TaxTMI 
TaxTMI 
2016 (4) TMI 1400
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...." which has also been held to be the first condition for applicability of mutuality clause by the Apex Court in her decision rendered in the case of Chelmsford Club (2000) 243 ITR 89 and the Bank is neither a member contributor to the funds nor has am rights in the funds or assets of the society in the instant case." 3. Brief facts of the case is that assessee is an association of person which is registered u/s 12A of the Income Tax Act and also registered u/s 80G of the Act. Assessee is purportedly existing for charitable purpose as defined u/s 2(15) of the Income Tax Act. Therefore, the assessee filed its return of income showing NIL income on 30.09.2009. The ld Assessing Officer passed an assessment order holding that assessee is not entitled to exemption provided u/s 11, 12 and 13 of the Income Tax Act however it was held that assessee is entitled to benefit of mutuality principal for its income. Based on this ld Assessing Officer held that the bank interest income of Rs. 4440871/- is not covered by the principles of mutuality and hence assessed the assessee on that sum. Appeal was filed before the ld CIT(A) by the assessee against this order challenging the denial of deductio....
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.... 39,72,025/-. 4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings of the ld. CIT(A). 5. We have heard both the parties and gone through the facts of the case as also the aforesaid decision followed by the learned CIT(A). We find that Hon'ble Delhi High Court in their judgment in the case of DIT v. All India Oriental Bank of Commerce Welfare Society [2003] 184 CTR (Delhi) 274 held that principle of mutuality applies to interest income received from the deposits made out of contribution by the members. In taking this view, the Hon'ble Delhi High Court took a cue from the decision of the Hon'ble Supreme Court in Chelmsford Club v. CIT, 243 ITR 89, wherein the Hon'ble Supreme Court had laid down the principle that where a number of persons combine together to a common fund for financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus generated cannot in any sense be regarded as profits chargeable to tax. The decision of Hon'ble Delhi High Court in All India Orienta....
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....rce Welfare Society [2003] 130 Taxman 575 (Delhi). In this case, the members of the welfare society, who were the employees of the Oriental Bank of Commerce had earned interest income on deposits made out of contribution from the members of the society, i.e., the contributions which were given by the members of the society, were kept in the bank and interest was earned therefrom. The Revenue had contented that as far as this interest income is concerned, the principle of mutuality would not be attracted and that income would be exigible to tax. The Tribunal had negatived the aforesaid contention of the Revenue relying upon the judgment of the Supreme Court in the case of Chelmsford Club Vs. Commissioner of Income Tax [(2010) 109 Taxman 215. This Court in the aforesaid judgment had dismissed the appeal of the Revenue thereby affirming the decision of the Tribunal. The following para from the said judgment brings out the ratio of the case: "3. The issue with regard to the concept and principle of mutuality has been elaborately examined by the Apex Court in Chemsford Club v. CIT [2000] 243 ITR 89. Their Lordships have held that where a number of persons combine together contribute t....
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.... CIT(A), but the Tribunal reversed the aforesaid orders after applying the principle of mutuality and deleted the additions made by the AO. The Department filed an appeal against the order of the Tribunal in the Court, which was dismissed. Insofar as the income generated from bank deposits as well as FDRs is concerned, this Court relied upon the judgment in the case of All India Oriental Bank of Commerce Welfare Society (supra) and held that the principle of mutuality would get attracted. It was also observed that there was nothing on record to show that the amount collected by the assessee had been diverted for any other purpose. iii) Commissioner of Income Tax, Delhi - XI Vs. Standing Conference of Public Enterprises (SCOPE), [2010] 186 Taxman 142 (Delhi). In this case again, apart from income generated by the SCOPE from its members, it was also found that the assessee had income in the form of deposits with banks and also in the form of rent from house of convention centre and from letting out of the part of the premises of the building occupied by it. Question arose as to whether the tax is payable on the aforesaid income or that would be exempted on the application of princi....
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....ts members, which are public sector enterprises. It is not indulging in any "commercial activities" in traditional sense, but is catering to the needs of its members. In its building at Lodhi Road, New Delhi, it has convention centre which is normally given to its members for functions. Likewise, other part of the premises are available to the members for their use. Of course, for using convention centre as well as other parts of the building, these members pay some charges which becomes additional source of income. That by itself cannot be treated as commercial activity of the assessee. In Bankipur Club (supra), the Supreme Court held that if the dealings as a whole disclose the profit earning motives and are alike tainted with commerciality, only then principle of mutuality would cease to apply. The principle in this behalf was discerned as under: "We understand these decisions to lay down the broad proposition - that, if the object of the assessee company claiming to be a "mutual concern" or "club", is to carry on a particular business and money is realised both from the members and from non-members, for the same consideration by giving the same or similar facilities to all al....
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....y of any portion of the premises for any function can be termed to be a client. The services rendered by any person to his client presupposes the element of commerciality and obviously this transaction must be involved with the third parties, as opposed to the members of the club." Similar question was answered in the case of Saturday Club Ltd. Vs. Asstt. Commissioner, Service Tax Cell, (2006) 3 STR 305 in the following manner: "So far as the merit is concerned, law is well settled by now that in between the principal and agent when there is no transfer of property available question of imposition of service tax cannot be made available. It is true to say that there is a clear distinction between the "members club and "proprietary club_. No argument has been put forward by the respondents to indicate that the club is a proprietary club. Therefore, if the club space is allowed to be occupied by any member or his family members or by his guest for a function by constructing a mandap, the club cannot be called as mandap keeper, because the club is allowing his own member to do so who is, by virtue of his position, principal of the club. If any outside agency is called upon to do the....