2015 (9) TMI 543 - AT - Income Tax

Interest received from bank deposits/balances - whether is covered by Principles of mutuality or not? - assessee is a housing co-operative society and has claimed certain incomes as exempt on Principles of mutuality - Held that - Since jurisdictional High Court in the case of Secunderabad Club 2011 (8) TMI 752 - Andhra Pradesh High Court has clearly held that interest received from third parties cannot be exempted under the Principles of mutuality , we reject assessee s contentions, as the interest earned is not from the Members but from the third person i.e., bank in which assessee s surplus funds are placed. Since the income received is from third party, we are of the opinion that Principles of mutuality does not apply to the present facts. There is no merit in assessee s grounds. Accordingly, they are rejected - Decided against assessee.

Summary

Issues:
1. Condonation of delay in filing appeals by assessee.
2. Taxability of transfer fee received by a housing cooperative society.
3. Taxability of interest earned from bank deposits under the principle of mutuality.

Analysis:
1. The assessee filed appeals with a one-day delay, which was condoned after considering the explanation provided. The appeals were admitted for AYs 2007-08 and 2008-09.

2. The Assessing Officer (AO) taxed the transfer fee received by the housing cooperative society, contending that it was not exempt under the principle of mutuality. The AO argued that there was no identity between contributors and participants due to the nature of the transfer fee. However, the CIT(A) and ITAT upheld the exemption based on judicial precedents and the principle of mutuality, emphasizing that the transfer fee collected was in line with the society's bye-laws and did not affect the mutuality principle.

3. The AO disallowed the exemption claimed on interest earned from bank deposits, citing the decision in the Secunderabad Club case. The CIT(A) upheld the AO's decision, stating that interest from bank deposits did not fall under the principle of mutuality. The ITAT concurred, highlighting the distinction between transactions with members and third parties, concluding that interest earned from banks was not eligible for exemption under the mutuality principle. The appeals by the assessee were dismissed based on this analysis.