TMI Blog2018 (4) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of the assessee. If this is so, the income under the head business in the hands of the assessee, would have to be considered and depreciation liable to be allowed. Admittedly, if depreciation is allowed and the income of the assessee becomes negative or loss, the same is available for set off against the income from the other heads representing income from other sources. This being so, the findings of the Ld.CIT(A) in respect of the non-granting of the depreciation is allowed and the AO is directed to grant the assessee the benefit of depreciation as claimed. - ITA Nos.1997 & 1998/Mds/2016 & ITA Nos.1403 & 1404/Mds/2017 - - - Dated:- 8-1-2018 - Shri Abraham P.George, Accountant Member And Shri George Mathan, Judicial Member Appellant by : Mr. A. Kanagaraj, CA Respondent by : Mr. N. Madhavan, ACIT ORDER Per Bench : These are appeals filed by the assessee against the Order of the Commissioner of Income Tax (Appeals)-2, Chennai, in ITA No.256/CIT(A)- 2/2013-14 119/CIT(A)-2/2014-15 dated 11.03.2016 for the AYs 2010- 11 2011-12, in ITA No.44 225/CIT(A)-2/2015-16 dated 31.03.2017 for the AYs 2012-13 2013-14. 2. Shri N.Madhavan, ACIT, repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1999 has appointed Receivers to take charge of the properties purchased for the benefit members and funds available for distribution among the members. The Receivers have been directed to sell the properties and distribute the sale proceeds of the properties to the members of the Sabha who had contributed for the same in the proportion in which they have contributed. Even with respect to the cash which is in bank deposit or any other deposit, the same have to be distributed to the members of the society. 2. PRESENT ACTIVITIES: The office of the Receivers appointed by Hon ble High Court are functioning from the premises owned by the Sabha at different places and executing the orders of Hon ble High Court by realizing the properties purchased in the names of members of the Sabha, temporarily parking the funds in fixed deposits with banks and distributing to the members in installments after sufficient amount has been realized. In this process Sabha is getting interest income on fixed deposits with banks and there is some surplus after meeting the administrative expenses. The surplus is also deposited with bank for distribution to members. The surplus is being taxed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to be distributed amongst them. The funds which were invested in the form of Fixed Deposits were kept in such deposits with a definite idea of using the same for the specified purpose of returning to the members as per High Court order in a phased manner and could be drawn for that purpose as and when the need arises. CASE LAWS: In the case of CIT Vs West Godavari District Rice Millers Association (150 ITR 395), the A.P.High Court held that it is well settled that the surplus accruing to a mutual association is no income or profit at all for purposes of Income Tax, the test of mutuality being complete identity between the contributors and participants. In the case of CIT Vs JK Organisation Ltd (279 ITR 503) (All), The Allahabad High Court held that the organization has been formed to promote and protect the interest of its members and it also provided that upon dissolution, the surplus will be distributed amongst the members of the organization on the basis of the contribution. Hence organization is a mutual organization and the income of the assessee - association of persons was exempt from tax on the ground of mutuality. A mutual association is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance Association (33 TC 103). In the case of The Presidency Club Vs CIT, the Madras High Court has observed that any profit that arose to a Mutual Association is incidental to the activities which are mutual in nature and hence the receipt from letting out the rooms was held as not taxable. Mutuality principle has been upheld in the following cases also:- a) Wankaner Jam Social Welfare Society Vs CIT (260 ITR 241 (Mad) b) CIT Vs Merchant Navy Club (96 ITR 261 (AP) c) CIT Vs Nataraj Finance Corpn (169 ITR 732 (AP) d) CIT Vs J.K.Organisation Ltd (279 ITR 503 (All) e) Chelmsford Club Vs CIT (243 ITR 89 (SC) f) CIT Vs Rayal Western India Turb Club Ltd (24 ITR 551) g) CIT Vs I.T.I. Employees (234 ITR 308 Kar) h) CIT Vs Cawnpore Club (140 Taxman 378) The case laws where it has been held that interests on fixed deposits are also exempted on mutuality principle are as under: a) CIT vs Delhi Gymkhana Club Ltd. (339 ITR 525, Delhi). b) DIT vs All India Oriental Bank of Commerce Welfare Society (130 Taxman 575, Delhi). c) CIT vs Talangang Co- operation Group Housing Society Ltd. (339 ITR 518, Delhi). d) CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vacating illegal occupants of lands, bringing the property for auction, realization of auction money, making refunds to members etc. The auctions of the properties are taking place at various places in the building owned by the Sabha. Hence all the properties and assets of the Sabha are used for the purpose of carrying out the activities as directed by Honb le High Court of Madras. Depreciation has to be allowed as per provisions of I.Tax Act even when there is only income from other sources. The interest income is only from the deposits of auction amount realized by Receivers as per directions of High Court. Even in the case of charitable trusts, various Courts of Law have held that depreciation has to be allowed in arriving at the total income which is reproduced as under. I. CIT Vs Sheth Manilal Ranchhoddas Vishram Bhavan Trust (198 ITR 598) (Guj) Held that the expression income has to be understood in the popular or general sense and not in the sense in which the income is arrived at for the purpose of assessment. The amount of depreciation has to be deducted to arrive at the income available for application to charitable and religious purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember, the principles of mutuality cannot be applied to that receipt from the non- Member. This being so, we are of the view that the findings of the Ld.CIT(A) on this issue are on right footing and does not call for any interference. 6. Coming to the second issue of depreciation, it is an undisputed fact that the properties of the assessee are used for carrying out the activities of the society as directed by the Hon ble High Court. Once the properties of the society are used for the purpose of activities of the assessee, the same would have to be treated as being used in the business of the assessee. If this is so, the income under the head business in the hands of the assessee, would have to be considered and depreciation liable to be allowed. Admittedly, if depreciation is allowed and the income of the assessee becomes negative or loss, the same is available for set off against the income from the other heads representing income from other sources. This being so, the findings of the Ld.CIT(A) in respect of the non-granting of the depreciation is allowed and the AO is directed to grant the assessee the benefit of depreciation as claimed. 7. In the result, the appeals filed ..... 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