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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRIN.K. PRADHAN
This is an appeal by the assessee against the order dated 28/8 2015 of learned Commissioner of Income Tax (Appeals)–9, Mumbai, for the assessment year 2007–08.
The assessee has raised seven grounds as under:–
“1. The learned authorities below erred in law and on facts in making addition of Rs 2,19,534/-under the head "Income from house property” on the basis of estimated annual ratable value by 2 Rastogi Estate & Construction Company Pvt. Ltd. treating the appellant as owner without appreciating and considering all the material facts and circumstances of the case. 2) Without Prejudice to above , the learned authorities below erred in law and on facts in estimating notional annual level of the property on the basis of property tax collected, without considering BMC ratable value and standard rent. 3) The learned authorities below erred in law and on facts in making addition of transfer fee of Rs 1,80,000 as casual income assessable under the head Income from other sources without appreciating and considering all the material facts and circumstances of the case. 4) Without prejudice, the learned authorities below failed appreciate that on the basis of the activities carried out by the appellant, principle of mutuality is applicable to the appellant, transfer fee received from its members is not casual income.”
Ground number seven being general in nature does not require adjudication. In ground number one and two assessee has challenged addition of an amount of ` 2,19,534, towards notional annual ratable value of the property.
Briefly the facts are, assessee a company was incorporated in the year 1967 with the object to acquire and purchase leasehold immovable property known as “Ghopal Bhavan” at Princes Street, Mumbai. For the assessment year under consideration, assessee filed its return of income declaring loss of ` 4,093. Assessment in case of the assessee was completed under section 143(3) vide order dated 28th May 2009. The Commissioner of income tax in exercise of power under section 263 of the Act examined the assessment records and found that the assessee has not shown any income by way of rent
3 Rastogi Estate & Construction Company Pvt. Ltd. from members of the building he also noticed that assessee received transfer fee amounting to ` 1,80,000 which is reflected in the liability side of the balance sheet and shown under repair fund. The learned Commissioner was of the view that transfer fee received by the assessee is in the nature of casual income hence taxable. Learned Commissioner being of the view that assessing officer while completing the assessment did not examine the issue relating to taxability of the rental income as well as transfer fee ultimately set-aside the assessment order passed with the direction to the assessing officer to examine both the issues and reframe the assessment denovo. In pursuance to the directions of learned Commissioner, the assessing officer initiated assessment proceedings again by calling upon the assessee to explain why it has not offered rental income and transfer fee to tax. As far as rental income is concerned, it was submitted by the assessee, shares of the company have been allotted to the tenants of the different tenements in the building on the basis of value of tenements, which was equivalent to 100 months rent. Each tenant was allotted shares of company in proportion to area occupied by him thus they became owner of the space occupied by them. All shareholders got absolute right of enjoyment and possession of space allotted to them. The members have transferable rights, as well as full control and dominion over the space allotted to them and can derive income
4 Rastogi Estate & Construction Company Pvt. Ltd. from leasing out the space. Thus, it was submitted, as the members are the owner of the space allotted to them, the company is no more the owner of the rooms/spaces allotted to members. Therefore, there is no question of earning rental income from the members. It was submitted, the assessee only collects maintenance charges and property tax from the members and makes payment on their behalf. Assessee submitted, it is not collecting any rent from the members as it is not owner of the tenements occupied by members, therefore, assessee cannot be held to be earning rental income.
The assessing officer was not convinced with the submissions of the assessee. The assessing officer observed, as per memorandum of association assessee had purchased immovable property. He observed in the order passed under section 263, assessee was held to be the de facto owner of the property, therefore, assessable for the sum on which the property may be reasonably expected to be let out from year to year. He observed, as the assessee did not furnish annual ratable value for which the property may be reasonably expected to be let out, the annual ratable value is to be estimated. As per the information submitted by the assessee AO found that the entire building consists of 59 rooms. Accordingly the assessing officer estimated the total annual ratable value of the building at ` 3,13,620. After allowing standard deduction towards repair and maintenance he
5 Rastogi Estate & Construction Company Pvt. Ltd. determined net income from house property learned Authorised Representative ` 2,19,530. Being aggrieved of the aforesaid decision of the assessing officer assessee preferred appeal before the learned Commissioner (Appeals). The learned Commissioner (Appeals) however confirmed the view of the assessing officer.
The learned Authorised Representative more or less reiterating the stand taken before the departmental authorities submitted, the company was incorporated with the object of acquiring an immovable property for the occupation and use of its shareholders / members. She submitted, the shares of the company have been fully allotted to the shareholders / members of different tenements in the building on the basis of the value of the tenement which is equivalent to 100 months’ rent. She submitted, each shareholder / member was allotted shares of the company in proportion to area occupied by him. Thus, the shareholders / members became owner of the room occupied by them having absolute right of enjoyment and possession. She submitted, the members have transferable rights, and full Control and dominion over the area occupied by them. That being the case, assessee had no ownership rights over the property. She submitted, the assessee cannot even rent out any area of the building to an outsider. In this context the learned Authorised Representative drew our attention to different clauses of memorandum of association as 6 Rastogi Estate & Construction Company Pvt. Ltd. well as resolution passed by the board of directors on 23rd March 1977. The learned Authorised Representative submitted, as per section 27(iii) a member of a company to whom a part of the building is allotted shall be deemed to be the owner of that part. She submitted in view of the aforesaid statutory provision also assessee cannot be held to be the owner of the building. The learned Authorised Representative submitted, even assuming assessee is the owner of the building but the property is of such nature it is incapable of being let out, therefore, assessee cannot be charged to tax under the head income from house property. In support of her contention learned Authorised Representative relied upon the following decisions:– i) CIT v/s Poddar Cement P. Ltd., 226 ITR 625 (SC); ii) Sri Nirmal Commercial Ltd. v/s CIT, 193 ITR 694 (Bom.); and iii) CIT v/s Ranka Constructions Pvt. Ltd., [1995] 52 ITD 122 (Coch.).
The learned Departmental Representative relied upon the order of learned Commissioner (Appeals).
We have heard rival contentions and perused materials on record as well as the decisions relied upon. The short issue arising for consideration is, whether the assessee can be considered to be the owner of the building thereby liable to be assessed to tax under the head income from house property towards the space occupied by its members. Undisputedy facts are, the assessee company was 7 Rastogi Estate & Construction Company Pvt. Ltd. incorporated with the primary object of building a house property viz. Gopal Bhavan. As per resolution of board of directors of the company dated 23rd March 1977, a copy of which was placed before the Bench, application for allotment of shares was invited by the company. On the basis of applications received 2,140 equity shares of the company were allotted to the respective applicants and each of the shareholders were allotted tenements permanently in proportion to the shares allotted to them. The regulation also makes it clear the tenements were allotted to shareholders / members with full free and absolute right of permanent use, occupation and unfettered enjoyment. These facts have not been controverted either by the assessing officer or by the learned Commissioner (Appeals). It is also a fact on record, the allotment of tenements by the company were only to the members and not to a single outsider. Section 27 (iii) while defining the term “owner of house property” provides that a member of a company to whom a building or part thereof is allotted or leased under a house building scheme shall be deemed to be the owner of that building or part thereof. Thus, if we examine the facts of the present case in the light of the aforesaid statutory provision, there cannot be any doubt that the members of the assessee company are the deemed owner of the tenements allotted to them. The assessee has no right of ownership over the property. What the assessee collects by way of 8 Rastogi Estate & Construction Company Pvt. Ltd. maintenance charges and property tax is spent on behalf of the members. Factually the assessee doesn’t earn any rental income. Moreover, when the members of the company are having permanent and absolute right over the tenements allotted to them, even to the extent of right of transfer to third parties, the assessee cannot be considered to be the de facto owner as alleged by the assessing officer. In course of hearing it was submitted before us by the learned Authorised Representative neither in any of the earlier assessment years nor even in the subsequent assessment years the assessing officer has ever assessed income at the hands of the assessee under the head income from house property. This fact has not been controverted by the learned departmental representative. Thus in view of the clear statutory provision referred to above and applying the principles laid down in the decisions relied upon by the learned Authorised Representative and also considering the fact that in no other assessment year the Assessing Officer has notionally assessed house property income, we are of the considered opinion that the assessee not being owner of the tenements belonging to the members it cannot be notionally assessed to tax on the so called rental income of the tenements allotted to members. We may further observe, the order of the learned Commissioner (Appeals) is a totally non–speaking order bereft of any reasoning of his own. It is also relevant to observe,
9 Rastogi Estate & Construction Company Pvt. Ltd. though, Commissioner invoking his powers under section 263 had set aside the assessment order, however, he did not give any specific direction to the assessing officer to determine annual ratable value. On the contrary, the Commissioner has simply directed the assessing officer to examine the issue and frame de novo assessment. In view of the aforesaid we delete the addition made on account of notional house property income. These grounds are allowed.
In ground no.3, assessee has challenged addition of ` 1,80,000, towards transfer fee received.
Briefly the facts are, as already stated earlier while setting aside the assessment order, learned Commissioner had directed the assessing officer to examine the nature of transfer fee received. The Assessing Officer when called upon the assessee to explain why transfer fee received should not be assessed as income, assessee submitted, as the building is more than 70 years old it requires regular repair from time to time and sometimes even major repairs. To collect fund for major repairs board of directors of the company decided that when any member sells his property he will pay ` 30,000 per room as transfer charges with instruction that it will be used only in case of major repairs. Assessee submitted, whenever it receives the transfer fee it is credited to building repair funds and at the time of expenditure
10 Rastogi Estate & Construction Company Pvt. Ltd. on major repairs the same is debited to this account. Thus, it was submitted the amount received towards transfer fee is a capital receipt. Assessing officer however did not find merit in the submissions of the assessee. He observed, assessee is in sole control over the property and any decisions concerning the same, therefore, the transfer fee received of ` 1,80,000 is to be taxed as income from other sources. Though, assessee challenged the addition before the learned Commissioner (Appeals), he sustained the addition.
The learned Authorised Representative reiterating the stand taken before the departmental authorities submitted, the transfer fee collected from members at the time of sale of a house is not for the benefit of the company or any individual member, but, for the maintenance of the building. She, therefore, submitted the transfer fee being a capital receipt cannot be brought to tax.
Learned Departmental Representative relied upon the order of learned Commissioner.
We have considered the submissions of the parties and perused the materials on record. Referring to the accounts of the assessee as well as other documents, the learned Authorised Representative has demonstrated before us that transfer fee received from members at the time of sale of tenement is utilised only for the purpose of major
11 Rastogi Estate & Construction Company Pvt. Ltd. repairs of the building and not for the benefit of either the company or any individual member. We have also noted that none of the departmental authorities have established on record that the transfer fee received by the assessee is for its own benefit and not utilised for the common benefit of the members. It has also been brought to our notice that except in the impugned assessment year, in no other assessment year such transfer fee has been brought to tax at the hands of the assessee. Thus, on overall consideration of facts and materials on record, we are of the view that transfer fee received by the assessee for utilisation in major repairs of the building is in the nature of capital receipt, hence, cannot be treated as income of the assessee. Accordingly, we delete the addition made by the assessing officer and sustained by learned Commissioner (Appeals). The ground is allowed.
In view of our aforesaid decision, the issues raised by the assessee in the rest of the grounds have become redundant, hence, not required to be adjudicated upon.
In the result assessee’s appeal is partly allowed Order pronounced in the open Court on 23.09.2016