TaxTMI 
TaxTMI 
2014 (1) TMI 1227
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....ailed to produce any documentary evidence regarding the expenses and thereby, failed to satisfy the Assessing Officer that the revenue received were matched by the expenses incurred. 2. When the case was called for hearing, none appeared on behalf of the assessee. We, however, proceed to dispose of the appeal preferred by the Revenue after hearing the learned Departmental Representative. 3. The learned Departmental Representative, at the outset, submitted that similar issue has come up for consideration before the Tribunal in assessee's own case in earlier years also and in the series of decisions right from the assessment year 1996-97 to 2006-07 and 2008-09, the Tribunal has decided this issue. She also filed copy of the Tribunal orders for the assessment year 2006-07 and 2008-09. 4. After carefully considering the relevant findings of the learned Commissioner (Appeals) as well as the earlier orders of the Tribunal, it is seen that this issue has been discussed in detail in the order passed by the Tribunal in the assessment year 1996 -97 in ITA no.4970/Mum./ 2005 and C.O. no.67/Mum./2006, order dated 26th September 2012. This decision of the Tribunal has been followed in ....
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....s in such profit, are the same persons as a class. If no profit follows from the transactions with the members, obviously, there can be no tax even dehors the rule of mutuality. c. If, an organization of the nature as discussed in point no. b above, apart from entering into transactions with its members in furtherance of its objects, invests its funds or makes deposit in bank, the return or interest on such investment/deposits will not be covered by the character of mutuality and such an amount will be liable to tax. It is so for the reason that the principle of mutuality will lack as the contributors of such interest income will not be participating in such income. However, mutual character of the organization in respect of transactions with its members will continue and income there from will enjoy exemption. d. When individuals join and form an association and such association sells/provides goods/services/facilities ONLY TO public at large, that is, NON-MEMBERS, there may or may not be profit motive. When there is profit motive and profits actually follows, such profit is liable to tax. If there is no profit motive but still profit follows, such a profit is also chargeabl....
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....ces in certain countries outside India, in order to maximize such economies of scale. Under those arrangements, the costs incurred by each party were shared according to usage". It shows that non-members did avail the facilities extended by the assessee. 3.14. Now let us see the volume of transactions with such non- members. The assessee's contention is that it was simply recovering costs from its members and non-members for rendering services and there was no profit motive. The total of cost recoveries from government, international organizations and Equant customers, constituting non-members as a group, is 0.07% of the total cost recoveries. It shows that the assessee provided services to its members at 99.93% of its total operations. This fact evidences that nonmembers availed the facilities provided by the assessee to a very limited extent, less than even 0.1% of total. 3.15. At this moment, we will try to ascertain if the assessee was set up with a profit motive. We have perused Articles of association of the assessee, a copy of which is placed at page 116 onwards of the paper book. Objects of the assessee are contained in Article 3. Main object of the assessee as per cl....
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.... Officer denied the mutuality on the ground that every depositor was not necessarily borrower and therefore, the interest paid by the borrowers and distributed amongst the non-borrower members dented the mutuality. The Hon'ble Madras High Court upheld this principle by holding that since the interest income was available for being distributed amongst all the members including those who had not borrowed moneys, the identity between the contributors and participators was lost and hence the principle of mutuality was not satisfied. 3.19. The question which, therefore, arises for our consideration is whether the mutuality is lost by reason of a member resigning or retiring from the society and not getting any share in the reserves. In other words, the larger question is whether the contributors to the fund and participators in the fund should be the same persons on an individual level or a class level. The Hon'ble jurisdictional High Court in the case of Sind Co-operative Housing Society (supra) considered the question of mutuality on the transfer fees received by the co-operative society from its members. In this case, the Hon'ble jurisdictional High Court recognized `class of memb....
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....p or class of persons. The mere fact that a person at the time of resignation or retirement is not entitled to share in the reserves of the organization, would not damage the mutuality so long as the persons who are entitled to share such reserves continue to be the members as a class. 3.23. Be that as it may, it is observed that this fact has been considered by the Tribunal while deciding the principle of mutuality in relation to assessment years 1974-75 and 1975-76. The Tribunal has elaborately reproduced and discussed these two Articles in its order and thereafter recorded a positive conclusion granting the status of mutual organization to the assessee. Same is true in respect of the creation of reserves as well. The learned AR has pointed out that the reserves so referred to by the learned Departmental Representative were created many years ago in accordance with the Belgian statutory requirements or arose due to revaluation or refurbishment cost or due to capitalization of refurbishment cost. The question of reserves has also been discussed in the order for assessment years 1974-75 and 1975- 76. In view of the conclusion arrived at by the Tribunal in earlier years holding t....
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....on 44C of the Act apply to the appellant company in respect of certain expenses incurred at head office level which may not fall within the definition of 'head office expenditure' as defined in section 44C of the Act. 4. The learned ADIT also failed to appreciate that Head Office does not only apportion certain costs to India, but also allocates the matching cost recoveries, so that in the event of any disallowance of Head Office cost apportionments, the matching cost recoveries should also be excluded from the taxable income of the branch, applying the principle contended in Article 7( I )(a) of the India-Belgium Tax Treaty. 5. The learned ADJT erred in observing that the provisions of section 40(a)(iii) may apply to the appellant company. 6. The ld. ADIT erred in holding that the appellant company was required to withhold tax from the interest payments made by it to its members and not having done so, the payments are disallowable under section 40(a)(i) of the Act. The learned ADIT failed to appreciate that the payments were not liable to tax in India and accordingly the appellant was not required to withhold any tax at source and consequently no disallowance could be ma....
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...., without there being any mark up included in such reimbursement, there cannot be any question of earning any income liable to tax from such reimbursement. We agree with the learned AR on this principle that the reimbursement of expenses does not lead to any income and in such a situation there can be no question of any income embedded in such reimbursement. 5.5. However we find that this principle is not applicable in the facts and circumstances of the instant case. It is observed from the statements of Shri S.Gopalakrishnan and Mr.Andrew Cleak recorded at the time of survey that the basis of allocation of costs to different countries by the HO was not known. It was admitted that the HO allocates a proportion of its general administrative and financing cost to other branches to exactly match the total cost incurred in each country in each month. It was also admitted that there was no verification of the expenses allocated by the HO because the basis of charge was known to HO alone and the details of such computation were not provided to the Indian branch. On a question about the recording of revenues, it was admitted that the entry was passed on the receipt of intimation from H....
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.... sheet. Further, when we consider the fact that the accounts of the assessee were maintained at the HO level, there remains nothing to doubt the correctness view taken by the learned CIT(A) that the accounts of the assessee do not divulge the correct income. Not only the basis of allocation of expenses but also that of the revenue, as done by the HO is not known to the assessee. Under such circumstances, the contention that the assessee was only recovering costs from its non-members and there was no profit element in it, is not open for verification. 7.2 When the Tribunal has decided this issue after considering the rival contention and relevant facts, then in the absence of any new facts or material, we do not find any substance in the contention of the ld Sr counsel for the assessee regarding the remarks of the Tribunal in the earlier year. Moreover, the same does not effect the findings of the Tribunal on this issue. 7.3 As regards ground no.2 to 9 of the CO are concerned, the Tribunal as considered the same in para 5.6 & 5.7 as under: "5.6. The learned AR also pressed into service the provisions of section 44C to contend that where the basis of allocation of HO expendi....