TMI Blog2012 (2) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... iety from its members is higher than the rate of local body cannot be a ground for rejecting the principle of mutuality. - ITA No. 5732/Mum/2009, ITA No. 246/Mum/2010 - - - Dated:- 6-1-2012 - SHRI T R SOOD, SHRI VIJAY PAL RAO, JJ. Assessee by Sh Vimal Punmiya Revenue by Sh A K Nayak ORDER PER VIJAY PAL RAO, JM These cross appeals and the Cross Objections by the assessee are directed against the order dated 12th Aug 2009 of the CIT(A) for the Assessment Year 2006-07. 2 In appeal ITA No. 5732/Mum/2009, the revenue has raised the only ground as under: On the facts and circumstances of the case and in law, the ld CIT(A) has erred in taking the view that the Gymkhana is club run on the concept of mutuality and interest earned Rs. 7.95 lacs on deposits would quality for exemptions on grounds of mutuality and he failed to appreciate the facts that the interest is earned on the contributions/deposits from outsiders which will not come under mutuality. 2.1 The assessee is a cooperative society and also running Gymkhana, which is opened to its members and ex-members as well as outsiders also made members of the Gymkhana by accepting deposits. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nonmembers. The facilities of the society are used only by the members or their relatives or by their guests. No person can even enter into the premises of the society without the recommendation of the member. It is only the members who take their relatives or guests to the club. 3.3 He has further submitted that as per the provision of the Maharashtra Cooperative Hsg Soc., any interest income earned can be further classified into interest earned from investments made in Cooperative Banks interest from other Investments. Therefore, Interest earned from any investment made in Cooperative Banks qualifies for deduction @ 100% under section 80P(d) . Thus, the interest received by the assessee society is eligible for deduction u/s 80P of the Act. 4 We have considered the rival contention as well as the relevant material on record. There is no dispute that the interest received by the assessee on the deposits. Therefore, in view of the decision of the Hon ble jurisdictional High Court in the case of Common Effluent Treatment Plant, (Thane-Belapur) Association (supra), principle of mutuality is not applicable. The Hon ble Jurisdictional High Court in paras 29,30 32 has held as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are invested in fixed deposits of banks, the interest that is received on a deposit does not possess the same character of mutuality as the surplus funds derived by the assessee from the contributions of its members. The principle of mutuality applies to surplus funds generated from the contribution of members for the reason that the funds are contributed by the members of the society and there is an identity between the contributors and the participators in the fund. The decision to invest the funds of the association in bank fixed deposits is a prudent commercial decision motivated by the desire to earn interest that would not be available on moneys maintained in ordinary, current or savings accounts. Such interest does not fulfil the requirement of mutuality. While investing the funds with a bank or a financial institution, the assessee assumes the character of a customer of the bank or institution and the relationship that is engendered is that between a banker and its customer. The fact that the funds which are invested have their source in the contribution by the members of the assessee cannot be dispositive of the nature of the receipt obtained by the assessee on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court. The Supreme Court held that such interest would fall for taxation as income from other sources. 5.1 It is clear from the decision of the Hon ble Jurisdictional High Court that the interest income on deposits does not fulfil the conditions of mutuality. 6. As regards the claim u/s 80P is concerned, if any income by way of interest or dividend derived by the cooperative society from its investment with any other cooperative societies, then deduction u/s 80P is allowable in respect of the said income. We quote section 80P(2)(d) as under: 80P: Deduction in respect of income of cooperative societies: (1) (2)The sums referred to in sub-sec (1) shall be the following, namely: .. (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society, the whole of such income. 6.1 As per clause d of sub.sec (2) of sec 80P, if the interest income is from the deposits made with the cooperative society, then the same is eligible for deduction u/s 80P. 7 In the case in hand, this aspect has neither been claimed nor been examined by the lower authorities; therefore, we remand this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e society permits to receive transfer fee. Therefore, in view of the decision of the Hon ble jurisdictional High Court in the case of Sind Co-operative Housing Society v. Income-tax Officer reported in 317 ITR 47, the principle of mutuality would apply on this amount. He has also relied upon the decision of the Hon ble jurisdictional High Court in the case of Mittal Court Premises. 12.1 On the other hand, the ld DR has submitted that as per the government notification, transfer fee upto Rs. 25,000/- is permitted and therefore, the same is covered under the principle of mutuality and balance is liable to tax. He has relied upon the orders of the lower authorities. 13 We have considered the rival contention as well as relevant material on record. At the outset, we find that this issue has been adjudicated by the Hon ble Jurisdictional High Court in the case of Sind Cooperative Hsg Ltd (supra) wherein their Lordships have observed in paraa 35 36 as under: Considering these principles, the question is whether on the facts before us, the principle of mutuality would be attracted in respect of the transfer fee received by the housing co-operative societies governed by the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble jurisdictional High Court in the case of Sind Cooperative Hsg Ltd (supra), we allow the claim of the assessee. 13.1 Since in the case in hand, the assessee has claimed that the bye-laws of the society has been amended from time to time and under the amended byelaws, the assessee is allowed to receive the transfer charges without any restriction of Rs. 25,000/-. Since the amended bye-laws has not been produced before us and as per the old bye-laws, transfer charges upto Rs. 25,000/- was permitted to receive by the assessee. Therefore, this issue is remanded to the record of the Assessing Officer to verify whether the amended bye-laws of the society permits to receive the transfer charges as claimed by the assessee and thereafter decide the issue as per law in the light of the decision of the Hon ble jurisdictional High Court in the case of Sind Co-operative Housing Society (supra). Accordingly, this ground of the assessee is allowed for statistical purpose. 14 Next ground is regarding the amount received for utilised for additional FSI under TDR rules. 14.1 The assessee was granted additional FSI by way of purchase of TDR. The assessee has collected Rs. 60/- per sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons. The Act does not require registration of such association of persons in any form. Mutuality concern requires that all participators in the surplus of the society should be the contributors but it is not necessary that all contributors are the participators in the surplus. 15.2 The ld AR has further submitted that no person trade with himself and make an assessable profit. If different persons combine themselves into distinct and a separate legal entity for the purpose of rendering services to themselves, the resulting surplus is not assessable to tax, if the surplus is refundable to members. It is immaterial whether the surplus is paid back to the members in cash or is put to revenue with the society for its development and for providing better amenities to its members immediately or in future. He has relied upon the decisions of the Hon ble Gujarat High Court in the case of CIT vs Adarsh Coop Hsg Soc. Ltd reported in 213 ITR 677 (Guj) and in the case of CIT vs Shree Jari Merchants Asso reported in 106 ITR 542 (Guj). 15.3 On the other hand, the ld DR has supported the orders of the lower authorities and submitted that the assessee is collecting this fund by allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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