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TMI Blog2011 (3) TMI 1640X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in assessment year 2003-04 are taken into consideration for the purpose of disposal of all the appeals. 3. The facts of the case are that the assessee is a Cooperative Society which had filed return of income for assessment year 2003- 04 declaring Nil income. The entire income earned during the year was claimed as exempt based on the concept of mutuality stating that the society was not having object of profit, there was no share capital and also no distribution of profit. The AO on verification was of the view that the assessee did not fulfill the requirement for exemption of income. A show cause notice was issued to the assessee stating that concept of mutuality was not applicable to the assessee. In this context, the decision of the Hon'ble Gujarat High Court in the case of CIT Vs Shree Jari Merchants Association 106 ITR 542 was referred to. It was also pointed out that the assessee was not fulfilling the condition regarding distribution of surplus assets only among the members of association on its dissolution. According to the AO in the absence of a clear-cut provision for distribution of surplus among the members, basic principle of mutuality was not fulfilled. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be returned to the members and the decision on how to expend the funds also did not rest on the contributors to the association but with the Registrar as per Gujarat Co-operative Societies Act. In the above context, the identity between the contributors and recipients are lost and the same nullified the very basic principle of mutuality. Accordingly the AO rejected the claim of exemption and held that the income was taxable under the head business. The assessee objected to the action of the AO as per ground No.1, which is as under: "1. The Assessing Officer erred in holding that its income is nor eligible for exemption on the basis of principle of mutuality and that its income is taxable under the head "Business Income." 4. The assessee submitted before the learned CIT(A) that there was a factual mistake in the statement of the AO wherein it was stated that the assessee was a co-operative sugar factory. The assessee was not owning or having any factory of its own. It was only a federation of co-operative sugar factories. It was functioning for the benefit of the co-operative sugar factories of Gujarat who are its members. It was further submitted that the AO had relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision was applicable to the facts of the present case. 5. The learned CIT(A) considering the submissions of the assessee allowed the appeal of the assessee by holding that the assessee is entitled for exemption on the basis of mutuality. His findings in Para 2.5 to 2.5.3 are reproduced as under: "2.5 The issue has been considered. The appellant is a co-operative society. The Assessing Officer denied the claim of exemption on the basis of mutuality stating that the appellant did not fulfill the cardinal principle regarding distribution of surplus amongst its members in the event of liquidation or winding up. The appellant clearly explained that even though the byelaw was silent on the question of distribution of surplus in the event of liquidation, the association was governed by Sections 114 and 115 of the Gujarat Co-operative Societies Act, which provided that the members had the right to decide the mode of distribution of assets and the Registrar of Cooperative societies have to do the same within the restrictions placed by Sections 114 and 115. The Hon'ble Gujarat High Court had upheld the claim of mutuality in the case of CIT Vs Adarsh Co-op. Housing Society Ltd. reported in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the present case are similar to the facts considered by the Hon'ble Gujarat High Court in the case of CIT Vs Adarsh Co-op. Housing Society Ltd. and accordingly, the above decision would apply. 2.5.3 The decision relied upon by the appellant in the case of Bus Operators Association Vs ACIT (2006) reported in 100 TTJ 904 is also similar to the facts of the present case. Considering the above decision, it is clear that the appellant's claim of mutuality is not hit by the absence of byelaw regarding distribution of assets in the event of liquidation or wounding up. Accordingly, it is held that the appellant has claimed exemption on the basis of mutuality. The ground raised is allowed." 5.1 With regard to the addition of ₹ 24,49,026/- the AO found that the assessee had earned interest of ₹ 24,49,026/- as interest on deposits during the assessment year under appeal. The assessee has shown interest income of ₹ 1,66,459/- on deposit of ₹ 2.36 Crores in Central Bank of India. The assessee was requested to rectify the discrepancy. The assessee pointed out that it was following cash system of accounting and accordingly interest on accrual basis was not to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidator, remaining property / assets can be distributed amongst Institutional members i.e. member sugar factories, there is no provision in bylaws of the Federation. The Executive Body meeting of this Federation which was held on 22-06-2010 vide Resolution No.12 proposed to General Body and hence it has been unanimously decided to make provision in by-laws of this Federation as indicated below: 9(A) "In case of liquidation of the Federation, after clearance of all outstanding dues / liabilities by the Liquidator, remaining property /assets will be distributed amongst Institutional members i. e. member sugar factories in proportion of financial contribution made by them." The learned Counsel for the assessee accordingly submitted that since the resolution passed recently, the matter may be restored to the file of the AO for reconsideration and passing the order afresh in order to decide the above issues once for all. The learned DR also submitted that the matter in issue may be restored to the file of the AO for reconsideration. 7. On consideration of the submissions of the parties, in the light of resolution No.6 of the assessee (supra) we set aside the orders of the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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