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Issues Involved:
1. Whether the assessee is constituted on the principles of mutuality and, therefore, not liable to be taxed. Detailed Analysis: Issue 1: Whether the assessee is constituted on the principles of mutuality and, therefore, not liable to be taxed. The assessee, an association of persons (AOP) registered under the Indian Trade Unions Act, 1926, filed an appeal against the order of the Commissioner (Appeals) dated 20-2-1981. The primary contention was whether the assessee is constituted on the principles of mutuality and thus exempt from taxation. The facts reveal that the assessee's membership is confined to persons connected with the J.K. Group of undertakings. The association's objects include regulating relations between members and their employees, promoting trade, commerce, industry, and agriculture among members, and protecting members against competition. The association's income primarily comes from subscriptions and contributions from its members. For the assessment year 1976-77, the assessee filed a return showing an income of Rs. 4,498 after deducting unabsorbed losses. The Income Tax Officer (ITO) disallowed 75% of the total expenditure claimed, framing the assessment on a total income of Rs. 1,76,468. The Commissioner (Appeals) upheld this decision, stating that the test of mutuality was not satisfied. The principle of mutuality requires that contributors to the common fund and participators in the surplus must be an identical body. The Andhra Pradesh High Court in CIT v. Merchant Navy Club and the Allahabad High Court in CIT v. Cawnpore Club Ltd. have held that the essence of mutuality is that no one can trade with oneself. The surplus need not be distributed in the same proportion as contributions, and it does not matter if the class of members changes over time. The Commissioner (Appeals) based his decision on two considerations: 1. The potential distribution of funds upon dissolution, which he believed would disrupt the identity between contributors and participators. 2. The provision of services to non-members, which he argued violated the principle of mutuality. However, the Tribunal found these considerations untenable. Firstly, no new members were enrolled during the relevant year, maintaining the identity between contributors and participators. Secondly, the association's rules and regulations do not allow for the provision of services to non-members. Any unauthorized activities by employees, such as assisting non-members, do not alter the nature of the association or its adherence to mutuality principles. The Tribunal concluded that the assessee's activities were for the mutual benefit of its members, and its income was solely from member subscriptions. The evidence showed a complete identity between contributors and participators, satisfying the principle of mutuality. Therefore, the assessee is not liable to be taxed. Conclusion: The appeal filed by the assessee is allowed, and it is held that the assessee is constituted on the principles of mutuality and is not liable to be taxed.
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