Film Nagar Cultural Centre , Hyderabad V. Dy. Commissioner of Income Tax , Circle-14(1), Hyderabad

ITA 139/Hyd/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6455 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 12-01-2021
• Assessment Year: 2008-2009
• Appeal Filed On: 03-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Rule of consistency; Earning of tax free income; Set aside
• Section: 195; 201; 13; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH : HYDERABAD (THROUGH VIDEO CONFERENC E ) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO. 139 TO 143 /HYD./20 20 ASSESSMENT YEAR: 20 08 - 09 TO 2011 - 12 & 2016 - 17 ITA NOS. 1821 & 1822/HYD/2019 ASSESSMENT YEARS 2014 - 15 & 2015 - 16 FILM NAGAR CULTURAL CENTRE VS. DY.CIT, CIRCLE 14(1) HYDERABAD HYDERABAD /ACIT CIR.14(1), HYD. PAN: AAATF0572E (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI PAWAN KUMAR CHAKRAPANI, ADV. FOR REVENUE : SH. SUNIL KUMAR PANDEY, DR . DATE OF HEARING : 12 / 01 /202 1 DATE OF PRONOUNCEMENT : 18 / 01 /202 1 O R D E R PER SMT. P. MADHAVI DEVI, J.M. ALL THESE ARE ASSESSEES APPEAL S FOR A.Y. 2008 - 09 TO 2011 - 12 AND 2014 - 15 TO 201 6 - 17 . LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THESE APPEALS ARE AGAINST THE ORDERS OF CIT(A) - 6, H YDERABAD DATED 22.11.2019 CONFIRMING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFI CER (AO) BRINGING TO TAX THE INTEREST INCOME ON FIXED DEPOSITS AFTER APPLYING THE PRINCIPLE OF MUTUALITY TO THE ASSESSEE EVEN THOUGH THE ASSESSEE HAS NOT CLAIMED THE SAME. HE SUBMITTED THAT FOR 2 A.YS I.E. FOR AY 2012 - 13 AND 2013 - 14 THE MATTER HAD BEEN DECIDED BY THE TRIBUNAL AND FOR AYS 2008 - 09 TO 2011 - 12, 2014 - 15 AND 2015 - 16 THE TRIBUNAL HA D SET ASIDE THE ISSUE TO THE FILE OF CIT(A) FOR RE - ITA NOS. 139 TO 143 /HYD/20 20 AND ITA NOS. 1821 & 1822/HYD/2019 AY S 2008 - 09 TO 201 6 - 17 FILM NAGAR CULTURAL CENTRE, HYD. 2 CONSIDERATION AS IN THE EARLIER PROCEEDINGS , THE CIT(A) HAD DISMISSED ALL THESE APPEALS IN LIMINE ON THE GROUND OF N ON - PROSECUTION BY THE ASSESSEE. HE SUBMITTED THAT IN THE REMAND PROCEEDINGS ALSO , THE CIT(A) , WITHOUT CONSIDERING THE TRIBUNALS ORDER HAS RECONFIRMED THE ASSESSING OFFICERS ORDER AND THEREFORE THE ASSESSEE IS BEFORE US IN APPEAL FOR ALL THE RELEVANT ASSESSMENT YEARS. 2. LD.DR ALSO WAS HEARD WHO SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 3 . HAVING REGARD TO THE FACT THAT THE VERY SAME ISSUE HA D COME UP BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.YS 2012 - 13 AND 2013 - 14 , AND THE TRIBUNAL HA S DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, WE ARE INCLINED TO FOLLOW THE SAME AND ALLOW THE APPEALS OF THE ASSESSEE. FOR THE SAKE OF CLARITY AND READY REFERENCE, THE RELEVANT PARAGRAPHS ( PARAS 2 TO 9.5 ) OF THE ORDER OF TRIBUNAL [ TO WHICH ONE OF US I.E. THE JUDICIAL MEMBER IS THE SIGNATORY ] , ARE REPRODUCED HERE UNDER : 2. FROM THE PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, AO OBSERVED THAT ASSESSEE IS CLAIMING TO BE GOVERNED BY THE CONCEPT OF MUTUALITY. THE ASSESSEE HAS RECORDED RECEIPTS FROM ALL THE SOURCES AND HAS BOOKED ALL THE EXPENSES IRRESPECTIVE OF THE FACT WHETHER THEY AROSE FROM MUTUAL ACTIVITY OR NOT. THE NET RESULT FROM ACCOUNTING OF ALL RECEIPTS AND EXPENSES WAS A LOSS. WHEN THE DETAILS WERE P ERUSED IT WAS FOUND THAT THE ASSESSEE WAS DERIVING INCOME FROM NON - MUTUAL ACTIVITIES AND WAS SETTING - OFF AGAINST THE EXPENSES INCURRED IN COURSE OF CARRYING OUT THE ACTIVITIES OF THE MUTUAL CONCERN. THE ASSESSEE IS NOT MAINTAINING SEPARATE ACCOUNTS FOR MUT UAL AND NON - MUTUAL ACTIVITIES. THE AO OPINED THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS NOT PROPER IN ARRIVING AT THE TOTAL INCOME UNDER THE INCOME TAX ACT. HENCE THE OPTION AVAILABLE IS ONLY TO SEGREGATE THE ITEMS OF INCOME ARISING FROM NON - MUTUAL ACTIVITY. THE PROFIT OR LOSS ARISING FROM MUTUAL ACTIVITY IS NOT SUBJECTED TO TAX BUT THE INCOME OR LOSS ARISING FROM NON - MUTUAL ACTIVITY IS SUBJECTED TO TAX. AS THE INCOME FROM MUTUAL ACTIVITY IS EXEMPT FROM TAX, THE LOSS ARISING FROM MUTUAL ACTIVI TY IS SIMILARLY NOT ALLOWED TO BE SET - OFF AGAINST TAXABLE INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE INCOMES ARISING FROM NON - MUTUAL ACTIVITIES WERE DISCUSSED BY THE AO AS UNDER: ITA NOS. 139 TO 143 /HYD/20 20 AND ITA NOS. 1821 & 1822/HYD/2019 AY S 2008 - 09 TO 201 6 - 17 FILM NAGAR CULTURAL CENTRE, HYD. 3 2.1 INTEREST INCOME : ASSESSEE IS IN RECEIPT OF INCOME FROM TERM DEPOSITS OF RS. 63,02,629/ - FOR THE CURRENT AY. THE INTEREST THOUGH SHOWN AS RECEIPT IN THE INCOME AND EXPENDITURE ACCOUNT WAS SET OFF AGAINST EXPENSES OF MUTUAL ACTIVITY. THE AO REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S BANGALORE CLUB VS. CIT, OBSERVED THAT THE FUNDS OF CLUB HAVE BEEN PLACED IN FIXED DEPOSITS WITH BANKS. THE CLUB GETS THE RETURN ALSO. HOWEVER, BEFORE THAT THEY ARE EXPENDED ON NON - MEMBERS I.E. THE CLIENTS OF THE BA NK. THIS LOANING OUT OF FUNDS BY BANKS TO THE OUTSIDERS IS FOR COMMERCIAL REASONS. FURTHER, BANKS ARE ALSO NOT PARTICIPATORS IN THE BENEFITS OF THE CLUB. SO THERE IS NO IDENTITY BETWEEN THE CONTRIBUTION AND THE PARTICIPATORS. HE, THEREFORE, WAS OF THE VIEW THAT THE FIRST PRINCIPLE OF MUTUALITY AS LAID DOWN BY THE APEX COURT IS VIOLATED IN THE CASE OF ASSESSEE. ALSO RELYING ON THE DECISION OF AP HIGH COURT IN THE CASE OF SECUNDERABAD CLUB, THE AO TREATED THE INCOME ON ACCOUNT OF INTEREST ON FIXED DEPOSITS AM OUNTING TO RS. 63,02,269/ - AS INCOME FROM OTHER SOURCES ON THE GROUND THAT NO EXPENDITURE WAS INCURRED TOWARDS EARNING THE SAID ENTIRE RECEIPTS. 2.2 FURTHER, AO NOTICED FROM THE INCOME & EXPENDITURE ACCOUNT THAT THE ASSESSEE HAS CREDITED THE FOLLOWING MIS CELLANEOUS RECEIPTS: I) ADVERTISEMENT RECEIPTS RS. 5,54,940/ - II) COMMISSION ON OUTLETS RS.19,38,827/ - III) GUEST FEE RS. 10,27,800/ - IV) SPONSORSHIPS RS. 12,83,455/ - TOTAL RS. 48,05,022 WHEN THE AO ASKED THE ASSESSEE TO EXPLAIN THE NATURE OF RECEIPTS, THE ASSESSEE VIDE LETTER DATED 22/12/2014 SUBMITTED ITS REPLY, WHICH WAS EXTRACTED BY THE AO IN HIS ORDER AT PAGES 4 TO 6 OF HIS ORDER. 2.3 AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, THE AO OBSERVED THAT THESE RECEIPTS ARE NOTHING BUT RECEIPTS FROM OUTSIDERS (NON - M EMBERS) IN FURTHERANCE OF THEIR BUSINESS INTERESTS. THE FUNDS HAVE FLOWN FROM COMMERCIAL ACTIVITIES, THIRD PARTIES IN THE FORM OF ADVERTISEMENTS, COMMISSION, SPONSORSHIPS AND GUEST FEES. SO THE THREAD OF MUTUALITY IS BROKEN HERE. THERE IS NO COMPLETE IDENT ITY BETWEEN CONTRIBUTORS AND PARTICIPANTS IN THESE ACTIVITIES. ALL THE RECEIPTS/ ACTIVITIES MENTIONED ABOVE DO NOT MEET THE CRITERIA OF MUTUALITY AS PER THE DECISION OF THE SUPREME COURT MENTIONED ABOVE. AS THERE IS NO ELEMENT OF MUTUALITY IN THESE RECEIPT S, THE ASSESSEE WAS ASKED VIDE ORDER SHEET NOTING DATED 22.12.2014 TO GIVE THE BIFURCATION OF EXPENDITURE INCURRED TO EARN SUCH INCOME. IN THIS REGARD, ITA NOS. 139 TO 143 /HYD/20 20 AND ITA NOS. 1821 & 1822/HYD/2019 AY S 2008 - 09 TO 201 6 - 17 FILM NAGAR CULTURAL CENTRE, HYD. 4 ASSESSEE HAS SUBMITTED THAT IT IS NOT MAINTAINING ANY BOOKS OF ACCOUNTS FOR EXPENDITURE FOR EACH INCOME CREDITED TO ITS INCOME & EXPENDITURE ACCOUNT. 2.4 IN VIEW OF THE ABOVE OBSERVATIONS, THE AO HELD THAT IN ABSENCE OF SEPARATE BOOKS OF ACCOUNTS FOR MEMBERS AND NON - MEMBERS AND BIFURCATION OF EXPENDITURE ON THESE RECEIPTS, HE IS LEFT WITH NO OPTION BUT TO E STIMATE THE RECEIPTS. ACCORDINGLY, HE ESTIMATED AT 20% OF THE TOTAL RECEIPTS AS MENTIONED ABOVE OF RS. 48,05,022 WHICH WORKS OUT TO RS.9,61,004/ - , AND BROUGHT THE SAME TO TAX. 5. WHEN THE ASSESSEE PREFERRED APPEAL AGAINST THE ORDER OF AO, THE CIT(A) AFTER DISCUSSING THE ISSUES ELABORATELY WITH CASE LAW, UPHELD THE ORDER OF AO. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US AND RAISED VARIOUS GROUNDS OF APPEAL I.E. GROUND NOS 1 TO 16. GROUND NOS. 1 & 2 ARE GENERAL IN NATURE AND GROUNDS NOS. 5 TO 16 ARE ARGUMENTATIVE IN NATURE. 6.1 THE EFFECTIVE GROUNDS A RE, GROUND NOS. 3 & 4, WHICH ARE WITH REGARD TO ADDITION OF RS. 63,02,629/ - ON ACCOUNT OF INTEREST ON DEPOSITS AND ADDITION OF RS. 9,61,004/ - TOWARDS MISCELLANEOUS INCOME RECEIPT. 7. LD. AR SUBMITTED THAT ASSESSEE IS AN AOP AND IS CARRYING ON THE SOCIETY ON COMMERCIAL BASIS. IT IS SERVING BOTH THE MEMBERS AND NON - MEMBERS AND CHARGES SIMILAR FEES TO THEM AND THE RETURN OF INCOME FILED OFFERING THE INCOME AS BUSINESS INCOME AND NEVER CLAIMED THE PROFIT AS EXEMPT UNDER MUTUALITY CONCEPT. HE SUBMITTED THAT S INCE THE ASSESSEES FINANCIAL RESULTS SHOWN LOSS AND RECEIVING INTEREST INCOME, THE A.O INVOKED PRINCIPLES OF MUTUALITY SUO - MOTO BY RELYING ON SECUNDERABAD CLUB DECISION. HE SUBMITTED THAT THE DIFFERENCE BETWEEN SECUNDERABAD CLUB AND ASSESSEE IS THAT ASSE SSEE NEVER CLAIMED ITSELF AS MUTUAL CONCERN AND ALWAYS CLAIMED AS COMMERCIAL. HE SUBMITTED THAT ASSESSEE HAS ALWAYS FILED RETURN OF INCOME ON THIS LINE AND DEPARTMENT ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE. EVEN IN THE SCRUTINY ASSESSMENT FOR AY 1997 - 98, SIMILAR ISSUE WAS RAISED AND ON SUBMISSION DEPARTMENT ACCEPTED. THE PRINCIPLES OF CONSISTENCY HAS TO BE APPLIED IN THIS CASE. IN THIS REGARD, HE RELIED ON THE FOLLOWING DECISIONS. 1. BANGALORE CLUB VS. CIT, [2013] 350 ITR 509 2. CIT VS. SECUN DERABAD CLUB, [2013] 340 ITR 121 3. CIT VS. BANKIPUR CLUB LTD., [1997] 226 ITR 97 ITA NOS. 139 TO 143 /HYD/20 20 AND ITA NOS. 1821 & 1822/HYD/2019 AY S 2008 - 09 TO 201 6 - 17 FILM NAGAR CULTURAL CENTRE, HYD. 5 4. CIT VS. BANERJI MEMORIAL CENTER, [1997] 223 ITR 732 5. CIT VS. JAMNA DAS DAGA, [1961] 41 ITR 630 6. CIT VS. CALCUTTA STOCK EXCHANGE ASSOCIATION LTD., [19 59] 36 ITR 222 7. ITO VS. NORTHERN INDIA MOTION PICTURES ASSOCIATES, [1983] 5 ITD 9 8. CIT VS. DELHI RACE CLUB [1940] LTD., [1970] 75 ITR 111 9. JCIT VS. NIRU IMPEX, [2009] 31 SOT 0329 10.CIT VS. RADHASOAMI SATSANG, [1992] 193 ITR 321 11. BIRUMAL GAURISHANKAR JAIN VS. IT SETTLEMENT COMMISSION, [1992] 195 ITR 792 12. CIT VS. JAGATJIT INDUSTRIES LTD., [2011] 339 ITR 382 13. CIT VS. HILL VIEW INFRASTRUCTURE (P) LTD., [2016], 384 ITR 451 14. ITO VS. SECUNDERABAD CLUB, ITA NO. 1573 TO 1575/HYD/2013 7.1 FURTHER, HE SUBMITTED THAT ACTIVITIES OF THE ASSESSEE CANNOT BE SEPARATED ON SERVICES TO MEMBERS AND NON - MEMBERS. HE OPPOSED ESTIMATING 20% ON SERVICES TO NON - MEMBERS. FURTHER, HE SUBMITTED THAT SINCE THE ASSESSEE IS NOT FALLING UNDER MUTUALITY, THE ASSESSEE CAN CLAIM THE SET OFF OF INTEREST INCOME U/S 71 OF THE ACT AND ALLOWED TO BE ADJUSTED IN THE LOSS INCURRED FROM THE BUSINESS ACTIVITIES. 8. LD. DR MADE WRITTEN SUBMISSIONS, WHICH IS EXTRACTED BELOW: 2. THE ASSESSEE HAS FILED APPEALS AGAINST THE ORDER OF LD. CIT (APPEALS) FOR 8 ASSESSMENT YEARS FROM A Y: 2008 - 09 TO A Y: 2015 - 16. BARRING THE APPEALS FOR ASSMENT YEARS: 12 - 13 AND 13 - 14, THE APPEALS FOR OTHER SIX ASSESSMENT YEARS HAVE BEEN DISMISSED BY THE LD. CIT (A) ON ACCOUNT OF NON PROSECUTION. 3. THE ASSESSEE HAS SUBMITTED THAT THE DOCTRINE OF MUTUALITY IS NOT APPLICABLE IN ITS CASE AS IT HAS NOT CLAIMED EXEMPT INCOME. WHETHER THE PRINCIPLE OF MUTUALITY SHOULD BE APPLICABLE TO THE FACTS OF A CASE DEP ENDS ON THE FACTS OF THE CASE AND THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF BANGALORE CLUB. FURTHER, THERE IS NO CASE FOR CLAIMING EXEMPTION OF SUCH INCOME BY THE ASSESSEE AS NO INCOME / LOSS ARISES OUT OF MUTUALITY. FOR A CLAIM O F EXEMPTION TO BE MADE THERE SHOULD FIRST ARISE AN INCOME WHICH SUBJECT TO SPECIFIC PROVISIONS OF LAW DO NOT FORM PART OF TOTAL INCOME. THE ASSESSEE HAS THEREFORE ADJUSTED THE ITA NOS. 139 TO 143 /HYD/20 20 AND ITA NOS. 1821 & 1822/HYD/2019 AY S 2008 - 09 TO 201 6 - 17 FILM NAGAR CULTURAL CENTRE, HYD. 6 INTEREST INCOME AGAINST THE EXPENDITURE INCURRED TOWARDS THE ACTIVITIES OF THE S OCIETY WHICH IS NOT PERMISSIBLE. 4. IN NONE OF THE CASES CITED BY THE ASSESSEE, IT HAS BEEN HELD THAT THE PRINCIPLE OF MUTUALITY WOULD BE APPLICABLE ONLY WHEN THE ASSESSEES MAKE CLAIM OF EXEMPTION ON THE INCOME EARNED BY IT. WHATEVER BE THE TREATMENT BY T HE ASSESSEE, THE PRINCIPLE TO BE APPLIED IS DEPENDENT ON THE GIVEN FACTS OF THE CASE AND NOT ON THE TREATMENT GIVEN IN THE ACCOUNTS BY THE ASSESSEE. 5. LD. CIT (A) AT PARA 7.3 ON PAGE 9 OF THE APPELLATE ORDER FOR AY: 2013 - 14, HAS REPRODUCED RELEVANT PORT ION OF THE MEMORANDUM OF ASSOCIATION. HE HAS OBSERVED THAT ONLY PERSONS BELONGING TO THE FILM INDUSTRY CAN BECOME PERMANENT MEMBERS OF THE SOCIETY. THE ACTIVITIES OF THE SOCIETY CANNOT BE CATEGORISED AS EITHER COMMERCIAL IN NATURE OR CHARITABLE IN NATURE. IN THE AIMS AND OBJECTIVES IT IS MENTIONED THAT THE SOCIETY IS FORMED WITH NO PROFIT MOTIVE AND NO COMMERCIAL ACTIVITY IS INVOLVED IN ITS WORKING. PAGE 2 OF THE MEMORANDUM OF ASSOCIATION MENTIONS THIS SPECIFICALLY. FROM NON MEMBERS IT COLLECTS SERVICE CHAR GES AND IS THEREFORE NOT INTO CHARITABLE ACTIVITIES AS WELL. THERE IS NO MERIT IN ASSESSEE'S GROUND THAT ITS ACTIVITIES CANNOT BE CONSIDERED TO BE MUTUAL IN NATURE. 6. HANDING OVER OF PROPERTIES OF THE CENTER TO SIMILAR TRUST / CENTER HAVING SIMILAR OBJEC TIVES AND REGISTERED U/S 12 A IS NOT AUTOMATIC. UNDER CLAUSE C ON PAGE 34 OF THE MOA NO PROPOSAL SHALL BE DEEMED TO BE PASSED UNLESS THREE FOURTHS OF THE VOTING MEMBERS VOTE IN ITS FAVOUR. THEREFORE, THE HANDING OVER OF PROPERTIES OF THE CENTER TO SIMILAR TRUST/CENTER WOULD ARISE ONLY WHEN THE MEMBERS HAVE RENOUNCED THEIR RIGHTS AND NOT AUTOMATICALLY. FURTHER, THE BENEFICIARIES ARE THE MEMBERS. RELIANCE PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MIS. BANGALORE CLUB VS CIT, 350 ITR 50 9 AND THE JURISDICTIONAL HIGH COURT IN THE SECUNDERABAD CLUB, 340 ITR 121. 7. THE ASSESSEE ADMITS AT PARA 18 OF ITS WRITTEN SUBMISSIONS THAT IT HAS MUTUAL OBJECTS. INCOME RECEIVED FROM SERVICES TO NON MEMBERS WOULD NOT FALL WITHIN THE DOCTRINE OF MUTUALIT Y. 8. IN CASE IF AN ASSOCIATION IS HAVING TWO KINDS OF ACTIVITIES, I.E. ACTIVITIES WHICH ARE MUTUAL IN NATURE AND CERTAIN OTHER ACTIVITIES WHICH ARE NON MUTUAL IN NATURE, THE APPLICATION 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 POSSESSING THE ESSENTIAL CHARACTERISTIC OF MUTUALITY. THE TWO ACTIVITIES CAN BE SEPARATED, AND THE PROFITS DERIVED FROM TRANSAC TIONS OR ACTIVITIES WHICH ARE NOT MUTUAL IN CHARACTER CAN BE BROUGHT TO TAX. 9. IN ITS RETURN OF INCOME HAS BEEN DECLARING UNDER PART A P & L AS SALES/GROSS RECEIPTS FROM BUSINESS OR PROFESSION, CLAIMED DEPRECIATION U/S 32, AND DECLARED LOSS WHICH IT HAS SET OFF AGAINST THE INTEREST INCOME. THIS IS WITH REGARD TO THE ACTIVITIES OF THE SOCIETY. HOWEVER, WITH REGARD TO THE INTEREST ON FIXED DEPOSITS, THE PRINCIPLE OF MUTUALITY ENDS AS THE AMOUNT HAS BEEN DEPOSITED WITH THE INTENTION OF EARNING INCOME. 10. A S THE ASSESSEE IS A MUTUALLY AIDED COOPERATIVE SOCIETY, FULFILLING THE BASIC CRITERIA OF IDENTITY BETWEEN CONTRIBUTORS AND PARTICIPATORS / RECIPIENTS TO THE FUND, THE PRINCIPLE OF MUTUALITY IS SQUARELY APPLICABLE BOTH IN RESPECT OF INCOME AND EXPENDITURE. 11. PROFIT ARISING FROM MUTUALITY TRANSACTION IS NOT SUBJECT TO TAXATION. LOSS IS ALSO NOT RECOGNIZED AS ALLOWABLE LOSS AS PER THE ACT. THIS IS PRECISELY BECAUSE PROFIT AS WELL AS LOSS IS OUTSIDE THE AMBIT OF TAXATION. ACCORDINGLY, IN A MUTUALITY ITA NOS. 139 TO 143 /HYD/20 20 AND ITA NOS. 1821 & 1822/HYD/2019 AY S 2008 - 09 TO 201 6 - 17 FILM NAGAR CULTURAL CENTRE, HYD. 7 TRANSACT ION RESULTING IN LOSS /DEFICIT THE SAME CANNOT BE SET OFF AGAINST INCOME TAXABLE AS PER THE REGULAR PROVISIONS OF THE ACT. 12. IN VIEW OF THE DISCUSSION MADE ABOVE, IT IS RESPECTFULLY SUBMITTED THAT THE APPEALS FILED BY THE ASSESSEE ARE DEVOID OF MERITS A ND MAY KINDLY BE DISMISSED. 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE CASES CITED. WE NOTICE THAT ASSESSEE IS A SOCIETY AND ENGAGED IN CULTURAL ACTIVITIES. THE ASSESSEE MAINTAINED ITS BOOKS OF ACCOUNT ON MER CANTILE BASIS AND NOT MAINTAINED ITS BOOKS SEPARATELY FOR MEMBERS AND NON - MEMBERS. ACCORDINGLY, IT HAS PREPARED ITS FINANCIAL STATEMENTS AND FILED RETURN OF INCOME IN ITR - 5. IT HAS NOT CLAIMED ANY BENEFIT U/S 11 OR MUTUALITY IN THE RETURN OF INCOME OR BEF ORE THE A.O. THE ASSESSEE OFFERS THE SERVICES TO BOTH MEMBERS AS WELL AS NON - MEMBERS SIMILARLY AND THERE IS NO DISTINCTION MADE IN TERMS OF ADMINISTRATION OR MAINTENANCE OF THE SOCIETY AND THE ACTIVITIES ARE CARRIED ON AS A COMMERCIAL ENTITY. BUT ASSESSE E IS EARNING INTEREST INCOME OUT OF DEPOSITS MADE IN THE BANKS AND ALSO INCURRING LOSSES OVER A PERIOD OF TIME. THE QUESTION IS, WHETHER THIS ENTITY SHOULD BE TREATED AS MUTUAL CONCERN OR COMMERCIAL CONCERN. THE A.O AND THE CIT(A) TREATED THEM AS MUTUAL CONCERN AND ASSESSED THEM ACCORDINGLY. BOTH RELIED ON VARIOUS CASE LAWS. 9.1 IN OUR CONSIDERED VIEW, THE PRINCIPLE TO APPLY THE TEST OF MUTUALITY IS THAT ALL THE CONTRIBUTORS TO COMMON FUND MUST BE ENTITLED TO PARTICIPATE IN THE SURPLUS AND THAT ALL THE P ARTICIPATORS IN THE SURPLUS MUST BE CONTRIBUTORS TO THE COMMON FUND. IN OTHER WORDS, THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. THE BASIC PRINCIPLE IS THAT NO ONE CAN ENTER INTO A TRADE OR BUSINESS WITH HIMSELF. THE ESSENCE OF MUTUALITY IS COMPLETE IDENTITY BETWEEN CONTRIBUTORS AND PARTICIPATORS AS HELD IN THE CASE OF CIT VS KUMBHAKONAM MUTUAL BENEFIT FUND LTD., 53 ITR 241 (SC). THE PRINCIPLE OF MUTUALITY WILL APPLY ON THE NON - COMMERCIAL ACTIVITIES AND ANY SOCIETY E NGAGED IN ANY ADVENTURE OF A COMMERCIAL NATURE, IT WOULD LOSE ITS IDENTITY AS MUTUAL CONCERN. WE NOTICE FROM THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KUMBHAKONAM (SUPRA) AND CIT VS. ROYAL WESTERN INDIA TURF CLUB LTD., 24 ITR 551, IT LAYS DOWN THE BROAD PROPOSITION THAT, IF THE OBJECT OF THE ASSESSEE - COMPANY CLAIMING TO BE MUTUAL CONCERN, IS TO CARRY ON A PARTICULAR BUSINESS AND MONEY IS RELEALIZED BOTH FROM THE MEMBERS AND FROM NON - MEMBERS, FOR THE SAME CONSIDERATION BY GIVING THE SAME AND SIMILAR FACILITIES TO ALL ALIKE IN RESPECT OF THE ONE AND THE SAME BUSINESS CARRIED ON BY IT, THE DEALINGS AS A WHOLE, DISCLOSE THE SAME PROFIT EARNING MOTIVE AND ARE ALIKE TAINTED WITH COMMERCIALITY. IN OTHER WORDS, THE ACTIVITY CARRIED ON BY TH E ASSESSEE IN SUCH CASES CLAIMING TO BE A MUTUAL CONCERN OR MEMBERS CLUB IS A TRADE OR AN ADVENTURE IN THE NATURE OF TRADE AND THE TRANSACTIONS ENTERED INTO WITH THE MEMBERS OR NON - MEMBERS ALIKE IS A TRADE AND THE RESULTANT SURPLUS IS PROFIT LIABLE TO TAX. 9.2 IN THE GIVEN CASE ALSO, ASSESSEE HAS CARRIED ON THE ACTIVITY OF THE SOCIETY WITHOUT MAKING ANY DISTINCTION BETWEEN MEMBERS OR NON - MEMBERS AND CARRIED THE ACTIVITIES ON COMMERCIAL BASIS. IT IS ANOTHER MATTER THAT IT IS INCURRING LOSSES. IT CAN O NLY BE TERMED AS INEFFICIENT WAY OF RUNNING ITS ACTIVITIES. BUT THE ITA NOS. 139 TO 143 /HYD/20 20 AND ITA NOS. 1821 & 1822/HYD/2019 AY S 2008 - 09 TO 201 6 - 17 FILM NAGAR CULTURAL CENTRE, HYD. 8 NATURE OF CARRYING ITS ACTIVITIES ARE IN THE NATURE OF COMMERCIAL. THIS ENTITY CAN ONLY BE TERMED AS NON - MUTUAL CONCERN. 9.3 FURTHER, THE ASSESSEE HAS NEVER CLAIMED ANY BENEFIT UNDER M UTUALITY AND IT IS AWARE THAT IT IS NOT ELIGIBLE AND IT HAS FILED ITS RETURN OF INCOME ONLY ON COMMERCIAL BASIS. THE DEPARTMENT HAS ALL ALONG ACCEPTED ITS RETURN OF INCOME. THEREFORE, PRINCIPLE OF CONSISTENCY SHOULD BE FOLLOWED AS HELD IN RADHASOAMI SATS OMY, 193 ITR 321 (SC), THAT RESJUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, EACH ASSESSMENT YEAR BEING A UNIQUE, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMEN T YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. THEREFORE, THERE IS NO MATERIAL CHANGE FROM THE EARLIER YEARS, IN DECLARING THE RESULTS OF THE ASSESSEE WHICH WAS CONSISTENT AND REVENUE ALSO ACCEPTED IT, THE STANDS SHOULD BE ACCEPTED ON PRINCIPLE OF CONSISTENCY BASIS. 9.4 THEREFORE, IN OUR CONSIDERED VIEW, THE ASSESSEE SHOU LD BE TREATED AS COMMERCIAL ENTITY AND NOT AS MUTUAL ENTITY. THE PROFIT / LOSS DECLARED BY THE ASSESSEE SHOULD BE ASSESSED AS AN AOP ON COMMERCIAL BASIS. THE A.O CANNOT SEPARATE THE TRANSACTIONS BETWEEN MEMBER & NON - MEMBER AND APPLY ESTIMATION ON THEM. WITH REGARD TO TREATMENT OF INTEREST EARNED FROM BANKS, SINCE IT IS NOT COMING UNDER MUTUALITY CONCEPT, IT WILL BE TREATED ON COMMERCIAL BASIS. 9.5 THEREFORE, IN THE RESULT, THIS ENTITY CAN NEVER CLAIM ITSELF AS MUTUAL CONCERN IN THE FUTURE. 4. IN THE RES ULT, ASSESSEES APPEALS FOR ALL THE ASSESSMENT YEARS BEFORE US ARE ALLOWED. PRONOUNCED ON 18 TH JANUARY, 2021. SD / - SD/ - (LAXMI PRASAD SAHU) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18 TH J ANUARY, 2021 GMV ITA NOS. 139 TO 143 /HYD/20 20 AND ITA NOS. 1821 & 1822/HYD/2019 AY S 2008 - 09 TO 201 6 - 17 FILM NAGAR CULTURAL CENTRE, HYD. 9 COPY OF ORDER FORWARDED TO: 1. FILM NAGAR CULTURAL CENTRE, 8 - 2 - 293/82, ROAD NO.6, FILM NAGAR, BANJARA HILLS, HYDERABAD. 2. DY.CIT, CIRCLE 14(1) / ACIT, CIRCLE 14(1), HYDERABAD. 3. ACIT, RANGE 14, HYDERABAD 4. CIT(A) - 6, HYDERABAD. 5. PR.CIT - 6, HYDERABAD 6. D.R. ITAT HYDERABAD 7 . GUARD FILE