2018 (3) TMI 1983 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on mutuality principle for assessment years 2010-11, 2011-12

Asst. Commissioner of Income Tax/Dy. Commissioner of Income Tax, Vapi Versus M/s. Vapi Waste & Effluent Management Company Ltd.

The Tribunal dismissed the Revenue's appeals for the assessment years 2010-11 and 2011-12, upholding the CIT(A)'s decisions based on the principle of ... Principle of mutuality - activities of the assessee company for treatment of appellant and disposal of waste - HELD THAT:- The basic object of the company is to give treatment of effluent in the form of liquid and solid to prevent the pollution in Vapi Industrial area on the suggestion of the Hon'ble Gujarat High Court. The company is limited by guarantee. There is no share capital of the members. Only subscription is made on the basis of wastage delivered by their plants. No dividend has been distributed by the company so far. The object mentioned in the main and ancillary object are as per the line of the company act but it is not for profit earning. The Board of Director has to pass resolution to allow the outsider to get the services of the company. No director is outside from the members of Vapi Industrial Association. On the basis of decision of Sports Club of Gujarat [1987 (10) TMI 21 - GUJARAT HIGH COURT] the assessee also has declared the interest income in return as taxable on fixed deposit with bank however, it was admitted that no outsider had provided the services of the company but the AO is directed to verify the claim of the assessee whether any outsider is getting services or not from non-members, has to be taxed accordingly after giving full opportunity to the assessee. The assessee is also directed to cooperate with the A.O. and give all the evidences as required by the A.O. for his satisfaction. The revenue appeal on allowance of depreciation by the CIT(A) has no bearing as the principle of mutuality has been accepted by this Court. In the light of findings given by the Tribunal in the appellants’ own case [2012 (4) TMI 813 - ITAT AHMEDABAD] we find that the issue is covered against the Revenue and we have no reason to deviate from the said finding recorded by the co-ordinate bench of the Tribunal. Accordingly, following the same, we hold that the principle of mutuality has accepted by the Tribunal on earlier years is also hold good in the assessment under consideration. Therefore, the same is allowed. However, the Assessing Officer is directed to verify the claim of assessee whether any outsider is getting services or not from non-members which has to be taxed accordingly after giving full opportunity to the assessee. So far allowances of depreciation and prior period expenses are concern, as we have held the principle of mutuality in the case of assessee, therefore, the allowances of depreciation and prior period expenses by Assessing Officer has no bearing as the principle of mutuality has been accepted by the Tribunal. In the result, appeal of the assessee is set aside and disposed of for statistical purposes. Charging of interest on enhanced income computed for charging interest u/s.234B - HELD THAT:- Interest u/s.234B of the Act charged on enhanced computation of income is no longer survived. Hence, the CIT(A) was rightly deleted the charge of interest u/s.234B of the Act. Therefore, we do not find infirmity in the order of the CIT(A), hence this ground of appeal is dismissed. However, the Assessing Officer will charge consequential interest u/s.234B of the Act after considering the income of the assessee to give effect to the appellate order - Accordingly, this ground is disposed of in the terms as indicated above. Issues Involved:1. Principle of mutuality applicability.2. Allowance of depreciation and prior period income.3. Consequential orders under Section 154 of the Income Tax Act.4. Charging of interest under Section 234B of the Income Tax Act.Issue-wise Detailed Analysis:1. Principle of Mutuality Applicability:The Revenue contended that the CIT(A) erred in accepting the principle of mutuality for the assessee company, which was incorporated to comply with the Gujarat High Court's direction for the treatment and disposal of hazardous wastes. The Assessing Officer (AO) had held that the principle of mutuality did not apply as the company undertook projects not directly related to member contributions, indicating no mutuality. However, the CIT(A) and the ITAT had previously accepted the principle of mutuality in the assessee's own case for earlier years. The Tribunal upheld this view, noting that the company's main object was not to earn profit but to treat effluent waste, and contributions were made by members only. The Tribunal directed the AO to verify if any outsiders received services, which would be taxable.2. Allowance of Depreciation and Prior Period Income:The Revenue argued that the CIT(A) wrongly allowed the claim of depreciation and prior period income, which the AO had disallowed. The CIT(A) had followed the Tribunal's earlier decisions in the assessee's own case, which allowed the principle of mutuality and, consequently, the depreciation claim. The Tribunal upheld this, stating that since the principle of mutuality was accepted, the allowances of depreciation and prior period expenses by the AO had no bearing.3. Consequential Orders under Section 154 of the Income Tax Act:The Revenue appealed against the CIT(A)'s decision to treat the rectification orders under Section 154 as consequential to the main order, which had not been accepted by the Department. The CIT(A) had allowed the assessee's appeal, noting that the rectification orders were a result of quantum additions, which were deleted in the appeal. The Tribunal agreed, treating these orders as allowed for statistical purposes, following the main appeal's terms.4. Charging of Interest under Section 234B of the Income Tax Act:The Revenue challenged the CIT(A)'s order deleting the interest charged under Section 234B on enhanced income computed via rectification. The CIT(A) had reasoned that since the quantum addition was deleted, the interest charge did not survive. The Tribunal upheld this view, noting that the interest charge was no longer valid after the deletion of the original addition. However, the AO was directed to charge consequential interest after considering the income as per the appellate order.Conclusion:The Tribunal dismissed the Revenue's appeals for the assessment years 2010-11 and 2011-12, upholding the CIT(A)'s decisions based on the principle of mutuality and related allowances. The appeals concerning consequential orders under Section 154 and interest under Section 234B were also resolved in favor of the assessee, with directions for the AO to act accordingly. The Tribunal's decision was pronounced in open court on 22-03-2018.