Bank interest income taxable under mutuality principle breach; 5% proportionate expenses allowable.

आदेश/ORDER

PER VINAY BHAMORE, JM:

This appeal filed by the assessee is directed against the order dated 08.07.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2018-19.

2. There is delay in filing of the present appeal. We are satisfied with the reasons mentioned in the application for condonation of delay duly supported by an affidavit that the applicant was prevented by sufficient cause for not filing the appeal within the prescribed time limit. After hearing Ld. DR, we condone the delay and proceed to adjudicate the appeal.

3. The appellant has raised the following grounds of appeal :-

“The following grounds are taken without prejudice to each other- On facts and in law,

1. The learned CIT(A) erred in confirming the action of the Assessing Officer in treating the interest income earned on Fixed Deposits kept with banks as taxable under the head "Income from Other Sources", by holding that the principle of mutuality is not applicable to such income, without appreciating the peculiar facts of the appellant's case.

2. The learned CIT(A) grossly erred in placing reliance on the decision of the Hon'ble Supreme Court in the case of Bangalore Club v. CIT (2013) 29 taxmann.com 29, without appreciating that the said decision is distinguishable on facts and does not apply to the appellant's case, as the deposits were made out of mandatory contributions / surplus funds of the members, and the interest thereon partakes the same character as mutual contributions.

3. The learned CIT(A) failed to appreciate that

(a) The surplus funds were inextricably linked with the mutual activities of the appellant:

(b) The interest income is incidental and not in the nature of income derived from dealings with non-members;

(c) The principle of mutuality continues to apply so long as there is a complete identity between contributors and participants, which is present in the appellant's case.

4. Without prejudice, the learned CIT(A) failed to appreciate that even assuming (but not admitting) that the principle of mutuality is inapplicable, the entire gross interest cannot be taxed without allowing deduction of proportionate expenses incurred for earning the said interest.

5. On facts and in law, the learned CIT(A) erred in passing the appellate order without granting the appellant an opportunity of personal hearing through video conferencing, despite the specific request made under Ground 5(b) of the appeal memo. The order so passed is in gross violation of the principles of natural justice and is therefore bad in law and liable to be quashed.

6. The appellant craves leave to add, alter, amend, substitute or withdraw any of the above grounds of appeal at the time of hearing.”

4. Facts of the case, in brief, are that the assessee is duly registered under the Bombay Public Trust Act, 1950 and is engaged in the activity of bringing all the builders who are involved in the business of construction and development of properties etc under one roof and providing solutions for their peculiar problems as well as the problems of the public at large. The assessee has furnished its return of income on 30.03.2018 declaring income of Rs.69,030/- only after claiming deduction of income of bank FDR interest income on principle of mutuality. The case of the assessee was selected for scrutiny and statutory notices u/s 143(2) and 142(1) respectively were issued to the assessee. During the year regular books of accounts were maintained and audited. The assessee has shown following incomes & claimed exemption as per principle of mutuality on Bank interest income :-

5. After considering the reply and submissions of the