2016 (10) TMI 523 - AT - Income Tax

Deduction u/s.80IA eligibility - Concept of mutuality taxability of excess of income over expenditure - Held that - The activities of the assessee are identical to the activities undertaken by Common Effluent Treatment Plant (Thane-Belapur Association 2010 (6) TMI 52 - BOMBAY HIGH COURT wherein held that the income of the assessee is contributed by its members. The assessee has been formed specifically with the object of providing a common effluent facility to its members. The income is not generated out of dealings with any third party. The entire contribution originates in its members and is expended only in furtherance of the objects of the association, for the benefit of the members. On these facts, both the Commissioner (Appeals) and the Tribunal were justified in coming to the conclusion that the surplus so generated falls within the purview of the doctrine of mutuality and was not exigible to tax. . - Decided in favour of the assessee and against the Revenue

Summary

Issues Involved:
Appeals against Commissioner of Income Tax (Appeals)-I order for Assessment Years 2004-05 and 2007-08 regarding the claim of deduction u/s.80IA of the Income Tax Act, 1961 based on the principle of mutuality.

Analysis:

Issue 1: Claim of Deduction u/s.80IA
The appellant, a Cooperative Society for treating industrial effluents, filed returns for AY 2004-05 with NIL income after claiming u/s.80IA deduction. The AO initially accepted the deduction but later, under section 263, disallowed it. The CIT(A) upheld the AO's decision. The Tribunal, in the second round, remitted the matter back to the AO. The AO, in the subsequent assessment, disallowed the deduction leading to an appeal by the appellant. The CIT(A) reversed the AO's decision based on a Bombay High Court ruling. The Department contended that the principle of mutuality does not apply due to non-member contributions and lack of complete control over funds. The appellant argued that the AO had previously accepted the mutuality principle. The Tribunal found that the Department raised new grounds not supported by assessment facts, leading to the dismissal of the appeals.

Issue 2: Fresh Grounds of Appeal
The Department raised additional grounds challenging the mutuality principle based on receipts from a non-member entity. The Tribunal held that new grounds can be raised if they arise from facts on record during assessment. As the appellant provided a list of member collections excluding the non-member entity, the Tribunal dismissed the Department's appeals. The Tribunal cited a Bombay High Court case affirming the mutuality principle for a similar entity, emphasizing that the Department's grounds were misconceived and against the facts on record.

In conclusion, the Tribunal dismissed the Department's appeals for AYs 2004-05 and 2007-08, as the grounds raised were not supported by assessment facts, and the mutuality principle was upheld based on relevant case law.