2016 (8) TMI 1580 - AT - Income Tax

Principle of mutuality - Allowance of depreciation - assessee was settled / incorporated as per the order of Hon ble jurisdictional High Court to treat the effluent of hazardous / created in and around of Vapi - HELD THAT - As decided in assessee own case 2012 (4) TMI 813 - ITAT AHMEDABAD basic object of the company is to give treatment of effluent in the form of liquid and solid to prevent the pollution in Vapi Industrial area on the suggestion of the Hon ble Gujarat High Court. The company is limited by guarantee. There is no share capital of the members. Only subscription is made on the basis of wastage delivered by their plants. No dividend has been distributed by the company so far. The object mentioned in the main and ancillary object are as per the line of the company act but it is not for profit earning. The Board of Director has to pass resolution to allow the outsider to get the services of the company. No director is outside from the members of Vapi Industrial Association. On the basis of decision of Hon ble Gujarat High Court in the case of Sports Club of Gujarat 1987 (10) TMI 21 - GUJARAT HIGH COURT the assessee also has declared the interest income in return as taxable on fixed deposit with bank however it was admitted that no outsider had provided the services of the company but the AO is directed to verify the claim of the assessee whether any outsider is getting services or not from non-members has to be taxed accordingly after giving full opportunity to the assessee. The assessee is also directed to cooperate with the A.O. and give all the evidences as required by the A.O. for his satisfaction. The revenue appeal on allowance of depreciation by the CIT(A) has no bearing as the principle of mutuality has been accepted by this Court. We affirm CIT(A) s findings under challenge in these facts and circumstances. Revenue s other substantive ground are rendered academic in view of our adjudication on mutuality principle in assessee s favour.

Summary

Issues:
1. Application of mutuality principle
2. Allowance of depreciation
3. Allowance of employees' contribution to PF & ESIC

Application of Mutuality Principle:
The Revenue appealed the CIT(A)'s decision on the principle of mutuality in the company's case for the assessment year 2009-10. The tribunal referenced a previous decision in the assessee's case for the preceding assessment year, where it was established that the company's objective was to provide effluent treatment without profit-making intentions. The tribunal noted that no dividends were distributed, and membership subscriptions were based on waste delivered by plants. The tribunal upheld the principle of mutuality, emphasizing the company's limited guarantee structure and the absence of share capital. The tribunal directed the AO to verify if any outsider received services from the company and to tax accordingly if so. The tribunal dismissed the Revenue's argument that pending appeals affected the finality of the decision, affirming the CIT(A)'s findings in favor of the assessee due to the mutuality principle.

Allowance of Depreciation:
One of the Revenue's contentions was the allowance of depreciation amounting to Rs. 1,35,89,900. The tribunal did not find any merit in the Revenue's argument and affirmed the CIT(A)'s decision based on the acceptance of the mutuality principle in the company's case. The tribunal considered the Revenue's grounds on this issue as academic in light of the mutuality principle being held in favor of the appellant.

Allowance of Employees' Contribution to PF & ESIC:
Another issue raised by the Revenue was the allowance of employees' contribution to PF & ESIC amounting to Rs. 24,199, which was made after the due date. The tribunal did not find any grounds to support the Revenue's contention and upheld the CIT(A)'s decision, again citing the acceptance of the mutuality principle in the company's case. The tribunal dismissed the Revenue's appeal, pronouncing the decision on August 22, 2016, in favor of the assessee.