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2012 (9) TMI 327 - AT - Income TaxPrinciple of Mutuality - CIT(A) allowed it - revenue appeal - Held that - As decided in assessee s own case for the assessment year 2006-07 on similar facts the Tribunal held that the assessee is a mutual concern as there is complete identity between the contributors and participators - the assessee is a society of industries of hazardous nature and the object is the treatment of waste produced by these industries to keep environment clean. The observation of the AO that it is not mentioned in the return that the principle of mutuality applies to the assessee has been held having no merit because what is important is the actual conduct of the assessee even if it is not mentioned in the return, it makes no difference to the status of the assessee - as predominant object of the assessee has been found the welfare of its members and in the process if any income is received from a person other than the members it would not change the status of the assessee - in favour of assessee. Addition on account of membership contribution - CIT(A) deleted it - Held that - As decided in assessee s own case for the assessment year 2006-07 on similar facts CIT(A) has deleted the addition made on account of membership subscription on the basis that the assessee is covered by the doctrine of mutuality - as doctrine of mutuality proved in favour of assessee addition need to be deleted - in favour of assessee. Interest earned on fixed deposits made out of subscription money received - CIT(A)treated it as income of the assessee - Held that - As decided in assessee s own case for the assessment year 2006-07 the Tribunal held that the decision of CIT(A) in respect of treatment of interest income are contradictory. He had deleted interest income of Rs. 1,34,234/- on the basis of concept of mutuality but had upheld the addition of interest income of Rs. 247113/- and Rs. 23,506/- - thus following the same direct the AO to delete the addition on interest on fixed deposit made out of the subscription money received from subscribers - in favour of assessee.
Issues:
1. Benefit of concept of mutuality to the assessee 2. Addition of Rs. 7,20,863/- on account of membership contribution 3. Treatment of interest earned on fixed deposits as not exempt under the doctrine of mutuality Issue 1 - Benefit of concept of mutuality to the assessee: The revenue challenged the first appellate order on the grounds that the Ld. CIT(A) erred in allowing the benefit of the concept of mutuality to the assessee. The Tribunal reviewed the decision of the Delhi Bench in a similar case for the assessment year 2006-07 and found that the Tribunal had upheld the first appellate order, stating that the assessee is a mutual concern with complete identity between contributors and participators. The Tribunal emphasized that the actual conduct of the assessee determines its status, even if not explicitly mentioned in the return. It was held that the assessee, a society of hazardous industries, primarily focused on the welfare of its members, thus falling under the concept of mutuality. Consequently, the Tribunal upheld the first appellate authority's decision, rejecting the revenue's appeal on this ground. Issue 2 - Addition of Rs. 7,20,863/- on account of membership contribution: The revenue also contested the deletion of the addition of Rs. 7,20,863/- by the Ld. CIT(A) on account of membership contribution, arguing that the society was not covered by the doctrine of mutuality. However, the Tribunal referred to a similar case for the assessment year 2006-07 where the Ld. CIT(A) had deleted a similar addition based on the concept of mutuality. The Tribunal upheld the finding that the assessee was covered by the doctrine of mutuality, leading to the deletion of the said addition. Consequently, the Tribunal rejected the revenue's appeal on this ground as well. Issue 3 - Treatment of interest earned on fixed deposits: The assessee challenged the first appellate order, claiming that the Ld. CIT(A) erred in treating the interest earned on fixed deposits, amounting to Rs. 4,99,371/-, as not exempt under the doctrine of mutuality. Referring to a previous case for the assessment year 2006-07, where contradictory decisions were made regarding interest income, the Tribunal concluded that interest income, whether booked on a cash basis or receipt basis, is exempt under the concept of mutuality. Following this decision, the Tribunal directed the AO to delete the addition of Rs. 4,99,371/- earned as interest on fixed deposits. Consequently, the Tribunal allowed the assessee's appeal on this ground. In summary, the Tribunal dismissed the revenue's appeal and allowed the assessee's appeal, pronouncing the order on 31st July 2012.
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