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TMI Blog2011 (9) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... xable is not justified. - Benefit of Section 44A allowed. - However amount not expended for the purpose of protection and advancement of the common interest of its members has not been granted exemption u/s 44A of the Act Surplus arrived at by the assessee (society) from the transactions with its members - Section 44A does not grant the exemption to the assessee with regard to the surplus shown by it being receipt excess of expenditure. It only describe that if such receipts fall short of expenditure, then, deduction regarding expenditure has to be allowed. - However, the resultant surplus is allowable on the basis of principle of mutuality as no material has been brought on record by the Assessing Officer to show that any of the receipt of the assessee pertains to non-members. Regarding interest on FDR - interest on FDRs has also been held to be covered by the doctrine of mutuality (COMMISSIONER OF INCOME TAX .VERSUS DELHI GYMKHANA CLUB LTD. (2010 -TMI - 205800 - DELHI HIGH COURT). Therefore, looking from any angle, we find no infirmity in the order of the CIT (A) vide which it has been held that no part of the income of the assessee is exigible to tax on the principle of mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Received 582,500 Meetings and Conference Expenses 58,922 Receipts for HP HP Prague 2004 842,552 Expenses on HP HP Prague 2004 815,998 Interest Received on Bank FDRs 118,633 Advertisement 26,700 HoMai Award Fee Recd. 29,138 Affiliation Fee 5,000 Computer Expenses 4,836 Office Expenses 84,998 Telephone, Postage and Couriers 27,033 Printing and Stationery 2,682 Secretarial and Admin. Charges 180,000 Auditors Honorarium 10,000 Bank Charges 3,528 Travelling and Conveyance 17,906 Web site expenses 1,598 Surplus 329,919 4. Copy of computation of income has been filed at page 54 of the paper book which has shown net taxable income at Rs.94,000/-. The computation of income in the said computation is as under:- COMPUTATION OF INCOME Profits and Gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 2 (24) (iia) of the Act. In response, it was submitted that the said amount relates to membership granted to the members in terms of clause 12 of the Rules and Regulations and this represent various categories of members and this represent corpus fund as per terms of clause 14.2 of the Association. It was claimed that the association is governed by Section 44A of the Act, therefore, its income is not taxable. The Assessing Officer did not accept such claim of the assessee as, according to the Assessing Officer, the amount received by the assessee represent receipts u/s 28(iii) of the Income-tax Act, hence, are taxable. He, therefore, treated the amount of Rs.6,18,750/- being the amount received by the assessee from its members in respect of membership fee and also the surplus amount of Rs.3,29,919/- as income of the assessee and, in this manner, he has assessed the income of the assessee at Rs.9,48,669/- being aggregate sum of aforementioned two amounts. 7. Before CIT (A), it was claimed that the assessment made by the Assessing Officer was not called for as the amount of Membership fee received by the assessee could not be taxed as per principle of mutuality and so was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Act. Therefore, he pleaded that the assessee was to be assessed under the normal provisions of the Act and, therefore, the Assessing Officer was right in making the assessment and learned CIT (A) has wrongly deleted the addition. 9. On the other hand, relying upon the submissions made before the Assessing Officer and CIT (A) and also the findings recorded by the learned CIT (A), it is the case of the assessee that the relief has rightly been given to the assessee, therefore, the order of the CIT (A) should be upheld. 10. It may also be mentioned here that at the foremost the learned AR of the assessee has submitted that tax effect of the present appeal is less than Rs.3 lac, therefore, the departmental appeal should not be admitted in view of the recent Circular issued by the CBDT which is dated 9th February, 2011 reported in 332 ITR 1 (St.). 11. We have carefully considered the rival submissions in the light of the material placed before us. It is undisputed that the assessee has not been registered u/s 12A of the Act and, therefore, it cannot be considered eligible for the benefit granted by Section 11 of the Act. The assessee in its return of income had clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies only to that trade, professional or similar association the income of which or any part thereof is not distributed to its members except as grants to any association or institution affiliated to it.]" 13. Section 44A is the special provision for grant of deduction in the case of trade, professional or similar association. It starts with non-obstante clause. Therefore, it is a non-obstante provision and has to be considered independent from the other provisions of the Act. It applies to the trade, professional or similar associations which are other than the association or institutions referred to in clause (23A) of Section 10. If such eligible association receive amount from its members, whether by way of subscription or otherwise (not being remuneration received for rendering any specific service to such members) and that amount falls short of expenditure incurred by such association during that previous year (not being the expenditure deductible in computing the income under any other provisions of this Act and not being in the nature of capital expenditure) solely for the purpose of protection or advancement of the common interest to its members, the amounts so falle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect. If it is so, then, the amount expended by the assessee for the purpose of protection or advancement of the common interest of its member will be allowable as deduction. Therefore, the claim of the department can only be restricted to the amount of Rs.3,29,919/- which also comprise an amount of Rs.1,18,633/- representing interest earned by the assessee on FDRs. 15. In this view of the situation, we see no justification in the addition made by the Assessing Officer vide which an amount of Rs.6,18,750/- received by the assessee from its members has been considered taxable. Therefore, we hold that the said amount has wrongly been taxed by the Assessing Officer and learned CIT (A) was right in holding that the amount received by the assessee as annual membership fee could not be taxed though for different reason that it cannot be taxed u/s 44A of the Act. 16. However, it can be the case of the department that amount received by the assessee from its members, if it is not expended for the purpose of protection and advancement of the common interest of its members has not been granted exemption u/s 44A of the Act. That situation will be taken care of by the addition of Rs.3,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble benefit which otherwise would not be available to them as such, except for payment received by the association in respect of those services." 19. If the aforementioned observations of their lordships are kept in mind, then, it will be clear that Section 28(iii) could not be invoked for the purpose of taxing the annual subscription received by the assessee from its members which is as per its Memorandum of Association and Rules and Regulations and receipts relating to subscription on account of international conference also could not be taxed under the provisions of Section 28(iii) of the Act. 20. Now, we come to the provisions of Section 2 (24) (iia) of the Act, which read as under:- "2 (24) "income" includes- (i) profits and gains; (ii) dividend ; (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes [or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) [or by any university or other educational institution referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xceed the expenditure. Therefore, if there is a surplus which cannot be claimed under the provisions of Section 44A of the Act. However, the resultant surplus is allowable on the basis of principle of mutuality as no material has been brought on record by the Assessing Officer to show that any of the receipt of the assessee pertains to non-members. Learned CIT (A) has deleted the addition on account of applicability of principle of mutuality and in the absence of any material having been brought on record by the revenue to show that any of the receipts of the assessee had arisen from non-members, we see no justification in interfering in the finding recorded by learned CIT (A). According to the decision of Hon'ble Delhi High Court in the case of CIT vs. Delhi Gymkhana Club Ltd. (2011) 53 DTR 330 interest on FDRs has also been held to be covered by the doctrine of mutuality. Therefore, looking from any angle, we find no infirmity in the order of the CIT (A) vide which it has been held that no part of the income of the assessee is exigible to tax on the principle of mutuality. Finding no force in the departmental appeal, the same is dismissed. 24. In the result, the departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X
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