2021 (7) TMI 80 - AT - Income Tax

Addition towards lease premium received - assessee is stated to be a tenant ownership (Plot ownership) housing society under clause 10(5)(a) of the Maharashtra Cooperative Housing Society Rule 1961 - whether the lease premium received by the assessee from M/s Shreyans Finvest Pvt. Ltd. would be covered under the principle of mutuality? - HELD 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 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-operative Housing Society 2009 (7) TMI 15 - BOMBAY HIGH COURT . 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. Disallowance of expenses - AO has made part disallowance out of the expenditure claimed by the assessee relying upon certain remark of the auditor - HELD THAT - As we are restoring the issue relating to applicability of principle of mutuality in respect of share premium it deemed appropriate to restore this issue also to the Assessing Officer for deciding afresh after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Taxability of lease premium received by the assessee.
2. Disallowance of expenses claimed by the assessee.

Issue 1: Taxability of Lease Premium Received by the Assessee

The core issue was whether the lease premium of Rs. 1,10,00,000 received by the assessee from M/s Shreyans Finvest Pvt. Ltd. would be covered under the principle of mutuality. The assessee, a tenant ownership housing society, argued that the amount received from its member should not be taxable due to the principle of mutuality, relying on various judicial precedents. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) disagreed, stating that the lease premium was a benefit derived from the transfer of ownership and thus taxable. The AO relied on the ITAT Mumbai Bench decision in Hatkesh Cooperative Society Ltd. vs. ACIT. However, the assessee contested this, arguing that the decision was set aside by the jurisdictional High Court.

The Tribunal noted several key points:
- The lease premium was received from Shreyans Finvest Pvt. Ltd., which was admitted as a member after the premium was paid.
- The by-laws of the society allowed raising funds through lease premiums, which were to be used for society's objectives.
- The AO and Commissioner (Appeals) did not thoroughly examine whether Shreyans Finvest Pvt. Ltd. was a member at the time of premium payment and whether the conditions for membership were met.
- The Tribunal emphasized the need to verify the applicability of the Government of Maharashtra's notification limiting the premium amount to Rs. 25,000.

The Tribunal referred to the jurisdictional High Court's decision in Sind Co-operative Housing Society vs. ITO, which laid down tests to determine the applicability of the principle of mutuality. The Tribunal decided to restore the issue to the AO for de-novo adjudication, instructing the AO to verify all facts and materials and consider the submissions of the assessee in light of the High Court's decision.

Issue 2: Disallowance of Expenses

The AO had disallowed 20% of the expenses claimed by the assessee on an ad-hoc basis, citing incomplete supporting evidence. The Commissioner (Appeals) upheld this disallowance. The assessee argued that since its income was not taxable under the concept of mutuality, and the only taxable income was interest from the bank, against which no expenditure was claimed, no further disallowance should be made. The Tribunal agreed that if the assessee could provide supporting evidence for the expenses, no ad-hoc disallowance should be made. The Tribunal restored this issue to the AO for fresh consideration, instructing the AO to provide the assessee with a reasonable opportunity to present supporting evidence.

Conclusion

The Tribunal restored both issues to the AO for de-novo adjudication, emphasizing the need for a thorough examination of facts and adherence to the principle of mutuality as outlined by the jurisdictional High Court. The appeal was allowed for statistical purposes, and the AO was instructed to provide the assessee with a reasonable opportunity to be heard before making a final decision.