IN INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER I.TA No.356/Mum/2014 (Assessment Year: 2004-05 M/s. Engineering Mazdoor ACIT, Central Circle-43 Sabha, or CIT Central 4, Vs. Kennedy House, 4 t h Floor, Aayakar Bhavan, Goregaonkar Road, Mumbai-400 020 Mumbai-400 007 I.TA No.1335/Mum/2014 ( Assessment Year: 2004-05 ACIT, Central Circle- M/s. Engineering Mazdoor 43 or CIT Central 4, Sabha, Vs. Aayakar Bhavan, Kennedy House, 4 t h Floor, Mumbai-400 020 Goregaonkar Road, Mumbai-400 007 PAN/GIR No. AAABE 0116B (Appellant) ( Respondent) Assessee by: Shri N.R. Agrawal Revenue by: Shri Manjunatha Swamy Shri N. Sathya Moorthy Date of Hearing :18.07.2016 Date of Pronouncement : 28 .09.2016 O R D E R PER C.N. PRASAD, JM: 2 ITA No. 1335 & 356/M/2014 These two appeals are filed by assessee and Revenue against orders of Ld. CIT(A)-37, Mumbai dated 20.12.2013 pertaining to assessment year 2004-05. 2. assessee has raised following grounds in its appeal: 1. Ld. CIT(A) erred in confirming addition made by Learned ACIT by treating contribution/donations received by assessee of Rs. 3,65,589/- for Professional/business income. 2. Ld. CIT(A) erred in not following Mutuality Concept for contribution/donation received by assessee of Rs. 3,65,589/- 3. Ld. CIT(A) erred in disallowing compensation aid/expenses paid by appellant of Rs. 89,80,000/- for Assessment Year 2005-06. 4. Ld. CIT(A) erred in confirming interest u/s. 234B(3) of Act. 3. At outset, Ld. Counsel for assessee submits that all three grounds are decided by Tribunal in its own case for Assessment Years 2003-04 to 2010-11 and appeal for this Assessment Year remains to be adjudicated though it pertains to block assessment order passed u/s. 143(3) r.w. Sec. 153A of Act. Ld. Counsel for assessee submits that in so far as ground Nos. 1 & 2 is concerned, Tribunal decided issue in respect of contributions/donations received by assessee at para-7 of its order in ITA No. 1373 to 1379/M/2013 dated 25.2.2015 and it was held that contributions received by assessee are in pursuant to its activity and they are in accordance with objects of assessee union therefore cannot be treated as income from business or 3 ITA No. 1335 & 356/M/2014 profession and they are exempt u/s. 10(24) of I.T. Act as well as on principle of mutuality. 4. In so far as ground No. 3 regarding compensation aid/expenses are concerned, Ld. Counsel for assessee submits that Tribunal in para-22 held that in view of findings given in ground No. 1 & 2, this ground of appeal of assessee becomes infructuous. 5. Ld. Departmental Representative vehemently supports orders of authorities below. 6. We have considered submissions of both parties and perused orders of Co-ordinate Bench and find that all grounds are decided by Tribunal. In so far as ground No. 1 & 2 are concerned i.e. in respect of treating contribution/donations received by assessee as professional/business income by Assessing Officer while completing assessment, Co-ordinate Bench held that such donations/contributions received by assessee are in pursuant to its activities which are in accordance with objects of assessee union therefore cannot be treated as income from business or profession and accordingly it was held that same is exempt u/s. 10(24) of I.T. Act as well as on principle of mutuality observing as under: We have considered rival submissions as well as relevant material on record. There is no dispute that during search & seizure operation, department has not recorded even statement or seized any document from place of assessee. Thus it is clear that neither any incriminating record nor any information was gathered by department as result of search & seizure action in case of assessee. Once there is 4 ITA No. 1335 & 356/M/2014 no document either seized or found and even no statement was recorded during search proceedings then addition maded by Assessing Officer is based on existing record and material. department has not disputed that that assessee is eligible for exemption u/s. 10(24) of Act as registered Trade Union. dispute is only with respect to contribution from employers/corporate entities on account of settlement of disputes between workers and employers through assesses's union. It is one of objects of assessee as per constitution of assessee union to seek redressal of grievances of members and to secure settlement of disputes between employers and employees by negotiation and by mutual consultation. Therefore, negotiation on behalf of workers and to arrive at settlement in interest and welfareof workers as well as for employers to avoid any stand off between employers and workers, assessee play vital role. contribution received by assessee is only in respect of and on account of its activity of achieving object as per constitution. It is not case of receiving any amount or income by doing activity which is not for achieving objects of assessee. amount received by assessee from employers has direct nexus with negotiation and settlement arrived between parties. role of assessee of negotiating on behalf of workers for settlement of disputes between worker and employers is limited only in respect of disputes between member workers and employers. Therefore, activity of assessee cannot be generalized in nature of professional service or occupational service open to general public but it is, otherwise, permitted under by laws and constitution of assessee as well as Trade Union Act. Though contribution from employer is received as per tripartite agreement, however, it is only incidental to activity of services of assessee in resolving disputes between member workers and employers with intention of advancement of welfare of members. negotiation and settlement of disputes between workers and employers is composite activity and contribution received from 5 ITA No. 1335 & 356/M/2014 employer cannot be taken as separate activity of assessee but it is part and parcel of activity of achieving object as per constitution/by laws of assessee. Therefore, when pre-dominant object of activity of assessee is to arrive at settlement of disputes between workers and management in interest and welfare of workers and not to earn any income or profit then contribution received from employers on account of settlement between workers and employers cannot be said to be business/professional or occupational income of assessee. Therefore, said amount of contribution received from employers at most would be income of assessee as income from other sources and cannot be regarded as business income and accordingly exempt u/s 10(24) of Income Tax Act. Apart from contribution received by assessee from workers, fund received by assessee from employers is otherwise for purpose of achieving objects being welfare body of workers and excess fund if any after meeting out expenses incurred on account of activity performed by assessee, are refunded to members as bonus then said consideration received on account of settlement cannot be treated as business income earned by assessee. identical issue was considered by Indore Benches of this Tribunal in case of Asstt. Commissioner of Income Tax Vs. Coordination Committee of SPM Unions Hoshangabad (supra), in para 20 and 21 as under:- "20. From record we find that 15% of incentive bonus payable to workers was contributed by them to association. This amount was deposited with association to meet all sorts of expenditure including lawyers' fee, TA/DA, typing, stenographic charges, court fee and all other incidental expenses. balance out of such contribution was to be refunded to deserving employees. From record we find that substantial amount received from employees was refunded to them in years 1999 and 2000 after meeting expenditure. Thus, amount received from workers for meeting such 6 ITA No. 1335 & 356/M/2014 expenditure was not in nature of income in hands of assessee being coordination committee but was merely in nature of deposit which was meant for meeting expenditure for defending/prosecuting various cases of employees. From record we find that assessee was not merely representing its workers but in fact party to all litigation either as petitioner or respondent. management of SPM, Hon'ble High Court and Supreme Court accepted status of assessee as association consisting of workers and, therefore, allowed it to contest in its own name instead of putting up names of individual workers. There was clear concept of mutuality. No-one can make profit out of himself. When member agrees to contribute funds for common purpose, amount of funds not so required for common purpose and refunded to such individual, cannot be treated as income in their hands liable to tax. Thus, general principle applicable to mutual concern is that surplus accruing to it cannot be regarded as income, profits or gains for purpose of income tax. 21. As discussed hereinabove, amount received by assessee was not in nature of income and assessee was not doing any business activity and as such application of provisions of section 40a(ia) was not justified. For application of section 40a(ia) firstly there must be some business/professional income against which expenditure has been claimed. In instant case before us, since there is no business or professional income in hands of association, AO was not justified in invoking provisions of section 40a(ia) of theAct" 7. We find that in case of assessee amount received is as per settlement agreement which was signed by all parties, therefore, there is no material or any fact brought on record by Assessing Officer to indicate that amount received by assessee from workers as well as from employers are not voluntary 7 ITA No. 1335 & 356/M/2014 but under coercion or force. If Assessing Officer doubted voluntary contribution made by workers and employers then he could have conducted proper enquiry. In absence of any contrary fact or evidence found during search or gathered during assessment proceedings, allegation of authorities below are merely based on assumptions and not on any substance or material. On contrary assessee has produced confirmation letters from employers who paid contribution as well as from workers in whose cases matters/ disputes were settled through assessee and contribution was made as per settlement agreement between parties. Therefore, assessee has produced relevant evidence in support of its claim that this is voluntary contribution. Once CIT(A) has accepted contribution of workers as exempt from tax u/s 10(24). Similarly contribution made on account of same service/activity of assessee by counter party being employer in pursuant to settlement/resolution of disputes, is also exempt u/s 10(24) of Income Tax Act. As per section 27(2) of Trade Union Act 1926, even rule of trade unions do not provide for distribution of funds of trade unions on dissolution, registrar shall divide funds amongst members in such manner as may be prescribed, therefore, in any case funds available with assessee shall be distributed among members either as per rules of union or as per provisions of section 27(2) of Trade Union Act 1926. In view of above discussion, we are of view that contribution received by assessee in pursuant to its activity which are in accordance with objects of assessee union cannot be treated as income from business or profession and accordingly same is exempt u/s 10(24) of Income Tax Act as well as on principle of mutuality being distributed among members of assessee union . 8 ITA No. 1335 & 356/M/2014 Respectfully following said decision, we allow grounds raised by assessee on this issue. 7. In so far as ground No. 3 is concerned, Co-ordinate Bench in para-22 of its order dismissed ground as infructuous in view of findings given in ground No. 1 & 2. As same will apply mutatis and mutandis for this year also, this ground is dismissed as infructuous. 8. Ground No. 4 is regarding levy of interest u/s. 234B and it is only consequential. Thus this ground is dismissed as consequential. 9. Coming to Revenue s appeal, revenue has raised following grounds: 1. "On facts and in circumstances of case and in law, CIT(A) erred in holding that capital gains arising out of sale of property at "Poiser", is not taxable in A. Y 2004-05, stating that same arose prior to A. Y 2004-05, without appreciating fact that assessee had not credited sale proceeds in Income and Expenditure account for A. Y. 95-96 and subsequent years and offered no taxable income under capital gains for such assessment year and also fact that no return of income was filed for A. Y. 95-96 and 96-97, disclosing capital gain on sale of property. " 2. "On facts and in circumstances of case and in law, CIT(A) erred in holding that capital gains arising out of sale of property at Poiser, is not taxable in A. Y 2004-05, since same arouse prior to A. Y 2004- 05, without appreciating fact that assessee had kept entire sale proceeds in balance sheet on liability side as advance for several years till A. Y 2004-05, which clearly indicates that transactions relating to sale of property was not complete, i.e no transfer had taken place within meaning of sec 2(47)of I. T. Act prior to A. Y. 2004-05" 9 ITA No. 1335 & 356/M/2014 10. Briefly stated facts are that assessee had filed return of income on 20/07/104 declaring 'NIL' total income after claiming exemption u/s. 10(24) on entire income. However, from profit and loss account it was found that out of total receipts of Rs. 2,38,83,663/- amount of Rs. 2,23,42,132/- was received on account of 'profit on sale of Poiser Property' and this was not offered to tax. case was reopened on above ground and order u/s. 143(3) r.w.s. 147 was passed on total income of Rs. 1,06,65,840/- on 13/12/2007. gains on sale of "Poiser property" not offered by assessee was taxed in assessment order. AO held that assessee had not offered income earlier to avoid taxes and also invoked section 68 of IT Act to make addition. Assessing Officer taxed capital gains of Rs 2,23,42,132/- against loss as per Income expenditure account of Rs 1,16,76,294/- and assessed taxable income at Rs 1,06,65,840/-. 10.1. Being aggrieved assessee filed appeal before CIT(A) and CIT(A) by order dated 19/02/08 enhanced total income to Rs. 2,23,42,132/- by treating resultant income under head capital gain(LTCG), thereby negating set off of business loss of Rs. 1,16,76,294/-. In doing so Ld. CIT(A)held that since appellant had not offered this income earlier and credited same in books only in AY 2004-05, led to inference that sale was not completed earlier. Ld. CIT(A) further held that section 68 was not applicable to facts of case. 10.2. matter was carried to ITAT and Hon'ble ITAT, 'E', Bench, Mumbai in ITA NO. 1910/M/2008 dated 23/06/09 set aside 10 ITA No. 1335 & 356/M/2014 matter by observing that 'we accordingly set aside order of CIT(A) and restore matter to file of AO for passing fresh order after necessary examination in light of observations made above and after allowing opportunity of hearing to assesee.' 10.3. In reassessment order assessing officer reproduced Para 3.1 and other relevant paragraphs of CIT(A)'s appellate order leading to computation of long term capital gain at Rs. 2,23,42,132/-. There is no discussion of compliance with directions of Hon'ble ITAT and verification carried out. Assessing Officer accordingly assessed long term capital gain at Rs. 2,23,42,132/-. Ld. CIT(A) held that capital gains arose prior to Assessment Year 2004-05 and he deleted capital gains assessed by Assessing Officer during this Assessment Year. 11. Ld. Departmental Representative vehemently supporting order of Assessing Officer submits that assessee credited advances received from sale of property as income in this year only. He submits that returns were not filed in earlier years and therefore Assessing Officer is justified in holding that there is transfer within meaning of provisions of Sec. 2(47) of Act during this Assessment Year and bringing to capital gains tax property given for development. 12. Ld. Counsel for assessee supports orders of Ld. CIT(A). 11 ITA No. 1335 & 356/M/2014 13. Heard rival submissions and perused orders of authorities below. We find from Ld. CIT(A) s order that issue has been elaborately considered by CIT(A) with reference to averments in assessment order, directions given by ITAT in its earlier order and submissions of assessee and concluded that there is no transfer of property during this Assessment Year within meaning of provisions of Sec. 2(47) of Act. Ld. CIT(A) after appreciating documents submitted by assessee concluded that title of property has been transferred in financial year 1996-97 relevant to Assessment Year 1997-98 and therefore capital gains arose prior to Assessment Year 2004-05 and therefore not liable to tax in Assessment Year 2004-05 observing as under: 5.1. I have given my careful consideration to rival submissions, perused material on record and duly considered factual matrix of case as also applicable legal position. 5.2. Before me it is argued that Ld. Assessing Officer has passed order simply relying on earlier CIT(A)'s order and that AO did not follow directions of Hon'ble ITAT at all. paper book has also been filed numbering pages 1 to 173 which enclosed copies of various documents and case laws. It is contention of appellant that possession of property was handed over on 18/09/94 and hence transfer took place on 18/09/94 u/s. 2(47) clause (v). It is submitted that appellant had received full payments and it executed irrevocable Power of Attorney in favour of builder and hence transfer has taken place in 1995-96 or 1996-97. 5.3. fact remains that appellant did not reflect profit on sale of property at Poiser at Rs.2,23,42,132/- in 12 ITA No. 1335 & 356/M/2014 any of earlier assessment years including assessment year 1995-96 or 1996-97. It is only in assessment year 2004-05 that appellant credited profit amount on sale of property in profit and loss account. However, even in this year it did not offer same for taxation. claim of appellant that same is exempted u/s. 10(24) is also not correct since this section does not exempt income in nature of capital gains in hand of trade union. 5.4. appellant entered in to agreements for development cum sale on 30/10/1995 with different persons belonging to Dattani Construction by way of separate agreements. As result of these agreements, appellant received certain considerations totaling to Rs. 2,60,00,000/- during period August 1994 to December,1995. appellant treated these amounts as advances in their books of accounts for several years. It never credited this amount to its income and expenditure account till A.Y. 2004-05. No acceptable reason has been given for treating advance received as advance in all these years prior to A.Y. 2004-05. inescapable conclusion can only be that only appellant wanted to hide nature of transaction and to avoid payment of taxes in respect of this transaction. Even in A.Y. 2004-05, in return filed it was claimed that same is exempted u/s. 10(24) of Income tax Act. There was deliberate intention to conceal particulars of income in respect of profit earned on sale of property and to evade tax liability. 5.5. In order of Hon'ble ITAT, Hon'ble bench noted that assessee had acquired said property vide agreement for sale dated 14/05/94 from M/s. Cable Corporation of India. It then entered into agreements for development cum sale of property on different dates with different persons belonging to Dattani Construction. They also noted that land was subject matter of acquisition and restraints under Urban Land Ceiling 13 ITA No. 1335 & 356/M/2014 Act and therefore whether and when such right or interest in property could be legally transferred should be examined. They also noted that Power of Attorney holder was required to make application under ULCA and it is not clear as to what permission has been received. fact that assessee itself has shown amount received as advance till 01/04/2003 indicates that it had no permission to transfer. But this aspect has not been examined. Accordingly matter was restored to assessing officer for verification. 5.6. assessing officer in his order giving effect to ITAT order has merely stated that: "Accordingly case was fixed for hearing and Shri N R Agarwal , FCA & AR vide his forwarding letter dated 24/12/2010 submitted details in connection with proceedings. He has submitted Municipal Corporation of Greater Bombay's order for De- reservation dated 10/06/1996, ULC order dated 17/02/1997 & 17/10/1996 from Add. Collector, Commencement Certificate for construction of building from BMC dated 20/01/1998, Solicitor's certificate dated 04/08/2007 certifying that land is transferred in 1995/96 u/s 53A of Transfer of Properties Act, Bank Certificate for payments received from Developer & Power of Attorney in favour of builder. Thereafter, entire portion from earlier CIT(A) order, which was subject matter of appeal before ITAT, has been extracted without answering questions raised by Hon'ble ITAT and determining when transfer took place. 5.7. In appellate proceedings, details by way of paper book pages 1 to 173 has been filed dated 6-9-2011. It is submitted that same were filed before assessing officer and that no new evidence is filed. 14 ITA No. 1335 & 356/M/2014 5.8. perusal of papers filed indicates that vide Development agreement executed on 10-6-1994, Cable Corporation of India Ltd., for consideration of Rs.614,3601- , appellant was allowed to develop and sell, in respect of plot of land at Poisar of 30718 square yards approx 24882 square meters. owner allowed developer to apply for and obtain required permissions, develop and sell constructions on land. If permissions were received, and sales of flats took place, developer was entitled to all proceeds without having to pay owner any further payments. agreement was on 'as is where is' basis. It was recorded that land was under restraint as per order of Collector u/s 8(4) dated 31-10-81 and that property was reserved for Municipal Godown. 5.9. Vide similar 10 agreements dated either 19-9-1994 or 30- 10-1995, appellant entered into Agreement for Development Cum Sale with Dattani group. Each agreement covered part of land which was taken from Cable Corporation mentioned earlier. terms of this agreement were similar to development agreement of appellant with Cable Corporation. Thus, it recorded restriction of ULC u/s 8(4), reservation for Municipal Godown, and was on 'as is where is' basis. It allowed developer Dattanis to enter property as licensee. amount received as consideration was total of Rs 260,00,000/- over period of 10-8-1994 to 31-12-1995. Power of Attorney, was executed by Cable Corporation of India Ltd first in favour of appellant trust and then in name of Dattani group. Similar P of was executed by appellant trust in favour of Dattani dated 5.11.96. 5.10. In proceedings before assessing officer, apart from above agreements and power of attorney, copies of following documents were submitted, which also forms paper book filed in present appeal proceedings. i) BMC Order dated 10/6/1996 - This permission allows development on land under reference with condition that 25% of builtup are will be constructed as Godown and handed over to 15 ITA No. 1335 & 356/M/2014 Municipal Corporation free of cost in lieu of permission to develop and construct residential units. It was also stipulated that NOC from ULC will be obtained. ii) Order dated 17-10-1996 from Collector under ULC, granting NOC with reference to condition imposed by BMC in its permission dated 10-6-1996. It was noted that one of conditions under which development is permitted, is that 25% of constructed area will be handed over to BMC for Municipal Godown. iii) Commencement Certificate permission dated 20-1-1998 from BMC iv) Order dated 17-2-1997 of Collector, Bombay under ULC, granting NOC for receiving TDR on part of land under DP reservations for Park and DP Road. v) Possession letter for land in question dated 18/9/1994 from appellant to Dattani Group in respect of Development agreement of appellant with Dattani group. vi) Copy of bank statement showing receipt of payments by appellant. 5.11. From these documents, it is inferred that permission to develop lands arose in 1996-97 when permissions from ULC and BMC were received. Consideration was received and possession was handed over. Thus, to conclude, as directed by ITAT in this case, title could have been transferred with ULC approval in FY 1996-97 relevant to Assessment Year 1997-98. 5.12. It is also argument of appellant that u/s. 2(47) clause (v), since possession was given on 18.9.1994, transfer took place at that time. This clause is in respect of contract of nature referred to in section 53A of Transfer of Property Act relating to part performance. This was inserted in statute wef 1.4.1988. capital asset in this case is development rights in property, on 'as is where is basis' with all restrictions, 16 ITA No. 1335 & 356/M/2014 and same rights were transferred to Dattani as was obtained from Cable Corporation of India Ltd. 5.13. There is no doubt in my mind that appellant has deliberately suppressed recognition of capital gains in earlier years and thus avoided payment of taxes. argument that its income is not taxable u/s 10(24) is not acceptable. However, capital gains, as per verifications directed by ITAT, in this case arose prior to AY 2004-05, and are thus are not taxable in AY 2004-05 . 14. On careful reading of Ld. CIT(A) s order, we do not find any valid reason to interfere with findings given by Ld. CIT(A) that transfer took place in Assessment Year prior to Assessment Year 2004-05 and capital gains arose prior to Assessment Year 2004-05 and therefore capital gains is not assessable during Assessment Year 2004-05. None of findings of Ld. CIT(A) have been rebutted by Revenue so as to canvas that transfer took place in Assessment Year 2004-05. Apparently, possession of property has been given prior to 2004-05 i.e. in financial year 1996-97 relevant to Assessment Year 1997-98. All development agreements were executed during period 10.6.1994 to 30.10.1995 for development of party. possession of property has been given on 18.9.1994 to Dattani group in respect of development agreement entered into by assessee with Dattani Group. Taking all these facts into consideration, it is apparent that transfer took place prior to 2004-05 therefore Ld. CIT(A) is perfectly justified in holding that no capital gains arose in Assessment Year 2004-05. Thus, we sustain order of Ld. CIT(A). 17 ITA No. 1335 & 356/M/2014 15. In result, appeal filed by assessee is partly allowed and appeal filed by Revenue is dismissed. Order pronounced in open court on 28th September, 2016. Sd/- Sd/- (RAJENDRA) (C.N. PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 28th September, 2016 Rj , Sr. PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai M/s. Engineering Mazdoor Sabha v. ACIT, Central Circle-43 or CIT Central-4