2018 (5) TMI 1002 - AT - Income Tax

Application of mutuality principle - rental income and service fee received from its corporate member/payee M/s. Reliance Industries Ltd. - Held that - The very mutual benefit to the assessee denied itself on the ground that the payee/corporate member concerned; although a member, displayed its advertisement for the purpose of its business. Learned coordinate bench thus concludes that assessee s identical income received from the said payee is to be assessed as income from house property than that covered under mutuality principle. We accept Revenue s arguments as well as its former substantive ground seeking to revive the impugned addition of rental income. Restore service fee addition received from the very payee - Held that - We sought to know the exact nature of services provided by the tax payer. It emerges from the CIT(A) s order in para-5.2 that the service charges in question have been received in respect of the very let out premises. We thus are of the view that the assessee is not entitled for the above mutuality benefit qua instant service fee received as well. The Revenue s latter substantive ground as well as the impugned appeal is accepted accordingly.

Summary

Issues involved:
- Application of mutuality principle regarding rental income and service fee received from M/s. Reliance Industries Ltd.
- Treatment of interest income on fixed deposit, rental income, and service fee under different heads.

Analysis:

Issue 1: Application of mutuality principle regarding rental income and service fee
- The appeals for A.Ys. 2010-11 & 2011-12 involve the Revenue challenging the CIT(A)-3, Kolkata's order regarding rental income and service fee received from M/s. Reliance Industries Ltd. The Revenue contends that the Assessing Officer rightly treated the income as not covered under the mutuality principle, citing conditions set by the apex court in Bangalore Club vs CIT [2013] 350 ITR 509 (SC).
- In A.Y. 2010-11, the CIT(A) relied on previous decisions to support the assessee's claim under the mutuality principle, leading to the deletion of additions. However, a coordinate bench in a different assessment year denied mutuality benefit due to the payee's commercial activities, resulting in the revival of the addition of rental income.
- Similarly, the service fee received from the payee was not considered eligible for mutuality benefit as it was related to the let-out premises. Consequently, the Revenue's appeal was allowed in this regard.

Issue 2: Treatment of interest income on fixed deposit, rental income, and service fee under different heads
- The assessee's appeal for A.Y. 2011-12 contested the disallowance of interest income, rental income, and service fee. The coordinate bench had previously categorized similar interest income as "income from other sources," aligning with the Bangalore Club decision. As a result, the assessee's appeal on this ground was rejected.
- Regarding the rental income and service fee, the Revenue's arguments from the previous assessment year were accepted, leading to the confirmation of the CIT(A)'s findings on these issues. Consequently, the assessee's appeal for A.Y. 2011-12 was dismissed, while the Revenue's appeal for A.Y. 2010-11 was allowed.

In conclusion, the judgment addressed the application of the mutuality principle to rental income and service fee, as well as the categorization of interest income under different heads. The decisions were based on previous rulings, legal principles, and specific facts related to the transactions between the assessee and M/s. Reliance Industries Ltd.