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TMI Blog2017 (5) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... - I.T.A. No. 247/HYD/2016 - - - Dated:- 28-4-2017 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Shri S. Rama Rao, AR For The Revenue : Shri K.J. Rao, DR ORDER This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-4, Hyderabad dated 03-12-2015. The issue in this appeal is whether the interest earned by assessee on Fixed Deposits with bank is taxable or not? 2. Briefly stated, assessee herein is an AOP carrying on the activities for the mutual benefit of the members. Its principle activity is to collect money from the members and provide it to the needy members. The income of the society is considered exempt from tax on the principle of mutuality. However, the Assessing Officer (AO) noticed that assessee has deposited its funds in Fixed Deposits with the bank and has not offered the same to tax. Elaborately discussing the principles as established by the Hon'ble Supreme Court in the case of CIT Vs. Bankipur Club Ltd., [226 ITR 97] and other decisions in Chemsford Club Vs. CIT [243 ITR 89] and CIT Vs. Cawnpore Club Ltd., [140 Taxman 378] and also following the jurisdictional High Court judgment in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these deposits are from Members deposits only. On this bank deposits and business loans given, the appellant is earning interest income and on the current liabilities i.e. on Member deposits paying interest in the form of dividend proposed @ 11 %. During this year, the appellant has an amount of ₹ 80,67,825/- by service charges under the head commercial i.e. interest from the loans of ₹ 5,50,73,652/- @ 14.6%. At the same time, the appellant has received an amount of ₹ 32/53,655/- as interest received from banks. Therefore, in a nut shell, the appellant is doing the business of finance by giving loans by collecting funds from Members and by giving loans to members and excess deposit in the banks. 4.2. Therefore, the concept of mutuality is failed since there is excess amount which was deposited in the banks. Hence, the excess income of ₹ 95,22,483/ and dividend proposed of ₹ 86,16/010/ - to be taxed as income earned by the appellant. Hence, the addition made by the AO is confirmed. 4.3. With regard to the remaining additions of unclaimed amount of ₹ 1,41,197/- and non operated CDs of ₹ 9,37,212/-, are deleted since these are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, as regards certain activities, certain members only of the association take advantage of the facilities which it offers does not affect the mutuality of the enterprise. The decisions of the Supreme Court in CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 ; CIT v. Kumbakonam Mutual Benefit Fund Ltd., [1964] 53 ITR 241 and Fletcher (on his own behalf and on behalf of Trustees and Committee of Doctor's Cave Bathing Club) v. ITC [1971] 3 ALL ER 1185 (PC) lay down the broad proposition that, if the object of the assessee-company claiming to be a mutual concern or club is to carry on a particular business and money is realised both from the members and from non-members, for the same consideration by giving the same or similar facilities to all alike in respect of the one and the same business carried on by it, the dealings as a whole, disclose the same profit-earning motive and are alike tainted with commerciality. In other words, the activity carried on by the assessee in such cases, claiming to be a mutual concern or members' club is a trade or an adventure in the nature of trade and the transactions entered into with the members or non-members a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. By THE COURT : The above four sets of cases falling in groups A to D shall alone be covered by this judgment. With regard to seven cases/appeals falling in group E, the assessee is the Cawnpore Club Ltd. It is seen that the income that was sought to be assessed in the case of the assessee, was one derived from property let out and also interest received from F. D. R., N. S. C., etc. Since the issue raised in this batch of seven cases, is not similar to, or the same as the one involved in the other cases coming under groups A to D, the court directed these cases falling in group E to be posted separately for hearing and disposal before an appropriate Bench. Decisions of the Patna High Court in CIT v. BANKIPUR CLUB LTD. [129 ITR 787 (Patna) and CIT v. RANCHI CLUB LTD. [1992] 196 ITR 137 (Patna) [FB] affirmed . 7. Even though the Hon'ble Supreme Court did not decide the issue of interest earned on Fixed Deposits in the above said judgment, subsequent judgments have clearly established that the interest received from non-members does not come within the purview of mutuality. 8. The Hon'ble jurisdictional High Court in the case of CIT Vs. 1. Secunder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sits its funds with a bank, the latter does not treat the club any differently from its other depositors, nor is a higher rate of interest offered. The assessee was a social and recreational club. It was not registered either as an association or a society. It was a mutual association and not a profit making concern. None of its activities was tainted with commerciality or business modalities. The assessee received monthly subscriptions, admission fee and payments from its members for use of club facilities. During the assessment year 1996-97, the assessee earned interest on fixed deposits kept by it with certain banks and financial institutions. The banks and financial institutions with whom the fixed deposits were made were corporate members of the club. The return for the year 1996-97, admitting ₹ 1,22,700 was accepted under section 143(1) of the Income-tax Act, 1961. However, the Assessing Officer issued notice under section 148 of the Act on the ground that the exemption claimed with regard to the interest on fixed deposits from banks/companies was not a valid claim. Accordingly, the Assessing Officer added the interest on deposits and assessed it to tax. The Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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