The Gujarati Social Welfare Society, Hyd, Hyderabad V. ITO, Ward-5(3), Hyd, Hyderabad

ITA 247/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2573 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 06-12-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 04-03-2016
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: S RAMA RAO
• Section: 148; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 247/HYD/2016 ASSESSMENT YEAR: 2012-13 THE GUJARATI SOCIAL WELFARE SOCIETY, HYDERABAD [PAN: AAATT4827A] VS THE INCOME TAX OFFICER, WARD-5(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO, AR FOR REVENUE : SHRI K.J. RAO, DR DATE OF HEARING : 16-03-2017 DATE OF PRONOUNCEMENT : 28-04-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-4, HYDERABAD D ATED 03-12-2015. THE ISSUE IN THIS APPEAL IS WHETHER THE INTEREST EARNED BY ASSESSEE ON FIXED DEPOSITS WITH BANK IS TAX ABLE OR NOT? 2. BRIEFLY STATED, ASSESSEE HEREIN IS AN AOP CARRYING ON THE ACTIVITIES FOR THE MUTUAL BENEFIT OF THE MEMBERS. ITS PRI NCIPLE ACTIVITY IS TO COLLECT MONEY FROM THE MEMBERS AND PROV IDE IT TO THE NEEDY MEMBERS. THE INCOME OF THE SOCIETY IS CONSIDE RED EXEMPT FROM TAX ON THE PRINCIPLE OF MUTUALITY. HOWEVER, THE ASSESSING OFFICER (AO) NOTICED THAT ASSESSEE HAS DEPOSITED ITS FU NDS IN FIXED DEPOSITS WITH THE BANK AND HAS NOT OFFERED THE SAME TO TA X. ELABORATELY DISCUSSING THE PRINCIPLES AS ESTABLISHED B Y THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BANKIPUR CLUB LT D., [226 ITR 97] AND OTHER DECISIONS IN CHEMSFORD CLUB VS. CIT [243 ITR 89] I.T.A. NO. 247/HYD/2016 THE GUJARATI SOCIAL WELFARE SOCIETY :- 2 - : AND CIT VS. CAWNPORE CLUB LTD., [140 TAXMAN 378] AND ALSO FOLLOWING THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. SECUNDERBAD CLUB PICKET [340 ITR 121] (AP) , AO BROUGHT AN AMOUNT OF RS. 32,53,654/- TO TAX. THERE ARE TWO OTHE R ITEMS WHICH ARE BROUGHT TO TAX BUT THEY WERE GIVEN RELIEF BY THE CIT( A) AND ARE NOT SUBJECT MATTER OF APPEAL. 3. WITH REFERENCE TO TAXING OF INTEREST ON FIXED DEPOSITS , LD- ASSESSEE CARRIED THE MATTER TO CIT(A) AND SUBMITTED THAT A S PER THE MEMORANDUM OF ASSOCIATION, OBJECTIVES- SURPLUS FUNDS ARE TO BE DEPOSITED IN BANKS TOWARDS SECURITY OF THE AMOUNTS AND THE MAIN SOURCE OF THESE DEPOSITS ARE FROM MEMBERS ONLY. SINC E THE DIVIDENDS ARE DISTRIBUTED ONLY AMONGST THE MEMBERS AND AS ASSESSEE IS DOING BUSINESS OF FINANCE AMONGST THE MEM BERS ONLY, THE PRINCIPLES OF MUTUALITY WILL APPLY TO THE INTEREST RE CEIVED ALSO. HOWEVER, LD.CIT(A), WITHOUT REFERRING TO ANY OF THE JUD GMENTS OR THE PRINCIPLES LAID DOWN ON THIS ISSUE HOWEVER, EXAM INED THE BALANCE SHEET AND P&L A/C AND CONFIRMED THE AMOUNTS O N FACTUAL VERIFICATION. THE ORDER OF CIT(A) IS AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R, GROUNDS OF APPEAL STATEMENT OF FACTS AND ALSO THE SUBMISSIONS MADE BY THE APPELLANT DURING THE COURSE OF THE APPEAL PROCEEDINGS. 4.1. THE AO HAS MAINLY ADDED THE INTEREST ON FD, UN CLAIMED AMOUNT, INTEREST ON NON OPERATED CDS U/S. 56 OF THE ACT AND FROM INCOME FROM OTHER SOURCES MAINLY THAT THESE INCOME WAS NO T ATTRIBUTED BY MEMBERS BUT CONTRIBUTED BY THE NON MEMBERS AND SO T HEREBY REJECTING THE CLAIM OF EXEMPTION ON THE GROUND OF MUTUALITY'. THE REBY THE ENTIRE RECEIPTS OF INTEREST WERE TREATED AS OTHER SOURCES. DURING T HE COURSE OF APPELLANT PROCEEDINGS, I HAVE VERIFIED THE MEMORANDUM OF THE SOCIETY AIMS AND OBJECTIVES, PROFIT AND LOSS ACCOUNT AND BALANCE SHE ET OF THE APPELLANT. AS PER THE BALANCE SHEET AS ON 31/03/2012, THE APPELLA NT HAS INVESTED RS.3,53,64,332/- IN FIXED DEPOSITS. THE MEMBER DEPO SITS WERE OF RS.8,56,19,956/- AS AGAINST RS.7,65,42,981/ - LAST YEAR. THERE BY THERE IS I.T.A. NO. 247/HYD/2016 THE GUJARATI SOCIAL WELFARE SOCIETY :- 3 - : INCREASE OF RS.90,76,975/ - FROM THE MEMBERS. AT TH E SAME TIME, DURING THE THIS YEAR, THE BUSINESS LOANS UNDER CURRENT ASS ETS WERE OF RS.5,50,73,652/ - AND HAL LOAN OF RS. 16,09,445/ - AND EDUCATION LOAN OF RS.79,010/ - TOTALING TO RS.5,67,62,107/ -. THAT ME ANS, THE APPELLANT IS COLLECTING DEPOSITS AND DISTRIBUTED AS LOANS TO THE MEMBERS AND CERTAIN AMOUNTS ARE DEPOSITED IN THE BANK AS FDS. THE MAIN SOURCE OF THESE DEPOSITS ARE FROM MEMBERS DEPOSITS ONLY. ON THIS BA NK DEPOSITS AND BUSINESS LOANS GIVEN, THE APPELLANT IS EARNING INTE REST INCOME AND ON THE CURRENT LIABILITIES I.E. ON MEMBER DEPOSITS PAYING INTEREST IN THE FORM OF DIVIDEND PROPOSED @ 11 %. DURING THIS YEAR, THE APP ELLANT HAS AN AMOUNT OF RS.80,67,825/- BY SERVICE CHARGES UNDER THE HEAD COMMERCIAL I.E. INTEREST FROM THE LOANS OF RS.5,50,73,652/- @ 14.6% . AT THE SAME TIME, THE APPELLANT HAS RECEIVED AN AMOUNT OF RS.32/53,655/- AS INTEREST RECEIVED FROM BANKS. THEREFORE, IN A NUT SHELL, THE APPELLAN T IS DOING THE BUSINESS OF FINANCE BY GIVING LOANS BY COLLECTING FUNDS FROM MEMBERS AND BY GIVING LOANS TO MEMBERS AND EXCESS DEPOSIT IN THE BANKS. 4.2. THEREFORE, THE CONCEPT OF MUTUALITY IS FAILED SINCE THERE IS EXCESS AMOUNT WHICH WAS DEPOSITED IN THE BANKS. HEN CE, THE EXCESS INCOME OF RS.95,22,483/ AND DIVIDEND PROPOSED OF RS .86,16/010/ - TO BE TAXED AS INCOME EARNED BY THE APPELLANT. HENCE, THE ADDITION MADE BY THE AO IS CONFIRMED. 4.3. WITH REGARD TO THE REMAINING ADDITIONS OF UNCL AIMED AMOUNT OF RS.1,41,197/- AND NON OPERATED CDS OF RS. 9,37,212/ -, ARE DELETED SINCE THESE ARE NOT THE INCOME EARNED BY THE APPELLANT DU RING THIS YEAR AND KEPT AS A RESERVE FUND IN THE BALANCE SHEET DURING THIS YEAR. HENCE, THE ABOVE TWO ADDITIONS ARE DELETED. 4. LD. COUNSEL FOR ASSESSEE REFERRING TO THE MEMORAN DUM AND THE BUSINESS MODEL OF ASSESSEE SUBMITTED THAT ONLY MEMBE RS CONTRIBUTE THE AMOUNTS AND THE INVESTMENT IN THE BANK IS PART OF ACTIVITY OF THE SOCIETY TO CREATE AND CULTIVATE THE HABI T OF THRIFT AMONG ITS MEMBERS. IT WAS FURTHER SUBMITTED THAT FUNDS A VAILABLE WITH THE SOCIETY ARE PRESERVED IN THE BANK AS SECURIT Y AND DERIVING INTEREST FROM THE BANK IS CONSEQUENTIAL TO THE DEPOSIT OF THE AMOUNT FOR SAFE CUSTODY. IT WAS SUBMITTED THAT BANKER IS NOT A MEMBER OF THE SOCIETY, THEREFORE, THE INTEREST ON FIXED DEPOSITS WITH THE BANK CANNOT BE TREATED AS INCOME ASSESSABLE TO TAX. LD. COUNSEL ALSO DISTINGUISHED THE JUDGMENTS RELIED ON BY THE AO TO I.T.A. NO. 247/HYD/2016 THE GUJARATI SOCIAL WELFARE SOCIETY :- 4 - : SUBMIT THAT DEPOSIT IN THE BANK IS INCIDENTAL TO THE MAIN A CTIVITY OF ASSESSEE. THEREFORE, THE PRINCIPLES LAID DOWN BY THE JUDGMENTS RELIED ON BY THE AO DOES NOT APPLY. 5. LD. DR, HOWEVER, RELIED ON THE ORDERS OF THE AUTHOR ITIES BOTH ON FACTS AS WELL AS ON PRINCIPLES OF LAW. 6. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES. THERE IS NO DISPUTE THAT ASSE SSEE IS ALLOWED THE BENEFIT OF MUTUALITY TO THE EXTENT OF INCOM ES EARNED AMONGST THE MEMBERS. THE ISSUE IS WITH REFERENCE TO THE INTEREST EARNED FROM THE BANK WHICH IS NOT A MEMBER OF THE SOCI ETY. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BANKIPU R CLUB LTD., [226 ITR 97] (SUPRA) HAS CONSIDERED THE PRINCIPLES OF MUTUALITY AND THE ACTIVITY OF TRADING AND HELD AS UNDER: UNDER THE INCOME-TAX ACT, WHAT IS TAXED IS, THE 'I NCOME, PROFITS OR GAINS EARNED OR 'ARISING', 'ACCRUING' TO A 'PERSON '. WHERE A NUMBER OF PERSONS COMBINE TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OBJECT AND IN THIS RES PECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN ANY SURPLUS R ETURNED TO THOSE PERSONS CANNOT BE REGARDED IN ANY SENSE AS PROFIT. THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. IF THESE REQUIREMENTS ARE FULFILLED, IT IS IMMATERIAL WHAT P ARTICULAR FORM THE ASSOCIATION TAKES. TRADING BETWEEN PERSONS ASSOCIAT ING TOGETHER IN THIS WAY DOES NOT GIVE RISE TO PROFITS WHICH ARE CHARGEA BLE TO TAX. WHERE THE TRADE OR ACTIVITY IS MUTUAL, THE FACT THAT, AS REGA RDS CERTAIN ACTIVITIES, CERTAIN MEMBERS ONLY OF THE ASSOCIATION TAKE ADVANT AGE OF THE FACILITIES WHICH IT OFFERS DOES NOT AFFECT THE MUTUALITY OF TH E ENTERPRISE. THE DECISIONS OF THE SUPREME COURT IN CIT V. ROYAL WESTERN INDIA TURF CLUB LTD. [1953] 24 ITR 551 ; CIT V. KUMBAKONAM MUT UAL BENEFIT FUND LTD., [1964] 53 ITR 241 AND FLETCHER (ON HIS OWN BE HALF AND ON BEHALF OF TRUSTEES AND COMMITTEE OF DOCTOR'S CAVE BATHING CLU B) V. ITC [1971] 3 ALL ER 1185 (PC) LAY DOWN THE BROAD PROPOSITION THA T, 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 I.T.A. NO. 247/HYD/2016 THE GUJARATI SOCIAL WELFARE SOCIETY :- 5 - : AND FROM NON-MEMBERS, FOR THE SAME CONSIDERATION BY GIVING THE SAME OR SIMILAR FACILITIES TO ALL ALIKE IN RESPECT OF THE O NE 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. I N OTHER WORDS, THE ACTIVITY CARRIED ON BY THE ASSESSEE IN SUCH CASES, CLAIMING TO BE A 'MUTUAL CONCERN' OR 'MEMBERS' CLUB' IS A TRADE OR AN ADVENT URE IN THE NATURE OF TRADE AND THE TRANSACTIONS ENTERED INTO WITH THE ME MBERS OR NON-MEMBERS ALIKE IS A TRADE/BUSINESS/TRANSACTION AND THE RESUL TANT SURPLUS IS PROFIT- INCOME LIABLE TO TAX. AT WHAT POINT THE RELATIONSHI P OF MUTUALITY ENDS AND THAT OF TRADING BEGINS IS A DIFFICULT AND VEXED QUE STION. A HOST OF FACTORS MAY HAVE TO BE CONSIDERED TO ARRIVE AT A CONCLUSION . 'WHETHER OR NOT THE PERSONS DEALING WITH EACH OTHER, ARE A 'MUTUAL CLUB OR CARRYING ON A TRADING ACTIVITY OR AN ADVENTURE IN THE NATURE OF T RADE, IS LARGELY A QUESTION OF FACT. THE MAIN QUESTION CANVASSED BY THE REVENUE IN THE A PPEALS COMING UNDER GROUPS A TO D, THE ASSESSEES BEING BANKIPUR CLUB LT D., RANCH CLUB LTD., CRICKET CLUB OF INDIA AND NORTHERN INDIA MOTION PIC TURES ASSOCIATION, WAS WHETHER THE ASSESSEE-MUTUAL CLUBS, WERE ENTITLED TO EXEMPTION FOR THE RECEIPTS OR SURPLUS ARISING FROM THE SALES OF DRINK S, REFRESHMENT, ETC., OR AMOUNTS RECEIVED BY WAY OF RENT FOR LETTING OUT THE BUILDINGS OR AMOUNTS RECEIVED BY WAY OF ADMISSION FEES, PERIODICAL SUBSC RIPTIONS AND RECEIPTS OF SIMILAR NATURE FROM ITS MEMBERS. IN ALL THESE CA SES, THE TRIBUNAL AS ALSO THE HIGH COURT HAD FOUND THAT THE AMOUNTS RECEIVED BY THE CLUBS WERE FOR SUPPLY OF DRINKS, REFRESHMENTS OR OTHER GOODS AS AL SO THE LETTING OUT OF BUILDING FOR RENT OR BY WAY OF ADMISSION FEES, PERI ODICAL SUBSCRIPTION, ETC., FROM THE MEMBERS OF THE CLUBS WERE ONLY FOR/TOWARDS CHARGES FOR THE PRIVILEGES, CONVENIENCES AND AMENITIES PROVIDED TO THE MEMBERS, WHICH THEY WERE ENTITLED TO, AS PER THE RULES AND REGULAT IONS OF THE CLUBS. IT HAD ALSO BEEN FOUND THAT DIFFERENT CLUBS REALISED VARIO US SUMS ON THE ABOVE COUNTS ONLY TO AFFORD TO THEIR MEMBERS, THE USUAL P RIVILEGES, ADVANTAGES, CONVENIENCES AND ACCOMMODATION. IN OTHER WORDS, THE SERVICES OFFERED ON THE ABOVE COUNTS WERE NOT DONE WITH ANY PROFIT MOTI VE, AND WERE NOT TAINTED WITH COMMERCIALITY. THE FACILITIES WERE OF FERED ONLY AS A MATTER OF CONVENIENCE FOR THE USE OF THE MEMBERS (AND THEIR F RIENDS, IF ANY, AVAILING OF THE FACILITIES OCCASIONALLY). HELD, DISMISSING THE APPEALS, THAT IN THE LIGHT OF THE FINDINGS OF FACT THE RECEIPTS FOR THE VARIOUS FACILITIES EXTENDED BY THE CLUBS TO ITS MEMBERS, AS PART OF THE USUAL PRIVILEGES, ADVANTAGES AND CONVEN IENCES, ATTACHED TO THE MEMBERSHIP OF THE CLUB, COULD NOT BE SAID TO BE 'A TRADING ACTIVITY. THE SURPLUS-EXCESS OF RECEIPTS OVER THE EXPENDITURE-AS A RESULT OF MUTUAL ARRANGEMENT, COULD NOT BE SAID TO BE 'INCOME' FOR T HE PURPOSE OF THE ACT. BY THE COURT : THE ABOVE FOUR SETS OF CASES FALLING IN GROUPS A TO D SHALL ALONE BE COVERED BY THIS JUDGMENT. WITH REGAR D TO SEVEN CASES/APPEALS FALLING IN GROUP E, THE ASSESSEE IS T HE CAWNPORE CLUB LTD. I.T.A. NO. 247/HYD/2016 THE GUJARATI SOCIAL WELFARE SOCIETY :- 6 - : IT IS SEEN THAT THE INCOME THAT WAS SOUGHT TO BE AS SESSED IN THE CASE OF THE ASSESSEE, WAS ONE DERIVED FROM PROPERTY LET OUT AND ALSO INTEREST RECEIVED FROM F. D. R., N. S. C., ETC. SINCE THE IS SUE RAISED IN THIS BATCH OF SEVEN CASES, IS NOT SIMILAR TO, OR THE SAME AS THE ONE INVOLVED IN THE OTHER CASES COMING UNDER GROUPS A TO D, THE COURT DIRECTE D THESE CASES FALLING IN GROUP E TO BE POSTED SEPARATELY FOR HEARING AND DIS POSAL BEFORE AN APPROPRIATE BENCH. DECISIONS OF THE PATNA HIGH COURT IN CIT V. BANKIPU R CLUB LTD. [129 ITR 787 (PATNA) AND CIT V. RANCHI CLUB LTD. [1992] 196 ITR 137 (PATNA) [FB] AFFIRMED. 7. EVEN THOUGH THE HON'BLE SUPREME COURT DID NOT DECID E THE ISSUE OF INTEREST EARNED ON FIXED DEPOSITS IN THE ABOV E SAID JUDGMENT, SUBSEQUENT JUDGMENTS HAVE CLEARLY ESTABLISHED THAT THE INTEREST RECEIVED FROM NON-MEMBERS DOES NOT COME WITHI N THE PURVIEW OF MUTUALITY. 8. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. 1. SECUNDERABAD CLUB, PICKET; 2. ARMED FORCES OFFI CERS CO-OPERATIVE HOUSING SOCIETY LTD., [340 ITR 121] (AP) HAS CLEARLY ADJUDICATED THAT THE NATURE OF TRANSACTION BETWEEN ASSESS EE AND BANKS WOULD DISQUALIFY APPLICATION OF PRINCIPLE OF MUTUALITY. IT WAS HELD THAT INTEREST EARNED WAS TAXABLE. THE JUDGMENT OF TH E HON'BLE JURISDICTIONAL HIGH COURT IN THE ABOVE SAID CASE IS AS UNDER: IF COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS OR RECIPIENTS IS ESTABLISHED THE SURPLUS GENERATED AND RETURNED TO THE CONTRIBUTORS IS NOT REGARDED AS PROFIT FOR THE PURP OSE OF CHARGING INCOME- TAX. IF THE PERSONS CARRY ON AN ACTIVITY, WHICH IS ALSO TRADE, IN SUCH A WAY THAT THEY AND THE CUSTOMERS ARE THE SAME PERSONS, N O PROFITS ARE YIELDED BY SUCH TRADE FOR TAX PURPOSES AND, THEREFORE, NO A SSESSMENT IN RESPECT OF THE TRADE CAN BE MADE. THE SURPLUS RESULTING FROM T RADING REPRESENTS SUCH CONTRIBUTIONS OF THE PARTICIPANTS WHICH IS IN EXCES S OF THE REQUIREMENTS. ACCESS TO PROFITS OR SERVICES IS A CONDITION PRECED ENT TO SATISFY THE ELEMENT OF MUTUALITY. EVEN WHEN THE AGGREGATE OF THE MEMBER S ARE INCORPORATED, THE EFFECT OF THE PRINCIPLE IS NOT LOST. WHEN A COM PANY ITSELF BECOMES A MEMBER OF A CLUB TO THE EXTENT OF MAKING CONTRIBUTI ON IT IS RESPONSIBLE, BUT I.T.A. NO. 247/HYD/2016 THE GUJARATI SOCIAL WELFARE SOCIETY :- 7 - : WHEN IT COMES TO PARTICIPATION AND AVAILMENT OF FAC ILITIES AND PRIVILEGES IT IS NOT THE JURIDICAL PERSON BUT IT IS ONLY THE NOMI NATED OFFICERS OF THE COMPANY WHO DO SO. THERE IS THUS A DISCERNIBLE FACT OR WHICH TAKES AWAY THE NEXUS BETWEEN CONTRIBUTION AND PARTICIPATION. T HERE IS ALSO A DICHOTOMY BETWEEN THE JURIDICAL PERSONALITY WHO CON TRIBUTES TO THE CLUB, AND THE NOMINEES (WHO CAN BE CHANGED) WHO ACTUALLY AVAIL OF FACILITIES AND RECEIVE BENEFITS FROM THE CLUB ACTIVITIES. AN I MPORTANT FACET OF THE PRINCIPLE OF MUTUALITY IS NOT ONLY THE IDENTITY OF THE CONTRIBUTORS OF, AND THE RECIPIENTS FROM, THE FUND, BUT ALSO THE RIGHT TO BE RETURNED THE CONTRIBUTION IN THE EVENT OF THE AGGREGATE OF MEMBERS GETTING DI SSOLVED. IF THE CONTINUANCE OF THE ORIGINAL CONTRIBUTORS TILL THE E ND OR TILL THE ACHIEVEMENT OF THE OBJECTS FOR FORMING THE ASSOCIATION OR SOCIE TY/CLUB IS UNCERTAIN, THE PRINCIPLE OF MUTUALITY CEASES TO APPLY. WHEN A PERSON DEPOSITS MONEY IN A BANK, THE RELATIO NSHIP IS THAT OF CREDITOR AND DEBTOR, AND THEY WOULD BE BOUND BY THE CONTRACT THAT REGULATES THE DEPOSIT AND PAYMENT OF INTEREST THERE ON. WHEN A CLUB DEPOSITS ITS FUNDS WITH A BANK, THE LATTER DOES NOT TREAT THE CLUB ANY DIFFERENTLY FROM ITS OTHER DEPOSITORS, NOR IS A HIG HER RATE OF INTEREST OFFERED. THE ASSESSEE WAS A SOCIAL AND RECREATIONAL CLUB. IT WAS NOT REGISTERED EITHER AS AN ASSOCIATION OR A SOCIETY. IT WAS A MUT UAL ASSOCIATION AND NOT A PROFIT MAKING CONCERN. NONE OF ITS ACTIVITIES WAS TAINTED WITH COMMERCIALITY OR BUSINESS MODALITIES. THE ASSESSEE RECEIVED MONTHLY SUBSCRIPTIONS, ADMISSION FEE AND PAYMENTS FROM ITS MEMBERS FOR USE OF CLUB FACILITIES. DURING THE ASSESSMENT YEAR 1996-97 , THE ASSESSEE EARNED INTEREST ON FIXED DEPOSITS KEPT BY IT WITH CERTAIN BANKS AND FINANCIAL INSTITUTIONS. THE BANKS AND FINANCIAL INSTITUTIONS WITH WHOM THE FIXED DEPOSITS WERE MADE WERE CORPORATE MEMBERS OF THE CL UB. THE RETURN FOR THE YEAR 1996-97, ADMITTING RS. 1,22,700 WAS ACCEPT ED UNDER SECTION 143(1) OF THE INCOME-TAX ACT, 1961. HOWEVER, THE AS SESSING OFFICER ISSUED NOTICE UNDER SECTION 148 OF THE ACT ON THE GROUND T HAT THE EXEMPTION CLAIMED WITH REGARD TO THE INTEREST ON FIXED DEPOSI TS FROM BANKS/COMPANIES WAS NOT A VALID CLAIM. ACCORDINGLY, THE ASSESSING OFFICER ADDED THE INTEREST ON DEPOSITS AND ASSESSED IT TO TAX. THE TRIBUNAL HELD THAT THE INTEREST INCOME EARNED BY THE ASSESSE E ON THE DEPOSITS MADE BY ITS CORPORATE MEMBERS WAS NOT LIABLE TO BE TAXED. ON APPEAL TO THE HIGH COURT: HELD, THAT THE RULES OF THE CLUB SHOWED THAT THERE WAS A DIFFERENCE BETWEEN ORDINARY OR PERMANENT MEMBERS OF THE CLUB O N THE ONE HAND AND CORPORATE MEMBERS ON THE OTHER. IT WAS ONLY A MEMBE R WHO WOULD BE ENTITLED TO PROPORTIONATE AMOUNT IN THE EVENT OF LI QUIDATION, AND IT WAS THE MEMBER WHO HAD THE RIGHT TO BE ELECTED TO THE COMMI TTEE OF THE CLUB AND A RIGHT TO VOTE. IN THE CASE OF A CORPORATE MEMBER, T HE SUBSCRIPTION WAS CONTRIBUTED BY THE JURIDICAL PERSON WHEREAS PARTICI PATION IN THE CLUB ACTIVITIES WAS BY A NATURAL PERSON NOMINATED TO PAR TICIPATE AND AVAIL OF I.T.A. NO. 247/HYD/2016 THE GUJARATI SOCIAL WELFARE SOCIETY :- 8 - : THE FACILITIES OF THE CLUB. A CORPORATE MEMBER, ACC ORDING TO THE RULES, HAD NO RIGHT TO BE ELECTED TO THE COMMITTEE OF THE CLUB NOR ENTITLED TO AS MANY VOTES AS THE NUMBER OF ITS NOMINEES. IN THE EVENT O F WINDING UP, IT WAS THE PERMANENT MEMBERS WHO WOULD HAVE A DOMINANT ROLE. T HE PRINCIPLE OF MUTUALITY ENDED THE MOMENT THE CLUB DEPOSITED THE A MOUNT WITH THE SOLE AIM OF EARNING INTEREST ON THE DEPOSITS. FURTHER, B Y DEPOSITING ITS FUNDS WITH ITS CORPORATE MEMBER BANKS, THE CLUB WOULD CER TAINLY HELP INCREASE THE BUSINESS OF THE BANK. IN THAT VIEW OF THE MATTE R, THE CORPORATE MEMBER BANK WAS BEING SHOWN A FAVOUR, AND WAS NOT BEING PR OVIDED A FACILITY. THE SOCIAL RELATIONSHIP AND SOCIAL ACTIVITIES OF TH E CLUB HAD NOTHING TO DO WITH ITS DEPOSITS WITH THE CORPORATE MEMBERS. THE N ATURE OF THE TRANSACTION BETWEEN THE ASSESSEE AND THE BANKS WOUL D DISQUALIFY APPLICATION OF THE PRINCIPLE OF MUTUALITY. THE INTE REST EARNED WAS TAXABLE. 8.1. IN THE ABOVE REFERRED CASE OF SECUNDERABAD CLUB , THE HON'BLE HIGH COURT HAS HELD EVEN THOUGH THE BANK WAS HAVING A CORPORATE MEMBERSHIP WITH THE SAID CLUB/SOCIETY, THE PRINCIPLE OF MUTUALITY DOES NOT ARISE. IN ASSESSEES CASE, THE BANK IS NOT E VEN A MEMBER OF THE SOCIETY. THE NATURE OF THE TRANSACTION BETWEEN THE ASSESSEE AND THE BANK WOULD DISQUALIFY APPLICATION OF THE PRINCI PLE OF MUTUALITY . THEREFORE, THE TRANSACTIONS WITH THE BANK WHO IS NOT E VEN A MEMBER OF THE SOCIETY CANNOT BE CONSIDERED AS A TRANSA CTION FOR WHICH PRINCIPLES OF MUTUALITY WILL APPLY. NOT ONLY O N THE PRINCIPLES LAID DOWN IN THE SUBJECT BUT ALSO ON THE FACT THAT THE INT EREST WAS RECEIVED FROM A NON-MEMBER, THE PRINCIPLES OF MUTUALI TY DO NOT APPLY. THE ORDERS OF THE AO AND CIT(A) ARE ACCORDI NGLY UPHELD BOTH ON FACTS AS WELL AS ON PRINCIPLES OF LAW. I FI ND NO MERIT IN ASSESSEES GROUNDS AND ACCORDINGLY, THE SAME ARE DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL, 2017 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 28 TH APRIL, 2017 TNMM I.T.A. NO. 247/HYD/2016 THE GUJARATI SOCIAL WELFARE SOCIETY :- 9 - : COPY TO : 1. THE GUJARATI SOCIAL WELFARE SOCIETY, HYDERABAD. C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO. 9, HIMAYAT NAGAR, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-5(3), HYDERABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-4, HYDERABAD . 4. THE PR. COMMISSIONER OF INCOME TAX-4, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.