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TMI Blog2015 (9) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... is much worse than the case of Bangalore Club, because the financial institutions from whom the interest is received by the assessee are not members of the Assessee Company but third parties. The relation between them is only as clients of the financial institutions and there is no scope of mutuality existing between them. Further it an income earned by the assessee company from its resources out of the transactions with third parties which are available for the members of the assessee company for their collective enjoyment though not available for distribution as dividend. For these reasons in the case of the Bangalore Club, the assessee itself had admitted, that the interest received from the financial institutions who are not members of the assessee Club, as its income. Therefore, respectfully following the elaborate order of the Hon’ble Apex Court, we hereby confirm the orders of the Revenue. - Decided against assessee. - I.T.A.No.1529/Mds. /2013 - - - Dated:- 5-8-2015 - SHRI N.R.S.GANESAN AND SHRI A.MOHAN ALANKAMONY, JJ. For The Appellant : Mr.Jehangir D.Mistry, Sr.Counsel For The Respondent : Mr.P.Radhakrishnan,JCIT, D.R ORDER PER A.MOHAN ALANKAMONY , A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples of mutuality will be applicable only when the income earned has a direct nexus with members. vii) The interest income received from such deposits are not receipts in the form of contributions from the members of the assessee company. ix) The banks and financial institutions are not the members of the assessee company; consequently the concept of mutuality does not arise. 5. The Ld. Assessing Officer also relied on the decision of the Hon ble Apex Court in the case of M/s.Bangalore Club Vs. CIT in civil Appeal No.124-125/2007 with Civil Appeal No.272-278 of 2013 wherein the Hon ble apex Court while answering the question Whether or not the interest earned by the assessee on the surplus funds invested in fixed deposits with corporate member banks is exempt from levy of income tax, based on the principles of mutuality? It was held that:- The set-up resembled that of a mutuality till the stage of generation of surplus fund, however, as soon as these funds were placed in fixed deposits with banks, the closed flow of funds between the banks and the club suffered from deflections due to exposure to commercial banking operations and the member banks used such deposits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial banking operations. During the course of their banking business, the banks used their deposits to advance loans to their clients. Hence, in the instant case with the funds of the mutuality, banks were engaged in commercial operations with third parties outside of the mutuality, rupturing the privity of mutuality and consequently violating the one to gone identity between the contributors and participators as maintained by the first condition. Hence, the claim of mutuality is not satisfied. Further, the Hon ble Apex Court observed that to claim an exemption from tax on the principle of mutuality, treatment of the excess funds must be in furtherance of the objects of the club which is not the case here. In the instant case, the surplus funds were not used for any specific service, infrastructure and maintenance or for any other direct benefit for the member of the club. These were taken out mutuality that the banks placed the funds at the disposal of their parties thus initiating an independent contract between the bank and the clients of the bank, a third party not privy to the mutuality. 6. The facts of the appellant s case clearly fall in the ambit of the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand relied in the decision of the Hon ble Apex Court in the case of Bangalore Club cited supra and the decision of the Ld. Assessing Officer and the Ld. CIT (A) and argued in support of the same. 8. We have heard both the parties and carefully perused the materials available on record. We do not find any merits in the arguments submitted by the Ld. A.R. The decision of the Tribunal in the assessee s own case (supra), the Bench had followed the decision of the Hon ble Apex Court in the case of CIT Vs. Vegetable Products Limited in (1973) 88 ITR 192 (SC) wherein it was held that when two views are possible on the same issue by the two different High Courts, then the view in favour of the assessee has to be upheld. However, in the present situation the Hon ble apex Court in the case of Bangalore Club (supra) has categorically held that the interest earned by the assessee from the financial institutions who are members of the assessee Club will not fall within the ambit of mutuality principle and therefore will be exigible to income tax in the hands of the assessee club. The gist of the order is reproduced herein below for reference:- (a) Firstly, the arrangement lacked comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its members, before it was deposited with the bank. The assessee could not be permitted to claim double benefit of mutuality. In the case before us the situation is much worse than the case of Bangalore Club, because the financial institutions from whom the interest is received by the assessee are not members of the Assessee Company but third parties. The relation between them is only as clients of the financial institutions and there is no scope of mutuality existing between them. Further it an income earned by the assessee company from its resources out of the transactions with third parties which are available for the members of the assessee company for their collective enjoyment though not available for distribution as dividend. For these reasons in the case of the Bangalore Club, the assessee itself had admitted, that the interest received from the financial institutions who are not members of the assessee Club, as its income. Therefore, respectfully following the elaborate order of the Hon ble Apex Court, we hereby confirm the orders of the Revenue. We further make it clear that since in our opinion the issue in this case before us is squarely covered by the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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