TaxTMI 
TaxTMI 
2020 (4) TMI 111
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....ies. The assessee falls in the last category of general public utility as per the definition of Sec. 2(15) of I.T. Act 1961 and not entitled to carry on any business or commercial activity. 2. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in law in allowing the appeal of the assessee ignoring the fact that assessee charges subscription fee on the basis of turnover from the members and voting right is as per subscription of fees. So, the voting right to members is actually based on the turnover, which is violating of the principle of mutuality. 3. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing." [B] Assessment Order dated 18.03.2013 was passed by the Assessing Officer ("AO", for short) under Section 143(3) of the Income Tax Act, 1961 ("I.T. Act", for short) wherein the total income was assessed at Rs. 12,14,81,569/- against returned income at Nil. The addition of returned income of assessee was made by the AO based on his conclusion that exemption under Section 11 & 12 of I.T. Act was to be denied to the assessee and that the assessee society was to be assessed as normal....
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.... Act, -we quality as charitable society, considering our objects as a general public utility. However; we do not qualify to avail the benefits of exemption, considering the new proviso inserted in section 2(15) of the act, through the finance act 2008: The said new proviso added in section 2(15) of the act, denying the exemption benefit to us is detailed hereunder for your perusal and ready reference: "provided that the advancement of any other Of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature Of trade, commerce or business, or any activity Of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application or retention, of the income from such activity." In this regard, we would also like to draw your attention to Circular No.11 of 2008 issued by the CDDT which explains the scope and purpose of the amendment made in section 2(15) of the Act. It is stated in the aforesaid circular that the proviso inserted Vide finance Act, 2008 qualifies only the last limb of charitable purpose as defined in section ....
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....of apportionment, based on revenue of each stream of our income are also netted off from the same as per details provided in our income tax return for the A. Y 2010-11 filed in the capacity of Association of person (AOP) Point no. 2: Show cause as to why NASSCOM should not be governed by the proviso to sec 2(15) as it contradicts the principle of mutuality, with receipts coming from non-members as well. We would wish to submit that we have not sought any benefit of exemption on the basis of the proviso to sec 2(15) of the Income Tax Act, 1961 during the Assessment Year2009-10. This, particularly, keeping in view the amendment and insertion of the new proviso in section 2115) of the Income tax act through the finance act 2008, denying exemption benefits w. e.f. 01.0.4.2009. However, we would like to submit that we have availed the benefit of exemption on only one stream of our income pertaining to membership subscription on the principle of mutuality; This with such income being a restricted receipt only from our members where benefit of this activities there under are restricted to members only. Our contention, seeking the benefit of exemption on the principle of mutuality....
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....ee collected from them is given below;- S.No. Party Name Membershi 1 24/7 Customer Pvt. Ltd. 4,50,000 2 AppLabs Technologies Pvt. Ltd. 2,00,000 3 Apt Software Avenues Pvt Ltd 22,000 4 Athena Info Consulting Pvt. Ltd 10,000 5 Aurigo Software Technologies Pvt Ltd 22,000 6 Cisco S stems India Pvt. Ltd 7,50,000 8.1 Further the members are given differential voting rights on the basis of valiant. subscription charges paid by the members as per clause 12.3 of the Memorandum of Association and Rules and Regulations of NASSCOM. Clause 12.3 related to the voting* rights states that: "The voting rights of members shall be calculated according to the share of annual 'subscription of the members on the following .basis (fractions of a rupee being ignored): Annual Subscription Votes Rs. 20,000/- 1 Rs. 40,000/- 2 Rs. 75,000/- 3 Rs. 1,87,500/- 4 Rs. 3,75,000/- 5 Rs. 6,25,000/- 6" This again is the violation of the principle of Mutuality Wherein differential treatment is given to various members based on their turnover. Thus on this ground the asses....
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....aid by them. The only difference on account of the variant membership subscription charges paid by members being, the entitlement of voting rights as are admissible to different categories of members. The entitlement of voting rights varies from I to 6 votes for election of our Governing Council, which entitlement is in terms of clause 12.2 and 123 of the Memorandum of Association and Rules and Regulations of NASSCOM. Events: This stream of income comprises of income from sponsorship, delegate fees and charges for exhibition/stalls provided at the events, and the said income emanates both from members and non members. The said income and expenditure thereon is reflected and accounted in our financial statement. Publications and Profiler: This stream of income comprises of income from sale of publications developed by NASSCOM and online retrieval of information pertaining to member data base being maintained by the Society. Thé said income and expenditure thereon is reflected and accounted in our financial statement Advertisement: This stream of income comprises of income from Advertisements placed on various newsletters and on the webpage. This stream of income eman....
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....on etc. Section 2(15) of the Income Tax Act, 1961 is as follows- ["Sec. 2(15)" charitable purpose" includes relief of the poor, education, medial relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object o/general public utility". Provided that the advancement of any Other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity rendering any service in relation to any trade, commerce or business, for a cuss or fee or any other consideration, irrespective of the nature of sue or application, or retention, Of the income from such activity. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year.] 10. An analysis of the Income & Expenditure account filed by NASSCOM not only proves but also establish the facts that NASSCOM falls under limb of general public utility and is renderi....
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....t category i.e. - "Advancement of any other object of general public utility" is not entitled to carry on any business or commercial activity even if it is incidental to charitable purposes. Based on the above observations exemption under section 11 & 12 of the denied to the assessee society. Accordingly, the assessee society will be assessed as normal ADP. [C] Aggrieved, the assessee filed appeal before the Ld. CIT(A). Vide impugned appellate order dated 14.03.2016, the Ld. CIT(A), following the order of the Ld. CIT(A) for the assessment Year (A.Y. 2009-10) allowed the assessee's appeal holding that: "... the membership fees received by the assessee from its own members comes within the meaning of principle of mutuality and as such the net income of the assessee from its own member is exempt from tax." The relevant portion of the order of Ld. CIT(A) is reproduced as under: 3. The appellant mainly raised the ground that the ITO has erred on facts and in law in denying exemption claimed by the appellant, for an amount of Rs. 8,32,29,451/- in respect of receipts from members on account of membership subscription, on the principle of mutuality and in holding that the principl....
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....ality". (ii) The second stream of income earned from services provided to both the non- members as well as members. The AO mentioned as to how the principle of mutuality existed between members when the annual membership subscription fee charged/paid by the members varies from member to member and is charged on the basis of the annual turnover of the member. Members are given differential voting rights on the basis of variant of subscription charges paid by them as per the Memorandum of Association and Rules and Regulations of NASSCOM. This again is the violation of the principle of Mutuality Wherein differential treatment is given to various members base on their turnover. It can be seen that the society is offering various services to non-members as we in lieu of sponsorship fees, delegate fees, publication fees, advertisement fees, Industry development initiative etc. Thus, on this ground, the principle of mutuality was rejected and the assessee was brought within the preview of proviso to section 2(15) Aggrieved the assessee is in appeal. 6. During the appellate proceedings, it was reiterated that as a consequence of the amendment, the appellant ceased to be char....
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.... The assessee is a trade association of software industries and its main objective is to promote and protect the interest of its members. So the membership fees received by the assessee from its own members comes within the meaning of principle of mutuality and as such the net income of the assessee from its own member is exempt from tax. The case laws cited by the assessee as above also support the case of the assessee on the principle of mutuality, After considering all the facts and circumstances of the case and keeping in view the order of my predecessor for AY. 2009-10, I am of the view that the benefit on principle of mutuality be granted to the assessee on membership fees from members only. [C.1] The present appeal has been filed by Revenue against the impugned appellate order dated 14.03.2016 of the Ld. CIT(A). At the time of hearing before us, the Ld. AR of the Assessee submitted at the outset that the issue in dispute in the present appeal is squarely covered in favour of the assessee, by the orders of the Co-ordinate Bench of ITAT, Delhi in assessee's own case; vide order dated 20.09.2019 in ITA No. 6521/Del/2013 for Assessment Year 2009-10 and order dated 05.11.2019 ....
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....ee. Accordingly, we decline to interfere with the aforesaid impugned appellate order dated 14.03.2016 of Ld. CIT(A). Resultantly, this appeal filed by Revenue is dismissed. [E] In the result, appeal of Revenue is dismissed. Order pronounced in the open court on 09/01/20. ============= Document 1 3. For the Asstt. Year 2009-10, they have filed their return of income on 25.9.2009 declaring nil income. Learned AO, however, during the course of assessment proceedings, observed that there is variance in the fee received from the members. Assessee had received fee from non- members also and has been dealing with both the members and non- members. He, therefore, denied exemption u/s 11 of the Act and assessed their income at Rs.9,04,40,180/-. 4. Aggrieved by the said addition and denial of deduction u/s 11 of the Act, assessee preferred appeal. Learned CIT(A) by way of the impugned order uphold the contentions of the assessee that the assessee is governed by the principle of mutuality and, therefore, any variance in the subscription fee or voting rights are relevant while claiming exemption under the principle of mutuality. They have pl....
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....t fee, - Document 3 differential voting rights depending on the turnover etc. Takes away the case from the nature of charitable purpose and the Id. AO is justified in denying the benefit of Section 11 to the assessee. Learned DR placed reliance on the decision reported in the case of CIT vs Secunderabad Club Picket, (2012) 340 ITR 121(AP) wherein it was held that the principle of mutuality ended the moment the club deposited the amount with the sole purpose of earning interest on the deposits. 8. Per contra, by placing reliance on the decisions reported (i) CIT vs Merchant Navy Club, 96 ITR 261 (AP); (II) CIT vs Bankipur Club Ltd., 226 ITR 97 (SC); (iii) Chelmsford Club vs CIT, 243 ITR 89 (SC); (iv) Sports Club of Gujarat Ltd. vs CIT, 171 ITR 504 (Guj); (v) CIT vs Delhi Race Club, 196 ITR 777 (Del); (vi) Ranchi Club Ltd. vs CIT, 196 ITR 137 (Patna); and (vii) CIT vs National Sports Club of India, 230 ITR 777 (Del), learned AR submitted that the variance in the types of membership, variance in subscription fee and the variance in the voting rights are irrelevant considerations while deciding the issue relating to the exemption under ....
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....y the members. Hon'ble court concluded that the assessee being a mutual concern, the income derived from the property let out to its members and their guests and sale of liquor etc. to आयकर अपीलीय its members would not be taxable à¤à¤µà¤‚ नà¥à¤¯à¤¾à¤¯ मंतà¥à¤° Document 5 11. In this case, as already stated, the assessee had offered to tax the income derived from the receipts from the non-members. In so far as the members are concerned, there is no dispute as to the identity between the contributors and the participators. 12. During the course of arguments, the question as to the way of disposal of the funds, if any, had arisen. By placing reliance on the decision in the case of Bankipur Club Ltd. (supra), Id. AR submitted that in that case also vide clause 7 of the Memorandum of Association, it was provided that upon winding up and dissolution of the association, the remaining property after the satisfaction of its debts and liabilities, shall not be paid or distributed amongst the members but shall be given or transferre....