1. Since common issues are involved in these appeals, the same are being disposed off by the common order, for the sake of convenience.
2. The first issue common to both the appeals, relates to the additions of Rs. 1,01,41,500 and Rs. 60,61,600, pertaining to assessment years 2000-01 and 2001-02, respectively, on account of transfer fees received by the assessee from the transferors and transferees on the occasion of transfer of flats. This issue arises from ground Nos. 1 to 4 relating to both the appeals.
3. Briefly stated, the facts are that the assessee is a co-operative housing society which received the aforesaid amounts during the years under consideration, at the time of transfer of flats from the transferors as well as the transferees. These amounts were not offered for taxation on the ground that concept of mutuality applied in the assessee's case. However, the assessing officer was of the view that concept of mutuality did not apply to the case of the assessee for the reasons - (1) the amounts received were not voluntary contributions, (2) element of commerciality was attached to such receipts, (3) the amounts were collected with the clear intention to earn profit, and (4) the receipts in question were like windfall profit. Reliance was also placed by the assessing officer on the decision of the Tribunal, viz., Oval Shiv-Shanti Bhuvan Co-op. Housing Society Ltd. v. ITO and Regent Chambers Premises Co.-op. Society Ltd. v.ITO , respectively, wherein it has been held that transfer fees received by the co-operative society from the incoming and outgoing members would be treated as revenue receipt chargeable to tax in the hands of the society. Further reliance was placed on another decision of the Tribunal in the case of Sea Face Park Housing Society, wherein it was held by the Tribunal that principle of mutuality was not applicable to such receipts, as such fees could not be considered as a voluntary contribution. Reliance was also placed on the judgment of Hon'ble Bombay High Court in the case of CIT v. Presidency Co-operative Housing Society Ltd. . In view of the same, the 4. The matter was carried in appeal before the Commissioner (Appeals), before whom various decisions were relied upon by the appellant, for the proposition that concept of mutuality was applicable to such societies. Special reliancewas placed on two decisions of the High Courts, viz., CIT v. Adarsh Co-op.Housing Society Ltd. and CIT v. Apsara Co-op. Housing Society Ltd. (1993) 204 ITR 6623 (Cal.). The Commissioner (Appeals), following the decision of the Special Bench of the Tribunal in the case of Walkeshwar Triveni Co-op. Housing Society Ltd. v. Income Tax Officer , held that the transfer fee received from the transferees are not covered by the concept of mutuality and, therefore, the same was taxable as revenue receipt in the hands of the assessee. It was further held that the transfer fee received from the transferors was covered by the concept of mutuality, subject to the maximum amount of Rs. 25,000.
Accordingly, he allowed partial relief of Rs. 2,25,000 for assessment year 2000-01 and Rs. 1,50,000 for assessment year 2001 -02. Still aggrieved, the assessee is in further appeal before the Tribunal.
5. The learned Counsel for the assessee has contended before us that the concept of mutuality was held to be applicable by the Special Bench with reference to the amount received by the assessee from the transferor of the flat. Therefore, to that extent there is no dispute before the Tribunal. However, it has been submitted by him that limit of Rs. 25,000 cannot be applied to each and every case of housing society. According to him, the Special Bench was considering the model bye-laws framed by the State Government in pursuance to the powers under the Maharashtra State Co-operative Societies Act. He also invited our attention to para 42 of the said judgment in support of the above submissions, inasmuch as it has been mentioned in this para that the learned Departmental Representative had drawn the attention of the Tribunal to the model bye-laws. He then referred to the order dated 9-8-2001 issued by the State Government of Maharashtra under Section 79(A) of the Maharashtra State Co-operative Societies Act, wherein it has been directed that the rate of premium payable on transferring of member's interest in the building of co-operative housing society shall be decided in the regular general meetings of the members but the rates of premium to be fixed by the general meetings shall not exceed the sum of Rs. 25,000 where societies situated in Municipal Corporation of Mumbai. The contention of the learned Counsel for the assessee is that such order is applicable only to those societies which have adopted the model bye-laws and, therefore, would not be applicable to other societies. He has also referred to opinion of an advocate to substantiate his arguments. He then referred to the Supreme Court decision in the case of State of Maharashtra v. Karvanagar Sahakari Griha Rachana Sansiha Maryadit (2000) (Suppl.) Bom. C.R. 864, wherein it has been held that the directions issued under Section 79(A) of the Maharashtra State Co-operative Societies Act, should be in the interest of society. What is in the interest of society is for the society to decide and not for outside agency to say. Accordingly, the Supreme Court upheld the order of the Bombay High Court, quashing the directions on the ground that such directions were not in the interest of society. In view of the same it was submitted by the learned Counsel for the assessee that the order issued by the State Government, under Section 79(A) of the Maharashtra State Co-operative Societies Act was in the form of mere guidelines and, therefore, could not be applied to the case who has not adopted the model guide laws. According to him, the bye-laws of the society permit the transfer fees to be charged from the transferor subject to maximum amount equal to 5 per cent of the sale proceeds. It was further submitted by him that in the case of the assessee, the annual general meeting held on 16-8-1995, had resolved to charge the transfer fee equivalent to 1 per cent of the value shown in the deed of transfer. This was increased to 2 per cent of the sale price where both parties to the transactions are individuals or members of partnership firm and 3 per cent of the sale price where one of the partners to the transactions is a cooperative body, vide annual general meeting held on 14-9-1997. According to him, the transfer fees charged by the assessee was in accordance with the fee fixed in the annual general meeting and, therefore, the entire amount was exempt from taxation considering the concept of mutuality.
6. Regarding the amount received from the transferees, it was submitted by him that as per the bye-laws of the society, the transfer fee has to be paid only by the transferor. Therefore, any amount even paid by the transferee should be considered as payment on behalf of the transferor and subsequently should be declared as exempt on the basis of the concept of mutuality.
7. On the other hand, the learned Departmental Representative has strongly relied on the order of Commissioner (Appeals) and the decision of the Special Bench in the case of Walkeshwar Triveni Co-op. Housing Society Ltd. (supra). According to him the order issued by the State Government under Section 79A of the Maharashtra State Co-operative Societies Act is applicable to all the societies and, therefore, the limit prescribed on the transfer fee would be applicable to the case of the assessee also.
8. Rival submissions of the parties have been considered carefully. The Special Bench in the case of Walkeshwar Triveni Co-op. Housing Society Ltd. (supra) has held - (i) That considering the concept behind the formation of co-operative societies, it is to be presumed that the co-operative society is a voluntary association; (ii) The concept of mutuality is applicable to such societies provided the contributors and participators to the fund are the same; (iii) The concept of mutuality would apply in respect of transfer fees received from the transferor of the flat inasmuch as he is the member of the society on the date when the transfer fee is paid; (iv) The concept of mutuality is not applicable in respect to transfer fee received from the transferees since at that time transferee is not the member of the society; (v) Clause 40(d)(vii) of the bye-laws of the society provided that maximum amount of premium chargeable on the transfer of flat from the transferor could not exceed Rs. 25,000 which was as per the norms set out by the Government. Therefore, so long as the society was charging the premium within the framework of law, no profit motive could be attributed to the society, if it is found that the society charged more than what was prescribed under the law, then it would be taxable as revenue receipt.
9. The contention of the learned Counsel for the assessee is that the Special Bench was considering the case of a society which was governed by model bye-laws and, therefore, the same is inapplicable to the present case since the assessee has not adopted the Model Bye-laws. No doubt, the reference was made by the learned Departmental Representative to the Model Bye-laws before the Special Bench but the facts of that case do not reveal that the assessee had adopted the model bye-laws. The Special Bench has referred to bye-law No.40(d)(vii) which does not find place in the model bye-laws, copy of which has been placed before us. Clause 40 referred to in para 75 of the order was, in fact, the clause of the bye-laws of the assessee-society and, therefore, we are unable to accept the submission of the learned Counsel for the assessee that the decision of the Special Bench is applicable only to those cases where the assessee has adopted the model bye-laws.
10. We have also gone through the order dated 9-8-2001, placed at page 47A of the Paper Book which was issued by the State of Maharashtra under Section 79A of Maharashtra State Co-operative Societies Act, 1960. For the benefit of this judgment, the order of the State Government is being reproduced as under: Read:-Government Resolution for House Development/ward change/Fee/89, dated 27-11-1989 of Co-operation Commissioner and Registrar, Co-operation Societies, Maharashtra State, Pune for Co-operative Housing Societies, 'Model Bye - Laws' were sanctioned by Commissioner of Co-operative Institution and Registrar of Co-operative Societies, Maharashtra State, Pune on 2-7-2001.
According to Model Bye-laws No. 38(E)9, the power to fix the premium payable to every Co-operative Housing Institution on transfer of Building/Gala has been given to the State Government, Textile & Corporation Department.
State Government has in the light of the current situation reviewed the Government resolution dated 27-11-1989 in respect of the rate of Premium payable on transfer of Building, Galas, etc., passed by Co-operative Commissioner and Registrar Co-operative Societies, Maharashtra State, Pune and decided to pass a fresh order on the subject of rate of premium payable on transfer of Building/Gala, etc.
In exercise of the power given to the State Government under Maharashtra State Co-operative Societies, Act 1960, Section 79(A), the State Government passes the following order in public interest.
(1) The Government Resolution in respect of Housing Development/Transfer of Gala/Fee/89/dated 27-11-1989 passed by Co-operative Commissioner and Registrar, Co-operative Societies, Maharashtra State, Pune is hereby cancelled.
(2) The rate of premium payable on transferring member's interest in Building, Gala, etc., of Co-operative Housing Societies or in the Society's Share Capital part of properties rights shall be decided in regular general meetings of the members.
The rates of premium to be fixed by the general meetings of Co-operative Societies shall not exceed the following rates ; This order would come in force immediately. As per the order and name of Government of Maharashtra 11. A perusal of the above shows that model bye-laws were sanctioned by the Commissioner of Co-operative Institutions and Registrar of Co-operative Societies, Maharashtra State, Pune on 2-7-2001. This itself shows that model bye-laws were not in existence in the years under consideration. Such bye-laws also could not have been in existence in the assessment year 1997-98 with which the Special Bench was concerned. Further, the contents of the order reveal that it is applicable to all societies in the State of Maharashtra. No doubt, in the preamble, the reference has been made to the Model Bye-laws but such reference is only for limited purpose of stating the powers of State Government to fix the premium payable to the societies having adopted the Model Bye-laws. It is important to note that the power to issue the order under Section 79(A) vests in the State Government as well as the Registrar of the Co-operative Societies. The earlier order dated 27-11-1989 under Section 79(A) was issued by the Registrar of Co-op. Societies. Subsequently, Model Bye-laws were sanctioned on 2-7-2001. It is in this context, the State Government though it appropriate to pass a fresh order covering all societies including the societies who adopted the bye-laws and therefore, the State Government cancelled the earlier order dated 27-11-1989 and passed a fresh order on 9-8-2001. Hence, it cannot be said that the later order is applicable only to those societies who have adopted Model Bye-laws.
Therefore, the reliance placed by the learned Counsel for the assessee on this order is misplaced.
12. We have also gone through the decision of the Hon'ble Supreme Court in the case of Karvanagar Sahakari Griha Rachana Sanstha Maryadit (supra), copy of which is placed at page 55 of the Paper Book. In that case, the respondent was a co-operative housing society and the members of the society were required to construct only one tenement on the plots allotted to such members. However, the State Government issued directions under Section 79A of the Maharashtra State Co-operative Societies Act, 1960 under which the assessee was required to amend the bye-laws so as to enable the flat holders to construct multi-storeyed building with more than one residential tenement. This direction was challenged in the High Court and the Hon'ble Bombay High Court quashed such directions, inasmuch as such directions were not in the interest of society. The State of Maharashtra appealed from that judgment before the Hon'ble Supreme Court. It is in this context that the Apex Court held "Registrar has powers to issue directions for amendment of the bye-laws of the society, so also the State Government has the power to give the directions in the public interest, but the paramount consideration is the interest of the society. What is in the interest of the society is for the society to decide and not for the outside agency to say. The proposed amendment cannot be said to be in the interest of society, hence cannot be forced." In view of the above judgment, one can contend that the directions to amend the byelaws is bad in law if it is not in the interest of society. However, that does not mean that order issued under Section 79A of the said Act has no statutory force, in our humble opinion, so long as such order is in existence, it has a statutory force, unless set aside or quashed by the Court. If the contention of the learned Counsel for the assessee is accepted, then each order issued under Section 79A of the said Act would become redundant. Such construction, in our opinion, is impermissible. Therefore, the learned Counsel for the assessee is not correct in contending that transfer fee at the rate of 1 per cent or 2 per cent as the case may be of the sale price would be within the framework of law. The Special Bench has held that the sum of Rs. 25,000 charged by the assessee in that case was in accordance with the directions issued by the State Government. It may be noted that the assessee had referred to the order dated 9-8-2001 which shows that there was an earlier order dated 27-11-1989 and, therefore, the limit prescribed in the earlier order would be applicable to the years under consideration. However, the State Government has reviewed the earlier order and passed the fresh order dated 9-8-2001, specifying maximum amount of Rs. 25,000 as transfer fee/premium. The Commissioner (Appeals) has already allowed deduction in respect of such sum.
Therefore, question of giving further relief does not arise.
13. Regarding the transfer fee received from the transferees, it has been contended that such amount should be treated as payment on behalf of the transferor since society only can receive such fees from transferor alone. We are unable to accept this contention. For applying the principle of mutuality, what is to be seen is whether the payment is made by the transferor or by the transferee. It is a mutual arrangement between the transferor and the transferee as to who should pay the amount. If the transferee has agreed to pay the transfer fee from his own pocket then it cannot be said that it is a payment by the transferor. Therefore, the concept of mutuality would not be applicable to the amount paid by the transferee to the society, as held by the Special Bench.
14. In view of the above discussion, the orders of the Commissioner (Appeals) are upheld on this issue.
15. The next issue arising from Ground No. 5 in both the appeals, relates to the addition of Rs. 2,02,495 and Rs. 2,10,322 for assessment years 2000-01 and 2001-02, respectively, on account of penal interest in respect of transfer fees.
16. At the outset, the learned Counsel for the assessee submitted that penal interest for assessment year 2001-02 is actually Rs. 2,01,332 instead of Rs. 2,10,322 mentioned in the grounds of appeal. It was also agreed by him that if the transfer fee is held to be taxable then the penal interest is also be taxable in the hands of the assessee.
However, alternatively, it has been pleaded by him that separate addition made by the assessing officer amounts to double addition, inasmuch as this amount is already included in the Profit and Loss Account and the computation of income made by the assessee. He drew our attention to the Profit and Loss account and the computation of income in this regard. However, there is no discussion in the order of the assessing officer as well as in the order of the Commissioner (Appeals) in this regard. Therefore, in the interest of justice the order of the Commissioner (Appeals) is set aside on this aspect of the issue, and the matter is restored to the file of assessing officer for fresh adjudication after verifying the fact that whether it amounts to double addition or not. If it is found that it is a case of double addition, then the assessing officer is directed not to make separate addition on this account.
17. Ground No. 6, in both the appeals, relating to set off of losses has not been argued before us and, therefore, the same is dismissed as not pressed.
18. The last ground relates to deduction under Section 80P(2)(c)(ii).
it has been submitted by the learned Counsel for the assessee that the assessee is entitled to deduction of Rs. 50,000 in view of the above provisions. On the other hand, the learned Departmental Representative has submitted that no deduction is allowable in view of Sub-section (2)(f) of Section 80P.19. After hearing both the parties, we find merit in the submission of learned Counsel for the assessee. Section 80P(2)(c) reads as under: (c) in the case of a co-operative society engaged in activities other than those specified in Clause (a) or Clause (b); (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,- (i) where such co-operative society is a consumers' co-operative society, one hundred thousand rupees; and Explanation.-In this clause, "consumers' co-operative society" means a society for the benefit of the consumers; 20. A bare reading of the above provisions shows that in the case of co-operative society deduction of Rs. 50,000 would be allowable if the activity carried on by it does not fall under Clause (a) or Clause (b) of Sub-section (2) of Section 80P. Admittedly, the case of assessee does not fall within the provisions of Clause (a) or Clause (b) of Sub-section (2) of Section 80P.Therefore, the provisions of Clause (c) become applicable to the present case and consequently the assessee is entitled to deduction of Rs. 50,000. Clause (f) relied on by the learned Departmental Representative is applicable only with reference to income by way of interest on securities or income from house property chargeable under Section 22. Since the assessee has not claimed any deduction in respect of such income, the provisions of Clause (f) would not become applicable. In view of the above discussion, the assessing officer is directed to allow deduction of Rs. 50,000 under Section 80P.21. The assessee has also raised an additional ground in respect of assessment year 2001-02, which reads as under: On the facts and in the circumstances of the case and in law, the assessment order is non est and bad in law in as much as notice under Section 143(2) was issued only on 22-11 -2002, beyond time prescribed under Section 143(2)(ii) on the return of income filed on 27-9-2001.
22. The learned Counsel for the assessee has submitted that notice under Section 143(2) could not be issued after 30-9-2002, as such notice could be issued within a period of 12 months from the end of the month in which the return is filed. He drew our attention to the assessment order, to point out that the return of income was filed on 27-9-2001, while the notice under Section 143(2) was issued on 22-11-2002, which is after the expiry of 12 months from the end of the month in which the return is filed. Hence the entire assessment is without jurisdiction. On the other hand, it is pointed out by the learned Departmental Representative that the notice was under Section 143(2)(i) which does not specify any period of limitation.
22. After hearing both the parties, we admit the additional ground raised by the assessee, since it does not involve investigation into the facts and the issue is purely legal one. There is no dispute to the facts narrated by the learned Counsel for the assessee and is also apparent from the assessment order. Since the return was filed on 27-9-2001, the notice under Section 143(2)(ii) could be issued by 30-9-2002. Since the notice under Section 143(2) was issued on 22-11-2002, the same was beyond the prescribed period and, therefore, the assessment made in pursuance to such notice was without jurisdiction. No doubt, in the assessment order it is mentioned that notice was issued under Section 143(2)(i), but the same cannot be considered as notice under Section 143(2)(i), inasmuch as such notice was issued on the following grounds as mentioned in the assessment order: (a) The assessee being a Co-operative Society has not offered the transfer fee and donations received on account of transfer of flat, for tax during the year, and A perusal of the above grounds shows that notice was issued on the ground that the assessee has failed to offer income for taxation in respect of transfer fee and penal interest. On the other hand, the perusal of Section 143(2)(i) shows that notice under these provisions could be issued only where assessing officer has reasons to believe that any claim of loss, exemption, deduction, allowance or relief is inadmissible. Since such is not the case, the notice under Section 143(2)(i) could not be issued. Therefore, the notice issued to the assessee has to be legally treated as issued under Section 143(2)(ii), which was beyond the prescribed period of time mentioned in the proviso to Section 143(2)(ii). In view of the above discussion, the assessment for assessment year 2001-02 is held to be without jurisdiction.
Consequently, the assessment for assessment year 2001-02 is hereby cancelled.
23. In the result, I.T.A. No. 1488/Mum./04 is partly allowed, while I.T.A. No. 1489/Mum/04 is allowed.