THE MYLAPORE CLUB,CHENNAI vs. DCIT, CHENNAI

The first issue arises for consideration is reopening of the assessment under Section 147 of the Income Tax Act, 1961 (in short ‘the Act’).

On the contrary, Shri V. Nandakumar, the Ld. Departmental Representative submitted that no assessment was made under Section 143 (3) of the Act. The return filed by the assessee was processed under Section 143 (1) of the Act. Since, the Assessing Officer found that income chargeable to tax was escaped from assessment, and due to expiry of time limit for notice under Section 143 (2) of the Act, the assessment was reopened by issuing notice under Section 148 of the Act. Therefore, it is not a case of change of opinion.

We have considered the rival submissions on either side and perused the material available on record. Admittedly, the return filed by the assessee was processed under Section 143 (1) of the Act. For making prima facie adjustment no assessment order was passed under Section 143 (3) of the Act. Therefore it cannot be said that the Assessing Officer applied his mind to any of the issue raised by the assessee and expressed his opinion. For the purpose of change of opinion, the Assessing Officer was expected to express an opinion earlier. In the case before us, it is not the case of the assessee that the Assessing Officer examined any of the issue or the claim made by the assessee and expressed his opinion. Since, the conditions provided for reopening of the assessment under Section 147 of the Act was satisfied, this Tribunal is of the considered opinion that the Assessing Officer has rightly issued notice under Section 148 of the Act for reopening of the assessment under Section 147 of the Act.

We heard Shri. V.S. Jayakumar, the Ld. counsel for the assessee and Shri V. Nandakumar, the Ld. Departmental Representative.

Admittedly, the assessee deposited fixed deposit in the bank and the interest earned by the assessee was claimed as exemption on the principles of mutuality. This issue was examined by this Tribunal elaborately in Ootacamund Club v Income Tax Officer, (2015) 42 ITR (Trib) 0435 (Chennai), found that when the assessee received interest either from the bank or any other financial institution which are not the members of the assessee club cannot be allowed as exempt, since, the principle of mutuality cannot be applied to such transaction. In view of this decision of the co-ordinate bench of this Tribunal in Ootacamund v ITO (supra), this Tribunal did not find any reason to interfere the order of the lower authority. Accordingly the same is confirmed.

The next ground of appeal is with regard to expenditure for earning interest income.

Shri V.S. Jayakumar, the Ld. counsel for the assessee submitted that the assessee deposited money in the fixed deposit and earned interest. For the purpose of depositing the money and to follow up the matter, the assessee has to naturally depute an employee. Therefore the assessee has to incur certain expenditure on payment of salary to such employee which has to be allowed for earning the interest income.

On the contrary, Shri V. Nandakumar, the Ld. Departmental Representative submitted that for earning interest income from fixed deposit of the bank, the assessee need not incur any expenditure at all. The employee deputed by the assessee, is employee of the assessee for the purpose of carrying out his regular activity. Making fixed deposit and earning of interest is not the business of the assessee. Therefore at the best, the salary paid to the employee may be claimed as expenditure while computing the operational income of the assessee. Making fixed deposit and earning interest cannot be construed as an operation activity of the assessee. Therefore the CIT (Appeals) had rightly disallowed the claim of the assessee.

We have considered the rival submissions on either side and perused the material available on record. The assessee is a club and claiming exemption on the principles of mutuality. The operational income from the mutual activity has to be computed after allowing of operational cost. The salary paid to the employee of the assessee is one of the operational costs which need to be deducted while computing the total income of the assessee. As rightly submitted by the Ld. D.R., making fixed deposit is not the business of the assessee.

In the result, the appeals of the assessee stands dismissed.