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TMI Blog2015 (5) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction of non-members is outside the purview of “Principles of Mutuality”. Accordingly, all the grounds raised by the Department stand dismissed. Respectfully following the earlier year’s order [2012 (11) TMI 948 - ITAT MUMBAI] of the Tribunal, we do not find any reason to deviate from such findings and the grounds no.1 and 2 of the cross objection stand dismissed. In ground no.9, the assessee has challenged that the interest income comprising of bank interest and interest on income tax refund received by the assessee is also covered by the “Principles of Mutuality”.As admitted by both the parties, this issue also stands decided against the assessee in view of the judgment of the Hon'ble Jurisdictional High Court in CIT v/s Common Effluent Treatment Plant, (Thane-Belapur) Association, [2010 (6) TMI 52 - BOMBAY HIGH COURT ], wherein it has been held that interest received from F.D. with the bank does not possess the same character of “Mutuality” and the interest income would, therefore, be taxable under the head “Income From Other Sources”. In the latest judgment, the Hon'ble Supreme Court in Bangalore Club [2013 (1) TMI 343 - SUPREME COURT], had settled this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier orders of the Tribunal in assessee s own case. 5. Rival contentions heard. On a perusal of the orders of the authorities below as well as the material available on record, we find that this issue has been discussed in detail in assessee s own case in the order for the assessment year 1996-97 in ITA no.4970/Mum./2005, and C.O. no.67/ Mum./2006, vide order dated 26th September 2012. This decision has been followed in the subsequent years also upto the assessment year 2006-07. The relevant conclusion of the Tribunal in appeal relating to assessment year 1996-97, are as under:- 3.11.20. We have noticed in an earlier para of this order that in a case of a non-mutual organization, a few transactions with the members do not convert its non-mutual status to mutual. In the like manner, the otherwise status of mutuality of an organization cannot be destroyed because of a few transaction with the non-members. What extent of participation by non-members destroys the otherwise mutual status of an organization or what extent of participation by members changes the otherwise status of non-mutuality depends on the consideration of the totality of facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from the participators in the profit, being the members of the association as a class, thereby breaching the Principles of mutuality. e. If, in a case of association of the nature as discussed in point no.d above, there are by and large transactions with non-members, but there are only a few transactions with members as well, the nature of the organization as non-mutual, will remain as such. Whereas profits from transactions with non-members will be liable to tax, profit from transactions with the members will continue to enjoy exemption. f. When the organization provides facilities and services both to its members and non-members, the following consequences flow:- (i) If the `object of such an organization is `to earn profit , there in no mutuality in respect of transactions with members. (ii) When the `object of the organization is `not to earn profit but profit emerges from transactions with members and non-members, the rule of mutuality will not apply to the extent of transactions with members unless transactions with members are phenomenally minimal. (iii) In both the above cases covered under (i) and (ii), profit from tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gories of information required in the operation of the air transport industry and to study the problems relating to them with the aim of promoting in al countries safe and regular air transport . Other objects of the assessee are on the same lines. There is no reference to any profit motive in such objects. It has been consistently claimed by the assessee that it has not earned any profit from its transactions and the consideration so received represents only cost recoveries. 3.16. The above facts indicate that primarily, the assessee is not set up with a `profit motive . Secondly, the non-members availing the facilities extended by the assessee are very insignificant, not even 1% of the total. 3.17. These facts are definite pointer towards the assessee being a mutual organization. Under such circumstances we are of the considered opinion that the Principles of mutuality cannot be denied in entirety even in respect of transactions by the assessee with its members. Accordingly, the view taken by the learned CIT(A) can not be faulted with insofar as it accepts the rule of mutuality qua the transactions with members and denies the same qua the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been held in this case that the fact that only some members from those who contributed may participate in the surplus, is irrelevant as long as the class is same. 3.20. The learned Departmental Representative also relied on the judgment of the Hon ble Supreme court in the case of Kumbakonam Mutual Benefit Fund Ltd. (supra) to contend that the Principles of mutuality fails if the persons who contribute to the income are not the same persons who participate in the surplus of the organization. In this case the assessee carried on a banking business restricted to its shareholders, that is, the shareholders were entitled to participate in various recurring deposits schemes of the assessee or to obtain loans of securities. These recurring deposits constituted the main source of funds of the assessee for advancing loans. Out of the interest realized by the assessee on the loans, interest on recurring deposit was paid and the balance was divided amongst the members according to their shareholding. The ITO denied the Principles of mutuality and assessed the entire profit to tax, which view has been upheld by the Hon ble Supreme Court. 3.21. We are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by reason of Article 20 and 50 of the assessee or the creation of reserves, we do not deem it necessary to dive deep into the arguments of the ld. DR with a view to bring out any decision contrary to what has already been taken by the Tribunal in earlier years on the same facts and circumstances. 3.24. We, therefore, sum up our conclusion on ground no.1 taken by the Revenue in its appeal by holding that the assessee is covered by the Principles of mutuality to the extent of its transactions with the members. Income from transactions with non-members is outside the purview of mutuality. 6. Thus, respectfully following the earlier year s precedence we hold that the income of the assessee in relation to the transactions entered with the members are covered by the Principles of Mutuality and, hence, the same is exempt from taxation and only the income from the transaction of non-members is outside the purview of Principles of Mutuality . Accordingly, all the grounds raised by the Department stand dismissed. 7. In the result Revenue s appeal is dismissed. We now take up assessee s cross objection no.159/Mum./2012. 8. The learned Counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry in each month. It was also admitted that there was no verification of the expenses allocated by the HO because the basis of charge was known to HO alone and the details of such computation were not provided to the Indian branch. On a question about the recording of revenues, it was admitted that the entry was passed on the receipt of intimation from HO and how such revenues are determined, was not known. In response to question nos.12 and 13, Shri Gopalakrishnan admitted that accounts were finalized by the HO and after finalization of such accounts, a signed copy of the balance sheet was sent to the branch office in India. The learned AR has invited our attention towards its letter dated 5.02.2005 addressed to the ld. CIT(A) about the basis of allocation. From this letter it is crystal clear that the assessee stated before the learned CIT(A) that the global cost recoveries made by the SITA HO are allocated to all of the SITA branches worldwide so as to match the costs borne by those branches. Thus, the overall effect of allocating head office costs to the SITA branches worldwide is to increase both the branch costs and also the corresponding cost recoveries which are alloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld Sr counsel for the assessee regarding the remarks of the Tribunal in the earlier year. Moreover, the same does not effect the findings of the Tribunal on this issue. 7.3 As regards ground no.2 to 9 of the CO are concerned, the Tribunal has considered the same in para 5.6 5.7 as under: 5.6. The learned AR also pressed into service the provisions of section 44C to contend that where the basis of allocation of HO expenditure is not known, deduction for such HO expenses has to be made in terms of section 44C. In the light of this section, the learned AR contended that only a small portion of the HO expenses ought to have been disallowed by the ld. CIT(A) instead of computing income at 5% of the gross receipts. 5.7. We are not convinced with this contention for the reason that section 44C only talks of HO expenses, which mean executive and general administrative expenditure incurred by the assessee outside India including expenditure in respect of rent, rates, repairs etc. It is only the allocation of general and administrative expenses which is covered within the purview of ITA No. 572/Mum/2010 CO No.159/ Mum/2010 Societe Internation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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