TaxTMI 
TaxTMI 
2013 (4) TMI 803
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....and the earlier order dated 19.11.2008 passed by 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 m....
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.... principles laid down by the judgement of the Jurisdictional High Court relied upon by the assessee. 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....
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....essee has not made any efforts to show as to what action if any has been taken against the said Secretary and 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 re....
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..... Keeping in view this rider, the matter was referred by the AO to the auditors M/s Anil Ram & co., Chartered Accountants for carrying out the audit 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 ....
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.... assessee has submitted before us that sufficient opportunity was not given to the assessee during the course of special audit u/s 142(2A) of being heard and the 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 ....
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....said complaint is now under investigation by the institute." 8. The learned counsel for the assessee has also placed on record a copy of statement of Shri Ram Pal Chaudhary, ex-Secretary recorded by Addl. CIT, Range-I, Ghaziabad 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 categoric....
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....f special audit thus were relied upon by the auditors without giving any opportunity to the assessee to examine their authenticity. As stated by the assessee before the authorities below and affirmed in the affidavit filed before us, even the place 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 ....
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....3, and in supersession of Standing Order No.1 of 1987, dated the 17th July 1987, as amended from time to time till date, it is hereby directed that subject to any special order, all appeals and applications from the Districts, States and Union Territories 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 ....
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.... hierarchy. 3.8. Having thus addressed the preliminary legal issues which warranted an observation we now consider it appropriate to first refer to the principles laid down by the Hon'ble Delhi High Court in the case of CIT vs. Talagang Cooperative Group Housing Society, 339 ITR 518 (Del) on which heavy reliance is placed by the Ld. AR. 3.8.1. A perusal of the same shows that the assessee therein claimed exemption 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....
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....nance funds as entry fee from the power of attorney holders, the interest receivable from the members of the society as also the income determined on account of shops allotted were allowed. 3.8.9. The revenue in appeal challenged these findings before the Hon'ble Delhi High Court, who, relying upon the decision in the case of Director of Income-tax (Exemptions) vs. All India Oriental Bank of Commerce Welfare Society (2003) 184 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....
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....the identity of the contributor to the fund of the recipient is accepted, the principle of mutuality would get attracted. Their Lordships were careful in observing that there was nothing on record to show that the amounts collected by the Society were diverted for any other purpose. 3.9. It may also be appropriate to refer to certain other judgements of the Courts on the principle of mutuality. Reference may be made to the Hon'ble Delhi High 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-ope....
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....he notification had been received under pressure or coercion or contrary to the Government directions, Section 72 of the Contract Act would necessarily mandate that the amount would have to be refunded. Thus, it was held that one it is established that the participants and the contributors are the members who may come in or go out, the test of mutuality is satisfied. 3.11.4. Their lordships also went on to consider and examine the argument of the revenue 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 servic....
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....r the said purpose, it is again the bye-laws of the society which need to be considered. The State Co-operative Society Act and Rules can have their own requirements and stipulations which also need to be seen. 3.13. Once the aforesaid tests are satisfied, there can be no doubt that the principles of mutuality will apply to a co-operative housing society. 3.14. It may be pertinent to also refer to the principles as laid down by their Lordships of the Hon'ble Madras High Court in 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 ....
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....n the facts of the present case, there is stated to be a dispute between the erstwhile management of the society and the current management and the erstwhile office bearer are stated to be facing charges of embezzlement. The Ld. CIT DR has specifically doubted the mere oral assertions on behalf of the assessee's society and has pleaded as discussed earlier that let these facts be demonstrated by the assessee Society that they have taken any action against the errant office bearerers under the 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.....