Tata Steels Officers Enclave, V. Addl. CIT, Noida

ITA 862/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9981 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 27-07-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 09-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHIMOL
• Keywords: Business income; Source of fund; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : H : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO. 862/DEL/2009 ASSESSMENT YEAR : 2005-06 TATA STEELS OFFICERS ENCLAVE, PLOT NO. GH-03, SECTOR BETA I, GREATER NOIDA. PAN: AAAAT9767A VS. ADDL. COMMISSIONER OF INCOME-TAX, NOIDA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SATISH AGARWAL, CA REVENUE BY : SHRI N.K. CHIMOL, SR. DR O R D E R PER I.P. BANSAL, JUDICIAL MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ORDER OF THE CIT (A) DATED 04.11.2008 FOR ASSESSMENT YEAR 20 05-06. GROUNDS OF APPEAL READ AS UNDER:- (I) THAT THE ORDER OF THE LD. CIT (A), GHAZIABAD IS BAD IN LAW AND IN FACTS OF THE CASE AND THE CIT (A) HAS GROSSLY ERRED IN UPHOLDING THE ADDITION MADE BY THE ASSESSING OFFICER. (II) THAT THE LD. CIT (A) HAS GROSSLY ERRED IN NOT TREATING THE ASSESSEE AS AN ASSOCIATION OF PERSONS WITHOUT ASSIGNING ANY REASON. (III) THAT THE LD. CIT (A) HAS GROSSLY ERRED IN CON FIRMING THE ACTION OF THE A.O. THAT INTEREST INCOME OF RS.6,36,153/- IS TAXABLE AND NOT SUBJECT TO SET OFF AGAINST LOSS INCURRED BY THE APPELLANT ON FLAT MAINTENANCE SERVICES PROVIDED BY IT TO ITS MEMBER ITA NO.862/DEL/2009 2 BY HOLDING THAT APPELLANT IS A MUTUAL ASSOCIATION. (IV) THAT THE LD. CIT (A) HAS PASSED CRYPTIC AND NO N SPEAKING ORDER WHEREIN, HE HAS REFERRED THAT THE INCOME FROM BANK DEPOSITS IS BEING TAXED AS THE SAME HAD BEEN OFFERED BY THE ASSESSEE FOR TAX ITSELF WHICH IS CONTRARY TO THE SUBMISSION MADE AND THE INFORMATION ON RECORD. (V) WITHOUT PREJUDICE TO THE ABOVE GROUNDS THAT THE ACTION OF THE LD. CIT (A) & A.O. IN TREATING THE APPELLANT AS AN ASSOCIATION OF PERSONS IS NOT TENABLE, THE LD. CIT (A) HAS GROSSLY ERRED IN SUSTAINING THE ADDITION EVEN IF ASSESSEE WAS TO BE TREATED AS A MUTUAL ASSOCIATION AS CONTENDED BY THE REVENUE AUTHORITIES. (V) THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER O R DELETE THE ABOVE GROUNDS OF APPEAL AT THE TIME OF HEARING. 2. THE ASSESSEE IS A SOCIETY FORMED WITH A VIEW INT ER ALIA TO MAINTAIN THE COMMON AREA OF THE COMPLEX E.G., STREET, DRAINAGE, SEWERAGE SYSTEM, PASSAGES, GARDENS, PLATFORMS, COMMON ASSETS SUCH AS GENERATOR S, PUMPS, LIFTS, ETC. OF A COMPLEX SITUATED AT PLOT NO. GH-03, SECTOR BETA I, GREATER NOIDA. ITS OBJECTS AS STATED IN THE BYELAWS ARE AS UNDER:- A) MAINTENANCE OF THE COMMON AREA OF THE COMPLEX E.G., STREET DRAINAGE, SEWERAGE SYSTEM, PASSAGES, GARDENS, PLANT ATIONS, COMMON ASSETS SUCH AS GENERATOR, PUMPS, LIFTS, ETC. B) MAINTENANCE OF THE RECORDS FOR COMMON ASSETS LIK E PUMPS, GENERATOR, LIFTS, AFFLUENT PLAN, ELECTRICAL & OTHER EQUIPMENTS, ETC. C) ARRANGING DAY TO DAY CLEANING, LIGHTING AND MAIN TAINING WATER SUPPLY. D) MAINTAINING SECURITY OF THE COMPLEX. E) RECEIVING COMPLAINTS FROM THE MEMBERS AND GETTIN G ATTENDED THE SAME PROMPTLY. ITA NO.862/DEL/2009 3 F) ARRANGING PAYMENT OF TAXES, LEVIES, INSURANCE CH ARGES AD OTHER STATUTORY PAYMENTS IN RESPECT OF THE SAID COMPLEX, IN TIME, TO THE RESPECTIVE AUTHORITY. G) ARRANGING RECREATIONAL PROGRAMMES AND OTHER PROG RAMME FOR THE BENEFIT OF THE MEMBERS. H) INVESTING SURPLUS FUNDS OF THE COMMITTEE FROM TI ME TO TIME, IN SUCH MANNER AND IN SUCH MODE, AS MAY BE DECIDED BY THE EXECUTIVE BODY. I) ANY OTHER OBJECTIVE AS MAY BE DECIDED BY MEMBERS IN THEIR MEETING, FROM TIME TO TIME, FOR THE COMMON BENEFIT OF ALL THE MEMBERS. 3. ACCORDING TO CLAUSE 6, THE FUNDS OF THE SOCIETY WILL BE CONSTITUTED FROM CONTRIBUTIONS COLLECTED FROM THE MEMBERS UNDER HEAD S E.G., INITIAL SUBSCRIPTION, MONTHLY MAINTENANCE CHARGES, CAPITAL MAINTENANCE CH ARGES, AS DECIDED BY THE EXECUTIVE BODY FROM TIME TO TIME AND NOTIFIED TO AL L THE MEMBERS THROUGH NOTICE BOARD AND ALSO AT THE ADDRESS OF THE MEMBERS AS REC ORDED IN THE MEMBERS REGISTER, THE CORPUS FUND TRANSFERRED BY THE SOCIET Y TO THE COMMITTEE AND ANY INCOME GENERATED FROM THE INVESTMENT OF FUNDS OF T HE COMMITTEE. THE ACCOUNTS OF THE SOCIETY ARE AUDITED AND UNDER THE HEAD INCO ME AND EXPENDITURE ACCOUNT FOR THE YEAR UNDER CONSIDERATION THE INCOME MAINLY ACCRUES FROM MAINTENANCE CHARGES DUE, INTEREST FROM BANK, FIXED DEPOSITS, SA VINGS BANK INTEREST, CLUB CHARGES, MISCELLANEOUS INCOME, INTEREST FREE MEMBER S AND SERVICE CHARGES. FROM ALL THESE HEADS, TOTAL INCOME SHOWN IS A SUM O F RS.15,76,356.35 AND IN THE EXPENDITURE THE TOTAL SUM INCURRED IS A SUM OF RS.1 6,34,087.20 AND DEFICIT HAS BEEN SHOWN AT RS.57,730.85. THE CORPUS FUND HAS BE EN SHOWN AT RS.79,77,870.75. THE BUSINESS INCOME HAS BEEN COMP UTED AT A LOSS OF RS.57,731/- SHOWING NET LOSS AT RS.57,731/-. THE B USINESS INCOME HAS BEEN SHOWN AT NIL IN THE RETURN OF INCOME FILED CLAIMING THEREIN THAT A LOSS OF RS.57,731/- SHOULD BE CARRIED FORWARD TO NEXT YEAR I.E., ASSESSMENT YEAR 2006- 07. THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE THAT THE INCOME /LOSS WAS ASSESSABLE AS BUSINESS INCOME/LOS S. THE ASSESSING OFFICER ITA NO.862/DEL/2009 4 OBSERVED THAT SO FAR AS THE INCOME OF ASSESSEE RELA TING TO THE ACTIVITY OF MAINTENANCE OF THE PREMISES OR COMPLEX, THE SAME WA S GOVERNED BY THE PRINCIPLE OF MUTUALITY AND SO FAR AS IT RELATES TO INTEREST INCOME EARNED BY THE ASSESSEE FROM FDRS AND SAVINGS BANK DEPOSIT OF A SU M OF RS.6,36,347/- THE SAID INCOME WAS TO BE ASSESSED UNDER THE HEAD INCO ME FROM OTHER SOURCES. THEREFORE, THE ASSESSING OFFICER COMPUTED THE INCOM E OF THE ASSESSEE AT RS.6,36,346/- AS AGAINST NIL COMPUTED BY THE ASSESS EE IN THE RETURN OF INCOME ON THE GROUND THAT THE PRINCIPLE OF MUTUALITY COULD NO T BE APPLIED TO THE INCOME EARNED BY THE ASSESSEE IN THE SHAPE OF INTEREST ON FDRS AND INTEREST EARNED ON SAVINGS BANK DEPOSIT. THE LD. CIT (A) HAS UPHELD T HE FINDINGS OF THE ASSESSING OFFICER. THE ASSESSEE IS AGGRIEVED, HENCE, IN APPE AL. 4. AFTER NARRATING THE FACTS, IT WAS PLEADED BY LD. AR THAT ASSESSEES CLAIM IS THAT THE INCOME EARNED BY THE ASSESSEE IS FROM A BUSINESS ACTIVITY OF MAINTAINING THE COMPLEX. HE CONTENDED THAT THE MOV E OF THE ASSESSING OFFICER TO TREAT THE SAID INCOME EARNED OUT OF PRINCIPLE OF MUTUALITY IS CONTRARY TO THE FACTS AVAILABLE ON RECORD. LD. AR REFERRED TO THE PROVISIONS OF SECTION 71(1) OF THE ACT TO CONTEND THAT IF INCOME OF THE ASSESSEE E ARNED BY IT FROM THE ACTIVITY OF MAINTAINING THE COMPLEX IS TREATED AS BUSINESS, THE N, EVEN IF THE INTEREST INCOME IS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURC ES, THEN, SET OFF OF THAT INCOME HAS TO BE GRANTED AGAINST THE BUSINESS INCOM E AND, THEREFORE, THERE WILL BE NO INCOME ASSESSABLE IN THE HANDS OF THE ASSESSE E. 5. IN THE ALTERNATIVE, HE SUBMITTED THAT EVEN IF TH E INCOME OF THE ASSESSEE IS TREATED TO BE INCOME EARNED FROM MUTUALITY, THEN AL SO INTEREST INCOME EARNED BY THE ASSESSEE EMPLOYING SURPLUS FUNDS IN FDRS AND IN TEREST EARNED FROM SAVINGS BANK DEPOSIT CANNOT BE CONSIDERED TO BE TAXABLE IN VIEW OF THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND VS. DCIT 222 CTR (KAR) 286 WHEREIN IT AS BEEN HELD THAT ASSESSEE SOCIETY HAVING BEEN FORMED FOR THE MUTUAL BENEFIT OF ITS MEMBERS, INCOME EARNED BY IT BY WAY OF INTEREST AND DIVIDEND BY MAKING INVESTMENT OF SURPLUS FUNDS WHICH IS WHOLLY CONTRIBUTED BY THE ME MBERS IS GOVERNED BY THE ITA NO.862/DEL/2009 5 PRINCIPLES OF MUTUALITY AND IS NOT TAXABLE. THUS, IT WAS VEHEMENTLY PLEADED BY LD. AR THAT INTEREST INCOME ON BOTH THE COUNTS COUL D NOT BE TREATED AS TAXABLE AS IS DONE BY THE ASSESSING OFFICER AND UPHELD BY THE LD. CIT (A). HE, THEREFORE, PLEADED THAT THE REQUISITE RELIEF SHOULD BE GRANTED TO THE ASSESSEE AND THE APPEAL OF THE ASSESSEE SHOULD BE ALLOWED. 6. ON THE OTHER HAND, IT WAS VEHEMENTLY PLEADED BY LD. DR THAT THE ASSESSING OFFICER WAS RIGHT IN ASSESSING THE INCOME EARNED BY THE ASSESSEE FROM FDRS AND SAVINGS BANK DEPOSITS AS INCOME FROM OTHER SOURCES. HE CONTENDED THAT SET OFF OF INTEREST INCOME COULD NOT BE GRANTED AGAINST ANY OTHER LOSS OR EXPENDITURE AS THE SAME WAS ASSESSABLE AS I NCOME FROM SEPARATE ACTIVITY. HE CONTENDED THAT THE INCOME OF THE ASSE SSEE COULD NOT BE ASSESSED UNDER THE HEAD BUSINESS AS HAS BEEN HELD BY ASSES SING OFFICER. HE HAS SUBMITTED BEFORE US A CHART SHOWING THREE EXAMPLES TO CONTEND THAT IN A CASE WHERE SUBSTANTIAL CONTRIBUTIONS ARE MADE BY THE MEM BERS TO THE SOCIETY, THE INCOME EARNED FROM THAT SUBSTANTIAL CONTRIBUTION WH ICH IS INVESTED IN FDRS AND EXPENSES MET THEREFROM, SET OFF CANNOT BE GRANTED A GAINST INCOME EARNED FROM FDRS AS THE SAME WILL BE TANTAMOUNTING TO MEETING P ERSONAL EXPENDITURES OF THE MEMBERS. THUS, IT WAS VEHEMENTLY PLEADED BY LD. DR THAT THE CLAIM OF THE ASSESSEE AS MADE IN THE GROUNDS OF APPEAL CANNOT BE ACCEPTED AND THE APPEAL FILED BY THE ASSESSEE DESERVES TO BE DISMISSED IN T HE LIGHT OF THE DISCUSSIONS MADE BY THE ASSESSING OFFICER AND LD. CIT (A). 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. SO AS IT RELATES TO TH E CONTRIBUTIONS RECEIVED BY THE ASSESSEE FROM ITS MEMBERS AND INCOME RELATING THERE TO, THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE SAM E IS GOVERNED BY THE PRINCIPLE OF MUTUALITY AND, THEREFORE, NO INCOME CO ULD BE ASSESSED. HOWEVER, IN RESPECT OF INTEREST EARNED FROM FDRS AND SAVINGS BA NK DEPOSITS, THE SAME HAS BEEN MADE TAXABLE ON THE GROUND THAT THE SAME IS A SEPARATE ACTIVITY AGAINST WHICH NO SET OFF CAN BE GRANTED AS THE OTHER ACTIVI TY OF THE ASSESSEE IS NOT GOVERNED BY THE PRINCIPLES OF MUTUALITY. WE HAVE T O EXAMINE THE QUESTION THAT ITA NO.862/DEL/2009 6 WHETHER OR NOT INCOME EARNED BY THE ASSESSEE FROM I NTEREST ON FDRS AND INTEREST ON SAVINGS BANK DEPOSIT CAN BE TAXED SEPAR ATELY. 8. FIRST WE WILL EXAMINE THE CLAIM OF THE ASSESSEE THAT THE INCOME EARNED IN THE SHAPE CONTRIBUTIONS MADE BY THE MEMBERS FOR MEE TING THE OBJECTS OF THE SOCIETY AND MAKING EXPENDITURE THEREON IS A BUSINES S ACTIVITY. WE FIND NO FORCE IN SUCH CLAIM OF THE ASSESSEE THAT SUCH ACTIVITY OF THE ASSESSEE CONSTITUTED A BUSINESS. THOUGH THE WORD BUSINESS HAS NOT BE EN DEFINED IN THE TAXING STATUTE, YET IT POSTULATES THE EXISTENCE OF CERTAI N ELEMENTS IN THE ACTIVITY OF AN ASSESSE WHICH WOULD INVEST IT WITH THE CHARACTER OF BUSINESS. ACCORDING TO THE WELL-ESTABLISHED INTERPRETATION OF WORD BUSINESS AS FOUND IN TAXING STATUTES, IT IS THE SENSE OF AN OCCUPATION OR PROFESSION WHICH OCC UPIES THE TIME, ATTENTION AND LABOUR OF A PERSON NORMALLY WITH THE OBJECT OF MAKI NG PROFIT. TO RECORD AN ACTIVITY AS BUSINESS THERE MUST BE A COURSE OF DEALINGS EITH ER ACTUALLY CONTINUED OR CONTEMPLATED TO BE CONTINUED WITH A PROFIT MOTIVE A ND NOT FOR SUPPORT OR PLIER. WHETHER OR NOT A PERSON CARRIES ON BUSINESS IN A PA RTICULAR COMMODITY MUST DEPEND UPON THE VOLUME, FREQUENCY, CONTINUITY AND R EGULARITY OF TRANSACTIONS OF PURCHASE AND SALE IN A CLASS OF GOODS AND THE TRANS ACTION MUST ORDINARILY BE ENTERED INTO WITH A PROFIT MOTIVE. SUCH MOTIVE MUS T PERVADE THE WHOLE SERIES OF TRANSACTIONS EFFECTED BY THE PERSON IN THE COURSE O F HIS ACTIVITY. THUS, EARNING PROFIT FROM AN ACTIVITY IS A CONDITION PRECEDENT TO FALL THE SAID ACTIVITY WITHIN THE SCOPE OF BUSINESS. IN THE PRESENT CASE, THE VERY BASIC FACTOR I.E., PROFIT MOTIVE IS ABSENT AS CERTAIN PERSONS HAVE COMBINED WITH AN OBJECT OF MAINTAINING A PARTICULAR COMPLEX. THEREFORE, THE CLAIM OF THE AS SESSEE THAT IT IS A BUSINESS ACTIVITY CANNOT BE ACCEPTED AND THIS CLAIM OF THE A SSESSEE HAS RIGHTLY BEEN REJECTED BY THE ASSESSING OFFICER AND THE CIT (A). 9. NOW, COMING TO THE OTHER ASPECT THAT WHETHER INT EREST EARNED BY THE ASSESSEE AND ASSESSED BY THE ASSESSING OFFICER AS INCOME FROM OTHER SOURCES CAN ALSO FALL UNDER THE PRINCIPLE OF MUTUALITY. TH E PRINCIPLE OF MUTUALITY HAS BEEN DISCUSSED BY HONBLE APEX COURT IN THE CASE OF CHEL MSFORD CLUB VS. CIT (2000) ITA NO.862/DEL/2009 7 159 CTR (SC) 235. IT WAS OBSERVED THAT THREE CONDI TIONS ARE STIPULATED TO ESTABLISH THE DOCTRINE OF MUTUALITY WHICH ARE AS FO LLOWS:- (1) THE IDENTITY OF THE CONTRIBUTORS TO THE FUND AN D THE RECIPIENTS FROM THE FUND, (2) THE TREATMENT OF THE COMPANY, THOUGH INCORPORAT ED AS A MERE ENTITY FOR THE CONVENIENCE OF THE MEMBERS AND POLIC Y HOLDERS, IN OTHER WORDS, AS AN INSTRUMENT OBEDIENT TO THEIR MAN DATE, AND (3) THE IMPOSSIBILITY THAT CONTRIBUTORS SHOULD DERI VE PROFITS FROM CONTRIBUTIONS MADE BY THEMSELVES TO A FUND WHICH CO ULD ONLY BE EXPENDED OR RETURNED TO THEMSELVES. 10. IN CIT VS. BANKIPUR CLUB LTD., 226 ITR 97 (SC), IT WAS OBSERVED THAT WHERE A NUMBER OF PERSONS COMBINE TOGETHER AND CONT RIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OBJECT AND IN THIS RESPECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN ANY SURPLU S RETURNED TO THOSE PERSONS CANNOT BE REGARDED IN ANY SENSE AS PROFIT. 11. IN THE CASE OF CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND (SUPRA), THE HONBLE KARNATAKA HIGH COURT WHILE CONSIDERING THE QUESTION THAT THE ASSESSEE SOCIETY WHEN FORMED FOR MUTUAL BENEFIT OF ITS MEMBERS AND ADVANCING LOANS TO ITS MEMBERS AND WHERE SOURCE OF FUNDS WAS ONLY THE CONTRIBUTIONS MADE BY THE MEMBERS OF THE SOCIETY AND WHICH DID NOT REC EIVE ANY DONATION OR MONITORY BENEFIT/GRANTS FROM ANY OUTSIDE SOURCE DUR ING THE RELEVANT ASSESSMENT YEARS AND WHERE THE MEMBERS CONTRIBUTIONS WHICH HA D BECOME CORPUS FUND AND THE PORTION OF FUND WHICH WAS NOT ADVANCED TO THE M EMBERS WAS INVESTED FOR THE PURPOSES OF SAFE CUSTODY AND NOT WITH AN INTENTION TO DERIVE PROFIT BY WAY OF INTEREST OR DIVIDEND, THEN THE EARNING OF INTEREST AS WELL AS DIVIDEND ALSO ARE GOVERNED BY THE PRINCIPLES OF MUTUALITY AND WAS NOT TAXABLE. 12. THE HONBLE DELHI HIGH COURT IN THE CASE OF THE DIRECTOR OF INCOME-TAX VS. ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY [130 TAXMAN 575 (DEL)]AFTER REFERRING TO THE THREE CONDITIONS FOR A PPLYING THE PRINCIPLE OF MUTUALITY ITA NO.862/DEL/2009 8 AS DESCRIBED IN THE CASE OF CHELMSFORD CLUB VS. CIT (SUPRA) HAVE OBSERVED THAT INTEREST EARNED ON DEPOSITS MADE OUT OF MEMBERS CO NTRIBUTIONS IS AN INCOME GOVERNED BY THE PRINCIPLES OF MUTUALITY. 13. FOLLOWING THE AFOREMENTIONED DECISION IN THE CA SE OF ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY, THE HONBLE DELHI HIGH COURT IN AN UNREPORTED DECISION DECIDED ON 11 TH MAY, 2007 IN ITA NO.84/2003 IN THE CASE OF COUNTRY CLUB VS. DIRECTOR OF INCOME-TAX HAVE OBSERV ED AS UNDER (COPY PLACED ON RECORD):- 4. THE ASSESSEE CLUB EARNS INCOME FROM ITS MEMBERS AND THEIR GUESTS. SURPLUS FUNDS ARE DEPOSITED IN BANKS AND T HESE SURPLUS FUNDS ARE ATTRIBUTABLE TO AMOUNTS RECEIVED FROM MEM BERS OF THE ASSESSEE CLUB TOWARDS THEIR DUES AND FOR EXPENSES I NCURRED BY MEMBERS AND THEIR GUESTS IN RESTAURANTS AND OTHER F ACILITIES OF THE CLUB LIKE BILLIARD ROOM, TENNIS AND SQUASH COURTS A ND SWIMMING POOL, ETC. THERE IS NO DISPUTE ABOUT THE FACT THAT ALL THESE FACILITIES ARE AVAILABLE ONLY TO MEMBERS OF THE ASSESSEE CLUB AND THEIR GUESTS. 5. APPLYING THE DOCTRINE OF MUTUALITY, THE TRIBUNAL HELD THAT INCOME RECEIVED BY THE ASSESSEE FOR THE USE OF FACILITIES BY GUESTS OF THE MEMBERS IS EXEMPT FROM TAXATION. THIS BEING THE PO SITION, WE ARE OF THE VIEW THAT DEPOSITS MADE AS A RESULT OF THIS INCOME RECEIVED AND THE INTEREST RECEIVED THEREON FROM THE BANKS CA NNOT BE SAID TO BE OUTSIDE THE DOCTRINE OF MUTUALITY. 6. LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON DIRECTOR OF INCOME TAX V. ALL INDIA ORIENTAL BANK OF COMMERCE W ELFARE SOCIETY [2003] 130 TAXMAN 575 (DELHI) , IN WHICH THIS COURT HAS RELIED UPON IN CHELMSFORD CLUB V. CIT [2000] 243 ITR 89 (SC). IT WAS HELD, FOLLOWING THE DECISION OF THE SUPREME COU RT, THAT WHERE A NUMBER OF PERSONS COMBINE TO CONTRIBUTE TO A COMMON FUND AND HAVE NO DEALINGS OR RELATIONS WITH ANY OTHER BODY, THEN ANY SURPLUS GENERATED CANNOT, IN ANY SENSE BE REGARDED AS PROFI TS CHARGEABLE OF TAX. ON THIS BASIS, THE DOCTRINE OF MUTUALITY W AS APPLIED TO THE FACTS OF THAT CASE. WE SEE NO DISTINCTION IN THE D ECISION RENDERED BY THIS COURT IN ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY AND THE PRESENT CASE. 7. UNDER THE CIRCUMSTANCES, WE ANSWER THE QUESTION OF LAW IN THE AFFIRMATIVE, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NO.862/DEL/2009 9 14. IF THE FACTS OF THE PRESENT CASE ARE EXAMINED I N THE LIGHT OF THE PRINCIPLES LAID DOWN IN AFOREMENTIONED DECISIONS, THEN, IT WIL L BE OBSERVED THAT IN THE PRESENT CASE A NUMBER OF PERSONS COMBINED TO CONTRI BUTE TO COMMON FUND AND THEY HAVE NO DEALINGS OR RELATIONS WITH ANY OTHER BODY, THEN ANY SURPLUS GENERATED CANNOT, IN ANY SENSE, BE REGARDED AS PROF IT CHARGEABLE TO TAX. IT MAY ALSO BE MENTIONED HERE THAT THEIR LORDSHIPS OF KARN ATAKA HIGH COURT IN THE AFOREMENTIONED DECISION IN THE CASE OF CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND (SUPRA) HAVE ALSO CONSIDERED THE QUEST ION THAT WHETHER BANK WITH WHOM SUCH DEPOSITS/FDRS ARE PLACED CAN BE TREATED T O BE A THIRD PARTY AND THE OBSERVATIONS OF THEIR LORDSHIPS CONTAINED IN PARA 2 3 WHICH IS REPRODUCED BELOW:- 23. IT IS NOTICED THAT THE FUNDS OF THE ASSESSEE H AVE BEEN INVESTED IN A TERM DEPOSIT WITH A BANK WHICH IS NOT A MEMBER OF THE ASSESSEES WELFARE FUND AND EARNED INTEREST ON THE INVESTMENT MADE. THE BANK, IN WHICH THE SURPLUS FUND IS DEPOS ITED, NO DOUBT, FORMS A THIRD PARTY VIS--VIS THE ASSESSEE, BUT, I N OUR VIEW, IT CANNOT BE SAID THAT THE IDENTITY BETWEEN THE CONTR IBUTORS AND THE RECIPIENTS IS LOST. ACCORDINGLY, THE INTEREST ON I NVESTMENT OF RS.42,13,690 AND DIVIDEND INCOME ON SHARES OF RS.55 ,760 HAVE TO BE TREATED AS NON-TAXABLE INCOMES. 15. FROM THE ABOVE OBSERVATIONS IT IS CLEAR THAT TH OUGH THE BANK CAN BE CONSIDERED TO BE A THIRD PARTY VIS--VIS THE CONTRI BUTORS AND THE RECIPIENTS, BUT IN THAT CASE EVEN IDENTITY BETWEEN THE CONTRIBUTORS AN D THE RECIPIENTS IS NOT LOST. HENCE, IT CANNOT BE SAID THAT INTEREST EARNED BY TH E ASSESSEE WAS NOT OUT OF PRINCIPLE OF MUTUALITY. 16. IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THA T THE LD. CIT (A) WAS WRONG IN UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER VID E WHICH THE INTEREST EARNED BY THE ASSESSEE ON FDRS/SAVINGS BANK DEPOSITS IS CONSI DERED AS INCOME FROM OTHER SOURCES LIABLE FOR INCOME-TAX AND IS OUTSIDE THE SCOPE OF PRINCIPLES OF MUTUALITY. IT IS HELD THAT THE INTEREST EARNED BY THE ASSESSEE FROM FDRS/SAVINGS BANK DEPOSIT IS ALSO GOVERNED BY THE PRINCIPLES OF MUTUALITY AND COULD NOT BE TAXED SEPARATELY. ITA NO.862/DEL/2009 10 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN AFOREMENTIONED MANNER. . 18. THE ORDER PRONOUNCED IN THE OPEN COURT ON 07.08 .2009. [A.K. GARODIA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 07.08.2009. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES