2020 (4) TMI 111 - AT - Income Tax

ITAT Delhi: Membership fees exempt from tax under mutuality principle. Revenue's appeal dismissed.

Dy. Commissioner of Income-tax (E), Circle-2 (1), Versus M/s National Association of Software and Service Companies (NASSCOM), New Delhi.

The Income Tax Appellate Tribunal (ITAT), Delhi, upheld the decision of the Commissioner of Income Tax (Appeals) (CIT(A)), ruling in favor of the ... Principle of Mutuality - Exemption u/s 11 - Charitable activity u/s 2(15) - NASSCOM is the premier trade body and the chamber of commerce of the IT-BPO industries in India. - exemption u/s 11 & 12 denied to the assessee and that the assessee society was to be assessed as normal AOP (Association of Person) - AO stated that it can be seen that assessee itself has bifurcated its income in two streams first stream of income from members is claimed as exempted on the 'Principle of Mutuality' and second stream of income earned from services provided to both the non- members as well as members - HELD THAT:- The assessee has offered the income for taxation received from non-members but the assessee has claimed the exemption of income of ₹ 8.32 crores which is received from the members of the association on the principle of mutuality, The assessee has also relied on various case laws on the principle of mutuality. It is seen that the income Of the assessee received from one non-members has been offered for tax by the assessee itself after the amendment in section 2(15) for AY. 2009-10 onwards. It is only the membership fees from its own members which has been claimed as exempt by the assessee on the principle of mutuality. The assessee is a trade association of software industries and its main objective is to promote and protect the interest of its members. So the membership fees received by the assessee from its own members comes within the meaning of principle of mutuality and as such the net income of the assessee from its own member is exempt from tax. The case laws cited by the assessee as above also support the case of the assessee on the principle of mutuality, After considering all the facts and circumstances of the case and keeping in view the order of my predecessor for AY. 2009-10, benefit on principle of mutuality be granted to the assessee on membership fees from members only. Issue to be decided in favour of assessee as relying on own case [2019 (11) TMI 339 - ITAT DELHI] and [2019 (10) TMI 123 - ITAT DELHI] Issues Involved:1. Whether the activities of the assessee fall under the category of 'general public utility' as per Section 2(15) of the Income Tax Act, 1961.2. Whether the assessee's practice of charging varying membership fees and providing differential voting rights violates the principle of mutuality.3. Whether the income received from non-members disqualifies the assessee from claiming exemption based on the principle of mutuality.Detailed Analysis:Issue 1: General Public Utility under Section 2(15)The Revenue contended that the assessee's activities are in the nature of trade, commerce, or business, thus falling under the 'general public utility' category per Section 2(15) of the Income Tax Act, 1961. The Assessing Officer (AO) denied the exemption under Sections 11 and 12, asserting that the assessee should be assessed as a normal Association of Persons (AOP). The AO's assessment was based on the income generated from various sources, including membership subscriptions, seminars, publications, advertisement income, and industry development initiatives, which included dealings with both members and non-members.The assessee argued that it qualifies as a charitable society under the 'general public utility' limb but does not qualify for exemption due to the amendment in Section 2(15) through the Finance Act, 2008. The assessee bifurcated its income into two streams: one from members claimed as exempt on the principle of mutuality, and the other from services provided to both members and non-members.Issue 2: Violation of the Principle of MutualityThe AO argued that the principle of mutuality is violated as the membership fees charged vary based on the member's turnover, and differential voting rights are provided based on the subscription charges. The AO cited Clause 12.3 of the Memorandum of Association, which details the differential voting rights based on the annual subscription paid by members.The assessee countered that the differential membership subscription is aimed at recovering higher fees from members with larger turnovers while supporting new entrants. Uniform services are provided to all members regardless of the membership fee paid. The membership subscription income meets the criteria of mutuality, and the exemption is claimed only for this stream of income.Issue 3: Income from Non-Members and MutualityThe AO noted that the assessee has dealings with non-members, generating income from sponsorship fees, delegate fees, publication fees, advertisement fees, and industry development initiatives. This, according to the AO, disqualifies the assessee from claiming exemption based on the principle of mutuality as per Circular No. 11 of 2008 issued by the CBDT.The assessee maintained that it has not sought exemption on the basis of the proviso to Section 2(15) for the relevant assessment year and has offered the income from non-members for taxation. The exemption is claimed only for the membership subscription income from members, which adheres to the principle of mutuality.Judgments:The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's appeal, holding that the membership fees received from its own members fall under the principle of mutuality and are exempt from tax. The CIT(A) referenced the decision for the assessment year 2009-10, where the issue was similarly decided in favor of the assessee.The Income Tax Appellate Tribunal (ITAT), Delhi, upheld the CIT(A)'s decision, noting that the issue is covered by the orders of the Co-ordinate Bench of ITAT, Delhi in the assessee's own case for the assessment years 2009-10 and 2012-13. The ITAT found that the facts and circumstances for the assessment year 2010-11 are identical to those of the previous years and ruled in favor of the assessee, dismissing the Revenue's appeal.Conclusion:The ITAT, Delhi, concluded that the membership fees received by the assessee from its members are exempt from tax under the principle of mutuality, despite the varying membership fees and differential voting rights. The income from non-members, which was offered for taxation by the assessee, does not affect the exemption claimed on the membership subscription income. The appeal filed by the Revenue was dismissed.