Interest on delay payment covered by principle of mutuality cannot be made addition by AO

IN THE INCOME TAX APPELLATE TRIBUNAL

“H” BENCH: MUMBAI

BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER

AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER

ITA No.5027/Mum/2010

(Assessment Year: 2005-06)

Twinstar Jupiter Co-op. Hsg. Soc. Ltd.,

41, Cuffe Parade,

Mumbai -400 005 ......…. Appellant

Vs

ITO -12(2)(4),

123, Aayakar Bhavan,

Marine Lines,

Mumbai -400 002 .....…Respondent

PAN: AAABT 0015 E

Appellant by: None

Respondent by: Shri V.V. Shastri

Date of Hearing: 08.08.2011

                                                Date of Pronouncement: 19.08.2011

O R D E R

PER R.S. PADVEKAR, JM:

In this appeal the assessee has challenged the impugned order of the Ld. CIT (A)-23, Mumbai dated 18.03.2010 for the A.Y. 2005-06.

2. In this case the assessee has filed an application for adjournment but same was rejected as apparently it was seen that the issues arising from the appeal are covered and hence, this appeal is disposed off after hearing the Ld. D.R.

3. The first issue is in respect of the addition of Rs. 3,50,000/- towards transfer fees received from the outgoing Members of the assessee-society.

4. The facts which revealed from the record are as under. The assessee is Co-operative Housing Society. The return filed by the assessee was selected for scrutiny and assessment was completed

u/s.143(3). It was also noticed by the A.O. that the assessee has collected Rs. 7,50,000/- towards voluntary contribution on transfer of flats received from the outgoing Members and the aid amount was credited to the general reserves in the Balance-sheet and claimed exemption relying on the principles of mutuality. The A.O. had noted that as per the agreement with Members and purchasers of the flats, the transfer fee is to be borne 50-50%. The A.O., therefore, made the addition of Rs. 3,75,000/- that was in respect of the contribution fee received from the purchasers of the flat i.e. transferee. The assessee challenged the said addition before the Ld. CIT (A). The Ld. CIT (A) was not convinced with the plea of the assessee that though the assessee was relied on the decision of the Hon’ble jurisdictional High Court in the case of Sindh CHS Ltd. 317 ITR 47(Bom). In view of the Ld. CIT (A) the decision in the case of Sindh CHS Ltd.(supra) is not applicable to the assessee’s case. The Ld. CIT (A) further observed that up to limit only, the transfer fee is exempt within the framework of the bye-laws. The Ld. CIT (A) further observes that the Hon’ble High Court has not considered the applicability of a Notification issued by the Govt. of Maharashtra as the assessment order in the said case was prior to the date of the Government notification dated 9.08.2001. He, therefore, held that upto the limit of Rs. 25,000/- received per transfer is deleted and any excess of Rs. 25,000/- the same is confirmed. Now, the assessee is in appeal before us.

5. The short controversy is rowing around whether the transfer fee received from the incoming Members is exempt on the principles of mutuality in the case of co-operative housing societies.

6. In the case of Sindh CHS Ltd (supra) the Hon’ble High Court made it clear that in the said case the bye-laws provide that the amount has to be paid by the transferor Member. In the present case, nowhere it is the case of the A.O. that there is a provision that only the transferor has to bear the amount of the transfer fees. We, further, find that nowhere it is the case of the A.O. that no commerciality is involved in the objects or activities of the assessee society as the assessee has credited the amount to the general reserve funds to be used for the repairs and maintenance of the society. Their Lordships have also considered the Notification given by the Government of Maharashtra and the reference made is to only to extent of argument of the parties to the on Govt notification dated 9.8.2001. As per the notification dated 10.12.1989 if the bye-laws are amended then only the society could not charge what was set out in the notification.

7. In the present case, ultimately, the transfer fee received from the Members has merged with the common pull of funds and there is no commercial motive. In our opinion, assessee’s case is squarely covered by Sindh CHS Ltd. (supra). We, accordingly decide this issue in favour of the assessee and direct the A.O. to delete the entire addition. Accordingly, first issue in this appeal is allowed.

8. The next issue is regarding addition towards the penal interest of Rs. 35,000/-.

9. We find that the penal interest is collected from its Members only on account of delay in payment of the dues of the society. In our opinion, the said addition cannot be sustained as it is covered on the principles of mutuality and as per the ration laid down in the case of Sindh CHS Ltd. (supra). We accordingly, delete the same.

10. In the result, assessee’s appeal is allowed.

Order pronounced in the open court on this day of 19th August 2011.

                                  Sd/-                                                               Sd/-

                       (P.M. JAGTAP)                                      (R.S. PADVEKAR)

             ACCOUNTANT MEMBER                              JUDICIAL MEMBER

Mumbai, Date: 19th August 2011

Copy to:-

1) The Appellant.

2) The Respondent.

3) The CIT (A)–23, Mumbai

4) The CIT-XII, Mumbai.

5) The D.R. “H” Bench, Mumbai.

                                                                                                             By Order

/ / True Copy / /

                                                                                                        Asstt. Registrar

                                                                                                       I.T.A.T., Mumbai

*Chavan