TaxTMI 
TaxTMI 
2001 (4) TMI 178
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....the assessee-club is a mutual association and so its income should be exempted under the principle of mutuality. 3. The assessee-club was registered under the Travancore Cochin Literary, Scientific and Charitable Society Registration Act, 1955, vide certificate of registration No. 414-year 1986, dated 19-11-1986. The relevant clauses of the Memorandum of Association of the Society read as under: "3. The Society shall be non-profit sharing society and its income shall consist only of contribution from members and accrual from such funds. Any income, receipts or surplus of the society shall not be distributed among the members as dividends, or in any other manner. The society shall also not have any business activity. 4. The main objects of the society shall be anyone or more of the following: (a) To promote and encourage investment habit among the members of the society. (b) To encourage and motivate members to practise thrift and savings. (c) To assist members in identifying investment opportunities, sources and avenues. (d) To seek affiliation and/or membership in Association having similar objects. (e) To affiliate and/or manage institutions having objects....
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....bsp; Rs. 18,263 Floor charges Rs. 98,390 Donations Rs. 1,944 Souvenir Rs. 7,788 Interest received &....
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....e the Cochin Stock Exchange, but it allowed its floor space to be used by its members for transacting deals of sale and purchase of shares. It is further explained by the learned counsel for the assessee before us that the transactions were exclusively between members, but it is conceded that the shares dealt in need not necessarily be owned by the members. Like in any regular stock exchange, the members effected deals for and on behalf of outsiders. 4. As already mentioned, the assessee claimed exemption for its income under section 11 of the I.T. Act on the ground that its activities were of a charitable nature. The Assessing Officer for the assessment year 1989-90 observed that the assessee's application under section 12A had been rejected by the Commissioner. He also mentioned that the floor charges collected from the members were not supported by any vouchers, as they were allegedly destroyed after the Audit had been completed by the outside Chartered Accountant. He inferred that there was an apprehension that the members would become taxable if the receipts were produced and with this observation, and as the application under section 12A had been rejected, he held that the....
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.... is applicable in the appellant's case since there was no details of income derived from the property by collecting floor charges which is utilised for the purpose of the Trust, then it will not be treated as a Trust and the income assessed in the status of AOP is exactly correct'." The DC (Appeals) did not consider the claim of the assessee for the exemption of its income on the ground of mutuality, even though a specific ground in this regard has been taken before him. 6. Before us, the learned counsel for the assessee clarified, as we have already mentioned, that registration under section 12A has since been granted to the assessee, He further contended that the DC (Appeals) totally erred in remarking towards close of para 4 of his order that the assessee advises not only its members but also the public to buy and sell shares at particular rates. He further mentioned that the DC (Appeals) completely erred in stating that the counsel for the assessee and even the Director of the assessee-club accepted this position before him. He stressed that there was no such acceptance on the part of the assessee before the DC (Appeals). He also objected to the remark of the DC (Appeals)....
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....ed from the members only, the basis thereof. He invited our attention to the assessment order for 1990-91, wherein the Assessing Officer at page 3 of his order reproduced a specimen of a typed self-voucher produced by the assessee in support of the floor charges. The voucher reads as under: "Share exchange settlement held on 30th March, 1991: Floor charges for the above settlement collected Rs. 2,367 (Rupees two thousand three hundred and sixty seven only)." Sd/-Director Verified Director." The learned Departmental Representative argued that the above voucher does not indicate as to from which member the amount of Rs. 2,367 was collected for the share exchange settlement held on 30th March, 1991 and how it was collected from each member and the basis on which the collections in question were made. So it is claimed that the book results cannot be accepted. She also pleaded that the entire activity of the assessee-club was of a commercial nature and its income could not be exempted as of a charity within the meaning of section 2(15). 8. Regarding the claim of mutuality, the learned Departmental Representative contended that the two claims of the assessee that it is ....
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....ition, the learned counsel for the assessee relied upon the decision in the case of CIT v. Cochin Oil Merchants'Association [1987] 168 ITR 240 (Ker.). 11. We have bestowed our anxious consideration on the issues raised in this appeal. We may initially give our findings on certain factual issues. Firstly, registration under section 12A, though declined initially, has subsequently been granted. So, the claims of the assessee have to be considered on the footing that it had obtained the registration under section 12A. Secondly, there is no evidence at all that the assessee allowed the user of its facilities to non-members. Simply because the relevant receipts in respect of floor charges were not produced, it does not follow that they were collected from non-members. The assessee categorically asserted before us that no non-members were allowed to participate in share transactions on the floor of the assessee. It is also explained that the assessee bad been under an impression that its income was to be exempted under section 11 of the I.T. Act and so immediately after the audit by the statutory Auditor had been completed, it destroyed the receipts issued in respect of the floor char....
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.... the purpose comes back to the contributors. Even if it does not come back to them individually, if they have a right over disposal of the surplus, the mutuality has to be upheld in view of' the decision of the jurisdictional High Court in Cochin Oil Merchants Association's case. When, however, floor charges are collected on the basis of transactions in purchase and sale of shares owned by outsiders, it is difficult to visualize such collection as a contribution for a common purpose. The floor charges are paid by each member for doing business of his own. The business of the member cannot of course be confused with the business of the assessee-club. That does not, however, mean, to our mind, that the said collection can be regarded as a contribution for a common purpose. There are situations where an association can trade with its members only and in such a situation it ceases to be a mutual concern, as is evident from the following remarks of the learned author Palkhivala in his book, The Law and Practice of Income-tax, 8th Edition, Vol. 1, page 114: "II. Trade with members.--Where an association or company trades with its members only and the surplus out of the common fund is ....
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....herwise, would not be the profits and gains of any business." The decision of the Apex Court referred to in the above extract is the decision in the case of CIT v. Calcutta Stock Exchange Association Ltd. [1959] 36 ITR 222 (SC). 13. We are of the view that the floor charges are received for the specific services rendered in terms of providing or allowing the user of the facilities of the assessee-club for share transactions to concerned members. It was not mandatory for any member to make use of such facilities. When he makes use of the facilities, the payment of the floor charge was mandatory. So we are of the view that the assessee-club is hit by the provisions of section 28(iii) of the Income-tax Act. 14. Further, we are of the view that the decision of the Apex Court in the case of Kumbakonam Mutual Benefit Fund Ltd., on which the learned counsel for the assessee relied before us in support of his claim of mutuality really goes against the assessee. The head note of this decision reads as under: "The respondent, a company limited by shares, carried on banking business restricted to its shareholders. It received monthly contributions by way of recurring deposits from....
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....haritable purpose within the meaning of section 2(15) of the Income-tax Act. We are of the view, as we have already mentioned, the objects of the assessee-club are similar to those of a stock exchange, and we are of the view that the objects fall in the residuary category of advancement of any other object of general public utility mentioned in section 2(15) of the I.T. Act. For this proposition we rely upon the decision of the Hon'ble Madras High Court in the case of Madras Stock Exchange Ltd. We have already mentioned that the Special Leave Petition filed by the department against this decision had been rejected by the Apex Court. Even the other decisions relied on by the learned counsel for the assessee in this context support this view. We are also of the view that the decision of the Apex Court in the case of Gangabhai Charities v. CIT [1992] 197 ITR 416 is distinguishable, That case turned on the peculiar language used in the Trust Deed, in terms of which the Trust had no charitable and religious purposes and the Trust property could be allowed to be used only by beneficiaries who had such charitable and religious purposes. There is no such infirmity in the language used in t....
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....ess carried on by the assessee to our mind it is like any other commission agency. We are of the view that this business had been carried on in the pursuit of the objectives of the trust, i.e. to improve awareness of investment opportunities, etc. But that does not come to the rescue of the assessee for claiming exemption under section 11 in view of the conditionalities contained in section 11(4A), as it stood during the relevant period. The business of the assessee does not fall either under clause (a) or clause (b) of section 11(4A) as it stood during the relevant period. So, regretfully we hold that the assessee is hit by section 11(4A), even though its objects are of a charitable nature within the meaning of section 2(15) of the Income-tax Act and so in principle it is entitled for exemption of its income under section 11 of the I.T. Act. For the foregoing reasons we uphold the orders of the first appellate authority for all the three years. The appeals are dismissed. 16. ITA No. 746(Coch.)/94: The objection taken is that the DC (Appeals) erred in upholding the penalty levied under section 221. It is claimed that the assessee had taken action to challenge the assessment in a....