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INCOME-TAX OFFICER Versus NAV SHANTI NAGAR CHS LTD.

2016 (3) TMI 172 - ITAT MUMBAI

Voluntary contributions towards special repair fund - whether charging of transfer fees has no element of trading or commerciality and the same was covered under the concept of mutuality ? - Held that:- Commissioner of Income-tax (Appeals) was justified in deleting the addition on account of voluntary contributions towards special repair fund holding that charging of transfer fees has no element of trading or commerciality and the same was covered under the concept of mutuality. - Decided agains .....

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that amount is governed by the principle of mutuality since it cannot be termed as transfer fees but amounts to sharing of the actual expenditure incurred for renovation work and hence it cannot be said to be in violation of the conditions prescribed in the bye-laws. In effect the Assessing Officer as well as the Commissioner of Income-tax (Appeals) admitted that the assessee-society is governed by the principle of mutuality and it is not carrying on any business. Such being the case it cannot b .....

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an (Vice-President).-This appeal by the Revenue is directed against the order passed by the Commissioner of Income-tax (Appeals)-30, Mumbai and it pertains to the assessment year 2005-06. 2. The following grounds were urged before the Tribunal : "(1) Whether, on the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) was justified in deleting the addition of ₹ 13,00,000 on account of voluntary contributions towards special repair fund holdi .....

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l are as under. The assessee is a co-operative housing society. For the year under consideration it had not filed its return of income. Since a co-operative society has to mandatorily file its return of income, the Assessing Officer initiated proceedings under section 148 of the Act and also enquired, through Inspector, the status of the co-operative society. The Assessing Officer gathered information that the assessee-society was carrying out renovation work and though huge expenditure was incu .....

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lected in the form of transfer fees from outgoing members and another sum of ₹ 13,00,000 was received from the outgoing members in the form of voluntary contribution towards repair which is nothing but transfer premium collected from the members on transfer of flats. The case of the assessee was that such receipts are covered by the principle of mutuality. The Assessing Officer observed that as per the by- laws of the co-operative society, the assessee could not have charged more than S .....

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n violation of the by-laws of the co-operative society, which is covered under the principle of mutuality and therefore brought to tax a sum of ₹ 13,00,000. He also observed that the assessee had given a note below the computation of income that current year depreciation of ₹ 11,40,199 to be carried forward to subsequent year whereas by virtue of the provision of section 32(1) of the Act depreciation is admissible only where the assets are owned and used for the purpose of business o .....

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to substantiate the claim. On perusal of the relevant details the Assessing Officer observed that the expenditure shown under heads cleaning charges, repairs, maintenance, etc., are not fully supported by genuine third party bills as number of vouchers were self made. He therefore proposed to disallow 10 per cent. of the expenditure which works out to ₹ 13,659 and treated it as income of the assessee. 5. Aggrieved, the assessee contended before the Commissioner of Income- tax (Appeals) tha .....

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ontributions on the ground that the bye-laws have been violated, overlooking the fact that the amount received was covered under the principle of mutuality. The transfer fees and voluntary contributions are two different collections and hence repair charges cannot be considered as transfer premium. 6. With regard to the expenditure debited under various heads such as cleaning charges, lift repair, maintenance, etc., it was contended that the bills and vouchers furnished before the Assessing Offi .....

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. 7. The learned Commissioner of Income-tax (Appeals) observed that the voluntary contributions towards special repair funds made by the outgoing members had no element of trading or commerciality and hence it is covered by the principle of mutuality in the light of the decision of the hon'ble Bombay High Court in the case of Sind Co-operative Housing Society v. ITO [2009] 317 ITR 47 (Bom) as well as the decision of the Income-tax Appellate Tribunal, Mumbai Benches in the case of Somerset Pl .....

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ality and it is not in violation of the conditions set out in the bye-laws. As regards disallowance of 10 per cent. expenditure on ad hoc basis the learned Commissioner of Income-tax (Appeals) observed that the Assessing Officer was justified in making the disallowance since the burden is upon the assessee to prove that the expenditure was actually incurred. It may be noticed that the assessee has not preferred any cross appeal in this regard presumably on account of smallness of the amount. 8. .....

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f returns of income, it is seen that all along the appellant- society has been showing income under the head 'Business and profession' and, therefore, it was entitled to carry forward and set off of unabsorbed depreciation as per the provisions of law. However, as the learned Assessing Officer has not applied his mind to the facts of the case, he is directed to do so now and allow appropriate relief on the basis of the findings above. Accordingly, for statistical purposes, this ground of .....

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Tribunal, Mumbai Benches (supra). The learned Commissioner of Income-tax (Appeals) further observed that the facts in the instant case are in pari materia with the facts in the aforecited cases. Though it was the Department's appeal the learned Departmental representative did not make any effort to distinguish the aforesaid case law or to highlight the facts of this case to submit that the issue herein is distinguishable on facts. 11. On the other hand, learned counsel for the assessee submi .....

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d the rival submissions. This is an appeal by the Revenue and it is for the Revenue to prove that the case law relied upon by the Commissioner of Income-tax (Appeals) is not applicable to the facts of the instant case. The learned Departmental representative has neither filed any paper book nor relied upon any case law to contradict the findings of the learned Commissioner of Income-tax (Appeals). In fact, he has not even placed before the Bench a copy of the order of the Income-tax Appellate Tr .....

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