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2018 (7) TMI 808 - AT - Income TaxEntitled for benefit of mutuality - distinction between ordinary members and nominal members and all the members are having equal rights - Held that:- In this case, even a nominal member is also admitted to the membership as per clause-9 and he has all the rights of any other member. The ordinary members are those members who are available at the time of registration and that cannot be considered as a restriction because at the time of formation of any society or an organization, only few members join at the time of incorporation whereas the by-laws permit admission of further members in the course of its activity, be it a business or not business. There is no deference between the transaction of members and nominal members and only when the transactions are with non-members, the principles of mutuality can be invoked or denied. A nominal member cannot be treated as a non-member and so the transactions of nominal members cannot be treated as transactions of non-members. Distinction sought to be made by the AO and CIT(A) is arbitrary and artificial. Therefore, we agree that assessee is covered by the principle of mutuality and its income will be exempt on that concept Disallowance of honorarium - TDS u/s 194J - Held that:- The director referred to therein is not equivalent to the ‘director’ of the assessee-society. The director, manager or managing agent in relation to a company have the meaning respectively assigned to them in the Companies Act, 1956. A company is different from a co-operative society as they are defined U/s. 2(17) and 2(19) separately. Just because the person administering the society is also referred to as director, provisions of Section 194J cannot be attracted to the payment of honorarium made to the director of assessee-society. In view of that, we are of the opinion that there is no violation U/s. 194J so as to attract disallowance U/s. 40(a)(ia). Since assessee has adduced the evidence to the respective person have paid/filing returns of income and AO has not initiated any proceedings U/s. 201 for violation of TDS provisions under any other provisions of the Act, the disallowance U/s. 40(a)(ia) cannot be sustained. Interest on bank deposits - Held that:- The nature of interest is to be examined before coming to a conclusion. Only in the event of interest earned on deposits is from the ‘surplus funds’ not used regularly in the business, the amounts can be assessed under the head ‘other sources’. Just because assessee the earned interest on deposits, it cannot be straight away categorized as income from other sources. These aspects are not examined by the AO, however, since assessee itself is getting exemption on the principle of mutuality, this issue becomes academic. We are not giving any clear direction or finding on the issue. However, AO is advised to examine this aspect, if at all at any point of time, principle of mutuality is not allowed to assessee by any of the orders of the higher judicial forum. Since the principles of mutuality are applicable to the society, we consider that income cannot be brought to tax on the activities of the Society. Grounds are considered allowed.
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