Interest on Fixed Deposits received by society from Bank is Taxable

In assessee’s case, the bank is not even a member of the society. The nature of the transaction between the assessee and the bank would disqualify application of the principle of mutuality. Therefore, the transactions with the bank who is not even a member of the society cannot be considered as a transaction for which principles of mutuality will apply. Not only on the principles laid down in the subject but also on the fact that the interest was received from a non- member, the principles of mutuality do not apply.

The Honourable jurisdictional High Court in the case of CIT Vs. 1. Secunderabad Club, Picket; 2. Armed Forces Officers’ Co-operative Housing Society Ltd., [340 ITR 121] (AP) has clearly adjudicated that the nature of transaction between assessee and banks would disqualify application of principle of mutuality. It was held that interest earned was taxable. ITAT followed the case of Secunderabad Club.

FULL TEXT OF THE ITAT JUDGMENT

This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)- 4, Hyderabad dated 03-12-2015. The issue in this appeal is whether the interest earned by assessee on Fixed Deposits with bank is taxable or not?

2. Briefly stated, assessee herein is an AOP carrying on the activities for the mutual benefit of the members. Its principle activity is to collect money from the members and provide it to the needy members. The income of the society is considered exempt from tax on the principle of mutuality. However, the Assessing Officer (AO) noticed that assessee has deposited its funds in Fixed Deposits with the bank and has not offered the same to tax. Elaborately discussing the principles as established by the Honourable Supreme Court in the case of CIT Vs. Bankipur Club Ltd., [226 ITR 97] and other decisions in Chemsford Club Vs. CIT [243 ITR 89] and CIT Vs. Cawnpore Club Ltd., [140 Taxman 378] and also following the jurisdictional High Court judgement in the case of CIT Vs. Secunderbad Club Picket [340 ITR 121] (AP), AO brought an amount of Rs. 32,53,654/- to tax. There are two other items which are brought to tax but they were given relief by the CIT(A) and are not subject matter of appeal.

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