AI Structured Summary
Not yet generated for this judgment
Judgment
Per Manish Agarwal, Accountant Member:
The present appeal has been filed by the Revenue against the order dated 24.07.2025passed by ld. CIT(A)/Addl./JCIT(A)-6, Ko lkata in DIN & order No. IT BA/ AP L/S/250/2025-26/1078863492(1)passed u/s 250 of the Income Tax Act, 1961 [“the Act”] ar ising from the intimation order dated 31.08.2018 passed u/s 143(1) of the Act pertaining to assessment year 2016-17.
First a nd second grounds of appeal of the Revenue are with respect to action of the ld. C IT(A) in holding that the membership fees received from its own members under principle of mutuality and thus exempt from tax. Heard the parties and perused the material available on re cords. At the outset, it is observed that this is a legacy issue w herein for the first time in A.Y.2009-10, the subscription received from the members was held as non-taxable by ld. C IT(A) by observing as under:
“16.Referenc e is m ade to A Y 2009-10 wher ei n the Ld. CIT(A) uphel d the applicabili ty of the principle of mut uality to membe rship subscription fee r eceived by the Assessee and also held t hat such i nco me from m embers is not taxable under the Act. (Page 728 of Paperbook) The rel evant extr acts of the or der are reproduc ed bel ow:
“I have c onsidered the order of the AO and t he submissi ons of the assessee and Ifi nd considerablem erit in the submissio ns of the assessee. It is seen that the i ncom e of the assess ee rec eiv edfr om the non-members has been offered f or tax by t he assess ee its elf. It i s onl y the m embership fees from its o wn mem bers whic h have been claimed as exemp t by the assess ee on the pri nciple of mut uality. The as sessee is a trade associatio n of soft ware i ndustries and its mai n obj ective is to prom ote and protect the interest of its members. So the membershi p fees r eceived by the assess ee from its own members come s with the m eani ng of pri ncipl e of mut uality and as suc h the net i nc ome of the assessee from its own m ember is exempt f rom tax. The cas e laws cit ed by the ass ess ee as above also support the case o f the assessee on the pri nciple of mut uality. Aft er consideri ng all the facts and circumstances of the case, I am of the view that there is no proper justificati on for the additi on made by the AO and accordi ngl y the same is delet ed.”
Against the said order, Revenue preferred an appeal before the Tr ibunal wherein the Delhi benches of Tribunal in ITA No. 6521/Del/2013 confirmed the order of ld. CIT(A) by making follow ing observations:
“17.In C ommissioner of Income-t ax- Exemptions, N ew Del hi v. Nati onal Associati on of Software and S ervice Companies, ITA 6521/Del /2013, the H on'bl e Del hi bench of ITAT has upheld the above order of the L d. C IT(A ) holdi ng as bel ow (Page 684 of Paperbook):
“10.In so far as the objection of the Id. AO based on the variance i n t he subscri ption fe e and variance i n voti ng ri ghts is concerned, i n ITO vs Venkatesh Pre mises Cooper ative S ociety Ltd. , 402 ITR 670 (Sc), the H on'bl e Apex court held that so long as t he membership forms a class, the ide ntity of individual member is irrelevant and any difference i n t he contributi ons payabl e by the members cannot fall foul of the la w as suffici ent classification exists. In C IT vs Hindusta n Sports Cl ub (supra ), the Hon'bl e Bombay High Co urt held that once the ass essee is governed by the pri nciple of mutuality, eve n if there are diff erenc e class of members, some of whom are not entitl ed to vot e, t he club would not be cease to be governed by pri nciple of mut uality. In Ranc hi Cl ub (supra) and Standing Co nfer ence of Public Enter prises (supra), i t is held that merely because the ass essee had ente red into tra nsactio ns with non mem bers and earne d pr ofits out of transac ti ons held with them, it is right t o claim exemption on the pri nciple of mutuality in r esp ect of tr ansactions held by it with it s members is not lost. The pri ncipl e of establ ishi ng identity between t he contribut ors and pa rticipators wo uld appl y only in res pect of cont ributions made by the members. Ho n'bl e court concl uded that the assessee being a mut ual c once rn, t he i ncome derived fro m the property let out to i ts members and their guests and sale of liquor etc. t o its members woul d not be taxabl e.
11.In this case, as already stated, the assessee had offered to tax the i ncome deriv ed from t he rec eipts from the no n-members. I n so far as t he members are conc erned, ther e is no dispute as to t he identity between the c ontribut ors a nd t he participators. ...
13.For t he ab ove r easons , we conc ur with t he findi ngs of CIT(A ) that t he cas e law relie d upon by the Id. AR s upports the view taken by t he Id. CIT(A) on the aspe ct of principl e of mutuality” – and t he entitlement of the assessee to claim the benefit of section 11 of the Act.”
Thereafter for subsequent years, AO treated the subscrip tion fro m the members as taxable howe ver, the same was held as non-taxable by ld . CIT(A) and such orders were confirmed by the Tribunal. In AY 2011-12, revenue has challenged the order of Tribunal before the Hon’ble jurisdictional High Court wherein ITA No. 22/2024,the hon’ble high court by referring the observations made by the Tribunal in ITA No. 6521 /Del/2013 for Ay 2009-10 has confirmed the order of the Tribunal and held the membership fees received from the members as exempt/non-taxable . Further in subseque nt assessment years, the co-ordinate bench of the Tribunal had confirmed the orders of the ld. CIT(A) and held the me mbership fee received from the me mbers as non-taxable/exempt by a common or der for Assessment Years2013-14, 2014-15 and 2015-16 in IT A Nos. 173, 174 & 175/Del/2014 respectively. As fairly admitted by both the parties before us, the facts are identical thus by respectfully following the observations made in the aforesaid orders, we find no error in the order of the ld. C IT( A) in holding the membership fees received from the members as exempt.Thus, the grounds of appeal Nos. 1 & 2 of the Revenue are d ismissed .
Ground of appeal No. 3 of the Revenue is against the order of ld. C IT(A) holding the interest received from tax free bonds of Rs.77,86,770/-as exempt u/s 10(15)(iv)(h) of the Act. Heard the parties at length. It is observed that ld. CIT(A) in paragraph 5.5 of the order has fo llowed the no tifications issued by the central government no tified the tax free bonds for the purpose of the aforesaid section. Therefore, we find no error in the order of the ld. C IT(A) in holding the interest received from tax free bonds as exempt. Accordingly, this ground of appeal of the Revenue is dismissed. With respect to the ar gument of ld. CIT DR that that no opportunity was provided to the Assessing Officer for remand report on this issue , it is observed that the CPC in the intimatio n order passed u/s143(1) has treated the interest income tax free bonds as taxable without providing an opportunity to the assessee. In appellate proceedings, the assessee in terms of the directions given by ld. CIT(A)videletter dated 25.05.2025,has filed all the relevant interest certificates which were examined by ld. CIT(A) in terms o f the power conferred upon him u/s 250(4) of the Act. Since the ld. C IT(A) has invoked the powers co nferred by him by the statute and after examining the certificates filed with the respective notifications issued by the central Govt. held the interest income as exempt, under these circumstances, ld. CIT(A)was under no obligation to ob tain the report from the AO in particular ly when this issue has already been settled by the Hon’ble jurisdictional High Court in the case of CIT Vs. Manish BuildWell Pvt. Ltd.(2011) 16 taxmann.co m 27 (Del.) wherein the Hon’ble jurisdictional High Court explained the difference between powers of Ld. CIT(A) under Rule 46A(4) and a situation where asse ssee has itself filed additio nal evidence as below:
“24.....In o ur opi ni on and with r espect, the er r or committ ed by t he Tribunal is that it pr oce eded t o mix up the powers of the C IT (A ) under sub- secti on (4) of Secti on 250 wit h the powers vested in hi m under R ul e 46A. The T ri bunal seems to have over lo oked sub-rule(4 ) of Rule 4 6A which i tself t akes not e o f t he distinc ti on between the powers c onferred by t he C IT (A ) under t he statute while disposi ng of the assess ee's appeal and t he powers conferre d upon him under R ule 46A. The Tribuna l erred in its i nterpretation of t he provisions of Rule 46A vis-à-vis Secti on 250(4). Its view was no vi olation of R ul e 46A is err oneous. The Tri bunal appears t o have not appreciated t he distinc ti on bet ween the t wo provisions . If the view of the Tribunal is acce pted, i t would make R ule 46A oti ose and it would open up the possibi li ty o f t he assessees' contending t hat any additional evidenc e sought to be i ntr oduced by t hem before t he C IT (A ) cannot be subjected to the c onditio ns presc ribed i n Rul e 46A because in any c ase the C IT(A ) i s v est ed with cont ermi nous powe rs over t he assessment orders or powers of i ndependent enq uiry under s ub-secti on (4 ) of Secti on 2 50. That is a conseq uence which cannot at all be countenanc ed."
Accordingly, we find no mer its in this argume nt of the Revenue and the same is hereby dismissed.
Ground of appeal No. 4 of the Revenue is against the action of ld. C IT(A) allowing the claim of deduction u/ s 80-G without providing an opportunity to the AO for verification. Heard the parties and from the perusal of the order of ld. CIT(A), it is observed that the assessee in the return of income filed had claimed the deductio n u/s 80G and filled all the relevant details for the return of income field .The CPC while processing the return has d isallowed the same w ithout providing any opportunity or without providing any reasons for not allo wing the deduction otherwise available to the assessee. Once the assessee has provided all the details in the re turn of income filed and no error/ omission was po inted out by the CPC before making such disallo wance, it is against the mandated provisions of section 143(1) of the Act and CPC is not entitled to make any such type of disallowance w ithout assigning any specific reason for the same.We find that ld. CIT(A) appreciated the se facts and deleted the disallo wance. Accordingly, the order of ld. CIT(A) on this score is hereby upheld.
In the result, the appeal of the Revenue is dismissed.