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TMI Blog2021 (7) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee noticed that the assessee has received share premium of Rs. 1,10,00,000/- during the year under consideration. Therefore, he called upon the assessee to furnish the details of the person from whom, the aforesaid amount was received and also to explain why it was not offered as income. In response to the query raised by the AO, the assessee submitted that the amount in question was received from one of its members, M/s Shreyans Finvest Pvt. Ltd. towards lease premium as per the agreement executed on 30.01.2013. Further, it was submitted, since the amount in question was received from a member, it will be governed under the principle of mutuality, hence, is not taxable. In support of such contention the assessee relied upon various judicial precedents. 4. On verifying the details available on record, the AO found that the assessee was owner of a parcel of land bearing certificate No. 79-A, Hissa No. 10, Survey NO. 80, Survey No. 79, Hissa No. 8 admeasuring 12460 sq.mtrs situated at Nehru Road, Ville Parle (East), Mumbai. He found that the said parcel of land was divided into 27 plots for allotment to 27 members. Plot No. 1 out of the said plot was initially allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asing out the plot for 949 years. Thus, the transaction was between the society and a member, hence, the amount received towards lease premium would be governed under the concept of mutuality. He submitted, while relying upon the Tribunal's decision in case of Hatkesh Cooperative Housing Society (supra), the AO has completely overlooked the fact that the said decision has subsequently been set aside by the Hon'ble jurisdictional High Court. 7. Opposing various observations of learned Commissioner (Appeals), learned counsel submitted that the allegation of learned Commissioner (Appeals) that collection of lease premium is not authorized under the by-laws is incorrect. Drawing our attention to clause 5(c) of the by-laws he submitted, one of object of the society is to raise funds for achieving the objects of society. Further, referring to clause 7(i) of the by-laws, he submitted, the society can raise funds by any other mode permitted under the by-laws. Thus, he submitted, by-laws authorize the society to collect lease premium by passing resolution in general body meeting. However, such fund collected has to be used compulsorily for the object of the society. Further, refuting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mutuality as the amount was utilized for the common benefit of the members, who have contributed to the fund. As regards the allegation of the Commissioner (Appeals) that lease premium was shown in the balance sheet instead of the income and expenditure account, learned counsel submitted, since, lease premium is not a regular receipt, it was shown in reserve fund instead of showing in the income and the expenditure account. However, the fund is available in the common kitty for all the members and has to be compulsorily used for major expenses like repair etc. Thus, he submitted, the lease premium is not taxable. In support of such contention, he relied upon the following decisions:- 1. Sea Face Park Co-operative Hsg. So. Ltd. vs. The Income Tax Officer, Ward 16 (2) (1) of Income Tax Appeal no. 762 of 2008 (Bom) dated 2nd August, 2018. 2. Income Tax Officer vs. Venkatesh Premises Co-operative Society Ltd., Civil Appeal no. 2706 of 2018 dated 12th March, 2018. 3. Hatkesh Co-operative Housing Society Ltd. vs. Assistant Commissioner of Income Tax, Circle 21 (1), (2016) 75 taxmann.com 39 (Bom). 4. Hatkesh Co-operative Housing Society Ltd. vs. Assistant Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asing TDR. He submitted, the members are free to transfer their right in the property if they have fulfilled the conditions and there is no need for any no objection certificate from the assessee. He submitted, the society only charges transfer fee from the transferor for the transfer of shares along with occupancy right. Referring to the definition of premium in the by-laws, he submitted, premium is payable by the member transferring his shares and interest in the property of the society in addition to transfer fee. He submitted, the by-laws do not permit the society to charge premium from its members. Referring to the by-laws, he submitted, the assessee can create reserve funds by crediting to it sums out of the net profit of the year, all entrance fees, transfer fees, premium received from the transferor member and donations if any. Other funds like repairs and maintenance funds and sinking funds can be created only as per the rate fixed uniformly for all members on certain basis. Thus, he submitted, as per the bylaws, the assessee is not authorized to raise any fund by charging premium on his own from any of its members, new or old. Narrating the peculiar facts relating to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m open market and load it on to construct additional structure. This is clearly in the nature of commercial exploitation of the property. Further, he submitted, as per the Govt. of Maharashtra Rules and Regulations, the maximum amount chargeable by a society cannot exceed an amount of Rs. 25,000/-. Therefore, since the lease premium received by the assessee exceeds the amount fixed under rules and regulations, it will not come under the principle of mutuality. Further, he submitted, the lease rentals, lease premium etc. are not distributed to the members but are vested with the assessee in its own right. The assessee has invested these funds in bank and income is earned by way of interest thereon which are not covered under mutuality. He submitted, no common services or amenities are provided from such receipts and neither are they distributed to the members. He submitted, the assessee has not shown the lease premium in the income and expenditure account nor it has treated it as contribution from the new member but has accounted for it as a separate income of the society in its own capacity. Referring to the balance-sheet of the assessee as on 31.03.2013, he submitted, lease premiu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plot no. 1 along with the building constructed by him for a consideration of Rs. 6,00,00,000/-. It is further relevant to observe, as mentioned in the aforesaid lease deed, the original lessees viz Anil Madhukar Deshpande and the legal heirs of his deceased wife applied for membership in the society and their application was approved by the society on 29.09.2008 and shares certificates were issued to them. Subsequently, due to alleged breach of lease conditions the society issued a notice to the original lessees for cancellation of lease and forfeiture of shares. As per paragraph 14 of the lease deed, the original lessee also accepted the forfeiture of such shares. 11. Thus, from the above-narrated facts it becomes clear 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society, whether prior to or after the receipt of share premium, learned Counsel for the assessee drew our attention to letter dated 03.03.2020 filed before the Bench enclosing the minutes of Managing Committee meeting dated 24.09.2012, wherein, admission of Shreyans Finvest Pvt. Ltd. as a member of the society was approved. However, learned Counsel for the assessee fairly submitted that the said document was not furnished before the departmental authorities as they never asked for it. 14. Be that as it may, the aforesaid documentary evidence filed by the assessee, definitely, is in the nature of an additional evidence which requires to be factually verified by the departmental authorities through enquiry. Thus, from the aforesaid facts, it is very much clear that neither the Assessing Officer nor learned Commissioner (Appeals) have property examined/enquired into various aspects discussed above before completing the proceedings at their level. In our view, both departmental authorities have left various loose ends untied. 15. At this juncture, it is necessary to examine the decision of the Hon' ble jurisdictional High Court in case of Sind Co-operative Housing Society vs ITO (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid by the transferor member. The issue, therefore, of transferor or transferee for those assesses really does not arise. However, we will have to answer the issue considering what was considered in the case of Walkeshwar Triveni Co-op. Housing Society (supra) and considering the model bye-laws which are now adopted by most housing societies. We have noted the bye-laws as also provisions under the Act and Rules. The transfer fee can be appropriated only if the transferee is admitted to membership. The fact that a proposed transferee may can be appropriated only if the transferee is admitted to membership. The fact that a proposed transferee may make payment in advance by itself is not relevant. The amount can only be appropriated on the transferee being admitted as a member. As it is a transfer fee, if the transferee is not admitted as a member the amount received will have to be refunded, as the amount is payable only on a transfer of rights of the transferor in the transferee. If it is held that payment of transfer fees is by a stranger, it will certainly be in the nature of gift and not income. If an amount is received more than what is chargeable under the bye-laws or Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any rate if the society retains the amount in excess of binding Government notification or the bye-laws that amount will be exigible to tax as it has an element of profiteering. 23. It was then sought to be contended that the premium charged is a profit. As we have already noted and considering the bye-laws, the society is registered with the object principally of looking after the property including building thereon. There is no trading or business transactions. The members by adopting the bye-laws agree amongst themselves that a fee for transfer of flat/tenement when it is sold would be paid to the society. It may be that both incoming or outgoing member have to contribute to the common fund of the society. It may be that both incoming or outgoing member have to contribute to the common fund of the society. The amount paid however, is to be exclusively used for the benefits of the members as a class. 24. It was next contended that there is no legal bar for the assessee to earn profits. There can be no dispute on that proposition but the profit must come from a commercial activity in the nature of trade, business or the like in which event the assessee then will have to pay ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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 (supra). 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 after verifying all facts and material on record, as well as, keeping in view the submissions of the assessee and the ratio laid down in the various decisions referred to earlier in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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