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III. Useful Case Laws:
1. M/s Bangalore Club Vs. CIT & Anr, Civil Appeal No. 124/2007, Date of Order: 14-01-2013, Supreme Court of India
Interest earned by a Club from FD placed with member banks not exempt on ‘mutuality’ ground.
For a receipt to be exempt on the principles of Mutuality, three conditions have to be satisfied. The first is that there must be a complete identity between the contributors and participators. The second is that the actions of the participators and contributors must be in furtherance of the mandate of the association. The third
is that there must be no scope of profiteering by the contributors from
a fund made by them which could only be expended or returned to
themselves.
On facts, though the interest was earned from banks which were
corporate members of the club, it was not exempt on the ground of
mutuality because (i) the arrangement lacks a complete identity between
the contributors and participators. With the funds of the club, member
banks engaged in commercial operations with third parties outside of the
mutuality, rupturing the ‘privity of mutuality’, and consequently,
violating the one to one identity between the contributors and
participators, (ii) the surplus funds were not used in furtherance of
the object of the club but were taken out of mutuality when the member
banks placed the same at the disposal of third parties, thus, initiating
an independent contract between the bank and the clients of the bank, a
third party, not privy to the mutuality & (iii) The Banks generated
revenue by paying a lower rate of interest to the assessee-club and
loaning the funds to third parties. The interest accrued on the surplus
deposited by the club like in the case of any other deposit made by an
account holder with the bank. A façade of a club cannot be constructed
over commercial transactions to avoid liability to tax. Such setups
cannot be permitted to claim double benefit of mutuality.
(Please click here for judgment)
2. Canara Bank Vs. ITO, ITA Nos. 609 to 611/Chd/2012, Date of Order: 28-12-2012, ITAT- Chandigarh
Penalty u/s 272B is prospective & applicable from 01.06.2006
The provision
of section 272B of the Act attracted where the assessee has failed to
furnish the PAN number of the deductee in the statement furnished in
response to tax deduction at source under various provision of the Act.
In view of the insertion of sub-clause (iv) to section 139A (5B) of the
Act, the duty of the deductor quoting the PAN number starts from
1-06-2006 i.e. the date of insertion of the said sub-clause by way of
Finance Act, 2006. Accordingly, the assessing having furnished its e-TDS
quarterly statement on 31-08-2005 cannot be held to have defaulted by
non-furnishing or wrongly mentioned the PAN number of the deductee in
quarterly statement filed on 31-08-2005.
However, In
instant case the said income of deductee is below taxable limit, there
is no requirement to apply and receive the PAN and in such
circumstances, the deductor assessee for non quoting the PAN could not
be held to have defaulted and hence not exigible to levy of penalty
under section 272B of the Act. The assessing officer shall decide the
issue after verification and in accordance with law.
(Please click here for judgment)
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