TaxTMI 
TaxTMI 
2013 (4) TMI 803
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.... the Additional Commissioner of Income Tax, Range- I, Ghaziabad are both bad in law and against the facts of the case. 2. That the Ld. CIT(Appeals) has greatly erred in law and on facts of the case in :- a) Wrongly and erroneously rejecting the Appeal of the Appellant Society without appreciating the complete facts and circumstances of the case and the position of law relating to the principles of mutuality. b) Wrongly and erroneously rejecting the ground No.-1 of the Appeal raised before him regarding ex-parte order framed by the Additional Commissioner Range-I and ignoring the various letters and submissions made and placed on record in this subject. c) Wrongly and erroneously rejecting Ground No.-2 of the Appeal regarding setting aside of the ex-parte order passed by the Additional Commissioner, Range-I and not rejecting the Report of the Special Auditors which has been relied upon without any specific or cogent reasons. d) Wrongly and erroneously rejecting Ground No.-3 of the Appeal relating to appellant's claim of complying with the principles of mutuality to the appellant society on mere surmise and guess work ignoring the various Courts decision in this respec....
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....It was his submission that complete facts need verification in order to ascertain whether there is a complete identity between the contributors and the participants. 2.2. However at the time of dictation, it was noticed that the first year in point of time for the issue infact was not 1999-2000 assessment year but in fact 1997-98 assessment year. As such it is necessary and imperative to ascertain the position in the said year accordingly the appeals were fixed for clarification requiring the parties to specifically address the past position. 2.3. On the next date of hearing, Ld. AR submitted that the position in regard to the earlier years was that the appeals for 1997-98 and 1998-99 assessment years were infact pending before the CIT(A). The Ld. AR was required to address how the subsequent years came to be decided earlier in point of time instead of the earlier years first as judicial propriety demands that the first year in point of time on the issue should necessarily be decided first. The ld. AR in response there to submitted that in the 2nd round before the CIT(A) after the passing of the order by the AO, consequent to the order of the Tribunal dated 06.07.2007 in ITA No- ....
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.... the errant office bearerers so as to prove the bona fides of the new management. It was submitted that the assessee has come with unclean hands and no doubt he would not have any objection if the issue is restored to the CIT(A) as judicial propriety demands that the first year, be decided first. However, it was his vehement plea that the assessee may not be allowed to contend that the issue is to be decided solely in the light of the legal principles of mutuality as mutuality is a question of fact and not a pure question of law. 3. We have heard the rival submissions and perused material available on record. Before proceedings to decide the issue, we first consider it appropriate to refer to certain relevant facts. For the said purpose, it is appropriate to refer to the facts as taken into consideration for the seven years by the Coordinate Bench while disposing the stay application no-83/Del/2007 to 89/Del/2007 and ITA No- 1956/Del/2007 to 1602/Del/2007 for 1997-98 to 2003-04 assessment years. For ready-reference, para 3 & 4 from the order of the Co-ordinate Bench is reproduced here under :- "3. The assessee in the present case is a cooperative society registered with the Regi....
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.... of the books of account of the assessee u/s 142(2A). As stated by the AO in paragraph 9 of his order, the assessee-society was given adequate opportunity during the course of special audit to produce records and other documents available with it for the relevant period as well as to provide the necessary facilities for smooth conduct of audit, which it failed to do. The auditors finally completed the audit and submitted to the AO their reports, copies of which were made available to the assessee. In turn, the assessee-society reiterated the same objections to the very conduct of the special audit u/s 142(2A) itself as raised even during the course of special audit. It was also submitted on behalf of the assessee before the AO that it was having possession of only photocopies of cash book and members register whereas the vouchers were in possession of the ex-Secretary It was also submitted that the assessee-society was not given fair and proper opportunity during the course of conduct and completion of audit and it was not at all taken into confidence by properly informing the exact details of information and documents received by the auditor from the ex-Secretary. The assessee-soc....
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....e said audit was finalized mainly on the basis of information and documents furnished by Shri Ram Pal Chaudhary, ex-Secretary of the assessee-society without giving an opportunity to the assessee to put forth its case. He has contended that the said audit thus was completed without involving the assessee-society and the Assessing Officer was not justified in completing the assessments u/s 144 relying on the report of such audit. As per the direction of the Bench, he has also filed an affidavit of Shri R.C. Sharma, Hony. Secretary of the assessee-society stating the relevant facts on oath to support and substantiate the case of the assessee on this issue which reads as under :- "Affidavit of Shri R.C.Sharma S/o Shri Ram Swaroop Sharma, aged about 56 years, R/o of 309, Seemant Vihar, Kaushambi, Ghaziabad. The above named deponent hereby sworn on oath as under :- 1) That my name age, and address as given above is true and correct. 2) That I am working as Honorary Secretary of Kendriya Karamchari Avem Mitra Sehkari Avas Samiti Limited, Seemant Vihar, Kaushambi, Ghaziabad since 12.07.2003. 3) That during the course of ex-parte proceedings of the Special Audit of the books of ....
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....abad dated 23.3.2005 at page Nos. 1 to 9 of his paper book and pointed out from the answer given on page No.-5 of the said statement that Shri Chaudhary had accepted that the books of account of the assessee-society such as receipt books and vouchers for the year 1981-82 and onwards were lying in his custody. He also invited our attention to a copy of affidavit dated 19.9.2005 filed by Shri Ram Pal Chaudhary in the Court of Civil Judge (Junior Division), Ghaziabad placed at page Nos. 10 & 11 of his paper book to show that the key of the office premises of the assessee-society was in the possession of Shri Choudhary as stated by him on oath. He has drawn our attention to a copy of complaint filed by the assessee-society before the Counsel of the Institute of Chartered Accountants of India placed at page Nos.12 to 18 of his paper book to point out that all the irregularities committed by the auditor M/s Anil Ram & Co., Chartered Accountants were categorically brought to the notice of ICAI. He has contended that all these documents clearly show that the special audit was conducted and completed without the involvement of the assessee-society and the AO was not justified in completing ....
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....ace and timings of the audit proceedings were not informed to it and in the absence of the same, sending merely the notices to the assessee from time to time, in our opinion, could not be construed as proper and effective opportunity given to the assessee to participate in the said proceedings. Even the statement of Shri Ram Pal Chaudhary recorded by the AO on 23.3.2005 at the back of the assessee was relied upon without giving an opportunity to the assessee to crossexamine the said deponent. As already noted, entire set of books of account and the supporting vouchers were not available at one place and in the absence of the same, it is very difficult to understand how the special audit was conducted and completed by the auditors without even involving the assessee-society. Having regard to all these aspects of the matter, it appears to us that the special audit was not properly conducted and completed and the report prepared by the auditor without giving proper and sufficient opportunity to the assessee was not a reliable documentary evidence, on the basis of which, true and correct income of the assessee could be assessed and that too u/s 144. We, therefore, deem it fair and prop....
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.... specified in Column 3 shall, with effect from 1st October, 1997, be heard and determined by the Benches specified in Column 2 of the Table below S. No. Name & Number of Bench(es) Districts/States/Union Territories (1) (2) (3) 1. Agra Bench(1) x x x x x 2. Ahmedabad Benches(3) x x x x x 3. Allahabad Bench(1) x x x x x 4. Amritsar Bench(1) x x x x x 5. Bangalore Benches(3) x x x x x 6. Calcutta Benches(5) x x x x x 7. Chandigarh Benches(2) x x x x x 8. Chennai Benches(4) x x x x x 9. Cochin Bench(1) x x x x x 10. Cuttack Bench(1) x x x x x 11. Delhi Benches(7) - National Capital Territory of Delhi. - Districts of Bhiwani, Faridabad, Gurgaon, Hissar, Jhajjar, Karnal, Mohindergarh, Panipat, Rewari, Rohtak and Sonepat of Haryana. - Districts of Badaun, Bijnor, Bulandshahr, Gautam Budh Nagar, Ghaziabad, Jyotiba Rao Phule Nagar, Meerut, Moradabad, Muzaffar Nagar, Rampur and Saharanpur of Uttar Pradesh. - Districts of Almora, Chamoli, Dehradun, Haridwar, Nainital, Pauri Garhwal, Pithoragarh, Tehri Garhwal, Udham Singh Nagar and Uttarkashi of Uttaranchal. 12. Guwahati Bench(1) x x x x x 13. Hyderabad Benches(2) x x x ....
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....emption on the principle of mutuality which was not accepted by the Assessing Officer. The reasons briefly for the Assessing Officer for not accepting the claim were that after examining the Objects of the society the Assessing Officer was of the view that the primary activity of the assessee society was to collect money from members for construction of flats/houses and subsequently allot the same to them. The collection of money under various heads according to the Assessing Officer could not be exempted except the collections which were made for constructional activities only. 3.8.2. In this backdrop the equalization charges colleted from the new members, maintenance fund and entry fee from power of attorney holders, interest on delayed payments and interest from banks on FDRs, according to the Assessing Officer, were taxable. 3.8.3. The Assessing Officer further took note of the fact that the assessee had sold the shops constructed by it and had also spent certain amount of money on the purchase of dust bins etc. for the maintenance of the garden etc. The difference between the sale price and the construction price of the shops according to the Assessing Officer was income as ....
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....4 CTR (Del) 274 wherein the applicability of Chelmsford Club vs. CIT 243 ITR 89 (SC) was considered. It was taken note of that their Lordships therein held that while examining the applicability of the said judgement to the income earned on deposits made out of members and non-members, contributions, donation and subscriptions are segregable or not is the said question to be considered. The said was answered in the following manner:- "3. The issue with regard to the concept and principle of mutuality has been elaborately examined by the apex Court in Chelmsford Club v. CIT (2000) 243 ITR 89. Their lordships have held that where a number of persons combine together to contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus generated cannot in any sense be regarded as profits chargeable to tax. It has been observed that what is required to be seen is whether there is a complete identity between the contributors and participators. Once the identity of the contributor to the fund of the recipients of the funds; the treatment of the company, though incorporated as a mere entity fo....
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....gh Count in the case of CIT vs. Delhi Gymkhana Club Ltd. 339 ITR 525 (Delhi) which has taken cognizance of the judgement rendered in CIT vs. Talangang Coop. Group Housing Society Ltd. (supra). 3.10. Reference may also be made to the judgement of the Hon'ble Mumbai High Court in the case of Sind Co-operative Group Housing Society vs. ITO, Ward 1 (7), Pune (2007) 182 Taxman 346 (Bombay) and the judgement of the Hon'ble Madras High Court in the case of Madras Gymkhana Club vs. DCIT (2009) 183 Taxman 333 (Madras). 3.11. A perusal of the judgement rendered by the Hon'ble Bombay High Court in the case of Sind Co-operative Group Housing Society shows that their Lordships were seized of the issue pertaining to transfer fees received by the co-operative housing society from outgoing or incoming members which, according to the Assessing Officer did not attract the principle of mutuality. The said action was confirmed by the CIT (A) and the Tribunal. 3.11.1. In the said background, their Lordships examining the bye-laws of the group housing society which was formed under the Maharashtra Co-operative Societies Act, 1960 and Maharashtra Co-operative Societies Rules, 1960, came to the conclus....
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....nue that there was no legal bar for the assessee to earn profit as they observed that charging of transfer fee as per the bye-laws had no element of trading or commerciality and once there is no taint of commerciality, the question of earning profit could not arise when the housing society applied the moneys received towards maintenance of the society and providing the members with usual privileges, advantages and conveniences. The tests it was held which were required to be considered for applying the principles of mutuality is whether there is any commerciality involved which could be found to be only from the bye-laws of the cooperative housing society. Secondly, It was necessary to see that from the money received are the services offered in the nature of profit sharing or privileges, advantages and conveniences which again has to be examined from the terms of the bye-laws for the society. Thus whether once the subscription or contributions are received by the members are they expended for the purpose of maintenance and providing other privileges, advantages and conveniences to its members in terms of its byelaws only then the test of mutuality, it was held, is satisfied. 3.12....
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....n Madras Gymkhana Club (cited supra)wherein the assessee was a sports club providing its members various facilities such as restaurant, gymnasium, library, bar, coffee shop, swimming pool and other facilities for indoor and outdoor games, the issue of interest earned from its co-operative members for investment of surplus funds as fixed deposits was held to be taxable as the assessee took the stand that the fund was invested in the form of fixed deposits/securities as they were surplus funds and it had no corresponding plans or schemes to improve its infrastructure facilities. The assessee also took the stand that their surplus funds were not earmarked for any particular developmental activities in the interest of all the members of the clubs. Their Lordships further found that it was not even the case of the assessee that incurring of the expenses for such activities which could only be made in a phased manner or that the amounts were being kept in such a way that it can be drawn for spending as and when the requirement for such spending was necessitated. 3.14.1. Accordingly, on account of the facts and arguments as canvassed their lordships held that it is not only relevant to s....
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....e Civil and Criminal laws of the land. We are of the opinion that the arguments of the Ld. CIT DR on facts cannot be ignored and the assessee society needs to demonstrate the facts qua the allegations of collusion. 3.18 It may also be pertinent to mention that the Registrar under the State Cooperative Acts is invariably vested with vast powers to regulate the functioning of the society and on complaints etc has sufficient powers and authority to deal with situations where a particular office bearer/management of the group housing society has indulged in embezzlement, etc., in that eventuality the said person/persons or management can be hauled up under the civil and criminal laws of the land. It is also an invariably noted position that even the members of the society have adequate recourse under law to complain for the violations of its byelaws, if any to the Registrar of the Co-operative Societies, who then has adequate powers under the laws of the land to appoint an Administrator and call for a creation of a fresh management. Thus qua the violations, embezzlement, mismanagement etc, what actions have been taken by the Society has not been addressed and it is a necessary and rel....