2021 (2) TMI 360 - AT - Income Tax

Interest received from bank deposits/balances - mutuality claim on interest on investments made in nationalised banks - whether is covered by Principles of mutuality or not? - assessee is a housing co-operative society and has claimed certain incomes as exempt on Principles of mutuality - HELD THAT - As decided in own case 2015 (9) TMI 543 - ITAT HYDERABAD we therefore adopt judicial consistency and partly confirm both the lower authorities' action disallowing the assessee's mutuality claim on interest on investments made in nationalised banks. The other issue of mutuality relief pertaining to transfer fee stands accepted in view of the foregoing detailed reasoning adopted mutatis mutandis herein.

Issues Involved:
1. Condonation of delay in filing the appeal for AY 2014-15.
2. Disallowance/adding interest on investments made in nationalized banks.
3. Disallowance of transfer fee payments from incoming and outgoing members.
4. Application of the principle of mutuality.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal for AY 2014-15:
The appeal for AY 2014-15 suffered a delay of 78 days. The tribunal accepted the reasons stated in the assessee's condonation petition/affidavit, attributing the delay to the compilation of necessary records and other factors. The tribunal held that the delay was neither intentional nor willful but due to circumstances beyond the assessee's control. Therefore, the delay was condoned.

2. Disallowance/Adding Interest on Investments Made in Nationalized Banks:
The assessee challenged the disallowance of interest on investments made in nationalized banks for various assessment years. The tribunal referred to its co-ordinate bench's common order dated 26-08-2015 for AYs 2007-08 and 2008-09, which had declined the relief concerning interest on investments. The tribunal upheld the lower authorities' action, disallowing the assessee's mutuality claim on interest on investments made in nationalized banks. The tribunal cited the jurisdictional High Court's decision in the case of Secunderabad Club [340 ITR 121], which held that interest received from third parties (banks) does not qualify for exemption under the principle of mutuality.

3. Disallowance of Transfer Fee Payments from Incoming and Outgoing Members:
The assessee also challenged the disallowance of transfer fee payments from incoming and outgoing members for certain assessment years. The tribunal noted that this issue was no longer res integra, as its co-ordinate bench's common order dated 26-08-2015 for AYs 2007-08 and 2008-09 had upheld the assessee's mutuality claim regarding transfer fees. The tribunal referred to the judgment of the Hon'ble Bombay High Court in the case of Sind Co-operative Housing Society Vs. ITO [317 ITR 47] and the ITD decision in the case of ITO Vs. Damodar Bhuvan CHS Ltd., which supported the assessee's claim. The tribunal concluded that the transfer fee collected by the society from members on the transfer of property, as per the bye-laws, did not affect the principle of mutuality. Therefore, the exemption claimed on the income by way of transfer fee was held to be allowable to the assessee.

4. Application of the Principle of Mutuality:
The tribunal applied the principle of mutuality to the assessee's claims. For the transfer fee payments, the tribunal upheld the mutuality claim, following the precedent set by the Hon'ble Bombay High Court and its co-ordinate bench. However, for the interest on investments made in nationalized banks, the tribunal rejected the mutuality claim, citing the jurisdictional High Court's decision in the case of Secunderabad Club, which distinguished between interest earned from members and interest earned from third parties (banks).

Conclusion:
The tribunal's judgment resulted in the partial allowance of the assessee's appeals for the former three assessment years (ITA Nos. 1013/Hyd/2017, 1014/Hyd/2017 & 1015/Hyd/2017) and the dismissal of the latter three appeals (ITA Nos. 1016/Hyd/2017, 1017/Hyd/2017 & 648/Hyd/2018). The tribunal upheld the lower authorities' action disallowing the mutuality claim on interest on investments made in nationalized banks while accepting the mutuality claim for transfer fee payments. The order was pronounced in the open court on 1st February 2021.

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