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 Versus Ludhiana 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 …Appellant Versus Ludhiana Aggarwal Co-operative House Building Society Ltd., Ludhiana. …Respondent CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'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 in the Digest? M.M. KUMAR, J. This order shall dispose of ITA Nos. 415 and 416 of 2009 as the revenue has attacked a common order dated 24.9.2008, passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘A’, Chandigarh (for brevity, ‘the Tribunal’), in ITA No. 171/Chandi/2008 and ITA No. 285/Chandi/2008, in respect of the same assessee for two different assessment years, namely, 2002-03 and 2001-02 respectively, by filing the instant appeals under Section 260A of the Income-tax Act, 1961 (for brevity, ‘the Act’). The revenue has claimed that the following substantial question of law would arise for determination of this Court:- “Whether on the facts and in the circumstances of the case, the ITAT was rightly holding the donation of Rs. 20,50,000/- being ITA Nos. 415 & 416 of 2009 (O&M) 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 Building Society is engaged in providing housing facilities and other allied services such as maintenance, repair of roads, common facilities viz. parks, roads, water facility, community centre etc. to its members. It also runs a school named as ‘Tagore Public School in the premises of the Society itself. The Society filed its return on 31.10.2002 declaring nil income. As per the audit report along with profit and loss account, the Society shown to have earned profit of Rs. 22,15,687/-. The net profit from Tagore Public School is shown as 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 for taxation nor exemption under the Act was ever sought in the preceding years and it was not exempted under Section 10(23C)(iiiad) of the Act. 3. The Assessing Officer completed assessment on 18.10.2006 under 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, who partly allowed the appeal by giving the relief of 50% of income of Tagore Public 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 to profit and loss account. It also directed the Assessing Officer to exclude from the income of the assessee by holding these receipts to be capital receipts (A-2). 4. Feeling dissatisfied, the revenue filed an appeal before the Tribunal against the order of the CIT(A), Ludhiana. The Tribunal has upheld 2 ITA Nos. 415 & 416 of 2009 (O&M) the view of the CIT(A) in respect of donation of Rs. 20,50,000/- and also deletion of Rs. 1,46,200/-, made by the Assessing Officer on account of donation and TDS debited to profit and loss account. A direction has been issued to the Assessing Officer to treat these amounts as capital receipts exempt from tax. The CIT(A) has recorded a categorical finding that a sum of Rs. 9,51,500/- out of the total amount of Rs. 30,01,500/- is considered as transfer fee. The aforesaid amount has been regarded as income of the assessee-respondent by the Assessing Officer but the same has also been considered as exempt on the basis of principle of mutuality. In that regard the CIT(A) has followed the order passed by the Tribunal in the assessee’s own case. With regard to remaining amounts a categorical finding of fact has been recorded by referring to the copies of the receipts issued by the assessee Society that these amounts were one time payments received on account of donation for development account. The Assessing Officer had excluded Rs. 15,00,000/- from the income of the assessee Society being the amount received from the Punjab Government on account of infrastructure fund donation. On the same reasoning the one time donation received by the assessee Society for development account should have been considered as capital receipt and not as its income. On the basis of the aforesaid finding of fact, the Assessing Officer was directed to exclude from the income of the assessee 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 respect of the amount of Rs. 15,00,000/- received by the assessee Society from the Punjab Government. 5. We have heard learned counsel at a considerable length and have repeatedly 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 3 ITA Nos. 415 & 416 of 2009 (O&M) how it would be assessable to tax. Mr. Vivek Sethi has not been able to answer the aforesaid query. Whether a particular amount would be regarded as capital receipt or income receipt is a question of fact which is determined by referring to various factors. The doctrine of mutuality has been applied to the assessee Society on the ground that no one can make a profit out of himself. It has been found as a fact that when a number of persons combine together and contribute to a common fund for an object and in that regard they do not have any dealings or relations with anybody outside the body then 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 such an identity is established then the test of mutuality is fulfilled. Admittedly, the assessee Society is not engaged in any commercial activity and derives its income from providing facilities to its members, be it be the maintenance of common area facilities, electricity, parks etc. Such an income has been held to be exempt on the principle of mutuality in respect of the assessment years 1978-79, 1979-80 and 1990-91. The income is received from running the school by the assessee Society. The school is being run by the Society for the children of its members and any surplus remaining of the school attract the principle of mutuality. Any dealing done by the assessee Society or by the school with the non-members would not attract the principle of mutuality. The assessee Society has been given the benefit of mutuality in case it is found to be so. 6. The other issue is regarding the direction issued to the Assessing Officer to allow carry forward loss/depreciation in respect of assessment years 1999-2000 and 2000-01. The assessee Society submitted that after the order of the CIT(A) the Assessing Officer has passed the order allowing the losses to be carried forward in respect of assessment years 1999-2000 and 4 ITA Nos. 415 & 416 of 2009 (O&M) 2000-01. Even the department representative did not contest the aforesaid ground seriously. 7. Having heard the learned counsel we have not been able to persuade ourselves to conclude that any question of law much less a substantive question of law would arise for determination of this Court. The question whether a particular sum is a ‘capital receipt’ or otherwise is necessarily a mixed question of fact and law. Once the Assessing Officer has excluded Rs. 15,00,000/- received from Punjab Government on account of infrastructure fund donation then it follows that donations received by the assessee Society for development account from other have to be regarded as ‘capital receipt’. Accordingly, the orders passed by the CIT(A) and the Tribunal are not open to challenge. Therefore, no substantive question of law within the meaning of Section 260A of the Act would arise warranting admission of these appeals. The appeals are wholly without merit an the same are accordingly dismissed. 8. A photocopy of this order be placed on the file of connected case. (M.M. KUMAR) JUDGE (JITENDRA CHAUHAN) May 26, 2010 JUDGE Pkapoor 5