2016 (4) TMI 1400 - AT - Income Tax

Denial of deduction u/s 11 12 and 13 - applicability of mutuality clause to Bank interest income on deposits made out of the funds contributed by members of society - HELD THAT - As decided in own case 2012 (2) TMI 700 - ITAT DELHI principle of mutuality applies to interest income derived by the assessee from deposits made out of contributions made by members of the society. Therefore ground raised by the Revenue in relation to applicability of principle of mutuality to interest income is dismissed. When the assessee is registered charitable trust its income cannot be computed on the principal of mutuality but is required to be computed u/s 11 12 and 13 - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of the principle of mutuality to bank interest income.
2. Eligibility for exemption under Sections 11, 12, and 13 of the Income Tax Act for a charitable trust.

Detailed Analysis:

1. Applicability of the Principle of Mutuality to Bank Interest Income:
The primary issue raised by the revenue was whether the principle of mutuality applies to the interest income earned from bank deposits. The revenue contended that the principle of mutuality should not be applicable to bank interest income as the bank is neither a member contributor to the funds nor has any rights in the funds or assets of the society. This was argued to be in contravention of the first principle of mutuality, which requires the identity of the contributors to the fund and the recipients from the funds.

The assessee, a society registered under Section 12A of the Income Tax Act, claimed that the interest income earned from bank deposits made out of the funds contributed by its members should be covered under the principle of mutuality. The Assessing Officer had rejected this claim, but the CIT(A) allowed the appeal of the assessee, relying on the decision of a coordinate bench in the assessee's own case for the Assessment Year 2008-09.

The Tribunal, after considering the rival contentions and reviewing the order of the coordinate bench, found that the issue was covered by the decision of the Hon'ble Delhi High Court in the case of DIT v. All India Oriental Bank of Commerce Welfare Society and other relevant case laws. The Tribunal noted that the principle of mutuality applies to interest income received from the deposits made out of contributions by the members, as established by the Hon'ble Supreme Court in Chelmsford Club v. CIT. The Tribunal upheld the CIT(A)'s decision, affirming that the interest income earned from bank deposits is covered under the principle of mutuality.

2. Eligibility for Exemption under Sections 11, 12, and 13 of the Income Tax Act for a Charitable Trust:
The second issue involved the eligibility of the assessee for exemption under Sections 11, 12, and 13 of the Income Tax Act. The Assessing Officer had denied the exemption, but the CIT(A) allowed the appeal of the assessee on this ground as well.

The Tribunal observed that the assessee is registered under Section 12A of the Income Tax Act and this registration was in force. The CIT(A) had allowed the grounds of the appeal of the assessee, granting it relief under Sections 11, 12, and 13, and this decision was not challenged by the revenue in the appeal before the Tribunal. The Tribunal concluded that since the assessee is a registered charitable trust, its income should be computed under Sections 11, 12, and 13 of the Act, rather than under the principle of mutuality.

Conclusion:
The Tribunal dismissed the appeal of the revenue, affirming the CIT(A)'s decision that the principle of mutuality applies to the bank interest income earned by the assessee and that the assessee is eligible for exemption under Sections 11, 12, and 13 of the Income Tax Act as a charitable trust. The order was pronounced in the open court on 29/04/2016.