TaxTMI 
TaxTMI 
2018 (4) TMI 77
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee on the fixed deposits with Indian Bank and the second issue was against the action of the Ld.CIT(A) in confirming the non-granting of depreciation. The Ld.AR placed before us a Note in regard to the issues which is extracted as under: 1. HISTORY: M/s. Kalaimaghal Sabha was founded on 15.01.1984 and was registered as a Society under Tamil Nadu Societies Registration Act 1975 with following objects. i. Work for the development of education, art, culture and sports. ii. Work for the unity of persons belonging to different religion, races and castes. iii. Work for the development of the people who are economically low in standards. The society admitted the members and implemented certain Schemes as "Members Beneficial Scheme". Each member has to contribute specified amount to the society as membership subscription. The society apart from doing activities in furtherance of its object for the general or the public welfare was also collecting funds from the members to be utilized exclusively for the benefit of its members. The above said funds were collected under different heads such as purchase of property, marriage, education, death etc., which were kept in separate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rofit can be said to emerge from out of mutual activity. There is complete identity between the contributors to the fund and recipients from the fund, in as much as the interest earned by the society from the surplus funds invested in fixed deposits with banks are always available and are used for the benefit of members of the society in as much as the said interest merged with the Common Fund of the Society. The concept of mutuality has been extended to defined groups of people who contribute to a common fund, controlled by the group for a common benefit. Any amount of surplus to that needed to purse the common purpose is said to be simply an increase of the Common Fund and as such neither considered income nor taxable. One of the earliest modern judicious statements of the mutuality principle is by Lord Watson in the House of Lods in 1989 in Styles (Surveyor of Tara) vs New York Insurance company where it has been held:- "... When number of individuals agree to contribute funds for a common purpose.... and stipulate that their contributions, so far as not required for that purpose shall be repaid to them. I cannot conceive why they should be regarded as traders or why....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y have contributed. Thus they receive back what was really their own. The receipt in their hands is not really a profit as no man can make a profit out of himself such as he cannot enter into a trade or business with himself. Thus the main test of mutuality is complete with the identity of contributors with the recipients. This view was confirmed by Supreme Court in the case of CIT Vs Bankipur Club (226 ITR 97) and in the case of Chelmsford club Vs CIT (243 ITR 89). Similar view was taken by Madras High Court in the case of CIT Vs Madras Race Club and also held that it is enough if the members had a right of disposal over the surplus to show that they are participants. The same principle was enunciated in Addl CIT Vs Secundarabad club (150 ITR 401 (Appx)). Similar view was taken by Bombay High Court in the case of CIT Vs Cement allocation and co-ordination organization (236 ITR 553). A mutual association arises when a certain class of people join or associates to contribute money to achieve an object for the benefit of one another and divide the surplus between themselves on that character, namely in the character of persons who contribute it. The cardinal requirement is that al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n held in many cases that interests on fixed deposits with banks are taxable since the bank is not a member and it amounts to dealing with outsiders. But in all these cases, they are running clubs I associations. Whereas in the case of the appellant, the society is under the control of Hon'ble High Court and is in the process of returning the amount contributed by the members as per Court order and hence the interest earned belong to members. The society has to accumulate funds before distribution since huge amount is needed for distribution of even Rs. 1000 per member as the number of members run into about 6 lakhs. In view of this, the Appellant's case should be distinguished from others. 4. DEPRECIATION CLAIM: The appellant has claimed depreciation on buildings and other assets owned by the Sabha. The assets of the Sabha have been taken over by the Joint Receivers of Kalaimagal Sabha in 1999-00 to carry out the orders of Honb'le High Court of Madras. The buildings and other assets were used by the Sabha to carry out the directions of High Court of Madras to realize the assets of the Sabha and refund the amount due to the members. Some buildings have been let out during ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to preserve the corpus of the trust for deriving the income. IV. CIT Vs Rao Bahadur Calawala Cunnan Chetty Charities (135 ITR 485) (Mad) Held that the income from the properties held under trust would have to be arrived at in the normal commercial manner. In the case of Kalaimaghal Sabha, since the buildings and other assets are used by the Receivers to carry out their activities and to implement the High Court order, the net income has to be arrived at only after allowing Depreciation on Fixed Assets. It was fairly agreed by the Ld.AR that the Indian Bank was not a Member of the AOP. 4. In reply, the Ld.DR vehemently supported the order of the AO and the Ld.CIT(A). It was a submission that the Indian Bank where the assessee is maintaining fixed deposits, was not a Member of the assessee and consequently the principles of mutuality could not be applied in respect of the interest received by the assessee from such non-Member. In regard to the issue of the depreciation, it was a submission that as the properties of the assessee AOP was not used in relation to earning of the income which has been brought to tax under the head income from others sources, depreciation was not ....