71,799/- made by the Assessing Officer on account of interest income earned by the Society on FDRs and saving accounts and Rs. 5,80,308/- on account of expenditure debited to Profit & Loss Account for the purpose of earning interest income by holding that the assessee society is declared to be a mutual concern governed by the principles of mutuality and thus any profit earned by which during the year under consideration cannot be subjected to tax within even though the ingredients of mutuality are missing in this case. 2. “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 32,71,799/- made by the Assessing Officer on account of interest income earned by the Society on FDRs and saving accounts disregarding the fact that interest on deposits with bank not exempt on the principle of mutuality as principle of mutuality could be applied only if the interest is earned for advances/facilities of loan given to the members of society. 3. “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 5,80,308/- made by the Assessing Officer on account of expenditure debited to Profit & Loss account disregarding the fact that the said expenditure was not laid out for the purpose of earning interest income.”
19. In the ground No. 1 the claim of the revenue is that the interest received of Rs. 580308/- on account of interest on Fixed deposits receipts and saving bank deposits with the bank is not covered by the Principles of mutuality, however the ld CIT(A) held that such income is not chargeable to tax on that principle. The ground No. 2 and 3 are also on the same issue.
20. We have held that bank interest is not covered by the principles of mutuality relying on the decision of the Hon'ble Supreme Court in case of Bangalore Club (supra) we allow ground No. 1 to 3 of the appeal of the revenue for the similar reasons holding that bank interest of Rs. 580308/- is chargeable to tax in the hands of the assessee. Accordingly, appeal of the revenue for Assessment Year 2007-08 is allowed. 3791/Del/2011 Assessment Year 2008-09
The revenue and the assessee has challenged the order of the ld CIT (A), Faridabad dated 27.04.2011 by these appeals.
The assessee has raised the following grounds of appeal in Assessment Year 2008-09:- “i That the activity of the appellant society was/ is governed by the principles of mutuality, so a mutual concern and accordingly its income was/ is not taxable within the meaning of the provisions of Income Tax Act, 1961. ii. That the CIT(A), Faridabad in the impugned order has erred to hold that the amount of Bank Interest Rs. 5961442/- is taxable income in spite of the judgment of the Hon‟ble ITAT, Delhi dated 12.09.2008 in to 2218/ Del.2008 in the cases of the present appellant society itself in earlier periods. iii. That the CIT(A), Faridabad has passed the impugned order ignoring the following direct binding judgments on the issue involved in the present appeal:- (2006) -104-TTJ-(DELHI)-724 (2003)-184-CTR-(DELHI)-274 Judgment of the Hon‟ble Delhi High Court dated 09.12.2010 in ITA No. 1288 of 2010 in the case of Cit Vs. Delhi Gymkhana Club Ltd,”
23. The revenue has raised the following grounds of appeal in ITA NO. 3791/Del/2011 for the Assessment Year 2008-09:- “1. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law, in deleting the addition of Rs. 2,86,57,418/- made by AO on a/c of capital gain on enhanced compensation and addition of Rs. 1,70,99,190/- on account of interest on enhanced compensation for Page | 8 both of these payments are taxable in the year of receipt in view of judgment of the Hon‟ble Apex Court in the case of CIT vs Ghanshyam (HUF) (2009) 315 ITR 1 (SC)."
2. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law, in ignoring the TDS certificate issued by the LAO, annexed with the return of income and treasury challan slip filed by the assessee wherein it is clearly mentioned that the payment of Rs. 1,70,99,779/- represents „interest on enhanced compensation‟ [which is part of enhanced compensation in view of judgment of the Hon‟ble Apex Court in the case of CIT vs Ghanshyam (HUF) (2009) 315 ITR 1 (SC)] on which the LAO has deducted the tax and the balance payment of Rs.2,86,57,418/- represents „enhanced compensation‟ on which no tax was deducted by the LAO because of nature of payment was other than interest on enhanced compensation.” 3. “On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in admitting the 'additional evidence‟ based on a perverse observation that „there are no new facts (during appellate proceedings) as far as the payments received on account of compensation and interest thereon are part of the records of the AO‟] whereas letter dated 20.04.2011 of the assessee contained fresh facts and new claim.” 4. “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in facts and in law in giving no opportunity to the AO as per procedure laid down by law under Rule 46A for fresh claim and new evidence, because the assessee had introduced new facts to claim that „Rs. 1,70,99,779/- and Rs. 2,86,57,418/- was interest on enhanced compensation as against claim in the return that „during the present period i.e. AY- 2008-09 the present society received enhanced compensation of Rs. 2,86,57,418=00 on account of compulsory acquisition of agricultural land by the Government of Haryana. The society also received interest on enhanced compensation to the amount of Rs.1,70,99,779/-'.
5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in facts and in law in admitting the fresh claim, based on „self serving‟ letter without any independent evidence and without any justification or explanation for the volte-face with reference to note in the return of income „during the present period i.e. AY- 2008-09 the present society received enhanced compensation of Rs.2,86,57,418=00 on account of compulsory acquisition of agricultural land by the Government of Haryana. The society also received interest on enhanced compensation to the amount of Rs. 1,70.99,779=00. 6. on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in facts and in law in taking decision that the amount of Rs.4,57,57,197/- received by the appellant during the year is in the Page | 9
nature of interest accrued upto 01.09.2002 without any effort to get/seek clarification from LAO.” 7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in facts and in law in deleting the addition of Rs.5,01,804/- made by AO on account of inadmissible expenditure claimed as these were not meant for the purpose of earning interest income and capital gain.”
Brief facts of the case are that the assessee filed nil return of income on 27.03.2009. The assessee claimed that it is a mutual concern and its income is not chargeable to tax. The ld AO rejected the contention of the assessee and held that the interest income on FDR in saving banks account amounting to Rs. 5961442/- cannot be covered under the Principles of mutuality.
The assessee also received similar interest from HUDA of Rs. 17099779/- which the ld AO holding that this interest is also not covered by the principles of mutuality also added to the total income of the assessee. Accordingly, total income of the assessee was assessed u/s 143(3) of the Act vide order dated 15.11.2010. The assessee challenged the order before the ld CIT (A), who deleted the addition of Rs. 28657418/- of enhanced compensation received and Rs. 17099190/- on account of interest holding that they are not chargeable to tax. Therefore, against this revenue is in appeal before us stating that by the order of the Hon'ble Supreme Court in Cit Vs. Ghanshyam (HUF ) 315 ITR 1 it is chargeable to tax in the year in which it is received. 26. The assessee is aggrieved by the order of the ld CIT (A), wherein, he held that bank interest of Rs. 5961442/- is taxable in the hands of the assessee. Therefore, both the parties are in appeal before us. 27. As we take up the appeal of the assessee the ground No. 1 of the appeal is not pressed before us therefore, same is dismissed. 28. Ground No. 2 of the appeal is against chargeability of tax on the bank interest of Rs. 5961442/- in the hands of the assessee is squarely covered against the assessee by the decision of the Hon'ble Supreme Court in case of Bangalore Club (supra), in view of this ground No. 2 of the appeal of the assessee is dismissed.
Ground No. 3 is supporting the ground No. 2 of the appeal of the assessee and therefore, same is dismissed.
Accordingly, filed by the assessee is dismissed.
Now we come to the appeal of the revenue in wherein, vide ground No. 1 to 6, the revenue is aggrieved by the order of the ld CIT(A), wherein, the additional compensation of Rs. 2.86 crores and interest thereon of Rs. 1.71 crores was held to be not chargeable to tax in the hands of the assessee as it has not achieved finality. Identical issues has been decided by us in the case of the assessee for earlier years wherein, we have held relying on the decision of the Hon'ble Supreme Court in Cit Vs. Ghanshyam HUF that enhanced compensation and interest is chargeable to tax in the year of receipt. However, there is an amendment of the Income Tax Act, 1961 w.e.f. 01.04.2010, wherein, the Finance (No. 2) of 2009 has inserted Clause (viii) u/s 56(2) of the Act wherein, it has been held that income by way of interest received on compensation or on enhanced compensation referred to any clause (b) of section 145A is chargeable to tax as income under the head income from other sources. Section 145A (b) the interest received by the assessee shall be deemed to be the income of the year in which it is received. Accordingly, we allow ground Nos. 1 and 2 of the appeal of the revenue holding that the compensation and interest thereon is chargeable to tax in the year in which it is received. However for the purposes of quantification the ld AO is directed to verify the exact amount of interest and compensation received .
Ground Nos. 3 and 4 of the appeal are with respect to the admission of the additional evidence by the ld CIT (A).
We have noted that the additional evidence are part of the supplementary submission made by the assessee which was based on the statement of account of Land Acquisition Officer and were also available in the assessment record. The ld CIT (A) has given his finding Page | 11 that the amount of interest has been calculated on the reducing balance by considering the payment made towards enhanced compensation first. Therefore, there was no additional evidence in view of this ground No. 3 of the appeal of the revenue is dismissed.
Ground No. 4 & 5 is against the order of the ld CIT (A) for not granting any opportunity. In view our decision in ground No. 1 and 2 the above ground does not deserve adjudication and hence dismissed.
Ground No. 6 is also related to ground No. 4 of the appeal for identical reasons is dismissed.
As per ground No. 7 revenue is also aggrieved by the order of the ld CIT (A) in deleting the addition of Rs. 501804/- made by the ld AO on account of inadmissible expenditure.
The brief facts of the case is that the ld AO disallowed the above expenditure holding that they are not meant for earning of interest income and capital gain. The ld CIT (A) allowed the claim of the assessee holding that it these expenses are on account of legal expenses as well as accounting charges etc. He held that these expenditure are liable for maintenance of the establishment.
The ld DR relied upon the order of the ld AO and the ld AR relied upon the order of the ld CIT(A).
We have carefully considered the rival contentions. According to provision of section 57(iii), the deduction of any other expenditure laid out of expenditure wholly and exclusively for the purpose of making or earning such income is available. In the present case the expenditure are O D interest, audit expenditure, salary expenditure, legal expenditure, meeting expenditure etc. They are not capital expenditure in nature. Legal fees are incurred for the purpose of the compensation earned. In view of the above, we do not find any infirmity in the order of the ld CIT (A) in allowing the claim of expenditure of Rs. 5041804/- u/s 57(iii) of the Act. Accordingly, ground No. 7 of the appeal of the revenue is dismissed.
In the result filed by the revenue is partly allowed. ITA No. 6051/Del/2011 Assessment Year 2010-11 41. The assessee against the order of the ld CIT (A) files this appeal, Faridabad dated 27.08.2013 for Assessment Year 2010-11. 42. The brief facts of the case are that the assessee has filed return of income on 30.03.2013 declared nil income. During the year the assessee has received enhanced compensation as well as interest thereon on 29.09.2009 amounting to Rs 20407962/-. The assessee further received interest from bank of Rs. 5025433/-. All these income are not offered by the assessee in its return of income. With respect to the compensation and interest thereon, it was stated that the compensation is not final and hence, it is not chargeable to tax. With respect to the bank interest it was claimed that same is not chargeable to tax under principles of mutuality. Consequently assessment order u/s 143(3) of the Act was made by the ld AO on 13.12.2013 rejecting the explanation for both the income and held that they are chargeable to tax in the hands of the assessee and consequently, total income was determined at Rs. 31433400/-. Therefore, the assessee is in appeal before us. 43. We have heard the rival contentions. 44. The ground Nos. 1 and 4 of the appeal are not pressed before us Therefore, same are dismissed. 45. Ground No. 2 of the appeal is with respect to taxation of enhanced compensation and interest thereon. WEF 01.04.2010, there is a change in the taxability of computation mechanism of enhanced compensation and interest on enhanced compensation. Compensations is chargeable to tax u/s 45(5) of the Income Tax Act, 1961 in the year in which it is received. There is no dispute with respect to chargeability of that sum. The only dispute remains is that how the interest on the enhanced compensation would be chargeable to tax. The provision of section 56(2) (viii) provides that income by way of interest received on enhanced Page | 13 compensation is income of the assessee and same shall be chargeable to tax according to section 145A (b) of the act. The provision of section 145A (b) provides that the interest shall be deemed to be the income of the year in which it is received. Therefore, the enhanced compensation as well as interest is chargeable to tax in the year it has been received. Undisputedly, same were received on 29.09.2009 and hence they are chargeable to tax in the impugned year. Furthermore, the provision of section 57(iv) which provides that the deduction of sum equals to 50% of the income being interest on enhanced compensation shall be allowed. In view of this it is apparent that compensation of Rs. 19703406/- is chargeable to tax u/s 45(5) of the Act. Further interest on compensation of Rs. 6704556/- is chargeable to tax u/s 56(2) (viii) of the Act and from the interest income the assessee is entitled for deduction u/s 57(iv) of 50% of the interest income as deduction. No other deduction is further allowable. Part of the ground No. 2 is also against the chargeability of bank interest as income of the assessee. This issue is squarely covered against the assessee by the decision of the Hon'ble Supreme Court in case of Bangalore Club (supra) therefore; we hold that bank interest of Rs. 5025433/- earned by the assessee is chargeable to tax. Therefore, out of total interest income the bank interest is to be fully charged to tax without deduction of expenditure u/s 57(iv) of the Act. In view of this ground No. 2, 3, 5 and 6 of the appeal of the assessee are decided accordingly. However for the purposes of quantification the ld AO is directed to verify the exact amount of interest and compensation received .