| The Tax Publishers2021 TaxPub(DT) 2436 (Bang-Trib) INCOME TAX ACT, 1961
Section 37(1)
The very fact that bye laws of assessee-society contained provisions that payment of dividend to its members went to show that it was not a mutual society and commerciality was very much inherent in the activities of assessee. Therefore, action of AO was not justified in thrusting the concept of mutuality even when assessee-society never claimed concept of mutuality.
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Business expenditure - Interest expenditure - Allowability -
Assessee, a co-operative society formed by employees of Vijaya Bank, was having object of buying of land and developing the same into sites to allot them to its members at a reasonable price. It earned interest on deposits and also claimed deduction of interest paid to members on withdrawal of site advance due to delay in allotment of sites. AO invoked mutuality principle and taxed gross amount of interest income earned without allowing corresponding interest expenditure incurred/paid to the members. Held: Members even after obtaining site / plot from assessee-society once was entitled to continue to retain his membership. Hence, there was no contribution from his side, though he was entitled to participate in the profits earned by assessee-society, which could be distributed in the form of dividend. The very fact that bye-laws of assessee-society contained provisions that payment of dividend to its members went to show that it was not a mutual society and commerciality was very much inherent in the activities of assessee. Therefore, action of AO was not justified in thrusting the concept of mutuality, even when assessee-society never claimed concept of mutuality. Interest expenditure claimed by assessee was purely compensatory to offset cost overrun to the members of assessee-society. Therefore, based on principle of matching concept, expenditure attributable to income was to be allowed. There was a direct nexus between contribution by members, which was utilized for making fixed deposit to earn interest income and payment of portion of such interest income paid as compensation to members for delayed allotment of sites.
Relied:J.K. Industries v. UOI (2007) 297 ITR 176 (SC) : 2008 TaxPub(DT) 503 (Bang-Trib). Supported by:CIT v. Lakshmi Machine Works 290 ITR 667 (SC) : 2007 TaxPub(DT) 1188 (SC), Sassoon J David & Co. Pvt. Ltd. v. CIT (1979) 118 ITR 261 : 1979 TaxPub(DT) 1025 (SC), CIT v. Sasan Power Limited 18 Taxmann.com 182 (Del-HC) : 2013 TaxPub(DT) 1836 (Del-HC), and Taj International Jewellers (2011) 335 ITR 144 : 2011 TaxPub(DT) 719 (Del-HC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2007-2008 to 2014-2015
IN THE ITAT, BANGALORE BENCH
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