2019 (11) TMI 339 - AT - Income Tax

Exemption u/s 11 and 12 - principle of mutuality - income of the assessee is received from members as well as non members - Whether assessee society will be assessed as normal AOP - HELD THAT - The differential membership subscription is only fixed to recover higher subscription from those having larger turnover, while seeking to support fledglings/new entrants. The membership based on the turnover, carry differential voting rights. However, uniform service is provided by the assessee to all categories of members, irrespective of the membership fee paid. No specific services are being provided to members in lieu of payment of higher membership subscription charges. During the relevant previous year, the assessee received gross amount of ₹ 20.84 crores on account of annual membership subscription from members. In the return of income, the assessee, claimed exemption in respect of an amount on the principle of mutuality, arrived at, after reducing/allocating expenses incurred during the year out of gross membership subscription receipts. As submitted that on the issue of exemption claimed by the assessee on the basis of principles of mutuality have been decided by the CIT(A) in favour of the assessee for the A.Y 2009-10. CIT(A) reproduced the submissions of the assessee and order of Ld. CIT(A) for AY. 2009-10 in the order and following the same, deleted the entire addition observing assessee has also shown the amount received from non-members as income. The exemption has been claimed on income which is received from the members of the association on the principle of mutuality. It is also seen that the indirect expense has been duly apportioned and the services provided to members are same irrespective of the membership fees voting rights being different. The assessee has also relied on various case laws on the principle of mutuality. After considering all the facts and circumstances of the case which are same as that of A.Y. 2009-10 and A.Y. 2010- 11 benefit on principle of mutuality be granted to the assessee on membership fees from members only Further due credit to TDS Advance Tax may be given after verification - Decided against revenue

Summary

Issues:
1. Whether the assessee is entitled to exemption under section 11 and 12 of the Income Tax Act based on the principle of mutuality.
2. Whether the differential membership subscription and voting rights provided by the assessee violate the principle of mutuality.

Analysis:
1. The appeal by the Revenue challenged the Order of the Ld. CIT(A) which allowed the appeal of the assessee, focusing on the nature of the activities carried out by the assessee and whether they fall under the definition of "trade, commerce, or business" as per Section 2(15) of the Income Tax Act. The Revenue contended that the assessee, being in the category of general public utility, is not entitled to carry on any business or commercial activity. The A.O. denied exemption under sections 11 and 12 to the assessee, treating it as a normal AOP. However, the CIT(A) found in favor of the assessee, stating that the assessee's activities were not commercial in nature but based on the principle of mutuality.

2. The issue of differential membership subscription and voting rights was raised, questioning whether such differentiation violated the principle of mutuality. The A.O. observed that the assessee charged varying membership fees from different members with differential voting rights and had dealings with both members and non-members. The CIT(A) noted that the differential membership subscription aimed at recovering higher fees from members with larger turnovers while supporting new entrants. The assessee provided uniform services to all members, irrespective of the fee paid, and did not offer specific services in exchange for higher fees. The CIT(A) referred to previous orders in favor of the assessee on the principle of mutuality and granted the benefit to the assessee for the membership fees from members.

3. The Tribunal referred to a previous order related to the same assessee for A.Y. 2009-2010, where the issue of disposal of funds upon winding up was discussed. The Tribunal upheld the principle of mutuality and the entitlement of the assessee to claim the benefit of Section 11 of the Act based on judicial precedents. The Departmental Appeal was dismissed, and the Tribunal affirmed the findings of the CIT(A) in favor of the assessee.

4. Considering the previous order and the principles of mutuality, the Tribunal dismissed the departmental appeal in line with the decision on the identical issue from a previous case involving the same assessee. The appeal of the Revenue was dismissed, following the precedent set by the previous order and upholding the principle of mutuality.

In conclusion, the Tribunal upheld the principle of mutuality in favor of the assessee, allowing the appeal and dismissing the departmental appeal based on the previous orders and judicial precedents supporting the entitlement of the assessee to claim exemption under sections 11 and 12 of the Income Tax Act.