1. The assessee is in appeal against order dated 16-8-1991 of the learned Commissioner of Income-tax (Appeals) dismissing its appeal against order of assessment dated 13-2-1991 as passed by the Assessing Officer.
2. The relevant facts are that the assessee is a co-operative society registered under the Societies Registration Act. It was incorporated on 9-4-1985. The main object of the assessee is to maintain, manage and administer the colony known as Som Vihar Apartment (SVA) consisting of block of residential apartments (A to J) and Central facilities. The bye-laws of the assessee-society have been drafted on the basis of model bye-laws which Registrar of Cooperative Societies had framed for each class or sub-class of cooperative society, in accordance with rule 14 of the Delhi Co-operative Societies Rules, 1973. The apartments were constructed and allotted by Army Welfare Housing Organisation (AWHO) (which itself is a society registered under the Societies Registration Act, 1860) to the original owners (Services Officers) on the basis of a break-up of cost depending upon the area of each flat and under different heads like "Apartment + Land and Lift", developmental costs, departmental charges, taxes and statutory payments and Community Centre building. While the residential complex, i.e., SVA consists of 10 blocks (A to J) having in all 422 residential units, one block, i.e., K-Block provides common facilities like a Club for the exclusive use of the residents, which is referred to as "The Institute" and shopping as also banking facilities for the residents. As far as K-Block is concerned, all the owners of residential flats were charged a uniform amount of Rs. 4,650 per owner. After the construction of the flats and allotment thereof to 422 owners and after they took possession of the flats, a Users Committee was set up to manage the affairs temporarily until the appellant-society itself was constituted in April 1985. The assessee towards discharge of its obligation is required to up-keep and maintain the land, to operate, maintain all common services like Lifts, Generators, Pumping Sets, Roads, Parks, Sewers, Street Lights, Stair Cases, Gallaries, common paths, drains external repairs of the property. The assessee is authorised to recover from members and pay all ground rents, fee and taxes. For the performance of its function, the assessee can collect monthly contribution from the members.
3. The assessee after its incorporations filed returns of its income showing receipts from members, licence fees received from shops and the bank, which provided the requisite facilities for the residents of the complex and interest from deposits in Bank as its income and claiming expenses and depreciation in respect of buildings, etc. The Assessing Officer rejected the claim of the assessee fort depreciation after reopening the assessment for the relevant assessment year under appeal. The Assessing Officer computed assessee's income at Rs. 4,96,970 as against the returned loss of Rs. 49,64,030 after excluding claim of depreciation. The assessee failed in first appeal and is, therefore, in appeal before us.
4. The assessee raised the following two grounds in its appeal before the Tribunal :-
"1. The Assessing Officer has erred in disallowing the depreciation amount of Rs. 32,69,654 on the assets of the Society having a gross value of Rs. 2,40,67,548.20 ps. (Rupees two crores forty lakhs sixty seven thousand five hundred forty eight & paise twenty only), which the assessee was entitled to set off against the income accruing to it from those assets.
2. The learned assessing authority was not justified in law and facts of the case in reassessing the income under section 147 and disallowance of depreciation allowance of Rs. 32,69,654 and the issue of notice by him under section 148 was invalid and illegal."
5. Because of non-appearance of counsel of the assessee, the Tribunal disposed of the appeal ex parte and on merits vide its order dated 21-7-1993 and noted in para 3 of its order that an important fact the Assessing Officer noted was that the various flat owners of the colony has fractional shares in all the assets (including 'K' Block) in respect of which depreciation had been claimed and that according to the Assessing Officer, depreciation could not be allowed where several persons owned the property jointly with specified fractional shares in depreciable assets. The Tribunal held that the assessee is not the owner and only the members of the Society are the owners of the flats. The Tribunal also rejected the contention of the Society that it was the owner of the entire complex and looking after maintenance of the complex amounted to carrying on of a business. The Tribunal accordingly rejected the assessee's claim for depreciation. The second ground against reopening was also held against the assessee. While the appeal of the assessee was dismissed, the Tribunal all the same in its order also observed as under :-
"It may be that the assessee being a Society, there is some mutuality. In the context of mutuality there might have been some collections made by the Society from the members as flat owners for the purpose of maintenance and administration of the complex. May be in the course of the performance of that function, some surplus was left and that surplus was brought to tax but if the assessee is a mutual Society where the contributors and the ultimate beneficiaries are one and the same and applying the famous and well established principle that no man can trade with himself to give rise to a revenue liability, it is doubtful whether the surplus can be brought to tax. We are not in any case called upon to express any opinion on that. We, therefore, refrain from expressing ourselves thereon. We mentioned this aspect because even for the purpose of allowance of depreciation, on the assets brought into existence by the Society after it took possession of the same complex for maintenance, with its own funds, the question of positive income from which the amount of depreciation could be set off, should arise. In other words, without any positive income the question of allowance of depreciation cannot arise. It is in this context the taxability of the surplus might become relevant."
6. The appellant filed a Miscellaneous Application under Section 254(2) against the ex parte order dated 21-7-1993 of the Tribunal. After hearing the appellant, the Tribunal by its order dated 4-4-1994 held that the assessee should not suffer for the default of its counsel and accordingly in the interest of justice and equity, directed that the order of the Tribunal be recalled and the assessee be heard.
7. On 28-7-1994, the appellant filed an additional ground of appeal submitting that a substantial portion of its receipts would be exempt from tax under the principle of mutuality. It was submitted that all the relevant facts in this regard are available on the record of the Assessing Officer. The question regarding admission of the additional ground was considered by us at the hearing held on 19-9-1996. The learned Authorised Representative for the assessee, Shri Eradi submitted that the Society is constituted of Defence Officers, who are not aware of the correct legal position in regard to taxability or otherwise of the surplus arising out of contribution by the members of the Society and the additional ground was, therefore, filed when they became aware of the correct legal position. He submitted that being purely a legal ground which does not require investigation into may new facts which were not before the authorities below, the same deserve to be admitted. He placed reliance on the decision of Hon'ble Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT  187 ITR 688 wherein it has been held that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to restrictions or limitations, if any, prescribed by the statutory provisions. The Hon'ble Court considered its earlier decisions and in particulars the decision in Addl. CIT v. Gurjergravure P. Ltd.  111 ITR 1 (SC) and went on to observe that in the circumstances, the view of the larger Bench in Kanpur Coal Syndicate hold the field.
8. The Jute Corporation of India, in their case, had not claimed deduction of liability to pay Purchase Tax under the provisions of the Bengal Raw Jute Taxation Act, 1941 at the assessment stage, but claimed such deduction at the appellate stage. The reason for failure to claim deduction at the original stage was because the company entertained a belief that it was not liable to pay Purchase Tax under the aforesaid Act. Under the circumstances the Hon'ble Supreme Court upheld the decision of the first appellate authority to entertain the additional ground.
9. Shri Eradi the learned counsel also invited our attention to Delhi High Court judgment in the case of Taylor Instrument Co. (India) Ltd. v. CIT  198 ITR 1/64 Taxman 129, wherein the Hon'ble Court at page 15 of the report expressed the view that "normally whenever no fresh evidence is required to be taken, we see no reason as to why additional ground should not be entertained by the Income-tax Appellate Tribunal. This is for the reason that under Article 265 of the Constitution, the State is entitled to recover or realise only that tax which is imposed in accordance with law. It is the duty of the State to see that justice is done to the citizens. Therefore, shelter should not ordinarily be taken behind procedural technicalities with a view of defeat a just claim of the assessee." The Court went on to observe that the contention of the assessee ought to have been allowed to be raised, especially when it is a pure question of law involving no investigation into facts.
10. On the other hand, the learned Departmental Representative contested the arguments advanced on behalf of the assessee and submitted that the additional ground should not be admitted having been taken at a very late stage.
11. After hearing the learned representative of the parties and considering the fact that members of the appellant-society were serving and retired Defence Officers who could not be expected to have intimate knowledge of complicated Tax Laws and that they had raised the additional ground once they came to be aware of the correct legal position and following the judgment of the jurisdictional High Court in the case of Taylor Instruments Co. (India) Ltd. (supra) and of the Hon'ble Supreme Court in Jute Corpn. of India Ltd.'s case (supra), we hold that the additional ground deserves to be admitted and directed the parties to argue their respective stand on merits.
12. Coming to the merits of the appeal it is seen from the records that out of total receipts of the assessee for the relevant previous year (1-7-1987 to 31-3-1989) amounting to Rs. 36,61,027, payments from members on various counts amounted to Rs. 18,43,777. A further sum of Rs. 16,62,484 was received from licensees of premises of K-Block by way of licence fee and electricity charges. The other receipt was a sum of Rs. 1,54,765 as interest from Bank in respect of surplus sums received from members kept as deposits in Bank.
12.1. Shri. Eradi, the learned AR relied on judgment of Hon'ble Calcutta High Court in CIT v. Apsara Co-operative Housing Society Ltd.  204 ITR 662 in which the Hon'ble Court held that the assessee-co-operative housing society was a mutual concern and that, therefore, transfer fees received by it from the members was not taxable as the income of the Society. Continuing with his submissions, Shri. Eradi took as through bye-laws of the appellant-society and in particular, Bye-Laws Nos. 54 and 55 dealing with liquidation and which are provided as under :-
"54. The society shall be wound up and dissolved only by the order of the Registrar under section 63 of Delhi Cooperative Societies Act of 1972 and Rules made thereunder.
55. After meeting all the liabilities including the paid-up share capital, the surplus assets, if any, shall not be divided among the members but shall be utilized towards any object or public utility determined by the General Meeting of the Society within three months of the date of the final liquidation approved by the Registrar, or the Registrar may, with the approval of the General Meeting of the Society place said surplus or deposit with the Delhi State Cooperative Bank Ltd., until such time a new society with similar conditions is registered when with the consent of the Registrar, such surplus may be credited, to the Reserve Fund of such new society or assign the said surplus either wholly or in part to an object or public utility of local interest or a charitable purposes as defined in section 2 of the Charitable Endowment Act, 1890 (6 of 1890)."
12.2. Shri. Eradi submitted that the above provision are almost verbatim reproduction of the Model Bye-laws for a cooperative housing society as provided for under Rule 14 of the Delhi Cooperative Society Rules, 1973, as referred to earlier. Similarly bye-laws 44 to 49 of the Society are also entirely in accordance with the model draft dealing with distribution of profits. It was submitted that by and large similar pattern is followed by similar cooperative societies under the relevant law s applicable in other States like, West Bengal, Maharashtra, Gujarat, etc. 12.3. The issue regarding mutuality in the context of housing societies was dealt with threadbare by the Gujarat High Court in CIT v. Adarsh Co-operative Housing Society Ltd.  213 ITR 677. A mutual association, it has been held, is an Association of Persons who agrees to contribute funds for same common purpose of mutually beneficial and received back the surplus that remains in the same capacity in which they have made the contributions. Therefore, the capacity as contributors and as participants remains the same. They contribute with as idea to trade but with the idea of rendering mutual-self. They received back the surplus after meeting the expenditure of the Association incorporated for the common purpose to which they have contributed. Thus, they received back what was really their own and that is why the receipt in their hands is not really treated as a profit as no man can make a profit out of himself just as he cannot enter into a trade or business with himself.
12.4. Therefore, the main test of mutuality is identity of contributors and recipients. It has been held in several cases including CIT v. West Godavari District Rice Millers Association  150 ITR 394/17 Taxman 34 (AP) that the identity need not necessarily be of individuals because it is the identity of statues or capacity which matters more. The individual members of an Association may be different but so long as contributors and the recipients are both holding the memberships status in Association, their identity would be clearly established and the principle of mutuality would be available to them if such a mutual concern receives any income the surplus of which goes back to the contributors of the said income.
12.5. In the case of the appellant, Rule 21 of the Memorandum of Association provides that in the event of dissolution surplus should not go to the members and it should be made over to Association with similar objects by a decision of 3/5th of the majority of the Association. Following the decision of Madras High Court in CIT v. Madras Race club Ltd.  105 ITR 433 and the House of Lords in IRC v. Eccentric Club Ltd.  12 TC 657, the Andhra Pradesh High Court held that the participation envisaged in the principle of mutuality is not that the members should willy nilly take the surplus to themselves. Since the members could choose the organisation of similar object to which the surplus would go, they had as the owners of the surplus, right to dispose of the same in the manner they like.
12.6. In Adarsh Co-operative Housing Society Ltd.'s case (supra), the position regarding disposal of surplus assets on liquidation was very similar to that of the assessee, as is evident from page 689 onwards of the Report. The Hon'ble High Court observed that though the surplus asserts cannot be distributed amongst the members on winding up of the Society, the fact that they have the right to decide on the method of utilisation of the surplus in accordance with law is adequate to fulfil the conditions regarding mutuality.
13. On the other hand, the learned D.R. placed strong reliance on the decision of the Hon'ble Supreme Court in CIT v. Kumbakonam Mutual Benefit Fund Ltd.  53 ITR 241. In that case, the assessee-company was incorporated under the Indian Companies Act, 1882 with an equity capital of Rs. 33 lakhs divided into shares of Re. 1. It carried on banking business restricted to its shareholders. In its business recurring deposits were got from members for fixed amount to be contributed monthly by them in accordance with certain published table in such a manner that the amount returned covered compound interest for the period. The recurring deposits constituted the main sources of funds for the assessee out of which it advanced loans to its members on the basis of sufficient security and after meeting the expenses the balance was divided amongst facts that the Hon'ble Supreme Court held that principle in Styles case does not apply to the facts of the case. A shareholders in the said company was entitled to participate in the profit without contribution to the fund merely on the basis of his being a shareholder. In this view of the matter, the Court held that the position in that case was nowhere different from the shareholder in a banking company. The facts in the instant case are, however, totally different. A clear finding of fact by the Tribunal itself in the order dated 21-7-1993 is that the appellant was not carrying on any business. Besides, in the case of the assessee, the only receipts from the members have been proportionate contribution towards maintenance charges, etc., on the lines already indicated above and no member has been paid any amount by way of income by the appellant. Reliance has also been placed on behalf of the assessee on the decision of Calcutta High Court in CIT v. Indian Paper Mills Association  209 ITR 28 and various orders of the Tribunal as in Dy. CIT v. Bengal Rowing Club  48 ITD 512 (Cal.), Lohtse Cooperative Housing Society 51 ITD 608 at page 615 and Ludhiana Agarwal Cooperative House Building Society Ltd. v. ITO  55 ITD 423 (Chd.)
14. We have given our careful consideration to the submissions advanced by the learned representatives of the parties. On the basis of decisions/judgments relied upon on behalf of the assessee as also keeping in view the objects and aims of the assessee, it is clear that the appellant-assessee fully satisfied the conditions for exemption on the principle of mutuality in regard to income covered by such principle. As already seen, out of its total receipts of Rs. 36,61,027 for the relevant previous year a sum of Rs. 18,43,777 represents contributions made by the members of the Society themselves and as such this amount is clearly exempt from tax on the principle of mutuality. We have also noticed that K-Block which provides common facilities has also been paid for by 422 members of the society at Rs. 4,650 per member, forming part of total cost of acquisition of the flats in each case. The Delhi Municipal Corporation has also taken the view that rateable value of K-Block would be calculated "on the basis of each flat by dividing such rateable value by 422" being the numbers of residents "who are joint owners of K-Block property". This being so, the licence fee and electricity charges in respect of property being K-Block jointly owned by 422 residents, amounting to Rs. 16,62,484 collected from licence by the Society instead of by the individual flat owners more as a matter of convenience, would also amount to contribution by the separate flat owners to the mutual Association and would, thus, be exempt on the principle of mutuality. Regarding interest of Rs. 1,54,766 we agree with the submission of the learned Departmental Representative such interest is not from a mutual activity and as such it would be exigible on the basis of decision of Gujarat High Court in Sports Club of Gujarat Ltd. v. CIT  171 ITR 504/37 Taxman 38. Any expenditure the appellant had incurred wholly and exclusively for the purpose of earning the interest would, of course, be deductible as expenditure. We, therefore, direct the Assessing Officer to determine expenditure as could be related to earning of interest of Rs. 1,54,766 and tax the balance as assessee's income. Subject to above directions, assessee's appeal is allowed in part.