2012 (2) TMI 188 - AT - Income Tax

Principle of mutuality - Assessee co-operative society running Gymkhana, received deposit - Interest Income assessable as business Income - Held That - In view of Effluent Treatment Plant (2010 - TMI - 76801 - BOMBAY HIGH COURT),principle of mutuality is not applicable. - As regards the claim u/s 80P is concerned, if any income by way of interest or dividend derived by the cooperative society from its investment with any other cooperative societies, then deduction u/s 80P is allowable in respect of the said income. - case remanded back to verify the deposits. Transfer fee upto 25,000 covered under mutuality - Amount not received under coercion or under pressure - Held That - In view of Sind Cooperative Hsg Ltd (2009 -TMI - 34176 - BOMBAY HIGH COURT), claim of assessee allowed. Amount received for additional FSI under TDR rules - AO amount charged per sq.ft is higher than rate charged by local authority - Held That - When there is no profit motive or business by collecting such fund by the assessee society, then only because of the rate charged by the assessee society from its members is higher than the rate of local body cannot be a ground for rejecting the principle of mutuality.

Issues Involved:
1. Taxability of interest earned on deposits under the concept of mutuality.
2. Deduction under Section 80P of the Income Tax Act.
3. Taxability of transfer fees collected over a specified limit.
4. Taxability of funds collected for utilizing additional FSI under TDR rules.

Detailed Analysis:

1. Taxability of Interest Earned on Deposits Under the Concept of Mutuality:
The primary issue was whether the interest earned by the Gymkhana on deposits qualifies for exemption under the concept of mutuality. The revenue argued that the interest earned on deposits from non-members does not qualify for mutuality. The assessee contended that the Gymkhana operates on mutuality principles, even though it allows non-members as nominal members. The Tribunal referred to the jurisdictional High Court's decision in CIT v. Common Effluent Treatment Plant, which clarified that mutuality requires an identity between contributors and participators. The Tribunal concluded that the interest income on deposits does not fulfill the conditions of mutuality, as the interest is derived from third parties (banks) and not from members.

2. Deduction Under Section 80P of the Income Tax Act:
The assessee claimed a deduction under Section 80P for the interest earned on deposits. The Tribunal noted that deduction under Section 80P(2)(d) is allowable if the interest income is from investments made with other cooperative societies. Since this aspect was neither claimed nor examined by the lower authorities, the Tribunal remanded the issue to the Assessing Officer to verify if the interest was received from deposits made with other cooperative societies or cooperative banks. If verified, the deduction under Section 80P would be allowable.

3. Taxability of Transfer Fees Collected Over a Specified Limit:
The assessee collected transfer fees exceeding Rs. 25,000 per member and claimed exemption under the principle of mutuality. The Assessing Officer taxed the excess amount, which was upheld by the CIT(A). The Tribunal referred to the jurisdictional High Court's decision in Sind Co-operative Housing Society, which held that transfer fees received according to the society's bye-laws are covered under mutuality. However, since the amended bye-laws were not produced, the Tribunal remanded the issue to the Assessing Officer to verify if the amended bye-laws permit such collection. If permitted, the principle of mutuality would apply.

4. Taxability of Funds Collected for Utilizing Additional FSI Under TDR Rules:
The assessee collected funds from members for utilizing additional FSI and claimed it under mutuality. The Assessing Officer taxed this amount, arguing that the rate charged was higher than the local authority's rate, indicating a profit motive. The Tribunal disagreed, stating that the rate difference alone does not negate mutuality. The funds were collected from members and utilized for providing facilities and infrastructure, fulfilling the mutuality principle. Therefore, the Tribunal allowed the assessee's claim regarding the infrastructure fund.

Conclusion:
The revenue's appeal was allowed for statistical purposes, and the assessee's appeal was partly allowed. The cross-objection filed by the assessee was dismissed. The Tribunal remanded certain issues to the Assessing Officer for verification and further examination. The order was pronounced on January 6, 2012.

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