Commissioner Of Income Tax-Iii, Ludhiana v. I.t.a

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: May 26, 2010 1.I.T.A. No. 415 of 2009 (O&M) Commissioner of Income Tax-III, Ludhiana …Appellant VersusLudhiana Aggarwal Co-operative House Building Society Ltd., Ludhiana.…Respondent 2.I.T.A. No. 416 of 2009 (O&M) Commissioner of Income Tax-III, Ludhiana …AppellantVersusLudhiana Aggarwal Co-operative House Building Society Ltd., Ludhiana.…Respondent CORAM:HON'BLE MR. JUSTICE M.M. KUMARHON'BLE MR. JUSTICE JITENDRA CHAUHAN Present:Mr. Vivek Sethi, Advocate,for the appellant. 1.To be referred to the Reporters or not?2.Whether the judgment should be reported inthe Digest?2.Whether the judgment should be reported inthe Digest? M.M. KUMAR, J. This order shall dispose of ITA Nos. 415 and 416 of 2009 as therevenue has attacked a common order dated 24.9.2008, passed by the IncomeTax Appellate Tribunal, Chandigarh Bench ‘A’, Chandigarh (for brevity, ‘theTribunal’), in ITA No. 171/Chandi/2008 and ITA No. 285/Chandi/2008, inrespect of the same assessee for two different assessment years, namely,2002-03 and 2001-02 respectively, by filing the instant appeals under Section260A of the Income-tax Act, 1961 (for brevity, ‘the Act’). The revenue hasclaimed that the following substantial question of law would arise fordetermination of this Court:- “Whether on the facts and in the circumstances of the case, theITAT was rightly holding the donation of Rs. 20,50,000/- being donation and Rs. 1,46,200/- being TDS debited to P&L Account,as capital receipts not liable for tax?” 2.The assessee-Ludhiana Aggarwal Cooperative House BuildingSociety is engaged in providing housing facilities and other allied servicessuch as maintenance, repair of roads, common facilities viz. parks, roads,water facility, community centre etc. to its members. It also runs a schoolnamed as ‘Tagore Public School in the premises of the Society itself. TheSociety filed its return on 31.10.2002 declaring nil income. As per the auditreport along with profit and loss account, the Society shown to have earnedprofit of Rs. 22,15,687/-. The net profit from Tagore Public School is shownas per profit and loss account as Rs. 30,95,555/-. The amount of profit of Rs.22,15,687/- shown in the return was claimed to be exempt under Section 80-P. The revenue has alleged that income from school was neither offered fortaxation nor exemption under the Act was ever sought in the preceding yearsand it was not exempted under Section 10(23C)(iiiad) of the Act. 3.The Assessing Officer completed assessment on 18.10.2006under Section 143(3)/147 at a total income assessed at Rs. 25,42,490/- (A-1).The assessee-respondent filed an appeal before the CIT(A), Ludhiana, whopartly allowed the appeal by giving the relief of 50% of income of TagorePublic School holding the same to be exempt on the principle of mutuality.The CIT(A) further deleted the addition of Rs. 20,50,000/- and Rs. 1,46,200/-made by the Assessing Officer on account of donation and TDS debited toprofit and loss account. It also directed the Assessing Officer to excludefrom the income of the assessee by holding these receipts to be capitalreceipts (A-2). 4.Feeling dissatisfied, the revenue filed an appeal before theTribunal against the order of the CIT(A), Ludhiana. The Tribunal has upheld 4.Feeling dissatisfied, the revenue filed an appeal before theTribunal against the order of the CIT(A), Ludhiana. The Tribunal has upheld the view of the CIT(A) in respect of donation of Rs. 20,50,000/- and alsodeletion of Rs. 1,46,200/-, made by the Assessing Officer on account ofdonation and TDS debited to profit and loss account. A direction has beenissued to the Assessing Officer to treat these amounts as capital receiptsexempt from tax. The CIT(A) has recorded a categorical finding that a sumof Rs. 9,51,500/- out of the total amount of Rs. 30,01,500/- is considered astransfer fee. The aforesaid amount has been regarded as income of theassessee-respondent by the Assessing Officer but the same has also beenconsidered as exempt on the basis of principle of mutuality. In that regardthe CIT(A) has followed the order passed by the Tribunal in the assessee’sown case. With regard to remaining amounts a categorical finding of fact hasbeen recorded by referring to the copies of the receipts issued by the assesseeSociety that these amounts were one time payments received on account ofdonation for development account. The Assessing Officer had excluded Rs.15,00,000/- from the income of the assessee Society being the amountreceived from the Punjab Government on account of infrastructure funddonation. On the same reasoning the one time donation received by theassessee Society for development account should have been considered ascapital receipt and not as its income. On the basis of the aforesaid finding offact, the Assessing Officer was directed to exclude from the income of theassessee Society the amount other than Rs. 9,51,500/- out of Rs. 20,50,000/-and further Rs. 1,46,200/- to be capital receipts, as has been done in respectof the amount of Rs. 15,00,000/- received by the assessee Society from thePunjab Government.5.We have heard learned counsel at a considerable length and haverepeatedly asked him to explain as to how the donation of Rs. 20,50,000/-and Rs. 1,46,200/- being TDS would not be regarded as capital receipts and how it would be assessable to tax. Mr. Vivek Sethi has not been able toanswer the aforesaid query. Whether a particular amount would be regardedas capital receipt or income receipt is a question of fact which is determinedby referring to various factors. The doctrine of mutuality has been applied tothe assessee Society on the ground that no one can make a profit out ofhimself. It has been found as a fact that when a number of persons combinetogether and contribute to a common fund for an object and in that regardthey do not have any dealings or relations with anybody outside the bodythen any surplus remaining to such a body is not to be regarded as a profit.Accordingly, if the participators to the fund are also the contributors and suchan identity is established then the test of mutuality is fulfilled. Admittedly,the assessee Society is not engaged in any commercial activity and derives itsincome from providing facilities to its members, be it be the maintenance ofcommon area facilities, electricity, parks etc. Such an income has been heldto be exempt on the principle of mutuality in respect of the assessment years1978-79, 1979-80 and 1990-91. The income is received from running theschool by the assessee Society. The school is being run by the Society for thechildren of its members and any surplus remaining of the school attract theprinciple of mutuality. Any dealing done by the assessee Society or by theschool with the non-members would not attract the principle of mutuality.The assessee Society has been given the benefit of mutuality in case it isfound to be so. 6.The other issue is regarding the direction issued to the AssessingOfficer to allow carry forward loss/depreciation in respect of assessmentyears 1999-2000 and 2000-01. The assessee Society submitted that after theorder of the CIT(A) the Assessing Officer has passed the order allowing thelosses to be carried forward in respect of assessment years 1999-2000 and 6.The other issue is regarding the direction issued to the AssessingOfficer to allow carry forward loss/depreciation in respect of assessmentyears 1999-2000 and 2000-01. The assessee Society submitted that after theorder of the CIT(A) the Assessing Officer has passed the order allowing thelosses to be carried forward in respect of assessment years 1999-2000 and 2000-01. Even the department representative did not contest the aforesaidground seriously. 7.Having heard the learned counsel we have not been able topersuade ourselves to conclude that any question of law much less asubstantive question of law would arise for determination of this Court. Thequestion whether a particular sum is a ‘capital receipt’ or otherwise isnecessarily a mixed question of fact and law. Once the Assessing Officer hasexcluded Rs. 15,00,000/- received from Punjab Government on account ofinfrastructure fund donation then it follows that donations received by theassessee Society for development account from other have to be regarded as‘capital receipt’. Accordingly, the orders passed by the CIT(A) and theTribunal are not open to challenge. Therefore, no substantive question of lawwithin the meaning of Section 260A of the Act would arise warrantingadmission of these appeals. The appeals are wholly without merit an thesame are accordingly dismissed. 8.A photocopy of this order be placed on the file of connectedcase. (M.M. KUMAR)JUDGE (JITENDRA CHAUHAN) JUDGE