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TMI Blog2018 (6) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... imed dividend income on Company's chit of Rs. 16,78,75,363/- as not taxable since it was derived from the mutual association based on the decision of Punjab & Haryana High Court in the case of Soda Silicate & Chemical Works, 179 ITR 588. The assessee contends that principle of mutuality is applicable in its case and its dividend income is not taxable as it is not an income chargeable to tax, as there is complete identity between the contributors and the receivers in the chit. On this account, the assessee claims deduction of foreman dividend received by it in respect of the compulsory chit. 3.1 The AO rejected the submissions of the assessee by referring to the section 21 of the Chit Funds Act, 1982 and relying on few case law and claim of foreman dividend was brought to tax. 4. Aggrieved, the assessee preferred an appeal before the CIT(A), who had upheld the action of the AO by relying on the decision of the ITAT in assessee's own case for earlier years. 5. Aggrieved by the order of CIT(A), the assessee is in appeal before us. 6. Before us, the ld. AR of the assessee fairly admitted that this issue is covered against the assessee by the decision of the ITAT in earlier AYs from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its in question arise and accrue from the trade or vocation which it carried on. The bye-laws of the company do not demonstrate that it is a mutual association. The principles of mutuality are based on the concept that no one can make profits out of himself. The essence of mutuality is of complete identity between the contributor and the participator. Sec. 21 of the Chit Funds Act, 1982, demonstrates that the foreman's role and rights are at variance with the other participators and contributors. The foreman need not forego discount or loss and can take the first instalment. Thus, it cannot be said that there is complete identity between the foreman and other participators in the chit. It cannot also be said that the profit is made out of itself. Thus, the principles of mutuality cannot on this count also be applied to chit fund companies." 7. As the facts and ground raised in AYs 2013-14 and 2014-15 are materially identical to that of earlier years, following the decision therein, we uphold the order of CIT(A) in both the years under consideration and dismiss the ground raised by the assessee in the AYs under consideration. 8. In the result, both the appeals of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad debts in AY 2011-12 in ITA no. 809/Hyd/2014 and 1210/Hyd/2014 vide order dated 29/10/2014, wherein, the coordinate bench has held as under: "7. We have heard the arguments of both the sides and also perused the relevant material on records. It is observed that a similar issue involving identical facts and circumstances has already been decided by the Tribunal consistently in favour of the assessee in the earlier years, and in one such decisions rendered for assessment year 2009-10 vide order dated 5.4.2013 passed in ITA No.651/Hyd/2012, a similar claim of the assessee for deduction on account of claim of bad debts in respect of running and terminated groups has been allowed by the Tribunal for the following reasons given in paragraph 10: "10. We have heard both the parties and perused the material on record. The crux of argument of the assessee's counsel is that in earlier years similar claim of the assessee has been allowed by the Tribunal and on that basis the present claim is to be allowed. He relied on the order of the Tribunal dated 12.10.2012 in M/s Sri Ram Chits Pvt. Ltd. ITA No. 975/12 for A.Y. 2009-10. While disposing the appeal for A.Y. 2009-10, the Tribunal r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT V Is. Sri Ram Chits and Investments Limited (83 DTR (Mds) 208), wherein it was held that contribution of the assessee as a foreman in the place of a defaulting subscriber is deductible as bad debt under 5.37(1) or as a business loss under s.28 (i) of the Act. Respectfully following the said decision of the Hon'ble Madras High Court in the case of Sri Ram Chits and Investments Ltd. (supra), we hold that the claim of the assessee for deduction of bad debts written off is also allowable alternatively as business loss under s.28(i). The relevant grounds of the assessee on this issue, being grounds No.2 and 3 in its appeal, are accordingly allowed." Therefore, we do not find any infirmity in the order of CIT(A) in allowing the assessee's claim of bad debts as his decision is in consonance with the decision of the ITAT and accordingly, we uphold the order of CIT(A) and dismiss the ground raised by the revenue on this issue. 15. As regards the ground Nos. 3 & 4 in AY 2013-14 and 2 & 3 in AY 2014-15,(which are common in both the year), the commission on cancelled chits and royalty payment, we observe that the CIT(A) allowed both the above grounds following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. Chennai Vs. ACIT (263 ITR (AT) 65). This decision is not applicable to the facts of this case. The commission/remuneration to the foreman in that case was sought to be recognised on the completion of chit method and had nothing to do with the type of additional commission receivable in case of substitution of a subscriber as in this case. The natures of income in both these cases are different. The further commission of 5% receivable from a defaulting subscriber consequent to his removal and substitution on a full and final settlement of a defaulting subscriber account is recognised as income on the finalisation of the issues. This is not an unacceptable proposition. We agree with the submissions of the learned counsel for the assessee, which are at para 4.11 of this order. In the result, this ground of appeal of the assessee is allowed. 16. In view of the above order of this Tribunal, we dismiss this ground taken by the Revenue on the same lines. 19. The Ground No.4 in Revenue appeal in ITA No.120/H/2010 is as follows: The CIT(A) ought to have appreciated the action of the Assessing Officer in adding Royalty payments made by the assessee company which are in contraven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped floating new groups allowing the subsidiary company to expand. 4. Sriram Chits (Bangalore) (P) Ltd. since inception continued to book new business by using the logo of its Holding Company. 5. The business growth of Sriram Chits (Bangalore) (P) Ltd. over the years can be inferred from the following figures": FY 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 No. Of branches 4 6 7 9 11 19 19 Business (in lakhs) 29.49 66.41 105 81.26 184.01 260.05 359.05 Auction turnover 29.49 95.9 181.15 225.69 348.29 542.28 753.23 6. The right to use the logo from the Holding Company Sriram Chits and Investments (P) Ltd. was formally given to Sriram Chits (Bangalore) (P) Ltd. the subsidiary company in the year 1994 vide an agreement entered into, which provided for the payment of certain % of the Auction turnover as royalty to Sriram Chits and Investments (P) Ltd. 7. By the agreement, Sriram Chits and Investments (P) Ltd., has formally committed itself to the growth and development of Sriram Chits (Bangalore) (P) Ltd. for a further period of 7 years. 8. The duty of Sriram Chiuts and Investments (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . M/s Sriram Chits and Investments (P) Ltd. Madras (holding company has been in the names for itself with the investors in the south. We are, therefore, of the considered opinion that the payment of royalty at 0.5% of having regard to the business requirements of the assessee. In our view, the payment is for legitimate benefit taken in the course of business and from any standard, it cannot be said that payment of Rs. 1 lakh as royalty is sufficient to produce the business of the magnitude procured by the assessee over the years. The holding company has entered into similar agreements with other subsidiary companies and the CIT(A) has considered the same to be reasonable business outflow property under a specific agreement executed by the parties is very much reasonable ITA Nos 1224 and 1187 of 2015 Sriram Chit Funds P Ltd Hyderabad and should have been accepted as a business expenditure allowable as deduction. We, therefore, delete the disallowance for these two years. The disallowance has been primarily based on a suspicion and incorrect appreciation of hard realities of the business by the revenue authorities. The disallowance is accordingly deleted. 21. Respectfully following t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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