Income Tax Appellate Tribunal - Delhi
Acit, Gurgaon vs M/S. Oakwood Estate Condominium ... on 1 January, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: "E" NEW DELHI
BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No: 4502/Del/2013
Asstt. Year 2009-10
ACIT vs. M/s. Oakwood Estate Condominium Associations
Circle-2, DLF City, Phase-II,
Gurgaon Akasheen Marg
Gurgaon
(PAN AAAJ00033B)
(Appellant) (Respondent)
Appellant by : Shri Tushar Jarwal, Advocate
Shri Rahul Sateeja, Advocate
Respondent by : Shri P.Dam Kanunjna, Sr.DR
Date of Hearing : 09.10.2015
Date of pronouncement : 01.01.2016
ORDER
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This appeal has been preferred by the Department against the order dated 27.5.2013 passed by the Ld. CIT (A) -2, Faridabad for AY 2009-10.
2. The brief facts of the case are that the assessee is a residential condominium association of members of M/s. Oak Wood Estate Condominium and derives income from contribution from members, interest on deposits with banks, interest on interest bearing money security deposits received from members, visitor parking ITA No.4502/Del/2013 ACIT vs. Oakwood Estate Condominium Associations income, elevator usages charges, garbage collection charges, scrap sales and misc. income etc. The return declaring an income of Rs. 2,53,630/- was filed on 30.9.2009 which was processed u/s 143(1) of the Act at the returned income. The case was later selected under compulsory scrutiny in view of Board's directions. During the course of scrutiny proceedings u/s 143(3), the AO noticed that the assessee had received interest from bank on interest bearing maintenance security (IBMS) .The interest accrued on IBMS for the year was Rs. 25,27,684/-. Although the assessee had claimed this accrued interest as income exempt on the principle of mutuality, it was the AO's opinion that the income had been earned from third party i.e. non members and therefore the principle of mutuality was not applicable to the interest income earned from deposits with the banks. The AO, accordingly, added the amount of Rs. 25,27,684/- and completed the assessment at a total income of Rs. 25,81,317/-. Before the Ld. CIT (A) it was submitted by the assessee that initially the maintenance of the building was looked after by DLF. However, subsequent to the formation of the assessee society, the maintenance of the condominium was taken up by the society and the entire amount of interest bearing security maintenance deposits of Rs. 2 crores was transferred by the DLF to the society as corpus for carrying out maintenance work of the society. The corpus fund of the society received on transfer was deposited in fixed deposit in a scheduled bank and interest was earned on such fixed deposit. It was also submitted that the society was required to carry out road repairs and other repair works and it was found that the maintenance charges received from the members would not be sufficient to cover these expenses. Therefore, society passed a resolution in 2006-07 whereby it 2 'v* ' ITA No.4502/Del/2013 ACIT vs. Oakwood Estate Condominium Associations was decided that the interest received on FDRs would not be credited to each member account, but would be credited to a special reserve account called renewal and replacement account fund. It was, therefore, submitted that the interest received by the society was on behalf of the members and was exempt on the principle of mutuality. The Ld. CIT(A) placing reliance on the decision of the Hon'ble Supreme Court in the case of Chelmsford Club vs. CIT 243 ITR 89 (SC), CIT vs. Scope (ITA No. 1409 of 2008) of Hon'ble Delhi High Court, DIT (Exemption) vs. All India Oriental Bank of Commerce Welfare Society 184 CTR 274 (Delhi) deleted the addition and held that the interest income earned by the society was appropriated to the renewal and replacement fund for providing amenities and other services to the members of the society and was hence covered by the principle of mutuality and accordingly exempt.
3. In the present appeal before us the Department's sole grievance is that the Ld. CIT (A) has erred and holding that the doctrine of mutuality applied to the interest income derived by society from the bank. Ld. DR submitted that the income in form of interest had been earned from third party i.e. from non members and hence it could not be said that the same was exempt on the principle of mutuality. The Ld. DR supported the order of the AO and contended that the Ld. CIT (A) had wrongly allowed the appeal of the assessee.
4. Ld. AR on the other hand submitted that the issue was covered by the decision rendered by the Delhi E Bench in the assessee's own case for AY 2007-08 in ITA No. 5846/Del/2010 wherein vide order dated 9th December, 2011 , the E Bench following the decision of the Hon'ble Delhi High Court in the case of CIT vs. Delhi 3 'v* ' ITA No.4502/Del/2013 ACIT vs. Oakwood Estate Condominium Associations Gymkhana Club Ltd. 339 ITR 525 (Delhi) had held that income earned by the society in the form of interest by keeping the funds generated from the members in the bank will not be treated as income liable for tax. He accordingly submitted that the assessee is entitled exemption of interest from bank on account of principle of mutuality. The Ld. AR also submitted that the order of the Tribunal had reached finality since the revenue did not carry the matter any further. On a query from the Bench, the Ld. AR also made a reference to the decision of Hon'ble Apex Court in the case of Bangalore Club vs. CIT 350 ITR 509 and submitted that the case of the assessee society was different from the facts of the case of the Bangalore Club as the issue in the Bangalore Club was with respect to the interest earned from the financial institutions which were members of the assessee club whereas in case of the assesee the issue was with respect to interest earned from banks which were not the members of the assessee society. Ld. AR further submitted that in case of the assesee although the interest was received from the bank, it was actually received on account of members of the association who had contributed to the funds constituting the interest bearing maintenance security (IBMS) and hence the principle of mutuality did apply.
5. We have heard both the parties and carefully perused the material available on record. The decision of the Tribunal in the assessee's own case (supra) was rendered following the judgments of the Hon'ble High Court of Delhi in CIT vs. Delhi Gymkhana Club Ltd. (supra) wherein it was held that the income from fixed deposits in the bank, dividend income, income from Govt. Securities and profit on sale of investments etc. would also attract the doctrine of mutuality. However, now in the 4 'v* ' ITA No.4502/Del/2013 ACIT vs. Oakwood Estate Condominium Associations present situation the Hon'ble Apex Court in the case of Bangalore Club (supra) has categorically held that the interest earned by the assessee from the financial institutions who are members of the assessee club will not fall within the ambit of mutuality principle and therefore will be liable to charge of income tax in the hands of the assessee club. This decision of the Hon'ble Apex Court has been rendered on 9th December 2011 and the co-ordinate Bench of this Tribunal did not have notice of the decision of the Hon'ble Apex Court at the time of pronouncing the order on 9th December 2011 in the assessee's own case for AY 2007-08 in ITA No. 5846/Del/2010. So the position of law, as it stands today, subsequent to the decision of Hon'ble Apex Court in the case of Bangalore Club vs. CIT (supra) is that interest earned from the financial institutions will not fall within the ambit of the mutuality principle. In Bangalore Club case, the assessee was an association of persons. It sought exemption from payment of income tax on the interest earned on fixed deposits kept with certain banks which were corporate members of the assessee, on the principle of mutuality. The assessee however, paid tax on interest earned on fixed deposits kept with non members' bank. It was in this background that the Hon'ble Apex Court held that for application of principle of mutuality, there has to be a complete identity between the contributors and the participators. As per the observations of the Hon'ble Apex Court, "Firstly, the arrangement lacked complete identity between the contributors and participators. Till the stage of generation of surplus funds, the flow of money, to and fro, was maintained within the closed circuit formed by the banks and the club, and to that extent, nobody who was not privy to this mutuality, benefited 5 'v* ' ITA No.4502/Del/2013 ACIT vs. Oakwood Estate Condominium Associations from this arrangement. However, as soon as these funds were placed in fixed deposits with banks, the closed flow of funds between the banks and the club suffered from deflections due to exposure to commercial banking operations. During the course of their banking business, the member banks used such deposits to advance loans to their clients. Hence, with the funds of the mutuality, member banks engaged in commercial operations with third parties outside of the mutuality, and consequently, violating the one to one identity between the contributors and the participators as mandated by the first condition. (b) The surplus funds were not used for any specific service, infrastructure, and maintenance or for any other direct benefit for the members of the club. When the member banks placed them at the disposal of third parties, an independent contract between the bank and the clients of the bank, a third party, not privy to the mutuality, was initiated. This contract was not an activity of the club in pursuit of its objectives..." In the case before us, the situation is much worse because the relation between the assessee society and the bank is only that of the client and customer and there is no scope of mutuality existing between them. Therefore, respectfully following the order of the Hon'ble Apex Court, we hold that the benefit of principle of mutuality will not be available to the assessee society for interest accrued/earned on fixed deposits maintained with banks.
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6. In the result the appeal of the Department is allowed.
Order pronounced in the open court on 01.01.2016.
Sd/- Sd/-
(INTURI RAMA RAO) (SUDHANSHU SRIVASTAVA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: the 1st January, 2016
'veena'
Copy of the Order forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
6. Guard File By order
Dy. Registrar
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