TMI Blog2013 (4) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income Tax, Range- I, Ghaziabad are both bad in law and against the facts of the case. 2. That the Ld. CIT(Appeals) has greatly erred in law and on facts of the case in :- a) Wrongly and erroneously rejecting the Appeal of the Appellant Society without appreciating the complete facts and circumstances of the case and the position of law relating to the principles of mutuality. b) Wrongly and erroneously rejecting the ground No.-1 of the Appeal raised before him regarding ex-parte order framed by the Additional Commissioner Range-I and ignoring the various letters and submissions made and placed on record in this subject. c) Wrongly and erroneously rejecting Ground No.-2 of the Appeal regarding setting aside of the ex-parte order passed by the Additional Commissioner, Range-I and not rejecting the Report of the Special Auditors which has been relied upon without any specific or cogent reasons. d) Wrongly and erroneously rejecting Ground No.-3 of the Appeal relating to appellant s claim of complying with the principles of mutuality to the appellant society on mere surmise and guess work ignoring the various Courts decision in this respect and not ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. It was his submission that complete facts need verification in order to ascertain whether there is a complete identity between the contributors and the participants. 2.2. However at the time of dictation, it was noticed that the first year in point of time for the issue infact was not 1999-2000 assessment year but in fact 1997-98 assessment year. As such it is necessary and imperative to ascertain the position in the said year accordingly the appeals were fixed for clarification requiring the parties to specifically address the past position. 2.3. On the next date of hearing, Ld. AR submitted that the position in regard to the earlier years was that the appeals for 1997-98 and 1998-99 assessment years were infact pending before the CIT(A). The Ld. AR was required to address how the subsequent years came to be decided earlier in point of time instead of the earlier years first as judicial propriety demands that the first year in point of time on the issue should necessarily be decided first. The ld. AR in response there to submitted that in the 2nd round before the CIT(A) after the passing of the order by the AO, consequent to the order of the Tribunal dated 06.07.2007 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secretary and the errant office bearerers so as to prove the bona fides of the new management. It was submitted that the assessee has come with unclean hands and no doubt he would not have any objection if the issue is restored to the CIT(A) as judicial propriety demands that the first year, be decided first. However, it was his vehement plea that the assessee may not be allowed to contend that the issue is to be decided solely in the light of the legal principles of mutuality as mutuality is a question of fact and not a pure question of law. 3. We have heard the rival submissions and perused material available on record. Before proceedings to decide the issue, we first consider it appropriate to refer to certain relevant facts. For the said purpose, it is appropriate to refer to the facts as taken into consideration for the seven years by the Coordinate Bench while disposing the stay application no-83/Del/2007 to 89/Del/2007 and ITA No- 1956/Del/2007 to 1602/Del/2007 for 1997-98 to 2003-04 assessment years. For ready-reference, para 3 4 from the order of the Co-ordinate Bench is reproduced here under :- 3. The assessee in the present case is a cooperative society registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same, the figures declared in the returns were not final and were subject to change, if any, on the basis of the books being made available to it by the ex-Secretary. Keeping in view this rider, the matter was referred by the AO to the auditors M/s Anil Ram co., Chartered Accountants for carrying out the audit of the books of account of the assessee u/s 142(2A). As stated by the AO in paragraph 9 of his order, the assessee-society was given adequate opportunity during the course of special audit to produce records and other documents available with it for the relevant period as well as to provide the necessary facilities for smooth conduct of audit, which it failed to do. The auditors finally completed the audit and submitted to the AO their reports, copies of which were made available to the assessee. In turn, the assessee-society reiterated the same objections to the very conduct of the special audit u/s 142(2A) itself as raised even during the course of special audit. It was also submitted on behalf of the assessee before the AO that it was having possession of only photocopies of cash book and members register whereas the vouchers were in possession of the ex-Secretary It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 278-282 of the paper book:- 7. We have heard the arguments of both the sides and also perused the relevant material on record. The learned counsel for the assessee has submitted before us that sufficient opportunity was not given to the assessee during the course of special audit u/s 142(2A) of being heard and the said audit was finalized mainly on the basis of information and documents furnished by Shri Ram Pal Chaudhary, ex-Secretary of the assessee-society without giving an opportunity to the assessee to put forth its case. He has contended that the said audit thus was completed without involving the assessee-society and the Assessing Officer was not justified in completing the assessments u/s 144 relying on the report of such audit. As per the direction of the Bench, he has also filed an affidavit of Shri R.C. Sharma, Hony. Secretary of the assessee-society stating the relevant facts on oath to support and substantiate the case of the assessee on this issue which reads as under :- Affidavit of Shri R.C.Sharma S/o Shri Ram Swaroop Sharma, aged about 56 years, R/o of 309, Seemant Vihar, Kaushambi, Ghaziabad. The above named deponent hereby sworn on oath as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional misconducts of the auditors and in the matter of irregularities committed by them in the special audit report and that the said complaint is now under investigation by the institute. 8. The learned counsel for the assessee has also placed on record a copy of statement of Shri Ram Pal Chaudhary, ex-Secretary recorded by Addl. CIT, Range-I, Ghaziabad dated 23.3.2005 at page Nos. 1 to 9 of his paper book and pointed out from the answer given on page No.-5 of the said statement that Shri Chaudhary had accepted that the books of account of the assessee-society such as receipt books and vouchers for the year 1981-82 and onwards were lying in his custody. He also invited our attention to a copy of affidavit dated 19.9.2005 filed by Shri Ram Pal Chaudhary in the Court of Civil Judge (Junior Division), Ghaziabad placed at page Nos. 10 11 of his paper book to show that the key of the office premises of the assessee-society was in the possession of Shri Choudhary as stated by him on oath. He has drawn our attention to a copy of complaint filed by the assessee-society before the Counsel of the Institute of Chartered Accountants of India placed at page Nos.12 to 18 of his paper b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not confronted to the assessee. The information and documents furnished by Shri Ram Pal Chaudhary during the course of special audit thus were relied upon by the auditors without giving any opportunity to the assessee to examine their authenticity. As stated by the assessee before the authorities below and affirmed in the affidavit filed before us, even the place and timings of the audit proceedings were not informed to it and in the absence of the same, sending merely the notices to the assessee from time to time, in our opinion, could not be construed as proper and effective opportunity given to the assessee to participate in the said proceedings. Even the statement of Shri Ram Pal Chaudhary recorded by the AO on 23.3.2005 at the back of the assessee was relied upon without giving an opportunity to the assessee to crossexamine the said deponent. As already noted, entire set of books of account and the supporting vouchers were not available at one place and in the absence of the same, it is very difficult to understand how the special audit was conducted and completed by the auditors without even involving the assessee-society. Having regard to all these aspects of the matter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant portion :- In pursuance of sub-rule (1) of rule 4 of the Income-tax (Appellate Tribunal) Rules, 1963, and in supersession of Standing Order No.1 of 1987, dated the 17th July 1987, as amended from time to time till date, it is hereby directed that subject to any special order, all appeals and applications from the Districts, States and Union Territories specified in Column 3 shall, with effect from 1st October, 1997, be heard and determined by the Benches specified in Column 2 of the Table below S. No. Name Number of Bench(es) Districts/States/Union Territories (1) (2) (3) 1. Agra Bench(1) x x x x x 2. Ahmedabad Benches(3) x x x x x 3. Allahabad Bench(1) x x x x x 4. Amritsar Bench(1) x x x x x 5. Bangalore Benches(3) x x x x x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x x x 27. Ranchi Bench(1) x x x x x 3.6. Accordingly it is seen that sitting at the Delhi Benches, the Jurisdictional High Court for the purpose of the orders passed can be the Hon ble Delhi High Court, the Hon ble Punjab Haryana High Court, the Hon ble Allahabad High Court and the Hon ble Uttarakhand High Court. The decision of each High Court is binding on the Tribunal and the Income Tax Authorities situated in the area over which the High Court has jurisdiction. Since the assessment in the present appeals pertaining to Ghaziabad, the Jurisdictional High Court in the present case would be the Hon ble Allahabad High Court. Accordingly the argument of the Ld. AR that the issue has to be decided in terms of the decisions of the Jurisdictional High Court i.e the Hon ble Delhi High Court is not correct. 3.7. Having thus set out the legal position qua the Jurisdictional High Court, we may note that even though the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunal outside its territorial jurisdiction, it is conducive to judicial discipline and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principle of mutuality is applicable inasmuch as clause 8 of the Objects of the society as worded showed that it goes a long way to allow the assessee society to do all such things which are incidental or conducive to attain any or all of the other objects; and the clauses of the bye-laws require the Society to develop and construct the residential houses/flats for the members and to provide common amenities and facilities as may be found practicable by the DDA and the MCD and such other facilities and, therefore, according to their Lordships the doctrine of equalization gets attracted. 3.8.5. In regard to the maintenance fund and entry fee from the power of attorney holders, it was found that it was in direct relation with members of the society and the funds already colleted from the members of the society and the shops having been constructed within the premises of the society and having been approved by the concerned government authority, the Tribunal concluded that it could be irresistibly concluded that the shops were constructed to cater to the needs of the members of the society only. Therefore, the Tribunal held that the principle of mutuality would get attracted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consideration the said judgement and the facts as recorded by the Tribunal, their Lordships were of the view that the Tribunal has appreciated that the member, who was registered earlier and the member who got registered later on cannot stand on the same footing. The earlier member had paid less amount as compared to a member who joined subsequently, but this fact did not really affect the nature of the society or the transactions with such members and the principle of mutuality was held to be still attracted as the character of the society cannot be said to have changed. 3.8.11. Regarding the activities of the society, the Hon ble High Court upheld the reasoning of the Tribunal which had held that the bye-laws clearly and categorically support that the assessee society is entitled to do all such things which are incidental or conducive to attain any or all of the other objects and the bye-laws clearly exposit that it is for the development and construction of residential houses, flats for the members and to provide them necessary common amenities and facilities as may be found practicable by DDA and MCD and other such authorities, thus, the society catering to the needs of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society was to maintain the property owned by it and to render services to its members by way of usual privileges, advantages and conveniences, it was held that there was no profit motive involved in these activities as the amount legally chargeable was received which goes into the fund of the society which was utilized for the repairs of the property and common benefits to its members. 3.11.2.The argument of the Revenue that there can be different classes of members i.e., members and associate members was also not accepted as it was held that the classes may be diminished by the members going out or increased by the members coming in but the class remains the same. For the said view judgement of the Hon ble Apex Court in the case of CIT vs. Bankipur Club 226 ITR 97 (SC) was followed wherein it was held that the identity must be as a class of contributors and participants and it does not matter that the class may be diminished or increased by members going out or coming in. 3.11.3. Their lordships further took into consideration the arguments advanced by the revenue that the payment of transfer fees was not voluntary. Their Lordships were of the view that whether the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessarily required to be seen as the bye-laws of the Society at the time of Registration or as modified as per law need consideration. Along with the above factual specific information and examination there on the applicability on the facts of the society of the relevant Rules Regulations of the specific state Co-operative Act and notifications issued thereunder need a consideration and only after examination of the specific fact in each of the years, the conclusion can be drawn. Thus after thrashing out the facts the following tests need to be considered in order to decide whether the Co-operative Housing Society can be said to be governed by the principles of mutuality or not: (1) Is there any commerciality involved? This has to be found out from the bye-laws of the co-operative housing society. The nature of activity and the purpose as per the bye-laws can only address whether the activity is having a taint of commerciality or not. (2) From the moneys received, are the services offered in the nature of profit sharing or privileges, advantages and conveniences? For this aspect again the bye-laws and Rules of the society need to be seen as to what is permissive and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y then it can be held that the principle of identity between the contributors and the participators was fulfilled which is the basic requirement in the concept of mutuality of the enterprise. 3.15. Thus, after considering various judgements on the issue in the facts of the present case, it is necessary that the objects of the group housing society are considered and the bye-laws drawn thereunder by which the society accepts to be governed are necessary facts which need to considered. The applicability of the Ghaziabad Development Authority and any other regulatory authorities under which it is governed needs also to be necessarily taken into consideration. 3.16. A perusal of the judgement rendered by the Hon ble Mumbai High Court in the case of Sind Co-operative Group Housing which we have discussed at length would show that their Lordships held that in case there are any violations in regard to the collection of payments over and above the permissible limit as stated under the byelaws of the group housing society created under the State Co-operative Societies Act where payments are collected under coercion or in other manner, Section 72 of the Indian Contract Act would be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered in the light of the arguments advanced by the parties before the bench, we are of the view that it is necessary and appropriate in the circumstances to restore the issue back to the file of the CIT(A) for decision afresh on the issues before it. Since admittedly necessary and relevant facts are not on record the Ld. CIT(A) shall entertain fresh evidences which the assessee shall file and the ld. CIT(A) shall also give an opportunity to the AO by way of Remand report and also a reasonable opportunity of hearing before deciding the issue. Needless to say that the assessee should be afforded a reasonable opportunity of being heard. The grounds and issues as such are restored. 5. Before parting we consider it appropriate and deem it necessary to observe on account of the peculiar facts and circumstances with which we are seized and were also apprised of namely the appellate order in 2 of the appeals before us is passed by the CIT(A), Ghaziabad and for the other 2 years is passed by CIT(A), Muzzafarnagar. In these peculiar facts when the issues are being restored to the CIT(A), we consider it appropriate to request the Competent Authority of the CBDT to issue appropriate order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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