2023 (3) TMI 1506 - AT - Income Tax

Taxability of collection of membership fee - solitary argument of the assessee is that by virtue of principle of mutuality, membership fee collected by the assessee is not taxable under the provisions of the Act - HELD THAT - We find that in Assessment Year 2014-15 in assessee s India branch the applicability of principle of mutuality was considered by the DRP - DRP finally concluded that the India branch of the assessee qualifies as a mutual concern . However, in the instant case we find that the AO while passing the draft assessment order applied similar test to determine mutuality and came to the conclusion that membership dues are business receipts of the assessee. The DRP without ado upheld the same. We find that the directions of DRP in assessee s India branch is for anterior AY 2014-15 and are subsequent in time i.e. dated 22/09/2017, whereas, in assessee s case for AY 2012-13, the directions are dated 17/11/2015. Taking into consideration entire facts, we deem it appropriate to restore this issue to the file of AO for denovo examination in the light of aforementioned DRP directions in the case of assessee s India branch with respect to collection of membership fee only. In addition, AO shall also examine if the transaction (i.e. of membership fee) in the case of assessee is similar to that of Indian Branch in AY 2014-15; one to one nexus is established between collection of membership fee by the India Branch and transmission of same to the assessee; and the transaction is without any commercial element. If all the conditions are satisfied, no addition is warranted. The ground allowed for statistical purpose.

Summary

Issues:
1. Interpretation of the principle of mutuality under the Income Tax Act.
2. Taxability of membership fees collected by the assessee.
3. Application of the principle of mutuality to determine tax liability.

Analysis:
1. The appeal was filed against the assessment order under the Income Tax Act. The Tribunal allowed a Miscellaneous Application pointing out factual errors in the original order. The issue revolved around the taxability of revenues like membership fees, IATA Clearing House Facility fees, and BSP Link charges. The Tribunal recalled the original order for fresh adjudication specifically on the ground related to the taxability of these revenues.

2. The primary contention was whether the membership fees collected by the assessee were taxable under the Act. The assessee argued that these fees should not be taxed based on the principle of mutuality. The assessee, a non-profit organization incorporated in Canada, collected membership fees from various members globally, including airlines and travel agents. The branch office in India facilitated the collection but the payments were directly received by the assessee in Canada. The Department rejected the mutuality argument, while the assessee cited instances where mutuality was accepted for its Indian branch in previous assessment years.

3. The Tribunal considered the applicability of the principle of mutuality to the collection of membership fees. It reviewed the conditions for mutuality, including complete identity between contributors and participants, a common objective of members, and the absence of commercial elements. While the DRP had previously accepted mutuality for the Indian branch in a different assessment year, the Assessing Officer in the current case treated membership dues as business receipts. The Tribunal decided to remit the issue back to the Assessing Officer for a fresh examination in light of the DRP directions for the Indian branch in a prior assessment year. If the conditions for mutuality are met, no addition to tax liability is warranted. The appeal was allowed for statistical purposes, with dismissal of other sub-grounds under the same issue.

This detailed analysis of the legal judgment provides insights into the interpretation of the principle of mutuality, the taxability of membership fees, and the application of mutuality to determine tax liability in the specific case.