2024 (6) TMI 66 - AT - Income Tax

Non-taxability of contribution from members towards common pool - doctrine of mutuality - incorrect reporting of such contribution while filing the return - HELD THAT - While assessing the income of the assessee it was incumbent on the Revenue to find-out as to whether a such receipt/income the assessee claimed in its return is assessable or not. Merely because the assessee included certain receipt/income in incorrect column of its return for a particular year, it could not confer any jurisdiction on the department to tax that receipt/income in that year even though legally such receipt/income is not taxable as per law . This view finds fortified in the decision of Bharat General Reinsurance Co. Ltd. 1970 (12) TMI 5 - DELHI HIGH COURT The amount received by the appellant from its member was admittedly towards contribution to common pool of the society and since is governed by the doctrine of mutuality hence is inexigible to tax. The incorrect reporting of such contribution while filing the return would per-se does not change the character nature of such receipt, therefore such incorrect reporting would in no case sanction the tax authorities to bring it under the tax net. Thus the addition made on this score stands deleted as contra-legem. Allowability of deduction u/s 80P(2)(d) against interest earned from investments - denial of claim asclaim for qualifying deduction wasn t made correctly in appropriate column of the return etc., cannot be ground for denial of lawful claim/entitlement - HELD THAT - In view of the Central Board of Direct Taxes 14 (XL 35) 1955 circular dt. 11/04/1955, the mistake if any committed by assessee in the return of income, it should be taken care properly by the revenue and ignorance of assessee cannot be the pointer, for silence on the part of revenue. The scope of the above circular is elaborately finds explained in catena of judicial precedents including CIT Vs Ahmedabad Keiser-E-Hind Mills Co. Ltd 1980 (10) TMI 47 - GUJARAT HIGH COURT , Parekh Brothers Vs CIT 1983 (8) TMI 17 - KERALA HIGH COURT , Dattatraya Gopal Shette Vs CIT 1984 (2) TMI 55 - BOMBAY HIGH COURT , Rajeev Biswas Vs UOI 2022 (9) TMI 1327 - CALCUTTA HIGH COURT Once it is on record that the interest income earned by the assessee is from its investment/deposit held with co-operative societies/institution, the income qualified for deduction u/s 80P(2)(d) - When the tax authorities found that the assessee made erroneous claims or error in claiming the eligible deduction which requires correction in accordance with law, then the tax authorities pursuant to binding circular and former judicial precedents were duty bound to correct the same which they failed. The views adopted by the tax authorities below in our considered opinion are not in conformity with legal position and binding judicial precedents, hence vacated. Resultantly, we reverse the denial of deduction. Assessee appeal allowed.

Summary

Issues:
1. Dispute over taxability of contribution received from members and deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Taxability of Contribution Received from Members
The appellant, a cooperative housing society, received contributions from its members towards a common pool. The Revenue taxed this contribution despite the doctrine of mutuality applying to the appellant. The Tribunal referred to the principle that if the identity of contributors and participants is the same, no profit motive can be attached, and such contributions are not taxable. Citing the decision in 'Yum Restaurants (Marketing) Pvt. Ltd Vs CIT,' the Tribunal emphasized that the existence of mutuality is a factual exercise. The Tribunal held that incorrect reporting of contributions does not change their nature, and the Revenue cannot tax them. The addition made by the Revenue was deemed against the law and deleted.

Issue 2: Deduction under Section 80P(2)(d)
Regarding the deduction under section 80P(2)(d) for interest income from investments in cooperative societies, the Revenue denied the claim based on incorrect reporting in the return. The Tribunal clarified that interest income from investments in cooperative societies is eligible for deduction under section 80P(2)(d). The Tribunal highlighted that the Revenue's reasoning for denial based on incorrect reporting was not valid. Referring to a circular by the Central Board of Direct Taxes and various judicial precedents, the Tribunal emphasized that the Revenue is duty-bound to correct any mistakes made by the assessee in the return. As the interest income qualified for deduction, the Tribunal reversed the denial of the deduction, stating that the Revenue's views were not in line with legal positions and precedents.

Conclusion:
The Tribunal allowed the appeal of the assessee, ruling in favor of the appellant on both issues. The taxability of contributions from members was rejected, and the denial of deduction under section 80P(2)(d) was reversed. The Tribunal emphasized the principle of mutuality and the importance of correct application of tax laws and deductions.