TMI Blog2019 (5) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... continuously by the governing council. The capital contribution collected from members are applied exclusively for the project. Till the project is completed, the additional funds are kept in the banks for future application. Some times, kept in bank for complying with the court direction or for guarantee. As soon as the purpose of the society is complete, the funds are withdrawn from bank. AO applied the principle of mutuality by relying on case Secunderabad Club [ 2011 (8) TMI 752 - ANDHRA PRADESH HIGH COURT] but there are considerable differences in both type of associations - in the present given case, the funds are not surplus, but, additional funds which are required for completion of the project. These funds collected from the members are in the nature of capital. The capital required for the project are kept in the bank as a necessity not for the sole aim of making any profit. The interest earned by the society are surplus, which can be applied for the main purpose of the society or it may reduce the cost of the project. Therefore, applying the ratio of Secunderabad Club, in the present case, is not proper. The assessee has not collected any charges from the particip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est on FDRs of ₹ 14,40,506/- and interest on SB A/c of ₹ 2,45,711/-, as income from other sources. 2.1 During the course of the assessment proceedings, the AO found that the assessee deposited surplus funds, which are not immediately utilized for construction activity, in fixed deposits with State Bank of Hyderabad. Further, the assessee has received interest on FDRs of ₹ 14,40,506/- and credited the same to the P L account. As the case of the assessee is covered under principle of mutuality, the AO opined that the interest income on FDRs received from outside banks cannot be construed as income coming under the ambit of principle of mutuality. This is precisely because of the reason that the FDRs are made with outside banks which are not the members of the society and, therefore, there is no identity between the contributors of the interest income and the persons who are enjoying the interest income. Accordingly, the AO excluded the same from the P L account and assessed separately as Income from Other Sources. While doing so, he did not allow any expenditure debited to the P L account against such interest income, as such expenditure has no ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 16,86,217/- (FD interest of ₹ 14,40,506 + SB interest of ₹ 2,45,711) should be taxed as per the normal provisions of the Income Tax Act under the head Other Sources. 4) Loss computed, being the expenditure incurred towards administration and other activities of the society coming under the purview of principle of mutuality cannot enter the computation of total income as envisaged u/s. 2(45) of the Act and, therefore, it is not allowed to be set off against income computed under Other Sources. Thus, the grounds of appeal raised by the assessee are dismissed and the addition made by the AO is confirmed. 5. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: 1. The order of the Ld. Commissioner of Income Tax (Appeals)-12 Hyderabad ('CIT(A)') in sustaining the addition of ₹ 14,40,586/- being the interest received from Temporary Fixed deposits with banks and ₹ 2,45,711 on Savings Bank account, is unsustainable, both in law and on facts. 2. The CIT(A) failed to note that the loss computed, being administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in city in his name/spouse/minor children. The member cannot be a member in any other similar society in the same area. This society is run by elect management committee. 8.1 This society is established with the purpose of providing house for the cine workers for a reasonable and affordable cost. No doubt the property is developed with the mutual contribution. Important is, not all the members of the society are participating in the particular project, only the investor-cum-beneficiary of the project. Once the project is complete, the allottees will get the respective houses. The participation of the same member in the other project is very remote. This is basically charitable activity with mutual concept to carry on the object of providing affordable houses for the members. This activity is carried on continuously by the governing council. The capital contribution collected from members are applied exclusively for the project. Till the project is completed, the additional funds are kept in the banks for future application. Some times, kept in bank for complying with the court direction or for guarantee. As soon as the purpose of the society is complete, the funds ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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