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Income Tax Appellate Tribunal, “E ” BENCH, MUMBAI
Before: SHRI RAJENDRA & SHRI C.N. PRASAD
आदेश / O R D E R PER C.N. PRASAD, JM:
These two appeals are filed by the assessee and the Revenue against the orders of the Ld. CIT(A)-37, Mumbai dated 20.12.2013 pertaining to assessment year 2004-05.
The assessee has raised following grounds in its appeal:
The Ld. CIT(A) erred in confirming the addition made by the Learned ACIT by treating contribution/donations received by the assessee of Rs. 3,65,589/- for Professional/business income.
2. The Ld. CIT(A) erred in not following Mutuality Concept for contribution/donation received by the assessee of Rs. 3,65,589/-
3. The Ld. CIT(A) erred in disallowing compensation aid/expenses paid by the appellant of Rs. 89,80,000/- for Assessment Year 2005-06.
4. The Ld. CIT(A) erred in confirming the interest u/s. 234B(3) of the Act.”
At the outset, the Ld. Counsel for the assessee submits that all the three grounds are decided by the Tribunal in its own case for the Assessment Years 2003-04 to 2010-11 and the appeal for this Assessment Year remains to be adjudicated though it pertains to the block assessment order passed u/s. 143(3) r.w. Sec. 153A of the Act. The Ld. Counsel for the assessee submits that in so far as ground Nos. 1 & 2 is concerned, the Tribunal decided the issue in respect of contributions/donations received by the assessee at para-7 of its order in to 1379/M/2013 dated 25.2.2015 and it was held that contributions received by the assessee are in pursuant to its activity and they are in accordance with the objects of the assessee union therefore cannot be treated as income from business or profession and they are exempt u/s. 10(24) of the I.T. Act as well as on the principle of the mutuality.
In so far as ground No. 3 regarding compensation aid/expenses are concerned, the Ld. Counsel for the assessee submits that the Tribunal in para-22 held that in view of the findings given in ground No. 1 & 2, this ground of appeal of the assessee becomes infructuous.
The Ld. Departmental Representative vehemently supports the orders of the authorities below.
We have considered the submissions of both the parties and perused the orders of the Co-ordinate Bench and find that all the grounds are decided by the Tribunal. In so far as ground No. 1 & 2 are concerned i.e. in respect of treating contribution/donations received by the assessee as professional/business income by the Assessing Officer while completing the assessment, the Co-ordinate Bench held that such donations/contributions received by the assessee are in pursuant to its activities which are in accordance with the objects of the assessee union therefore cannot be treated as income from business or profession and accordingly it was held that the same is exempt u/s. 10(24) of the I.T. Act as well as on the principle of mutuality observing as under: “We have considered the rival submissions as well as relevant material on record. There is no dispute that during the search & seizure operation, the department has not recorded even a statement or seized any document from the place of the assessee. Thus it is clear that neither any incriminating record nor any information was gathered by the department as a result of search & seizure action in the case of the assessee. Once there is no document either seized or found and even no statement was recorded during the search proceedings then the addition maded by the Assessing Officer is based on existing record and material. The department has not disputed that that the assessee is eligible for exemption u/s. 10(24) of the Act as a registered Trade Union. The dispute is only with respect to the contribution from the employers/corporate entities on account of settlement of the disputes between the workers and employers through assesses's union. It is one of the objects of the assessee as per the constitution of the assessee union to seek redressal of grievances of the members and to secure the settlement of disputes between the employers and the employees by negotiation and by mutual consultation. Therefore, the negotiation on behalf of the workers and to arrive at a settlement in the interest and welfareof the workers as well as for the employers to avoid any stand off between the employers and workers, the assessee play a vital role. The contribution received by the assessee is only in respect of and on account of its activity of achieving the object as per the constitution. It is not a case of receiving any amount or income by doing an activity which is not for achieving the objects of the assessee. The amount received by the assessee from the employers has a direct nexus with the negotiation and settlement arrived between the parties. The role of the assessee of negotiating on behalf of the workers for settlement of disputes between the worker and the employers is limited only in respect of the disputes between the member workers and employers. Therefore, the activity of the assessee cannot be generalized in the nature of professional service or occupational service open to general public but it is, otherwise, permitted under the by laws and constitution of the assessee as well as Trade Union Act. Though the contribution from employer is received as per the tripartite agreement, however, it is only incidental to the activity of services of the assessee in resolving the disputes between the member workers and the employers with the intention of advancement of welfare of members. The negotiation and settlement of disputes between the workers and employers is a composite activity and the contribution received from the employer cannot be taken as a separate activity of the assessee but it is a part and parcel of activity of achieving the object as per the constitution/by laws of the assessee. Therefore, when the pre-dominant object of the activity of the assessee is to arrive at a settlement of disputes between the workers and the management in the interest and welfare of the workers and not to earn any income or profit then the contribution received from the employers on account of the settlement between the workers and the employers cannot be said to be the business/professional or occupational income of the assessee. Therefore, the said amount of contribution received from the employers at the most would be the income of the assessee as income from other sources and cannot be regarded as business income and accordingly exempt u/s 10(24) of the Income Tax Act. Apart from the contribution received by the assessee from workers, the fund received by the assessee from employers is otherwise for the purpose of achieving the objects being a welfare body of the workers and excess fund if any after meeting out the expenses incurred on account of activity performed by the assessee, are refunded to the members as bonus then the said consideration received on account of settlement cannot be treated as business income earned by the assessee. An identical issue was considered by the Indore Benches of this Tribunal in the case of Asstt. Commissioner of Income Tax Vs. Coordination Committee of SPM Unions Hoshangabad (supra), in para 20 and 21 as under:- "20. From the record we find that 15% of incentive bonus payable to workers was contributed by them to the association. This amount was deposited with the association to meet all sorts of expenditure including lawyers' fee, TA/DA, typing, stenographic charges, court fee and all other incidental expenses. The balance out of such contribution was to be refunded to the deserving employees. From record we find that substantial amount received from the employees was refunded to them in the years 1999 and 2000 after meeting the expenditure. Thus, the amount received from the workers for meeting such expenditure was not in the nature of income in the hands of the assessee being a coordination committee but was merely in the nature of deposit which was meant for meeting expenditure for defending/prosecuting various cases of employees. From record we find that the assessee was not merely representing its workers but in fact a party to all the litigation either as a petitioner or respondent. The management of SPM, Hon'ble High Court and Supreme Court accepted the status of the assessee as an association consisting of workers and, therefore, allowed it to contest in its own name instead of putting up the names of individual workers. There was a clear concept of mutuality. No-one can make profit out of himself. When a member agrees to contribute funds for a common purpose, the amount of funds not so required for common purpose and refunded to such individual, cannot be treated as income in their hands liable to tax. Thus, the general principle applicable to the mutual concern is that the surplus accruing to it cannot be regarded as income, profits or gains for the purpose of income tax.
As discussed hereinabove, the amount received by the assessee was not in the nature of income and the assessee was not doing any business activity and as such the application of provisions of section 40a(ia) was not justified. For application of section 40a(ia) firstly there must be some business/professional income against which an expenditure has been claimed. In the instant case before us, since there is no business or professional income in the hands of the association, the AO was not justified in invoking the provisions of section 40a(ia) of theAct"
We find that in the case of the assessee the amount received is as per the settlement agreement which was signed by all the parties, therefore, there is no material or any fact brought on record by the Assessing Officer to indicate that the amount received by the assessee from workers as well as from the employers are not voluntary
but under coercion or force. If the Assessing Officer doubted the voluntary contribution made by the workers and employers then he could have conducted a proper enquiry. In the absence of any contrary fact or evidence found during the search or gathered during the assessment proceedings, the allegation of the authorities below are merely based on assumptions and not on any substance or material. On the contrary the assessee has produced the confirmation letters from the employers who paid the contribution as well as from the workers in whose cases the matters/ disputes were settled through the assessee and the contribution was made as per the settlement agreement between the parties. Therefore, the assessee has produced the relevant evidence in support of its claim that this is a voluntary contribution. Once the CIT(A) has accepted the contribution of the workers as exempt from tax u/s 10(24). Similarly the contribution made on account of the same service/activity of the assessee by the counter party being employer in pursuant to the settlement/resolution of disputes, is also exempt u/s 10(24) of the Income Tax Act. As per section 27(2) of the Trade Union Act 1926, even the rule of trade unions do not provide for distribution of funds of the trade unions on dissolution, the registrar shall divide the funds amongst the members in such manner as may be prescribed, therefore, in any case the funds available with the assessee shall be distributed among the members either as per the rules of union or as per the provisions of section 27(2) of the Trade Union Act 1926. In view of the above discussion, we are of the view that the contribution received by the assessee in pursuant to its activity which are in accordance with the objects of the assessee union cannot be treated as income from business or profession and accordingly the same is exempt u/s 10(24) of the Income Tax Act as well as on the principle of mutuality being distributed among the members of the assessee union”.
Respectfully following the said decision, we allow the grounds raised by the assessee on this issue.
7. In so far as ground No. 3 is concerned, the Co-ordinate Bench in para-22 of its order dismissed the ground as infructuous in view of the findings given in ground No. 1 & 2. As the same will apply mutatis and mutandis for this year also, this ground is dismissed as infructuous.
Ground No. 4 is regarding levy of interest u/s. 234B and it is only consequential. Thus this ground is dismissed as consequential.
Coming to the Revenue’s appeal, the revenue has raised the following grounds:
1. "On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the capital gains arising out of sale of property at "Poiser", is not taxable in the A. Y 2004-05, stating that the same arose prior to A. Y 2004-05, without appreciating the fact that the assessee had not credited the sale proceeds in the Income and Expenditure account for the A. Y. 95-96 and subsequent years and offered no taxable income under capital gains for such assessment year and also the fact that no return of income was filed for the A. Y. 95-96 and 96-97, disclosing the capital gain on sale of property. "
2. "On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the capital gains arising out of sale of property at Poiser, is not taxable in the A. Y 2004-05, since the same arouse prior to A. Y 2004- 05, without appreciating the fact that the assessee had kept the entire sale proceeds in the balance sheet on the liability side as advance for several years till A. Y 2004-05, which clearly indicates that the transactions relating to sale of property was not complete, i.e no transfer had taken place within the meaning of sec 2(47)of the I. T. Act prior to A. Y. 2004-05"
10. Briefly stated the facts are that the assessee had filed return of income on 20/07/104 declaring 'NIL' total income after claiming exemption u/s. 10(24) on the entire income. However, from the profit and loss account it was found that out of total receipts of Rs. 2,38,83,663/- an amount of Rs. 2,23,42,132/- was received on account of 'profit on sale of Poiser Property' and this was not offered to tax. The case was reopened on the above ground and order u/s. 143(3) r.w.s. 147 was passed on a total income of Rs. 1,06,65,840/- on 13/12/2007. The gains on sale of "Poiser property" not offered by assessee was taxed in the assessment order. The AO held that the assessee had not offered the income earlier to avoid taxes and also invoked section 68 of IT Act to make the addition. The Assessing Officer taxed capital gains of Rs 2,23,42,132/- against loss as per Income expenditure account of Rs 1,16,76,294/- and assessed taxable income at Rs 1,06,65,840/-.
10.1. Being aggrieved the assessee filed appeal before CIT(A) and the CIT(A) by order dated 19/02/08 enhanced the total income to Rs. 2,23,42,132/- by treating the resultant income under the head capital gain(LTCG), thereby negating the set off of business loss of Rs. 1,16,76,294/-. In doing so the Ld. CIT(A)held that since the appellant had not offered this income earlier and credited the same in books only in AY 2004-05, led to inference that sale was not completed earlier. The Ld. CIT(A) further held that section 68 was not applicable to facts of the case.
10.2. The matter was carried to ITAT and the Hon'ble ITAT, 'E', Bench, Mumbai in dated 23/06/09 set aside the matter by observing that 'we accordingly set aside the order of CIT(A) and restore the matter to the file of AO for passing a fresh order after necessary examination in the light of the observations made above and after allowing opportunity of hearing to the assesee.' 10.3. In the reassessment order the assessing officer reproduced Para 3.1 and other relevant paragraphs of the CIT(A)'s appellate order leading to computation of long term capital gain at Rs. 2,23,42,132/-. There is no discussion of the compliance with the directions of Hon'ble ITAT and the verification carried out. The Assessing Officer accordingly assessed the long term capital gain at Rs. 2,23,42,132/-. The Ld. CIT(A) held that capital gains arose prior to the Assessment Year 2004-05 and he deleted the capital gains assessed by the Assessing Officer during this Assessment Year.
The Ld. Departmental Representative vehemently supporting the order of the Assessing Officer submits that the assessee credited advances received from sale of property as income in this year only. He submits that returns were not filed in earlier years and therefore the Assessing Officer is justified in holding that there is transfer within the meaning of provisions of Sec. 2(47) of the Act during this Assessment Year and bringing to capital gains tax the property given for development.
The Ld. Counsel for the assessee supports the orders of the Ld. CIT(A).
Heard the rival submissions and perused the orders of the authorities below. We find from the Ld. CIT(A)’s order that the issue has been elaborately considered by the CIT(A) with reference to the averments in the assessment order, the directions given by the ITAT in its earlier order and the submissions of the assessee and concluded that there is no transfer of property during this Assessment Year within the meaning of the provisions of Sec. 2(47) of the Act. The Ld. CIT(A) after appreciating the documents submitted by the assessee concluded that the title of the property has been transferred in the financial year 1996-97 relevant to Assessment Year 1997-98 and therefore the capital gains arose prior to the Assessment Year 2004-05 and therefore not liable to tax in the Assessment Year 2004-05 observing as under:
5.1. I have given my careful consideration to the rival submissions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position. 5.2. Before me it is argued that the Ld. Assessing Officer has passed the order simply relying on earlier CIT(A)'s order and that the AO did not follow the directions of the Hon'ble ITAT at all. A paper book has also been filed numbering pages 1 to 173 which enclosed the copies of various documents and case laws. It is the contention of the appellant that possession of the property was handed over on 18/09/94 and hence transfer took place on 18/09/94 u/s. 2(47) clause (v). It is submitted that the appellant had received full payments and it executed irrevocable Power of Attorney in favour of the builder and hence transfer has taken place in 1995-96 or 1996-97. 5.3. The fact remains that the appellant did not reflect profit on sale of property at Poiser at Rs.2,23,42,132/- in any of the earlier assessment years including assessment year 1995-96 or 1996-97. It is only in the assessment year 2004-05 that the appellant credited the profit amount on sale of property in the profit and loss account. However, even in this year it did not offer the same for taxation. The claim of the appellant that the same is exempted u/s. 10(24) is also not correct since this section does not exempt the income in the nature of capital gains in the hand of trade union. 5.4. The appellant entered in to agreements for development cum sale on 30/10/1995 with different persons belonging to Dattani Construction by way of separate agreements. As a result of these agreements, the appellant received certain considerations totaling to Rs. 2,60,00,000/- during the period August 1994 to December,1995. The appellant treated these amounts as advances in their books of accounts for several years. It never credited this amount to its income and expenditure account till A.Y. 2004-05. No acceptable reason has been given for treating the advance received as advance in all these years prior to A.Y. 2004-05. The inescapable conclusion can only be that only the appellant wanted to hide the nature of transaction and to avoid payment of taxes in respect of this transaction. Even in A.Y. 2004-05, in the return filed it was claimed that the same is exempted u/s. 10(24) of the Income tax Act. There was a deliberate intention to conceal the particulars of income in respect of profit earned on sale of property and to evade tax liability. 5.5. In the order of the Hon'ble ITAT, the Hon'ble bench noted that the assessee had acquired the said property vide agreement for sale dated 14/05/94 from M/s. Cable Corporation of India. It then entered into agreements for development cum sale of the property on different dates with different persons belonging to Dattani Construction. They also noted that the land was subject matter of acquisition and restraints under the Urban Land Ceiling
Act and therefore whether and when such right or interest in the property could be legally transferred should be examined. They also noted that the Power of Attorney holder was required to make application under ULCA and it is not clear as to what permission has been received. The fact that the assessee itself has shown amount received as advance till 01/04/2003 indicates that it had no permission to transfer. But this aspect has not been examined. Accordingly the matter was restored to assessing officer for verification. 5.6. The assessing officer in his order giving effect to ITAT order has merely stated that: "Accordingly the case was fixed for hearing and Shri N R Agarwal , FCA & AR vide his forwarding letter dated 24/12/2010 submitted details in connection with the proceedings. He has submitted Municipal Corporation of Greater Bombay's order for De- reservation dated 10/06/1996, ULC order dated 17/02/1997 & 17/10/1996 from Add. Collector, Commencement Certificate for construction of building from BMC dated 20/01/1998, Solicitor's certificate dated 04/08/2007 certifying that land is transferred in 1995/96 u/s 53A of Transfer of Properties Act, Bank Certificate for payments received from Developer & Power of Attorney in favour of builder.”
Thereafter, the entire portion from the earlier CIT(A) order, which was the subject matter of appeal before ITAT, has been extracted without answering the questions raised by Hon'ble ITAT and determining when transfer took place. 5.7. In the appellate proceedings, details by way of paper book pages 1 to 173 has been filed dated 6-9-2011. It is submitted that the same were filed before the assessing officer and that no new evidence is filed.
5.8. A perusal of the papers filed indicates that vide Development agreement executed on 10-6-1994, Cable Corporation of India Ltd., for a consideration of Rs.614,3601- , the appellant was allowed to develop and sell, in respect of plot of land at Poisar of 30718 square yards approx 24882 square meters. The owner allowed developer to apply for and obtain required permissions, develop and sell constructions on the land. If permissions were received, and sales of flats took place, the developer was entitled to all proceeds without having to pay the owner any further payments. The agreement was on 'as is where is' basis. It was recorded that the land was under restraint as per order of Collector u/s 8(4) dated 31-10-81 and that the property was reserved for Municipal Godown. 5.9. Vide similar 10 agreements dated either 19-9-1994 or 30- 10-1995, the appellant entered into Agreement for Development Cum Sale with Dattani group. Each agreement covered a part of the land which was taken from Cable Corporation mentioned earlier. The terms of this agreement were similar to the development agreement of appellant with Cable Corporation. Thus, it recorded the restriction of ULC u/s 8(4), reservation for Municipal Godown, and was on 'as is where is' basis. It allowed developer Dattanis to enter property as licensee. The amount received as consideration was a total of Rs 260,00,000/- over a period of 10-8-1994 to 31-12-1995. Power of Attorney, was executed by Cable Corporation of India Ltd first in favour of appellant trust and then in name of Dattani group. Similar P of A was executed by appellant trust in favour of Dattani dated 5.11.96. 5.10. In the proceedings before assessing officer, apart from the above agreements and power of attorney, the copies of following documents were submitted, which also forms paper book filed in present appeal proceedings. i) BMC Order dated 10/6/1996 - This permission allows the development on land under reference with condition that 25% of builtup are will be constructed as Godown and handed over to Municipal Corporation free of cost in lieu of permission to develop and construct residential units. It was also stipulated that NOC from ULC will be obtained. ii) Order dated 17-10-1996 from Collector under ULC, granting NOC with reference to the condition imposed by BMC in its permission dated 10-6-1996. It was noted that one of the conditions under which development is permitted, is that 25% of constructed area will be handed over to BMC for Municipal Godown. iii) Commencement Certificate permission dated 20-1-1998 from BMC iv) Order dated 17-2-1997 of Collector, Bombay under ULC, granting NOC for receiving TDR on part of land under DP reservations for Park and DP Road. v) Possession letter for the land in question dated 18/9/1994 from appellant to Dattani Group in respect of the Development agreement of appellant with Dattani group. vi) Copy of bank statement showing the receipt of payments by the appellant. 5.11. From these documents, it is inferred that the permission to develop the lands arose in 1996-97 when permissions from ULC and BMC were received. Consideration was received and possession was handed over. Thus, to conclude, as directed by ITAT in this case, the title could have been transferred with ULC approval in FY 1996-97 relevant to Assessment Year 1997-98. 5.12. It is also the argument of the appellant that u/s. 2(47) clause (v), since possession was given on 18.9.1994, transfer took place at that time. This clause is in respect of contract of the nature referred to in section 53A of Transfer of Property Act relating to part performance. This was inserted in the statute wef 1.4.1988. The capital asset in this case is development rights in the property, on 'as is where is basis' with all the restrictions, and the same rights were transferred to Dattani as was obtained from Cable Corporation of India Ltd. 5.13. There is no doubt in my mind that the appellant has deliberately suppressed recognition of capital gains in earlier years and thus avoided payment of taxes. The argument that its income is not taxable u/s 10(24) is not acceptable. However, the capital gains, as per verifications directed by ITAT, in this case arose prior to AY 2004-05, and are thus are not taxable in AY 2004-05”.
On a careful reading of the Ld. CIT(A)’s order, we do not find any valid reason to interfere with the findings given by the Ld. CIT(A) that the transfer took place in the Assessment Year prior to the Assessment Year 2004-05 and capital gains arose prior to the Assessment Year 2004-05 and therefore capital gains is not assessable during the Assessment Year 2004-05. None of the findings of the Ld. CIT(A) have been rebutted by the Revenue so as to canvas that the transfer took place in the Assessment Year 2004-05. Apparently, the possession of the property has been given prior to 2004-05 i.e. in the financial year 1996-97 relevant to Assessment Year 1997-98. All the development agreements were executed during the period 10.6.1994 to 30.10.1995 for development of the party. The possession of the property has been given on 18.9.1994 to Dattani group in respect of development agreement entered into by the assessee with Dattani Group. Taking all these facts into consideration, it is apparent that the transfer took place prior to 2004-05 therefore the Ld. CIT(A) is perfectly justified in holding that no capital gains arose in Assessment Year 2004-05. Thus, we sustain the order of the Ld. CIT(A).
In the result, the appeal filed by the assessee is partly allowed and the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 28th September, 2016.