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TMI Blog2022 (3) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the said interest was from tax free Govt bonds and in fact pertained to the F.Y 2014-15 only. ii. Upholding the disallowance of Rs. 18,01,500 on account of donation given by the appellant in spite of the fact that the said donation was not claimed by way of deduction by the appellant while computing the income of the appellant and the said amount was just debited to income and expenditure account and hence the order dated 24.12.2021 passed by the CIT(A)-53 upholding the addition of tax free intrest of Rs. 1,22,81,315/- as also the disallowance of donation to the tune of Rs. 18,01,500/- needs to be set aside to the extent. 2. The brief facts of the case are that, the assessee trust is registered u/s 12A of the Income Tax Act and operating swimming pool and bath club in Mumbai. A notice u/s 148 of the Act was issued on the assessee after recording reasons and the survey operations u/sec133A of the Act conducted at the office premises and further the assessee has not filed the return of income for the A.Y 2015-16. The Assessing officer (A.O.) has reason to believe that there is a income escaping the assessment. In compliance to notice u/s 148 of the Act, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced by Finance Act, 2010 with effect from 01.06.2010 and that CBDT Circular No. 1/2011 dated 06.04.2011 explains why this amendment will apply for the A.Y 2011-12 and subsequent years. 3. The A.O. has observed that the assessee cannot claim exemption u/s 11 and 12 of the Act if the return of income is not filed under provisions of Sec. 139 of the Act along with the Audit Report in form 10B. In response to show cause notice, the assessee has filed a letter dated 25-03-2018 mentioning that as per the income and expenditure account, the assessee has disclosed a deficit of Rs. 3,11,74,716/- and whereas set off of income has been claimed as per the principle of mutuality. The A.O observed that the assessee is catering only to the members of the club and on perusal of the computation of income, the assessee has disclosed the bank interest, income tax refund interest income, scrap sale and rent from hospital under income from other sources,. Further, the A.O observed that the assessee has received tax free interest income on securities-bonds aggregating to Rs. 4,61,67,132/- and claimed exempt on the concept of mutuality principle. Whereas the A.O is of the opinion that the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the grounds of appeal by exercising your honour's power u/s. 250(5) of Income Tax Act. 1961. as the assessee was in fact entitled for these deductions which had nothing to do with the principle of mutuality. As such, these deductions may be allowed. (subject to verification by the AO). The xerox copies of the deductible donations made are enclosed. 6. The CIT(A) however was not convinced with the submissions, whereas, the assessee has the filed the return of income in response to notice u/s 148 of the Act and has not claimed deduction u/s 80-G of the Act and dismissed this ground of appeal and partly allowed the assessee's appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon'ble Tribunal. 7. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in sustaining addition of partial tax free interest, which the A.O has treated the same as taxable and the CIT(A) observed that it does not pertain to F.Y 2014-15.The Ld.AR submitted that the details of actual interest received falls in F.Y 2014-15 but due to software package the date and month are interchanged. The Ld.AR substantiated the submissions with details of interest inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is a technical error/mistake in computer package which cannot be ruled out. We find the Ld.AR submissions are realistic and duly supported with material evidences in the paper book is appreciated. Accordingly, we direct the Assessing officer to delete the addition of tax free interest on securities-bonds as it pertains to F.Y 2014-15 and the assessee is eligible for exemption u/s 10(15)(iv) of the Act and allow the ground of appeal in favour of the assessee. 9. The second disputed issue is with respect to sustaining addition of donation expenses. The Ld. AR submitted that the assessee has not claimed deduction in respect of donation while preparing the computation of income. The Ld. AR emphasized that though donation expenses of Rs. 18,01,500/- included under head "Miscellaneous income" was debited to the Audited income and expenditure account but for the purpose of exemption under the provisions of Sec.11 of the Act, the assessee has not claimed it as deduction. The Ld. AR demonstrated the computation statement of income at page 13 of the paper book. We find that the assessee on applying the principles of mutuality has considered only the bank interest, interest on income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vey u/sec133A of the Act was conducted on 1/08/2018. The assessee has filed a letter on 04.09.2018 explaining the dispute within the trustees and committee members. The A.O dealt on submissions and the provisions at Para 5 to 9 of the assessment order. The A.O is of the opinion that the assessee is not eligible for exemption u/s 11 of the Act. Hence the A,O, based on the information available on record has made Best judgment assessment u/s 144 of the Act and calculated the income assessable as per trial balance, tally back up data for the F.Y 2013-14 and allowed the expenses claimed on activities and calculated surplus as per unaudited income and expenditure account and assessed the total income u/s 144 r.w.s 147 of the Act of Rs. 23,97,12,960/- and passed the order on 27.12.2018. 13. Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) considered the facts, grounds of appeal, findings of the scrutiny assessment and written submissions filed in the course of appellate proceedings referred at Para 4.2 of the order. Finally the CIT(A) has partly confirmed the addition by excluding the tax free interest income and granted partial relief in ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal and would further request your honour to consider the same. 2. As mentioned above, though the assessee is registered under the Bombay Public Trust Act, 1950, it is in fact a Members Club & hence, the assessee's income needs to be computed by applying the principle of mutuality. 3. Under the principle of Mutuality, the income from the members cannot be considered to be taxable income as no entity can make prof it out of itself. Thus. while computing the income in the present case, assessee has excluded income from the members as also the expenditure incurred. 4. . The concept of mutuality and consequential exemption of income from the members has been reiterated recently by the Supreme Court of India in the casde of Bangalore Club Vs. CIT- 2020 427 ITR 260 (SC) as also in State of West Bengal Vs. Calcutta Club Ltd. -2019 311 CTR 121. 5. . But assessee's other income such as hospital rent, scrap sale, saving bank interest and misc. interest is not earned from the members and hence, it is taxable. 6. The abovesaid concept of mutuality has been accepted by the Dept. in the assessee's own case a. for the A.Y. 2010-11 as can be seen from the order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses which were incurred on members' activities and has worked out the surplus amount of Rs. 23,97,12,960!-. Therefore, the assessee's argument that the AG has not applied the principles of mutuality is not correct. However, the surplus of Rs. 23,97,12,960!- also include the interest income of Rs. _3,13,28,690/-which is earned from tax-free bonds. The details of such interest have been given during the appellate proceedings. The AG is directed to verify the tax-free interest received from Government bonds and allow interest which is exempt u/s. 10(15)(iv) of the Act. Accordingly, the addition of Rs. 20,83,84,270/- made by the AO is confirmed. In view of the above facts, ground No. 1, 3 & 4 of the appeal are partly allowed. 16. The Ld. AR referred to page 34 of paper book where the CIT(A) for the A.Y 2011-12 has granted the benefit of exemption u/s 11 of the Act on the principle of mutuality. Similarly for A.Y 2019-20. The Ld. AR referred to page 49& 50 of the paper book, where the principle of mutuality has been accepted and the benefit was granted and the assessement order u/sec143(3) of the Act was passed on 30-09- 2021. We considering the overall facts, circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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