2016 (10) TMI 964 - AT - Income Tax

Determination of head of income - amount received by the assessee as their share of sale consideration of plot of land - Held that - Inspite of the AO allowing the assessee adequate opportunity and requiring it to furnish specific details in respect of all the 14 cooperative societies who were allotted land by the Bombay Housing Board vide agreement dated 26.04.1960, such as total area allotted to them to claim leasehold rights on the land, the number of plots allotted with specification, plot numbers, area in sq. yards, etc. the assessee was not able to furnish the same. Notices issued under section 133(6) of the Act by the AO to the 14 cooperative societies involved also could not elicit any suitable response from most of them. It is seen that even the six societies which responded could not specifically give proof of plot allotted to each of the 14 cooperative societies or documents/evidence which could specify the area allotted to them or that public utilities and public amenities as per Schedule-I and II were created by them thereon. In this factual matrix the case, we are of the considered view and agree with the findings of the learned CIT(A) that as per the submissions put forth by it, the assessee has not been able to controvert that factual findings of the AO in leading him to treat the receipt of money by the assessee from transfer of plot as business income. We, therefore, uphold the findings of the authorities below - Decided against assessee Amount received from members as transfer fees - nature of income - Held that - was received by the assessee society from the transaction of the structure on plot No. 26 by Prakash R. Tolat and Gautam R. Tolat to Mehta & Shah. This fact was not brought to the notice of the AO. On detection thereof, the AO brought the said transfer fee received by the assessee to tax in the assessee s hands. In respect of the assessee s claim that the said transfer fee received by it was not exigible to tax based on the concept of mutuality, we find that the learned CIT(A) on examination of the facts on the issue rightly concluded that the concept of mutuality did not operate in this transaction. Mehta & Shah who paid the said transfer fee were only nominal members of the assessee society and except for the structure purchased and occupied by them, had no voting rights or interest in the property of the society. Following the decision of the Coordinate Bench in the case Hatkesh Co-op Housing Society Ltd. (2013 (9) TMI 411 - ITAT MUMBAI) wherein after considering judicial pronouncements relied on by the assessee, which were on similar facts as those of the case on hand, we also hold that the assessee does not represent mutual concerns and to such activities the concept of mutuality cannot be applied. In this factual and legal matrix of the case, we concur with the findings of the authorities below that the said transfer fee received by the assessee was to be taxed in its hands. - Decided against assessee

Summary

Issues Involved:
1. Determination of the head of income for the amount received from the sale of a common plot of land.
2. Taxability of transfer fees received from members under the principle of mutuality.

Issue-Wise Detailed Analysis:

1. Determination of the Head of Income for the Amount Received from the Sale of a Common Plot of Land:

The primary issue was whether the income from the sale of a common plot of land should be taxed as "Business Income" or "Capital Gains." The assessee, a cooperative housing society, argued that the income should be taxed as "Capital Gains," while the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that it should be taxed as "Business Income."

The Tribunal noted that the assessee, along with 13 other cooperative societies, received land from the Bombay Housing Board in 1960. The societies sold a common plot of land, and the assessee's share of the sale consideration was ?23,00,000. The AO treated this amount as business income, considering the societies' activities akin to business, as per their byelaws. The CIT(A) upheld this decision, noting that the assessee failed to provide specific details about the plots and their allotment, which were crucial to determine the nature of the income.

The Tribunal observed that the assessee could not rebut the AO's findings that the land was allotted for public amenities and utilities, and the sale constituted an adventure in the nature of trade. The Tribunal also noted that similar receipts in other cooperative societies were treated as business income. Consequently, the Tribunal upheld the findings of the AO and CIT(A), dismissing the assessee's ground and confirming the treatment of the income as "Business Income."

2. Taxability of Transfer Fees Received from Members Under the Principle of Mutuality:

The second issue was whether the transfer fees received from members should be taxed as business income or be exempt under the principle of mutuality. The assessee received ?5,02,000 as transfer fees from members for the sale of a structure on a plot. The AO treated this amount as business income, and the CIT(A) upheld this decision.

The Tribunal noted that the transfer fees were received from new owners who were enrolled as nominal members without voting rights or any interest in the society's property, except for the flat purchased. This arrangement breached the principle of mutuality, as the nominal members were discriminated against regular members. The Tribunal referred to the decision in the case of "Hatkesh Co-operative Housing Society Ltd.," where it was held that such societies do not represent mutual concerns, and the concept of mutuality cannot be applied.

The Tribunal agreed with the CIT(A) that the transfer fees received by the assessee were not exempt under the principle of mutuality and should be taxed as business income. Consequently, the Tribunal dismissed the assessee's ground on this issue.

Conclusion:

The Tribunal dismissed the assessee's appeal for the assessment year 1995-96, upholding the AO's and CIT(A)'s decisions to treat the income from the sale of the common plot as "Business Income" and the transfer fees as taxable income, rejecting the claim of exemption under the principle of mutuality.