2015 (5) TMI 42 - AT - Income Tax

Revenue appeal dismissed, assessee's Cross Objection partly allowed. Tribunal rules on mutuality, income, expenses, interest.

The appeal by the Revenue was dismissed, and the Cross Objection by the assessee was allowed in part. The Tribunal upheld the principle of mutuality for ... Denial of exemption being an income of mutual concern - Principle of mutuality - Income from the transaction of non members is outside the purview of the mutuality - Treatment of reimbursement cost as income - Estimation of profits at 5% of gross amount recovered from non-members - Applicability of provisions of section 44C - Interest u/s 234B of the Act - Held that:- The ld. A.R. has placed on record order of the ITAT in assessee’s own case [2015 (5) TMI 113 - ITAT MUMBAI] for A.Y. 2006-07 dated 14-11-2012 wherein exactly similar issue has been decided by the Tribunal in favour of assessee. Our attention was also invited to the grounds raised by the Revenue in the appeal for A.Y. 2006-07 which are exactly same. Following the earlier order of this Tribunal, we hold that the assessee is covered by the principle of mutuality to the extent of its transaction with the members only and the income from the transaction of non members is outside the purview of the mutuality. Treatment of reimbursement cost as income - The ld. A.R. placed on record order of the Tribunal in [2015 (5) TMI 113 - ITAT MUMBAI] for A.Y. 2006-07 dated 14-11-2012 wherein exactly similar issue has been decided against the assessee holding that reimbursement cost is income. The ld. A.R. also placed on record order of the Tribunal in [2014 (1) TMI 1227 - ITAT MUMBAI] for A.Y. 2007-08 dated 22-1-2014 wherein this issue has been decided against of the assessee at para 7 to 9 at page No. 10 to 13 of the order. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in assessee’s own case we hold that reimbursement of cost was not income of assessee. Estimation of profits at 5% of gross amount recovered from non-members - The ground raised with regard to estimating the profit of the assessee company at 5% of gross amount recovered from non-members is covered against the assessee by the order of the Tribunal in [2015 (5) TMI 114 - ITAT MUMBAI] for A.Y. 2008-09 dated 31-01-2013. As the facts and circumstances during the year was same, respectfully following the order of Tribunal in assessee’s own case, we uphold the action of lower authorities estimating the profit of assessee company at 5% of gross amount recovered from non-members. Applicability of provisions of section 44C - We find that this issue is also covered against the assessee by the order of the Tribunal in [2015 (5) TMI 113 - ITAT MUMBAI] for A.Y. 2006-07 dated 14-11-2012. Exactly similar issue has been decided by the Tribunal in A.Y. 2007-08 in [2014 (1) TMI 1227 - ITAT MUMBAI] dated 22-01-2014 against the assessee. As the facts and circumstances during the year under consideration are same, we hold that provisions of section 44C of the Act apply to the assessee company in respect of expenses incurred at Head Office level. Accordingly ground No. 3 of the C.O. is dismissed. Principle contended in Article 7(1)(a) of the India Belgium Tax Treaty - We find that this issue is also covered by the order of the Tribunal in assessee’s own case in [2015 (5) TMI 114 - ITAT MUMBAI] for A.Y. 2008-09 order dated 31-01-2013 vide para 10 on page 11 which reads as under:- “10. It has been admitted by the learned counsel for the assessee that grounds No. 3 to 8 will render academic in view of the findings given in grounds No. 1 and 2. Consequently, these grounds are also treated as dismissed.” Interest income as covered by the principle of mutuality - The ld. A.R. fairly conceded that this ground also covered against the assessee by the order of the Tribunal in assessee’s own case for assessment years 2007-08 and 2008-09. Respectfully following the order dated 22-1- 2014 and 31-1-2013 for assessment years 2007-08 and 2008-09 of the Tribunal in assessee’s own case, we dismiss ground No. 9 taken in the C.O. by the assessee. Interest u/s 234B of the Act - The DDIT held that the entire income of the assessee company is subject to tax and accordingly levied interest u/s 234B of the assessee. We find that this issue is covered in favour of the assessee by the order [2012 (11) TMI 948 - ITAT MUMBAI] dated 26- 9-2012 of the Tribunal for A.Y. 1996-97. Respectfully following the above order of Tribunal in assessee’s own case [2012 (11) TMI 948 - ITAT MUMBAI], we allow this ground in favour of the assessee. - Decided against the revenue. Issues Involved:1. Principle of Mutuality2. Reimbursement of Costs as Income3. Estimating Profit from Non-Member Transactions4. Applicability of Section 44C of the Income Tax Act5. Exclusion of Matching Cost Recoveries6. Interest Income and Principle of Mutuality7. Interest under Section 234B of the Income Tax ActDetailed Analysis:1. Principle of Mutuality:The Revenue challenged the CIT(A)'s decision that the assessee is covered by the principle of mutuality despite transactions with non-members and lack of documentary evidence for expenses. The Tribunal upheld CIT(A)'s decision, referencing its earlier orders for the assessment years 1996-97, 2006-07, 2007-08, and 2008-09, which concluded that the assessee's transactions with members are covered by the principle of mutuality, while transactions with non-members are not.2. Reimbursement of Costs as Income:The assessee contended that reimbursements should not be treated as income. The Tribunal reiterated its previous stance from the assessment year 1996-97, stating that while reimbursement of expenses without profit markup is not income, the basis of allocation of costs and revenues by the head office was unverifiable. Thus, the reimbursement was considered income.3. Estimating Profit from Non-Member Transactions:The Tribunal upheld the lower authorities' decision to estimate the profit of the assessee at 5% of the gross amount recovered from non-members. This was consistent with the Tribunal's previous orders for the assessment years 2007-08 and 2008-09, where it was determined that due to unverifiable allocation of expenses and revenues, estimating profit at 5% was justified.4. Applicability of Section 44C of the Income Tax Act:The assessee argued that certain head office expenses should not fall under the definition of 'head office expenditure' in Section 44C. The Tribunal dismissed this argument, referencing its earlier decisions for the assessment years 2006-07 and 2007-08, which applied Section 44C to the assessee's head office expenses.5. Exclusion of Matching Cost Recoveries:The assessee claimed that if head office costs are disallowed, matching cost recoveries should also be excluded from taxable income. The Tribunal dismissed this ground, following its decision for the assessment year 2008-09, where it was deemed that this issue becomes academic in light of the findings on other grounds.6. Interest Income and Principle of Mutuality:The assessee argued that interest income should be covered by the principle of mutuality. The Tribunal dismissed this ground, consistent with its decisions for the assessment years 2007-08 and 2008-09, which held that interest income does not fall under the principle of mutuality.7. Interest under Section 234B of the Income Tax Act:The Tribunal ruled in favor of the assessee, stating that as a non-resident, the assessee is not liable for interest under Section 234B if the payer fails to deduct tax at source. This decision was based on the Tribunal's earlier order for the assessment year 1996-97 and supported by judgments from the jurisdictional High Court.Conclusion:The appeal by the Revenue was dismissed, and the Cross Objection by the assessee was allowed in part, following the Tribunal's consistent application of its previous rulings on similar issues. The Tribunal's detailed analysis reaffirmed the principle of mutuality for member transactions, treated reimbursements as income, upheld the 5% profit estimation for non-member transactions, applied Section 44C to head office expenses, and ruled out interest under Section 234B for the assessee.