DCIT, New Delhi v. M/s Roshnara Club Ltd., New Delhi

ITA 3483/DEL/2011 | 2008-2009
Pronouncement Date: 23-09-2011 | Result: Dismissed

Appeal Details

RSA Number 348320114 RSA 2011
Assessee PAN AAACR5771J
Bench Delhi
Appeal Number ITA 3483/DEL/2011
Duration Of Justice 2 month(s) 15 day(s)
Appellant DCIT, New Delhi
Respondent M/s Roshnara Club Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 23-09-2011
Date Of Final Hearing 14-09-2011
Next Hearing Date 14-09-2011
Assessment Year 2008-2009
Appeal Filed On 08-07-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `F: NEW DELHI BEFORE SHRI C.L.SETHI JUDICIAL MEMBER AND SHRI B.C. MEENA ACCOUNTANT MEMBER I.T. A. NO.3483/DEL/2011 ASSESSMENT YEAR : 2008-09 DY. COMMISSIONER OF INCOME-TAX M/S. ROSHNARA CLUB LTD. CIRCLE 15(1) NEW DELHI. VS. ROSHANARA GARDEN DELHI. PAN: AAACR5771J (APPELLANT) (RESPONDENT ) APPELLANT BY: SMT. PRATIMA KAUSHIK SR. DR & SHRI M.K. CHAND SR. DR. RESPONDENT BY: SHRI RANJAN CHOPRA CA O R D E R PER C.L. SETHI JUDICIAL MEMBER: THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 06 .04.2011 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT MADE UNDER SEC.143(3) OF THE INCOME-TAX ACT 1961 (THE ACT) FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.52 78 283/- MADE BY THE AO ON ACCOUNT OF INTERES T INCOME ON FIXED DEPOSITS. 2 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT AN ASS OCIATION SATISFIES NORM OF MUTUALITY IN RESPECT OF RECEIPTS OF CONTRIBUTIONS FROM ITS MEMBERS DOES NOT NECESSARILY LEAD TO CONCLUSION THAT EVERY ACTIVITY OF THAT ASSOCIATION SATISFIES TEST OF MUTUALITY. 3. THE ASSESSEE IS A CLUB AND FILED ITS RETURN OF I NCOME IN THE STATUS OF LIMITED COMPANY. THE ASSESSEE HAS RENTAL INCOME FR OM GARDEN AND GROUND AND SPONSORSHIP. THE ASSESSEE CLAIMED THAT THE INC OME OF THE ASSESSEE WAS EXEMPT FROM TAXATION ON THE ACCEPTED PRINCIPLES OF MUTUALITY. THE ASSESSEE DECLARED INCOME AT RS.2 64 141/- IN THE RETURN OF I NCOME FILED ON 26.03.2010. THE CASE WAS SELECTED FOR SCRUTINY. I N THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THE ASSE SSEE HAD EARNED INTEREST ON FIXED DEPOSITS AMOUNTING TO RS.52 78 283/- WHIC H WAS CLAIMED AS EXEMPTED ON THE PRINCIPLES OF MUTUALITY. THE AO AS KED THE ASSESSEE TO SHOW CAUSE AS TO WHY INTEREST AMOUNTING TO RS.52 78 283/- ON FIXED DEPOSITS SHOULD NOT BE TAXED UNDER THE HEAD INCOME FROM OTH ER SOURCES. THE ASSESSEE THEN SUBMITTED ITS REPLY BEFORE THE AO CON TENDING THAT INTEREST INCOME ON FIXED DEPOSITS IS NOT TAXABLE UNDER THE P RINCIPLES OF MUTUALITY. HOWEVER THE AO FOUND THE ASSESSEES REPLY AS UNACC EPTABLE IN THE FOLLOWING AMONGST OTHER REASONS:- (1) THE HONBLE MADRAS HIGH COURT IN THE CASE M/S. MADR AS CRICKET CLUB VS. ITO VIDE ORDER DATED 30.11.2009 HAS HELD THAT PRINCIPLE OF 3 MUTUALITY AND NO MAN CAN TRADE WITH HIMSELF IS NOT APPLICABLE TO THE INTEREST INCOME FROM FIXED DEPOSIT EARNED FROM BANK OUT OF THE SURPLUS FUNDS RAISED FROM CONTRIBUTION FROM SEVERAL MEMBERS OF THE CLUB EVEN WHEN THE BENEFIT OF INTEREST DERIVED IS U TILIZED BY SEVERAL MEMBERS OF THE CLUB. (2) IN THE CASE OF MADRAS GYMKHANA CLUB VS. DCIT REPORT ED IN (2009) 28 DTR THE HONBLE HIGH COURT AFTER A DETAILED ANA LYSIS OF THE QUESTION INVOLVED TOOK THE VIEW THAT THE BENEFIT O F EXEMPTION CANNOT BE EXTENDED TO THE INTEREST INCOME EARNED FROM INVE STMENTS AND SURPLUS FUNDS PARKED WITH SOME OF THE MEMBERS OF TH E BANK AND INSTITUTIONS IN THE FORM OF FIXED DEPOSITS AND SECU RITIES. (3) THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJAR AT LIMITED VS. CIT HAS TAKEN A VIEW THAT INCOME DERIVED FROM INVE STMENT MADE OUT OF SURPLUS FUND IS NOT BY WAY OF CONTRIBUTION FROM THE MEMBERS OF THE CLUB BUT IT IS AN INCOME DERIVED FROM A THIRD PARTY . (4) THE DIVISION BENCH OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. I.T.I. EMPLOYEES DEATH & SUPERANNUATION REL IEF FUND HAS HELD THAT THE INGREDIENTS OF MUTUALITY WERE MISSING IN THE CASE SINCE APART FROM THE CONTRIBUTIONS MADE BY THE MEMBERS T HERE WERE OTHER SOURCES OF FUNDING FOR THE TRUST FUND. IT WAS OBSE RVED THEREIN THAT THE 4 PRINCIPLE THAT NO PERSON COULD TRADE WITH HIMSELF W OULD NOT ARISE AS MONEYS WERE INVESTED BY THE ASSESSEE WITH THE BANK TO EARN INCOME TO ENABLE THE ASSESSEE TO DISCHARGE ITS OBLIGATIONS . CONSEQUENTLY THE INCOME EARNED FROM AN OUTSIDE AGENCY BY WAY OF INT EREST WOULD NOT BE COVERED BY THE PRINCIPLE OF MUTUALITY. (5) THE AO HAS ALSO RELIED UPON THE DECISION IN THE CAS E OF CIT VS. BANGALORE CLUB. (6) THE AO HAS ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. COMMON EFFLUENT TREATM ENT PLANT (THANE BELAPUR) ASSOCIATION (2010) 5 TAXMANN.COM 11 0(BOM.) 4. CONCLUDING PART OF THE AOS ORDER WHERE HE HAS SUMMARIZED THE REASONS FOR REJECTING THE ASSESSEES CLAIM IS AS U NDER:- 7. THUS IN THE INSTANT CASE THE PRINCIPLE OF MUT UALITY CANNOT APPLY TO THE INTEREST INCOME RECEIVED BY THE ASSESSEE. THIS IS BECAUSE OF THE FOLLOWING REASONS: 7.1 THE INTEREST INCOME DOES NOT SATISFY THE TEST OF MU TUALITY SINCE THE INCOME IS GENERATED NOT FROM THE MEMBERS OF THE ASSESSEE BUT FROM THIRD PARTIES SUCH AS BANKS W ITH WHOM THE SURPLUS IS KEPT IN FIXED DEPOSITS; 7.2 CLAUSE 3(F) OF THE MEMORANDUM OF ASSOCIATION ENABLE S THE ASSESSEE TO INVEST THE MONEY OF THE COMPANY NO T IMMEDIATELY REQUIRED IN SUCH SECURITIES AS MAY FRO M TIME TO TIME BE DETERMINED BY THE COMMITTEE INCLUDI NG ANY DEBENTURES ISSUED BY THE COMPANY. AN INVESTMEN T MADE IN PURSUANCE OF THE PROVISIONS OF CLAUSE 3(F) OF THE MOA WILL NOT MEET THE TEST OF MUTUALITY SINCE INTE REST IS 5 EARNED OUT OF A COMMERCIAL DECISION OF THE ASSESSEE TO INVEST IN SUCH DEPOSITS FOR THE PURPOSES OF EARNING INTEREST. 7.3 THE PREDOMINANT VIEW ON THE QUESTION AS TO WHETHER INTEREST ON BANK DEPOSITS FALLS WITHIN THE PRINCIPL E OF MUTUALITY IS THAT OF THE HIGH COURTS OF BOMBAY MAD RAS KARNATAKA GUJARAT AND JAMMU & KASHMIR WHICH HAVE HELD THAT INTEREST EARNED ON SURPLUS FUNDS PARKED W ITH A BANK DOES NOT SATISFY THE TEST OF MUTUALITY. 7.4 WHEN INCOME IS DERIVED FROM AN INVESTMENT WHETHER B Y WAY OF INTEREST DIVIDEND ON RENT IT IS DERIVED FR OM A THIRD PARTY AND IT IS NOT BY WAY OF CONTRIBUTION FR OM THE MEMBERS OF THE CLUB. THE PRINCIPLE OF MUTUALITY WI LL HENCE NOT APPLY TO SUCH INCOME. 7.5 THE ASSESSEE HAS CITED JUDGMENTS AS REPORTED IN 184 CTR (DEL.) 274 319 ITR 179 (DELHI) 44 DTR (DEL) 58 3 5 SOT 335 (DEL). HOWEVER THESE DECISIONS HAVE BEEN CAREFULLY EXAMINED IN VIEW OF THE CASE AT HAND AND IT IS FOUND THAT THE FACTS OF EACH OF THESE CASES ARE CLE ARLY DISTINGUISHABLE FROM THE INSTANT CASE. 7.6 FURTHER THE ASSESSEE ITSELF HAS OFFERED TO TAX THE RENTAL INCOME FROM GARDEN AND GROUND AS INCOME FROM OTHER SOURCES. THERE IS THEREFORE A TACIT ACCEPTANCE BY THE ASSESSEE ITSELF THAT THE PRINCIPLES OF MUTUALITY CA NNOT BE EXTENDED TO ALL TYPES OF INCOME OF THE CLUB. IN TH E LIGHT OF THIS ALL THE JUDGEMENTS AS CITED ABOVE IN PARA. 7.5 AS WELL AS THE ARGUMENTS PUT FORWARD BY THE ASSESSEE A LSO CEASE TO HAVE ANY PERSUASIVE VALUE. 8 IN THE LIGHT OF THE FACTS MENTIONED ABOVE THE A SSESSEES PLEA OF PRINCIPLE OF MUTUALITY ON THE INTEREST INCO ME IS NOT ACCEPTABLE. HENCE THE INTEREST INCOME OF THE ASSE SSEE AS DECLARED IN ITS PROFIT AND LOSS ACCOUNT FOR THE REL EVANT YEAR IS TREATED AS INCOME FROM OTHER SOURCES AND ADDED TO TOTAL INCOME OF THE ASSESSEE FOR THE YEAR. 6 5. BEING AGGRIEVED THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). 6. BEFORE THE LEARNED CIT(A) THE ASSESSEE RELIED U PON THE FOLLOWING DECISIONS:- (1) DIRECTOR OF INCOME TAX (EXEMPTION) VS. ALL INDIA OR IENTAL BANK OF COMMERCE WELFARE SOCIETY 130 TAXMAN 575 (DEL). (2) CIT VS. STANDING CONFERENCE OF PUBLIC ENTERPRISES 319 ITR 179 (DEL). (3) CIT VS. TALANGANG CO-OPERATIVE GROUP HOUSING SOCIET Y LTD. 195 TAXMAN 110 (DEL). (4) CHELMSFORD CLUB VS. CIT 109 TAXMAN 215 (SC). 7. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMIT TED BEFORE THE LEARNED CIT(A) THAT THE HONBLE APEX COURT HAS DISMISSED SL P FILED BY THE DEPARTMENT AGAINST THE JUDGMENT OF THE HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS. STANDING CONFERENCE OF PUBLIC ENTER PRISES 319 ITR 179. 7.1 THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER PL ACED RELIANCE UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND VS. DCIT 308 ITR 202 (KAR.) AND SUBMITTED THAT THE SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT AGAINST THIS JUDGMENT HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT 320 ITR 23 (ST.) (SC). 7 7.2 FURTHER RELIANCE WAS ALSO PLACED UPON THE JUDGM ENT OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF CIT VS. DELHI GYMKHANA CLUB LTD. 8. AFTER CONSIDERING THE AOS ORDER AND SUBMISSIONS OF THE ASSESSEE THE LEARNED CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE BY OBSERVING AND HOLDING AS UNDER:- 5.1 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSION MADE BY THE LD. AR. AS PER THE ASSESSME NT ORDER THE APPELLANT IS ENGAGED IN RUNNING A CLUB. THE AP PELLANT HAS CLAIMED ITS INCOME OTHER THAN RENTAL INCOME FROM G ARDEN AND GROUND AND INCOME FROM SPONSORSHIP AS EXEMPT AS PE R THE PRINCIPLE OF MUTUALITY. THE AO HAS HOWEVER TREAT ED INTEREST OF RS.52 78 283/- EARNED BY THE APPELLANT ON FIXED DEP OSIT WITH BANK AS INCOME FROM OTHER SOURCES AND HAS ADDED THE SAME TO THE APPELLANTS INCOME. IT IS ARGUED BY THE LD. AR THE INTEREST EARNED ON FIXED DEPOSIT WITH THE BANK IS OUT OF SUR PLUS FUNDS OF THE CLUB BELONGING TO THE MEMBERS AND HENCE THE INT EREST ON INVESTMENT IS GOVERNED BY THE PRINCIPLE OF MUTUALIT Y AND IS EXEMPT. THE LD. AR HAS RELIED UPON A NUMBER OF DEC ISIONS INCLUDING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN CIT V. DELHI GYMKHANA CLUB LTD. (ITA NO.1288 OF 2010 DATE OF ORDER 09.12.2010) A COPY OF WHICH IS FILED DURING APPELLATE PROCEEDING. ON PERUSAL OF THE ABOVE ORDE R OF THE HONBLE DELHI HIGH COURT I FIND THAT THE HONBLE C OURT BASING ON ITS OWN DECISIONS IN THE CASES OF DIT V. ALL IND IA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY (2003) 130 TAXMAN 575 (DEL.) CIT V. TALANGANG CO-OPERATIVE GROUP HOUSING SOCIETY LTD. (2010) 195 TAXMAN 110 (DEL.) CIT V. STANDING CONFERENCE OF PUBLIC ENTERPRISES (SCOPE) (2010) 186 TAXMAN 14 2 (DEL.) AND ATHE DECISION OF HONBLE SUPREME COURT IN CHELM SFORD CLUB V. CIT (2010) 109 TAXMAN 215 HAS HELD THAT IN COME FROM FDRS IN BANK DIVIDEND INCOME INCOME FROM GOVERNMEN T SECURITIES AND PROFIT ON SALE OF INVESTMENTS ETC. W OULD ALSO ATTRACT THE DOCTRINE OF MUTUALITY AND NO TAX WAS PAYABLE 8 THEREON AND HAS ACCORDINGLY RULED THAT NO QUESTION OF LAW ARISES ON THIS ISSUE. RESPECTFULLY FOLLOWING THE A FORESAID DECISION I FIND THAT THE IMPUGNED ADDITION MADE BY THE AO IS NOT LEGALLY SUSTAINABLE. THE SAME IS THEREFORE DE LETED. 9. BEING AGGRIEVED THE DEPARTMENT IS IN APPEAL BEF ORE THE TRIBUNAL. 10. THE LEARNED SR. DR SMT. PRATIMA KAUSHIK AND SHR I M.K. CHAND HAVE SUBMITTED THAT THE PRINCIPLE OF MUTUALITY IS NOT AP PLICABLE IN RESPECT OF THE INTEREST INCOME EARNED FROM SURPLUS FUND INVESTED I N THE FORM OF FIXED DEPOSITS WITH THE BANK INASMUCH AS IN THAT SITUATIO N IT CANNOT BE SAID THAT THERE IS A TRUE IDENTITY BETWEEN THE CONTRIBUTOR AN D PARTICIPATOR. IN THIS CONNECTION A NOTE IN WRITING WAS SUBMITTED WHICH R EADS AS UNDER:- THE CONCEPT OF MUTUALITY OR ITS ORIGIN TO THE WE LL KNOWN CONCEPT THAT NO ONE CAN MAKES PROFITS OUTS OF HIMSELF. IT IS THIS PRINCIPLE WHICH WAS EXTENDED TO A GROUP OF PERSONS IN RESPECT OF DEALING WITH THEMSELVES. LATER IT BECA ME A PROPOSITION OF LAW. THIS PRINCIPLE GOT JUDICIAL REC OGNITION IN THE FAMOUS CASE OF STYLES (STYLES VS. NEW YORK LIFE INS URANCE CO. 2 TC 460). IN CASE SOME PEOPLE GET TOGETHER FOR A COMMON PURPO SE AND CONTRIBUTE TO A COMMON FUND HAVING NO DEALING OR RELATIONS WITH ANY OUTSIDE BODY CAN BE SAID TO HAV E A PROFIT WHEN THEY FIND THAT THEY HAVE OVER CHARGED THEMSELV ES AND THAT SOME PORTION OF THEIR CONTRIBUTION MAY BE REQUIRED TO BE REFUNDED. THIS IS A CASE OF OVERCHARGING AND DOES NOT GIVE RISE TO PROFIT/INCOME CHARGEABLE TO TAX. IF SUBSCRIPTIONS ARE PUT AS FIXED DEPOSITS IN A BAN K LET US ASSUME THAT THE MEMBERS OF A CLUB COLLECTS SUBSC RIPTION AND COULD NOT FIX A PREMISES FOR THE CLUB AND ACTIVITIE S WOULD NOT COMMENCE. ALSO IN A CASE WHERE SURPLUS FUND REMAIN WITH THE CLUB/SOCIETY AND FOR BETTER FINANCIAL MANAGEMENT OF THE FUNDS 9 THEY ARE INVESTED IN THE FORM OF FIXED DEPOSITS IN A BANK AND AT THE END OF THE YEAR THE INTEREST IS REALISED. THE INTEREST ACCRUED ON THE DEPOSITS OF SUBSCRIPTION AMOUNT IS N OW AVAILABLE WITH THE CLUB. THIS CAN BE DISTRIBUTED T O THE MEMBERS AS DIVIDEND OR COULD BE UTILISED IN THE NEXT YEAR A ND CONSEQUENTLY MEMBERS ARE CHARGED AT A LESSER RATE IN THE ENSUING YEAR. IN OTHER WORDS MEMBERS GET ENTITLED TO RECEIVE SERVICES OUT OF THE ACCRETION OF INCOME BY WAY OF I NTEREST ON FDRS. THIS HAS THE EFFECT OF REDUCTION IN THE CHA RGES FOR THE NEXT YEAR/PERIOD. THIS INTEREST HAS COME FROM OUTS IDER WHO IS NOT A MEMBER OF THE CLUB OR SOCIETY. THIS INTEREST DOES NOT REPRESENT EXCESS OF SUBSCRIPTION CONTRIBUTED BY THE MEMBERS. THIS CAN ALSO BE UNDERSTOOD IN A DIFFERENT WAY. IN CASE THE SURPLUS FUNDS WERE RETURNED TO THE MEMBERS WHO IN T URN WOULD HAVE DEPOSITED THE MONEY AS DEPOSITS ON THEIR PERSO NAL ACCOUNT WITH THE BANK AND HAD EARNED INTEREST THERE ON. SU CH INTEREST EARNED ON THE DEPOSITS MADE IN THEIR NAME WOULD HAV E BEEN CHARGEABLE TO TAX AS THEIR INCOME. WHETHER IN THE ABOVE SITUATION WHEREIN INTEREST ON FDR ACCRUES CAN IT BE SAID THAT THERE IS TRUE IDENTITY BETWEEN CONTRIBUTORS AND PARTICIPATOR. IN A TRULY MUTUAL C ONCERN SUCH SURPLUS HAS TO ARISE OUT OF THE ACTIVITIES OF THE C ONCERN WITHIN ITS CLOSED MEMBERSHIP EXCLUSIVELY AND WITHOUT EXCEPTION S. IN CASE THE SURPLUS ORIGINATES PARTLY OR WHOLLY AS A RESULT OF DEALING WITH OUTSIDER THEN TO THAT EXTEND AT LEAST THE CH ARACTER OF MUTUALITY IS VITIATED. IN THE AFORESAID EXAMPLE TH E BANK WHEREIN SOCIETY/CLUB FUNDS WERE INVESTED IS THE CON TRIBUTOR TO THE SURPLUS. AS IT IS NOT A MEMBER OF A CLUB/SOCIE TY THE SURPLUS WHETHER RETAINED BY THE SOCIETY/CLUB OR DISTRIBUTED TO ITS MEMBERS IS THE RAFT OF CHARACTER OF ACCRETION OUT OF MUTUAL ACTIVITIES. IT IS IMPORTANT DISTRIBUTION OF SURPLUS OR ANY OTHE R FUND ONLY TO THE MEMBERS WHO HAVE FORMED THE GROUP IS ES SENTIAL BUT IT IS NO LESS ESSENTIAL THAT THE FUNDS DISTRIBU TED MUST HAVE BEEN CONTRIBUTED IN ENTIRELY BY THE SAME MEMBER. I F IT WERE NOT SO ANY GROUP OF PERSONS ORGANISED AS A SOCIETY OR O THERWISE AND OBTAINING INCOME PARTLY OR WHOLLY THROUGH TRAD E OR 10 INVESTMENT WITH OUTSIDER COULD HAVE CLAIMED TO BE A MUTUAL CONCERN. THUS IN OTHER WORDS EVERY INCOME INCLUDING INTERES T ON FDRS ACCRUING TO A MUTUAL CONCERN IS NOT TAXABLE O R EXEMPT IS TOO WIDE A PREPOSITION OF LAW TO BE ACCEPTED. LE T US TAKE AN EXAMPLE OF A HOUSING SOCIETY CONSISTING OF 20 MEMBE RS. IN ADDITION TO MAINTENANCE OF 20 HOUSES THE MUTUAL OR GANISATION DECIDES TO HAVE A COMMON KITCHEN TO PROVIDE FOOD TO EACH OF THE FAMILY MEMBER OF 20 HOUSES. LET US SAY THE MON THLY EXPENDITURE ON PROVIDING FOOD IS RS.10 000/- PER MO NTH PER HOUSE. THUS IN A MONTH EXPENDITURE OF RS.2 LAC I S TO BE INCURRED. CASE 1: IN THIS CASE EACH HOUSING UNIT/FAMILY CONT RIBUTES RS.10 000/- OUT OF THEIR TAXED INCOME AND ENJOY FAC ILITY OF FOOD ETC. CASE 2: IN THIS CASE EACH OF THE HEAD OF THE FAM ILY REPRESENTING HOUSING UNIT DEPOSITS FDRS OF RS.10 LA CS WITH THE BANK WHICH PAYS 12% INTEREST BY WAY OF MONTHLY PAY OUT @ 1% OF DEPOSIT WHICH COMES TO RS.10 000/-. THIS INCOME OF RS.10 000/- PER MONTH IS TAXABLE INCOME IN THE HAN DS OF HOLDER OF FDR. THE HOUSEHOLD HAS TO SUFFER TAX AND THEN C ONTRIBUTE TO THE COMMON KITCHEN FUND/CHARGES FOR EACH MONTH. CASE 3: IN THIS CASE EACH HOUSEHOLD CONTRIBUTES 1 0LACS TO THE COMMON FUND WITH THE SOCIETY WHICH IN TURN MAKES FD R OF 2 CRORES WITH THE BANK ON WHICH INTEREST @ 12% P.A. P AYABLE AT 1% PER MONTH ACCRUES. IN THIS WAY SOCIETY EARNS R S.2 LACS PER MONTH AND SPENDS THE SAME ON PROVIDING FOOD ETC. TO ITS MEMBERS/FAMILIES/ HOUSEHOLDS. THE SOCIETY CLAIMS T HE INCOME FROM INTEREST ON FDRS AS NOT TAXABLE UNDER THE INCO ME TAX ACT BASED ON THE PRINCIPLE OF MUTUALITY. IT WOULD THUS BE SEEN THAT IN THE CASE 3 THERE WOU LD BE NO TAX ON THE INTEREST ON FDRS MADE WITH THE BANK I N THE NAME OF SOCIETY IF THE AFORESAID PREPOSITION IS ACCEPTE D. IT IS CLEAR THAT THE AFORESAID PREPOSITION THAT EVERY INCOME OF A MUTUAL CONCERN IS EXEMPT IS TOO WIDE TO BE ACCEPTED. 11 IN FACT THE CONCEPT IS TO BE APPRECIATED ON THE BA SIS OF TRANSACTION. IN CASE IT IS A MUTUAL CONCERN AND T HE TRANSACTIONS ARE ALSO PURELY OF MUTUAL NATURE NO T AXABLE INCOME WOULD ARISE BUT IN CASE THE ORGANISATION/M UTUAL CONCERN ENTER INTO A TRANSACTION WITH AN OUTSIDER A ND EARNS INCOME THERE ON SUCH INCOME SHALL NOT BE EXEMPT ON THE BASIS OF PRINCIPLE OF MUTUALITY. IN SUCH A CASE THE PRI NCIPLE OF MUTUALITY WILL HAVE TO BE CONFINED TO TRANSACTIONS OF MUTUAL NATURE. IN OTHER WORDS IN RESPECT OF TRANSACTIONS OF NON- MUTUAL NATURE THE CONCERN WILL HAVE TO PAY TAX ON SUCH INCOME. THUS WHEREVER THERE IS ACCRETION OF INCOME THROUG H TRANSACTIONS SUCH AS INTEREST ON FDRS THE SURPLUS W HICH ARISES FROM NON MEMBERS IS TO BE TAXED. A REFERENCE IS MADE TO SECTION 2(24)(VII)(I) IT HAS BEEN STATED THAT THIS RECOGNISES THE PRINCIPLE OF MUTUAL ITY. IT HAS BEEN CANVASSED THAT EXCEPT THE CASES FALLING UNDER THIS CLAUSE NO INCOME IS TAXABLE. IT IS SUBMITTED THAT THIS IS NOT THE CORRECT INTERPRETATION. THE DEFINITION OF INCOME IS INCLUS IVE AND NOT EXHAUSTIVE. THIS CLAUSE IS A DEEMING FICTION AND B RINGS TO TAX INCOME OF A MUTUAL CONCERN ENGAGED IN SPECIFIC BUSI NESS. EVEN IF PROFIT ARISES FROM DEALINGS WITH MEMBERS ONLY. IF THE VIEW CANVASSED BY ASSESSEE IS TO BE ACCEPTED THEN INTER EST INCOME UNDER OTHER SOURCES WILL NOT BE TAXED IN CASES WHER E IT IS CLAIMED THAT THERE WAS NO INTENTION OF THE ASSESSEE TO ENTER INTO A COMMERCIAL TRANSACTION. THIS CLAUSE HAS BEEN CON SIDERED BY THE HONBLE HIGH COURT IN SPORTS CLUB OF GUJARAT RE PORTED IN 171 ITR 504. IT IS SUBMITTED THAT WHAT IS TO BE TAXED IS THE REC EIPT; APPLICATION OF A RECEIPT DOES NOT HAVE A BEARING ON TAXATION. FOR THIS PREPOSITION RELIANCE IS PLACED ON DECISION OF ORISSA HIGH COURT IN THE CASE OF CUTTACK CLUB REPORTED IN 66 TAXMAN 610 (ORISSA). IT IS SUBMITTED THAT DECISIONS OF BUNKIPUR CLUB 226 ITR 97 (SC) AND CHELMSFORD CLUB 243 ITR 89(SC) WERE ON THE ISSUE OF TAXABILITY OF HOUSE PROPERTY INCOME AND INCOME F ROM 12 DEALINGS WITH MEMBERS AND THEIR FAMILY IN THE REGUL AR COURSE OF PROVIDING SERVICES OF FOOD AND BEVERAGES. IT IS THE PRINCIPLE UNDERLYING A DECISION THAT IS B INDING. WHILE APPLYING A DECISION IN A LATER CASE THEREFOR E THE LATER COURT SHOULD TRY TO ASCERTAIN THE TRUE PRINCIPLE LA ID DOWN BY THE PREVIOUS DECISIONS IN THE CONTEXT OF QUESTIONS INV OLVED IN THAT CASE FROM WHICH THE DECISION TAKES ITS COLOUR. (FO R THIS RELIANCE IS PLACED ON THE DECISION IN THE CASE OF D IRECTOR OF SETTLEMENTS A.P. VS. M.R.APPARAO (2002) 4SCC 6D38 A ND ALSO IN THE CASE OF SHAH VS. STATE OF GUJARAT A 1986 (S C) 468S. A JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVAT IONS FROM THE JUDGMENT HAVE TO BE CONSIDERED IN THE LIGH T OF THE QUESTIONS BEFORE. [CIT VS. SON ENGINEERING (1992) 4SCC 363] ALSO REPORTED IN 198 ITR 322. FURTHER IT IS PRINC IPLE FOUND UPON READING THE JUDGMENT AS A WHOLE IN THE LIGHT O F QUESTION BEFORE THE COURT THAT IS RELEVANT NOT PARTICULAR WO RDS OR SENTENCES [CIT VS. SEWA (1993) SC 43] AND MADHAW RA O VS. UNION OF INDIA A (1971) (SC) 530 578 THE LEARNED DR RELIED UPON VARIOUS DECISIONS WHICH ARE AS FOLLOWS:- (1) HARYANA STATE CO-OP. LABOUR & CONSTRUCTION FEDERATI ON LTD. VS. CIT (2002) 122 TAXMAN 408 (P&H). (2) ITI EMPLOYEE 234 ITR 308 (KAR.). (3) SPORTS CLUB OF GUJARAT LTD. VS. CIT 171 ITR 504. (4) TRIVENDRUM CLUB 282 ITR 505 (KER.) (5) BANGALORE CLUB (2006) 156 TAXMAN 323 (KAR.). (6) CIT VS. RANCHI CLUB LTD. (1992) 64 TAXMAN 433 (PAT. ) (7) DEVI AHILYA NEW CLOTH MARKET CO. LTD. VS. CIT (2009 ) 222 CTR 583 (MP). (8) MADRAS GYMKHANA CLUB VS. DCIT 183 TAXMANN 333 (MAD ). (9) AMAR SINGH CLUB VS. CIT 184 TAXMAN 481 (J&K). 11. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND SUPPORTED THE ORDERS OF THE LEARNED CIT(A) AND RELIED UPON THE FO LLOWING DECISIONS:- (1) CIT VS. DELHI GYMKHANA CLUB LTD. (2011) 198 TAXMAN 207 (DELHI). 13 (2) DIT VS. ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY (2003) 130 TAXMAN 575 (DEL). (3) CIT VS. STANDING CONFERENCE OF PUBLIC ENTERPRISES ( SCOPE) (2010) 186 TAXMAN 142 (DEL). (4) CIT VS. STANDING CONFERENCE OF PUBLIC ENTERPRISES ( SCOPE) 335 ITR (ST) 5 (SC). (5) CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND VS. D CIT (2009) 308 ITR 202 (KAR.). (6) CIT VS. CANARA BANK GOLDEN JUBILEE STAFF WELFARE FU ND 320 ITR (ST.)23 (SC). 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO DELIBERATED UPON T HE DECISIONS CITED BY BOTH THE PARTIES. IN THIS CASE THE QUESTION THAT A RISES FOR CONSIDERATION IS AS TO WHETHER THE INTEREST INCOME EARNED FROM FIXED DE POSITS MADE WITH THE BANK OUT OF THE FUNDS AVAILABLE WITH THE ASSESSEE C LUB IS NOT TAXABLE ON THE PRINCIPLE OF DOCTRINE OF MUTUALITY. 13. THE ASSESSEE IS A CLUB ENGAGED IN RUNNING A REC REATION CLUB FOR ITS MEMBERS. THE ASSESSEE HAS BEEN GIVEN EXEMPT FROM I NCOME-TAX ON INCOME FROM ITS MEMBERS ON PRINCIPLE OF DOCTRINE OF MUTUAL ITY. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED THAT INCOME FROM FIXED DEPOSITS AMOUNTING TO RS.52 78 283/- WOULD ALSO BE EXEMPT FROM INCOME-TAX ON PRINCIPLE OF MUTUALITY. THE ASSESSEE CLUB MADE FIXED DEPOSITS W ITH THE BANK OUT OF THE SURPLUS FUND OF THE CLUB. HOWEVER THE AO REJECTED THE ASSESSEES CLAIM BY HOLDING THAT THE PRINCIPLE OF MUTUALITY WOULD NOT A PPLY WITH REGARD TO THE INCOME OF INTEREST EARNED BY THE ASSESSEE FROM FIXE D DEPOSITS PLACED WITH THE 14 BANK INASMUCH AS THE INTEREST INCOME WAS EARNED FRO M AN OUTSIDE AGENCY. ON AN APPEAL THE LEARNED CIT(A) ALLOWED THE ASSESS EES CLAIM RELYING UPON THE VARIOUS DECISIONS OF JURISDICTIONAL DELHI HIGH COURT AS ALREADY REFERRED TO ABOVE. 14. IN THE CASE OF CIT VS. DELHI GYMKHANA CLUB LTD. (2011) 198 TAXMAN 207 (DELHI) THE JURISDICTIONAL HIGH COURT OF DELHI HAS REFERRED TO THE FOLLOWING THREE DECISIONS OF THE SAME COURT:- (1) DIT VS. ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY (2003) 130 TAXMAN 575 (DEL). (2) CIT VS. TALANGANG CO-OPERATIVE GROUP HOUSING SOCIET Y LTD. 195 TAXMAN 110 (DEL). (3) CIT VS. STANDING CONFERENCE OF PUBLIC ENTERPRISES ( SCOPE) (2010) 186 TAXMAN 142 (DEL). 15. THE HONBLE DELHI HIGH COURT IN THE ABOVE REFER RED CASE OF CIT VS. DELHI GYMKHANA CLUB LTD. (SUPRA) HAD TAKEN A NOTE OF THE DECISION OF THE SAME HIGH COURT IN THE CASE OF ALL INDIA ORIENTAL B ANK OF COMMERCE WELFARE SOCIETY (SUPRA) WHERE IT WAS HELD THAT THE RE ARE THREE CONDITIONS FOR APPLICABILITY OF PRINCIPLE OF MUTUALITY WHICH ARE AS FOLLOWS:- (A) WHERE A NUMBER OF PERSONS COMBINE TOGETHER AND CONT RIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR AN OBJECT; (B) THEY HAVE NO DEALINGS OR RELATION WITH ANY OUTSIDE BODY; & (C) SURPLUS GENERATED IS NOT SPENT FOR ANY OTHER PURPOS E EXCEPT FOR THE WELFARE OF THE MEMBERS. 15 15.1 ON THE AFORESAID BASIS THE HONBLE HIGH COURT THEN HELD THAT EVEN IF THERE WAS AN INCOME EARNED BY THE SOCIETY IN THE FO RM OF INTEREST BY KEEPING THE FUNDS GENERATED FROM THE MEMBERS IN THE BANK S UCH INTEREST WOULD NOT BE TREATED AS AN INCOME LIABLE FOR TAX. 16. IN THE CASE OF CIT VS. STANDING CONFERENCE OF P UBLIC ENTERPRISES (SCOPE) (SUPRA) IT WAS FOUND THAT THE INCOME GENER ATED BY THE ASSESSEE A MUTUAL CONCERN INCLUDED RENTAL INCOME FROM USE OF CONVENTION CENTRE AND OTHER PREMISES GIVEN TO MEMBERS AND NON-MEMBERS AND INTEREST ON FIXED DEPOSITS WITH BANKS. THE AO TREATED ENTIRE INCOME AS TAXABLE REJECTING THE ASSESSEES PLEA OF BEING A MUTUAL CONCERN. ON APPE AL TRIBUNAL HELD THAT THE ASSESSEE SOCIETY WAS A MUTUAL CONCERN SO AS TO CLAI M EXEMPTION ON PRINCIPLE OF MUTUALITY AND ONLY RENTAL INCOME RECEIVED BY IT FROM NON-MEMBERS WAS CHARGEABLE TO TAX. THE HONBLE HIGH COURT HELD THA T ON FACTS TRIBUNAL HAD TAKEN CORRECT DECISION. AGAINST THIS JUDGMENT THE DEPARTMENT PREFERRED SPECIAL LEAVE PETITION BEFORE THE SUPREME COURT WH ICH WAS DISMISSED VIDE ORDER DATED 18.10.2010 IN SLP(CIVIL) NO.30007 OF 20 10 (CIT VS. STANDING CONFERENCE OF PUBLIC ENTERPRISES) REPORTED IN 335 I TR (ST.) 5 (SC). 17. IN THE CASE OF CANARA BANK GOLDEN JUBILEE STAF F WELFARE FUND VS. DCIT (2009) 308 ITR 202 (KAR.) THE SOURCE OF FUND WAS ONLY FROM THE MEMBERS OF THE ASSESSEE AND IT HAD NOT RECEIVED ANY DONATIONS OR OTHER MONETARY GRANTS FROM ANY OUTSIDE SOURCE APART FROM THE MEMBERS DURING THE 16 RELEVANT YEARS. THE BANK IN WHICH THE SURPLUS FUND S WERE DEPOSITED NO DOUBT FORMED A THIRD PARTY BUT THE IDENTITY BETWE EN THE CONTRIBUTORS AND RECIPIENTS WAS NOT LOST. THE FUNDS HAD BEEN APPLIE D FOR THE BENEFIT OF THE MEMBERS WHO CONTRIBUTED IT. THE INTEREST ON INVEST MENTS AND DIVIDEND EARNED ON SHARES WAS ONLY A PORTION OF THE TOTAL IN COME EARNED BY INVESTMENT OF THE SURPLUS FUNDS WHOLLY CONTRIBUTED BY THE MEMBERS OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEARS. IT WAS THUS HELD THAT THE INCOME EARNED ON INTEREST ON INVESTMENT AND DIVIDEND ON SH ARES WAS DEEMED INCOME FROM THE PROPERTY OF THE ASSESSEE AND WAS GOVERNED BY THE PRINCIPLE OF MUTUALITY AND THEREFORE WAS NOT TAXABLE FOR THE R ELEVANT ASSESSMENT YEAR. IN THIS CASE THE DECISIONS OF HONBLE SUPREME COUR T IN THE CASES OF CHELMSFORD CLUB VS. CIT (2000) 243 ITR 89 (SC) & CI T VS. BANKIPUR CLUB LTD. (1997) 226 ITR 97 (SC) AMONGST OTHERS WERE R EFERRED AND APPLIED. THE SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT AGAINST THIS JUDGMENT HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT AS REPORTED IN CIT VS. CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND 320 ITR (ST.) 23 (SC). 18. THE LEARNED DR HAS RELIED UPON THE FOLLOWING DE CISIONS WHERE A CONTRARY VIEW HAS BEEN TAKEN TO THE EFFECT THAT THE PRINCIPLE OF MUTUALITY I.E. NO MAN CAN TRADE WITH HIMSELF IS NOT AVAILABLE IN RESPECT OF A NATIONALIZED BANK HOLDING A FIXED DEPOSIT ON BEHALF OF ITS MEMBE RS AND IT WAS THUS HELD THAT THE INCOME EARNED FROM OUTSIDE AGENCY ON INTER EST OR SECURITIES FROM THE BANK WOULD NOT BE GOVERNED BY THE PRINCIPLE OF MUTU ALITY FOR CLAIMING EXEMPTION FROM TAX:- (1) CIT VS. I.T.I. EMPLOYEES DEATH & SUPERANNUATION REL IEF FUND (1998) 234 ITR 308 (KAR.). (2) THE CASE OF BANGALORE CLUB REPORTED IN 287 ITR 263 (KAR.). (3) MADRAS GYMKHANA CLUB VS. DCIT 183 TAXMAN 333 (MAD) . (4) AMAR SINGH CLUB VS. CIT 184 TAXMAN 481 (J&K). 17 19. THE PRESENT CASE OF THE ASSESSEE FALLS WITHIN T HE JURISDICTION OF THE HONBLE DELHI HIGH COURT. IT IS WELL SETTLED THAT THE DECISION OF JURISDICTIONAL HIGH COURT IS BINDING ON THE AUTHORI TIES FALLING WITHIN ITS JURISDICTION. IN THE PRESENT CASE WE ARE BOUND BY THE DECISION OF THE JURISDICTIONAL HIGH COURT WHERE A VIEW HAS BEEN TA KEN THAT INTEREST FROM FDR IN BANKS MADE OUT OF THE SURPLUS FUND OF THE MU TUAL CONCERN WOULD ALSO BE EXEMPT FROM INCOME-TAX ON PRINCIPLE OF MUTU ALITY AS SO DISCUSSED ABOVE. THEREFORE RESPECTFULLY FOLLOWING THE AFORES AID DECISIONS OF THE HONBLE DELHI HIGH COURT IN THE NUMBER OF CASES REF ERRED TO ABOVE WE UPHOLD THE ORDER OF THE LEARNED CIT(A) IN HOLDING T HAT INCOME FROM FDRS RECEIVED FROM BANK WOULD ALSO BE EXEMPT FROM INCOME -TAX ON THE DOCTRINE OF MUTUALITY. THE ORDER OF THE LEARNED CIT(A) IS T HUS UPHELD. 20. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. 21. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 23 RD SEPTEMBER 2011. SD/- SD/- (B.C. MEENA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD SEPTEMBER 2011. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.