SUBHASH SAGAR, MUMBAI v. ITO 11(1)(4), MUMBAI

ITA 1189/MUM/2010 | 2006-2007
Pronouncement Date: 29-07-2011 | Result: Allowed

Appeal Details

RSA Number 118919914 RSA 2010
Assessee PAN ABEPS4121M
Bench Mumbai
Appeal Number ITA 1189/MUM/2010
Duration Of Justice 1 year(s) 5 month(s) 13 day(s)
Appellant SUBHASH SAGAR, MUMBAI
Respondent ITO 11(1)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 29-07-2011
Date Of Final Hearing 18-07-2011
Next Hearing Date 18-07-2011
Assessment Year 2006-2007
Appeal Filed On 15-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D : MUMBAI BEFORE SHRI R.V. EASWAR (PRESIDENT) AND SHRI RAJENDRA SINGH (ACCOUNTANT MEMBER) ITA NO.1189/MUM/2010 ASSESSMENT YEAR :2006-07 MR. SUBHASH SAGAR (THROUGH LEGAL HEIR MR. JYOTI SAGAR) SAGAR VILLA ROAD NO.12A JVPD SCHEME VILE PARLE(W) MUMBAI-400 049. ..( APPELLANT ) P.A. NO. (ABEPS 4121 M) VS. INCOME TAX OFFICER WARD-11(1)(4) MUMBAI. ..( RESPONDENT ) ITA NO.1984/MUM/2010 ASSESSMENT YEAR :2006-07 INCOME TAX OFFICER WARD-11(1)(4) MUMBAI. ..( APPELLANT ) VS. MR. SUBHASH SAGAR (THROUGH LEGAL HEIR MR. JYOTI SAGAR) MUMBAI-400 049. ..( RESPONDENT ) ASSESSEE BY : SHRI ARUN SATHE DEPARTMENT BY : SHRI C .G.K. NAIR O R D E R PER RAJENDRA SINGH (AM). THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 4.12.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. T HESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A SI NGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1189 & 1984/M/10 A.Y:06-07 2 2. FIRST WE TAKE UP APPEAL OF THE ASSESSEE IN ITA NO.1189/MUM/2010. IN THIS APPEAL ASSESSEE HAS RAISED DISPUTE ON TWO GROUNDS. 2.1 THE FIRST DISPUTE IS REGARDING ADDITION ON ACCOUNT O F HOUSE PROPERTY INCOME. THE ASSESSING OFFICER NOTED THAT THE ASSE SSEE OWNED A FLAT AT DELHI IN RESPECT OF WHICH RENTAL INCOME SHOWN WAS ONLY RS.20 000/- WHEREAS THE MUNICIPAL TAX WAS TO THE TUNE OF RS .22 109/-. THE ASSESSING OFFICER THEREFORE ASKED THE ASSESSEE TO EXPLAI N AS TO WHY MARKET VALUE SHOULD NOT BE ADOPTED IN RESPECT OF R ENT FROM THE PROPERTY. AS PER ASSESSING OFFICER THE ASSESSEE DID NOT GIV E ANY REPLY AND THEREFORE HE PROCEEDED TO ESTIMATE THE ANNUAL VA LUE OF THE PROPERTY. THE ASSESSING OFFICER NOTED THAT INVESTMENT IN THE PROPERTY AS ON 31.3.2006 OF RS.18 93 966/-. HE COMPUTED THE ANN UAL VALUE OF THE PROPERTY ON THE BASIS OF RETURN OF 8% ON THE INVE STMENT WHICH CAME TO RS.1 51 517/-. AFTER DEDUCTING MUNICIPAL TAXES AND AFTER MAKING ALLOWANCE OF 30% FOR REPAIRS THE INCOME FROM T HE HOUSE PROPERTY WAS COMPUTED AT RS.90 586/- WHICH WAS DISPUTED BY THE ASSESSEE. IN APPEAL THE ASSESSEE SUBMITTED THAT THE PROPERT Y HAD BEEN LET OUT FOR THE LAST 9-10 YEARS. IT WAS ALSO SUBMI TTED THAT THE MUNICIPAL AUTHORITIES HAD FOUND PART OF THE CONSTRUCTIO N AS ILLEGAL AND THEREFORE DEMOLISHED THREE BEDROOMS OUT OF FIVE BED ROOMS. THE PROPERTY WAS NOT IN HABITABLE CONDITION AND THEREFOR E RENT OF ONLY RS.1.00 LACS WAS CHARGED IN WHICH SHARE OF THE ASSESSEE WAS RS.20 000/-. THE CIT(A) HOWEVER DID NOT ACCEPT THE E XPLANATION AND OBSERVED THAT ANNUAL VALUE SHOWN WAS INADEQUATE CONSIDER ING THE PROPERTY WAS LOCATED AT SAFDARJUNG ENCLAVE EXTENSION NEW DELHI. CONSIDERING THAT THE PROPERTY HAD BEEN PARTIALLY DAM AGED CIT(A) ITA NO.1189 & 1984/M/10 A.Y:06-07 3 ESTIMATED THE ALV @ 5% OF THE INVESTMENT WHICH CAME TO RS .94 698/- . THE MUNICIPAL TAX AND OTHER EXPENSES WERE FOUND TO BE PAYABLE BY THE TENANT. THE CIT(A) HELD THAT THESE EXPENSES WERE THEREFORE NOT ALLOWABLE AND INCOME FROM PROPERTY WAS COMPUTED ACCORDI NGLY AGGRIEVED BY WHICH ASSESSEE IS IN APPEAL BEFORE THE TRIBU NAL . 2.2 BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT PROPERTY WAS IN A BAD CONDITION AND PART OF WHICH HAD ALREADY BEEN DEMOLISHED. THE PROPERTY HAD ALREADY BEEN LAID OUT. THE MUNICIP AL RATABLE VALUE WAS RS.77 000/- AGAINST WHICH RENT CHARGED BY THE ASSESSEE WAS RS.1.00 LACS. THERE WAS NO MATERIAL SHOWING THAT THE MA RKET RATE WAS HIGHER. IT WAS ACCORDINGLY URGED THAT ALV DECLARED BY T HE ASSESSEE SHOULD BE ACCEPTED. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF CIT(A). 2.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING COMPUTATION OF ANN UAL VALUE OF THE PROPERTY. THE ANNUAL VALUE HAS BEEN DEFINED AS THE SUM FOR WHICH THE PROPERTY CAN BE LET OUT FROM YEAR TO YEAR AND IN CASE PROPERTY IS LET OUT AND RENT RECEIVED IS MORE THEN THE ACTUAL RENT R ECEIVED . IN THIS CASE THE RENT CHARGED FOR THE PROPERTY WAS RS.1.00 LACS. THE PROPERTY WAS ALREADY TENANTED. THE MUNICIPAL RATABLE VALUE IS R S.77 000/-. THE PROPERTY HAD BEEN FOUND TO BE ILLEGALLY CONSTRUCTED B Y THE MUNICIPAL AUTHORITIES WHO HAVE ALREADY DEMOLISHED PART OF THE P ROPERTY. THERE IS NO MATERIAL PLACED ON RECORD BY THE REVENUE TO SHOW THAT FAIR RENT OF THE PROPERTY IN THE AREA WILL BE MORE THAN THE RENT CHARGED BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES THE ORDER OF THE CIT(A) SUSTAINING THE ALV AT A HIGHER RATE CANNOT BE UPHELD. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ITA NO.1189 & 1984/M/10 A.Y:06-07 4 ASSESS THE PROPERTY INCOME ON THE BASIS OF ALV DECLARED BY THE ASSESSEE. 3. THE SECOND DISPUTE ON WHICH REVENUE HAS ALSO FILED APP EAL IS REGARDING ADDITION OF RS.15.00 LACS TO THE TOTAL INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER UNDER SECTION 56(2)(VI). THE ASSE SSEE IS A MEMBER OF NEW INDIA CO-OPERATIVE HOUSING SOCIETY LTD. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE DURING THE YEAR H AD RECEIVED A SUM OF RS.15.00 LACS FROM THE SOCIETY AS PER DETAILS BEL OW:- DATE ASSESSMENT YEAR AMOUNT GIFTED (RS.) 1.10.05 2006-07 10 00 000/- 24.05.05 2006-07 5 00 000/- 3.1 THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS T O WHY THE AMOUNT RECEIVED FROM SOCIETY SHOULD NOT BE ASSESSED AS INCOME. THE ASSESSEE EXPLAINED THAT HE ALONG WITH OTHER MEMBERS HAD BEEN ALLOWED REIMBURSEMENT OF INSECTICIDE SERVICES FOR TERMITES RODENTS ETC. REQUIRED IN THEIR HOUSES AND ADJOINING AREAS/GARD EN FOR REPAIRS OF SEWAGE LINES/RENOVATION AND REPAIRS OF SEWAGE LINES A ND THE BUILDING FRONTAGE AND COMPOUND WALLS. THE ASSESSEE HAD SPENT THE A MOUNT FOR SPECIFIC PURPOSES AND HAD DECLARED THE SAME AS DRAWINGS IN T HE RETURN AND NOTHING REMAINED UNSPENT. IT WAS ARGUED THAT THE AMOUNTS RECEIVED BY THE ASSESSEE AS REIMBURSEMENT OF SPECIFIED EXPEN SES WERE NOT TAXABLE. THE ASSESSING OFFICER HOWEVER WAS NOT SATISF IED BY THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT THE E XPENSES WERE PURELY PERSONAL EXPENSES OF THE ASSESSEE. IT WAS ALSO OBSERV ED BY HIM THAT THE DAMAGES WERE NOT EXCLUSIVELY TO ASSESSEES PRO PERTY BUT THAT OF THE SOCIETY AS A WHOLE AND THEREFORE IT WAS THE SOCIETY WHO WAS TO SPEND MONEY FOR REPAIRS AND RENOVATIONS UNDER I TS SUPERVISION. ITA NO.1189 & 1984/M/10 A.Y:06-07 5 THE ASSESSEE HAD RECEIVED THE AMOUNT BY VIRTUE OF HIS SPE CIAL RELATIONSHIP WITH THE SOCIETY AS MEMBER AND THEREFORE THE SAME PARTOOK THE CHARACTER OF INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER ALSO OBSERVED THAT THE SOCIET Y HAD NOT MADE PAYMENTS FROM CONTRIBUTIONS RAISED FROM THE MEMBER S. HE REFERRED TO THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF P. KRISHNA MENON VS. CIT (1959)( 35 ITR 48) IN WHICH IT WAS HELD THAT GIFT RECEIVED BY A PERSON BY VIRTUE OF HIS OFFICE IS IN COME IRRESPECTIVE OF THE FACT WHETHER THE SAME WAS VOLUNTARY OR COMPULSORY . ALTERNATIVELY THE ASSESSING OFFICER ALSO OBSERVED THAT THE AMOUNT RECEIVED COULD BE CONSIDERED AS GIFT WHICH HAD TO BE TA KEN AS INCOME UNDER SECTION 56(2)(VI) AS SOCIETY WAS NOT A RELATIVE OF THE ASSESSEE. THE PAYMENT ASSESSING OFFICER FURTHER OBSERVED COULD ALSO BE CONSIDERED AS DIVIDEND AND SINCE THE SOCIETY HAD NOT PAID THE DIVIDEND DISTRIBUTION TAX THE SAME COULD NOT BE EXEMPT UNDER SECT ION 10(34). THE ASSESSING OFFICER FINALLY ASSESSED INCOME AS INCOME FROM OTHER SOURCES. 3.2 THE ASSESSEE DISPUTED THE DECISION OF THE ASSESSING OFFICE R AND SUBMITTED BEFORE CIT(A) THAT THE SOURCE OF PAYMENT BY THE SOCIETY WAS THE MONEY RECEIVED FROM MEMBERS AS TRANSFER FEE ET C. THE PRE- DOMINANT ACTIVITY OF THE ASSESSEE WAS MAINTENANCE OF THE P ROPERTY AND THEREFORE THE PRINCIPLE OF MUTUALITY WOULD APPL Y UNLESS IT WAS PROVED THAT THE TRANSACTION WAS TAINTED WITH COMMERCIALI TY TRADE OR BUSINESS. IN THIS CASE THE AMOUNT HAD BEEN UTILIZED FOR THE MAINTENANCE OF PROPERTY DAMAGED DUE TO NATURAL CALAMI TIES AND THEREFORE THERE WAS NO TRADE/COMMERCIAL ANGLE. HE REF ERRED TO THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CI T VS. SIND CO-OPERATIVE HOUSING SOCIETY LTD. (317 ITR 47). THE CIT(A) OBSERVED ITA NO.1189 & 1984/M/10 A.Y:06-07 6 THAT THE ASSESSING OFFICER HAD NOT MADE ANY FURTHER INVE STIGATION NOR QUERIED SOCIETY ABOUT NATURE OF MONEY GIVEN AND AS TO WHETHER ASSESSEE WAS TREATED EXCEPTIONALLY OR AT PAR WITH OTHER M EMBERS IN RESPECT OF MAINTENANCE AND REPAIRS EXPENSES REIMBURSEMENT. THERE WAS NO MATERIAL TO SUPPORT THE ORDER OF THE ASSESSING OFF ICER. THE CIT(A) THEREFORE HELD THAT THE ADDITION MADE BY ASSE SSING OFFICER UNDER SECTION 56(2) (VI) COULD NOT BE SUSTAINED. CIT(A) HOWEVER CONFIRMED THE ADDITION PROVISIONALLY SUBJECT TO VERIFICA TION OF TREATMENT OF INCOME AND EXPENDITURE INCLUDING TREATMENT OF MON EYS REIMBURSEMENT TO MEMBERS IN THE ACCOUNT OF ASSESSEE FOR TH E ASSESSMENT YEAR 2006-07. AGGRIEVED BY SAID DECISION BOTH PARTIES ARE IN APPEAL. 3.3 BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THA T THE SOCIETY HAS REIMBURSED THE MONEY TO THE MEMBERS FOR CERTAIN ACT IVITIES WHICH WERE AS PER OBJECT OF THE SOCIETY I.E. MAINTENANCE OF BU ILDING. THE AMOUNT WERE RECEIVED FROM CONTRIBUTION RECEIVED FROM M EMBERS ONLY. ALL MEMBERS HAD BEEN GIVEN AMOUNTS FOR MAINTENANCE OF THE BUILDINGS WHICH WERE DAMAGED BY NATURAL CALAMITIES. THE AMOUNT WAS THEREFORE NOT TAXABLE. THE LD. DEPARTMENTAL REPRESENTATIVE O N THE OTHER HAND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 3.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS. THE DISPUTE IS REGARDING ASSESSABILITY OF AM OUNT OF RS.15.00 LACS RECEIVED BY THE ASSESSEE FROM NEW INDIA CO-OP ERATIVE HOUSING SOCIETY OF WHICH THE ASSESSEE IS A MEMBER. IT APPE ARS FROM THE RECORDS THAT THE ASSESSEE ALONG WITH OTHER MEMBERS WE RE REIMBURSED A SUM OF RS.15 LACS FOR CARRYING OUT REPAIRS ON ACCOUNT OF DAMAGES TO BUILDINGS DUE TO HEAVY RAINS AND RENOVATION OF BUILDING ITA NO.1189 & 1984/M/10 A.Y:06-07 7 FRONTAGE AND REPAIRING OF COMPOUND WALL. THE ISSUE I S TAXABILITY OF SUCH AMOUNT IN THE HANDS OF THE MEMBERS. THE ASSESSING OF FICER HAS HELD THAT THE AMOUNT HAS BEEN PAID BY THE SOCIETY TO M EET PERSONAL OBLIGATION OF THE ASSESSEE AND THEREFORE THE SAME HAS T O BE ASSESSED AS INCOME OF THE ASSESSEE OR ALTERNATIVELY INCOME CAN BE A SSESSED AS GIFT UNDER SECTION 56(2)(VI) OR AS DIVIDEND AS NO DIVID END DISTRIBUTION TAX HAD BEEN PAID BY THE SOCIETY. THE CASE OF THE ASSESSEE IS THAT THE AMOUNT HAD BEEN RECEIVED ONLY OUT OF CONTRIBUTIONS MAD E BY MEMBER TOWARDS THE SOCIETY AND THE SAME HAD BEEN SPENT ON THE M AINTENANCE OF THE BUILDINGS WHICH WAS THE PREDOMINANT OBJECT OF TH E SOCIETY AND THEREFORE THE SAME COULD NOT BE TAXED IN THE HANDS OF THE MEMBERS IN VIEW OF PRINCIPLE OF MUTUALITY. 3.5 WE FIND SUBSTANCE IN THE ARGUMENTS ADVANCED BY THE A SSESSEE. THE MAINTENANCE OF THE BUILDINGS IS THE OBJECT OF THE S OCIETY. THE SOCIETY HAD BEEN MEETING SUCH REPAIR AND MAINTENANCE EXPENSES SINCE EARLIER YEARS AS IS CLEAR FROM THE ORDER OF THE CIT (A). IT APPEARS THERE HAVE BEEN DAMAGES TO THE BUILDINGS DUE TO HEAVY RAINS AND SOCIETY BY RESOLUTION PASSED HAD SANCTIONED MONEY TO THE MEMBERS TO BE SPENT FOR SPECIFIED PURPOSES RELATING TO THE MAINTENA NCE OF THE BUILDING. NORMALLY SOCIETY ITSELF COULD HAVE INCURRED THE EXPENDITURE OUT OF THE FUNDS RECEIVED FROM THE MEMBERS WHICH WOULD HAVE BEEN APPLICATION OF INCOME IN CASE OF THE SOCIETY. IN THIS CASE SOCIETY INSTEAD OF ITSELF CARRYING OUT THE ACTIVITIES HAD AUT HORIZED THE MEMBERS TO DO THE SAME FOR WHICH CERTAIN AMOUNTS HAD BEE N PAID. THE AMOUNT HAD BEEN PAID NOT ONLY TO THE ASSESSEE BUT T O ALL MEMBERS FOR CARRYING OUT WORK FOR THE BENEFIT OF THE MEMBERS. THE AMOUNT HAD BEEN PAID FOR SPECIFIC PURPOSE AS PER OBJECT OF THE SOCIETY AND THEREFORE COULD NOT BE CONSIDERED AS GIFT OR DIVID END. THE ITA NO.1189 & 1984/M/10 A.Y:06-07 8 ASSESSEE HAD CLEARLY STATED BEFORE AUTHORITIES BELOW THAT THE AMOUNT HAD BEEN FULLY REIMBURSED FOR THE PURPOSE IT HAD BEEN PROVIDED AND NOTHING REMAINED UNSPENT AND THERE IS NO MATERIAL PLA CED ON RECORD BY THE AUTHORITIES BELOW TO CONTROVERT THE SAID CLAIM. TH E ASSESSEE HAD ALSO CLAIMED THAT THE MONEY HAD BEEN RECEIVED OUT OF T HE FUNDS OF SOCIETY GENERATED FROM THE CONTRIBUTION RECEIVED FROM M EMBERS AS TRANSFER FEE ETC. THIS CLAIM ALSO REMAINS UNCONTROVERT ED BY AUTHORITIES BELOW. THOUGH ASSESSING OFFICER MENTIONED TH AT SOCIETY DID NOT MAKE PAYMENT FROM CONTRIBUTIONS RAISED FROM ME MBERS BUT THERE IS NO MATERIAL PLACED ON RECORD TO SUPPORT THIS FI NDING. IT CAN THEREFORE BE REASONABLY CONCLUDED THAT THE SOCIETY HA D INCURRED CERTAIN EXPENDITURE FOR THE REPAIR AND MAINTENANCE OF THE BUILDING THROUGH THE MEMBERS FOR THE BENEFIT OF THE MEMBERS O UT OF THE FUNDS RECEIVED FROM THE CONTRIBUTION BY THE MEMBERS. THE AM OUNT HAD BEEN FULLY SPENT BY THE ASSESSEE AND THERE IS NO INCOME. THE A DDITIONS THEREFORE CANNOT BE UPHELD. THE CIT(A) HAS ALSO HELD THAT THE ADDITION IS NOT SUSTAINABLE. HE HAS HOWEVER PROVISIONALL Y CONFIRMED THE ADDITION WHICH IS NOT CORRECT. THE SOCIETY HAD MADE THE PAYMENT FOR CARRYING OUT REPAIR AND MAINTENANCE WORK AND THER EFORE IT COULD BE EXPECTED TO SHOW DIFFERENTLY IN THE ACCOUNTS. NO CONT RARY MATERIAL HAS BEEN PLACED BY THE REVENUE BEFORE US. THE ORDER O F THE CIT(A) IS THEREFORE SET ASIDE AND THE ADDITION MADE IS DELETED. ITA NO.1984/MUM/2010 (APPEAL OF THE ASSESSEE ):- 4. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPE AL IS REGARDING ADDITION OF RS.15.00 LACS RECEIVED BY THE ASSESSE E SOCIETY. THE CASE OF THE REVENUE IS THAT THE CIT(A) SHOULD HAVE CONFIRMED THE ADDITION SUBSTANTIVELY AND NOT PROVISIONALLY. WE HA VE ALREADY DEALT ITA NO.1189 & 1984/M/10 A.Y:06-07 9 WITH THIS ISSUE EARLIER AND IN VIEW OF OUR DECISION VID E PARA 3.5 OF THIS ORDER THE APPEAL FILED BY THE REVENUE IS DISMISSED. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.7.2011. SD/- SD/- (R.V. EASWAR) (RAJENDRA SINGH ) PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED: 29.7.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.