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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the appeals filed by the revenue against the order of the ld CIT(A), Faridabad dated 24.03.2008 for the Assessment Year 1999-2000 and 2000- 01. 2. The revenue has raised the following ground of appeal for the Assessment Year 1999-2000:- “1. Whether on the facts and in the circumstances of the case and in law, the ld CIT(A) 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 01.4.2004 by insertion of sub-clause (c) of sub-section (5) of Section 45 read with sub-section (16) of Section of sub-section (5) 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.”
Page 2 of 7 3. The revenue has raised the following ground of appeal for the Assessment Year 2000-01:- “1. Whether on the facts and in the circumstances of the case and in law, the ld CIT(A) 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 01.4.2004 by insertion of sub-clause (c) of sub-section (5) of Section 45 read with sub-section (16) of Section of sub-section (5) 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.”
The revenue has raised the following ground of appeal for the Assessment Year 2001-02:- “1. Whether on the facts and in the circumstances of the case and in law, the ld CIT(A) 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 01.4.2004 by insertion of sub-clause (c) of sub-section (5) of Section 45 read with sub- section (16) of Section of sub-section (5) 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.”
All above three appeals have been remanded back by the Hon‟ble Punjab and Haryana High Court vide their order dated 09/01/2014 to the file of the tribunal to adjudicate the issue afresh in accordance with law. Therefore, these three appeals are reinstated for our disposal as above.
Briefly stated, the facts are that against the order of the coordinate bench in ITA number 2215 ,2214 and 2216/Del/ 2008 for assessment year 1999- 2000, 2000 – 01 and 2001 – 02 were disposed of vide order dated 12/09/2008, which was challenged by revenue before the Hon‟ble Punjab Page 3 of 7 and Haryana High Court. The issue involved in these appeals is that assessee has received enhanced compensation and interest on enhanced compensation during the financial year 2002 – 03. The assessee did not file its return of income under section 139 (1) of the income tax act and therefore notices under section 148 of the income tax act was issued. In response to that assessee filed, its return of income and income on interest on enhanced compensation on accrual basis was not offered to tax on accrual basis. The main contention of the assessee was that that the payment was received on furnishing of the security and the amount of enhanced compensation and interest was challenged by the state government before the court. Hence, the assessment was completed including the amount of interest on enhanced compensation on accrual basis. Assessee challenged the order of the assessing officer before the Commissioner of income tax appeals who allowed the appeal holding that the society was a mutual benefit concern and therefore it was not covered under section 2 (24) of the income tax act. Further, the enhanced compensation and interest thereon was also deleted relying on the decision of the Hon‟ble Punjab and Haryana High Court in case of CIT versus Prem Singh in of 2005 dated 16/05/2007. Against the order of the Ld. CIT revenue, filed appeal before the tribunal, which was dismissed. And, therefore, revenue approached Hon‟ble high court who vide order dated 09/01/2014 held that:- “5. It is agreed between the counsel for the parties that in view of the subsequent decision of this court in Commissioner of income tax versus Sh. Prem Singh ITA No. 85 of 2010 decided on 05/07/2010, Commissioner of income tax versus Karambir Singh ITA No. 283 of 2006 decided on 24/08/2010, Commissioner of income tax versus Karambir Singh HUF in ITA No. 209 of 2004 decided on 27/10/2010 and CM No. 27928 – 29 – CII of 2010 in ITA No. 85 of 2010 decided on 16/12/2010 and judgment of the Apex court in Bangalore club versus CIT 350 ITR 509 and insertion of explanation to section 2 (31) by finance act, 2002 effective from 01/04/2002, the matter is required to be remanded to the tribunal to adjudicate the issue afresh in accordance with law. Ordered accordingly.”
Therefore now the issue before us is whether by virtue of explanation to section 2 (31) by finance act 2002 introduced w.e.f. 01/04/2002, Whether Page 4 of 7 the assessee is a „person‟ as per the income tax act or not. Moreover, if the assessee falls into the definition of „person‟, then whether the income arising to the assessee is chargeable to tax or not. The assessee has pleaded the concept of mutuality, whereas revenue has challenged the applicability of mutuality principle to the income of the assessee..
The Ld. departmental representative submitted that assessee is a person under section 2 (31) of the income tax act. According to the revenue assessee is an association person or body of individuals, which is covered under clause (v) of section 2 (31) of the income tax act. On the applicability of the principle of mutuality revenue relied upon the decision of the Hon‟ble Punjab and Haryana High Court in case of Haryana State cooperative labour and construction Federation Ltd versus CIT reported at 252 ITR 265 and decision of the Hon‟ble Supreme Court of India in case of Bangalore club versus CIT 350 ITR 509.
The Ld. authorized representative submitted that as there is no object of earning any profit or income by the assessee therefore up to AY assessment year 2002 – 03 assessee was not included in the definition of‟ person under section 2 (31) of the income tax act. He further referred to the amendment made to the provisions of section 2 (31) of the income tax act and stated that it is applicable with effect from assessment year 2002 – 03 and not prior to that.
We have carefully considered the rival contentions. The provisions of section 2 (31) of the income tax act defines „ person‟ up to assessment year 2001 – 0 to as under:- "person"96 includes— 31) an individual96, (i) a Hindu undivided family96, (ii) (iii) a company, a firm97, (iv) an association of persons97 or a body of individuals97, whether (v) incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
W.e.f. 01/04/2002 by finance act 2002 has inserted following explanation:- [Explanation.—For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;] 13. Therefore, if an Association of person or a body of individuals or local authority or an artificial juridical person was formed established or incorporated to deriving income, profits, or gains it shall also be deemed to be a person with effect from AY 2002-03. Therefore it is clear from the above explanation that prior to the insertion of this explanation is that any such person was not formed or established or incorporated with the object of deriving income, profits or gains is not included in the definition of person under section 2 (31) of the income tax act. vide circular No. 8/2002 dated 27/08/2002 wide Para 5.1 to 5.3 the above amendment is explained as under:-
‘Clarification in the definition of persons. 5.1 Under the existing provision contained in clause (31) of section 2, the expression “person” includes an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, a local authority and every other artificial juridical person, not falling within any of the above definitions. Although, the definition of “person” is inclusive and starts with the qualifying words “unless the context otherwise requires”, in some cases, a claim has been made that certain bodies do not fall within any of the definition of “person” provided in clause (31) of section 2 due to sole reason that they are not supposed to have any income or profits and gains. 5.2 To clarify the correct legal position, an Explanation in clause (31) of section 2 has been inserted through Finance Act, 2002 so as to provide that an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not, such person or body or authority or juridical person, was formed or established or incorporated with the object of deriving income, profits or gains. 5.3 This amendment takes effect retrospectively from lst April, 2002 and applies in relation to the assessment year 2002 2003 and subsequent assessment years.’ Based on above clarification it is apparent that this amendment takes effect w.e.f. 01/04/2002 and applies in relation to the assessment year 2002 – 2003 and subsequent assessment years. Before us reassessment years Page 6 of 7 involved are from A Y 1999- 2002 to 2001 – 02. Therefore, if for those assessment year the assessee is not formed for or established or incorporated with the object of deriving income, profits or gains, it would not be included in the definition of person.
In the present case the assessee society was registered with the co-operative societies with the specified object to purchase or acquire land by lease, exchange or otherwise, to construct higher or acquire buildings, to sell or to exchange, house sites with members to rent or lease building, etc. The society purchased land, which was duly registered in the name of the society. Therefore it is apparent from the facts of the case that assessee was formed for the purpose of benefit of its members. Furthermore at page No. 7 of the assessment order, the Ld. assessing officer himself has stated that amendment made by the finance act 2002 has clarified the above provisions, rejecting the objection of the assessee that it is not assessable as an Association of person in the year under consideration. The Ld. CIT A in Para No. 5 has held on examination of the objects of the appellant society that they are not on income, profits and gains in therefore, he has held that society was not a person within the meaning of section 2 (31) of the income tax act, 1961 before 01/04/2002. Therefore he held that the assessee is not assessable to income tax act. In view of the circular of the Central board of direct taxes, which has held that the amendments shall be applicable from assessment year 2002 – 03 and not before that and in view of the inability of the Ld. departmental representative to show any infirmity in the order of the Ld. CIT A wherein he has held that assessee is not for the profit , we confirm the finding of the Ld. CIT appeal that assessee is not a „person‟ u/s 2(31) of the act for the impugned assessment years. In view of this appeal of the revenue fails.
As we have already held that assessee is not a person for assessment year 1999 – 2002 assessment years 2001 – 02 to the question of chargeability of enhanced compensation or interest on enhanced compensation up to that assessment year does not arise. We also do not find it necessary to consider the concept of mutuality in view of our above finding. In view of this ground No. 1 and 2 of the appeal of the revenue fails.