2017 (1) TMI 1864 - AT - Income Tax

Assessment of trust interest on fixed deposits and mutuality principle remitted to assessing officer for factual examination; appeal allowed

Assessment concerns addition of interest on bank fixed deposits for a trust/company claiming exemption under sections 11 and 12 while registered under ... Assessment of trust - Addition being interest on Fixed Deposit with Banks - Principle of mutuality - the assessee remains registered under section 12A and had claimed exemption under sections 11 and 12 - the assessee is ‘Company’ registered u/s 25 of the Companies Act, 1956, filed its return of income for relevant AY on 29.09.2011 declaring total income at Rs. Nil - HELD THAT:- It is not in dispute that the assessee is registered under section 25 of Companies Act, 1956 and having registration u/s 12A of the Act. We find that the case of AO is that the assessee is not a charitable organization. Apart from invoking the proviso of section 2(15) the AO has not brought anything on record to justify his finding. Although the provision of section 12 AA are independent and the conditions to the genuineness of the object and the activities of the trust. There are many decisions of various courts that the charitable character of the organization cannot be questioned while making disallowance under section 11 for the year under consideration. So the AO needs to bring clarity in this regard. The AO should note that trust is meant for the benefits of others. The principle of maturity is always with reference to the benefits of the founder of the organization/ AOP. The AO has not brought on record as to how the funds were received, utilized and the particulars of beneficiary who were availed the benefit of such funds. All these facts and assessee for thrusting the principle of maturity. Such principles cannot be invoked, if the beneficiary of the organization is its shareholder. The relevant facts are missing forest to adjudicate the ground number two raised by assessee before us. Therefore, deem it appropriate to restore this appeal to the file of AO to examine all the facts, if the case of assessee would falls within the ambit of mutuality and pass appropriate order in accordance with law. Appeal of the assessee is allowed for statistical purpose. Issues: Whether the interest of Rs.35,34,192 earned on fixed deposits is taxable because the assessee does not fall within the doctrine of mutuality and hence is not entitled to exemption under section 11 of the Income-tax Act, 1961 (i.e., whether the proviso to section 2(15) applies to make the interest income taxable).Analysis: The Tribunal examined whether the assessee's receipts and use of funds sustain the invocation of the principle of mutuality and whether the assessee is predominantly a mutual association rather than a charitable institution. Relevant legal framework includes the proviso to section 2(15) (defining income for non-charitable purpose), entitlement to exemption under section 11, registration implications of section 12A, and the principle of mutuality as applied to interest earned on deposits. The Tribunal found that material facts concerning how funds were received, placed, and utilized, and the identification of beneficiaries, were not adequately recorded by the Assessing Officer to determine whether mutuality applied. Because these factual matters were essential to determine whether the interest fell within the mutuality doctrine or within the proviso to section 2(15), the Tribunal considered it necessary to remit the matter for fresh examination by the Assessing Officer with an opportunity to the assessee to produce relevant particulars.Conclusion: The appeal is allowed for statistical purposes and the matter is restored to the Assessing Officer for fresh adjudication on the question of applicability of the principle of mutuality and taxability of the interest income.