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Income Tax Appellate Tribunal, DELHI BENCH “SMC-3”, NEW DELHI
Before: SHRI H.S. SIDHU
Assessee by : Sh. Arun Kundra, Adv. Department by : Sh. F.R. Meena, Sr. DR ORDER ORDER ORDER ORDER This appeal by the Assessee is directed against the Order dated 24.11.2015 of the Ld. CIT(A)-I, New Delhi pertaining to assessment year 2010-11 on the following grounds:-
“1. Under the facts and circumstances of the case, and in law, the learned Assessing Officer and also the learned Commissioner of Income Tax (Appeals) -I committed injustice and grossly erred in disallowing the exemption to the Assessee in respect of not applying and adhering to the following facts and principles:
(i) Exemption uls 11 by virtue of registration u/s 12AA granted by CIT, Ghaziabad vide order NO.03/ 2007 - 08 w.e.f 24.04.2007 (enclosed as annexture 1A) .
(ii) Doctrine of Mutuality accepted by Hon'ble ITAT vide order NO.3708/2008 dated 31.08.2009 for the assessment year 2004-05 (enclosed as annexture 1B).
2. The learned Assessing Officer and also the learned- ClT (A) grossly erred in adding to the income of the assessee, the interest received from Bank, interest received on IT refund and interest. received from Cable Operator totaling Rs.18,18,599, simply because the interest income was received from 3rd parties.
3. The learned Assessing Officer and also the learned CIT (A) grossly erred in not considering and thereby allowing the expenses of Rs.28,70,532 which were in. the nature of recurring, office and administrative expenses incurred in the course of earning income.
4. The appellant craves leave to add, alter, amend and modify any other ground of appeal before or at the time of hearing.”
2. The brief facts of the case are that the return was filed on 26.7.2010 declaring income at Rs. NIL. The return was processed u/s. 143(1). Thereafter the case was selected under compulsory scrutiny. Notice u/s. 143(2) dated 15.9.2011 was issued and in compliance thereto Assessee’s AR attended the hearing from time to time and furnished details / replies as called for. Books of accounts were also produced, which were test-checked. Thereafter, the AO completed the assessment u/s. 143(3) of the I.T. Act, 1961 on 14.2.2013 at an income of Rs. 18,18,600/- against the returned income of Rs. NIL and made the following additions:-
- Interest income from bank Rs. 17,04,482/- - Interest income on Income Rs. 1,14,117/- Tax Return and cable operator receipts .
3. Against the assessment order, assessee preferred an appeal before the Ld. CIT(A) who vide his impugned order dated 07.10.2015 has upheld the action of the AO and disposed of the Appeal of the assessee.
During the hearing, Ld. Counsel of the assessee stated that the similar issue involved in the present appeal being ground no. 1 and 2 has already been adjudicated and decided in favour of the assessee by the ITAT decision dated 31.8.2009 passed in (AY 2004-05) in assessee’s own case.
4.1 With regard to ground no. 3, Ld. Counsel of the assessee has stated that Assessing Officer and the CIT (A) grossly erred in not considering and thereby allowing the expenses of Rs.28,70,532 which were in the nature of recurring, office and administrative expenses incurred in the course of earning income. He further stated that details of all expenses incurred during the relevant previous year in the course of earning the income were filed, but they were not considered.
5. On the contrary, Ld. DR relied upon the orders of the authorities below and requested that the same may be upheld.
6. I have heard both the parties and perused the records especially the impugned order and the order of ITAT dated 31.8.2009 passed in 3708/Del/2008 (AY 2004-05) in assessee’s own case. I find that assessee has been granted exemption u/s. 11 by virtue of registration u/s. 12AA granted by the CIT, Ghaziabad vide order No. 03/2007-08 w.e.f. 24.4.2007 and principle of Doctrine of Mutuality has been accepted by the ITAT in its order dated 31.8.2009. Therefore, I find considerable cogency in the contention of the Assessee’s AR that the issue involved in ground nos. 1 and 2 are squarely covered by the ITAT decision dated 31.8.2009, as aforesaid. For the sake of clarity, I am reproducing the relevant paragraph of the Tribunal’s order dated 31.8.2009 in assessee’s own case, as aforesaid as under:-
“4. We have considered the rival submissions. Apropos the facts as available shows that the IRWO has collected a one time maintenance fees from the from the members of Swarna Jayanthi Rail Nagar Flat Owners. After collecting the one time maintenance fee IRWO along with the assessee society jointly held the one time maintenance fees in Fixed deposit with a nationalized bank. The interest from the deposit has been used for the purpose of meeting the maintenance, expenditure in relation to the housing complex of the assessee society. Under these facts a perusal of the decision of the Hon'ble High Court of Karnataka in the case of Bangalore Club shows that the Hon'ble High Court has considered the decision of the Hon'ble Supreme Court in the case of Chelmsford Club reported in 243 ITR 89 (S.C.) and has held as follows
"In the said judgment the Division Bench has made it very clear that income earned from an outside agency on interest or securities from the bank would not be covered on the principles of mutuality for claiming exemption from tax. This judgment squarely applies to the facts of this case.
On the facts of this case and in the light of the legal principles it is clear to us that what has been done by the club is nothing but what could have been done by a customer of a bank. The principle of “no man can trade with himself' is not available in respect of a nationalized, bank holding a fixed deposit on behalf of its customer. The relationship is one of a banker and a customer."
5. Further, a perusal of the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of All India Oriental Bank of Commerce Welfare Society 184 CTR 274 (Del) shows that the Hon'ble Jurisdictional High Court of Delhi has also considered the decision of the Hon’ble Supreme Court of India in the case of Chelmsford Club referred to (supra) and in regard to the identical issue held as follows.
"A. Whether Tribunal was correct in excluding the interest income on deposits made out of contributions from 5 members, deposits so made are not determined vis-a- vie member's contributions?
B. Whether the principle of mutuality applies to the cases where interest earned on deposits made out of members contributions is not seggregable from the interest earned from non-members contributions/ non- members contributions/ do nations/ ?
C. Whether ratio of Supreme Court of India judgment in Chelmsford Club vs CIT (2000) 159 CTR (SC) 235: (2000) 243 ITR 89 (SC) applies to the cases where the income earned on deposits made out of members and non-members contributions/ donations/ subscriptions are not seggregable?
D. Whether the order of Tribunal is perverse in law "on facts"?
As is evident from the format of the questions, the only issue raised by the Revenue is as to whether the interest income derived by the respondent/ assessee on the contributions made by the members of the welfare society is to be taxed in the hands of the society or not. Since in our view, the issue raised by the Revenue is legal and is no more res integra, we deem it unnecessary to state the facts. Suffice it to note that while completing assessment on the respondent assesee, a co-operative society comprising of the employees of the bank, the AO had held that the interest income earned by the society on the contributions received from the members was not exempt on the principle of mutuality.
The issue with regard to the concept and principle of mutuality has been elaborately examined by the apex Court in Chelmsford vs. CIT (2000) 159 CTR (SC) 235: (2000) 243 ITR 89 (SC). Their Lordships have held that where a number of persons combine together contribute to a common fund for the financing of some venture -or object and in this respect have no dealings or relations with any outside body, - then any surplus generated cannot in any sense be regarded as profits chargeable to tax. It has been observed that what is required to be seen is whether there is a complete identity between the contributors and participators. Once the identity of the contributor to the fund is of the recipients of the funds; the treatment of the company, though incorporated as a mere entity for the convenience of the members, in other words as an instrument obtained to their mandate; and the impossibility that the contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves is established, the doctrine of mutuality is established.
It is not the Revenue's case that the afore noted three conditions are not established in the instant case. As a matter of fact, before the Tribunal the ld. Departmental Representative had conceded that the controversy sought to be raised again in this appeal, stands concluded against the Revenue in Chelmsford Club vs CIT (supra). »
As it is noted that the issue has been held against the assesee by the Hon'ble High Court of Karnataka in the case of Bangalore Club referred to (supra), but as the issue had been held in favour of the assesee by the Hon 'ble Jurisdictional High Court of Delhi, respectfully following the decision of Hon’ble Jurisdictional High Court in the case of All India Oriental Bank of Commerce Welfare Society referred to (supra), the AO is directed to grant the assessee the exemption in respect of the interest on the bank F.D.Rs of Rs. 13,25,112/- by applying the principle and doctrine of mutuality. As the issue has been held in favour of the assessee the other contentions raised are not adjudicated upon.
In the result the appeal of the assesee is allowed.”
6.1 Respectfully following the above precedent of the ITAT in assessee’s own case for the assessment year 2004-05, the issue no. 1 & 2 are decided in favour of the assessee on the similar lines.
7. With regard to ground no. 3 is concerned which is relating to not considering and thereby allowing the expenses of Rs.28,70,532 by the lower authorities, which were in the nature of recurring, office and administrative expenses incurred in the course of earning income. I find that both the revenue authorities have not discussed this issue in their respective orders, therefore, the ground no. 3 is remitted back to the file of the AO for fresh consideration, as per law, after giving adequate opportunity of being heard to the assessee.
In the result, the Appeal of the Assessee is allowed for statistical purposes.
Order pronounced in the Open Court on 13/10/2016.