2021 (1) TMI 203 - AT - Income Tax

Assessment of society - Transaction of leasing out two premises to its two members - concept of mutuality denied- Addition on account of rent income received by the Appellant from two of its members under section 22 - assessee claimed that these were the contribution of the members, which cannot be treated as income chargeable to tax - A.O. held that payments received from same entity was not offered to tax in one instance and claimed not taxable in another instance which cannot be allowed and not accept the claim of mutuality in respect of the payment received from the two parties - HELD THAT - Assessee has submitted certain details in support of its claim. These have not been discussed in the orders of the authorities below. CIT appeals has raised certain queries in his appellate order. It is not discernible that he has confronted the assessee with the same. He has written in his order that assessee has not shown factual details - unless CIT appeal puts it across to the assessee, the assessee cannot comply with the learned CIT appeals questions which are in CIT appeals mind - assessee has submitted certain materials including the rental agreements, copies of bylaws , a sketch of the rented portion and certain case laws also. AO has wondered as to how the assessee has not explained how on similar reasoning assessee has not treated the gym charges and rents received from Tata Power as exempt. No explanation in this regard is on record. Furthermore, the assessee has tried to submit that the rental income derived by it is equivalent to rent received by a club from renting its rooms. In this regard, the observation of the CIT appeals is germane that it is not brought on record as to how other members can also take the said premises on rent when the same is let out throughout to the same party. These documents referred herein above need to be remitted to the file of learned CIT appeals to examine the issue afresh - Appeal by the assessee stands allowed for statistical purposes.

Summary

Issues:
1. Addition of rent income received by the appellant
2. Application of the concept of mutuality in the case

Analysis:
1. Addition of rent income received by the appellant:
The case involved an appeal against the addition of rent income received by the appellant from two members under section 22 of the Income Tax Act, 1961. The Assessing Officer (A.O.) found that the appellant received rent but did not offer it for taxation. The appellant argued that these amounts were contributions from members and not taxable income. However, the A.O. held that the concept of mutuality did not apply to these transactions. The A.O. concluded that leasing out premises to only two members did not provide equal opportunities to all members, thus negating the concept of mutuality. The learned CIT (A) upheld the addition, stating that the rent income was not covered under the Principle of Mutuality as the members were not entitled to the property based on ownership, and the rent charged indicated a commercial transaction rather than a mutual arrangement.

2. Application of the concept of mutuality:
The appellant contended that the rent received should be exempt based on the principle of mutuality. The appellant presented various documents, including judgments and rental agreements, to support this claim. The ITAT observed that the authorities below had not adequately addressed the details submitted by the appellant. The ITAT noted that the CIT (A) had not raised specific queries with the appellant regarding the factual details, and the appellant had provided materials such as rental agreements and case laws. The ITAT also highlighted the lack of explanation as to why certain amounts were treated as exempt while others were not. Consequently, the ITAT remitted the issue back to the CIT (A) for a fresh examination, emphasizing the need for the appellant to be given a fair opportunity to present their case.

In conclusion, the ITAT allowed the appeal for statistical purposes, directing a re-examination of the issue by the CIT (A) with proper consideration of the materials submitted by the appellant.