ITO 16(2)(4), MUMBAI vs. THE CASA GRANDE CO OP HOUSING SOCITY LTD, MUMBAI

(A.Y. 2007-08) ITO Vs. Casa Grande Co-op. Housing Society Ltd. 1. “Whether on the facts and in the circumstances of the case, and in law the Ld. CIT(A) is justified in law on holding that the voluntary contribution of Rs.70,00,000/- by one of its member in lieu of transferring right to the exclusive use of the valuable assets/facilities by the society during the A.Y.2007-08 is covered within the principals of mutuality.”

The issue raised in ground no.1 whether the CIT(A) is justified in holding that the voluntary contribution of Rs.70,00,000/- by one of its member in lieu of transferring right to the exclusive use of the facilities by the society is covered within the principals of mutuality.

The brief facts of the case are that the assessee, a co-operative housing society, received donation of Rs.70,00,000/- from Shri Kirit R. Jasani a member as voluntary donation and the same was shown under the head of “Building Repairs & Renovation” in the balance sheet of the assessee. The assessee filed its return of income on 26.08.2006 at nil income and the same was processed under section 143(1) of the Act. Thereafter a notice u/s 148 of the Act was issued on 30.03.2012 and properly served on the assessee society and the assessment u/s 143(3) r.w.s.

The ld. DR on the other hand relied on the order of the AO by arguing vehemently that the donation was not received out of mutuality and therefore constituted income of the assesee society and prayed for setting aside the order of the CIT(A) and upholding the order of the AO. The ld. AR per contra, while arguing the case brought to our notice that the case of the assessee was covered in its favour by a decision of tribunal in its own case in ITA No. 467/Mum/2008:

We have heard the rival submissions and perused the material on record. We find that the issue involved in the appeal is covered directly by its own case in earlier year in assessment year 2004-05 and relevant paras 9 to 14 are re-produced as under:-

In the present case one of the members volunteered himself to contribute substantial amount to the assessee-society to undertake substantial maintaining and repairing work of the existing building. The repairs and maintenance and uplift of the existing building as a whole are beneficial to all the members of the society. Therefore, in the activities carried out by the assessee-society in spending the contribution received from the member, the principle of mutuality has been strictly observed. The application of funds is the crucial test. Here the fund of Rs.1,75,00,000 was contributed by one of the members. How the funds were expended? The funds were expended in renovating and repairing the existing building facilities of which the benefits are available to all the members. Therefore there is no doubt that the expenditure incurred by the assessee-society is for the benefit of the entire members, and therefore, fully covered by the rule of mutuality.

Now regarding the source of funds utilized for the renovation work of the building one has to see that the contribution has come from a member. No outsider is involved. Whether the contribution has come from all the members from some of the members or only of the members, it has basically come from the in house of the society. There is no transaction between the assessee-society and non- member outsider. The receipt of contribution and application of the funds both are confined inside the frame of the society and its members. Therefore on the question of receiving the contribution from one of the members of the society there is no valuation of the rule of mutuality. Therefore, it is very difficult to hold that the contribution made by one of the members of the society for certain particular purposes partakes the character of income in the hands of the assessee society. That findings is quite perverse.

If we examine the case from another angle, it is to be seen that it is only a question of expenditure. The member who volunteered himself to contribute Rs.1,75,00,000 to undertake the repair work was in fact reimbursing the society of the expenditure incurred by the society. The society has incurred expenditure in expanding the facilities and in carrying out eh repair works. There was shortage of funds that shortage was made good by the member. So that is only a question of reimbursement or compensating the expenditure. Therefore as far as the assessee society is concerned. It has not earned anything. So there is no question of any income at all. The society by itself does not have its own income. The expenditures are met by the contribution made by the members or member. Even if the member wants to have some extra facilities and the demand is supported by the remaining members the additional facilities can be erected only through the medium of co-operative society. A member of a housing society cannot incur any expenditure directly even though the expenditure was incurred for this personal benefit. The work has to be carried out through the office of the society. The society alone can undertake such work. Therefore, in fact even in a case where a personal benefit is given to amber by doing some work. The same work is done by the society for and on behalf of that member. Therefore, on this ground also there is no question of any income.

In the facts and circumstances of the case, we find that the lower authorities have erred in treating the sum of Rs.1,75,00,000 as the income of the assessee-society. It is accordingly deleted.”