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TMI Blog1999 (1) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was an association registered under the Companies Act, 1956. It was registered under section 25(1) of the Companies Act, 1956. It was registered to act as a central co-ordinating organisation for distribution of cement at a uniform f. o. r. destination price during the period when cement was decontrolled by the Government of India. The organisation was incorporated as a company limited by guarantee on May 18, 1965. On August 26, 1965, the Prime Minister of India made an announcement in Parliament that the Government had decided, in principle to decontrol cement. On December 13, 1965, the scheme of decontrol of cement came to be formulated. The object of the said scheme was to enable smooth change over from control to decontrol and to ensure that prices did not shoot up on decontrol. Accordingly, the Cement Manufacturers Association formed a central organisation to take over the cement distribution functions. The object of the said scheme was to assure that supplies of cement to consumers would continue uninterrupted. Under the said scheme, the assessee organisation was a no profit no loss organisation. Under the said scheme, the freight pool of the organisation was to be use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber as retention price. On the facts it has been found by the Accountant Member of the Tribunal that each member-producer contributed more than what was required to be contributed, and the surplus came to be generated accordingly. After set off of organisational expenses the members were entitled to the return of the balance surplus. However, they authorised the President of the assessee-organisation to retain a part of the balance surplus with the President for discretionary expenditure like contributions to political parties, advertisements and publicity of certain types of cement, etc. This was done by debiting the individual accounts of the members pro-rata on the basis of despatches and on the basis of the share of each member. Under the scheme, therefore, it cannot be said that the disbursements were made out of the profits of the assessee-organisation but the said disbursements were made out of the members' own funds by debiting their individual accounts in the books of the assessee-organisation. In the light of the above scheme, the main issue which arises for consideration is : whether the assessee-organisation derived any income chargeable to tax under the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on examination of the above scheme that under clause 4 of the memorandum of association, income of the assessee-organisation was required to be applied only towards promotion of the objects of the organisation; that the memorandum prohibited the organisation from paying or transferring the income of the assessee to any of its members; that the surplus represented profits accruing to the organisation and, therefore, the act of the assessee-organisation in returning the surplus to the members amounted to returning the surplus profits to the members and, in the circumstances, the learned Judicial Member came to the conclusion, inter alia, that the principle of mutuality was not attracted. He further came to the conclusion that the amounts placed with the President for discretionary expenditure did not represent the contributions of the members. That it was distribution of profits. In the circumstances, the learned Judicial Member came to the conclusion that profits accrued to the assessee for the assessment years 1967-68 and 1968-69. The matter was, thereafter, referred to the Third Member who vide his judgment and order dated June 30, 1978, agreed with the view expressed by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anization. That the freight pool of the assessee was to be used for even distribution of cement throughout the country by transporting cement over long distances from surplus to deficit areas. The cement producers whose outward freight was low, contributed to the freight pool so that their contributions could be used to subsidize higher freight incurred by other producers who were required to transport the cement to longer destinations. The said pool was in the nature of freight equalization pool. The surplus under one adjustment account was required to be set off against the deficit under the other head. The object was to equalize the destination price. In the present case, contributions were made by the members to the common fund and the contributors who were required to contribute to the fund were only entitled as a matter of right to receive the distribution of the balance surplus on a pro-rata basis of despatches. The working of the scheme clearly indicates that the contributors contributed more than what was required and in the circumstances the distribution of the balance surplus was only apportionment of the savings amongst the contributors. Therefore, out of the moneys con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, the test of mutuality was satisfied with regard to the laga receipts. On the other hand, the Department contended that there was nothing to indicate that all the members were participators of the benefit accruing to the fund. It was contended by the Department that there was no complete identity between the contributors and the participators in the benefit of the common fund. After examining the scheme, the Division Bench of this court laid down that the cardinal principle to apply the test of mutuality was that all the contributors to the common fund were also entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund. In other words, there must be complete identity between the contributors and the participators. The question whether the members were contributors or not was a question of fact which was to be decided in each case by the authorities concerned. In the circumstances, on facts, the Division Bench of this court came to the conclusion that the test of mutuality was satisfied with regard to the laga receipts. The Division Bench further held that it was not necessary that in every matter the m ..... 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