2007 (8) TMI 490 - AT - Income Tax

Tribunal rules on taxability of transfer fees, penal interest remand, set-off dismissal, deduction allowed, and assessment cancellation.

Maker Tower A&B Co-op. Hsg. Society Ltd. Versus Income-tax Officer, Ward 12(2) (4), Mumbai

The Tribunal upheld the partial taxability of transfer fees, remanded the penal interest issue for verification to avoid double addition, dismissed the ... Mutual concern, Deductions - Income of co-operative societies, Assessment - Issue of notice Issues Involved:1. Taxability of transfer fees received by the assessee.2. Penal interest on transfer fees.3. Set-off of losses.4. Deduction under section 80P(2)(c)(ii).5. Validity of assessment order due to the timing of notice under section 143(2).Issue-wise Detailed Analysis:1. Taxability of Transfer Fees Received by the Assessee:The primary issue in both appeals concerns the additions of Rs. 1,01,41,500 and Rs. 60,61,600 for the assessment years 2000-01 and 2001-02, respectively, related to transfer fees collected by the assessee, a co-operative housing society, from transferors and transferees during the transfer of flats. The assessee argued that these amounts were not taxable due to the concept of mutuality. However, the Assessing Officer disagreed, citing that the amounts received were not voluntary contributions, had an element of commerciality, were collected with profit intent, and were akin to windfall profits. The Assessing Officer relied on various Tribunal decisions and a Bombay High Court judgment to support the taxability of such fees.Upon appeal, the CIT(A) partially upheld the Assessing Officer's view, distinguishing between fees received from transferors and transferees. The CIT(A) allowed partial relief by recognizing mutuality for transfer fees from transferors up to Rs. 25,000 but deemed fees from transferees taxable. The Tribunal upheld this decision, emphasizing that the concept of mutuality applied to fees from transferors but not transferees, and that the limit of Rs. 25,000 was in accordance with government norms.2. Penal Interest on Transfer Fees:The second issue pertains to the addition of Rs. 2,02,495 and Rs. 2,10,322 (corrected to Rs. 2,01,332) for the assessment years 2000-01 and 2001-02, respectively, as penal interest on transfer fees. The assessee conceded that if transfer fees were taxable, the penal interest should also be taxable. However, they argued that the separate addition constituted double addition since the amount was already included in the P&L Account and income computation. The Tribunal remanded this issue to the Assessing Officer for verification to avoid double addition.3. Set-off of Losses:The issue of set-off of losses raised in Ground No. 6 of both appeals was not argued and was dismissed as not pressed.4. Deduction under Section 80P(2)(c)(ii):The assessee claimed a deduction of Rs. 50,000 under section 80P(2)(c)(ii). The Tribunal found merit in this claim, stating that the deduction is allowable for co-operative societies engaged in activities not specified under clauses (a) or (b) of section 80P(2). Since the assessee's activities did not fall under these clauses, the Tribunal directed the Assessing Officer to allow the deduction.5. Validity of Assessment Order Due to Timing of Notice under Section 143(2):An additional ground was raised for assessment year 2001-02, challenging the validity of the assessment order due to the notice under section 143(2) being issued beyond the prescribed period. The Tribunal admitted this ground, noting that the notice was issued on 22-11-2002, beyond the 12-month period from the end of the month in which the return was filed (27-9-2001). Consequently, the assessment was deemed without jurisdiction and was cancelled for the assessment year 2001-02.Conclusion:In summary, the Tribunal upheld the CIT(A)'s decision on the taxability of transfer fees, remanded the issue of penal interest for verification, dismissed the set-off of losses issue, allowed the deduction under section 80P(2)(c)(ii), and cancelled the assessment for the year 2001-02 due to the invalid notice under section 143(2).