TaxTMI 
TaxTMI 
1989 (4) TMI 63
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....pect of this amount, it sought a deduction while computing its net assessable income. The Income-tax Officer disallowed the deduction holding that as it was not the business of the assessee to contribute towards chit funds, the loss incurred was neither incidental to the business nor even remotely related to the business. The Appellate Assistant Commissioner, however, allowed the deduction on the ground that as the loan raised from the chit fund was invested in business, it was incidental and related to the business of the assessee. When the matter came up before the Tribunal, the order of the Income-tax Officer was restored, it being held that contributions to the chit fund could not be treated as revenue expenditure and, similarly, the lu....
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....d be treated to be the business activity of the assessee. The test of mutuality in this behalf, as laid down in CIT v. Nataraj Finance Corporation [1988] 169 ITR 732 (AP), is that the entity would be a mutual benefit association if all the participators to the common fund are also contributors and their identity is established. The contributors to the common fund and the participators in the surplus must be an identical body. The court went on to observe that this does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. What is required is that the members as class should contribute to the common fund and participators a....
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....s at the auction. Thus, the chit fund is primarily intended to operate as a scheme for advancing loans from the common fund to the subscribers, their turns for getting such loans being determined either by auction or by drawing lots. Finally, there is the judgment of the High Court of Madras in Board of Revenue v. North Madras Mutual Benefit Co. Ltd. [1922] 1 ITC 172, where it was held that the operations of a chit fund cannot be said to bring any profit to its subscribers as a body and the income represented by premia was thus not assessable to income-tax. Mr. B. K. Jhingan, counsel for the assessee, on the other hand, sought to contend that the amount received by a subscriber from a chit fund, in excess of the contributions made by ....
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....nd thereby incurred a loss, which it later claimed as a business loss. This claim was accepted on the ground that the purchase of the bonds had been made in connection with the business of the assessee. The fact that the purchase of the bonds was found to be connected with the business of the assessee clearly distinguishes this case from the facts of the present case. The two other cases sought to be relied upon, namely, Patnaik and Co. Ltd. v. CIT [1986] 161 ITR 365 (SC) and Bombay Steam Navigation Co. (1953) Pvt. Ltd. v. CIT [1965] 56 ITR 52 (SC), bear no resemblance to the point in issue here and, therefore, call for no discussion. Faced with this situation, counsel for the assessee sought to contend that the nature of a chit fund ....