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2012 (4) TMI 813
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....010 2007-08 3309/A/2010 -do- -do- 2. This common order is passed in all the appeals as all the years has similar grounds of appeal. 3. I.T.A. No.3443 of 2010 GROUNDS OF APPEAL (Assessment Year 2002-03) (i) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facats of the case by confirming assessment made by the ld. Assessing Officer holding that the appellant company's effluent treatment receipts were not exempt from income on principle of mutuality. (ii) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming action of the ld. Assessing Officer in holding that the amount of Rs.67,36,276/- is business income of the appellant. (iii) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by not deciding the ground of appeal in respect of action of the ld. Assessing Officer of not granting set off carried forward losses of the earlier years and thereby confirming the same. (iv) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts by co....
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....d has erred in law and on facts of the case by not deciding the ground of appeal in respect of action of the ld. Assessing Officer of not granting set off for carried forward losses of the earlier years and thereby confirming the same. (iv) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on the facts by confirming the action of the ld. Assessing Officer of not granting deduction u/s 801A @ 100% of the total income. (v) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming the disallowance made by the ld. Assessing Officer by not allowing deduction in respect of donation of Rs.10,4000/- as being non-business expenditure. 6. I.T.A. No.2835 of 2011 GROUNDS OF APPEAL (Assessment Year 2008-09) (i) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming assessment made by the ld. Assessing Officer holding that the appellant company's effluent treatment receipts were not exempt from income on principle of mutuality. (ii) The ld. Commissioner of Income Tax (Appeals), Va....
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.... is no bar on the same but it would not be called dividends as there is no share capital. (iii) There are associations out side Vapi like Umbergaon Industries Association, SSI association Valsad which are members of solid waste (but not of CETP). (iv) There are few non-members who are members of CETP but not of solid waste. They are given courtesy to accept their waste till they become member and clear Gujarat Pollution Control Board (GPCB). The are charged at normal rate. (v) Rate of charge for solid waste like capital cost, reserve for disposal and reserve for maintenance of received waste are decided by the management. The basis of calculation is to be provided. (vi) There is no membership charge every year but one time fee is charged which is non-transferable -non refundable. The A.O. observed that the above facts lead to substantiate that the assessee company is doing normal business activity in routine course. Even though there is no share capital, the company is raising funds by way of subscription fees which is reflected in the balance sheet. There is specific clause viz. 25. VI of the Articles of Association which reads as under - "VI. If upon the winding....
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....by the Ministry of Commerce and Industry, Government of India under cluster project scheme. Therefore, the assessee company is not in business of making profit. The cost incurred by the member more or less as per requirement of running the company. It cannot be 100% accurate as sometimes expenses also fluctuates. Therefore, during the year there was a surplus of Rs.4.8 crore. The assessee company has provisions for distribution of surplus at the time of winding up but it is not by way of dividend but its distribution of money belonging to members which they have contributed from time to time. Section 2(22) of the I.T. Act also talks about dividend to the extent of distribution is attributable to the cumulated profit and does not talk of distribution of capital of share holders. Even it is treated as a dividend or otherwise is not a criteria for taxability of any company. This concept is exactly contrary to the view held in case of Northern India Motion Pictures' Association where surplus was not distributed to members of winding up but given to a charitable trust, the concept of mutuality was vitiate, the supplementary bill raised in case of any shortage of fund after decided by th....
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....r applying the principle of Mutuality, the 'membership' is a mandatory criteria and the assessee's case fails on this point because 'members' like Umbergaon Industries Association, SSI Association, Valsad do in turn collect waste from their members. Therefore, actually assessee is providing services to non-members and charging them. Therefore, principle of Mutuality is not applicable. (vi) On the other hand, becoming a member of this organization is also kind of compulsion viz. the member has to prove how it would dispose of effluent. Therefore, to get clearance from Government authorities like Gujarat State Pollution Control Board (GSPCB), its ;membership becomes necessary. (vii) Perusal of the book results for earlier years shows that the book loss incurred is due to doubtful debts of Rs.7,35,65,298/-. On enquiry, it was revealed that these were unpaid bills by the industries who disputed that they are non polluting (therefore, no required to be the members). From this, it is apparent that the assessee is dealing with such parties who are non-members and the transactions with such parties vitiate principle of Mutuality. 14. Further he analyzed the various aspects on page....
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....Court ordered the Industries to comply the GPCB norms for running the factories in this region. The VIA took lead in this regards by taking over CETB from GDIC, to operate the plant for the effluent treatment. All the industries not having secondary effluent treatment facility became the members of the companies, directly or through their respective Industries Association. In the process the appellant serves other Industries Association like Vapi Industrial Association (VIA), Pardi Industrial Association (PIA), Umergaon Industrial Association (UIA), Valsad Industrial Association (VIA) apart from the members directly joined. It is admitted facts that the members do not acquire any inherent right, title or interest in the property and the company itself is an absolute owner of the property. This very submission of the Authorized Representative of the appellant proves that the complete identity between the contributors and participants is missing in the instant case of the appellant. Thus, the principle ingredient of concept of Mutuality is not satisfied. Further the appellant company undertook certain projects which has no relevance or no direct nexus with the contribution of the mem....
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....at a remuneration was paid by the members for these services; and there must also be connection between the remuneration and the service rendered [Chagla, C.J., Ismailia Grain Merchants Association Ltd. v. CIT, (1957) 31 ITR 433, 437 (Bom); South Indian Planting and Commercial Representation fund v. CIT, (1957) 32 ITR 513, 518 (Mad)]. The statute does not require that before income of such association would be chargeable to tax, it should have been earned because of some trade activities by association [CIT v. Hill Goods Truck Owners Union, (1980) 124 ITR 224 (Punj)] This clause is in the nature of a charging provision. It is applicable on its own terms. Further, as held income of a trade association not falling within section 28(iii) is not necessarily exempt [CIT v. Shree Jari Mechants Association (1977) 106 ITR 542 (Guj)]. The idea behind section 28(iii) clearly is to tax the surplus arising from services rendered by such association to its members which would otherwise have been outside the tax net. The appellant has been providing Specific Services to its members. The word 'specific' only means definite, distinctly formulated or stated with precision. The word "performing spec....
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....ting excess fund with bank in fixed deposit a prudent commercial decision and principle of mutuality does not apply. He further relied on the decision of Sports Club of Gujarat Ltd. Vs. C.I.T. reported in 1987 Vol.171 ITR 504 (Guj.) where Hon'ble Gujarat High Court has held that the Sports Club is mutual concern and profit and gain is not assessable as business income. Interest on investment is assessable. The assessee is not entitled to benefit of Section 44 A of the I.T. Act. The Hon'ble Gujarat High Court in this case has held that one of the essential of mutuality is that the contributors to the common fund are entitled to participate in the surplus, there by creating an identity between the participants and the contributors, once such identity is established, the surplus income would not be exigible to tax on the principle that no man can make a profit out of himself. The principle of mutuality is not extracted by the presence of transactions which are not mutual in character. The principle of mutuality can, in such case, be confined to transactions with members. The two activities can, in appropriate cases be separated and the profit derived from non-members can be brought to....