TaxTMI 
TaxTMI 
2018 (3) TMI 209
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.... last date for filing the appeal was 26.03.2014 and the appeal was filed before the Tribunal on 21.05.2014. The delay in filing the appeal late before the Tribunal is on the ground that the accounts staff of assessee‟s organization, who was handling the filing of appeal, the Manager (Accounts) Shri J.S. Nikam submitted his resignation on 07.01.2014 and he was relieved of his responsibilities on 06.02.2014. It is further pointed out that Shri Nikam after filing his resignation letter was only discharging pending matters and was not involved in looking after fresh matters. It is further stated in the affidavit that the appellate order was not forwarded by Shri Nikam to the Finance Director, hence there was failure in taking action upon the said order. Only on questioning by the staff of assessee at CIT(A) office, the assessee became aware that the order has already been passed by the CIT(A). The said information was received by the assessee club on 04.04.2014 and the appeal was then prepared and filed on 21.05.2014. Hence, the petition for condonation of delay. We find merit in the plea of assessee in this regard and accordingly, condone the delay of 56 days in filing the appea....
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....re the CIT(A) raising the following grounds of appeal which are mentioned in the order of CIT(A) dated 29.11.2013. 1) The Assessing Officer erred in treating interest received from bank and MSEB of Rs. 75,63,440/- as income which is a receipt forming integral part of the mutual receipts and is governed by the principle of mutual receipts. 2) The appellant craves leave to add, amend, alter delete any of the grounds of appeal. 9. The assessee further raised an additional ground of appeal before the CIT(A) which reads as under:- "The Assessing Officer erred that the deduction u/s 57(iii) of the Income Tax Act should have been allowed while computing income of interest received on fixed deposit from bank and deposits with MSEB." 10. The CIT(A) noted that the assessee had furnished return of income declaring total income of Rs. 76,62,500/-, which was assessed under section 143(3) of the Act by the Assessing Officer accepting the income declared. In the appeal under consideration; the assessee contested treatment of interest received from bank and MSEB as income by the Assessing Officer. The assessee filed written submissions before the CIT(A) which are r....
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....) Repairs, maintenance 81,67,190 Rs.1,47,26,562/- (-) Rs. 71,63,122/- 12. It was stressed by the learned Authorized Representative for the assessee before the CIT(A) that the members have contractual expectations of promotion of sports and proper and well equipped entertainment facilities from the club and the interest income goes towards the upkeep, maintenance and promotion of various facilities and that the surplus after giving away to various expenses ends up to a reverse sum, making it discernible that nothing can be earned out of interest receipts for tax and the deficit on the interest income for the year was Rs. 71,63,122/-. The CIT(A) taking note of the provisions of section 57(iii) of the Act observed that the proposition which clearly emerged should be considered, for allowing expenditure under section 57(iii) of the Act. Firstly, the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee, secondly, expenditure must have been laid out or expended wholly and exclusively for the purpose of making or earning „Income from other sources‟; thirdly, the purpose o....
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....f facilities provided by the assessee club. He observed that expenditure incurred by the assessee was not towards earning of interest income but was spent on general upkeep, maintenance and promotion of various facilities as provided by the assessee to its members. He concluded by holding that the said expenditure laid out by the assessee had not been wholly and exclusively laid out for the purpose of making or earning income which was chargeable under the head „Income from other sources‟. The contention of assessee that nexus existed between the earning of income and incurring of various expenses was not substantiated by material facts brought on record. Thus, the claim of assessee in allowing deduction under section 57(iii) of the Act while computing interest income was found to be not tenable. He further distinguished the reliance placed upon by the assessee on the decision of the Hon‟ble High Court of Punjab & Haryana in CIT Vs. Maruti Employees Co-operative House Building Society (supra). He noted that in the said case, housing society was accepting deposits from its members for maintenance of houses of members. The said deposits were earning interest and out....
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.... the assessee. The case of learned Authorized Representative for the assessee before us that since the club was providing better facilities, which in turn, was possible by incurring various expenses in maintaining lawns, sports facilities, club facilities, etc., then there was nexus between the interest earned on the fixed deposits which originated from entrance fees and expenditure incurred for upkeep of the assessee club. He stressed that in order to attract new members and charge entrance fees to them, which in turn, would result in accumulation of funds in fixed deposits, was possible only because the assessee was spending on upkeep of club and various facilities provided to the members. The learned Authorized Representative for the assessee fairly pointed out that the Tribunal in ITA No.233/PN/1989 had allowed the claim of assessee i.e. expenditure @ 7.8% against interest income. He fairly admitted that the said order of Tribunal was not traceable. However, the Tribunal in a later decision in ITA No.6/PN/1995 and in ITA No.476/PN/1999, relating to assessment years 1991-92 and 1995-96 relying on its earlier decision in ITA No.233/PN/1989, had held that the assessee was entitled....
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....tuality. The assessee though in the return of income had accepted the fact that interest income was taxable and also in all the earlier years, the said income was held to be taxable but before the CIT(A), the assessee further raised an additional ground of appeal to allow higher expenditure under section 57(iii) of the Act. He further pointed out that the assessee did not contest the ground of mutuality before the CIT(A). Referring to provisions of section 57(iii) of the Act, he pointed out that section provides deduction on account of expenditure which is laid out or expended wholly and exclusively for earning of income. He further stated that in 1922 Act, these words were missing i.e. "wholly and exclusively". Section 12 of 1922 Act talks of solely "for the purpose of making or carrying on the business", hence the decisions relied upon by the learned Authorized Representative for the assessee on the Hon‟ble High Court of Gujarat in CIT & Anr. Vs. Kasturbhai Lalbhai & Anr. (supra) and the Hon‟ble Bombay High Court in CIT Vs. H.H. Maharani Shri Vijaykuverba Saheb of Morvi (supra) being earlier law, was not applicable. He further relied on the decision of the Hon'ble....
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....ure was raised to be allowed. 18. The learned Authorized Representative for the assessee in rejoinder pointed out that it was the duty of Assessing Officer to correctly allow the claim of assessee in case some error has been made by the assessee in its computation of income. Reliance was placed on the ratio laid down by the Hon‟ble Bombay High Court in Ahmedabad Electricity Co. Ltd. Vs. CIT & Godavari Sugar Mills Ltd. Vs. CIT (1993) 199 ITR 351 (Bom) and the Hon'ble Supreme Court in National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC). He further stressed that fresh claim could be made before the CIT(A) and the offering of income by the assessee could not prejudice its right to claim the aforesaid expenditure. Thereafter, he pointed out that expression "wholly and exclusively" used in section 57(iii) of the Act, does not exclude direct or indirect expenses. He relied on the commentary of Chaturvedi & Pithisaria at page 4540 for the meaning of said term under section 37(1) of the Act. He admitted that under the old Act, section 12 of 1922 Act, the word used was „solely‟ and the same was interpreted by the High Courts. The next plea raised by the l....
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....quate deduction under section 57(iii) of the Act from interest income received from bank and MSEB to the tune of Rs. 75,63,440/-. The assessee in the computation of income, copy of which is placed at page 1 of Paper Book had declared the interest income received from bank and MSEB after deducting 7.5% of expenses (as held in ITA No.6/PN/1995, order dated 11.07.2001) and included the same in total income and computed the tax payable on the same, which was also paid. In addition, the assessee declared income from venue charges from member guests and dinner receipts from member guests along with other miscellaneous receipts. The case of assessee was picked up for scrutiny and the Assessing Officer in the order passed under section 143(3) of the Act accepted the income declared by assessee at Rs. 76,62,495/- and assessed the same. For the first time before the CIT(A), the assessee filed grounds of appeal which are reproduced under para 4 of our order, wherein the plea raised was that interest received from bank and MSEB was receipt forming an integral part of mutual receipts and hence, was not taxable in its hands. The assessee also raised an additional ground of appeal before the CIT(....
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....assessee at Rs. 10.61 crores, the assessee has claimed expenditure of Rs. 65,97,836/- out of total expenditure of Rs. 9.85 crores. The net surplus shown under the head „Interest income‟ is Rs. 14,46,932/- i.e. segmental profit of 17.99%. The perusal of heads of expenditure would reflect the assessee to have apportioned the expenditure booked under the following heads:- a) Labour charges b) Power and Water charges OH c) Consumption of General Stores d) Operating Expenses (others) e) Repairs, Maintenance f) Rent, Rates and Taxes g) Insurance h) Other Expenditure i) Expenses for Repairs, Renovation j) Depreciation 23. Taking into consideration the details filed by the assessee, we find that the claim of assessee is varying from stage to stage. Before the Assessing Officer, the assessee had shown interest income as „Income from other sources‟ under section 56 of the Act. Thereafter, it had claimed deduction under section 57(iii) of the Act on account of expenditure wholly and exclusively laid out for earning of interest income @ 7.5% i.e. Rs. 5,67,258/-. The said expendi....
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.... "An analysis of this sub-section would show that in computing the income under this head the assessee is entitled to deduction in respect of the expenditure incurred solely for the purpose of earning such income, provided the expenditure is not of a capital nature and does not include any personal expenses incurred by the assessee. In other words, before this provision could apply, the following conditions must be fulfilled: (i) the expenditure must have been incurred solely and exclusively for the purpose of earning income or making profit; (ii) the expenditure should not be in the nature of a capital expenditure ; (iii) the amount in question should not be in the nature of personal expenses of the assessee; (iv) that the expenditure should be incurred in the accounting year; and (v) there must be a clear nexus between the expenditure incurred and the income sought to be earned." 27. Further, the Hon‟ble Bombay High Court in CIT Vs. H.H. Maharani Shri Vijaykuverba Saheb of Morvi (supra) had also while considering the provisions of section 12(2) of 1922 Act held that If with the borrowings that were made, a source of inco....
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.... 29. The Hon‟ble High Court of Gujarat in CIT & Anr. Vs. Kasturbhai Lalbhai & Anr. (supra) while deciding the issue of allowability of expenditure admissible under section 12(2) of 1922 Act had held that the same must be incurred directly or indirectly to facilitate earning of income, while interpreting the terms "in order indirectly to facilitate carrying on their business". The learned Authorized Representative for the assessee has placed heavy reliance on all these decisions which related to interpretation of terms used in section 12(2) of the old Act, except the decision of Hon‟ble High Court of Punjab & Haryana in the case of CIT Vs. Maruti Employees Co-operative House Building Society (supra). However, the claim of assessee is under the 1961 Act, wherein the terms used in sub-section (iii) to section 57 of the Act are at variance to the terms used in earlier section. The requirement of section 57(iii) of the Act is that expenditure should be laid out or expended wholly and exclusively for the purpose of making or earning such income. 30. The Hon'ble Supreme Court in CIT Vs. Rajendra Prasad Moody and in CIT Vs. Raghunandan Prasad Moody (1978) 115 ITR 519 ....
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....the same is not taxable in the hands of assessee on principle of mutuality. The assessee in the return of income had offered interest earned on FDRs as „Income from other sources‟. However, by way of additional ground of appeal raised before the CIT(A), the assessee wants to change the ground position i.e. it has now argued at length that certain percentage of expenditure incurred by the assessee club is attributable to the interest income earned. The case of assessee has already been dealt with in the paras hereinabove. However, we find no merit in the plea of assessee as under the provisions of section 57(iii) of the Act, the eligibility for deduction arises only if the expenditure has been laid out wholly and exclusively for the purpose of making or earning the income which is chargeable under the said head. There is no merit in the claim of assessee that the expenditure which it is incurring for upkeep of the club and other facilities including the depreciation charged on various assets is to be proportionately allowed as expenditure under section 57(iii) of the Act since the interest earned on FDRs is linked to the membership fees charged at the time of joining of ....
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....he Act against interest income from MSEB and in respect of interest income from FDRs, the assessee is not entitled to any further claim except the claim to the extent of 7.5% of interest income claimed by the assessee in its return of income which has been allowed to the assessee in earlier years and has not been disturbed. 35. The expenditure which has been claimed by the assessee is for the purpose of upkeep of club and also for maintenance and promotion of various facilities, which the assessee is bound to provide to its members against which the assessee has received receipts totaling Rs. 9.94 crores / Rs. 10.61 crores in the respective years. The assessee before us has failed to establish the nexus between expenditure incurred under various heads including depreciation and has also failed to justify apportionment of expenditure to earning of interest income and in the absence of nexus being established, there is no merit in the claim of assessee. In the absence of assessee establishing the expenses attributable to club activities which are outside the purview of Income Tax on the principle of mutuality cannot be attributed as deduction under section 57(iii) of the Act again....