TaxTMI 
TaxTMI 
2015 (9) TMI 378
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....ief facts of the case are that the assessee 'Ootacamund Club' registered under Section-25 of the Companies Act, filed its return of income for the assessment year 2010-11 on 09.10.2010 admitting 'Nil' income. Subsequently, the case was selected for scrutiny and order U/s.143(3) was passed on 29.01.2013 wherein the Ld. Assessing Officer brought to tax an amount of '9,97,960/- being interest received by the assessee company on account of fixed deposit held by it in banks & financial institutions. 4. While arriving at such conclusion, the Ld. Assessing Officer observed as follows:- i) The fact that an assessee company satisfies the norms of mutuality in respect of receipts by contributions from its members does not necessarily lead to the conclusion that every activity of the assessee satisfies the test of the mutuality. ii) An assessee may engage in certain activities which can be described as mutual and also in other activities which are not mutual. iii) The interest received from banks and financial institutions by the assessee company on account of fixed deposits are investments made with third parties and not with the members of the assessee company. iv) The decision to inve....
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....he order of the Ld. Assessing Officer. The relevant portion of the order is reproduced herein below:- "4. The main issue in the grounds of appeal is regarding the action of the Assessing Officer in taxing of the interest income from deposits and investments made by the appellant. The appellant submitted that the interest income from deposits and investments are governed by the principle of mutuality and as such are not taxable income on the institute. The Ld. A.R. also argued that it is not the surplus fund of the Club that was deposited in the banks to earn interest but only the entrance fee received from members which was directly taken to the corpus fund, which are being deposited from which the income has been earned. 5. I have gone through the submissions made by the appellant and also the order of the Assessing Officer. In the recent judgment, the Hon'ble Apex Court in its decision (January 14, 2013) in the case of Bangalore Club Vs. CIT 29 Taxmann .com 29 held that there was a lack of identity between contributors and participators to fund and thus interest income was taxable has business income. The apex Court observed that till the stage of generation of surplus fund, th....
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.... the facts of the appellant club. Respectfully following the decision of the Apex Court in the case of Bangalore Club Vs. CIT 29 Taxmann.com 29, I confirm the action of the Assessing Officer in bringing the interest on bank deposits for taxation." 7. The Ld. A.R. relied in the decision of Chennai bench of the Tribunal in assessee's own case in ITA Nos.505 to 510/Mds./2009 for A.Ys 2002-03 to 2007-08, order dated 7th August, 2009. He argued stating that the order of the Tribunal had reached finality since the Revenue did not carry the matter any further. It was also argued that in the case of Bangalore Club relied upon by the Revenue the issue was with respect to the interest earned from the financial institutions who are members of the assessee Club and in the case of the assessee the issue was with respect to interest earned from the financial institutions who are not the members of the assessee Company. Hence facts were not identical and therefore the decision of the Honorable Apex Court in the case of Bangalore Club will not be applicable to the case of the assessee company and the decision of the Tribunal in the assessee's own case of the earlier years would be applicable whic....
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....sequently, violating the one to one identity between the contributors and the participators as mandated by the first condition. (b) The surplus funds were not used for any specific service, infrastructure, and maintenance or for any other direct benefit for the members of the club. When the member banks placed them at the disposal of third parties, an independent contract between the bank and the clients of the bank, a third party, not privy to the mutuality, was initiated. This contract was not an activity of the club in pursuit of its objectives. (c) The principle of impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves requires that the funds must be returned to the contributors as well as expended solely on the contributors. Although in the assessee's case the funds did return to the club, before that, they were expended on non-members, i.e., the clients of the bank. The loaning by the banks out of funds of the club to outsiders for commercial reasons snapped the link of mutuality. The club did not give, or get, the treatment a club gets from its members ; the interaction be....