2013 (7) TMI 136 - AT - Income Tax

Re opening of assessment - CIT(A) rejected the status of the assessee as a mutual concern by confirming the addition in respect of the amount transferred to common good fund and disallowing certain expenses - assessee is a society registered under the Societies Registration Act, 1860 - Held that - The assessee by donating its amounts to Kargil fund, P.M. relief fund, Gujarat relief fund etc. has vitiated the concept of mutuality. Therefore, the assessee cannot be held to be a mutual concern at least for these two assessment years. However, the assessee is entitled for deductions under Chapter VI as the assessee made donation to Kargil fund, PM relief fund and Gujarat relief fund. The Assessing Officer having held that the assessee is not a mutual concern and considered the assessee as an AOP he should have allowed the said donations as deduction under Chapter VI for which the assessee is otherwise entitled to. Since this aspect of the matter was not considered by AO he should be directed to look into this aspect and allow the deduction to the assessee in accordance with law. With regard to the addition made towards common good fund - Held that - As it is found from the assessment order that the assessee introduced in the liability side of the balance sheet an amount of Rs. 21,21,488/- and Rs. 18,22,720/- as a common good fund and during the assessment years 2000-01 and 2003-04 respectively assessee has not produced any details for the said amounts said to have been received from its members and the assessee has not filed any details correlating the amounts with the names of the members etc., from whom the said fund was received by the assessee, except furnishing xerox copy of a ledger account. Since the assessee association is a District Bus Operators Association is formed for the benefit of the members of the association, in the interest of justice, the assessee be given one more opportunity to furnish the details of common good fund before AO. Disllowance of diesel expenses - Held that - As assessee did not furnish complete details thus AO s order in estimating the disallowance of these expenses at 10% which is quite reasonable in the absence of complete details - appeals of the assessee partly allowed for statistical purposes.

Summary

Issues:
Assessment of status as a mutual organization, addition to common good fund, disallowance of certain expenses.

Analysis:
The appeals were filed against orders of the Commissioner of Income Tax (Appeals) for assessment years 2000-01 and 2003-04. The main issue was the denial of mutual organization status to the assessee. The Assessing Officer rejected the mutuality claim due to donations made to third parties, expenses incurred, and interest income from banks. The Tribunal found that the objects of the society were in line with mutuality. However, the lower authorities contended that the concept of mutuality was vitiated as the assessee received interest income and made donations to non-members, thereby departing from the common fund principle. The Tribunal agreed that the concept of mutuality and charity cannot coexist, citing legal precedents. The assessee's donations to various relief funds were deemed as charity, not mutuality. The Tribunal directed the Assessing Officer to allow deductions under Chapter VI for the donations made. The addition to the common good fund was set aside for further examination, giving the assessee an opportunity to provide necessary details. The disallowance of diesel expenses was upheld at 10% due to incomplete information. The appeals were partly allowed for statistical purposes.

In conclusion, the Tribunal upheld the denial of mutual organization status to the assessee due to donations made to non-members, thereby vitiating the concept of mutuality. The Tribunal directed the Assessing Officer to allow deductions for charitable donations and set aside the addition to the common good fund for further examination. The disallowance of expenses was upheld at 10%.