TaxTMI 
TaxTMI 
2022 (1) TMI 1156
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....16,126/- against income from house property and 'other' sources. The CIT(A)'s detailed discussion to this effect reads as under: "7.0 The main issue under dispute in this case is set off of loss incurred from the activities coming under the purview of principle of mutuality against the income which is not coming under the purview of mutuality and brought to tax i.e., interest income received from member banks and rental income received from member tenants which was actually assessed under the regular provisions of the Act under the head Other Sources and House Property, respectively. 7.1 In this regard, it is important to note that this issue was under dispute in earlier AYs and my predecessor has already held the issue against the assessee, vide order in ITA No.324A/2011-12/CIT(A)-6/2015-16 dated 30.09.2015 for the AY 2006-07 against the assessee. The relevant portion of the order of CIT(A)-6 is reproduced below for ready reference: "04.1 A deficit is nothing but a negative surplus. Given the settled law that operational surplus of a club (from goods/services offered to members) does not constitute 'income' for purposes of income tax, it logically follow....
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....nditure is not allowable as deduction while computing total income under the provisions of Income tax Act (though for accounting purpose, it may be classified as expenditure). It is only the post-tax income that is available for consumption. The same principle applies to a club based on the principle of mutuality. The net consumption expenditure is an application of income not a charge on it. There is no question of allowing the same as deduction while computing the total income. 06.0 In view of the foregoing discussion, it is held that: i. The deficit was not a loss within the meaning of term income / loss for the purposes of income tax. ii. Such deficit cannot be set off against the income chargeable to tax". 7.2 In this view of the matter, respectfully following the decision taken by my predecessor in the case of the same assessee, I hold the issue against the assessee for the present AY also. 8.0 Be that as it may, I would like to adjudicate the matter on merits independently, as discussed below. 8.1 Before adjudicating the issue on hand, it is important to understand that the assessee being a social and recreational club en....
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....the crucial criteria that there is identity between contributors and participators / recipients to the fund i.e. there should be one to one identity between the members who are the contributors to the fund and the activities carried on thereof and members participating in sharing the funds / profits generated thereof. However, the fact that an association / club satisfies the norm of mutuality in respect of the receipts of contributions from its members does not necessarily lead to the conclusion that every activity of the association / club satisfies the test of mutuality. 8.5 An association / club may engage in activities which can be described as mutual and at the same time, it may engage in some other activities which can be considered as non-mutual in nature. However, in case if an association / club is having two kinds of activities i.e. activities which are mutual in nature and certain other activities which are non-mutual in nature, then also, the application of principle of mutuality is not destroyed by the presence of transactions which are non-mutual in character. However, in such a case, the principle of mutuality has to be confined to transactions with members....
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....e same is exempt from tax u/s. 10(1) of the Act. As such, the same is not subject to taxation, except taken into consideration for determining the rate of tax. Similarly, if the assessee is incurring loss from agricultural. activities, he cannot claim the same as allowable loss as per the provisions of the Act for the purpose of set off of such loss against income from various heads of income as stipulated u/s. 14 of the Act rws 71 of the Act. Further, the assessee cannot claim carry forward and set off of such loss against income from various heads as envisaged u/s. 72 of the Act. The same analogy is applicable even in respect of non taxable source of income arising from the transactions coming under the doctrine of principle of mutuality. Reliance is placed on the following decisions: 1) CIT(Central) Vs. Harprasad & Co. P. Ltd. [1975] 991TR 118 (SC) 2) CIT v. Gold Coin Health Food (P.) Ltd. [20081304 ITR 308 (SC) 3) CIT v. J.H. Gotla [1985] 156 ITR 323 (SC) 4) CIT v. Elphinstone Spg. and Wvg. Mills Co. Ltd. [1960] 40 ITR 142; [1960] 3 SCR 953 (SC) In all the above mentioned decisions, the Hon'ble Supreme Court has held that loss is....
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....e assessee as defined in section 2{15}. An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the 'total amount of income, profits and gains referred to in section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act'. If either of these conditions fails, the income will not be a part of the total income that can be brought to charge. "{Emphasis Supplied) In CIT v. J.H. Gotla [1985] 156 ITR 323 (SC), the apex court, after examining the scheme of the Act, including as to the carry forward of loss, held that in computing the assessee's income, the income of his wife or minor children which is liable to be added under section 16(3) (of the 1922 Act), would include profit or loss from the business of the assessee's spouse or minor children and, accordingly, upheld the set off of brought forward business loss from such business. The premise on which the said decision rests is again that income includes loss. In CIT v. Gold Coin Health Food {P.} Ltd. [2008] 304 ITR 308 (SC), the issue before the hon'ble apex court was whether the penalty under section 271(1)(c) could....
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....ee has received subscription from the members to the extent of Rs. 8,25,44,722/- and the same is accounted as income in its Income & Expenditure account, but for the purpose of taxation, it excluded the same by applying the principle of mutuality. However, at the same time, the assessee has failed to adjust loss arising on account of transactions coming under the purview of principle of mutuality which is otherwise claimed by the assessee as operational loss of Rs. 9,11,15,126/-, being loss from club activities. As clearly explained above, all kinds of transactions coming under the purview of principle of mutuality, whether resulting in profit or loss, should be clubbed together and arrived at the net income or loss, which alone can be considered as exempted income. Also, it is an undisputed fact that subscription received from the members is a revenue receipt and would form part of income derived from the activities of the club as disclosed by the assessee on its own in the Income and Expenditure account. 8.12 In the instant case, the assessee has selectively removed the income portion covered under principle of mutuality i.e. subscription received from the members of Rs.....
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....ovisions of Sec.72 of the Act are also not applicable with regard to carry forward and set-off of such losses in the subsequent AYs. Accordingly, all the grounds of appeal raised by the assessee are hereby dismissed". 4. We next note that this tribunal's 'lead' order in assessee's appeals ITA Nos.1388/Hyd/2015 for AYs.2005-06 and other assessment years dt.25-10-2021 has already upheld the CIT(A)'s similar conclusion denying the impugned set-off relief as under: "8. We have given our thoughtful consideration to the foregoing rival contentions and find no merit in the assessee's stand seeking to set off its impugned deficit of Rs. 18,58,643; arising from "mutuality" account, against interest income from "other" sources. We make it clear that there is no dispute about the assessee being eligible for mutuality benefit regarding the deficit account herein resulting in negative figure of Rs. 18,58,643 claimed as eligible for set off u/s.71 of the Act. Hon'ble apex court's landmark decision in Bangalore Club case (2013) 350 ITR 509 (SC) has settled the law that an assessee has to satisfy the three essential ingredients for the purpose of getting mutuality benefit i.e. a co....
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....e not chargeable to tax is not eligible to be set off against a taxable source as follows : " It may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set off. Its sole purpose is to set off the loss against the profits of a subsequent year. It presupposes the permissibility and possibility of the carried-forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax-demand. It follows that if such set-off is not permissible or possible owing to the income or profits of the subsequent year being from a nontaxable source, there would be no point in allowing the loss to be "carried forward". Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year, from a taxable source. Now let us test the claim of the assessee in the light of the above principles. The "capital loss" of Rs. 28,662/- in the present case, was, sustained in September 1953, ....