TaxTMI 
TaxTMI 
2014 (3) TMI 388
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....d of Rs.90,140/-. Placing reliance on the decision of the Punjab & Haryana High Court in the case of Soda Silicate and Chemical Works vs. CIT, reported in 179 ITR 588, the assessee claimed exemption on the principle of mutuality. The assessee's case was taken up for scrutiny and after hearing the assessee, the Assessing Officer held that the income derived in the form of chit dividend was taxable under Section 28(iii) of the Income Tax Act. 3. Aggrieved by the order of assessment, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who dismissed the assessee's appeal by following the decision of this Court in the case of CIT, Tamil Nadu III, vs. Dr.Chinna Oomen reported in 150 ITR 583. 4. Aggrieved by ....
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....llate Tribunal. 7. As far as the contention with regard to mutuality of the receipt is concerned, it is not denied by the assessee that it is not in the business of running chit, on the other hand, he is only a subscriber to the Chits Scheme floated by another person. It is not denied by the assessee, that what was received by the assessee as by way of dividend was over and above what was contributed by him under the Chit Scheme. Thus, the assessee being just a subscriber to the Chit Scheme, it is difficult for us to draw the principle of mutuality to hold that the surplus received as by way of dividend was merely distribution of what was contributed by the assessee. 8. In this connection, the decision relied on by the assessee in the....
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....hat the member as a class should contribute to the common fund and participators as a class must be able to participate in the surplus; once again where such identity is established between the participants and the contributors to the common fund, the surplus income would not be exigible to tax on the principle of mutuality that no man can make a profit out of himself. It was further pointed out that a chit fund, no doubt, incidentally partake the character of a saving scheme too; yet, it is also primarily intended to operate as a scheme for advancing loans from common fund to subscribers, their turns for getting such loans, being determined either by auction or by drawing lots. Thus, the Punjab & Haryana High Court ultimately held that the....
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....utuality' applied to mutual insurance companies to certain municipal undertakings and members' clubs and mutual associations, whether incorporated or unincorporated, the only requirement is, there must be complete identity between the class of contributors and class of participators. Thus, the crucial issue for consideration in cases where it is claimed that on the basis of the principle of mutuality is as to whether, the receipts are exempt from taxation. The question has to be looked at, as to whether it is an activity on the one hand, a trade or adventure in the nature of trade producing a profit, or whether it is a mutual arrangement, which gives rise to surplus. In essence, the relationship between the club and its members shou....
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....ent, could not be said to be income for the purposes of the Act. 11. Extending the decision of the Apex Court to the case on hand, it is evident that the assessee had not come in association with any trading activity as a chit holder on any principle of mutuality. The mere incidence of the assessee participating in a scheme offered by the third party, wherein others also joined, does not, in any manner put forth a principle of mutuality to accept the plea of the assessee that like a mutual benefit club, the assessee should also be extended the benefit of mutuality for the purposes of excluding the dividend income received by the assessee in the chit scheme, participated by the assessee. 12. Learned counsel appearing for the assessee p....
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.... receive lumpsum amount, but at a discount. The discounted amount would be distributed to the members as dividend and the contribution made to the chit fund. Hence, the contribution made to the chit fund could not be treated as business expenditure or the receipt of lumpsum amount or the dividend could be regarded as business activity of the assessee. In the context of the nature of the business of the assessee, this Court held that the receipt from the Chit fund could not be regarded as 'income from business activity'. In the circumstances, this Court upheld the order of the Tribunal in disallowing the assessee's claim of loss in the chit fund during the year in question. We do not find this judgment could be of any assistance ....