ACIT, Bhubaneswar V. M/s Bhubaneswar Club Ltd, Bhubaneswar

ITA 415/CTK/2011

• Counselvise Citation: 41522114 RSA 2011
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 05-10-2011
• Court: TRIBUNAL
• Department Lawyers: PRAMITA TRIPATHY
• Assessee Lawyers: G NAIKRAJAT KAR ARS
• Keywords: Rejection of books of accounts

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO.415/CTK/2011 (ASSESSMENT YEAR 2007 - 08 ITA NO.424/CTK/2011 (ASSESSMENT YEAR 2007 - 08) ASST.COMMISSIONER OF INCOME - TAX , CIRCL E 1(1), BHUBANESWAR. .. APPELLANT - VERSUS - M/S.BHUBANESWAR CLUB LTD., A.G.SQUARE, RAJPATH, BHUBANESWAR. PAN: AABCB 3582 C ..RESPONDENT M/S.BHUBANESWAR CLUB LTD., A.G.SQUARE, RAJPATH, BHUBANESWAR. PAN: AABCB 3582 C .. APPELLANT - VERSUS - ASST.COMMISSIONER OF INCOME - TAX , CIRCLE 1(1), BHUBANESWAR. ..RESPONDENT FOR THE ASSESSEE : SHRI G.NAIK / RAJAT KAR,ARS FOR THE DEPARTMENT: SMT. PRAMITA TRIPATHY, DR DATE OF HEARING : 20.12.2011 DATE OF PRONOUNCEMENT : 13.01.2012 ORDER SHRI K.S.S.PRASAD RAO, JM : THESE ARE CROSS APPEALS FILED BY THE DEPARTMENT AND THE ASSESSEE HAVIN G BEEN AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) DT.29.7.2011 FOR THE ASSESSMENT YEAR 2007 - 08 IN THE CASE OF THE ASSESSEE. 2. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN LAW AS WELL AS ON FACTS BY ALLOWING EXEMPTION TO THE ASSESSEE ON THE GROUND OF MUTUALITY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN LAW AS WELL AS ON FACTS BY HOL DING THAT THE CONCEPT OF MEMBER WILL INCLUDE GUESTS AND RELATIVES OF THE MEMBERS AND MEMBERS OF THE AFFILIATED CLUBS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN LAW AS WELL AS ON FACTS BY HOLDING THAT DEFECTS POINTED OUT BY THE A.O. WERE NOT ENOUGH TO JUSTIFY REJECTION OF ACCOUNTS SHOWN BY THE ASSESSEE. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 2 1. FOR THAT THE ORDER DATED 29.07.2011 AS PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) I, BHUBANESWAR HEREINAFTER REFERRED TO AS THE LEARNE D CIT(A) IN APPEAL NO.0071/10 - 11 PARTLY ALLOWING THE APPEAL FOR THE ASSESSMENT YEAR 2007 - 08 IS NOT JUST AND LEGAL ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. FOR THAT THE LEARNED CIT(A) IS ER RED IN LAW TO CONCLUDE THAT INTEREST ON DEPOSITS AND INVESTMENTS WITH BANKS AND OTHER INSTITUTIONS WILL FORM PART OF THE TAXABLE INCOME ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 3. FOR THAT IN THE CASE OF TAXABILITY OF INTEREST ON DEPOSIT AND INV ESTMENT, THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN CASE OF DIRECTOR OF INCOME TAX (EXEMPTIONS) VS. ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY REPORTED IN (2003) 184 CTR 274 AND ORDER OF HONBLE DELHI ITAT IN CA SE OF DELHI GYMKHANA CLUB LTD. - V - DEPUTY COMMISSIONER OF INCOME TAX REPORTED IN (2010) 131 TTJ 329 (DEL.) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 4. FOR THAT THE LEARNED CIT(A) SHOULD NOT HAVE REMANDED THE IMPUGNED RECEIPTS IN QUESTION TO THE LEARNED ASSESSING OFFICER PARTICULARLY WHEN ALL THE MATERIAL/RECORD AVAILABLE WITH HIM AND MORE PARTICULARLY ALL THE RECEIPTS ARE FROM MEMBERS ONLY COVERED UNDER PRINCIPLE OF MUTUALITY ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 4. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUES RAISED IN THE RESPECTIVE APPEALS AND THEIR LEGAL IMPLICATIONS. 5. DURING THE COURSE OF HEARING THE LEARNED DR HAS VEHEMENTLY ARGUED ASSAILING THE CIT(A)S ORDER SO FAR AS IT RELATES TO THE PRINCIPLES OF MUTU ALITY AND THE FINDING OF THE LEARNED CIT(A) THAT THE DEFECTS IN THE ACCOUNTS OF THE ASSESSEE POINTED OUT BY THE ASSESSING OFFICER WERE NOT ENOUGH TO JUSTIFY REJECTION OF ACCOUNTS SHOWN BY THE ASSESSEE. 6. CONTRARY TO THIS, THE LEARNED AR OF THE ASSESSEE HA S SUBMITTED THAT THE ISSUE RELATING TO MUTUALITY HAS ALREADY BEEN DECIDED BY THE TRIBUNAL FOR THE 3 PREVIOUS YEARS IN CASE OF THE ASSESSEE AND THE DEPARTMENT HAS NOT CHALLENGED THE ORDERS OF THE TRIBUNAL BEFORE HIGHER FORUMS SO FAR WHICH DEEM TO HAVE BEEN AC CEPTED BY THE DEPARTMENT AS OF NOW. THEREFORE, THE DEPARTMENT CANNOT SAY THAT THE PRINCIPLES OF MUTUALITY ARE NOT APPLICABLE TO THE ASSESSEE. HE RELIED IN THE ORDERS OF THE ITAT, CUTTACK BENCH VIDE CONSOLIDATED ORDER DT.31.3.2009 IN ITA NOS.90,91,93 AND 94 /CTK/2008 AND ITA NOS.37,38,39, 40 AND 41/CTK/2008 IN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEARS 1999 - 00, 2000 - 901, 2001 - 02, 2002 - 03 AND 2003 - 04, AND VIDE ORDER DT.27.5.2011 IN ITA NOS.430 AND 431/CTK/2010 IN CASE OF THE ASSESSEE FOR THE AYS 2004 - 05 AND 2005 - 06. 7. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS OF BOTH THE PARTIES IN THE LIGHT OF THE UNDISPUTED FACTS AND CIRCUMSTANCES AND THE PREVIOUS ORDERS OF THE ITAT, CUTTACK BENCH (SUPRA), IT IS FOUND THAT THE ITAT, CUTTACK BENCH VIDE ITS ORDER D T.27.5.2011 IN ITA NO.430 AND 431/CTK/2010 HAS CATEGORICALLY HELD, VIDE PARAGRAPH 6 , AS UNDER : 6. ON CAREFUL ANALYSIS OF THE ORDERS PASSED BY THE LEARNED CIT(A) IN THE LIGHT OF THE RIVAL SUBMISSIONS MADE BY THE PARTIES AND THE JUDICIAL AUTHORITIES RELIED ON AND THE REASONS GIVEN BY THE LEARNED CIT(A) IN THE IMPUGNED ORDERS, WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED CIT(A) HAS THREADBARE EXAMINED THE ISSUES AND ULTIMATELY CAME TO THE CONCLUSION AFTER DULY CONSIDERING THE ORDERS OF THE ITAT FOR THE PRE VIOUS YEARS ON SIMILAR SUCH GROUNDS. HE HAS COME TO THE CONCLUSION THAT THE PRINCIPLES OF MUTUALITY ARE AVAILABLE TO THE ASSESSEE ON THE ASPECT OF TREATING THE INCOME DERIVED BY THE ASSESSEE AS EXEMPT FROM TAX. FOR THE PURPOSE THAT THE TERM MEMBER INCLUD ES GUESTS AND RELATIVES OF THE MEMBERS AND MEMBERS OF THE AFFILIATED CLUBS ETC., THE LEARNED CIT(A) HAS RELIED ON THE DECISION OF THE ITAT, CUTTACK BENCH DT.29.8.2006 IN ITA NO.125,117/CTK/2000 FOR THE ASSESSMENT YEAR 1997 - 98, WHEREIN IT WAS OBSERVED BY TH E TRIBUNAL THAT THE CONCEPT OF 4 MEMBER IS SPACIOUS ENOUGH TO INCLUDE GUESTS AND RELATIVES OF THE MEMBERS AND MEMBERS OF AFFILIATED CLUBS AND IF IT IS SO, THEN IN THE CASE OF THE ASSESSEE THE INCOME DERIVED BY LETTING OUT ITS PREMISES OR BY ALLOWING THE GUESTS AND RELATIVES OF THE MEMBERS AND MEMBERS OF AFFILIATED CLUBS WILL NOT BE SUBJECTED TO TAX. THE SERVICES OFFERED TO THE GUESTS, RELATIVES AND AFFILIATED CLUBS CANNOT BE TREATED AS TRADING ACTIVITY AND CANNOT BE TAINTED WITH COMMERCIALITY. IN THE VER Y SAID ORDER, IT WAS CONCLUDED BY THE TRIBUNAL THAT THE ASSESSEE IS A MUTUAL CLUB AND THE VARIOUS ACTIVITIES HIGHLIGHTED BY THE AUTHORITIES BELOW CANNOT BE PUT IN THE CATEGORY OF TRADING ACTIVITY OR IN THE CATEGORY OF ADVENTURE IN THE NATURE OF TRADE AND H ENCE ARE NOT TAXABLE. DURING THE COURSE OF HEARING, THE LEARNED DR WAS NOT ABLE TO DISTINGUISH THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE PRESENT YEAR WITH THAT YEAR FOR WHICH THE TRIBUNAL PASSED THE ORDER DT.29.8.2006. THEREFORE, WE HAVE NO HESITATION IN HOLDING THAT THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A) IS WELL REASONED AND WELL CONSIDERED ORDER AND IT DOES NOT SUFFER FROM ANY INFIRMITY REQUIRING INTERFERENCE. THEREFORE, WE UPHOLD THE SAME BY FINDING THE GROUNDS RAISED BY THE DEPARTMENT AS D EVOID OF MERITS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE RAISED BY THE DEPARTMENT REGARDING THE MUTUALITY ASPECT IS COVERED BY THE ORDERS OF THE ITAT, CUTTACK BENCH (SUPRA) AND HENCE, THE DEPARTMENTAL APPEAL REGARDING THE SAID ISSUE IS HE REBY DISMISSED. 8. NOW COMING TO THE OTHER ISSUE RAISED BY THE DEPARTMENT RELATING TO THE FINDING OF THE LEARNED CIT(A) AS NOT JUSTIFIED BY HOLDING THAT DEFECTS POINTED OUT BY THE A.O. WERE NOT ENOUGH TO JUSTIFY REJECTION OF BOOKS OF ACCOUNTS SHOWN BY THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED CIT(A) HAS THREADBARE CONSIDERED THE ISSUE WITH REFERENCE TO THE 5 BOOKS OF ACCOUNTS AND DEFECTS POINTED OUT BY THE ASSESSING OFFICER OBSERVING IN PARAGRAPH 6 OF HIS ORDER, WHICH IS REPRODUCED AS UND ER : 6. I HAVE GIVEN CAREFUL CONSIDERATION TO THE MATTER. AS ALREADY STATED THE AC HAS PASSED IDENTICAL ORDER FOR THE ASSESSMENT YEAR UNDER APPEAL AS WERE PASSED FOR AYS 2004 - 05 & 2005 - 06. THE ORDERS FOR THE EARLIER ASSESSMENT YEARS WERE DECIDED BY ME VID E MY ORDER DT.29.9.2010 IN ITA NOS.0482 & 0483/08 - 09. SINCE THERE IS NO CHANGE IN THE ATTENDANT FACTS, I HAVE TO NECESSARILY FOLLOW MY EARLIER APPELLATE ORDER WHICH WERE BASED ON THE ORDERS OF THE ITAT IN APPELLANTS OWN CASE IN EARLIER YEARS. 9. NOW COM ING TO THE APPEAL OF THE ASSESSEE, THE ONLY ISSUE RAISED BY THE ASSESSEE IS REGARDING THE TAXABILITY OF THE INTEREST ON DEPOSITS AND INVESTMENTS MADE BY THE ASSESSEE CLUB. 10. THE CONTENTION OF THE LEARNED AR OF THE ASSESSEE IS THAT ALL THE DEPOSITS AND IN VESTMENTS ARE MADE OUT OF SURPLUS CONTRIBUTIONS MADE BY ITS MEMBERS AND THERE IS NO OTHER COMPONENT INVOLVED IN THE SAID AMOUNT. THEREFORE, THOSE AMOUNTS BEING FOUND SURPLUS WITH THE ASSESSEE THEY WERE DEPOSITED IN THE BANK AND MADE INVESTMENTS. THEREFORE, THEY ARE NOT TAXABLE AS PER THE DECISION OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF DIRECTOR OF INCOME - TAX (EXEMPTIONS) V. ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY [(184 CTR (DEL) 274] AND THE DECISION OF ITAT, DELHI BENCH IN THE CAS E OF DELHI GYMKHANA CLUB LTD., V. DCIT [131 TTJ (DEL) 329]. 11. IN THE CASE OF DIRECTOR OF INCOME - TAX (EXEMPTIONS) V. ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY [(184 CTR (DEL) 274] IT IS HELD BY THE HONBLE HIGH COURT OF DELHI THAT PRINCIPLES OF MUTUALITY APPLIES TO INTEREST INCOME DERIVED BY THE ASSESSEE - CO - OPERATIVE SOCIETY FROM THE DEPOSITS MADE BY IT OUT OF THE CONTRIBUTIONS MADE BY THE MEMBERS OF SOCIETY. WHILE COMING TO THAT CONCLUSION, HONBLE DELHI HIGH COURT HAS RELIED ON THE DECISION OF 6 HONBLE SUPREME COURT IN THE CASE OF CHELMSFORD CLUB VS. CIT [243 ITR 89 (SC)]. THE ITAT, DELHI BENCH IN THE CASE OF DELHI GYMKHANA CLUB LTD., V. DCIT [131 TTJ (DEL) 329] HAS HELD AS UNDER : MUTUALITY OFFERS A TAX EXEMPTION AS LONG AS ITS MUTUAL ASSOCIATI ON IS RETAINED AND ITS INCOME IS NOT TAINTED BY COMMERCIALITY. THE OBJECT CLAUSE OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION EMPOWERED THOSE IN THE MANAGEMENT OF THE ASSESSEE TO INVEST AND DEAL WITH THE MONEYS OF THE CLUB NOT IMMEDIATELY REQUIRED, IN SUC H MANNER AS MAY BE DETERMINED BY THEM FROM TIME TO TIME. UNDER THIS CLAUSE, THE INVESTMENT NEED NOT BE CONFINED TO INVESTMENT BY WAY OF DEPOSITS WITH BANKS. IT CAN TAKE ANY OTHER FORM OR SHAPE SUCH AS INVESTMENT IN SHARES, GOVERNMENT SECURITIES, ETC., AND WHERE ANY INCOME IS DERIVED FROM SUCH INVESTMENT WHETHER BY WAY OF INTEREST, DIVIDEND OR CAPITAL GAIN, THE SAME CANNOT BE SAID TO BE OUTSIDE THE DOCTRINE OF MUTUALITY. NOWHERE THE ACTIVITY OF ASSESSEE WAS FOUND BY ANY OF THE LOWER AUTHORITIES, AS TAINTED B Y COMMERCIALITY, IT IS ALSO AN ADMITTED FACT THAT THE ACTIVITIES OF ASSESSEE - CLUB DOES NOT COME WITHIN THE SCOPE OF BUSINESS REFERRED TO IN S. 2(24)(VII). THERE IS NO REASON TO EXCLUDE THE GAIN ARISING ON THE SALE OF SHARES FROM THE PRINCIPLE OF MUTUALITY. ONCE THE INCOME IS FOUND TO BE COVERED BY PRINCIPLE OF MUTUALITY, THE SAME CANNOT BE BROUGHT TO TAX EVEN UNDER THE PROVISIONS OF S. 115JB. ACCORDINGLY, THERE IS NO MERIT IN THE ACTION OF LOWER AUTHORITIES FOR BRINGING THE INCOME EXEMPT UNDER PRINCIPLE OF MUTUALITY, WITHIN THE PURVIEW OF S. 115JB. - CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND VS. DY. CIT (2009) 222 CTR (KAR) 286 : (2009) 19 DTR (KAR) 64 : (2009) 308 ITR 202 (KAR) RELIED ON. IN VIEW OF THE ABOVE DECISION OF ITAT, DELHI BENCH AND THE DECIS IONS OF HONBLE HIGH COURTS, WE ARE OF THE CONSIDERED VIEW THAT THE INTEREST EARNED BY THE ASSESSEE OUT OF THE BANK DEPOSITS AND INVESTMENTS MADE BY THE ASSESSEE OUT OF OUT OF SURPLUS CONTRIBUTIONS MADE BY ITS MEMBERS, IS ALSO COVERED UNDER THE PRINCIPLES OF MUTUALITY AND AS SUCH, THE VIEW OTHERWISE 7 TAKEN BY THE DEPARTMENT IN THE PRESENT CASE IS NOT SUSTAINABLE FOR LEGAL SCRUTINY. THE ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL, THEREFORE, IS ALLOWED AND THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 12. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - (K.K.GUPTA) ACCOUNTANT MEMBER ( K.S.S.PRASAD RAO) JUDICIAL MEMBER DATE: 13.01.2012 H.K.PADHEE, SENIOR PRIVATE S ECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE A SSESSEE : M/S.BHUBANESWAR CLUB LTD., A.G.SQUARE, RAJPATH, BHUBANESWAR. PAN: AABCB 3582 C 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX , CIRCLE 1(1), BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.