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Armed Forces Officers Co-operative Housing Society Ltd Versus Income Tax Officer, Ward-15 (1) , Hyderabad

2015 (9) TMI 543 - ITAT HYDERABAD

Interest received from bank deposits/balances - whether is covered by ‘Principles of mutuality’ or not? - assessee is a housing co-operative society and has claimed certain incomes as exempt on ‘Principles of mutuality - Held that:- Since jurisdictional High Court in the case of Secunderabad Club [2011 (8) TMI 752 - Andhra Pradesh High Court] has clearly held that interest received from third parties cannot be exempted under the ‘Principles of mutuality’, we reject assessee’s contentions, as the .....

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he Assessee : Shri B. Shanthi Kumar, AR For The Revenue : Shri Rajat Mitra, DR ORDER PER B. RAMAKOTAIAH, A.M. : These four appeals by assessee and Revenue pertain to AYs. 2007- 08 and 2008-09 against the common order of the Commissioner of Income Tax(Appeals)-VI, Hyderabad dated 29-09-2014. Assessee filed appeals with one day delay. Considering assessee s explanation given in the condonation petition and after considering the submissions of the Counsel and the DR, the delay of one day in filing .....

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sferring their plots was not a voluntary contribution and no mutuality among the Members existed, since there is no identity between contributors and participators. While denying exemption claimed by assessee on the above amounts, AO relied on various judicial decisions on the issue of Principles of mutuality . As per AO, the transfer fee paid by person who would be out going member cannot participate in the profits, as against transferee who would be participating in the profits, but not in the .....

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d. 2.2 After considering the rival submissions and perusal of the order of CIT(A), we do not see any reason to interfere with the same. Ld. CIT(A) has in fact considered not only the facts of the case but also the judgment of Hon ble Bombay High Court which is squarely applicable. His order is as under: 5.3 Perused the submissions of the appellant and the observations of the Assessing Officer. As could be seen from the facts of the case, the appellant society was collecting the transfer fee from .....

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he contributors going out and the participators coming into the club. However, the judicial decisions in this regard held that the. amounts collected / paid voluntarily or not would not make any difference to the principle of mutuality, as long as the same is governed by the bye-laws of the society, and the arrangements made under the bye-laws constitute a contract between the society and the members, which is voluntarily entered into and voluntarily conducted as matter of convenience for runnin .....

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after purchase of plot participates in profits, as such there is no principle of mutuality. However, this issue was addressed by High Court of Bombay in the case of Sind Co-op. Housing Societies Vs. ITO (317 ITR 047), wherein it was held by the Hon'ble High Court as under: "We may now deal with some other submissions advanced on behalf of the revenue. It was contended that the class of members means, members such as permanent, temporary, honorary, etc. This is based on the assumption th .....

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ass may be diminished or increased by members going out or coming in. Similarly, it is not necessary that each member should contribute or each member should participate in the surplus and get back from the surplus what he has paid, as long as they have control over the surplus." Thus, based on the ratio of the decision and facts as applicable to the case, it is reasonable to hold that the members as contributors as well as participators, including the new members remain as a class and such .....

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High Court s order and co-ordinate bench is also following the same principle in various cases, we do not see any reason to interfere with the order of CIT(A). Accordingly, the grounds raised by Revenue on this issue are rejected and both the appeals of Revenue in ITA Nos. 80 & 81/Hyd/2015 are accordingly dismissed. 4. The AO while completing the assessment has also noticed that the appellant-society has earned interest from deposits made with the banks and interest on bank balances as exemp .....

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s. Ld. CIT(A) however, based on the decision of jurisdictional High Court held that interest amount received from the banks on surplus funds does not come into the purview of Principles of mutuality and therefore, the addition made by AO was upheld. Assessee is aggrieved and raised as many as 10 grounds on the issue. The grounds are more or less in the form of written submissions on the issue and the only issue being agitated is whether interest received from bank deposits/balances is covered by .....

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balances in the savings bank account and claimed exemption from tax, on the principle of mutuality. Such amounts are quantified at ₹ 19,02,097/- for A.Y. 2007-08 and ₹ 19,85,909/- for A.Y. 2008- 09. However, the Assessing Officer relied on the decision of A.P. High Court in the case of Secunderabad Club, (340 ITR 121) (2012) and negated the claim of the assessee, whereas the appellant tried to distinguish the status and activities of club from that of a Housing Society and argued on .....

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f Delhi High Court in the case of Delhi Gymkhana Club (339 ITR 525) and concurred with the decision of Karnataka High Court in the case of Bangalore Club (257 ITR 263) and the decision of Karnataka High Court held to be final with the SLP filed by Bangalore Club on similar issue rejected by Supreme Court. Essence of the decision of Hon'ble High Court of Andhra Pradesh, on the issue, in the case of Secunderabad Club runs as under:- "34. Reading the above observations, it is not possible .....

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lub (2000) 243 ITR 89 (SC), and no reference was made therein to Royal Western India Turf Club. (1953) 24 ITR 551 (SC). As we have considered these cases in the light of the law laid down by the Supreme Court in these three judgments, we do not feel compelled to apply the ratio in Natraj Finance Corporation (1988) 169 ITR 732 (ap). We, however, hasten to add that, if an association of person receives contribution from its own members and earns interest income by lending the money to them from ou .....

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