TMI Blog2010 (3) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds, which read as under:- ITA No.2133/Ahd/2006 (by the Revenue) 1. The ld. CIT(A) has erred in law and on facts in reducing the disallowance of expenses made by the Assessing Officer from ₹ 13,18,756 to ₹ 7,61,826. 2. The ld. CIT(A) has also erred in law and on facts in deleting the addition of ₹ 2,00,000/- being the transfer fee on transfer of plots. And that of assessee s CO three grounds are as under:- CO No.262/Ahd/2006 (by the assessee) 1. The C.I.T. (Appeals)erred in not accepting the plea of the assessee that on the principle of mutuality, the assessee s income is not table at all. 2. In any case, the C.I.T (Appeals) erred in not giving the deduction of the total expenditure incurred by the assessee and in not holding that only the income of ₹ 4,02,182/-, which was the net surplus of income over expenditure could be considered for taxability. 3. The C.I.T. (Appeals) failed to appreciate that even the above surplus of ₹ 4,02,182/- will not be taxable because the income of the assessee by way of interest from Co-operative banks of ₹ 4,78,317/- which is exempt u/s.80P(ii) was more than ₹ 4,02,182/-. 3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Further the water expenses of ₹ 1,56,650/- should be allowed as deduction. Similarly other expenses claimed by the appellant like advertisement expenses of ₹ 28,342/-, service tax of ₹ 16,998/-, staff medical expenses of ₹ 5,250/-, municipal tax of ₹ 77,036/-, audit fees of ₹ 5,000/-, legal fees of ₹ 64,000/-, 80% of Stationery and printing expenses of ₹ 13,865/-, insurance premium of ₹ 4,474/- depreciation on electrical fitting of ₹ 243/-, depreciation on dead stock and furniture of ₹ 22,287/- and depreciation on substation construction of ₹ 3,190/- should be allowed as deduction against the income from hiring of Sanskritik Hall and decorators and caterers commission. As regards the other source of income i.e. interest from banks, following the decision of Hon ble ITAT, Ahmedabad in the case of M/s. Gulmarg Association cited by the Authorized Representative, and as per the segregation of expenses given by the Authorized Representative, as there is surplus of ₹ 10,870/-, the same is directed to be taxed income from other sources. 4. As regards to second issue of addition of ₹ 2 lakh of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged for the maintenance expenses and not to earn interest as income. This observation is supported by the facts of this case that this income will not be given to the members even on dissolution of the association. Under the circumstances, we find that the lower authorities have not properly appreciated the facts of the case. The peculiar fact of the case is that the society has decided to collect one time found from members instead of periodical collection from the members and further decided that in the case of income falls short, the deficit will be collected from members. The above facts are summarized in figures for different years as under:- Gulmarg Association Total maintenance 94-95 95-96 96-97 97-98 98-99 Expenses 187162 199414 271402 357259 382095 Less: Interest 66268 65463 105868 122882 97250 Balance to be Contributed by members 120894 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f argument it assumed that the association created a fund for maintenance on the basis of one time collection from the members and invested in the bank others. This can be said to be one type of business activity of the association. For the purpose of calculation of profit the assessee is entitled for expenditure pertaining to that from the income/receipt of that activity. In the case under consideration interest income is income/receipt and maintenance expense is expenditure of that activity. If income exceeds than expenditure that surplus is subject to tax. In the case under consideration there was loss as calculated above. On identical set of fact the Ho ble Delhi High Court in the case of Director of Income Tax vs. ALL India Oriental Bank Commerce Welfare Society (2003) 130 Taxman 575 (Del) has discussed the appeal of revenue as no question of law survives, with the following observations: As is evident from the format of the questions, the only issue raised by the revenue is as to whether the interest income derived by the respondent/assessee on the contributions made by the members of the welfare society is to be taxed in the hands of the society or not. Since in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that the assessee is a registered co-operative under the Gujarat Co-Operative Societies Act. We find that the main object of the society is to manage, administer, operate, supervise and make available the common facilities and amenities to its members. To meet the expenses on account of maintenance, the housing society collected deposits from its members, made deposits and earned interest there on from a co-operative bank. The assessee also, to made out further expenses of maintenance, let out the Manekbaug Sanskritik Kendra and earned rental income and also earned income from transfer fee for entering new members. We find that this issue is squarely covered by the decision of jurisdictional High Court in the case of Adarsh Co-operative Housing Society Ltd. 213 ITR 677 (Guj) and Hon ble Bombay High Court in the case of Sind Co-op. Housing Society others v. ITO Ward-1(7), Pune in ITA No.931/Pun/2004 dated 17- 07-2009. We find that the Revenue could not distinguish the above decisions referred by Ld. Counsel for the assessee that of jurisdictional High Court in the case of Adarsh Co-operative Housing Society Ltd. (supra) and Hon ble Bombay High Court in the case of Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to be contended that the premium charged is a profit. As we have already noted and considering the bylaws, the society is registered with the object principally of looking after the property including building thereon. There is no trading or business transactions. The member by adopting the bylaws agree amongst themselves that a fee for transfer of flat/tenement when it is sold would be paid to the society. It may be that both incoming or outgoing member have to contribute to the common fund of the society. The amount paid however, is to be exclusively used for the benefits of the members as a class. 24. It was next contended that there is no legal bar for the assessee to earn profits. There can be no dispute on that proposition but the profit must come from a commercial activity in the nature of trade, business or the like in which event the assessee then will have to pay tax on such profits. Charging of transfer fees as per by-laws has no element of trading or commerciality. There therefore, being no taint of commerciality, the question of earning profits would not arise when the housing society from the funds received applies the moneys towards maintenance of the soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity is therefore, met. (2) From the moneys received are the services offered in the nature of profit sharing or privilege, advantages and conveniences. In case of a cooperative housing society, the only activities which it can carry out in terms of its bye-laws are basically maintenance of its property which includes building or buildings. The subscription and or contributions received by the members can only be expended for the purposes of maintenance and providing other privileges, advantages and conveniences to its members in terms of its bye laws. Another test of mutuality is thus satisfied. (3) Are the participants and contributors identifiable and belong to the same class in the case of the cooperative housing society. The class of members are clearly identifiable. Members are ordinary members of associate members. The participants and contributors are the members. The members may come in our go out. The fact that only some members from those who contributed may participate in the surplus, as held by the Supreme Court is irrelevant as long as the class is identifiable. This test is also satisfied in the case of a Housing cooperative society. (4) Do the m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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