TMI Blog2009 (9) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... complete identity between the contributors and recipients. Thus, a mutual concern can carry on the activity with its members, though the surplus arising from such activity is not its taxable income. Hon ble Karnataka High Court in the case of Canara Bank Golden Jubilee Staff Welfare Fund v. Dy. CIT. When the dividend income on shares was held to be not liable to tax under the principle of mutuality in case of Canara Bank Golden Jubilee Staff Welfare Fund [ 2008 (7) TMI 239 - KARNATAKA HIGH COURT] , there is no reason to exclude the gain arising on the sale of such shares, from the principle of mutuality. Once the income is found to be covered by principle of mutuality, the same cannot be brought to tax even under the provisions of section 115JB. Accordingly, there is no merit in the action of lower authorities for bringing the income exempt under principle of mutuality, within the purview of section 115JB. In the case of assessee-club, Hon ble Delhi High Court in assessee s own case - CIT v. Delhi Gymkhana Club Ltd.[ 1985 (4) TMI 51 - DELHI HIGH COURT] has observed that object of the assessee-club was mainly to provide recreation of its members by promoting various types of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 49,70,963 determined tax payable under the MAT provisions at Rs. 11,78,764. Since the tax under the normal provisions was less than the tax computed as per the MAT provisions, the assessee paid taxes under MAT, the return was processed under section 143(1) of the Income-tax Act. The assessee-company vide its submissions dated 6-1-2006 has filed revised computation, seeking exemption of income which represents profit on sale of investments, viz., sale of shares and profit earned on other investments. The assessee stated that "we have been offering for tax income from the club s investments, such as income from FDRs in banks, dividends, income from investments in mutual funds, interest from taxable Government securities, etc., under the erroneous belief that it is liable to tax under the Income-tax Act. Recently, however, it has come to our notice that the Supreme Court had held in its judgment in the case of Chelmsford Club Ltd. v. CIT [2000] 243 ITR 89 that the income of a club from interest on fixed deposits, NSCs and dividends, is also exempt on the principle of mutuality". The assessee was specifically asked by the Assessing Officer in this regard to justify and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Central Government may, by license, direct that the association may be registered as a company with limited liability, without the addition to its name of the word limited or the words private limited ." 7. The learned AR further submitted that vide section 656 of the Companies Act, 1956, the companies incorporated and registered under the repealed enactments shall continue to remain incorporated and unchanged. This company was registered under the Companies Act, 1882 (VI of 1882) and because of section 656, read with section 657( b ), of the Companies Act (copy at Annexure III), its status continues to remain the same and unaffected. Section 115JB of the Income-tax Act, 1961 under which the Assessing Officer has made the assessment, is applicable to companies who are liable to income-tax on their total income as computed under the Income-tax Act, 1961. This is provided under section 115JB(1). The tax on such total income has to be less than 10 per cent of its book profit. Only then section 115JB is applicable. In the case of the assessee-company, on its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same was held to be liable to tax, and on book profit tax was levied under section 115JB of Income-tax Act. The assessee-club is incorporated under the Companies Act and was granted certificate under section 25 of the Companies Act. Under the provisions of section 25 of the Companies Act, where the Central Government found that an association was incorporated for promoting commerce, arts, science, religion, charity or any other useful objects and intends to apply its profit in promoting any object and to prohibit any payment to its members, direct that such association may be registered as a company with limited liability. Under the general law relating to mutual concerns, the surplus earned by the mutual concern cannot be regarded as profits and gains for the purpose of charging section 4 of the Income-tax Act insofar as the contributors are to receive back a part of their own contributions and there is complete identity between the contributors and recipients. Thus, a mutual concern can carry on the activity with its members, though the surplus arising from such activity is not its taxable income. Hon ble Karnataka High Court in the case of Canara Bank Golden Jubilee Staff Wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lub has not received any donation or monetary grant from any outside source apart from the members. It is the members contribution which has become the corpus fund and the same was deposited in the bank or invested in shares. Club was in receipt of the interest on deposit with the bank and dividend income on the shares and Government securities. It also earned profit on sale of some of shares. In the instant case, there is no dispute to the fact that assessee-club was providing recreational and refreshment facilities to its members and guests. Its facilities were not available to non-members and the club was run on no profit no loss basis. In that the members paid for all their expenses and were not entitled to any share in the profits. Surplus if any was used for the maintenance and development of the club. Thus, the assessee-club is a mutual concern and the principle of mutuality as defined in section 2( 24 ) of the Income-tax Act is applicable to it which has excluded all business involving such principle from the purview of the Act except those mentioned in clause ( vii ) of section 2( 24 ). Issue with regard to taxability of interest income from deposits in the bank has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a common fund and have no dealings or relations with any other body, then any surplus generated cannot, in any sense be regarded as profits chargeable of tax. On this basis, the doctrine of mutuality was applied to the facts of that case. We see no distinction in the decision rendered by this Court in All India Oriental Bank of Commerce Welfare Society and the present case. 7. Under the circumstances, we answer the question of law in the affirmative, in favour of the assessee and against the revenue. 8. The appeal is disposed of." [Emphasis supplied] 12. Thus, on the principle of mutuality, interest income from deposits of fund with the bank will not attract income-tax, if there is no taint of commerciality. In the case of DIT v. All India Oriental Bank of Commerce Welfare Society [2003] 130 Taxman 575 , Hon ble Delhi High Court held that no substantial question of law arises on the decision of Tribunal that principle of mutuality applies to the interest income derived from the deposits made by it out of the contributions made by the members of society. 13. Mutuality offers a tax exemption as long as its mutual association is retained and its income is not taint ..... X X X X Extracts X X X X X X X X Extracts X X X X
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