2016 (6) TMI 846 - HC - Income Tax

Revenue receipt of society - collection by the assessee society as interest free loan from incoming members as a binding precondition for becoming a member - Held that - The issue arising herein namely loans taken from incoming members which have in fact been returned to the incoming members, cannot be treated as Income of the respondent assessee. This issue stands concluded against the Revenue and in favour of the respondent assessee by the decision of the Apex Court in the case of Siddheshwar Sahakari Sakhar Karkhana Ltd. Vs. Commissioner of IncomeTax, (2004 (9) TMI 6 - SUPREME Court ). Sale of four flats constructed by the Society by utilising additional FSI available with it - treatment as business income - Held that - Tribunal on examination of the facts before it has came to the conclusion that the contribution of ₹ 1.10 Crores received by the Society was from its members (four new members) and the allotment of four new tenaments was also done only to the existing members. It is an undisputed position that the four new members were members of the Society prior to the allotment of the tenaments to them and also before making their contribution. It is not the case of the Revenue that there is absence of complete identity of the contributors and participants of the Society. So far the second test is concerned viz. that the actions of the Society must be in furtherance of the object of the Society. This is also satisfied. This is so as it is not the case of the Revenue that building tenaments and giving it to its members is not the object of the Society. Thirdly, there is no scope for profiteering in the present facts, as the members have not purchased the flat but have only got a right to occupy a tenament allotted by the Society. Thus, on facts, the Tribunal has so held without specifically referring to the three tests. Thus, on facts, the view taken by the impugned order stand covered in favour of the respondent Society.

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal for Assessment Years 1998-99 to 2001-02.
2. Whether interest-free loans collected by the assessee society from incoming members are revenue receipts.
3. Whether the income from the sale of four flats constructed by the society should be treated as business income.

Analysis:

Issue 1: Challenge to Tribunal's Order
- The Revenue filed an appeal challenging the Tribunal's order for the Assessment Years 1998-99 to 2001-02.
- The appeal raised substantial questions of law related to the treatment of certain transactions.

Issue 2: Treatment of Interest-Free Loans
- The Tribunal concluded that loans taken from incoming members, which were later returned, cannot be treated as income based on a precedent set by the Apex Court.
- The issue was resolved in favor of the respondent assessee, citing the decision in Siddheshwar Sahakari Sakhar Karkhana Ltd. Vs. Commissioner of Income Tax.

Issue 3: Income from Sale of Flats
- The society constructed four additional tenements using unutilized FSI and received contributions from new members for the allotment.
- The Assessing Officer initially held the contributions as income, but the Tribunal ruled in favor of the society based on the concept of mutuality.
- The Tribunal applied the test of mutuality as outlined in the decision of the Apex Court in Commissioner of Income Tax Vs. Bankipur Club Ltd.
- It was established that the contributions were from members and the allotment was to existing members, meeting the criteria of mutuality.
- The Tribunal's decision was upheld, stating that the questions raised did not give rise to any substantial question of law.

Conclusion:
- The appeal was dismissed, and no costs were awarded.
- The Tribunal's decision was upheld in both issues, emphasizing the application of legal principles and precedents in determining the tax treatment of the transactions in question.

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