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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 25TH DAY OF FEBRUARY, 2021
PRESENT
THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA
AND
THE HON'BLE MR. JUSTICE V.SRISHANANDA
ITA NO.464/2019 BETWEEN:
M/S. BRIGADE PLAZA UNIT OWNERS ASSOCIATION NO.71/1, S.C.ROAD ANAND RAO CIRCLE BANGALORE-560 009 …APPELLANT
(BY SRI.DILIP KUMAR, ADV.,)
AND:
INCOME TAX OFFICER WARD NO.5 (2) (3), CENTRAL REVENUE BUILDING NO.1, QUEENS ROAD BANGALORE-560 001 … RESPONDENT
(BY SRI.K.V.ARAVIND, ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 05.10.2018 PASSED IN ITA NO.2466/BANG/2018 FOR ASSESSMENT YEAR 2015-2016, PRAYING THIS HONBLE COURT TO DETERMINE THE VARIOUS SUBSTANTIAL QUESTIONS OF LAW RAISED IN THE PRESENT APPEAL AND ETC.
THIS ITA COMING ON FOR HEARING THIS DAY, SATISH CHANDRA SHARMA J., DELIVERED THE FOLLOWING:
JUDGMENT
The present Income tax Appeal is arising out of the order dated 5.10.2018 passed by the Income tax Appellate Tribunal, Bangalore in ITA.No.2466/Bang/2018 for assessment year 2015- 16.
The facts of the case reveal that the appellant is an association formed by the unit owners of the commercial condominium known as ‘Brigade Plaza’ under the Karnataka Societies Registration Act, 1960. The appellant – association collects funds and maintenance charges from its members and maintains the building. The dispute in the present case relates to assessment year 2015-16.
The assessee has filed its return of income for the assessment year 2015-16 on 19.3.2016 declaring gross total income of Rs. Nil and claiming return of Rs.1,85,758/- on the TDS made by the deductors. The assessee has declared total income at Nil. During the year, the assessee has claimed exemption of Rs.21,45,805/- on the income declared under the head Income from Other Sources.
The case of the assessee was selected for scrutiny and a notice under Section 143(2) of the Income tax Act, 1961 (‘Act, 1961’ for short), dated 20.9.2016 was issued. The assessee did file a reply in the matter. Finally, on examination of the details furnished by the assessee, it was noticed that during the year the assessee has claimed exemption of Rs.21,45,804/- on the surplus income after deducting personal expenses declared under the head Income from Other sources.
The assessing officer, on examination of the income and expenditure account for the year ending on 31.3.2015 noticed that the assessee has received (i) pay and park charges to the tune of Rs.1,63,940/-, (ii) Rent from Vodafone Tower Rs.3,41,055/-, (iii) Interest from Fixed Deposit Rs.11,15,666/-,
(iv) Rent from BSNL Tower Rs.18,555/- and (v) Rent from Idea Tower Rs.5,75,059/-, totaling to Rs.22,14,270/-. Out of this income, the assessee has claimed exempt income on mutuality concept to the extent of Rs.21,54,804/- after deducting personal expenses. The assessing officer did not consider the objections raised by the assessee and the disallowance claimed by the assessee to the tune of Rs.22,14,270/- under exempt income
category and assessed tax under Sections 234A and 234B of the Act, 1961.
The assessee, being aggrieved by the order passed by the assessing officer, dated 18.12.2017, preferred an appeal before the Commissioner of Income tax (Appeals). However, the Commissioner of Income tax rejected the same and again an appeal was preferred before the Income tax Appellate Tribunal and the same has also been rejected. The Income tax Appellate Tribunal, after taking into account the judgment delivered in the case of Bangalore Club vs. Commissioner of Income tax, reported in (2013) 29 taxmann.com 29 (SC), has dismissed the appeal. The Income tax Appellate Tribunal in its order has held as under: “5. I have considered the rival submissions. First of all, I take note of the facts in the present case. In para no. 2 of the assessment order, it is noted by the AO that the assessee has claimed exemption of Rs. 21,45,804/- being the surplus income after deducting personal expenses declared under the head Income from Other Sources. The AO has noted the nature of those incomes which are 1) Pay & Park Charges -Rs. 1,63,940/-, 2) Rent from Vodafone Tower - Rs. 3,41,055/-, 3) Interest from Fixed Deposit - Rs. 11,15,666/-, 4) Rent from BSNL Tower - Rs. 18,555/- and 5) Rent from Idea Tower - Rs. 5,75,059/- total Rs. 22,14,270/-. Hence it is seen that these incomes are earned by the assessee from outsiders who are not the members of the assessee AOP and hence, neither contributor nor participator in profit. In the light of these facts, now I examine the applicability of the judgement of
Hon'ble Apex Court rendered in the case of Bangalore Club Vs. CIT (supra) which is followed by the authorities below and also the judgement of Hon'ble Karnataka High Court rendered in the case of Canara Bank Golden Jubilee Staff Welfare Fund Vs. DCIT (supra) on which reliance has been placed by ld. AR of assessee in the course of arguments before me. Regarding the applicability of judgement of Hon'ble Apex Court rendered in the case of Bangalore Club Vs. CIT (supra), I find that in this case, as per the facts noted by Hon'ble Apex Court in para 3 of the judgement, it was noted that the assessee sought exemption from payment of income tax on the interest earned on the Fixed Deposit with certain banks which were corporate members of the assessee on the basis of doctrine of mutuality. But tax was paid on the interest earned on Fixed Deposit kept with non-member banks. It is seen that even in respect of income on Fixed Deposit kept with those banks which were corporate members of the assessee, it was held by Hon'ble Apex Court that such interest income is not governed by the doctrine of mutuality. In my considered opinion, as per this judgement, the issue involved in the present case is squarely covered against the assessee because in the present case also, the incomes in question are undisputedly earned by assessee from non-members and such earning of income is not in the course of providing certain facilities by the assessee to its members. 6. Now I examine the applicability of the judgement of Hon'ble Karnataka High Court rendered in the case of Canara Bank Golden Jubilee Staff Welfare Fund Vs. DCIT (supra) on which reliance has been placed by ld. AR of assessee. As per the facts noted in Para 5 of this judgment, it is noted that contributions from the members are used for lending loans to the members and in turn collect interest from the members and as such, the income is exempted from tax on the principle of doctrine of mutuality in terms of Section 4 of the Income Tax Act and in addition to that, this was also claimed in that case that the funds collected by the assessee are used to provide monetary assistance to its members were kept in the bank not with the primary object of earning interest, but to keep it in the safe custody and it was claimed that such interest income earned from bank is also ultimately used for the ultimate benefit of the members. Hence it is seen that as per the facts of that case, the fund was contributed by the members for providing financial assistance to the members and only surplus fund which were not required for the time being were kept in the bank for safe custody mainly and
not for earning interest income. In the present case, the facts are totally different. The income in dispute in the present case are 1) Pay & Park Charges, 2) Rent from Vodafone tower, 3) Rent from BSNL tower, 4) Rent from Idea Tower and 5) interest on Fixed Deposit. The first four incomes i.e. Pay & Park Charges and rent from Vodafone, BSNL and Idea towers cannot be considered to be covered by doctrine of mutuality. Regarding interest on Fixed Deposit also, this is not the claim of the assessee that the fund which was used for earning such interest income on Fixed Deposit was mainly for the purpose of providing financial assistance to the members and only surplus fund kept with bank for safe custody and not for earning interest income and earning of interest income is incidental. Hence in the facts of present case, this judgement of Hon'ble Karnataka High Court is also not applicable. Hence in my considered opinion this judgement of Hon'ble Karnataka High Court rendered in the case of Canara Bank Golden Jubilee Staff Welfare Fund Vs. DCIT (supra) is not applicable in the facts of present case. 7. In view of the above discussion, I find that the judgement of Hon'ble Apex Court rendered in the case of Bangalore Club Vs. CIT (supra) is squarely applicable in the present case and as per this judgement of Hon'ble Apex Court, the issue is covered against the assessee and the judgement of Hon'ble Karnataka High Court rendered in the case of Canara Bank Golden Jubilee Staff Welfare Fund Vs. DCIT (supra) is not applicable in the present case and hence, by respectfully following the judgement of Hon'ble Apex Court rendered in the case of Bangalore Club Vs. CIT (supra), I decline to interfere in the order of CIT(A). 8. In the result, the appeal filed by the assessee is dismissed.”
The Income tax Appellate Tribunal has dismissed the appeal placing reliance upon the judgment delivered in the case of Bangalore Club vs. Commissioner of Income tax (supra).
This Court while admitting the appeal has framed the following substantial questions of law:
“1) Whether the Impugned Judgment and Order of the Authorities are vitiated due to the failure on their part by not applying the doctrine of mutuality and not tainted with commerciality.
2) Whether the Authorities were right in equating the income generated by Clubs with the Appellate Association and the conclusion of the Authorities in this regard is manifestly erroneous and untenable and is based on wrong interpretation and application of law.”
This Court has carefully gone through the order passed by the assessing officer, Commissioner of Income tax (Appeals) as well as the Income tax Appellate Tribunal. The assessee was claiming the disallowance on the basis of principles of mutuality. The principle of mutuality relates to the notion that a person cannot make a profit from himself. An amount received from oneself is not regarded as income and is therefore not subject to tax, only the income which comes within the definition of Section 2(24) of the Act is subject to tax.
-0000009. In the present case, the income in dispute relates to pay and park charges, rent from Vodafone Tower, rent from BSNL Tower, rent from Idea Tower and Interest from Fixed Deposit. In the first place the income i.e, pay and park charges, rent from Vodafone Tower, Rent from BSNL Tower, Rent from Idea Tower cannot be considered to be covered by the doctrine of mutuality. With regard to interest on Fixed Deposit also, the doctrine is certainly not at all applicable.
In the light of the aforesaid, as the matter is squarely covered by the judgment delivered by the Hon’ble Supreme Court in Bangalore Club vs. Commissioner of Income tax (supra), the substantial questions of law are answered in favour of the department and against the assessee. The appeal stands dismissed.
Sd/- JUDGE
Sd/- JUDGE