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2016 (5) TMI 1179 - ITAT MUMBAI

2016 (5) TMI 1179 - ITAT MUMBAI - TMI - Taxing the bank interest as income from other sources - assessee is a charitable organisation with DIT (E), Mumbai, under Section 12A - Held that:- The assessee depositing money in the bank does not constitute trade, commerce or business. The Assessing Officer has in fact gone much beyond and held that the interest itself constitutes taxable income falling foul of the proviso to section 2(15). If the Assessing Officer's view is correct, it will militate ag .....

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omplied with results in the institutions being declared to be non-charitable. This is a contradiction in terms and therefore must be rejected. Accordingly, we hold that the interest earned on fixed deposit with banks complying with the provisions of Section 11(5) is exempt and the proviso to Section 2(15) has no application to the facts of the assessee's case.

In view of the above, we set aside the order of both the lower authorities and direct the AO to delete the addition of interes .....

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u/s.143(3) of the I.T.Act. 2. In this appeal the assessee is aggrieved for taxing the bank interest as income from other sources. 3. Facts in brief are that the assessee is a Club with the principal object of providing a Golf Course and allied facilities for the promotion of sport of Golf. The assessee was registered as a charitable organisation with DIT (E), Mumbai, under Section 12A under Registration No. INS/36487 dated 6th June, 2002. The assessee has been claiming exemptions on the grounds .....

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o the amounts spent on the objects of the Trust viz. the promotion of Golf, the income declared was NIL. 4. On scrutiny of the heads of income, AO observed that the assessee has received interest income of ₹ 2,17,92,167/- which had been shown under the head Other Income . As per AO, the said income received by the assessee is not in the nature of mutuality and is from non members. In view of the decision of the Hon ble Bombay High Court in the case of CIT V/s. Common Effluent Treatment Pla .....

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the Income Tax Income Act, 1961 ('the Act') as it stood in Assessment Year 2009-10. The said proviso reads as follows. 'Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of .....

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(A) confirmed the action of the AO, against which the assessee is in further appeal before us and has taken the following grounds:- 1. The learned CIT(Appeals) has erred in law and on the facts of the case in sustaining the order of the assessing officer holding that the assessee company is not carrying on any charitable purpose within the meaning of the proviso to section 2(15) of the Income Tax Act. 2. The learned CIT(Appeals) has erred in law and on the facts of the case in sustaining the ord .....

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ated 30-5-2012, it was contended by ld. AR that assessee is entitled for benefit u/s.11(1) and 12AA of the I.T.Act. 8. It was further submitted by ld. AR that investment made by Club with the bank is not an activity in the nature of trade, commerce business, but is income earned on application money as mandated u/s.11(5)(iii) of the I.T.Act. Our attention was invited to clause (iii) of Section 11(5) according to which assessee is statutorily required to deposit money with a schedule bank or a co .....

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essee trust was charging a fee having regard to the economic status of the beneficiaries, it was necessary for the operation and running expenses and the sustenance of charitable activities, that a fee could be charged. And it cannot be said that assessee was carrying on any trade or commerce. He invited our attention to the observation of the AO to the effect that all other income other than interest income was held to be not taxable on the principle of mutuality. The deposit in the bank accoun .....

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view of the proviso to Section 2(15), the AO has correctly brought to interest income as taxable as the same was not earned on mutuality. 10. Rival contentions have been considered on record and perused. We have also deliberated on judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR before us, in the context of factual metrics of the case. From the record we found that the assessee company is incorporated u/s. 25 of the Companies .....

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t of ₹ 10.97 crores. Thus, the interest so earned from banks helps the company to reduce its losses. The relevant Assessment Year under consideration is A.Y.2009-10. The assessing officer has taxed interest received from banks to the tune of ₹ 2,17,92,167/- relying on the decision of the Hon ble Bombay High Court in the case of CIT Vs. Common Effluent Treatment Plant (Thane-Belapur) Association (2010) 328 ITR 362 and holding that interest income so received from bank i.e. non members .....

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charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or. application, or retention, of the income from such activity '. According to the Assessing Officer, the proviso to section 2(15) was applicable with effect from AY 2009-10 and once an institution was hit by the .....

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Plant, Thane Belapur Association (2010) 328 ITR 362 has held that the principle of mutuality did not apply to interest received on surplus funds invested in Fixed Deposits. 11. Against the above order of AO, the assessee approached to the CIT(A) and it was submitted that the order made by the DIT (E) cancelling the registration under Section 12AA had been held to be not tenable either on law or on facts by the ITAT which vide its order dated 30th May, 2012, had directed that the registration gra .....

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(i) the proviso to Section 2( 15) applies, (ii) the registration under Section 12A has been withdrawn by the OIT (E), and (iii) the decision of the Bombay High Court in Common Effluent Treatment Plant (2010) 328 ITR 362 hold that the interest received from non members is not exempt under the principle of mutuality. First we take the first objection of AO to the effect that proviso to Section 2(15) applies to the case of assessee. As per our considered view, the proviso denies an entity carrying .....

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ding to the Assessing Officer has resulted in the application of the proviso and which is the subject matter of the assessment is the interest earned from banks. As per our considered view the investments made with banks is not an activity in the nature of trade, commerce or business but is income earned on application of moneys mandated under Section 11(5)(iii) of the Act which reads as follows :- "The forms and modes of investing or depositing the money referred to in clause (b) of sub-se .....

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ding a society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). Thus, as per the provisions of section 11(5), the assessee is permitted to deposit in any account with a scheduled bank on the deposits made therein and hence it cannot be said that interest received from the bank is in the nature of trade, commerce or business. 13. The investment in banks is not only authorised but mandated and is compulsory in so .....

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vities and income streams received by the assessee have been held to be not taxable by the Assessing Officer himself in making his order dated 30th December, 2012 on the grounds of mutuality and the only amount which has been assessed to tax as income of the assessee is income from interest of ₹ 2,17,92,167. Thus according to the AO compliance by a entity set up for charitable purpose with the provisions of section 11 (5) of the Act would result in its status of 'charitable purposes .....

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rpreted the scope, purpose and limits of the proviso to Section 2(15). In GS 1 India Vs. DGIT 360 ITR 138 (Del), the term trade, commerce or business was interpreted, and in that case even though the assessee was charging a fee having regard to the economic status of the beneficiaries, it was held that it was necessary for the operation and running expenses and the sustenance of charitable activities, that a fee could be charged. In the case of the assessee on the other hand, there is no fee wha .....

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te for providing coaching classes and for holding interviews with respect to campus placement. The Court held that such activities cannot be stated to be rendering service in relation to any trade, commerce or business at all. This was reiterated by the Delhi High Court in Bureau of Indian Standards v. DGIT 358 ITR 78 and in PHD Chamber of Commerce 357 ITR 296. The Gujarat High Court in DGIT Vs. Sabarmathi Ashram Gaushala Trust 44 Taxman 141 took the view that a Trust registered with the objects .....

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eceipts by way of sponsorship do not alter the character of the main objects and is not affected by the proviso as it cannot be said to be engaged in any activity which is in the nature of trade, commerce or business. 15. The second objection of AO was that the registration u/s.12A has been withdrawn by the DIT(E). At the time at which the Assessment Order was passed viz. 30th December, 2011, that fact was correct. However, the order withdrawing the registration under section 12A has been cancel .....

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Tribunal in assessee s own case in ITA No.311/Mum/2012, dated 30-5-2012, wherein the order passed by DIT(E) u/s.12A(3) of the Act cancelling registration granted u/s.12AA was set aside and appeal of the assessee was allowed. 16. The last objection of AO was that decision of Hon ble Bombay High Court in the case of Common Effluent Treatment Plant 328 ITR 362 was applicable and the interest received from non-members is not exempt under the principle of mutuality. From the record we found that the .....

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