AI Drafter 
TaxTMI 
TaxTMI 
2018 (7) TMI 808
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....e. After discussing with DR, we are of the opinion that there is a sufficient cause for non-filing of the appeal in time. Accordingly, the delay in filing the appeal is condoned and appeal memo is admitted to be heard on merits. 3. Briefly stated, assessee is a mutually aided co-operative society, having registered with the District Registrar of Co-operatives, Anantapur. Assessee filed total income at NIL, claiming deduction U/s. 80P of the Act of Rs. 40,03,672/-. In the course of scrutiny assessment, it was the contention of assessee that it is a mutually aided co-operative society and the activities of the society are confined to Members only who are making deposits and availing loans and surplus if any is distributed among the Members only. In the course of assessment proceedings, AO asked the clarifications, examined the by-laws and noticed that there are two categories of Members - Ordinary Members and Nominal Members and the transactions with non-Members being third parties is not entitled for deduction either U/s. 80P or under the concept of mutuality. Accordingly, he denied the benefit and restricted it to an amount of Rs. 40,300/- U/s. 80P(2) of the Act. In addition to ....
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.... ix. The learned assessing officer has not given the cognizance for the concept of mutuality and made the following additions which are completely unjustified. a) Honorarium paid to members for the services rendered by them throughout the year in collecting deposits from members, extending loans to members and primarily to recover the loans effectively without losing any principal amount of the trusted members of the society. As the society has complied with the following three mutual principles of mutuality, the Learned Assessing Officer should have given the benefit of mutuality to the Society. The three conditions, the existence of which establishes the doctrine of mutuality are: a) The identity of the contributors to the fund and the recipients from the fund. b) The treatment of the company, though incorporated as a mere entity for the convenience of the members, in other words, as an instrument obedient to their mandate, and c) The impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves. 4.1. With reference to the treatment of income on b....
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....ous bank accounts. But in reality these are huge cash infusions into the society and totally take a different gamut from the concept of mutuality. 5.3. In the above backdrop of detailed facts brought on record, I now proceed to give my findings on the germane issue which are as follows: Issue of Applicability of Sec 80P(2)(a)(i) of the Income Tax Act 1961: The AO analysed the status of the Society in detail as brought out in his assessment order (para 6). I am in agreement with the findings of the AO on the following fundamental principles of mutuality:- 1. The varied nature and identity of the contributors to the fund and the recipients from the fund 2. The treatment of the society as a mere entity for the convenience of the members and in other words as a instrument obedient to their mandate 3. The impossibility that the contributors of the fund should derive profits from contributions made by themselves to the society to be selectively utilized by themselves thereby creating a colourable devise to circumvent the mandatory provisions of Law from the best advantage 5.4. In my considered view, the Society is not being r....
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....t prejudice, it was submitted that all those members have filed their returns of income and as per the second proviso to Section 40(a)(ia), the amounts are allowable as under: i. In the impugned AY. 2013-14 - Rs. 7,80,000/-; ii. AY. 2014-15 - Rs. 4,68,000/-; iii. AY. 2015-16 - Rs. 3,12,000/-; iv. AY. 2016-17 - Rs. 3,12,000/-; It was the submission that the entire disallowance does not warrant on the facts of the case. 7. Ld.DR, however, relied on the orders of AO and CIT(A) to submit that assessee has two different types of members and hence the transactions with non-members are to be brought to tax and principles of mutuality does not apply. Ld.DR, supported all other disallowances also. 8. We have considered the rival contentions and perused the order of the AO and CIT(A). Principles of Mutuality The AO and CIT(A) have considered the ordinary members and nominal members are different class of members. AO accepts that ordinary members are having mutuality but he denies the same with reference to nominal members. The principle of mutuality cannot be denied simply because there are two categories of members as per the bye-laws of the ....
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.... be able to participate in the surplus. It is immaterial whether the surplus is paid back to the members in cash or is put to reserve with the club for its development and for providing better amenities to its members". 10. The same view was also reiterated in the later case of CIT Vs. Nataraj Finance Corporation [169 ITR 732]. The Hon'ble Supreme Court in the case of CIT Vs. Bankipur Club [226 ITR 97] held as under: "13. There must be a complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular from the association takes. Trading between persons associated together in this way does not give rise to profits which are chargeable to tax. Where the trades or activity is mutual, the fact that as regards certain activities, certain members only of the association take advantage of the facilities which it offers does not affect the mutuality of the enterprise". 11. Since all the parameters with regard to principles of mutuality are complied, we are of the opinion that the AO's distinction or findings that society is transacting with non-members is not correct. There is no distinction between o....
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....are defined U/s. 2(17) and 2(19) separately. Just because the person administering the society is also referred to as director, provisions of Section 194J cannot be attracted to the payment of honorarium made to the director of assessee-society. In view of that, we are of the opinion that there is no violation U/s. 194J so as to attract disallowance U/s. 40(a)(ia). 13.1. Be that as it may, since assessee has adduced the evidence to the respective person have paid/filing returns of income and AO has not initiated any proceedings U/s. 201 for violation of TDS provisions under any other provisions of the Act, the disallowance U/s. 40(a)(ia) cannot be sustained. Grounds are allowed. Interest on bank deposits: 14. AO treated the interest earned on bank deposits amounting to Rs. 17,01,963/- as income from other sources. AO relied on the principles laid down by the Hon'ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Limited (supra) rendered U/s. 80P of the Act. Even though the Hon'ble Supreme Court has upheld the treatment given to the income from bank deposits as from other sources, there is no finding that these funds are 'surplus funds' not used....