1996 (11) TMI 110 - AT - Income Tax

Assessment Year, Business Receipt, Co-operative Society, Electricity Charges, Expenses Incurred Wholly And Exclusively For, Mutual Association, Supreme Court

Summary

Issues Involved:
1. Disallowance of depreciation by the Assessing Officer.
2. Reassessment of income under section 147 and the validity of notice under section 148.
3. Admission of an additional ground of appeal regarding the principle of mutuality.
4. Taxability of income under the principle of mutuality.

Detailed Analysis:

1. Disallowance of Depreciation:
The assessee, a co-operative society, claimed depreciation on its assets amounting to Rs. 32,69,654. The Assessing Officer disallowed this claim, arguing that the society was not the owner of the assets; rather, the individual flat owners had fractional shares in the property. The Tribunal upheld this view, stating that the society was not the owner of the entire complex, and thus, the claim for depreciation was not justified. The Tribunal also noted that maintaining the complex did not constitute carrying on a business.

2. Reassessment of Income and Validity of Notice:
The Assessing Officer reassessed the income of the assessee under section 147 and issued a notice under section 148, which the assessee contested as invalid and illegal. The Tribunal rejected the assessee's contention, holding that the reassessment and the notice were justified.

3. Admission of Additional Ground of Appeal:
The assessee filed an additional ground of appeal, arguing that a substantial portion of its receipts should be exempt from tax under the principle of mutuality. The Tribunal considered precedents, including the Supreme Court's decision in Jute Corpn. of India Ltd. v. CIT and the Delhi High Court's judgment in Taylor Instrument Co. (India) Ltd. v. CIT. The Tribunal admitted the additional ground, noting that the members of the society were Defence Officers unfamiliar with complex tax laws and that the additional ground was a pure question of law requiring no new fact investigation.

4. Taxability of Income under the Principle of Mutuality:
The Tribunal examined the principle of mutuality in detail. The assessee's receipts included contributions from members, license fees from shops and banks, and interest from bank deposits. The Tribunal held that contributions from members amounting to Rs. 18,43,777 were exempt from tax under the principle of mutuality. It was noted that K-Block, providing common facilities, was jointly owned by the members, and the license fees and electricity charges collected from licensees were also considered contributions by the members, thus exempt under mutuality.

However, the Tribunal distinguished the interest income of Rs. 1,54,765 from bank deposits, ruling it was not from a mutual activity and therefore taxable. It directed the Assessing Officer to determine and deduct any related expenditure before taxing the balance interest income.

Conclusion:
The assessee's appeal was partly allowed. The Tribunal upheld the disallowance of depreciation and the validity of the reassessment notice. It admitted the additional ground of mutuality and ruled that contributions from members and related income were exempt from tax under the principle of mutuality, except for the interest income, which was taxable after deducting related expenses.