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TMI Blog2012 (2) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... hana by accepting deposits. During the assessment proceedings, the Assessing Officer noted that for providing a good number of facilities, contractors are appointed and Gymkhana has taken trade deposits from the contractors. The assessee prepares separate income & expenditure account and balance sheet for Gymkhana and cooperative housing society and then consolidated accounts. The Assessing Officer was of the view that since the deposits are received in the ordinary course of running the business of Gymkhana, the interest received on such deposits partake the character of business income. Accordingly, the Assessing Officer was of the view that the interest earned on such deposits amounting to Rs. 7,95,497/- is to be taxed under the head 'business. 2.2 The assessee claimed deduction u/s 80P in respect of the interest received, which was rejected by the Assessing Officer and the said interest earned on the deposits received from non-members and trade deposits amounting Rs..7,95,497/- was assessed to tax. 2.3 On appeal, the CIT(A) allowed the claim of the assessee and held that the Gymkhana is a club and run on the concept of mutuality. Therefore, the interest earned on the deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in paras 29,30 & 32 has held as under: "29 In order to fulfil the requirement of mutuality, a mutual association has to establish, as an essential requirement, the identity between participators and contributors to the fund. However, the fact that an association satisfies the norm of mutuality in respect of the receipts of contributions from its members does not necessarily lead to the conclusion that every activity of the association satisfies the test of mutuality. An association may engage in activities which can be described as mutual and in other activities which are not mutual. The Gujarat High Court recognized this in its decision in Sports Club of Gujarat Ltd. [1988] 171 ITR 504 ; [1988] 37 Taxman 38. Adverting to the decision in CIT v. Madras Race Club [1976] 105 ITR 433 (Mad), the court noted that the application of the principle of mutuality is not destroyed by the presence of transactions which are non-mutual in character. However, in such a case, the principle of mutuality has to be confined to transactions with members possessing the essential character of mutuality. The two activities can in appropriate cases be separated and the profits derived from transactions w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained by the assessee on account of the interest payments on the deposits made. In determining the exigibility to tax of receipts on account of interest, it is the character of the receipt as interest that must play a determinative role. A payment on account of interest by the bank or a party with whom the deposit is placed is an arm's length transaction with a third party. The recompense which is received by the assessee by and as a result of the transaction does not fulfil the condition of mutuality to which the contributions received from the members of the assessee are subject. 32 At this stage, it would be necessary for the court to advert to a recent judgment of the Supreme Court Totgar's Co-operative Sale Society Limited v. ITO [2010] 322 ITR 283. In that case, the issue before the Supreme Court related to the deduction under section 80P. The Supreme Court dealt with interest which had accrued on funds which were not required immediately by the assessee which was a co-operative credit society, for the purposes of its business and which came to be invested in specified securities as investment. The assessee had contended before the Supreme Court that under the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies; therefore, we remand this issue to the record of the Assessing Officer for the limited purposes to verify whether the interest received by the assessee on the deposits made with the other cooperative society/cooperative Bank, then the claim of the assessee is allowable. 8 The assessee has raised the following ground in its Cross Objection: "The ld CIT(A) has rightly allowed deduction u/s 80P of the Act, of interest earned of Rs. 7,95 lacs from other cooperative banks, based on fact and circumstances of the case." 9 The assessee has not raised any separate issue in the Cross Objection but only supported the order of the CIT(A) on the issue raised in the revenue's appeal regarding the disallowance of interest on deposits. Therefore, in view of our findings on the issue, the Cross Objection filed by the assessee has become infructuous and disposed off accordingly. ITA No. 246/Mum/2010 ( Asst Year 2006-07) 10 The assessee has raised the following effective grounds in this appeal: "1 The ld CIT(A) ought not have confirmed the amount of Rs. 24,69,052/- being amount collected over Rs.25,000/- per member, as transfer of properties, as amount collected is exempted under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned by the provisions of the Maharashtra Co-operative Societies Act and the Rules. In Walkeshwar Triveni Co-op. Housing Society Ltd. [2004] 267 ITR (AT) 86 ; [2004] 88 ITD 158 (Mum) [SB], the Tribunal itself has held that the amount received from the transferor member would not be exigible to tax. It is only the amount received from the transferee, that is exigible to tax. We have noted that in so far as Sind CHS and National CHS Ltd. their bye-laws provide that the amount has to be paid by the transferor member. The issue, therefore, of the transferor or the transferee for those assessees really does not arise. However, we will have to answer the issue considering what was considered in the case of Walkeshwar [2004] 267 ITR (AT) 86 (Bom) and considering the model bye-laws which are now adopted by most housing societies. We have noted the bye-laws as also the provisions under the Act and the Rules. The transfer fee can be appropriated only if the transferee is admitted to membership. The fact that a proposed transferee may make payment in advance by itself is not relevant. The amount can only be appropriated on the transferee being admitted as a member. As it is a transfer fee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 60/- per sq.ft from its members totalling to Rs. 7,08,491/- from three of such members for allowing them to utilise the additional FSI. This amount has been shown in the balance sheet under the head 'infrastructure fund'. The Assessing Officer observed that as on 31.3.2006, the amount available under the infrastructure fund is Rs. 23 lacs and the State and the Municipal authorities who actually provide infrastructural facilities to the public collect only nominal charges of about Rs. 5/- per sqf.t depending upon the locality. Therefore, the Assessing Officer held that the amount of Rs.60/- per sq.ft collected by the assessee society from its members, who are making additional construction in their own plots is not for any real intention of providing infrastructure facilities to its members but received at such a higher rate for additional FSI. Accordingly taxed the said amount of Rs. 7,08 491/- as income of the assessee. 14.2 On appeal, the CIT(A) confirmed the disallowance made by the Assessing Officer. 15 Before us, the ld AR of the assessee has submitted the main function of assessee society is to manage, maintain and administer the property of the society and also to raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the members to utilise the additional FSI and construction of additional area. Therefore, this fund is not for any facility or infrastructure for the members of the society. Hence, principle of mutuality is not applicable. 16 We have considered the rival contention as well as the relevant material on record. There is no dispute that the amount in question has been collected by the assessee society from its members. The disallowance made by the Assessing Officer on the ground that the rate of Rs. 60/- per sq.ft is higher than the rate charged by the local authority for providing the same facilities. When there is no profit motive or business by collecting such fund by the assessee society, then only because of the rate charged by the assessee society from its members is higher than the rate of local body cannot be a ground for rejecting the principle of mutuality. When the amount is collected from the members and has to be utilised for providing the facilities and infrastructure to the members of the society, then it is established that there is close nexus between the contribution and utilisation of the fund for its members. Accordingly, it fulfils the character of mutuality ..... X X X X Extracts X X X X X X X X Extracts X X X X
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