TMI Blog2021 (7) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... eyans Finvest Pvt. Ltd. has acquired the right, title and interest over plot no. 1 along with the building from a person, who was never a member of the society. In the aforesaid factual scenario, the onus is entirely on the assessee to explain as to how the principle of mutuality would apply to the lease premium received from Shreyans Finvest Pvt. Ltd. Tests laid down to ascertain whether principle of mutuality would apply or not, are germane to the issue at hand. The first thing, which needs to be ascertained is, whether at the time of receipt of share premium M/s Shreyans Finvest Pvt. Ltd. was a member of the society. The next issue is, while admitting Shreyans Finvest Pvt. Ltd. as a member of the society all conditions of membership, as noted earlier in the order, were fulfilled. It is also necessary to verify the applicability of notification dated 09.08.2001 issued by the Ministry of Co-operation and Textiles, Government of Maharashtra. Of course, ultimately, whether the share premium received by the assessee is covered under the principle of mutuality has to be tested in the touchstone of various tests laid down by the Hon ble jurisdictional High Court in case of Sind Co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, it was submitted, since the amount in question was received from a member, it will be governed under the principle of mutuality, hence, is not taxable. In support of such contention the assessee relied upon various judicial precedents. 4. On verifying the details available on record, the AO found that the assessee was owner of a parcel of land bearing certificate No. 79-A, Hissa No. 10, Survey NO. 80, Survey No. 79, Hissa No. 8 admeasuring 12460 sq.mtrs situated at Nehru Road, Ville Parle (East), Mumbai. He found that the said parcel of land was divided into 27 plots for allotment to 27 members. Plot No. 1 out of the said plot was initially allotted/leased to Shri Madhukar Hanumant Deshpande and his wife Smt. Nalini M. Deshpande on 07.01.1963. Subsequently, on 30.01.2013, the assessee entered into a lease agreement with M/s Shreyans Finvest Ltd. in respect of the very same plot No. 1 and received a share premium of ₹ 1,10,00,000/-. The AO observed, the member to whom plot no. 1 was initially allotted relinquished his rights over the said plot and the lease granted to him was cancelled. Subsequently, it was leased out to Shreyans Finvest Pvt. Ltd. The AO observed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel submitted that the allegation of learned Commissioner (Appeals) that collection of lease premium is not authorized under the by-laws is incorrect. Drawing our attention to clause 5(c) of the by-laws he submitted, one of object of the society is to raise funds for achieving the objects of society. Further, referring to clause 7(i) of the by-laws, he submitted, the society can raise funds by any other mode permitted under the by-laws. Thus, he submitted, by-laws authorize the society to collect lease premium by passing resolution in general body meeting. However, such fund collected has to be used compulsorily for the object of the society. Further, refuting the allegations of learned Commissioner (Appeals) regarding lack of complete identity between the contributor and participator, the learned counsel submitted, M/s Shreyans Finvest Pvt. Ltd. first became the member of the society and only thereafter the lease premium was collected from it. Thus, at the time of contribution of lease premium it was a participator. Further, referring to the decision of the Hon ble Supreme Court in case of ITO vs. Venkatesh Premises Co-operative Housing Society Ltd., (402 ITR 670), he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has to be compulsorily used for major expenses like repair etc. Thus, he submitted, the lease premium is not taxable. In support of such contention, he relied upon the following decisions: 1. Sea Face Park Co operative Hsg. So. Ltd. vs. The Income Tax Officer, Ward 16 (2) (1) of Income Tax Appeal no. 762 of 2008 (Bom) dated 2nd August, 2018. 2. Income Tax Officer vs. Venkatesh Premises Co operative Society Ltd., Civil Appeal no. 2706 of 2018 dated 12th March, 2018. 3. Hatkesh Co operative Housing Society Ltd. vs. Assistant Commissioner of Income Tax, Circle 21 (1), (2016) 75 taxmann.com 39 (Bom). 4. Hatkesh Co operative Housing Society Ltd. vs. Assistant Commissioner of Income Tax, Circle 21 (1), Mumbai ITA no. 66/Mum/2014 ITA no. 67/Mum/2014. 5. The Commissioner of Income Tax 16 vs. Darbhanga Mansion CHS Ltd., Income Tax Appeal no. 1474 of 2012 (Bom) dated 18th December, 2014. 6. M/s Bangalore Club vs. Commissioner of Income Tax (SC), Civil Appeal no. 124 of 2007 and others dated 14th January, 2013. 7. The Commissioner of Income Tax 21 vs. Jai Hind CHS Ltd. Income Tax Appeal no. 6057 of 2010 (Bom) dated 21st March, 2012. 8. ITO 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property of the society in addition to transfer fee. He submitted, the by-laws do not permit the society to charge premium from its members. Referring to the by-laws, he submitted, the assessee can create reserve funds by crediting to it sums out of the net profit of the year, all entrance fees, transfer fees, premium received from the transferor member and donations if any. Other funds like repairs and maintenance funds and sinking funds can be created only as per the rate fixed uniformly for all members on certain basis. Thus, he submitted, as per the bylaws, the assessee is not authorized to raise any fund by charging premium on his own from any of its members, new or old. Narrating the peculiar facts relating to the ownership and transfer of the subject property, the learned Departmental Representative submitted, initially the plot in question was allotted to Shri Madhukar Deshpande and others, who constructed a building over the plot. He submitted, subsequently the original lessee agreed to sale the plot along with building to Shri Suni Purushottamdas Bagari for a total consideration of ₹ 2,60,00,000/- and registered sale deed was executed on 08.03.2004 along with a i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mutuality. Further, he submitted, the lease rentals, lease premium etc. are not distributed to the members but are vested with the assessee in its own right. The assessee has invested these funds in bank and income is earned by way of interest thereon which are not covered under mutuality. He submitted, no common services or amenities are provided from such receipts and neither are they distributed to the members. He submitted, the assessee has not shown the lease premium in the income and expenditure account nor it has treated it as contribution from the new member but has accounted for it as a separate income of the society in its own capacity. Referring to the balance-sheet of the assessee as on 31.03.2013, he submitted, lease premium is not included in the reserve funds but was shown separately as society premium. Whereas, in the preceding year nil balance has been shown under such head. Thus, he submitted, the accounting entries clearly show that the assessee did not consider the lease premium to be in the nature of contribution or gift or donation or any other form of common fund. Rather, it considers the same as its own income. In support of his contention, learned Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged breach of lease conditions the society issued a notice to the original lessees for cancellation of lease and forfeiture of shares. As per paragraph 14 of the lease deed, the original lessee also accepted the forfeiture of such shares. 11. Thus, from the above-narrated facts it becomes clear that when membership was granted to the original lessees and shares were issued in 2008 they had already transferred/assigned their right and interest in the property to Shri Suni Purushottamdas Bagari. That being the case, it is not understood how they can be admitted as the member of the society after having transferred their right, title and interest over the leased property. It also emerges that Shri Suni Purushottamdas Bagari to whom the original lessees have transferred the leased property was never admitted as a member of the society. Whereas, Shreyans Finvest Pvt Ltd., admittedly, had purchased the property from Shri Suni Purushottamdas Bagari in the year 2009. Thus, the chain of events indicate that Shreyans Finvest Pvt. Ltd. has acquired the right, title and interest over plot no. 1 along with the building from a person, who was never a member of the society. In the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the departmental authorities as they never asked for it. 14. Be that as it may, the aforesaid documentary evidence filed by the assessee, definitely, is in the nature of an additional evidence which requires to be factually verified by the departmental authorities through enquiry. Thus, from the aforesaid facts, it is very much clear that neither the Assessing Officer nor learned Commissioner (Appeals) have property examined/enquired into various aspects discussed above before completing the proceedings at their level. In our view, both departmental authorities have left various loose ends untied. 15. At this juncture, it is necessary to examine the decision of the Hon ble jurisdictional High Court in case of Sind Co-operative Housing Society vs ITO (supra). While dealing with the applicability of principle of mutuality to payment of transfer fee/premium, the Hon ble High Court referred to model bye-laws of the flat owners/plot purchased type housing societies. In this context, the Hon ble High Court specifically referred to bye law No. 38(e)(ix) reading as under:- (ix) payment of amount of premium at the rate to be fixed by the general body meeting but within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act and Rules. The transfer fee can be appropriated only if the transferee is admitted to membership. The fact that a proposed transferee may can be appropriated only if the transferee is admitted to membership. The fact that a proposed transferee may make payment in advance by itself is not relevant. The amount can only be appropriated on the transferee being admitted as a member. As it is a transfer fee, if the transferee is not admitted as a member the amount received will have to be refunded, as the amount is payable only on a transfer of rights of the transferor in the transferee. If it is held that payment of transfer fees is by a stranger, it will certainly be in the nature of gift and not income. If an amount is received more than what is chargeable under the bye-laws or Government direction, the society is bound to repay the same and if it retains the amount it will be in the nature of profit making and that specific amount will be exigible to tax. Considering the bye-laws, as the main activity of a housing cooperative Housing Society is to maintain the property owned by it and to render services to its members by way of usual privileges, advantages and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property including building thereon. There is no trading or business transactions. The members by adopting the bye-laws 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. 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 bye-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 received towards maintenance of the society and providing the members with usual privileges, advantages and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicability of notification dated 09.08.2001 issued by the Ministry of Co-operation and Textiles, Government of Maharashtra. Of course, ultimately, whether the share premium received by the assessee is covered under the principle of mutuality has to be tested in the touchstone of various tests laid down by the Hon ble jurisdictional High Court in case of Sind Co-operative Housing Society (supra). Since, the aforesaid aspects have not been examined by the departmental authorities in the light of the ratio laid down in case of Sind Cooperative Housing Society (supra), we are inclined to restore the issue to the Assessing Officer for de-novo adjudication after verifying all facts and material on record, as well as, keeping in view the submissions of the assessee and the ratio laid down in the various decisions referred to earlier in this order. Since, we are restoring the issue, we refrain from deliberating any further on the other decisions relied upon by the learned counsel for the assessee as they have been rendered in their own factual context. Needless to mention, the Assessing Officer must afford reasonable opportunity of being heard to the assessee before deciding the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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