Commissioner of Income Tax v. Talangang Coop Group Housing Society Ltd

MANMOHAN, J. JULY 01, 2010 nm/pk

* THE HIGH COURT OF DELHI AT NEW DELHI % Date of decision: 1st July, 2010 + ITA No.744/2010 Commissioner of Income Tax, Delhi - VII ..... Appellant Through: Ms.Sonia Mathur, Advocate versus M/s Talangang Coop. Group Housing Society Ltd. ..... Respondent Through: None CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN 1. Whether reporters of the local papers be allowed to see the judgment? 2. To be referred to the Reporter or not? 3. Whether the judgment should be reported in the Digest? DIPAK MISRA, CJ This is an appeal under Section 260A of the Income Tax Act, 1961 (for brevity "the Act") assailing the order dated 15th May, 2009 in ITA No.779/Del/2006 passed by the Income Tax Appellate Tribunal, New Delhi (for short "the tribunal") whereby the tribunal allowed the appeal preferred by the assessee in part. 2. The factual matrix as is discernible is that the assessee filed the return of income for assessment year 2001-2002 on 7th February, 2003 declaring a loss of Rs.5,48,075/-. The case was selected for scrutiny and accordingly notices were issued under Sections 143(2) and 142(1). The assessee, a cooperative society, produced the books of accounts, the bank passbooks, the bills and vouchers and such other documents as required by the assessing officer. The assessing officer on the basis of a report submitted by the DDIT Unit-I, Delhi and the information gathered by the auditors of the assessee society proceeded to finalise the assessment. 3. Before the assessing officer the assessee claimed exemption on the principles of mutuality. The assessing officer referred to the principles laid down in CIT v. Royal Western India Turf Club (1953) 24 ITR 551 (SC), Chelmsford Club v. CIT (2000) 243 ITR 89, Haryana State Co-operative Labour and Construction Federation Ltd. v. CIT (2001) 252 ITR 265 (P&H) and culled out the principle that a cooperative group society is not exempt from filing its return nor from income derived from other than constructional activities. After culling out the principle, the assessing officer referred to the letter dated 19th September, 2001 filed by the Administrator appointed by the Government of Delhi, scanned the objects of the society and opined that the primary activity of the assessee society is to collect money from members for construction of flats/houses and subsequently allot the same to them. It further observed the money can be collected under various heads and the money collected on all heads cannot be exempted except constructional activities. In this backdrop, she expressed the view that the equalization charges from new members, maintenance fund and entry fee from power of attorney holders, interest on delayed payments and interest from banks on FDRs were taxable. Quite apart from the above, the assessing officer took note of the fact that the assessee had sold six shops during the assessment year 2000-2001 and certain amount had been spent on construction of the shops. The assessing officer held that this did tantamount to commercial activity which is not objects of the society. Thus, it is held by the assessing officer that the difference between the sale price and the construction price is to be treated as income as short term capital gains of the assessee for the assessment year 2001- 2002. The amount spent on purchase of dustbins for the garden maintenance was treated as capital nature and assessed as the same. As far as the receipt of interest is concerned, the assessing officer came to hold that for the relevant assessment year the assessee had shown interest receivable from the members and not being incorporated in account and as the assessee was following the mercantile system, it was treated as income. Being of this view, the assessing officer added Rs.27,13,797/- towards income and deducted Rs.50,000/- under Section 80P. In addition to the same, interest under Section 234 B was charged and a proceeding under Section 271(1)(c) for imposition of penalty was initiated. 4. Bein