TaxTMI 
TaxTMI 
2022 (5) TMI 896
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....essee was selected for scrutiny. The assessee had challenged jurisdiction of AO during the assessment year 2008-09 on the ground that jurisdiction for assessment in its case lies in Mumbai. However, the AO had passed the assessment order by holding that jurisdiction of the AO was applicable as assessee had not contended that no source of income was in Delhi. Same was followed in subsequent years. Before the Ld. FAA, the assessee had submitted that it may not press on the ground of jurisdiction if due justice is extended to it. 1.2 In regard to merits of assessment it can be observed that during the relevant assessment years, Ld. AOs for the relevant years, observed that assessee had received subscription fee, technical subscription fee and other recoveries from its member firms located in India and when asked to explain, the assessee had submitted that it is an Association set up for non-commercial objective to which its members may contributions in order to meet its operating and management expenses, which are proportionate to their revenues. Thus, pleading for applicability of principle of mutuality it was submitted before the Ld. AO that receipts from members are exempted.....
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....earned ADIT of Income-tax erred in passing assessment order dated 23 May 2014 without jurisdiction. The appellant therefore submits that assessment order dated 23 May, 2014 without jurisdiction ought to be quashed. Tax Treaty 6. The learned ADIT erred in not allowing benefits under the Tax Treaty between India and Switzerland. Erroneous rate applied in computation of tax 7. The learned ADIT erred in charging all the receipts of Rs. 13,70,59,258 at 40 percent (plus surcharge & cess) in Income Tax Computation Sheet instead of 20 percent (plus surcharge & cess) as stated in the assessment order. 8. Without prejudice that entire receipts are not taxable, the learned ADIT ought to have appreciated that as the Verein is dated 12 June, 2009, tax at the rate of 10 percent may be charged u/s 115A(1)(b)(BB) of the Act." 2. Without prejudice, the Commissioner of Income-tax (Appeals) ought to have directed the Assessing Officer to allow deduction for expenses in the event the payment is subject to tax in India. 3. Each one of the above grounds of appeal is without prejudice to the other. 4. The appellant reserves the right to add, alter or amend to the grounds of appeal....
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....ictory observation being made by the Ld. F.A.A. in its order in para no. 6.3 for assessment year 2009-10, 2010-11 and 2011-12 wherein after observing in para no. 6.2 that no services whatever have been specifically provided by the assessee the action of AO of treating the subscription fee and recoveries and fee for technical services was held "without" any cogent basis. 5.2 Arguments on behalf of Assessee. 5.2.1. Defending the order of Ld. F.A.A. it was submitted that the assessee is a Verein (association) of members which is owned and managed by its members. Its activities are for its members. He relied the various articles of Verein dated 12.06.2003 and supplementary regulation dated 22.06.2007 to bring before the Bench the objectives for which Verein has been established, the nature of activity it carries, how obligation between Verein and its member's firm or inter se between the member firms to each other arise. Articles of the Verein in regard to how the funds are collected, used and have to be ultimately distributed on dissolution were relied to claim that these all indicate that Verein was working on the principles of mutuality. 5.2.2. It was submitted by referr....
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.... revenue appeals deserve to be disallowed. 6. The Bench has given its thoughtful consideration to the submission and matter on record. 6.1 The first and foremost thing that Bench needs to address is the objection of Ld. DR that assessee had not furnished all the relevant information / documents before the Ld. AO. In this context, it can be observed that the Ld. AO in its order for the assessment year 2007-08 has referred in para no. 1.5 about a letter dated 14.12.2010 of the assesssee. Based upon this letter of 14.12.2010, the Ld. AO had reproduced various Articles of the Verein and also the relevant judicial precedents which were cited by the Ld. assessee. 6.1.1. In this context it can be observed that in regard to assessment year 2009-10, the Ld. AO has observed in para no. 1.1 at page no. 2 that notice u/s 142(1) dated 09.12.2010 was issued to the assessee requesting to provide certain details and in response to the notice the representative of assessee have appeared from time to time and filed required details as recorded in the order. However, no specific mention was made as to what information / documents were called for or not submitted. But then following order of ....
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....ssment year 2008-09, the learned Assessing Officer did not require us to furnish any registration documents from Swiss Authorities. During the course of the assessment proceedings for the assessment year 2009-10, we have submitted the registration documents from Swiss Authorities. We are to submit that we are registered with the Commercial Register of the Canton of Zurich, Switzerland. The aforesaid Register shows various purposes for which Verein is established. Extract of entry made in the Commercial Register of Canton of Zurich, Switzerland is attached at pages 176 to 178 of the Compilation. During the year under assessment the required documents have been placed on record. The documents support out contention of applicability of the principle of mutuality. We are therefore to request your goodself to kindly reconsider our claim on the principle of mutuality." 6.1.3. Then in regard to assessment year 2011-12 the Assessing Officer observed in para no 4 that vide order sheet entry dated 27.02.2014, the assessee was requested to explain whether the facts of the case are similar to that of earlier years and if yes then the assessee was asked to show cause as to why the assessm....
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....ich project there services were .provided and whether in these projects the assessee has supplied any products. The information must be provided invoice wise. 11. Furnish the details- of all expatriates whose remuneration is charged to the expenses in India who visited India during the year. 12. Furnish the details of salary paid during the year along with name and addressed of the persons to whom the salary was paid exceeding Rs. 5 Lakhs. 13. Please submit the name and address of sub contacts of assessee, in connection with the India projects with their PAN nos. 14. Copy of last assessment orders. 15. Furnish the brief summary of the expenses incurred during the years. 16. Give the list of your AEs in India, if any, and also give the details of transactions entered with them. 17. Please give names of your employees who visited India during the A.Y. propose of their visit and duration of stay in India (supported with documentary evidences). 18. Please furnish the above details at Sr No. 17 with respect of the employees of your associated enterprises (AEs). 19. Please give the names and address of the employees - resident and non-resident, who were working....
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.... by the assessee vide its letter dated 08.02.2013 which is also on record in paper book for the assessment year 2010-11, at page no. 17 to 25, that in the previous assessment year 2008-09 the assessing officer had not required the assessee to furnish any registration document from Swiss Authorities while in for assessment year 2009-10 the registration documents were submitted and in the relevant assessment year 2010-11 also the required document were submitted. However, the ld. AO has again reproduced the assessment order findings as recorded in the previous years not even bothering to deal with these specific averments of the assessee. 7.3. In the assessment year 2011-12 the Assessing Officer, proposed to make assessment following the previous years and as such whatever was submitted on behalf of the assessee was not considered on the principle of consistency. 7.4. The Bench can also observe that vide its letter dated 19.12.2012 ( page no. 30 to 34 of the paper book) for assessment year 2010-11 and vide letter dated 08.02.2013 ( page no. 17 to 25 of the paper book) also for assessment year 2010-11, all the relevant facts were disclosed. The Articles of Verein dated 11.06.200....
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....e international and national leadership of the Member Firms in rendering Professional Services' 16 ITA No. 5759 & Ors. (d) to foster the shared beliefs, mission, and common vision of the Member Firms; (e) to perform those functions of the Verein specified in or pursuant to these Articles or the Supplemental Regulation; and (f) to perform all other functions incidental to the above purposes." 1.1 International Name. ( Supplementary Regulations dated 22/6/2007) "International Name" shall mean the name "Deloitte Touche Tohmatsu", or any other name designated by the Verein, including any logos designated by the Verein for use in connection therewith. 1.2 International Practice Name. ( Supplementary Regulations dated 22/6/2007) "International Practice Name" shall mean each of "Deloitte", "Deloitte & Touche" and "Deloitte Touche Tohmatsu". 2.1 Related Names. ( Supplementary Regulations dated 22/6/2007) "Related Names" shall mean the names "Deloitte", "Touche" and "Tohmatsu", including all combinations and acronyms thereof, all similar or derivative names, and all logos used in connection therewith. 2.2 Right sand Use. ( Supplementary Regulations dated 22/6/2007) (....
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....r more of the Related Names, where local laws or other circumstances require. Any such alternative international practice name approved by the Verein shall be that Member Firm's International Practice Name for the purposes of this Supplemental Regulation. 2.2 Certain Responsibilities. ( Supplementary Regulations dated 22/6/2007) (a) Name Registration. Registrations of the International Name, the Related Names, and the International Practice Name are to be applied for and held by and in the name of the Verein. No such Registrations shall be made by a Member Firm except where, in the judgment of the Verein, Registration by the Verein is not practicable. In a jurisdiction where Registration by the Verein is not practicable, the Member Firm there shall, in accordance with the instructions of the Verein, take steps to obtain Registrations. (b) Use by Others. Name use rights under this Supplemental Regulation extend only to the Member Firms and no other entities or persons. Except upon prior approval by the Verein, no Member Firm may authorize or permit any other use of the International Name, the Related Names or the International Practice Name. The Verein may impose conditions....
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.... and shall not bind or make obligations on behalf of the Member Firms, and no Member Firm shall have the authority to or shall bind or make obligations on behalf of any other Member Firm or the Verein. The Member Firms shall not be and they and their shareholders, partners and employees shall not hold themselves out to be agents, representatives, alter egos, partners, joint venturers or joint employers of or with other Member Firms or the Verein (except that the Member Firms may expressly agree among themselves in writing to be joint venturers or joint employers in specific instances, and shareholders, partners or employees of Member Firms may hold positions in Verein or other Member Firms under the conditions set forth in subparagraph (d) below). These Articles and the other Verein Agreements are not intended and shall not be interpreted to make the Verein liable for the debts, obligations, acts or omissions of the Member Firms, or any Member Firm liable for the debts, obligations, acts or omissions of the Verein or any other Member Firm. Each Member Firm shall be liable only for its own debts, obligations, acts or omissions, and not those of the Verein or any other Member Firm. ....
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....engage into a business with himself. For that reason, it is deemed in law that if the identity of the seller and the buyer; or the vendor and the consumer; or the contributor and the participator is marked by oneness, then a profit motive cannot be attached to such a venture. Thus, for the lack of a profit motive, the excess of income over the expenditure or the "surplus" remaining in the hands of such a venture cannot be regarded as "income" taxable under the Income Tax Act, 1961 (for short, "the 1961 Act"). What is taxable under the 1961 Act is "income" or "profits" or "gains" as they accrue to a person in his dealings with other party or parties that do not share the same identity with the assessee. For income, there is an underlying exchange of a commercial nature between two different entities. In Commissioner of Income Tax, Bihar v. Bankipur Club Ltd. (1997) 5 SCC 394, this court observed on the nature of liability under the 1961 Act thus: "6. Under the Income Tax Act (hereinafter referred to as "the Act") what is taxed is, the "income, profits or gains earned or "arising", "accruing" to a person". The question is whether in the case of members' clubs - a species of mutual....
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....re stated stream of judicial pronouncements expound three conditions/tests to prove the existence of mutuality: (i) Identity of the contributors to the fund and the recipients from the fund; (ii) Treatment of the company, though incorporated as a mere entity for the convenience of the members and policy holders, in other words, as an instrument obedient to their mandate, and; (iii) Impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves. Whereas the legal position on what amounts to a mutual concern stands fairly settled, the factual determination of the same on a case to case basis poses a complex issue that requires deeper examination. Such examination ought to be conducted in the light of the tests enunciated above. Common Identity 17. The first element involves the test of commonality of identity between the members or participators in the mutual concern and the beneficiaries thereof. Succinctly put, this limb of the three- pronged test requires that no person ought to contribute to the common fund without having the entitlement to participate as a beneficiary in the....
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....s thus: "...For this doctrine to apply it is essential that all the contributors to the common fund are entitled to participate in the surplus and that all the participators in the surplus are contributors, so that there is complete identity between contributors and participators. This means identity as a class, so that at any given moment of time the persons who are contributing are identical with the persons entitled to participate; it does not matter that the class may be diminished by persons going out of the scheme or increased by others coming in" It is pertinent to note that in order to determine the breach in mutuality, the court is well within its powers to go beyond the periphery of the concern and undertake an examination akin to the lifting of the veil in order to discern the real nature thereof. Non-profiteering and Obedience to Mandate Para 24. "The mutuality and non-profiteering character of a concern are to be determined in light of its actual working structure and the factum of corporation or incorporation or the form in which it is clothed is immaterial." Para 26 'It is no doubt true that every member of the mutual concern might not be r....
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.... of authenticating or attesting it, of adopting its terms as one's own expressions, or of binding one's self by an engagement which it contains." 10.1 Thus without importing any other meaning and rational to the meaning of subscription and same being the only source of income of the Verein, as recognized by the relevant tax authorities, it can be concluded that the only source of generating funds for the assessee was the subscription amount from its members determined on the basis of proposed annual expenditure, which were paid by member firms, being subscribers to the Articles of Verein. 11. Then the invoices for the relevant year placed on record also show that the invoices were primarily raised for subscription according to Articles of Verein on account of operating expenditure, technology subscription or miscellaneous expenditure. The invoices are also raised for specific events organised and conducted by the assessee in furtherance of its recognised scope of activities and for the benefit of the Member Firms or the profession itself as a whole. These have been duly considered by the ld. F.A.A. while holding that no services were specifically provided by the asses....
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....h letter dated 8/2/2013 with the Ld AO and copy of same is on record at page no 26 of the PB for the year 2010-11. 13. The ld. Assessing Officers failed to appreciate that the Section 1 of the Verein, document defined "international name", "international practice name", " related names" and Section 2.1 gave Member firms right to use these names and Section 2.2 provided certain responsibilities. These clauses establish that the Verein was formed for the benefit of the members to allow them being identified as member of the Verein in assuring their clients of certain professional standards being followed by the Member Firm. The only benefit members drive by way of paying subscription is to have benefit of the goodwill of the Verein as a whole, to which they are also members and adding to the goodwill, in terms of professional excellence on basis of shared information and experiences in the field of profession. The only objective of the Verein thus was to benefit its member in the professional field and to evolve better professional practices. 14. The Verein was established for specific purposes mentioned in Article 1.2 and they nowhere indicate that any element of commerciality....
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.... from its member firms or non-members. 18. In the case of Dy. Commissioner of Income Tax , 3(1), Mumbai vs. KPMG (supra) relied by the assessee, the Mumbai Bench of the Tribunal has dealt with a similar matter and decided the same in favor or the said assessee which was an Indian Member Firm of KPMG International. The assesee had made payment to KPMG International. The Assessing Officer had concluded that expenses incurred by the assessee on account of alleged reimbursement of cost was in nature of royalty, therefore, such remittance constituted income of foreign company for purpose of Section 195 of the Act requiring deduction at source. The Commissioner (Appeal) had upheld the findings of Assessing officer but the Tribunal had remanded the matter and in remand proceedings, Commissioner held that KPMG international was a mutual association of assessee and its receipt could not constitute income chargeable to tax and assessee was not obliged to withheld any tax on such receipt. The revenue had preferred appeal which was dismissed by the Tribunal while relying the judgment of Hon'ble Supreme Court of India in Bankipur Club Ltd. (Supra) and Chelmsford Club (Supra) which have been ....