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TMI Blog2004 (5) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... under the said Act is not permitted to indulge in any earning activities of profit making activities. That no portion of income or property shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to persons who act any time or have been members of the association. In case of dissolution the cl. 10 of memorandum of association provides as under: "If upon a winding or dissolution, there remains after the satisfaction of all the debts and liabilities, any property, whatsoever, the same shall not be distributed amongst the members of the association but shall be given or transferred to such other association having objects similar to the objects of their association to be determined by the Registrar appointed under the Bombay Non-Trading Corporation Act, 1959." The source of finance for incurring expenditure is contributions from the members. The association passed a resolution in this regard which reads as under: "The association jointly with Ashima Estate Owners' Association constructed a commercial property known as "ANIKET" on CG Road, Ahmedabad, for exclusive use by its members. Allotment of space was made to members in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of Hon'ble Supreme Court in the case of CIT vs. Bankipur Club Ltd. (1997) 140 CTR (SC) 102 : (1997) 226 ITR 97 (SC) and the judgment of Hon'ble Gujarat High Court in the case of Rajpath Club Ltd. vs. CIT (1995) 211 ITR 379 (Guj). 4. The learned Authorised Representative submitted that the association has constructed a building for the common use of its members. Maintenance charges are collected from the members in lump sum as advance as well as annually. The maintenance charges collected annually as well as income derived from advance maintenance charges are applied for the purposes of maintenance of the building which is solely used by the members of the association. In view of the facts described above and considering the provisions of s. 4 under which income-tax is chargeable on income of a person under IT Act, 1961, under the principles of general law and provisions of IT Act, 1961, the surplus accruing to a mutual concern cannot be regarded as income. There is complete identity between class of contributors to the common fund of the association and the class of participators of the activities of the association, its services, etc. It has been held in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions cited. The admitted facts of the case are that a society is formed for maintenance of residential society of the members; maintenance charges are mutually collected from members. The object was not to earn any profit and distribution thereof to the members. Even on dissolution the surplus will not be distributed to members. For the purpose of the object of society, i.e., maintenance, the society created a fund like construction fund and maintenance fund. The maintenance fund was deposited with bank and others; the interest income received. Both the lower authorities have accepted the principles of mutuality in respect of contribution from members which is not under dispute. On the basis of that principle, the AO has not charged tax on surplus. The dispute is only in respect of interest income. The judgment of Hon'ble Gujarat High Court in the case of Rajpat Club is distinguishable on facts; in that case surplus fund was invested with the intention to earn interest income; further on dissolution, surplus shall be distributed to members, whereas in the case under consideration the interest income was directly charged for the maintenance expenses and not to earn interest as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the apex Court the assessee is entitled for reduction of maintenance expenses. The interest income is first adjustable against expenses and if surplus is found that amount is certainly taxable. If it is found otherwise, we are of the view that such interest is not taxable. 7. The controversy under consideration can be examined from one more angle, that is, that, for the sake of argument it is assumed that the association created a fund for maintenance on the basis of one time collection from the members and invested in the bank and others. This can be said to be one type of business activity of the association. For the purpose of calculation of profit the assessee is entitled for expenditure pertaining to that from the income/receipt of that activity. In the case under consideration interest income is income/receipt and maintenance expense is expenditure of that activity. If income exceeds than expenditure that surplus is subject to tax. In the case under consideration there was loss as calculated above. On identical set of facts the Hon'ble Delhi High Court in the case of Director of IT vs. All India Oriental Bank & Commerce Welfare Society (2003) 184 CTR (Del) 274 : (2003) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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