2016 (5) TMI 68 - AT - Income Tax

Exemption on the principle of mutuality claimed - assessee-trust was not registered under section 12AA - Held that - Admittedly, the assessee is a trust and it is not registered under section 12AA of the Act. The foremost object of the trust is to propagate the ideology of Sri Sathya Sai Baba by installing 108 padhugas. The trust deed also provides for installation of golden padhuga on 109th time. A bare reading of the trust deed clearly says that it is religious in nature and for the entire mankind of the world. The beneficiaries of the trust cannot be identified individually. The contention of the assessee is that a group of people are contributing for poojas and therefore, the benefits would go only to those persons who are contributing for the poojas. This Tribunal is unable to accept the contention of the assessee. Today 100 people may contribute for poojas and another day 200 people may contribute for the poojas. There is no restriction for the general public for participating in the poojas. There cannot be any identity among the people who are contributing for the poojas and the persons participating in poojas. The assessee is at liberty to receive donation or contribution from any individual across the society. In such a case, as rightly submitted by the learned Departmental representative, the individual beneficiaries of the trust cannot be identified, therefore, there is no question of applying the concept of mutuality. In fact, there is no mutuality in the transaction between the assessee and the individual beneficiaries. - Decided against assessee

Summary

Issues:
1. Whether the assessee trust is eligible for exemption under the concept of mutuality despite not being registered under section 12AA of the Act.
2. Whether the income earned by the assessee trust on fixed deposits is subject to tax.
3. Whether the beneficiaries of the trust are identifiable individuals for the application of the concept of mutuality.

Analysis:
1. The appeal pertains to the eligibility of the assessee trust for exemption under the concept of mutuality despite not being registered under section 12AA of the Act. The counsel for the assessee argued that even though the trust was not registered under section 12AA, the principle of mutuality should apply as the benefits of the trust go to members contributing for poojas. Referring to past judgments, the counsel contended that the trust is eligible for exemption under the concept of mutuality. However, the Departmental representative argued that as the beneficiaries of the trust are not identifiable individuals, the concept of mutuality cannot be applied. The Tribunal observed that the trust's object is to benefit the entire mankind and individual beneficiaries cannot be identified, leading to the conclusion that the concept of mutuality does not apply in this case.

2. The issue of whether the income earned by the assessee trust on fixed deposits is subject to tax was also raised. The Commissioner of Income-tax (Exemptions) found that the interest income earned on fixed deposits was not exempt under the concept of mutuality. The Tribunal upheld this decision, stating that there is no mutuality in the transaction between the trust and the individual beneficiaries, as the trust can receive donations or contributions from any individual across society.

3. The question of whether the beneficiaries of the trust are identifiable individuals for the application of the concept of mutuality was crucial. The Tribunal noted that the trust's object is to benefit the entire mankind, and individual beneficiaries cannot be identified. Drawing a distinction from a club where the concept of mutuality may apply to transactions with members, the Tribunal held that in the case of the trust, with no identifiable individual beneficiaries, the concept of mutuality does not apply. The Tribunal referenced a judgment where it was established that for the concept of mutuality to apply, transactions must be between identifiable individuals, which was not the case with the trust.

In conclusion, the Tribunal confirmed the decision of the Commissioner of Income-tax (Exemptions) and dismissed the appeal of the assessee, ruling that the concept of mutuality does not apply to the trust due to the nature of its beneficiaries and transactions.