2010 (3) TMI 1083 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenses.
2. Deletion of addition of transfer fee.
3. Taxability of income on the principle of mutuality.

Summary:

1. Disallowance of Expenses:
The Revenue challenged the reduction of disallowance of expenses from Rs. 13,18,756 to Rs. 7,61,826 by the CIT(A). The CIT(A) allowed additional expenses such as 40% of salary and bonus, water expenses, advertisement expenses, service tax, staff medical expenses, municipal tax, audit fees, legal fees, stationery and printing expenses, insurance premium, and depreciation on various assets. The CIT(A) followed the decision of the ITAT Ahmedabad in the case of M/s. Gulmarg Association, directing that the surplus of Rs. 10,870 be taxed as income from other sources.

2. Deletion of Addition of Transfer Fee:
The CIT(A) deleted the addition of Rs. 2,00,000 being the transfer fee on transfer of plots, relying on the Tribunal's decision in the case of Gulmarg Association v. ITO Ward-8(7) Ahmedabad. The Tribunal upheld this deletion, noting that the income earned by the society from its members is exempt under the principle of mutuality.

3. Taxability of Income on the Principle of Mutuality:
The assessee argued that its income is not taxable based on the principle of mutuality. The Tribunal agreed, referencing the jurisdictional High Court's decision in Adarsh Co-operative Housing Society Ltd. and the Bombay High Court's decision in Sind Co-op. Housing Society & Others. The Tribunal concluded that the income earned by the society from interest, rent, and other miscellaneous sources from its members is exempt under the principle of mutuality. The Tribunal emphasized that the society's activities were not commercial and were aimed at maintaining the property for the benefit of its members.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, affirming that the income earned by the co-operative housing society is exempt under the principle of mutuality.