TMI Blog2022 (7) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... icipants in this sense. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities and liabilities. In CIT, Bihar Vs. M/s Bankipur Club Ltd. [ 1997 (5) TMI 392 - SUPREME COURT ] considering the surplus of receipts over expenditure generated from the facilities extended by a club to its members and its exemption from tax on principles of mutuality. In the present case, the facts are not in dispute the assessee is a Cooperative Housing Society formed of plot owners who had obtained a lease of land from the Maharashtra Housing Board. The society looks after the maintenance and infrastructure. If any members desire to avail of the benefit of transferable development rights for carrying out construction or additional construction on his plot, the member has to pay certain premium to the society. AO is of the view that TDR premium is charged by the society from its member but paid by the developer on members behalf to permit them to commercially exploit the potential for the development of the plot; whereas in reality it was a profit sharing arrangement of the commercial nature. The admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judicial Member And Shri Gagan Goyal, Accountant Member For the Appellant : Sh. Piyush Chaturvedi For the Respondent : Sh. Indira Adakil, CIT-DR ORDER PER GAGAN GOYAL, A.M: 1. These three appeal by the assessee are directed against the order of Commissioner of Income Tax (Appeals)-37, Mumbai [hereinafter referred to as the CIT (A) ] vide common order dated 29.06.2018 for the Assessment Years (AY) 2011-12, 2012-13 2014-15 respectively. In ITA No. 5250/Mum/2018 for AY 2011-12, the assessee has raised the following grounds of appeal. Grounds of appeal for remaining two years are also similar. Hence, disposed of by common order. 1. On the facts and circumstances of the case as well as in law, the learned CIT(A)- 37, Mumbai erred in confirming the order dated 29-12-2016 passed by the learned AO u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961, which is not only bad in law but also violates the principles of natural justice. 2. On the facts and circumstances of the case as well as in law the learned CIT(A)-37, Mumbai erred in confirming the addition of development charges and TDR deposits of Rs. 16,50,584/-, violating the principles of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle of mutuality is not applicable on the said receipts. Hence, you are requested to show cause as to why not receipts of Rs. 16,50,584/- be added in your total income . 5. In response, vide letter dated 26.12.2016, the assessee has stated as under: We are in the receipt of your show cause notice sent on email on 25-12-2016 and asking us to reply latest by 26-12-2016 and no further opportunity will be given further. At the outset we would like to say that this is against principles of natural justice and we are not given enough time to prepare and reply in the matter and reply is being given under protest for short notice. 6. Your Honor has taken a very narrow view instead of bird view in regards to Rs.16,50,584/- received from members of society. At the outset we like to draw your attention towards the fact that society has decided in AGM to collect such amounts from members who undertake development activity on their plots. Hence all amounts are payable by member, society is in no way concerned with developer as he is just a third party and society has no say on him. Society has only control and say on member. All rules bye-laws are applicable to member and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his bank account. Question no 7 ask whether he has paid any sum to which he has denied... which is correct. But he is not denying that developer has paid on his behalf. Further society has issued letter for payment of charges copy of which is enclosed and no separate bills as such are issued. But this doesn't change nature of transaction amount remains due from member only. Same is repeated in Question no 10. Question no 9 relates to arrangement between Mr Ghanekar and Developer Shree Sankalp Builders, Society is no way concerned with it so it is irrelevant to our case. 10. From above it is crystal clear that these amounts Rs.16,50,584 were due from members and nature of payment remains same irrespective of who pays it. Principle of mutuality applies as Amounts are due from member and ultimately will be utilized for benefit of members . 11. AO has not convinced with the reply of the assessee, hence, without giving the benefit of mutuality and treating development charges and TDR deposits as taxable made the additions of Rs. 16,50,584/-. 12. In addition to above, AO made addition on adhoc basis @ 20% of the expense of Rs. 58,938/-.It is seen that disallowance @ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have carefully gone through the assessment order, order of Ld. CIT(A) and submissions of assessee before both the authorities. The basic allegation against the assessee was, assessee society received Development charges and TDR deposits through developers as mentioned in assessment order. There is no allegation on assessee society about the identity of the contributor and beneficiaries, any dealing with any third party and angle of commerciality is involved. 17. The doctrine of mutuality, based on common law principle, is premised on the theory that a person cannot make a profit from himself and amount received from oneself, cannot be regarded as income and taxable under section-4. The essence of the principle of mutuality lies in the commonality of the contributors and the participants who are also the beneficiaries. The contributors to the common fund must be entitled to participate in the surplus and participator in the surplus are contributors to the common fund. The law envisages a complete identity between the contributors and the participants in this sense. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of The facilities and amenities to the members. Contribution to the common amenity fund taken from a member disposing property is similarly utilised for meeting sudden and regular heavy repairs to ensure continuous and proper hazard free maintenance of the properties of the society which ultimately ensures to the enjoyment, benefit and safety of the members. These charges are levied on the basis of resolutions passed by the society and in consonance with its bye-laws. The receipts in the present cases have indisputably been used for mutual benefit towards maintenance of the premises, repairs, infrastructure and provision of common amenities. 20. Any difference in the contributions payable by old members and fresh inductees cannot fall foul of the law as sufficient classification exists. Membership forming a class, the identity of the individual member not being relevant. induction into membership automatically attracts the doctrine of mutuality. If a Society has surplus FSI available, it is entitled to utilise the same by making fresh construction in accordance with law. Naturally such additional construction. would entail extra charges towards maintenance, infrastruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to defray the additional burden that may be cast as a result of the utilization of the FSI. The point however, it shat there is a complete mutuality between the Co-operative Housing Society and its members. 23. From the discussion above, it is essentially clear that the receipts of the assessee are not chargeable to tax applying the doctrine of mutuality. As alleged by the AO that the payments have been made by the developer on assessees behalf is not material in the given circumstances. Just because payments had been made by the developer, doctrine of mutuality cannot be taken away from the assessee society. 24. In view of the above, in our considered view amount of TDR deposit and development charges received amounting to Rs. 16,50,584/- for A.Y. 2011-12, Rs. 15,05,638 for A.Y. 2012-13 and amount of TDR Utilization Charges/TDR Premium Rs. 7,37,450/- and amount of development charges Rs. 3,41,515/- are not chargeable to tax on the concept of mutuality 25. Based on above discussions and factual finding, if an assessee is entitled for the benefit under the doctrine of mutuality, no expense disallowed on ad-hoc basis can be added back to the income of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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