TaxTMI 
TaxTMI 
2008 (2) TMI 444
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....company incorporated under section 25 of the Companies Act, 1956. As per the Memorandum of Association and the object clauses therein, the assessee-company is incorporated to promote interest of Travel Agents in India. The company does not have any profit motive and distribution of income or property to the members is strictly prohibited by the Memorandum of Association and Articles of Association of the Company. It is the case of the assessee-company in the above circumstances that it conforms the requirement of mutual association and as such the income is exempt from the purview of taxation on the ground of mutuality. The Assessing Authority in the course of assessment proceedings for the impugned assessment years held that even if the as....
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....tered Accountant appearing for the assessee argued the case in detail. He explained that the assessee is computing the income and expenditure on an year-to-year basis and arrives at the excess of income over expenditure or vice versa and transfer the net amount to income and expenditure account to the Balance Sheet. It is a mutual association and, therefore, section 115JA does not apply. Alternatively, the learned Chartered Accountant argued that annual convention receipts, membership and interest thereon have been held as exempted receipt from taxation being in the nature of mutual receipt, by ITAT Mumbai Benches in the earlier assessment years. As such, receipts being in the nature of mutual receipts do not represent income or profit and,....
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....h a special situation. A number of companies otherwise earning profit and income as well as declaring dividends, where not paying income-tax by claiming a number of deductions available under the statute. This has created a serious case of economic and equitable anomaly. In order to overcome this situation, a deeming provision was brought into the Income-tax Act whereby a company is bound to pay tax either on its normal income-tax profits or on 30 per cent of the book profit whichever is higher. For that purpose, book profit means the profit computed under Schedule VI to the Companies Act, 1956. 8. It is obvious from the above that section 115JA is to deal with such companies earning normal business profits. It is applicable to such comp....
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....ity to exempt from the levy of taxation. This is because a mutual concern is working within themselves on the principle of mutuality and, therefore, all the activities are considered to be carried out with and by the members constituting association. A person cannot generate income or profit by dealing with himself. It is on this principle that a mutual association is exempt from tax. That does not mean that a mutual association can carryon any business and escape from levy of tax. 13. Where the mutual association like the assessee does not carry on any such business and almost the entire income is derived from mutual activities, it is exempt from the tax. It is only where such a company comes out of the tax exemption by indulging in act....