AI Drafter 
TaxTMI 
TaxTMI 
2015 (5) TMI 113
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....ding the expenses and thereby, failed to satisfy the assessing officer that the revenue received were matched by the expenses incurred." 2. The Appellant prays that the order of the Id. CIT (A) on the above grounds be set aside and that of the Assessing Officer restored. Whereas the assessee has raised the following grounds in its Cross Objections: "1 The learned CIT(A) erred in not appreciating that the company recovers its costs only and that reimbursement of costs cannot be regarded as taxable "income", even if recovered from non-members. 2 The learned CIT(A) erred in upholding the action of the Assessing Officer in estimating the profits of the company at 5% of the gross amounts recovered from non-members. The learned CIT(A) erred in not addressing the following grounds of appeal preferred by the company: 3 The learned ADIT erred in holding that the provisions of section 44C of the Act apply ....
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....bsp; 10 The learned CIT(A) erred in not directing the learned ADIT to delete the interest charged of Rs. 5,75,035 under section 234D of the Act. 3 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. At the outset, we note that the issue involved in the revenue's appeal as well as in the Cross Objection of the assessee are considered and decided by the Tribunal in assessee's own case for the Assessment Year 1996-97 vide order dated 26.9.2012. 4 The only issue raised by the revenue is regarding the principle of mutuality, which has been decided by the Tribunal in assessee's own case for the Assessment Year 1996-97 after a detailed discussion of the facts as well as law and the decisions of the Hon'ble Supreme Court as well as the High Court in paa 3.4 to 3.24 . The concluding part of the order of the Tribunal in para 3.11.20, 3.12 to 3.24 are as under: 3.11.20. We have noticed in an earlier para of this order that in a case of a non-mutual organization, a few transactions with the members do not convert its non-mutual st....
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....iduals 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 chargeable to tax. If, however there is no profit motive and no profit results, there will not be any tax because of no income and not because of principle of mutuality. Obviously in such a case, the contributors to the profit, being the customers as a class, will be different from the participators in the profit, being the members of the association as a class, thereby breaching the principle of mutuality. e. If, in a case of association of the nature as discussed in point no. d. above, there are by and large transactions with non-members, but there are only a few transactions with members as well, the nature of the organization as non-mutual, will remain as such. Whereas profits from transactions with non-members will be liable to tax, profit fr....
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....ve. 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 clause a) of Article 3 is :`to foster all communication and information processing, matters directly or indirectly connected with the transmission and processing of all categories of information required in the operation of the air transport industry and to study the problems relating to them with the aim of promoting in al countries safe and regular air transport'. Other objects of the ....
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....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 members' as participators ....
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....g in the reserves available, cannot be considered as a factor eclipsing the principle of mutuality. It is so for the reason that the persons who are entitled to share and participate in the reserves of the society continue to remain the same as a group 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 year....
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....ccepted by the Tribunal for the Assessment Year 1996-97. He has referred the notes of accounts in the audit report and submitted that the accounts of the Head Office are audited by some other auditors and the audit report of the other auditor has been relied upon by the auditor of the assessee. 6.1 On the other hand, the ld DR has submitted that the issue as well as the facts are identical in the Assessment Year under consideration to those of Assessment Year 1996-97 and therefore, the Tribunal, after taking note of the fact that it was found that both sides of the assessee's income and expenditure are matching paisa to paisa and no under recovery or over recovery shown as an asset or liability in its balance sheet turned down the contention of the assessee regarding the allocation of HO expenses 7 Having considered the rival submissions and the relevant material on record, we find that the facts regarding the issue raised by the assesseed in the CO are identical. 7.1 The issue raised in ground no.1 and 2 of the CO has been dealt by the Tribunal for the Assessment Year 1996-97 in paras 5.4 & 5.5 as under:  ....
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....d our attention towards its letter dated 5.02.2005 addressed to the ld. CIT(A) about the basis of allocation. From this letter it is crystal clear that the assessee stated before the learned CIT(A) that "the global cost recoveries made by the SITA HO are allocated to all of the SITA branches worldwide so as to match the costs borne by those branches. Thus, the overall effect of allocating head office costs to the SITA branches worldwide is to increase both the branch costs and also the corresponding cost recoveries which are allocated to each branch to match those costs". From this letter it is also observed that the basis of allocation of costs amongst various branches is known only at the HO level with no intimation to the Indian branch about such basis. At this stage, we would like to highlight that India is concerned only with the tax revenues relating to Indian operations. Unless it is properly established that all the expenses claimed by the Indian branch represents the assessee's share in a proper manner, it cannot be accepted that the allocation was made on some rational basis. Here is a case in which both the sides of the assessee's Income and expenditure account are tally....
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....A) instead of computing income at 5% of the gross receipts. 5.7. We are not convinced with this contention for the reason that section 44C only talks of HO expenses, which mean executive and general administrative expenditure incurred by the assessee outside India including expenditure in respect of rent, rates, repairs etc. It is only the allocation of general and administrative expenses which is covered within the purview of section 44C. On the contrary, we are considering a case in which not only the basis of allocation of expenses is not known, but the basis of allocation of income is equally unknown at India level. This brings us to a situation where neither the income side nor the expenditure side of the assessee's Income and expenditure account is fully capable of verification. It is in such circumstances that Rule 10 of Income-tax Rules, 1962 comes to the rescue of the Revenue for determination of income in the case of non-residents. It is this very rule which has been invoked by the Assessing Officer and also applied by the learned CIT(A) in estimating the income of the assessee. In our considered opinio....