TaxTMI 
TaxTMI 
2023 (10) TMI 923
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..... 2. Briefly stated, circumstances leading to these appeals are as follows. 2.1 The respondent/assessee is an association (Verein), established in Switzerland, with its members being Chartered Accountant firms situated across the world. The respondent/assessee Verein filed returns of income for the concerned Assessment Years (2008-09 to 2011-12) declaring its income at nil; however, in the return of income for Assessment Year 2011-12, the respondent/assessee also claimed a refund of Rs. 1,35,18,298/-. 2.2 The said returns of income having been selected for scrutiny, notices under Section 143(2) of the Act were issued to the respondent/assessee. By way of assessment orders dated 28.02.2011 (for assessment year 2008-09), 12.01.2012 (for assessment year 2009-10), 23.04.2013 (for assessment year 2010-11) and 23.05.2014 (for assessment year 2011-12) the total income of the respondent/assessee Verein were determined respectively as Rs. 9,71,58,805/-, Rs. 15,32,08,246/-, Rs. 20,12,98,446/- and Rs. 13,70,59,258/- by the Assessing Officer. 2.3 The respondent/assessee being aggrieved by the said assessment orders preferred appeals before the Commissioner, Income Tax. The said app....
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....ey paid by the members to the respondent/assessee was in the nature of fee for technical services, liable to be taxed since the members of Verein would not be in a position to perform their professional activities and earn profit, therefore, the principle of mutuality cannot be applied in the present case. Learned counsel for appellant/revenue placed reliance on the judgments in the cases titled Yum Restaurants (Marketing) Pvt Ltd vs Commissioner of Income Tax, (2021) 7 SCC 678 (SC); and Haryana State Co-op Labour & Construction Federation Ltd vs CIT, (2002) 122 Taxman 408 (P&H) and submitted that where members have no control over funds and they could not direct the remaining amount to be returned to them, principle of mutuality does not come into play. 5. Per contra, learned counsel for the respondent/assessee Verein supported the impugned order and contended that these appeals are completely devoid of merit. Learned counsel for respondent/assessee contended that the judicial precedents cited on behalf of the appellant/revenue are distinguishable. It was argued on behalf of the respondent/ assessee that Verein is a non-profit entity registered under Swiss laws and merely becau....
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....mb 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 surplus thereof. Conversely, no person ought to participate as a beneficiary without first having been a contributor or a member of the class of contributors to the common fund. Common identity, as it occurs in the present context, signifies that the class of members should stay intact as the transaction progresses from the stage of contributions to that of returns/surplus. It must manifest uniformity in the class of participants in the transaction. The moment such a transaction opens itself to non-members, either in the contribution or the surplus, the uniformity of identity is impaired and the transaction assumes the taint of a commercial transaction. The emphasis on the words member and non-member is of import because the doctrine of mutuality does not prohibit the inclusion or exclusion of new members. What is prohibited is the infusion of a participant in the transaction who does not become a "member" of the common fund, on a par with other members, and yet participates either in the contribution or surplus without su....
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....ovisions in the Articles of Verein which prescribe the duties of member firms to Verein and vice versa as well as obligations of member firms to each other. Article 7 of the Articles of Verein deals with the manner and the extent of collection of contributions from member firms towards budgeted operating expenses of Verein. Article 11.1 deals with dissolution of Verein if a resolution to that effect is adopted by the member firms. Article 11.2 meticulously stipulates distribution of surplus and liabilities of Verein in case of dissolution. Sub-Article (b) of Article 11.2 contemplates payment of surplus to each member firm in the proportion to its allocated contribution to budgeted operating expenses of Verein for the then fiscal year. 7.4 Merely because members of Verein are able to avail various technological services and license to use goodwill of Verein, their contributions cannot be regarded as quid pro quo. The Articles of Verein clearly show that all member firms of Verein come together and contribute to a common fund for achieving common objectives, which objectives qua Verein are non-commercial objectives and that all member firms contribute towards budgeted operating ex....
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....tanding or arrangement to abide by the mandate of the group for benefit of other members. And such arrangement is unlike an arrangement in which one member would be subjected to the absolute discretion of another in such a manner that the entire liability may fall upon one whereas benefits are reaped by all or all others. In a mutual concern, an obligation to pay may or may not be there but at the same time, an over ridding discretion of one member over others cannot be sustained in order to preserve the real essence of mutuality. In other words, the association created should operate only for the convenience and benefit of its members. 9.1 Article 6.2(a) of the Articles of Verein mandates that in addition to all obligations, each member firm under the Articles, the supplemental regulation or otherwise shall support and adhere to the purposes and policies of the Verein; align national plans, strategies and operations with global plans strategies and operations in consultation with Verein Management; conduct itself in such a manner as to advance the reputation of the Verein; be bound by the requirements contained in resolution and protocols adopted by the Board of Directors or th....