2021 (4) TMI 65 - HC - Income Tax

Doctrine of mutuality - Income generated by Clubs with the Appellate Association - not applying the doctrine of mutuality and not tainted with commerciality - HELD THAT - The assessee was claiming the disallowance on the basis of principles of mutuality. The principle of mutuality relates to the notion that a person cannot make a profit from himself. An amount received from oneself is not regarded as income and is therefore not subject to tax, only the income which comes within the definition of Section 2(24) of the Act is subject to tax. In the present case, the income in dispute relates to pay and park charges, rent from Vodafone Tower, rent from BSNL Tower, rent from Idea Tower and Interest from Fixed Deposit. In the first place the income i.e, pay and park charges, rent from Vodafone Tower, Rent from BSNL Tower, Rent from Idea Tower cannot be considered to be covered by the doctrine of mutuality. With regard to interest on Fixed Deposit also, the doctrine is certainly not at all applicable. In the light of the aforesaid, as the matter is squarely covered by the judgment delivered by the Hon ble Supreme Court in Bangalore Club vs. Commissioner of Income tax 2013 (1) TMI 343 - SUPREME COURT the substantial questions of law are answered in favour of the department and against the assessee.

Summary

Issues:
1. Assessment of income under the head "Income from Other Sources" for assessment year 2015-16.
2. Applicability of the doctrine of mutuality in the case.
3. Disallowance of exemption claimed by the appellant.
4. Interpretation of relevant legal judgments in the context of the case.

Assessment of Income:
The appellant, an association formed by unit owners of a commercial condominium, collected funds and maintenance charges. The dispute arose regarding the assessment year 2015-16 when the appellant declared total income as Nil, claiming exemption of a specific amount under the head "Income from Other Sources." The assessing officer disallowed the exemption claimed by the appellant and assessed tax under relevant sections of the Income Tax Act, 1961.

Applicability of Doctrine of Mutuality:
The appellant contended that the principle of mutuality should apply, asserting that the income in question was exempt as it was earned from its members. However, the assessing officer, Commissioner of Income tax (Appeals), and the Income tax Appellate Tribunal rejected this argument. They held that the income from pay and park charges, rent from various sources, and interest on fixed deposits did not fall under the doctrine of mutuality as they were earned from non-members.

Disallowance of Exemption:
The assessing officer disallowed the exemption claimed by the appellant on the grounds that the income earned was not covered by the doctrine of mutuality. Despite objections raised by the appellant, the assessing officer proceeded with the disallowance, leading to the appellant's appeal before higher authorities.

Interpretation of Legal Judgments:
The Income tax Appellate Tribunal relied on the judgment in the case of Bangalore Club vs. Commissioner of Income tax to dismiss the appellant's appeal. The Tribunal emphasized that the income earned by the appellant from non-members did not qualify for exemption under the doctrine of mutuality. The High Court, in line with the Tribunal's decision, upheld that the income in question did not fall under the doctrine of mutuality, as established by the Supreme Court's judgment in the Bangalore Club case.

In conclusion, the High Court dismissed the appeal, affirming the lower authorities' decision to disallow the exemption claimed by the appellant. The court held that the income earned by the appellant was not covered by the doctrine of mutuality, as established by relevant legal precedents.