TMI Blog2021 (7) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Appellant : Sri.V.Chandrashekhar, Advocate For the Respondent : Shri Priyadarshi Mishtra, Addl.CIT-DR ORDER PER GEORGE GEORGE K, JM This appeal at the instance of the assessee is directed against CIT(A) s order dated 21.01.2014. The relevant assessment year is 2010-2011. 2. Thirteen grounds are raised in this appeal. Ground Nos.1, 12 and 13 are general in nature and no adjudication is required. Ground Nos.3 and 4 are not pressed by the learned AR during the course of hearing, hence, the same are dismissed. The surviving grounds are Ground Nos.2, 5 to 11. 3. Brief facts of the case are as follow: The assessee is a housing co-operative society formed in the year 1974 for the purpose of meeting housing needs of the employees of Vijaya Bank. All the members of the assesseesociety are either present or ex-employees of Vijaya Bank. The activities of assessee-society is to acquire land and develop the same into sites and allot them to its members at a reasonable price. The underlying idea being that collective buying in large scale would enable better price negotiations and also do away with intermediaries in purchasing the land and developing them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mutual society and that non-mutual income is to be taxed in its entirety. This had the effect of enhancing the assessed income and a notice u/s 251(2) of the I.T.Act was issued vide order sheet entry dated 19.12.2013. The assessee in response to the enhancement proposed, submitted as follows:- (i) The assessee is consistently filing the return of income just like any other undertaking engaged in commercial venture and is not claiming exemption on the income earned by it under mutuality concept and offering the income under the head `Income from profits and gains of business . (ii) The CIT(A) does not have the requisite powers under section 251 of the I.T.Act to assess an income under a different head of income other than the one under which it has been assessed. (iii) Interest paid on deposits to members is a charge on interest income earned from banking the same with banks as fixed deposits. (iv) Even if the interest income is considered as Income from Other Sources, interest paid is ought to be allowed under section 57(ii) of the I.T.Act as expenses laid out or expended wholly and exclusively for the making or earning of the said interest income. 5.2 The CIT(A) rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the making or earning of the said interest income in the event of holding the interest income as `income from other sources ? (iv) Whether the Commissioner (Appeals) is right in confirming disallowance of ₹ 37,00,941 made by the A.O. stating that the same is a capital expenditure ? 7. The learned AR submitted that out of the above four issues, three issues are covered in favour of the assessee by the order of the Tribunal in assessee s own case for assessment years 2007-2008 to 2009-2010 and 2011-2012 to 2014-2015 in ITA No.766 to 772/Bang/2018 (order dated 01.04.2021). 8. The learned Departmental Representative, on the other hand, strongly supported the order of the CIT(A). 9. We have heard rival submissions and perused the material on record. Out of the above four issues mentioned in the preceding para 6, three issues are covered by the order of the Tribunal in assessee s own case for assessment years 2007-2008 to 2009-2010 and 2011-2012 to 2014-2015 (supra). The relevant finding of the Tribunal in asessee s own case reads as follow:- 12. We have heard rival submissions and perused the material on record. To understand the dispute raised, it is necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2007, which reads as follow:- Resolved that interest be paid to the members annually, by way of compensation, proportionate on the advance made by them, on the basis of interest earned during each such year. Further resolved that the interest be credited to a separate account called interest payment to members every year and the same be treated as further contribution of the members of the Society towards the project. Certified True Copy 12.2 A copy of certified extract of minutes of AGM of assessee society held on 30.09.2007for passing the above resolution is on record. Consequent to the above resolution, the assessee-society paid compensation out of interest earned from FD s. This payment of compensation to members has given rise to the entire dispute in question. Therefore, the only issue is regarding the payment of interest / compensation to the members whether it is allowable deduction to the assessee-society. In view of the above factual background, the order of the A.O. and CIT(A), following issue arises for our adjudication, namely, (i) whether the assessee can be thrust upon a status of a mutual society, (ii) whether the interest expenditure can be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs even after obtaining site / plot from assessee-society once, is entitled to continue to retain his membership. Therefore, there is no contribution from his side though he is entitled to participate in the profits earned by the assessee-society, which can be distributed in the form of dividend. The very fact that bylaws of the assessee-society contained the provisions that payment of dividend to its members goes to show that it is not a mutual society and commerciality is very much inherent in the activities of the assessee-society. In this regard, clause 75(6) of the Byelaws of the assessee-society is relevant. Therefore, the action of the Assessing Officer in thrusting the concept of mutuality even when the assessee-society never claimed the concept of mutuality, is bad in law and is hereby set aside. (ii) Whether the interest expenditure can be allowed as a deduction u/s 37 or u/s 36(1)(iii) of the I.T.Act. 12.5 The interest expenditure claimed by the assessee is purely compensatory to offset cost overrun to the members of the assessee-society. Therefore, based on the principle of matching concept, the expenditure attributable to income ought to be allowed. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of portion of such interest income earned as compensation to members for delayed allotment of sites. Therefore, the interest credited to the members is wholly and exclusively for the purpose of business and entitled to deduction u/s 37(1) of the I.T.Act. For claiming expenditure u/s 37(1) of the I.T.Act, there was no need for a cause and effect relationship between an item of income and expenditure as claimed by the A.O. All that would be necessary is only that it is for the purpose of business and not necessary for earning of the income. In this context, reliance is placed on the judgment of the Hon ble Apex Court in the case of Sassoon J David Co. Pvt. Ltd. v. CIT reported in 118 ITR 261. Even assuming that interest income is assessed as income from other sources, whether the interest expenditure ought to be allowed as a deduction u/s 57(iii) of the I.T.Act. 12.8 As mentioned earlier, the interest paid on advances from members is chargeable on interest income earned from depositing the same with banks by the assessee because had there been no advances from members, there would not have arisen the interest income to the assessee-society. This being the situati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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