2013 (12) TMI 991 - AT - Income Tax

Principles of mutuality Held that - Following Bangalore Club Vs. CIT & Others 2013 (1) TMI 343 - SUPREME COURT - Doctrine of mutuality was applicable upon surplus amount received from members but the amount of interest earned by the assessee from the banks would not fall within the ambit of mutuality principles and would, therefore, be exigible to tax in the hands of the assessee club - Bringing the interest income earned by the assessee during the year to tax, does not result in any enhancement of income Decided partly in favor of revenue.

Summary

Issues:
1. Applicability of principles of mutuality to income earned by the assessee club.
2. Taxability of interest income on fixed deposits and saving account under the principles of mutuality.

Issue 1: Applicability of principles of mutuality to income earned by the assessee club:
The Revenue challenged the CIT (Appeals) decision, arguing that the assessee club did not fulfill the principle of mutuality as it was under the financial and administrative control of HUDA. The Assessing Officer contended that the club lacked complete equality among its contributors, indicating a lack of mutuality. The club claimed its income to be exempt based on the principle of mutuality, citing a Supreme Court decision. The CIT (Appeals) ruled in favor of the assessee, stating that the income was exempt from tax, following previous orders in the assessee's case. The Tribunal upheld the CIT (Appeals) decision, applying the principles of mutuality to receipts from members but held that interest income on fixed deposits and saving accounts did not fall under mutuality principles, as per a Supreme Court judgment, making it taxable.

Issue 2: Taxability of interest income on fixed deposits and saving account under the principles of mutuality:
The Revenue contended that interest income earned by the club from fixed deposits and saving accounts was not exempt under mutuality principles, citing a Supreme Court judgment. The club argued that the Revenue did not raise this ground earlier and that similar issues were decided in favor of the club in previous years. The club emphasized that the Assessing Officer did not specifically deny exemption on interest income in the present year. The Tribunal held that interest income on fixed deposits and saving accounts was taxable based on the Supreme Court judgment, directing the Assessing Officer to compute the total income accordingly. The Tribunal rejected the club's plea that taxing the interest income would result in income enhancement, stating that the law laid down by the Supreme Court must be applied.

In conclusion, the Tribunal partly allowed the Revenue's appeals, ruling that interest income on fixed deposits and saving accounts was taxable under the principles of mutuality, while the remaining income was exempt.