In the ITAT Mumbai Bench ‘C’

Maker Tower A&B Co-op. HSG. Society Ltd.

v.

Income-tax Officer,

Ward 12(2)(4), Mumbai

K.C. Singhal, Judicial Member

and Shamim Yahya , Accountant Member

IT Appeal Nos. 1488 and 1489 (Mum.) of 2004

[Assessment years 2000-01 and 2001-02]

August 23, 2007

I. Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment years 2000-01 and 2001-02 - Whether co-operative society is a voluntary association concept of mutuality is applicable to such societies, provided contributors and participators to funds are same - Whether concept of mutuality isnot applicable, in respect of transfer fees received from transferees since at time of transfer transferees is not member of society - Held, yes - Whether, however, principle of mutuality, would apply in respect of transfer fees received from transferor of flat inasmuch as he is member of society on date when transfer fee was paid - Held, yes - Whether where Assessee, a co-operative housing society, received transfer fees from both transferors and transferees on account of transfer of its flats would be entitled to deduction to extent of transfer fees received from transferors in view of principle of mutuality - Held, yes

II. Section 80P of the Income-tax Act, 1961 - Deductions - Income of co-operative societies - Assessment years 2000-01 and 2001-02 - Assessee-society’s claim of deduction under section 80P(2)(c) for Rs. 50,000 was disallowed by revenue relying upon provisions of section 80P(2)(f) - Whether clause (f) of section 80P(2) is applicable only with reference to income by way of interest on securities or income from house property chargeable under section 22 - Held, yes - Whether since assessee had not claimed any deduction in respect of aforesaid income, provisions of clause (f) would not become applicable - Whether therefore assessee would be entitled to deduction of Rs. 50,000 under section 80P(2)(c) - Held, yes

III. Section 143 of the Income-tax Act, 1961 - Assessment - Issue of notice - Assessment year 2001-02 - Assessee-society filed its return of income on 27-9-2001 - Thereafter, assessment order was framed by issuing notice under section 143(2) on 22-11-2002 - Whether since notice under section 143(2) was issued after a period of 12 months from end of month in which return was filed, same was barred by limitation and, therefore, assessment made in pursuance of such notice was without jurisdiction - Held, yes

Facts-I

The assessee, a co-operative housing society, situated in Mumbai received certain transfer fees from both transferors and transferees on account of transfer of its flats, but did not offer the same for taxation on the ground that concept of mutuality applied in its case. The Assessing Officer, however, treated the same as revenue receipt chargeable to tax in the assessee’s hands on the ground that said concept did not apply in its case. On appeal, the Commissioner (Appeals) following the decision of the Special Bench of the Tribunal in the case of Walkeshwar Triveni Co-op. Housing Society Ltd. v. ITO [2004] 88 ITD 159 (Mum.) held that the transfer fee received from transferees was not covered by the concept of mutuality and, therefore, same was taxable as revenue receipt in the assessee’s hands. He however, held that the transfer fee received from the transferors was covered by the concept of mutuality, subject to the maximum amount of Rs. 25,000 and, accordingly, granted partial relief to the assessee. Before the Tribunal, the assessee, inter alia, contended that the limit of Rs. 25,000 fixed by the Maharashtra State Government in respect of rate of premium payable on transfer of member’s interest in the building of co-operative housing society cannot be applied to each and every case of housing society. According to it, the Special Bench in the above case was considering the model bye-laws framed by the State Government in pursuance of the powers under the Maharashtra State Co-operative Societies Act, 1960 (1960 Act). It then referred to the order dated 9-8-2001 issued by the State Government in that regard under section 79A of the 1960 Act wherein it was provided that the prescribed limits for transferee should not exceed Rs. 25,000 for societies situated in Municipal Corporation of Mumbai. The contention of the assessee was that such order was applicable only to those societies which have adopted the model bye-laws framed by the State Government and, therefore, would not be applicable to other societies; and that the transfer fees equivalent to one or two per cent of the sale price charged by the assessee was in accordance with the fee fixed by it in its annual general meeting and, therefore, the entire amount was exempt from taxation considering the concept of mutuality.

Held-I

The Special Bench in the case of Walkeshwar Triveni Co-op. Housing Society Ltd. (supra) has held that looking to the concept behind the formation of co-operative societies, it is to be presumed that the co-operative society is a voluntary association; the concept of mutuality is applicable to such societies, provided the contributors and participators to the funds are the same; the concept of mutuality would apply in respect of transfer fees received from transferor of flat inasmuch as he is member of society on date when transfer fee is paid; the concept of mutuality is not applicable in respect of transfer fee received from the transferees since at that time transferee is not the member of the society; and that clause 40(d)(vii) of the bye-laws of the society provided that maximum amount of premium chargeable on the transfer of flat from the transferor could not exceed Rs. 25,000 which was as per the norms set out by the Government. Therefore, so long as the society was charging the premium within the framework of law, no profit motive could be attributed to the society. If it is found that the society charged more than what was prescribed under the law, then it would be taxable as revenue receipt. [Para 8]

The contention of the assessee was that the Special Bench was considering the case of a society which was governed by model bye-laws and, therefore, the same was inapplicable to the instant case since the assessee had not adopted the Model Bye-laws. However, clause 40 referred to in the said order was, in fact, the clause of the bye-laws of the assessee society and, therefore, the submission of the assessee that the decision of the Special Bench is applicable only to those cases where the assessee has adopted the model bye-laws could not be accepted. [Para 9]

Further, a perusal of the order dated 9-8-2001 issued by the State Government would show that Model bye-laws were sanctioned by the Commissioner of Co-operative Institutions and Registrar of Co-operative Societies, Maharashtra State on 2-7-2001. Further, the contents of the order revealed that it was applicable to all societies in the State of Maharashtra. No doubt, in the preamble, the reference had been made to the Model Bye-laws but such reference was only for limited purpose of stating the powers of the State Government to fix the premium payable to the societies having adopted the Model bye-laws. The power to issue the order under section 79A of the 1960 Act vested in the State Government as well as the Registrar of Co-operative Societies. The earlier order dated 27-11-1989 under section 79A of the 1960 Act was issued by the Registrar of Co-operative Societies. Subsequently, Model bye-laws were sanctioned on 2-7-2001. It was in that context, the State Government thought it appropriate to pass a fresh order covering all societies including the societies who adopted the bye-laws and, therefore, the State Government cancelled the earlier order dated 27-11-1989 and passed a fresh order on 9-8-2001. Hence, it could not be said that the later order was applicable only to those societies who had adopted Model bye-laws. Therefore, the reliance placed by the assessee on that order was misplaced. [Para 11]

One can contend that the direction to amend the bye-laws is bad in law if it is not in the interest of society. However, that does not mean that order issued under section 79A of the 1960 Act has no statutory force. So long as such order is in existence, it has a statutory force, unless set aside or quashed by the Court. If the contention of the assessee was accepted, then each order issued under section 79A of the 1960 Act would become redundant. Such construction was impermissible. Therefore, the assessee was not correct in contending that transfer fee at the rate of one per cent or two per cent as the case may be of the sale price would be within the framework of law. However, the State Government had reviewed the earlier order and passed the fresh order dated 9-8-2001, specifying maximum amount of Rs. 25,000 as transfer fee/premium. The Commissioner (Appeals) had already allowed deduction in respect of such sum. Therefore, the question of giving further relief did not arise. [Para 12]

Regarding the transfer fee received from the transferees, the contention of the assessee that such amount should be treated as payment on behalf of the transferor since society only could receive such fees from transferor alone could not be accepted. For applying the principle of mutuality, what is to be seen is whether the payment is made by the transferor or by the transferee. It is a mutual arrangement between the transferor and the transferee as to who should pay the amount. If the transferee has agreed to pay the transfer fee from his own pocket, then it could not be said that it is a payment by the transferor. Therefore, the concept of mutuality would not be applicable to the amount paid by the transferee to the assessee. [Para 13]

Consequently, the orders of the Commissioner (Appeals) were to be upheld. [Para 14]

Facts-II

The assessee-society’s claim of deduction under section 80P(2)(c) for Rs. 50,000 was disallowed by the revenue relying upon the provisions of section 80P(2)(f).

On second appeal :

Held-II

A bare reading of the provisions of section 80P(2)(c) would show that in the case of a co-operative society deduction of Rs. 50,000 would be allowable if the activity carried on by it does not fall under clause (a) or clause (b) of sub-section (2) of section 80P. Admittedly, the case of the assessee did not fall within the provisions of clause (a) or clause (b) of sub-section (2) of section 80P. Therefore, the provisions of clause (c) would become applicable to the instant case and, consequently, the assessee was entitled to deduction of Rs. 50,000. Clause (f) relied upon by the revenue was applicable only with reference to income by way of interest on securities or income from house property chargeable under section 22. Since the assessee had not claimed any deduction in respect of such income, the provisions of clause (f) would not become applicable. Consequently, the Assessing Officer was to be directed to allow deduction of Rs. 50,000 under section 80P(2)(c). [Para 20]

Facts-III

The assessee-society filed its return on 27-9-2001. Therefore, assessment order was framed on the basis of a notice issued under section 143(2) on 22-11-2002. The assessee submitted in the instant appeal that said notice being issued after a period of 12 months from the end of the month in which the return was filed, was barred by limitation and, hence, the entire assessment was without jurisdiction.

Held-III

There was no dispute to the facts narrated by the assessee and it was also apparent from the assessment order. Since the return was filed on 27-9-2001, the notice under section 143(2)(ii) could be issued by 30-9-2002. Since the notice under section 143(2) was issued on 22-11-2002, the same was beyond the prescribed period and, therefore, the assessment made in pursuance of such notice was without jurisdiction. No doubt, in the assessment order it was mentioned that notice was issued under section 143(2)(i), but the same could not be considered as notice under section 143(2)(i), inasmuch as such notice was issued on two grounds as mentioned in the assessment order. A perusal of the said grounds would show that notice was issued on the ground that the assessee had failed to offer income for taxation in respect of transfer fee and penal interest. On the other hand, a perusal of section 143(2)(i) would show that notice under the said provisions could be issued only where the Assessing Officer has reasons to believe that any claim of loss, exemption, deduction, allowance or relief is inadmissible. Since such was not the case, the notice under section 143(2)(i) could not be issued. Therefore, the notice issued to the assessee had to be legally treated as issued under section 143(2)(ii), which was beyond the prescribed period of time mentioned in the proviso to section 143(2)(ii). Therefore, the assessment for the assessment year 2001-02 was to be held to be without jurisdiction. Consequently, the assessment for the assessment year 2001-02 was to be cancelled. [Para 22]

Cases referred to

Oval Shiv-Shanti Bhuvan Co-op. Housing Society Ltd. v. ITO [2001] 78 ITD 403 (Mum.) (para 3), Regent Chambers Premises Co-op. Society Ltd. v. ITO [2002] 82 ITD 13 (Mum.) (para 3), CIT v. Presidency Co-operative Housing Society Ltd. [1995] 216 ITR 321/[1993] 69 Taxman 189 (Bom.) (para 3), CIT v. Adarsh Co-op. Housing Society Ltd. [1995] 213 ITR 677/81 Taxman 241 (Guj.) (para 4) and CIT v. Apsara Co-op. Housing Society Ltd. [1993] 204 ITR 662/[1995] 82 Taxman 13 (Cal.) (para 4), Walkeshwar Triveni Co-op. Housing Society Ltd. v. ITO [2004] 88 ITD 159 (Mum.) (SB) (para 4) and State of Maharashtra v. Karvanagar Sahakari Griha Rachana Sanstha Maryadit [2000] (Suppl.) Bom. CR 864 (SC) (para 5).

Deepak Tralshawalla for the Appellant. Smt. Aparna Teredesai for the Respondent.