2002 (1) TMI 271 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of dividend received by the assessee-company from chit groups on the principle of mutuality.

Summary:

Issue 1: Taxability of Dividend on the Principle of Mutuality

The primary issue for adjudication in these appeals is whether the dividend received by the assessee-company, which is running a chit business, as a subscriber to chit groups promoted by it is assessable as income or not on the principle of mutuality.

Facts of the Case:
The assessee, a public limited company, promotes chit groups and also subscribes to these groups, sometimes out of necessity. The company claimed exemption on dividends earned from these chits based on mutuality. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] rejected this claim, treating the dividend as taxable income.

Arguments by the Assessee:
The assessee argued that the chit dividend received as a subscriber should not be taxable on grounds of mutuality. They relied on several judgments including the Punjab & Haryana High Court in Soda Silicate & Chemical Works v. CIT and decisions by the Appellate Tribunal. The assessee contended that the principle of mutuality applies to their case, and the dividend should be exempt from taxation.

Arguments by the Revenue:
The Revenue opposed the assessee's contentions, relying on the jurisdictional High Court's judgment in CIT v. Kovur Textiles and other cases like M. George Bros. Chitty Fund v. CIT. They argued that the principle of mutuality does not apply to commercial organizations formed with the object of earning profit, such as the assessee-company.

Tribunal's Findings:
The Tribunal held that the principle of mutuality is not applicable to the assessee, which is a commercial entity formed to derive profits from the business of chits. The Tribunal noted that the assessee-company's participation in the chit groups is driven by business necessity and not by mutuality. The Tribunal also considered the jurisdictional High Court's decision in the case of Shri Purushotham Reddy, which supported the Revenue's stance.

Conclusion:
The Tribunal concluded that the dividend income earned by the assessee-company from the chit groups is taxable as it arises from business transactions. The appeals by the assessee were dismissed, upholding the orders of the CIT(A).

Result:
The appeals of the assessee are dismissed.