TMI Blog2012 (2) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of assessment proceedings, after analyzing the primary aims and objects of the society as also activities undertaken by it, the Assessing Officer (A.O. in short) rejected the claim of the assessee for exemption u/s 11 12 read with section 2(15) of the Act. As regards assessee s claim for exemption of its interest income under the principle of mutuality in the light of decisions in the case of DIT Vs. All India Oriental Bank of Commerce Welfare Society, 130 Taxman 575 (Del.); CIT Vs. Karnataka Urban Infrastructure, Development and Finance Corporation, 315 ITR 301 (Karn) and that CIT Vs. Arbindo Memorial Fund Society, 247 ITR 93 (Mad),the AO concluded that receipts or income which were attributable to outside or third parties, were not covered by the principle of mutuality and accordingly, brought to tax the entire amount of interest of `₹ 39,72,025/- received from bank. 3. On appeal, the ld. CIT(A), following the decision of Hon ble jurisdictional High Court in the case of CIT Vs. Delhi Gymkhana Club (2011) TIOL-41-High Court-DEL-IT, allowed the claim of the assessee while holding that the principle of mutuality will apply to the interest income amounting to ` ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t principle of mutuality would apply. On appeal by the Revenue regarding applicability of principle of mutuality to receipt from members and interest earned from surplus funds deposited with the banks, the Hon ble Jurisdictional High Court following the view taken in Bankipur Club Ltd. (supra) ,Chelmsford Club vs. CIT,243 ITR 89 (SC) and Dalhousie Institute Vs. AC, Service Tax 3 STR 311 (Cal.) rejected the appeal of the Revenue. The Hon ble SC also dismissed the SLP filed by the Department on 7.7.2010. The decision in SCOPE(supra) was followed by a co-ordinate Bench in another decision dated 16.10.2009 in Wellington Estate Condominium in ITA No. 2846/Del/07 for the A.Y. 2003-04 . 5.2 We find that the Hon ble Jurisdictional High Court in their aforesaid decision in Delhi Gymkhana Club Ltd. (supra) concluded as under:- 2. After hearing the learned counsel for both the parties at length, we are of the opinion that the aforesaid finding of the Tribunal is correct on facts and in law, which does not call for any interference. The issue, in fact, stands covered by at least three judgments of this Court, which are as under: (i) The Director of Income Tax Vs. All India Oriental B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any other purpose accepting for the welfare of the principles. On this basis, the Court clearly held that even if there was an income earned by the society in the form of interest by keeping the funds generated from the members in the bank, such interest will not be treated as income allowable for tax. (ii) Commissioner of Income Tax Vs. Talangang Co-operative Group Housing Society Ltd. [210) 195 Taxman 110 (Delhi). In this case, the assessee was a co- operative housing society and its preliminary activity was to collect money from their members for construction of flats/houses and subsequently allot the same to them. There was no issue that on these contributions from the members, no tax was payable and principles of mutuality would be applicable. However, it was found by the Assessing Officer that certain income was derived from other than construction activities, viz., equalization charges from new members, maintenance fund and entry fee from power of attorney holders, interest on delayed payments and more significantly (which would be relevant for our purposes) interests from bank from FDRs. All these were not treated as taxable income by the AO. This order of the AO wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument, a convenient agent for carrying out what the members might more laboriously do for themselves. Their Lordships have laid down the three test before the principle of mutuality can be applied. In a nutshell, these test are: 1. The identity of the contributors to the fund and the recipients from the fund. 2. The organization exists only for mutual benefit. 3. The funds can be expended for mutual benefit or returned to the contributors. 18. At this stage, we may also take note of the judgment of Gujarat High Court in the case of Sports Club of Gujarat Vs. CIT where the Court held that the principle of mutuality is not destroyed by the presence of transaction, which are non mutual in character. This principle can, in such case, be confined to transactions with members. The two activities, in appropriate case be supported and the profits derived from non-members, can be brought to tax. 19. In the present case, as already noted above, the respondent is incorporated as a society and the main objective is to improve the purpose of public enterprises. The membership of the society is open to public sector enterprises of Central/State Governments. It is, thus, performed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clothe the activity of the assessee as commercial activity, which is not the object with which the assessee society is formed. Pre-dominant object is to render appropriate assistance and help to its members for improving their performance and role. Thus, all the three ingredients laid down by the Supreme Court in Chelmsford Club would be applicable in the present case. 21. We may also refer to the judgment of the Calcutta High Court in the case of Dalhousie Institute Vs. Asstt. Commissioner, Service Tax Cell, 2006 (3) STR 311. Though it was a case where mandap facilities were provided by the club to its members and the question of service tax had arisen, the Calcutta High Court applied the principle of mutuality holding that the aforesaid facilities provided by the club to its members for such functions cannot be termed as commercial activity. Following observations are to be noted in this behalf: The principle of mutuality in this case is also squarely applicable, as going by the definitions of mandap, mandap keeper and the taxable service, in this case the facility of use of the premises to the members by its club cannot be termed to be a letting out nor the members of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio of the judgments can be acceptable herein or not I like to say 'yes it is applicable'. Income-tax is applicable if there is an income. Sales tax is applicable if there is a sale. Service tax is applicable if there is a service. All three will be applicable in a case of transaction between, two parties. Therefore, principally there should be existence of two sides/entities for having transaction as against consideration. In a members' club there is no question of two sides. 'Members' and 'club' both are same entity. One may be called as principal when the other may be called as agent, therefore, such transaction in between themselves cannot be recorded as income, sale or service as per applicability of the revenue tax of the country. Hence, I do not find it is prudent to say that members' club is liable to pay service tax in allowing its members to use its space as 'mandap'. 3. Hence, in view of the aforesaid judgment of this High Court which binds us, we are of the opinion that no question of law arises for consideration. 4. This appeal is accordingly dismissed. 6. In the light of view taken by the Hon ble jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X
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