Smt. Diva Singh, Judicial Member - The present appeals have been filed by the assessee against the separate orders dated 10.02.2009, 25.08.2008, 27.11.2011 & 27.01.2011 of the CIT(A), Ghaziabad; Gaziabad; Muzaffarnagar & Muzaffarnagar respectively. In seriatum they pertain to 2005-06, 2004-05, 1999-2000 & 2000-01 Assessment years. All these appeals are being decided by a common order as identical issues are raised therein. For ready reference, grounds raised in ITA NO.-2170/Del/2011 which is the first year in the present group of appeals is reproduced for ready reference:
"1. |
|
That the Order dated 27.01.2011 passed by the Commissioner of Income Tax (Appeals), Muzaffarnagar, rejecting the appeal of the Appellant Society 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. |
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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) |
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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) |
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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 respect and not even bothering to discuss the same in his Appellate Order. |
3. |
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That the action of the Commissioner of Income Tax (Appeals) in rejecting the appeal of the Appellant Society by passing such long order and not even discussing the full facts in the right perspective is totally unwarranted, uncalled for, bad in law and against the facts of the case as the major order is covered only through the reproduction of various submissions of the A.O. and Appellant. |
4. |
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That the action of the CIT(Appeals) in sustaining the income of the Appellant Society at Rs. 82,37,686/- as shown on page No.-21 of the Appellate Order is totally uncalled for and without any proper basis and facts of the case. |
5. |
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That the Appellant Order passed by the Ld. CIT(Appeals) is totally illegal, outside the scope of natural justice and has been framed in utter disregard of all norms of law and facts of the case ad CIT(Appeals) has greatly erred in rejecting the appeal of the appellant society. |
6. |
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That the Appellant seeks permission to add/amend any grounds of appeal at the time of hearing." |
2. At the time of hearing, it was contended by the Ld. AR that the issue in the present proceedings has to be decided only on the principles of mutuality as applicable to the facts of the assessee's case and it is not necessary to go ground-wise as the issue has to go back for considering the applicability of the judgement of the Jurisdictional High Court. The facts it was submitted have not been considered on account of non-cooperation on the part of the earlier Secretary of the assessee's Society as relevant documents could not be produced before the authorities as the said Secretary continued to hold those documents in his possession. It was submitted that now the management has changed as such the assessee's society is in a position to place all relevant documents. Accordingly, it was his prayer that the issue may be restored to the AO in the light of the judgement of the principles laid down by the Jurisdictional High Court in the case of CIT v. Talangang Co-operative Group Housing Society Ltd. [2011] 339 ITR 518/[2010] 195 Taxman 110 (Delhi).
2.1. On the said occasion though the Ld. DR had heavily relied upon the orders of the authorities below however he had no objection if the issue is decided in the light of the 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 the passing of the order by the AO, consequent to the order of the Tribunal dated 06.07.2007 in ITA No-1596/Del/2007 to 1602/Del/2007 for 1997-98 to 2003-04 assessment year (copy of placed at pages 274-283 of the paper book), the appeal before the CIT(A) due to change in jurisdiction due to administrative orders stood distributed amongst CIT(A), Muzaffarnagar and Ghaziabad. It was submitted that when the issue was restored by the ITAT to the AO, the appeals arising there from came to be fixed before different CIT(A)'s. Thus it is seen that out of the seven years, two years considered by the Tribunal in its order (cited supra) 1997-98 and 1998-99 assessment years are pending before the CIT(A) Muzzafarnagar. Apart from these two appeals, it was elaborated there are three more assessment years in between also namely i.e. 2001-02, 2002-03 & 2003-04 and these appeals are also pending before the CIT(A). On account of this peculiar position, it was submitted some years are decided and some are pending. The Ld. AR elaborated that on account of frequent change of jurisdiction from Ghaziabad to Muzaffarnagar, different CIT(A)'s are seized of the appeals as such they are still pending before two different CIT(A)'s.
2.4 In the peculiar facts and circumstances as addressed above which were not disputed by the Ld. CIT DR, the Ld. AR was required to address how and why the issue should be restored to the AO. In the circumstances, the Ld. AR modified his request for consideration of the Bench that the appeals may be respond to the CIT(A) instead of the AO. The Ld. AR gave his undertaking in the Court that he would ensure that the assessee participates and cooperates with the department and ensure that the hearing in the appeals are concluded.
2.5 It was his prayer that necessary facts are not on record as such in the interests of natural justice the issue may be remanded. The Ld. CIT DR had no objection to the request now being made for a remand to the CIT(A) instead of the AO however it was his submission that the assessee Society has been taking the stand that the earlier Secretary was responsible for embezzlement and for all the other violations in regard to the allotment of flats etc., the responsibility rests with the erstwhile office bearerers who have the possession of the documents. Consequently special audit had to be done. It was his argument that the assessee 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 reproduced here under :-
"3. The assessee in the present case is a cooperative society registered with the Registrar of Cooperative Housing Society, Uttar Pradesh on 16.3.1981 with the main object of construction of residential houses for its members through their contributions. It purchased land admeasuring 48 acres in the financial year 1981-82 for a consideration of about Rs. 38 lakhs. Out of the said land, 41.378 acre of land was acquired by Ghaziabad Development Authority and the remaining land of 6.622 acre available with the assessee society was utilized for construction of flats and duplex flats for its members. The said construction was done by the society in he year 1995 and onwards from the contributions received from its members. During this period, the assessee-society received non- refundable entry fees from its new members and also transfer charges for transfer of flats by the old members to the new members. The assessee-society also charged supervision fees from its members on cost of flats constructed by it and also recovered interest from the members for the delay in making the payments against construction work. No returns of income, however, were filed by the assessee during this period. A search u/s 132 was conducted at the office premises of the assessee on 7.12.2003 situated at Seemant Vihar, Sector-14, Kaushambi, Ghaziabad. During the course of search, certain loose papers and books of account were found and seized besides FDRs to the tune of Rs.1,04,64,134/-. Since no returns of income were found to be filed by the assessee-society till then, notices u/s 148/153A were issued by the AO for the years under consideration in response to which, returns were filled by the assessee for the first time on 31.3.2004 declaring the income as under :-
|
Assessment Year |
Income Returned |
|
1997-98 |
Rs.11,65,240/- |
|
1998-99 |
Rs.16,60,828/- |
|
1999-2000 |
Rs.8,99,380/- |
|
2000-01 |
Rs.46,280/- |
|
2002-03 |
Rs.98,700/- |
|
2003-04 |
Rs.6,15,350/- |
4. The aforesaid returns were stated to be filed under protest with a rider that some of the books of the society were lying in the possession of its ex- secretary Shri. R.P. Chaudhary and in the absence of the same, the figures declared in the returns were not final and were subject to change, if any, on the basis of the books being made available to it by the ex-Secretary. 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 into confidence by properly informing the exact details of information and documents received by the auditor from the ex-Secretary. The assessee-society thus refused to recognize he said audit report on the ground that the same was prepared on the basis of wrong and selective information provided by the ex-Secretary without giving sufficient opportunity to it of being heard in the matter."
3.1 The record would show that the submissions on facts which have been reproduced above on behalf of the assessee were objected to by the AO in each of these years in the first round who held that they were without any force and there was a failure on the part of the assessee to furnish the required information and documents including books of accounts for the purpose of audit as well as during the assessment despite being afforded several opportunities and the assessments were accordingly concluded u/s 144.
3.2 Aggrieved by this, the assessee in the first round for the seven years pleaded lack of opportunity and involved natural justice for a restoral back to the AO. As observed out of these 7 years, the first two assessment years are pending before the CIT(A) and the intervening three years (2001-02 to 2003-04 assessment years) are also pending before the CIT(A) and only two years are subject matter of the present proceedings apart from 2004-05 & 2006-07 assessment years which did not come up before the ITAT in the first round. In the batch of these 9 years namely 7 which were before the Co-ordinate Bench and 2 subsequent years which are now before us as per material available on record, it was contended that adequate opportunity of being heard had not been afforded either during the assessment proceedings nor during the conduct of the special audit in the first round before the AO. However, the CIT(A) rejected the appeals of the assessee in all the years.
3.3 Accordingly as observed aggrieved by this, the assessee came before the Tribunal in those seven years out of which two years are before us and the remaining five years are pending before the CIT(A) of different jurisdictions. The specific reasoning of the coordinate Bench for restoring the issue is reproduced from para 7 to para 10 from page 278-282 of the paper book:-
"7. We have heard the arguments of both the sides and also perused the relevant material on record. The learned counsel for the 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 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 account of the aforesaid Society for the assessment year 1997-98 to 2003-04 neither the ld. AO nor the Auditors M/s Anil Ram & Co., who were appointed to conduct the Special Audit under section 142(2)(A) of the I.T. Act 1961, ever informed the undersigned about the place and timings of the audit proceedings.
(4) That during the course of proceedings of the Special Audit, the Ex-Secretary of the society Shri Ram Pal Chaudhary was however called by the auditors and the auditors involved in the said proceedings.
(5) That the special auditors did not discuss the draft audit report/final audit report with the undersigned and they submitted the special audit report directly to the Ld. A.O.
(6) That the Ex-Secretary Shri Ram Pal Chaudhary himself had admitted on 23.03.2005 in his signed statement recorded by the ld. A.O that the entire vouchers/books of accounts since 1981 are in his possession and that he had not handed over the record of the society to the new Secretary.
(7) That the previous Secretary Shri Ram Pal Chaudhary has himself admitted in an affidavit filed by him on 19.09.2005 in the court of ld. Civil Judge (Jr. Division) Ghaziabad, that he had not handed over the charge of the society to the new Secretary and that the office of the society is still in his possession.
(8) That despite the facts as stated in para 6 and 7 above, the ld. A.O with a biased mind repeatedly and unnecessarily pressurized us to produce the books of accounts/vouchers etc. of the society which were not in our possession.
(9) That the special auditors for the reasons best known to them only have committed several irregularities in the special audit reports prepared by them and have also indulged in professional misconduct which are highly detrimental to the interest of the society.
(10) That the society had already filed a complaint on 10.01.2006 against the special auditors, with the Institute of Chartered Accountants of India New Delhi, under section 21 of the Chartered Accountant Act 1949 in the matter of professional misconducts of the auditors and in the matter of irregularities committed by them in the special audit report and that the 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 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 the assessment u/s 144 relying on the report of such audit without giving sufficient opportunity to the assessee of being heard. He has contended that the said assessments completed in violation to the principles of natural justice, therefore, may be set aside and the matter be restored to the file of the AO for completing the same afresh after giving sufficient opportunity to the assessee of being heard.
9. The learned DR, on the other hand, has submitted that sufficient opportunity was given to the assessee-society to put forth its case during the course of special audit u/s 142(2A) as well as during the course of assessment proceedings, but there was failure on its part to comply with the notice issued in this regard as pointed out by the authorities below in their orders. He has contended that it is, therefore, not a case where sufficient opportunity has not been given to the assessee and if at all the matter is to be sent back to the AO for fresh assessments, the assessee may be directed to extend all the cooperation.
10. After considering the rival submissions and pursuing the relevant material on record, we are of the view that the documentary evidence placed by the assessee on record is sufficient to show that the special audit was conducted and completed by the auditors without giving proper and effective opportunity to the assessee of being heard. As stated by the assessee-society in the returns of income itself, the books of account available with it were not complete inasmuch as some of them were lying in the custody of Shri Ram Pal Chaudhary, ex-Secretary. Moreover, the books of account to the extent available in its office premises at the time of search had been admittedly seized by the Department and the assessee-society was having only Photostat copies thereof available with it. The entire set of books of accounts thus was not available at one place and if at all the books of account as available with Shri Ram Pal Chaudhary had been produced by him before the auditors, the same was not confronted to the assessee. The information and documents furnished by Shri Ram Pal Chaudhary during the course of 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 cross-examine 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 proper and in the interest of justice to set aside the orders of the authorities below and restore the matter to the file of the Assessing Officer with a direction to complete the assessments afresh after giving sufficient opportunity to the assessee of being heard. The assessee is also directed to extend full cooperation to the AO and produce/furnish all the documents and information including the books of account available with it as required by the AO for the purpose of the said assessments."
3.4 Consequent to the said direction of AO in the years before us referring to the directions of the ITAT wherein the assessee was directed to extend full cooperation to the AO for producing, furnishing of the documents, information including the books of accounts available with it, required the assessee to produce the relevant documents. It is seen that despite various opportunities, the assessee society was not represented before the AO who accordingly completed the assessee on the basis of material and facts before him. The said issue was agitated before the CIT(A) who confirmed the action of the AO.
3.5 In the light of the above facts and arguments and submissions advanced before us, we consider it appropriate to first address the argument that the issue has to be decided in the light of the principles laid down by the Jurisdictional High Court which is stated to be the Hon'ble Delhi High Court. On the facts of the present case, we are of the opinion that the Jurisdictional High Court would be the Hon'ble Allahabad High Court and not the Hon'ble Delhi High Court. It is seen that the present case pertains to a Registered Co-operative Society registered in Ghaziabad (Uttar Pradesh) and situated in Ghaziabad as such assessment and Appellate orders were passed in Ghaziabad, Muzaffarnagar etc. accordingly. The jurisdiction of all Benches of the ITAT including the Delhi Benches is derived from the standing orders under the Income Tax (Appellate Tribunal) Rules 1963. For ready-reference, we reproduced the relevant portion :-
"In pursuance of sub-rule (1) of rule 4 of the Income-tax (Appellate Tribunal) Rules, 1963, 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 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 |
x |
x |
|
14. |
Indore Bench(1) |
x |
x |
x |
x |
x |
|
15. |
Jabalpur Bench(1) |
x |
x |
x |
x |
x |
|
16. |
Jaipur Bench(1) |
x |
x |
x |
x |
x |
|
17. |
Jodhpur Bench(1) |
x |
x |
x |
x |
x |
|
18. |
Mumbai Bench(10) |
x |
x |
x |
x |
x |
|
19. |
Nagpur Bench(1) |
x |
x |
x |
x |
x |
|
20. |
Panaji Bench(1) |
x |
x |
x |
x |
x |
|
21. |
Patna Bench(1) |
x |
x |
x |
x |
x |
|
22. |
Pune Bench(1) |
x |
x |
x |
x |
x |
|
23. |
Rajkot Bench(1) |
x |
x |
x |
x |
x |
|
24. |
Vishakhapatnam Bench(1) |
x |
x |
x |
x |
x |
|
25. |
Lucknow(1) |
x |
x |
x |
x |
x |
|
26. |
Bilaspur Bench(1) |
x |
x |
x |
x |
x |
|
27. |
Ranchi Bench(1) |
x |
x |
x |
x |
x" |
3.6 Accordingly it is seen that sitting at the Delhi Benches, the Jurisdictional High Court for the purpose of the orders passed can be the Hon'ble Delhi High Court, the Hon'ble Punjab & Haryana High Court, the Hon'ble Allahabad High Court and the Hon'ble Uttarakhand High Court. The decision of each High Court is binding on the Tribunal and the Income Tax Authorities situated in the area over which the High Court has jurisdiction. Since the assessment in the present appeals pertaining to Ghaziabad, the Jurisdictional High Court in the present case would be the Hon'ble Allahabad High Court. Accordingly the argument of the Ld. AR that the issue has to be decided in terms of the decisions of the Jurisdictional High Court i.e. the Hon'ble Delhi High Court is not correct.
3.7 Having thus set out the legal position qua the Jurisdictional High Court, we may note that even though the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunal outside its territorial jurisdiction, it is conducive to judicial discipline and uniformity in the administration of the law if the law propounded by non-jurisdictional High Court on some issues are accepted as precedents by the Tribunal with respect to similar issues in the absence of any judgement to the contrary passed by the Jurisdictional High Court in view of the settled principle of law that the decisions of the higher authority is binding on the lower authorities in the judicial 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 Talangang Co-operative Group Housing Society Ltd. (supra) 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 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 short-term capital gains and the amounts spent on the dust bins for the garden etc. was held as capital in nature.
3.8.4 The CIT (A) upheld the action of the Assessing Officer, however, the Tribunal, taking into consideration the order of the Mumbai Bench in the case of Shree Parleshwar Co-operative Housing Society Ltd. v. ITO [2006] 8 SOT 668, held that the principle of mutuality is applicable inasmuch as clause 8 of the Objects of the society as worded showed that it goes a long way to allow the assessee society to do all such things which are incidental or conducive to attain any or all of the other objects; and the clauses of the bye-laws require the Society to develop and construct the residential houses/flats for the members and to provide common amenities and facilities as may be found practicable by the DDA and the MCD and such other facilities and, therefore, according to their Lordships the doctrine of equalization gets attracted.
3.8.5 In regard to the maintenance fund and entry fee from the power of attorney holders, it was found that it was in direct relation with members of the society and the funds already colleted from the members of the society and the shops having been constructed within the premises of the society and having been approved by the concerned government authority, the Tribunal concluded that it could be irresistibly concluded that the shops were constructed to cater to the needs of the members of the society only. Therefore, the Tribunal held that the principle of mutuality would get attracted.
3.8.6 Regarding the issue of interest, the Tribunal held the principle of mutuality would also apply as it is receivable from the members of the society.
3.8.7 Regarding the capitalization of cost of purchases of the dust bins, benches, etc., the Assessing Officer was directed to grant depreciation on the capitalized amount.
3.8.8 Thus, the additions made on account of equalization charges, maintenance 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 DIT v. All India Oriental Bank of Commerce Welfare Society [2003] 130 Taxman 575 wherein the applicability of Chelmsford Club v. CIT [2000] 243 ITR 89/109 Taxman 215 (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 for the convenience of the members, in other words as an instrument obtained to their mandate; and the impossibility that the contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves is established, the doctrine of mutuality is established."
3.8.10 Accordingly taking into consideration the said judgment and the facts as recorded by the Tribunal, their Lordships were of the view that the Tribunal has appreciated that the member, who was registered earlier and the member who got registered later on cannot stand on the same footing. The earlier member had paid less amount as compared to a member who joined subsequently, but this fact did not really affect the nature of the society or the transactions with such members and the principle of mutuality was held to be still attracted as the character of the society cannot be said to have changed.
3.8.11 Regarding the activities of the society, the Hon'ble High Court upheld the reasoning of the Tribunal which had held that the bye-laws clearly and categorically support that the assessee society is entitled to do all such things which are incidental or conducive to attain any or all of the other objects and the bye-laws clearly exposit that it is for the development and construction of residential houses, flats for the members and to provide them necessary common amenities and facilities as may be found practicable by DDA and MCD and other such authorities, thus, the society catering to the needs of the members having constructed the shops wherein no outside consumers are allowed, the principle of mutuality was fully held to be applicable.
3.8.12 Regarding the interest derived from the deposits made by the society out of the considerations made by the members of the society, relying upon the decision in All India Oriental Bank of Commerce Welfare Society's case (supra) which has held that once 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 judgments of the Courts on the principle of mutuality. Reference may be made to the Hon'ble Delhi High Court in the case of CIT v. Delhi Gymkhana Club Ltd. [2011] 339 ITR 525/198 Taxman 207/10 taxmann.com 114 which has taken cognizance of the judgment rendered in Talangang Co-operative Group Housing Society Ltd.'s case (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 Housing Society v. ITO [2009] 182 Taxman 346 (Bom.) and the judgment of the Hon'ble Madras High Court in the case of Madras Gymkhana Club v. Dy. CIT [2009] 183 Taxman 333.
3.11 A perusal of the judgement rendered by the Hon'ble Bombay High Court in the case of Sind Co-operative Housing Society (supra) 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 conclusion that the amount could be appropriated only at the time when the transferee is admitted as a member and in case the transferee is not admitted as a member, the amount received will have to be refunded. Accordingly their Lordship considering the bye-laws of the society were of the view that the only activity of the co-operative housing society was to maintain the property owned by it and to render services to its members by way of usual privileges, advantages and conveniences, it was held that there was no profit motive involved in these activities as the amount legally chargeable was received which goes into the fund of the society which was utilized for the repairs of the property and common benefits to its members.
3.11.2 The argument of the Revenue that there can be different classes of members i.e., members and associate members was also not accepted as it was held that the classes may be diminished by the members going out or increased by the members coming in but the class remains the same. For the said view judgement of the Hon'ble Apex Court in the case of CIT v. Bankipur Club Ltd. [1997] 226 ITR 97/92 Taxman 278 was followed wherein it was held that the identity must be as a class of contributors and participants and it does not matter that the class may be diminished or increased by members going out or coming in.
3.11.3 Their lordships further took into consideration the arguments advanced by the revenue that the payment of transfer fees was not voluntary. Their Lordships were of the view that whether the payment was voluntary or not, it would not make any difference to the principle of mutuality as the payments were made under the bye-laws which constituted a contract between the society and its members. The same was voluntarily entered into and voluntarily conducted as a matter of convenience and discipline for running of the society and their Lordships held that in case the amounts more than permissible under the 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 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 Accordingly on a consideration of the principles laid down by the High Courts and the Apex Court, it can be seen that first and foremost it is necessary to consider the Objects of the Society and the bye-laws by which is governed. The Rules & Regulations of the State Co-operative Society Act under which it is registered is also necessarily required to be seen as the bye-laws of the Society at the time of Registration or as modified as per law need consideration. Along with the above factual specific information and examination there on the applicability on the facts of the society of the relevant Rules & Regulations of the specific state Co-operative Act and notifications issued thereunder need a consideration and only after examination of the specific fact in each of the years, the conclusion can be drawn. Thus after thrashing out the facts the following tests need to be considered in order to decide whether the Co-operative Housing Society can be said to be governed by the principles of mutuality or not:
| (1) |
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Is there any commerciality involved? - This has to be found out from the bye-laws of the co-operative housing society. The nature of activity and the purpose as per the bye-laws can only address whether the activity is having a taint of commerciality or not. |
(2) |
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From the moneys received, are the services offered in the nature of profit sharing or privileges, advantages and conveniences? For this aspect again the bye-laws and Rules of the society need to be seen as to what is permissive and for what purpose and then what has been actually done by the society? |
(3) |
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Are the participants and contributors identifiable and belong to the same class in the case of co-operative housing society? This is a factual matter which needs to be examined and established. |
(4) |
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Do the members have the right to share in the surplus and do they have a right to deal with its surpluses? For 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's case (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 see how the funds were generated by way of contributions, donations, etc. from the members of the outsiders but also how they were expended and only if it is shown that the utilization of such funds were with a view to further the object of providing various recreational and other facilities to the members and only then it can be held that the principle of identity between the contributors and the participators was fulfilled which is the basic requirement in the concept of mutuality of the enterprise.
3.15 Thus, after considering various judgments on the issue in the facts of the present case, it is necessary that the objects of the group housing society are considered and the bye-laws drawn thereunder by which the society accepts to be governed are necessary facts which need to considered. The applicability of the Ghaziabad Development Authority and any other regulatory authorities under which it is governed needs also to be necessarily taken into consideration.
3.16 A perusal of the judgment rendered by the Hon'ble Mumbai High Court in the case of Sind Co-operative Housing case (supra) which we have discussed at length would show that their Lordships held that in case there are any violations in regard to the collection of payments over and above the permissible limit as stated under the byelaws of the group housing society created under the State Co-operative Societies Act where payments are collected under coercion or in other manner, Section 72 of the Indian Contract Act would be applicable.
3.17 Similarly, as discussed the Hon'ble Delhi High Court in Talagang Co-operative Group Housing Society Ltd.'s case (supra) has held that in the facts before it there was nothing to show that the funds of the society were diverted for any other purpose. The said caution and observation in the judgement relied upon by the assessee cannot be treated lightly and casually and has to be given due importance. In 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 Co-operative 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 bye-laws, 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, mis-management etc, what actions have been taken by the Society has not been addressed and it is a necessary and relevant fact which needs consideration for deciding the issue. These facts need a demonstration on the part of the assessee and necessary evidences if any need to be placed on record before the CIT(A).
4. Accordingly for the reasons given hereinabove on facts and circumstances and position of law as considered in the light of the arguments advanced by the parties before the bench, we are of the view that it is necessary and appropriate in the circumstances to restore the issue back to the file of the CIT(A) for decision afresh on the issues before it. Since admittedly necessary and relevant facts are not on record the Ld. CIT(A) shall entertain fresh evidences which the assessee shall file and the ld. CIT(A) shall also give an opportunity to the AO by way of Remand report and also a reasonable opportunity of hearing before deciding the issue. Needless to say that the assessee should be afforded a reasonable opportunity of being heard. The grounds and issues as such are restored.
5. Before parting we consider it appropriate and deem it necessary to observe on account of the peculiar facts and circumstances with which we are seized and were also apprised of namely the appellate order in 2 of the appeals before us is passed by the CIT(A), Ghaziabad and for the other 2 years is passed by CIT(A), Muzzafarnagar. In these peculiar facts when the issues are being restored to the CIT(A), we consider it appropriate to request the Competent Authority of the CBDT to issue appropriate orders/instructions for consolidating the appeals before any one CIT(A) either Muzzafarnagar or Ghaziabad so as to have a cohesive and proper adjudication on the issues involved.
6. In the result, the appeals of the assessee are allowed for statistical purposes.