Gujarat State Federation of Co.Op.Sugar Factories Ltd.,, Gandhinagar v. The Income tax Officer, Ward-2,, Gandhinagar

ITA 242/AHD/2011 | 2007-2008
Pronouncement Date: 04-04-2014

Appeal Details

RSA Number 24220514 RSA 2011
Assessee PAN AAAAG0288P
Bench Ahmedabad
Appeal Number ITA 242/AHD/2011
Duration Of Justice 3 year(s) 2 month(s) 4 day(s)
Appellant Gujarat State Federation of Co.Op.Sugar Factories Ltd.,, Gandhinagar
Respondent The Income tax Officer, Ward-2,, Gandhinagar
Appeal Type Income Tax Appeal
Pronouncement Date 04-04-2014
Appeal Filed By Assessee
Bench Allotted C
Tribunal Order Date 04-04-2014
Date Of Final Hearing 02-04-2014
Next Hearing Date 02-04-2014
Assessment Year 2007-2008
Appeal Filed On 31-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD . .. . . . . . ! '# ! '# ! '# ! '# $ $ $ $ BEFORE SHRI N. S. SAINI ACCOUNTANT MEMBER AND SHRI KUL BHARAT JUDICIAL MEMBER ITA NO. 242/AHD/2011 ASSESSMENT YEAR 2007-08 GUJARAT STATE FEDERATION OF CO-OP. SUGAR FACTORIES LTD. PLOT NO. 274 SARDAR SAHKARI KHAND BHAVAN SECTOR-16 GH ROAD GANDHINAGAR. PAN: AAAAG0288P VS INCOME TAX OFFICER WARD-2 GANDHINAGAR. (APPELLANT) (RESPONDENT) REVENUE BY : SH. J.P. JHANGID SR. D.R. ASSESSEE(S) BY : SH. MANISH SHAH AR !% & #'/ // / DATE OF HEARING : 02/04/2014 )*+ & #' / DATE OF PRONOUNCEMENT : 04/04/2014 / // / O R D E R PER SHRI N.S. SAINI ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-GANDHINAGAR AHMEDABAD DATED 01.11.20 10. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF AP PEAL: 1. THE C.I.T.(APPEALS) ERRED IN HOLDING THAT THE AMOUN T OF RS. 12 71 1537- BEING INTEREST INCOME WILL NOT G ET THE BENEFIT OF PRINCIPLE OF MUTUALITY AND HENCE WOU LD BE TAXABLE INCOME. 2. THE C.I.T.(APPEALS) ERRED IN GRANTING ONLY PART RELIEF AS FAR AS REST HOUSE EXPENSES IS INCURRED THOUGH IN ITA NO 242/AHD/2011 GUJ. STATE FED. OF CO-OP. SUGAR FACTORIES LTD. VS. ITO WD-2 GANDHINAGAR FOR A.Y. 2007-08 - 2 - PRINCIPLE HE AGREED THAT THE INCOME FROM REST HOUSE WOULD BE EXEMPT UNDER THE PRINCIPLE OF MUTUALITY. 3. THE C.I.T.(APPEALS) ERRED IN NOT ALLOWING THE DEPRECIATION ON REST HOUSE AS WELL AS DEPRECIATION ON REST HOUSE DEAD STOCK ITEMS. 4. THE C.I.T.(APPEALS) FURTHER ERRED IN ADDING RENT AL INCOME AS PROPERTY INCOME AND HELD IT AS TAXABLE. THE C.I.T.(APPEALS) ALSO DID NOT GRANT DEPRECIATION ON GANDHINAGAR BUILDING. 5. THE C.I.T.(APPEALS) GROSSLY ERRED IN NOT ALLOWIN G DEDUCTION OF RS.5 68 000/- BEING PART OF THE RESEAR CH AND DEVELOPMENT EXPENSES WHICH WAS DISALLOWED IN THE EARLIER YEAR AS THE SAME WAS NOT PAID IN THAT Y EAR. 5.1 THE C.I.T.(APPEALS) COMPLETELY OVERLOOKED THE F ACT THAT THE EXPENDITURE HAS TO BE ALLOWED IN EITHER OF THE YEARS AND SINCE IT IS NOT ALLOWED IN THE PREVIOUS Y EAR IT OUGHT TO HAVE BEEN ALLOWED IN THIS ASSESSMENT YE AR. 5.2 THE C.I.T.(APPEALS) OUGHT TO HAVE APPRECIATED T HAT THERE WAS NO DISPUTE AS TO THE ALLOWABILITY OF THE EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT AND HENCE ERRED IN DISALLOWING THE SAME. 3. AT THE OUTSET THE LD. AR OF THE ASSESSEE BY FI LING ORDER OF THIS TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEAR 2006-07 IN ITA NO. 3427/AHD/2009 ALONGWITH CO NO. 1 5/AHD/2010 ORDER DATED 25.03.2011 SUBMITTED THAT ON SIMILAR IS SUES IN THE IMMEDIATELY PROCEEDING ASSESSMENT YEAR 2006-07 THE TRIBUNAL HAS RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSI NG OFFICER FOR ADJUDICATION AFRESH AS PER THE DIRECTION OF THE TRI BUNAL IN THE ORDER PASSED FOR ASSESSMENT YEAR 2006-07. HE THEREFORE PRAYED THAT THE ISSUES INVOLVED IN THE PRESENT YEAR OF APPEAL S HOULD ALSO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER ON THE S IMILAR DIRECTIONS AS GIVEN IN THE ASSESSMENT YEAR 2006-07. 4. THE LD. DR HAD ALSO AGREED WITH THE SUBMISSION OF THE LD. AR OF THE ASSESSEE. ITA NO 242/AHD/2011 GUJ. STATE FED. OF CO-OP. SUGAR FACTORIES LTD. VS. ITO WD-2 GANDHINAGAR FOR A.Y. 2007-08 - 3 - 5. AS BOTH THE PARTIES BEFORE US HAVE AGREED THAT THE ISSUES INVOLVED IN THE PRESENT APPEAL SHOULD BE RES TORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION AFRE SH AS PER THE DIRECTIONS OF THE TRIBUNAL GIVEN IN THE ASSESSMENT YEAR 2006-07 WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND RE STORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUD ICATION OF THE ISSUES AFRESH IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ASSESSMENT YEAR 2006-07. 6. THE TRIBUNAL IN THE ASSESSMENT YEAR 2006-07 IN ITA NO. 3427/AHD/2009 ALONGWITH CO NO. 15/AHD/2010 HELD AS UNDER: THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOLL OWING GROUNDS:- (1) THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING TH E ASSESSEE AS ELIGIBLE FOR EXEMPTION ON THE BASIS OF PRINCIPLE OF MUTUALITY. (2) THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING TH E INTEREST INCOME OF RS.7 75 813/- AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES. (3) THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING TH E RENTAL INCOME OF RS.2 41 414/- FROM REST HOUSE AS BUSINESS INCOME INSTEAD OF INCOME FROM HOUSE PROPERTY. WHEREAS THE ASSESSEE HAS FILED THE CROSS OBJECTION RAISING FOLLOWING GROUNDS:- (1) THE CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS.38 200/- OUT OF THE OVERALL INCOME OF RS.2 41 41 4/- ARISING FROM REST HOUSE. (2) THE CIT(A) ERRED IN NOT ALLOWING THE EXPENDITUR E INCURRED FOR MAINTENANCE OF REST HOUSE THE INCOME FROM WHICH WAS EXEMPT UNDER MUTUALITY AND AS HAS BEEN SO ALLOWED BY THE CIT(A). (3) THE CIT(A) ERRED IN TAXING THE RENTAL INCOME FR OM PROPERTY GIVEN ON RENT INSTEAD OF CONSIDERING IT TO BE EXEMPT INCOME UNDER THE CONCEPT OF MUTUALITY AS THE MONEYS TO CONSTRUCT THE PROPERTY WERE CONTRIBUTED B Y THE MEMBERS OF THE FEDERATION AND THE INCOME THEREFROM WAS APPLIED FOR THE MEMBERS ONLY. ITA NO 242/AHD/2011 GUJ. STATE FED. OF CO-OP. SUGAR FACTORIES LTD. VS. ITO WD-2 GANDHINAGAR FOR A.Y. 2007-08 - 4 - (4) THE CIT(A) ERRED IN NOT ALLOWING THE OVERALL EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING SUC H INCOME. (5) THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.5 68 000/- WHICH WAS THE PROVISION MADE BY THE ASSESSEE FOR THE PURPOSE OF RESEARCH AND DEVELOPMEN T EXPENSES TO BE INCURRED. 2. THUS THE ISSUE INVOLVED IN THE APPEAL FILED BY T HE REVENUE IS WHETHER EXEMPTION SHOULD BE ALLOWED TO I NTEREST INCOME OF RS.7 75 813/- ON THE BASIS OF PRINCIPLE O F MUTUALITY/OR SHOULD IT BE ASSESSED AS INCOME FROM O THER SOURCES. THE SECOND ISSUE IS WHETHER EXEMPTION TO I NCOME FROM HOUSE PROPERTY IS TO BE ALLOWED ON THE PRINCIP LE OF MUTUALITY OR TO BE TAXED UNDER THAT HEAD. 3. IN THE CROSS OBJECTION THE ASSESSEE CHALLENGED T HE SUSTAINING OF THE ADDITION OF RS.38 200/- OUT OF TO TAL ADDITION MADE BY THE AO OF RS.2 41 414/- ARISING FROM THE GU EST HOUSE WHICH IS COVERED UNDER THE SECOND ISSUE RAISE D BY THE REVENUE. 4. THE ASSESSEE HAS CLAIMED THAT IT IS A MUTUAL ASSOCIATION AND ITS MEMBERS ARE CO-OPERATIVE SOCIET IES OF THE STATE OF GUJARAT. INITIALLY AN OBJECTION WAS RAISED BY THE AO IN ASST. YEAR 2003-04 THAT THE SURPLUS IN THE EVEN T OF DISSOLUTION OF THE FEDERATION WAS NOT RETURNABLE T O THE MEMBERS. THE CLAIM OF THE ASSESSEE WAS THAT THE SUR PLUS IS COVERED BY SECTION 115 OF THE GUJARAT CO-OPERATIVE SOCIETIES ACT AND IS NOT REQUIRED TO BE DISTRIBUTED AMONG THE MEMBERS. HOWEVER ON 11TH MARCH 2011 IN THE ANNUAL GENERAL BODY MEETING THE FEDERATION PASSED A RESOLU TION AS UNDER:- RESOLUTION NO.6 MODIFICATION IN BYE-LAWS OF THE FE DERATION: IN CASE OF LIQUIDATION OF THE FEDERATION AFTER CLE ARANCE OF OUTSTANDING DUES/LIABILITIES BY THE LIQUIDATOR REM AINING PROPERTY/ASSETS CAN BE DISTRIBUTED AMONGST INSTITUT IONAL MEMBERS I.E. MEMBER SUGAR FACTORIES THERE IS NO PR OVISION IN BY-LAWS OF THE FEDERATION. THE EXECUTIVE BODY ME ETING OF THIS FEDERATION WHICH WAS HELD ON 22.06.2010 VIDE RESOLUTION NO.12 PROPOSED TO GENERAL BODY AND HENCE IT HAS BEE N UNANIMOUSLY DECIDED TO MAKE PROVISION IN BY-LAWS OF THIS FEDERATION AS INDICATED BELOW: 9(A) IN CASE OF LIQUIDATION OF THE FEDERATION AFT ER CLEARANCE OF AL OUTSTANDING DUES/LIABILITIES BY THE LIQUIDATO R REMAINING PROPERTY/ASSETS WILL BE DISTRIBUTED AMONGST INSTITU TIONAL ITA NO 242/AHD/2011 GUJ. STATE FED. OF CO-OP. SUGAR FACTORIES LTD. VS. ITO WD-2 GANDHINAGAR FOR A.Y. 2007-08 - 5 - MEMBERS I.E. MEMBER SUGAR FACTORIES IN PROPORTION O F FINANCIAL CONTRIBUTION MADE BY THEM. ON THE BASIS OF ABOVE RESOLUTION IT WAS PLEADED THA T THE OBJECTION TO APPLICABILITY OF PRINCIPLE OF MUTUALIT Y HAS BEEN TAKEN CARE OF. CONSIDERING THIS AMENDMENT THE TRIB UNAL FOR ASST. YEAR 2003-04 TO 2005-06 RESTORED THE MATTER T O THE LD. AO FOR DECIDING AFRESH THE APPLICABILITY OF PRINCIP LE OF MUTUALITY AND ACCORDINGLY THE EXEMPTION TO VARIOUS ITEMS OF INCOME UNDER DISPUTE. THE TRIBUNAL FOR THESE THREE YEARS HAD OBSERVED AS UNDER:- 7. ON CONSIDERATION OF THE SUBMISSIONS OF THE PART IES IN THE LIGHT OF RESOLUTIONNO.6 OF THE ASSESSEE (SUPRA) WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE BOT H THE ISSUES TO THE FILE OF THE AO FOR RECONSIDERATION OF THE ISSUES AFRESH. THE MAIN REASON FOR REJECTING THE CLAIM OF THE ASSESSEE WAS THAT THE ASSESSEE HAS NOT FULFILLED TH E CONDITION REGARDING DISTRIBUTION OF SURPLUS ASSETS ONLY AMONG ST THE MEMBERS OF THE ASSOCIATION ON ITS DISSOLUTION. IN T HE ABSENCE OF CLEAR CUT PROVISIONS FOR DISTRIBUTION OF SURPLUS CLAIM OF THE ASSESSEE ON BOTH THE GROUNDS OF APPEAL WAS REJECTED . THE ASSESSEE HAS HOWEVER MODIFIED THE BYE-LAWS BY ADDI NG CLAUSE 9 (A) REFERRED TO ABOVE WHICH WAS ACCORDED S ANCTION BY DIRECTOR OF SUGAR GANDHINAGAR AND ACCORDINGLY I T WAS PUT IN FORM NO.4 ALSO. THESE PAPERS WERE NOT BEFORE THE AO FOR CONSIDERATION. THEREFORE THE LEARNED COUNSEL FOR T HE ASSESSEE RIGHTLY CONTENDED THAT THE MATTER MAY BE R ESTORED TO THE FILE OF THE AO ON BOTH THE GROUNDS FOR RECON SIDERATION IN ACCORDANCE WITH THE ABOVE NEW DEVELOPMENT BY MOD IFYING THE BYELAWS OF THE FEDERATION. THE LEARNED DR HAS N O OBJECTION FOR RESTORING THE MATTER TO THE FILE OF T HE AO ON BOTH THE GROUNDS OF APPEAL. ACCORDINGLY THE ORDERS OF THE AUTHORITIES ARE SET ASIDE AND BOTH THE GROUNDS ARE RESTORED TO THE FILE OF THE AO FOR RECONSIDERATION IN THE LI GHT OF THE DOCUMENTS NOW PLACED ON RECORD BY THE LEARNED COUNS EL FOR THE ASSESSEE ABOVE. THE AO SHALL PASS REASONED ORDE R BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. IN THE RESULT APPEAL OF THE REVENUE IN I TA NO.1129/AHD/2007 FOR ASSESSMENT YEAR 2003-04 IS ALL OWED FOR STATISTICAL PURPOSES. 8. THE LEARNED CIT(A) FOLLOWED THE SAME ORDER IN TH E REMAINING ASSESSMENT YEARS 2004-05 AND 2005-06. BY FOLLOWING THE ORDER IN ASSESSMENT YEAR 2003-04 THE REMAINING ORDERS OF THE AUTHORITIES BELOW ARE ALSO SET ASIDE AND THE MATTER IN ISSUES ARE RESTORED TO THE FILE O F THE AO FOR RECONSIDERATION AFRESH AS DIRECTED ABOVE. ITA NO 242/AHD/2011 GUJ. STATE FED. OF CO-OP. SUGAR FACTORIES LTD. VS. ITO WD-2 GANDHINAGAR FOR A.Y. 2007-08 - 6 - 9. IN THE RESULT ALL THE APPEALS OF THE REVENUE AR E ALLOWED FOR STATISTICAL PURPOSES. 5. AT THE OUTSET THE LD. AR SUBMITTED THAT FOR DECI DING THE APPLICABILITY OF PRINCIPLE OF MUTUALITY THE AO HAS TO CONSIDER THE ABOVE AMENDMENT IN THE RESOLUTION AND THEREAFTER DECIDE ALL THE ISSUES AFRESH ON THE EXEM PTION OF VARIOUS ITEMS OF INCOME CLAIMED BY THE ASSESSEE AS EXEMPT. 6. ON THE OTHER HAND THE LD. DR SUBMITTED THAT AMENDMENT IS MADE IN MARCH 2011 THEREFORE IT COU LD BE APPLIED ONLY PROSPECTIVELY. HE REFERRED TO THE DECI SION OF HON. MADRAS HIGH COURT IN THE CASE OF WANKANER JAIN SOCIAL WELFARE SOCIETY VS. CIT 260 ITR 241 (MAD) WHEREIN AMENDMENT IN THE CONSTITUTION OF THE SOCIETY WAS NO T HELD RETROSPECTIVE. 7. HE FURTHER REFERRED TO THE DECISION OF HON. BOMB AY HIGH COURT IN THE CASE OF CIT VS. COMMON EFFLUENT TREATMENT PLANT THANE BELAPUR ASSOCIATION (2010) 5 TAXMAN .COM 110 (BOM) FOR THE PROPOSITION THAT MUTU ALITY IN RESPECT OF RECEIPTS OF CONTRIBUTION FROM ITS MEMBER S DOES NOT NECESSARILY LEAD TO THE CONCLUSION THAT EVERY ACTIV ITY OF THE CONCERN SPECIFIES TEST OF MUTUALITY. THEREFORE HE SUBMITTED THAT EACH ACTIVITY HAS TO BE EXAMINED INDEPENDENTLY FOR COMING TO THE CONCLUSION THAT PROFIT ARISING THEREF ROM IS EXEMPT. HE ALSO REFERRED TO THE JUDGMENT OF HON. KA RNATAKA HIGH COURT IN THE CASE OF CIT VS. BANGALORE CLUB (2 006) 287 ITR 263 (KAR) WHEREIN IT IS HELD THAT INCOME FROM D EPOSITS IN BANK FROM MUTUAL CONCERNS IS TAXABLE AS INCOME. 8. WE HAVE HEARD THE RIVAL PARTIES. SINCE THE ISSUE OF MUTUALITY IS PRIMARILY RESTORED TO THE FILE OF AO F OR ASST. YEARS 2003-04 TO 2005-06 THEN FOLLOWING THE SAME TH E ISSUES ARISING IN ASST. YEAR 2006-07 ARE REQUIRED T O BE RESTORED TO THE FILE OF AO FOR DECIDING AFRESH AFTE R CONSIDERING THE AMENDMENT IN THE CONSTITUTION WHETHER IT IS A RETROSPECTIVE AND ACCORDINGLY IT WOULD BE APPLICABL E TO EARLIER YEARS AND IF THE ASSESSEE IS HELD TO BE A MUTUAL CO NCERN IN THIS YEAR THEN FURTHER WHETHER INTEREST INCOME OR INCOME FROM HOUSE PROPERTY AS CLAIMED BY THE ASSESSEE WOUL D BE EXEMPT ON ACCOUNT OF PRINCIPLE OF MUTUALITY. IN OUR CONSIDERED VIEW ALL THE ISSUES ARE KEPT WIDE OPEN F OR DECIDING AFRESH BY THE AO AFTER HE TAKES DECISION O N THE APPLICABILITY OF PRINCIPLE OF MUTUALITY TO THE ASSE SSEE. AS A RESULT THE APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE BOTH ARE ALLOWED BU T FOR STATISTICAL PURPOSES. ITA NO 242/AHD/2011 GUJ. STATE FED. OF CO-OP. SUGAR FACTORIES LTD. VS. ITO WD-2 GANDHINAGAR FOR A.Y. 2007-08 - 7 - 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE A ND THE CROSS OBJECTION FILED BY THE ASSESSEE BOTH ARE ALLO WED BUT FOR STATISTICAL PURPOSES. 7. IN THE LIGHT OF ABOVE ORDER OF THE TRIBUNAL TH E APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON FRIDAY THE 4 TH OF APRIL 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 1/04/2014 GHANSHYAM MAURYA SR. P.S. TRUE COPY & -#. /.+# & -#. /.+# & -#. /.+# & -#. /.+#/ COPY OF THE ORDER FORWARDED TO : 1. 01 / THE APPELLANT 2. -201 / THE RESPONDENT. 3. # !3 / CONCERNED CIT 4. !3() / THE CIT(A)-III AHMEDABAD 5. .'6 -# / DR ITAT AHMEDABAD 6. 678 9% / GUARD FILE. ! ! ! ! / BY ORDER : :: :/ // / ; ; ; ; ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD