ITO, Wd. 3(1), Nanded V. Nanded Dist. Chemists and Druggists Asso., Nanded

ITA 1232/PUN/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7405 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 16-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Section: 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 12 32 /PN/ 200 9 ( ASSTT. YEAR : 200 5 - 06 ) INCOME - TAX OFFICER , WARD 3(1), NANDED .. APP ELLANT V. NANDED DIST. CHEMICALS AND DRUGGISTS ASSOCIATION, CHEMISTS BHAVAN, NANDED P AN : NOT AVAILABLE . RESPONDENT APP ELLANT BY : SHRI HARESHWAR SHARMA RESPONDENT BY : NONE ORDER PER I.C. SUDHIR J M AN APPLICATION FOR ADJOURNMENT OF HEARING OF THE APPEAL HAS BEEN MOVED ON BEHALF OF THE LD. D.R, WHO HAS BEEN ASSIGNED TO REPRESENT THE REVENUE IN THE APPEAL. THE REASONS SHOWN FOR THE ADJOURNMENT IS THAT THE LD. D.R. IS ON CASUAL LEAVE. THE APPLICATION WAS REJECTED AS WE FOUND THAT THE ISSUE INVOLVED IN THE GROUND IS FULLY C OVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V/S. BANKIPUR CLUB LTD., (1997), 226 ITR 97 (SC) AND OTHERS. 2. THE REVENUE HAS QUESTIONNED THE FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS : 01. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE CIT(A) AURANGABAD HAS ERRED IN DELETING THE ADDITION OF RS. 9,28,440/ - ON ACCOUNT OF SURPLUS AMOUNT AS PER INCOME & EXPENDITURE ACCOUNT OF THE ASSESSEE - SOCIETY. THE CIT(A) HAS NOT APPRECIATED THE FACT THAT THE INCOME GENERATED BY THE TRUST IS MAINLY FROM NON - MEMBERS (CONTRIBUTIONS RECEIVED FROM THE DRUG MANUFACTURES AND INTEREST INCOME RECEIVED FROM FDRS MADE OUT OF SUCH CONTRIBUTIONS). FURTHER, THIS AMOUNT IS NOT RECEIVED BY THE TRUST FOR ANY SERVICES PROVIDED BY IT TO THE DRUG MANU FACTURES. HENCE THE PRINCIPLE OF MUTUALITY IS NOT APPLICABLE IN THIS CASE. THEREFORE, THE CASE LAWS QUOTED BY THE CIT(A) IN HIS ORDER ARE NOT APPLICABLE IN THIS CASE. SINCE THE ITA . NO 1232 /PN /2009 NANDED DIST. CHEMISTS AND DRUGGISTS ASSOCIATION, A.Y. 2005 - 06 - 2 TRUST IS NOT REGISTERED U/S 12AA OF THE I T ACT, 1961 THE WHOLE INCOME/RECEI PTS OF THE TRUST WOULD BE TAXABLE AND IT WOULD NOT BE ENTITLED TO ANY DEDUCTION U/S 11/12 OF THE I.T. ACT. 3. THE ISSUE INVOLVED IN THE GROUND IS AS TO WHETHER INTEREST FROM BANK DEPOSITS BE TREATED AS LIABLE TO TAX HAS NOT COVBERED BY THE MUTUALITY PR INCIPLES AS THE BANKS ARE NOT MEMBERS OF SUCH ASSOCIATION. 4. THE RELEVANT FACTS ARE THAT THE EXEMPTION WAS DENIED BY THE A.O BY REJECTING THE CLAIM OF MUTUALITY ON THE BASIS THAT THE ASSOCIATION HAD NOT CONFINED ITS ACTIVITIES WITHIN THE MEMBERS ONLY AS THEY WERE ALSO ENGAGED IN CREATING AWARENESS ABOUT THE HEALTH ISSUES AMONG GENERAL PUBLIC AND FINANCIAL HELP TO POOR AND SCHOLLARSHIPS TO DESERVING STUDENTS. THE LD CIT(A) HAS, HOWEVER, ALLOWED THE CLAIMED EXEMPTION ON THE DOCTRINE OF MUTULAITY WITH THE OBSERVATION THAT THERE IS NO TAINT OF COMMERCIALITY IN EARNING OF INTEREST FROM FDR BY APPELLANT ASSOCIATION. 5. HAVING GONE THROUGH THE FIRST APPELLATE ORDER ON THE ISSUE, WE FIND THAT AFTER DISCUSSING THE CASE OF THE ASSESSEE AND THE A.O, THE LD CIT( A) HAS COME TO THE FOLLOWING CONCLUSIONS : I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSION OF THE AR & POSITION OF LAW. IN MY OPINION, THE APPELLANT DESERVES TO SUCCEED. IT IS TRITE LAW THAT AN ASSOCIATION, IN ORDER TO GET THE BENEFIT OF MUTUALITY PRINCIPLE, SHOULD CONFINE ITS ACTIVITY ONLY AMONG ITS MEMBERS. THE BONE OF CONTENTION IN APPELLANTS CASE IS WHETHER ASSOCIATION COMPROMISES ITS MUTUALITY BY THE ACTS OF DEPOSITING SURPLUS FUND WITH COMMERCIAL BANK (WHICH IS NOT A MEMBER OF ASSOCIATION) AN D EARNING INTEREST ON SUCH DEPOSIT. THE ISSUE FOR ADJUDICATION IS WHETHER INTEREST FROM BANK DEPOSIT BE TREATED AS LIABLE TO TAX AS NOT COVERED BY THE MUTUALITY PRINCIPLE BECAUSE THE BANKS ARE NOT MEMBERS OF SUCH ASSOCIATION. ITA . NO 1232 /PN /2009 NANDED DIST. CHEMISTS AND DRUGGISTS ASSOCIATION, A.Y. 2005 - 06 - 3 THE BASIC ISSUE IN THI S REGARD IS NATURE OF THE INTEREST. IF THE INTEREST IS NOT FROM A COMMERCIAL ACTIVITY BUT FROM NORMAL DEPOSITS BANKED FOR SAFE CUSTODY OR INVESTMENT INEVITABLY MADE DURING THE COURSE OF MUTUAL ACTIVITY EARNING FROM SUCH DEPOSIT COULD NOT VITIATE THE CLAIM OF MUTUALITY. IN THE APPELLANTS CASE THE ASSOCIATION WAS NOT COLLECTING THE MONEY FROM ITS MEMBERS FOR THE PURPOSE OF EARNING INTEREST INCOME AND CLAIMING THE MUTUALITY. FIXED DEPOSITS WERE MADE DURING THE COURSE OF MUTUAL ACTIVITY. THE AFORESAID VIEW FOUND SUPPORT FROM HONBLE SUPREME COURT DECISION IN THE CASE OF CIT VS. BANKIPUR CLUB LTD. (1997) 226 ITR 97. IN THIS CASE, A BATCH OF 23 CASES DECIDED TOGETHER,IN WHICH ONE OF THE CASES WAS CIT VS KANPUR CLUB LTD. WHEREIN INCOME FROM FDR ETC., WAS SUBJE CT MATTER OF APPEAL. IN THIS CASE, INCOME WHICH WAS SOUGHT TO BE ASSESSED WAS ONE DERIVED FROM PROPERTY RENT AND ALSO INTEREST RECEIVED FROM FDR, NSC ETC. THE CASE WAS DELINKED AND SUBSEQUENTLY DECIDED DISMISSING THE DEPARTMENTAL APPEAL WHICH INTER ALIA DEALT WITH THE INCOME FROM BANK DEPOSITS IN CIT VS. KANPUR CLUB LTD. (2004) 140 TAXMANN 378. WHILE DECIDING THE CASE OF BANKIPUR CLUB LTD. (SUPRA) THE APEX COURT HAS APPROVED THE DECISION OF FULL BENCH OF HONBLE PATNA HIGH COURT IN CIT VS. RANCHI CLUB LTD. (1992) 196 ITR 137 WHEREIN IT WAS HELD THAT MERELY BECAUSE THE ASSESSEE COMPANY HAD ENTERED INTO TRANSACTION WITH NON - MEMBERS AND EARNED PROFIT OUT OF TRANSACTIONS HELD WITH THEM, ITS RIGHT TO CLAIM EXEMPTION ON THE PRINCIPLE OF MUTUALITY WAS NOT LOS T. IN THE CASE OF CIT VS. J.K. ORGANIZATION LTD (2005) 279 ITR 503,, HONBLE ALLAHABAD HIGH COURT DECIDED THE CASE IN FAVOUR OF ASSESSEE WHERE AN ASSOCIATION OF EMPLOYEES OF J.K. GROUP FORMED A TRADE UNION WITH ITS INCOME BEING UTILIZED FOR THE OBJECTS O F ASSOCIATION WITH MEMBERSHIP CONFINED TO THOSE CONNECTED WITH THE J.K. GROUP. ON THE BASIS OF PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CHELMSFORD CLUB VS. CIT (2000) 243 ITR 89 AND CIT VS. ROYAL WESTERN INDIA TURF CLUB LTD. (1953) 24 ITR 551, HONBLE ALLAHABAD HIGH COURT DECIDED THAT THE PRINCIPLE OF MUTUALITY WOULD APPLY IN THE CASE OF EMPLOYEES ASSOCIATION OF J.K. GROUP. ITA . NO 1232 /PN /2009 NANDED DIST. CHEMISTS AND DRUGGISTS ASSOCIATION, A.Y. 2005 - 06 - 4 IN THE CASE OF SHIVALIKA GROUP HOUSING SOCIETY LTD. VS. ITO (2007) 289 ITR 105, ITAT, DELHI IT WAS HELD THAT INTEREST EARNED ON SURPLUS FUND OF A MUTUAL SOCIETY DEPOSITED WITH A BANKING INSTITUTION WAS ALSO COVERED BY THE PRINCIPLE OF MUTUALITY AND IT SHOULD NOT BE TAXABLE. IN VIEW OF FOREGOING DISCUSSION AND CONSIDERING THE RATIO DECIDENDI LAID DOWN IN THE CASE LAWS QUOTED ABOVE, I AM OF THE OPINION THAT THERE IS NO TAINT OF COMMERCIALITY IN THE EARNING OF INTEREST FROM FDR BY APPELLANT ASSOCIATION AND IT IS ENTITLED FOR EXEMPTION ON THE DOCTRINE OF MUTUALITY. I, THEREFORE, DELETE THE ADDITION OF RS.9,28,438/ - . WE FIND THAT THE FIRST APPELLATE ORDER IS COMPREHENSIVE AND REASONED ONE WHEREIN BY FOLLOWING THE DECISIONS RELIED UPON BY THE ASSESSEE BEFORE HIM, THE LD CIT(A) , IN OUR VIEW, HAS RIGHTLY ALLOWED CLAIMED EXEMPTIONS ON THE DOCTRINE OF MUTUALITY. THE FI RST APPELLATE ORDER IS THUS UPHELD. THE GROUND IS ACCORDINGLY REJECTED. IN THE RESULT APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31ST MARCH 2011. SD/ - SD/ - ( D. KARUNAKARA RAO ) ACCOU NTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE , DATED THE 31ST MARCH , 20 1 1 US COPY OF THE ORDER IS FORWARDED TO : 1. THE A PP ELLA NT 2. THE RESPONDENT 3 . THE CIT(A) - AURANGABAD 4 . THE CIT, AURANGABAD 5. THE D.R. A BENCH, ITAT PUNE 6. THE GUARD FILE BY ORDER ASSISTANT REGISTRAR ITA . NO 1232 /PN /2009 NANDED DIST. CHEMISTS AND DRUGGISTS ASSOCIATION, A.Y. 2005 - 06 - 5 INCOME TAX APPELLATE TRIBUNAL PUNE