Commissioner of Income Tax vs Jaihind Co-Operative Housing Society Ltd.

This appeal is filed by the Revenue against the order of the income tax Appellate Tribunal dated December 31, 2007, in I.T.A. No. 150/Mum/2004 relating to the assessment year 1999-2000. The grievance of the Revenue is that as a result of the impugned order passed by the income tax Appellate Tribunal, the income chargeable to tax under the reassessment order becomes lesser than the income originally assessed which is contrary to the law laid down by the apex court. The assessee is a plot owner society. In the assessment year in question, the assessee had received a sum of Rs. 12,98,742 as the TDR premium from its members. In the original return of income, the assessee had offered the TDR premium of Rs. 12,98,742 to tax and after deducting the expenditure incurred by it, computed the income chargeable to tax at Rs. 7,27,660. The said return of income was processed u/s 143(1) and accepted without any addition or disallowance.

Thereafter, by a notice issued u/s 148 of the income tax Act, 1961, the Assessing Officer called upon the assessee to show cause as to why the expenditure incurred for earning the TDR premium should not be disallowed and, accordingly, called upon the assessee to file return of income. In response to the said notice, the assessee by its letter dated 19th December, 2002, replied as under:

Return of income for the assessment year 1999-2000 is filed with the Joint Commissioner of income tax, Special Range-10, Mumbai, on December 23, 1999, vide Machine No. 227. Xerox copies of return of income, computation of income, income and expenditure and balance-sheet as on March 31, 1999, are enclosed for your ready reference. You can observe from the same that we have offered transfer fees received for taxation. Therefore, kindly treat the return of income filed on December 23, 1999, as return filed in response to the notice u/s 148 of the income tax Act, 1961.

However, during the course of the reassessment proceedings, the assessee contended that the TDR amount was not taxable on the principle of mutuality. The Assessing Officer rejected the contention of the assessee and further held that the expenses claimed were not related to the transfer fees and, hence, not allowable. Accordingly, the Assessing Officer computed the income chargeable to tax at Rs. 13,00,740.

Challenging the aforesaid order, the assessee filed an appeal before the Commissioner of income tax (Appeals). The Commissioner of income tax (Appeals) while affirming the reassessment order held that once the assessee voluntarily offered the TDR premium to tax, it was not open to the assessee to contend in the reassessment proceedings that the TDR premium was not taxable by applying the principle of mutuality. The Commissioner of income tax (Appeals) further held that the assessee has not been able to prove that the expenditure was incurred for earning the taxable income and, therefore, the expenditure claimed by the assessee was not allowable.

On further appeal filed by the assessee, the income tax Appellate Tribunal following its decision in the case of Ashok Co-operative Housing Society Ltd. in I.T.A. No. 6894/M/02, dated November 23, 2005, held that the TDR premium received by the assessee was not taxable on account of the principle of mutuality. The income tax Appellate Tribunal, however, upheld the order of the Commissioner of income tax (Appeals) in disallowing the expenditure of Rs. 5,73,087 as the same was not seriously contested by the assessee. Challenging the aforesaid order, the Revenue has filed the present appeal.

The basic argument of the Revenue is that the income assessed on reassessment cannot be less than the income originally assessed. In support of the above contention, reliance is placed on the decision of the apex court in the case of Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., .

Mr. Irani, learned counsel appearing on behalf of the assessee, fairly agreed with the above contention of the Revenue. However, Mr. Irani submitted that in the reassessment proceedings it would be open to the assessee to put forward claims for deduction of the expenditure relatable to the TDR premium as held by the apex court in the case of Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., .

In the present case, it is not in dispute that the income assessed on reassessment after giving effect to the order of income tax Appellate Tribunal becomes less than the income originally assessed. As held by the apex court in the case of Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., , the object and purpose of the proceedings u/s 147 of the Act is for the benefit of the Revenue and not for the benefit of the assessee and, therefore, in the reassessment proceedings, the assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision in disguise. Since the decision of the income tax Appellate Tribunal is contrary to the aforesaid decision of the apex court, the impugned decision of the income tax Appellate Tribunal is quashed and set aside and the matter is restored to the file of the income tax Appellate Tribunal for fresh decision in accordance with law.

We make it clear that since the TDR premium amount received by the assessee has been voluntarily offered to tax, the question of considering the taxability of that amount by applying the principle of mutuality in the reassessment proceedings does not arise at all. It is only the expenditure claimed to have been incurred by the assessee which is disallowed in the reassessment order that has to be considered by the income tax Appellate Tribunal. All the contentions of the parties are kept open. The appeal is disposed of accordingly with no order as to costs.