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TMI Blog2018 (11) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA No. 300/Hyd/2018 - - - Dated:- 15-11-2018 - Smt. P. Madhavi Devi, Judicial Member And Shri S. Rifaur Rahman, Accountant Member For the Assessee : Shri S. Rama Rao For the Revenue : Shri Nilanjan Dey ORDER PER S. RIFAUR RAHMAN, A.M.: This appeal of the assessee is directed against the order of CIT(A) 4, Hyderabad, dated 30/11/2017 for AY 2014-15. 2. Brief facts of the case are, the assessee, a mutual benefit society, filed its return of income for the AY 2014-15 on 30/09/2014 admitting NIL income by claiming that the income earned is exempt from tax on the principle of mutuality. Subsequently, the case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued and the assessment u/s 143(3) was completed by the AO on 23/12/2016 by making an addition of ₹ 31,90,148/- towards income from other sources. 2.1 In the return of income filed by the assessee, the assessee had claimed excess of income over expenditure which was of ₹ 1,06,23,856/- as exempt and filed a Nil return stating as under: The assessee is a Mutual benefit society which came into existence with effect from April, 1984. The activities of the society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) is erroneous both on facts and in law. 2) The learned Commissioner of Income-Tax (Appeals) erred in holding that the interest received from the banks of ₹ 31,90,148 is not exempt on the principles of mutuality. 3) Any other ground that may be raised at the time of hearing. 5. Considered the rival submissions and perused the material on record. The issue in dispute is squarely covered by the decision of the coordinate bench of this Tribunal in assessee s own case for AY 2012-13 (supra), against the assessee, wherein the coordinate bench held as under: 6. I have considered the rival contentions and perused the orders of the authorities. There is no dispute that assessee is allowed the benefit of mutuality to the extent of incomes earned amongst the members. The issue is with reference to the interest earned from the bank which is not a member of the Society. The Hon'ble Supreme Court in the case of CIT Vs. Bankipur Club Ltd., [226 ITR 97] (supra) has considered the principles of mutuality and the activity of trading and held as under: Under the Income-tax Act, what is taxed is, the income, profits or gains earned or arising , accruing to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roups A to D, the assessees being Bankipur Club Ltd., Ranch Club Ltd., Cricket Club of India and Northern India Motion Pictures Association, was whether the assessee-mutual clubs, were entitled to exemption for the receipts or surplus arising from the sales of drinks, refreshment, etc., or amounts received by way of rent for letting out the buildings or amounts received by way of admission fees, periodical subscriptions and receipts of similar nature from its members. In all these cases, the Tribunal as also the High Court had found that the amounts received by the clubs were for supply of drinks, refreshments or other goods as also the letting out of building for rent or by way of admission fees, periodical subscription, etc., from the members of the clubs were only for/towards charges for the privileges, conveniences and amenities provided to the members, which they were entitled to, as per the rules and regulations of the clubs. It had also been found that different clubs realised various sums on the above counts only to afford to their members, the usual privileges, advantages, conveniences and accommodation. In other words, the services offered on the above counts were not don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s generated and returned to the contributors is not regarded as profit for the purpose of charging income- tax. If the persons carry on an activity, which is also trade, in such a way that they and the customers are the same persons, no profits are yielded by such trade for tax purposes and, therefore, no assessment in respect of the trade can be made. The surplus resulting from trading represents such contributions of the participants which is in excess of the requirements. Access to profits or services is a condition precedent to satisfy the element of mutuality. Even when the aggregate of the members are incorporated, the effect of the principle is not lost. When a company itself becomes a member of a club to the extent of making contribution it is responsible, but :- 7 -: I.T.A. No. 247/Hyd/2016 The Gujarati Social Welfare Society when it comes to participation and availment of facilities and privileges it is not the juridical person but it is only the nominated officers of the company who do so. There is thus a discernible factor which takes away the nexus between contribution and participation. There is also a dichotomy between the juridical personality who contributes to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidation, and it was the member who had the right to be elected to the committee of the club and a right to vote. In the case of a corporate member, the subscription was contributed by the juridical person whereas participation in the club activities was by a natural person nominated to participate and avail of :- 8 -: I.T.A. No. 247/Hyd/2016 The Gujarati Social Welfare Society the facilities of the club. A corporate member, according to the rules, had no right to be elected to the committee of the club nor entitled to as many votes as the number of its nominees. In the event of winding up, it was the permanent members who would have a dominant role. The principle of mutuality ended the moment the club deposited the amount with the sole aim of earning interest on the deposits. Further, by depositing its funds with its corporate member banks, the club would certainly help increase the business of the bank. In that view of the matter, the corporate member bank was being shown a favour, and was not being provided a facility. The social relationship and social activities of the club had nothing to do with its deposits with the corporate members. The nature of the transaction between t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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