TMI Blog2021 (2) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee-society as noted in the submissions of Learned Counsel for the Assessee also clearly show that all the issues raised in the Departmental appeal have been considered and decided in earlier years, therefore, principle of consistency do apply to the same facts. No material is brought on record to distinguish the facts in the case of the assessee-society considered in earlier years as well as in assessment year under appeal. In A.Y. 2010-2011, the Order under section 263 of Income Tax Act, 1961 have been set aside by the Tribunal and Departmental appeal have been dismissed by the Hon ble Delhi High Court as well. The subsequent Order passed under section 143(3)/ 263 have become infructuous and vide separate Order the Departmental appeal have also been dismissed by the Tribunal in[ 2021 (2) TMI 173 - ITAT DELHI] Considering the above background and history of the assessee-society in the light of various Orders referred to by the Learned Counsel for the Assessee during the course of arguments and the recent Order of the ITAT and Hon ble Delhi High Court in A.Y. 2012-2013 we do not find any infinity in the Order of the Ld. CIT(A) in allowing the appeal of assessee-society. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles as claimed by the assessee-society. Therefore, assessee-society cannot be allowed to compartmentalize its activities and income arising therefrom under charitable activities and mutual activities. The A.O, therefore, noted that all the above activities of the assessee-society shall have to be seen. The A.O. issued notice to assessee-society to explain as to how it is not covered by Proviso 1 and 2 of Section 2(15) of the Income Tax Act, 1961. The assessee-society submitted before the A.O. that its activities are not driven by profit making, which is an essential ingredient to hold the activity as being in pursuance of a business or trade with a profit motive. The activities of the assessee-society for the A.Y. 2009-2010 after insertion of proviso to Section 2(15) have not been hit by these provisions. As the activities of the assessee-society are on no-profit no-loss basis, it is not having any commercial activity. Detailed reply of the assessee-society is reproduced in the assessment order explaining the issue with regard to the applicability of proviso to Section 2(15) of the Income Tax Act, 1961. However, the A.O. did not accept the explanation of assessee-socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of assessee-society. 5.1. In A.Y. 2009-2010, the ITAT in ITA.No.4024/Del/ 2012 dismissed the appeal of Revenue on the issue of taxing the interest income by holding that it is not covered by principle of mutuality because the income is to be computed under sections 11, 12 and 13 of the Income Tax Act, 1961. The Ld. CIT(A) also reproduced the Order for A.Ys. 2012- 2013 and 2013-2014 of his predecessor on the issue of principle of mutuality which was decided in favour of the assessee-society. The Ld. CIT(A) ultimately held that in preceding A.Ys. 2012-2013 and 2013-2014 it was held that assessee-society should be regarded as a charitable organization and allowed the benefit of exemption under Section 11 of the Income Tax Act, 1961. Since there is no change in facts and circumstances, therefore, Ld. CIT(A) took the same view in favour of the assessee society holding that assessee-society is a charitable organization and entitled for exemption under Section 11 of the Income Tax Act, 1961. The Ld. CIT(A) also referred to Judgments of Hon ble Delhi High Court Dated 12.10.2011 in the case of the assessee-society where the principle of consistency has been quoted by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initial stages. In the initial years of assessee-society s inception, the Revenue was of the view that it is not a charitable organization eligible to claim exemption under Section 11 of the I.T. Act, 1961 and accordingly taxed the receipts. But the Hon ble Delhi High Court in the case of the assessee-society vide Judgment Dated 12.10.2011 [PB-82] for the A.Y. 1990-1991 etc., noticed that up to the A.Y. 2006-2007 assessee-society is a charitable organization and Section 11 of the I.T. Act, 1961 is applicable. From the A.Y. 2008 2009, the Department started disputing the nature of activities undertaken by the assessee-society and rejected the claim of exemption under Sections 11 and 12 read with Section 2(15) of the I.T. Act, 1961. Then and there the assessee-society is started making an alternative claim of exemption of income on the principle of mutuality, but, that was also dismissed by the Department. On further appeal, the Ld. CIT(A) allowed the claim of assessee-society while holding that the principle of mutuality will apply to the interest income earned by the assessee-society. The Order of the Ld. CIT(A) is upheld by the ITAT in the case of assessee-society in ITA.No.4771/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) after following his earlier Order, had allowed the appeal of assessee-society. However, on an appeal filed by the Revenue, the ITAT in ITA.No.4457/Del./ 2015 vide Order Dated 26.06.2018, after analyzing the proviso to Section 2(15) of the Income-Tax Act in the light of Judgment of the Hon ble Delhi High Court in the case of Indian Trade Promotion Organization vs., DGIT (E) 371 ITR 333 (Del.) has not only allowed the benefit of Section 11 of Income Tax Act, 1961 to the assessee-society, but also held that once the benefit of Section 11 has been granted and the registration under Section 12AA of the Act is still continuing, the income computation has to be made in terms of Section 11 of the Income Tax Act, 1961 and the Bank interest is part of that income. The Tribunal relied upon its earlier decision in the case of the assessee-society. 7.5.. Learned Counsel for the Assessee submitted that on account of disputes being charitable or mutuality, not settled till the assessment proceedings, the assessee-society, as an abundant precaution, alternatively started claiming the exemption under Section 11 of the Income Tax Act, 1961 as well as the mutuality also. From A.Y. 2012-2013 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961 brought by the Finance Act 2008 with effect from 01.04.2009, the Hon ble Delhi High Court in the case of the assessee-society as well as other decisions held that proviso to Section 2(15) of the Act must be read in the context and purport of Section 2(15) of the Act and cannot be interpreted in an isolated manner. He has relied upon the Judgments of the Hon ble Delhi High Court. He has further submitted that absence of profit motive clearly suggests that assessee-society is not carrying on any business and it is a vital factor in determining the charitable nature of an entity. He has submitted that since both the issues have been considered by the ITAT as well as the Hon ble Delhi High Court in the case of the assessee-society, therefore, rule of consistency do apply to the proceedings in the case of the assessee-society and relied upon the Judgment of the Hon ble Supreme Court in the case of Radhasoami Satsang vs., CIT 193 ITR 321 (SC). He has, therefore, submitted that no addition could also be made on account of taxability of interest with regard to computation of income under Sections 11, 12 and 13 of the I.T. Act, 1961 as well as on the principle of mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 260A of the Income Tax Act, 1961 (hereinafter referred as the Act ) is directed against the order passed by Income Tax Appellate Tribunal ( ITAT ), New Delhi dated 28.02.2019 in ITA No. 1847/Del/2016 for assessment year (AY) 2012-13, whereby ITAT dismissed the appeal of revenue, upholding the reasoning and findings of CIT (A) that the assessee is a charitable institution and its income has to be computed under Sections 11, 12 and 13 of the Act. 6. Briefly the facts of the present case are that the assessee filed its return for AY 2012-13 on 28.09.2012 in status of Trust , declaring Nil Income . Assessment was framed vide order dated 30.03.2015 under Section 143 (3), computing total income as ₹ 5,86,85,490/-and holding that the activities of the assessee are hybrid in nature; partly covered by provisions of section 11 read with Section 2(15) and partly by principle of mutuality. It was held that since the assessee is not maintaining separate books of accounts, income cannot be bifurcated under the principle of mutuality or otherwise. Entire surplus in I E account, amounting to ₹ 5,83,92,860/- was treated as taxable income of the assessee. The CIT (A) vide or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 11 of the Act in the context of contributions made by the institutional members qua the construction of superstructure on the land allotted to the assessee, below market price and the applicability of the provisions of Section 13(1) (c) read with Section 13 (3) (b) of the Act. 11. Mr. Sharma also argues that the interest earned by the assessee on fixed deposits from its member bank would not be exempted from tax on the basis of doctrine of mutuality. The income of ₹ 1,20,14,708/- earned as interest during the concerned year is clearly taxable in view of the decision in the case of Bangalore Club vs. CIT,(2013) 350 ITR 509 (SC)/ Manu/SC/0030/2013 . ITAT has not considered the aforesaid decision and other judgements relied upon by the Revenue in support of the aforesaid proposition. The relevant portion of Bangalore Club (supra) as relied upon by Mr. Sharma, reads as under:- 13. On this aspect of the doctrine, especially with regard to the non-members, Halsbury's Laws of England, 4th Edition, Reissue, Vol. 23, paras 161 and 162 (pp. 130 and 132) states: Where the trade or activity is mutual, the fact that, as regards certain activities, certain members o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. The Madras, Andhra Pradesh and Kerala High Courts have held that the test of mutuality does not require that the contributors to the common fund should willy-nilly distribute the surplus amongst themselves : it is enough if they have a right of disposal over the surplus, and in exercise of that right they may agree that on winding up the surplus will be transferred to a similar association or used for some charitable objects.... 12. We have given our thoughtful consideration to the submissions advanced by Mr. Ajit Sharma. Before adverting to the contentions urged by Mr. Sharma, it would also be appropriate to take note of the reasoning and findings of CIT (A) which read as under: Findings 6.3 It is quite clear from the facts that the IHC has not generated any surplus for anyone - members or non members. All its activities are geared towards providing services for its members with the bulk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee appellant should not have been reopened. Strictly speaking, res judicata does not apply to income tax proceedings. The each assessment year being a unit, what was decided in one year might not apply in the following year wherein fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. This principle has again been noticed and followed by the Hon'ble Supreme Court in CIT vs Excel Industries Ltd., 358 ITR (SC). ITNS-55APPEALNO. 23/2015-16 7.3 In the High Court Judgment delivered on 12/10/2011 also the principle of consistency was applied to IHC. There is no fundamental change in the nature of activities of IHC for the period prior to AY 2008-09 and subsequent years. Accordingly based on the aforesaid High Court Judgments and the fact that he assessing officers have consistently from AY 2008-09 treated IHC as a mutual association IHC has to begiven the befit of mutuality. Thus the Grounds of appeal at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from that taken in earlier years, the question of exemption of the assessee should not have been reopened and though strictly speaking the principles of res judicata does not apply to the income-tax proceedings, each assessment year being a unit, what was decided in one year might not apply in next year but where a fundamental aspects permeating through different assessment year has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all proper to allow the position to be changed in a subsequent year. 14. As noted above, there has never been any dispute as to the continuation of the same set of facts in all these years, right from the AY 1990-91 at different level either it is at the first appellate authority stage or the Tribunal or the Hon ble High Court, the consistent view has been that the assessee is a charitable institution and its income has to be computed u/s 11 12 13 of the Act. Unless and until, any change in the fundamental facts is brought on the record, we find it difficult to take a different view for this assessment year. Our this view is well fortified by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the activities of the assessee were held to be charitable, plea of mutuality was held to be superfluous. 16. The fundamental question is that if the assessee has taken the plea of mutuality, whether it could be deprived of the benefit of Section 2(15) of the Act. On this aspect, the AO has proceeded to classify assessee s activities as hybrid , holding that part of the activities are covered by provisions of Section 11 r/w section 2(15) and partly by principle of mutuality. The CIT(A) after examining the records has given a categorical finding that the activities of the centre falls within the meaning of the definition of charitable activities as provided under Section 2(15) of the Act. It has been further observed that the proviso to the definition is not applicable and the AO has erred by relying on the same. Further, it has been held that even if the assessee s activities do not fall in the first limb, since the assessee is promoting activities of general public utility, it would be covered by the second limb of the definition. 17. Applying the test of profit motive, it was held that the surpluses generated by the assessee are not being appropriated by any individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ymkhana Club, 2010 SCC OnLine Del 4648: (2011) 339 ITR 525, held that the principle of mutuality applies to interest income earned from the deposits made out of contributions from the members of the society. This Court in the said decision, by relying upon the decision in DIT vs All India Oriental Bank of Commerce Welfare Society, [2003] 130 Taxman 575 (Delhi) held 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 chargeable to tax . 20. The decision in Bangalore Club (supra) as relied upon by Revenue is not applicable to the facts and circumstances of the present case as the assessee in the said case was an unincorporated Association of Persons. It is apparent that the assessee in the present case is a registered Society under the Societies Act, 1860 and is also registered under Section 12A of the Act. This registration is still in force. In view of this and the grounds discussed herein before, we are of the view that the assessee is entitled to claim relief under Section 11, 12 and13 of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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