For Full Access To All Latest Judgments on Income Tax
Click Here To Subscribe Now
Take a tour of our Income-Tax Library

In the instant case, appeals have been filed by assessee against the order passed by CIT quantum of assessment passed u/s 143(3) and order in relation to the penalty proceedings u/s 271(1)(c). AO had made an addition arising out of bank interest income. The main reasoning given by the AO was that the entire income of the assessee is not being utilized for any charitable activity albeit for the benefit of the members of the society and for running of the society, therefore, it cannot be said that society is carrying out any charitable activities for which it was granted exemption u/s 12A. CIT also upheld the order of AO and also enhanced the income by further disallowing the entire amount /contribution received by the assessee from its members on the ground that, on the one hand assessee holds registration u/s 12A and on the other benefit of exemption under ‘principle of mutuality’ is claimed. He held that same would not available to it, because mutuality and charitable activity do not go hand in hand Held that—Here in this case, the appellant association has been found purely for the benefit of members and interest income earned from onetime contribution has been utilized purely and exclusively for the benefit of the members, i.e., maintenance and upkeep of the residential flats and maintenance of the area and common services. The bank in which money was deposited in the form of FDR was neither a member of the appellant association nor was I any way participating in the activity of the association nor being benefited by any of the activities. Here all the ingredients of applicability of mutuality exist; and accordingly, no such income can be taxed in view of the principle of mutuality. Thus, on this score also, we hold that no income is chargeable to tax in the case of assessee. In so far as the appeals relating to penalty proceedings u/s 271(1)(c) is concerned, in view of our finding given above that no income is taxable in the hands of the appellant association, then levy of penalty u/s 271(1)(c) has no legs to stand and accordingly, penalty levied in all the years impugned before us stands deleted.

Shanti Prime Publication Pvt. Ltd.

Section 11, 13, 271 of Income Tax Act, 1961—Exemption u/s 11—penalty u/s 271—In the instant case, appeals have been filed by assessee against the order passed by CIT quantum of assessment passed u/s 143(3) and order in relation to the penalty proceedings u/s 271(1)(c).

AO had made an addition arising out of bank interest income. The main reasoning given by the AO was that the entire income of the assessee is not being utilized for any charitable activity albeit for the benefit of the members of the society and for running of the society, therefore, it cannot be said that society is carrying out any charitable activities for which it was granted exemption u/s 12A.

CIT also upheld the order of AO and also enhanced the income by further disallowing the entire amount /contribution received by the assessee from its members on the ground that, on the one hand assessee holds registration u/s 12A and on the other benefit of exemption under ‘principle of mutuality’ is claimed. He held that same would not available to it, because mutuality and charitable activity do not go hand in hand

Held that—Here in this case, the appellant association has been found purely for the benefit of members and interest income earned from onetime contribution has been utilized purely and exclusively for the benefit of the members, i.e., maintenance and upkeep of the residential flats and maintenance of the area and common services. The bank in which money was deposited in the form of FDR was neither a member of the appellant association nor was I any way participating in the activity of the association nor being benefited by any of the activities.

Here all the ingredients of applicability of mutuality exist; and accordingly, no such income can be taxed in view of the principle of mutuality. Thus, on this score also, we hold that no income is chargeable to tax in the case of assessee.

In so far as the appeals relating to penalty proceedings u/s 271(1)(c) is concerned, in view of our finding given above that no income is taxable in the hands of the appellant association, then levy of penalty u/s 271(1)(c) has no legs to stand and accordingly, penalty levied in all the years impugned before us stands deleted.[SWARN JAYANTI RAIL NAGAR FLAT OWNERS ASSOCIATION VERSUS ITO, EXEMPTION WARD, GHAZIABAD, COMMISSIONER OF INCOME TAX (APPEAL) – 1, NOIDA] [2018] [7] [ITCD Online] [89] [ITAT DELHI]