2015 (11) TMI 1301 - AT - Income Tax

Amount received towards the development fund - Held that - From the record found that amount so received by the assessee was within the framework of law of the society, thus, there was no profit motive attributed to the society. In order to bring the contribution within the net of tax, there should exist a pervading profit motive. The transferrable development rights premium was a payment made by a member of the assessee, as a consideration for being permitted to make an additional utilization of the FSI on the plot allotted by the assessee. The assessee which looked after the infrastructure, required the payment of the premium in order to defray the additional burden that must be cast as a result of the utilization of the FSI. The point, however, was that there was a complete mutuality between the assessee and its members. See Jai Hind CHS Ltd. 2012 (10) TMI 527 - BOMBAY HIGH COURT . Thus merit in the order of lower authorities taxing the contribution towards special development funds (for giving NOC) as liable to tax - Decided in favour of assessee. Taxing land premium on transfer in excess - Held that - This issue is also covered by the decision of Hon ble Bombay High Court in the case of Sind Cooperative Housing Society, 2009 (7) TMI 15 - BOMBAY HIGH COURT as held Payments were made under the bye-laws of the assessee which constituted a contract between the assessee and its members which was voluntarily entered into and voluntarily conducted as a matter of convenience and discipline for running of the assessee-society. If any amount was received more than was chargeable under the bye-laws or the Government notification, the assessee was bound to repay the amount and if it retained the amount it would be in the nature of profit making that specific amount exigible to tax. Under the bye-laws, charging of transfer fees had no element of trading or commerciality. Since there was no taint of commerciality the question of earning profits would not arise when the assessee from the funds received applied the moneys received towards maintenance of the society and providing the members with usual privileges, advantages and conveniences. Thus, the principle of mutuality was applicable to the assessee which had as its predominant activity, the maintenance of the property of the society which included its buildings) and as long as there was no taint of commerciality, trade or business, the receipt of transfer fees was not liable to tax - Decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of contributions towards special development funds.
2. Taxability of land premium on transfer in excess of Rs. 25,000.

Detailed Analysis:

1. Taxability of Contributions Towards Special Development Funds:

The assessee, a registered cooperative Housing Society, was assessed by the ITO Ward-15(2)(2), Mumbai. For the assessment years 2003-04 to 2006-07 and 2008-09, the AO issued notices under section 143(2) of the I.T. Act and treated amounts received from members for issuing NOC for development of plots and use of TDR as income from other sources. The CIT(A) confirmed this action. However, the assessee argued that these contributions were towards a special development fund, utilized for the benefit of society members, thus satisfying the principle of mutuality and not liable to tax.

The ITAT found that the amount received was used for purposes such as constructing a cultural center, beautification, healthcare, gym facilities, education loans, purchasing land, promoting sports, and ensuring security for members. These purposes were decided in a special general meeting on 17-12-2006. The principle of mutuality was satisfied as the contributions were used for the members' benefits, with no profit motive. The ITAT relied on the Bombay High Court's decision in the case of Jai Hind CHS Ltd., which held that payments made by members for additional FSI utilization were not taxable due to mutuality between the society and its members. Consequently, the ITAT directed the AO to delete the additions made for these contributions in all the years under consideration.

2. Taxability of Land Premium on Transfer in Excess of Rs. 25,000:

For the assessment years 2003-04 and 2005-06, the AO taxed the land premium on transfer received by the society in excess of Rs. 25,000. The assessee placed reliance on the Tribunal's decision in the case of The Friends Co-op Housing Society Ltd., where similar issues were decided in favor of the assessee. The Tribunal in that case followed the judgment of the Hon'ble Jurisdictional High Court in Sind Cooperative Housing Society, which applied the principle of mutuality to cooperative housing societies. The Tribunal noted that the activities of the society were non-commercial and aimed at maintaining the property and providing amenities to members, satisfying the mutuality principle.

The ITAT also referred to the Bombay High Court's decision in Mittal Court Premises Co-operative Society Ltd., which held that contributions such as transfer fees and non-occupancy charges were not taxable if they adhered to the principle of mutuality. The Court emphasized that as long as contributions were used for society's objectives and there was no profit motive, the principle of mutuality applied.

Following these precedents, the ITAT concluded that the land premium on transfer received by the society from its members was not taxable. The ITAT noted that the AO's non-acceptance of the Bombay High Court's decision in Sind Cooperative Housing Society was not justified, as the revenue's appeal to the Supreme Court did not negate the binding nature of the High Court's ruling.

Conclusion:

The ITAT allowed all the appeals of the assessee, holding that both the contributions towards special development funds and the land premium on transfer were not taxable due to the principle of mutuality. The AO was directed to delete the additions made in all the years under consideration. The order was pronounced in the open court on 09/10/2015.