2016 (11) TMI 1312 - AT - Income Tax

Benefit of principle of mutuality - receipts from the members and taxes the surplus income from non-members - Held that - If the objects of the assessee are looked into cumulatively then it would spell out that in order to appraise members about the latest technology in construction activities market trend it would not be futile to organize property show. As far as cricket match is concerned it was not organized on commercial basis rather participators are mainly from among the members. It is recreational activities. The assessee has pointed out that total receipts from these matches have not crossed one and half -lakhs of rupees. Therefore this is minor contribution from non-members which has been offered for taxation would not destroy the principle of mutuality. We find that the ld.CIT(A) has made reference to the various case laws but not examined analytically the facts of the assessee s case. She simply concurred with the proposition laid down in those cases laws but has not spell out how these propositions are applicable on the facts of the present case. It is pertinent to observe that facts of all other years are identical. Therefore we allow all the appeals of the assessee for statistical purpose.

Summary

Issues Involved:
1. Reopening of assessment for the Assessment Years 2006-07 to 2009-10.
2. Entitlement of the assessee to compute its income on the principle of mutuality.

Issue-wise Detailed Analysis:

1. Reopening of Assessment for the Assessment Years 2006-07 to 2009-10:
The first common issue pertains to the reopening of the assessment for the Assessment Years 2006-07 to 2009-10. The Assessing Officer (AO) passed assessment orders on 27.3.2014 under section 143(3) read with section 147 of the Income Tax Act, 1961. However, during the course of the hearing, the counsel for the assessee did not press this ground of appeal, leading to its rejection for all four years.

2. Entitlement to Compute Income on the Principle of Mutuality:
The second common issue is whether the assessee is entitled to compute its income based on the principle of mutuality. The facts are consistent across all the assessment years. The Gujarat Institute of Housing & Estate Developers (GIHED) was initially established under the Non-Trading Corporation Act of Gujarat in 1980 and later registered as a non-profit organization under section 25 of the Companies Act, 1956. The AO, in the assessment year 2010-11, formed the opinion that the income of the assessee is taxable, leading to the reopening of assessments for the years 2006-07 to 2009-10.

The assessee filed its return for the Assessment Year 2006-07, declaring a total income of Rs. 7,47,319/- and paid taxes accordingly. The AO issued a notice under section 143(2) and ultimately determined the taxable income at Rs. 17,02,700/-. The assessee's claim that its income is exempt from taxation on the principle of mutuality was rejected by the AO and upheld by the CIT(A).

Analysis of the Principle of Mutuality:
The principle of mutuality requires a complete identity between contributors and participators, a common cause, and no profit motive. The assessee cited several judicial precedents, including the Supreme Court's decisions in CIT Vs. Bankipur Club Ltd. and Chemsford Club Vs. CIT, to support its claim. The principle of mutuality was examined in the context of clubs and trade associations, emphasizing that if the contributors and participators are identical, the surplus cannot be regarded as profit.

CIT(A)'s Reasoning:
The CIT(A) rejected the assessee's claim on three grounds:
(a) The object of the company does not spell out the principle of mutuality.
(b) The income is mainly derived from properties shown in India or abroad.
(c) The assessee organized cricket tournaments, which have significant marketing potential.

Tribunal's Findings:
The Tribunal noted that the objects of the assessee, as per its memorandum of association, include activities such as collaborating with government departments, managing housing problems, and fostering goodwill among members. The income and property of the institution are to be applied solely for its objects, with no portion paid to members as profit. The Tribunal found that the assessee's activities, such as organizing property shows and cricket matches, are ancillary to its main objects and do not destroy the principle of mutuality.

The Tribunal also observed that the assessee segregated receipts from members and non-members and paid taxes on non-member contributions. The Tribunal directed the AO to give the benefit of mutuality to the assessee while determining taxable income, excluding income from non-members. The AO was instructed to proportionately allocate expenditure between receipts from members and non-members and provide the assessee with an opportunity for a hearing.

Conclusion:
The appeals of the assessee were allowed, with directions to the AO to apply the principle of mutuality to member receipts and tax the surplus income from non-members. The AO was also directed to reexamine and allocate expenditure proportionately.

Order:
The appeals of the assessee are allowed, with the order pronounced on 25th November 2016 at Ahmedabad.