2015 (5) TMI 114
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....e society. All throughout, the assessee has been claiming that it is a mutual benefit society and all its income is exempt under the "Principles of Mutuality". This "Principles of Mutuality" has been denied by the Assessing Officer. 3. Before the learned Commissioner (Appeals), it was pleaded that this issue has been examined in assessee's own case starting from assessment years 1996-97 to 2007-08, wherein the learned Commissioner (Appeals) has accepted the assessee's contentions that its income is exempt on the "Principles of Mutuality". The learned Commissioner (Appeals), following the earlier years' orders, held that the assessee is entitled for exemption of its income from the transactions qua the members. However, the income, as a result of transactions with non-members, the same is not covered by "Principles of Mutuality". 4. Both the parties before us accepted that the issue involved in the Department's appeal and cross objection of the assessee is covered by the earlier orders of the Tribunal in assessee's own case. 5. Rival contentions heard. On a perusal of the orders of the authorities below as well as the material available on record, we find that this issue has been....
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.... 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 Principles 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 ITA No.4970/M/05 & CO No.67/M/06 M/s.Societe International De Telecommunication motive but still profit follows, such a profit is also chargeable to tax. If, however there is no profit motive....
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....o Equant customers is also borne out from its letter dated 25.03.2004, a copy of which is placed on page 29 onwards of the paper book. From para (ivc), it can be noticed that : "SITA and Equant shared network resources 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 non-members availed the facilities provided by the assessee ....
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....ntitled to participate in the reserves to some extent, the mutuality was lost. It was argued that the contributor to and participator in the surplus fund should be considered on the level of individual persons. For this proposition, he relied on the judgment in the case of Wankaner Jain Social Welfare Society (supra). In this case the Hon'ble Madras High Court considered the facts in which the object of the society was to create and cultivate the habit of saving and thrift among the members of the society to help by way of loan or other assistance to members in case of a bona fide need. The rules and regulations of the society made it compulsory for every member to participate in the scheme of deposit. The Assessing 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 Principles 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....
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....vances to certain members. The surplus was distributed amongst members according to their shareholding after making a provision for reserves etc. The shareholders who were entitled to participate in the surplus need not have either taken loans or made recurring deposits. From these facts, it is palpable that the shareholders were different as a class from the persons who availed the loan facility as a class. It was not necessary for a shareholder either to take loan or to make a recurring deposit. Thus the contributors to the funds were different as a group from the participators, being, the shareholders of the club as a group. 3.22. In view of the fact that Articles 20 and 50 debar the retiring or resigning members from participating in the reserves available, cannot be considered as a factor eclipsing the Principles 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 sh....
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....'s cross objection no.159/Mum./2012. 8. The learned Counsel for the assessee submitted before us that the issue raised in the cross objection has been decided against the assessee in assessee's own case for assessment year 1996-97 and in the assessment year 2006-07, decided by the Tribunal, vide order dated 14th November 2012. The relevant findings given by the Tribunal in relation to grounds no.1 and 2 of the cross objection are as under:- "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: 5.4. We have heard the rival submissions and perused the relevant material on record. There can be no dispute about the fact that any amount received by way of reimbursement, not c....
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....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 Societe International De Telecommunications Aeronauti- ques 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 tallying paisa to paisa. The learned AR submitted that the cost and revenues are matched and if there is any net over-recovery or net under-recovery, th....
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....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 ITA No. 572/Mum/2010 & CO No.159/ Mum/2010 Societe International De Telecommunications Aeronautiques 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 estimat....