2017 (1) TMI 1864

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....has raised as many as four Grounds of appeal, however, as per our considered opinion, the sole and substantial ground of appeal is "whether the ld. CIT(A) erred in law and in fact in confirming the addition of Rs. 35,34,192/- being interest on Fixed Deposit with Banks without appreciating that on the principle of mutuality the income is exempted." 2. Brief facts of the case are that the assessee is 'Company' registered u/s 25 of the Companies Act, 1956, filed its return of income for relevant AY on 29.09.2011 declaring total income at Rs. Nil. The assessment was completed u/s 143(3) of the Act on 21.03.2014. The Assessing Officer (AO) while making the assessment treated the interest income of Rs. 35,34,192/- as income of the assessee wit....

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....haritable and further the 'Principle of Mutuality' is not applicable in the present case. 4. We have considered the rival contentions of the parties and perused the record. The AO while framing the assessment observed that assessee, in its Income & Expenditure Account has shown Interest Income of Rs. 35,34,192/-. The assessee was asked to explain as to why the interest received on Fixed Deposit should not be considered as taxable income of the assessee. The assessee filed its reply vide reply dated 04.03.2014 and 05.03.2014. In reply, the assessee contended as under: "In response to your query as to why interest earned on Fixed Deposits with banks should not be treated as a taxable income on the basis of the judgment in the case....

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....e at higher rates of interest to third parties; this snaps the link of mutuality. In the case of our client, the contributions are only received from its members and the fixed deposits have been placed with non-member banks on which interest has been earned. The Hon'ble Court has explained the-doctrine of mutuality in Para 7 of its order as "...... 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 surplus to that needed to pursue the common purpose is said to be simply an increase of the common fund and as such neither considered income or taxable. " In the assessee's case the contributions received fro....

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....ption u/s 11. The main grievance of the assessee is that despite following the principles of mutuality the Revenue treated the interest income earned on fixed deposit as taxable income. It is not in dispute that the assessee is registered under section 25 of Companies Act, 1956 and having registration u/s 12A of the Act. We find that the case of AO is that the assessee is not a charitable organization (Para7of AO order). Apart from invoking the proviso of section 2(15) the AO has not brought anything on record to justify his finding. Although the provision of section 12 AA are independent and the conditions to the genuineness of the object and the activities of the trust. There are many decisions of various courts that the charitable charac....