2014 (4) TMI 350 - AT - Income Tax

Claim of exemption from tax Interest earned on fixed deposits Principle of mutuality Held that - The decision in CIT Vs. Secunderabad Club 2011 (8) TMI 752 - Andhra Pradesh High Court followed if an incorporated entity is engaged in trade, the profit from it, even if they are transactions with members, would be taxable and the principle of mutuality would have no application the interest income earned from deposits with member banks is taxable in the hands of the assessee Decided against Assessee. Exemption from rental income Principle of mutuality Held that - The AO has simply added the rental income without any discussion on the issue - It is also not discernible under what head he has assessed the rental income - CIT(A) rightly held that the rental income like interest income from corporate members cannot be exempt on principles of mutuality - but the assessee contended that once it is treated as rental income, it should be coming under the head income from house property and, consequentially, the deduction available u/s 24 of the Act has to be allowed to the assessee thus, rental income derived has to be assessed under the head income from house property - Once it is assessed as income from house property, the assessee is eligible for deduction u/s 24 of the Act Decided partly in favour of Assessee. Claim of set off - Operational loss to be set off against other income Held that - As decided in assessee s own case, it has been held that, Section 71 allows set off of loss under any head of income, other than capital gains, against income assessable for that assessment year under any other head - Only restriction is that, there should not be any income under the head capital gains - if the assessee has sustained loss underany head, except capital gains, and the assessee has no income from capital gains during the year, then loss can be set off against income assessable under any other head the assessee has not raised this issue before the first appellate authority thus, the matter is remitted back to the CIT(A) for adjudication Decided in favour of Assessee.

Summary

Issues:
1. Claim of exemption from tax on interest earned on fixed deposits on the principles of mutuality.
2. Claim of exemption with regard to rental income earned on the principles of mutuality and alternative claim to treat rental income as 'income from house property.'
3. Claim of set off of operational loss against interest and other incomes for the assessment year 2010-11.

Issue 1:
The first issue involves the assessee's claim of exemption from tax on interest earned on fixed deposits based on the principles of mutuality. The assessee, a club assessed as an AOP, argued that interest income from member banks is exempt as per mutuality principles. However, the Assessing Officer, citing a previous High Court decision, held that interest income from member banks is taxable. The CIT(A) confirmed this decision, and the ITAT upheld it, citing a judgment by the Jurisdictional High Court. The ITAT dismissed the grounds raised by the assessee, concluding that interest income from deposits with member banks is taxable.

Issue 2:
The second issue pertains to the claim of exemption for rental income earned on mutuality principles and the alternative claim to treat it as 'income from house property.' The Assessing Officer added rental income without discussion on the issue, and the CIT(A) held that rental income from corporate members cannot be exempt based on mutuality principles. However, the ITAT accepted the alternative claim of the assessee, stating that if rental income is treated as income from house property, the assessee is eligible for deductions under Section 24 of the IT Act. The ITAT partially allowed this ground, emphasizing that the rental income derived should be assessed under the head 'income from house property.'

Issue 3:
The third issue concerns the claim of set off of operational loss against interest and other incomes for the assessment year 2010-11. The ITAT noted that a similar issue in the assessee's case had been remitted to the CIT(A) by a coordinate bench in a previous order. Following the same reasoning, the ITAT remitted this issue to the CIT(A) for decision with identical directions as given in the earlier order by the coordinate bench. This ground was allowed for statistical purposes.

In conclusion, the ITAT partially allowed the appeals for the assessment years 2008-09 and 2009-10 and partly allowed the appeal for the assessment year 2010-11 for statistical purposes. The judgment delves into the application of mutuality principles, taxation of interest and rental income, and the set off of operational losses, providing a detailed analysis of each issue based on legal precedents and statutory provisions.