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TMI Blog2012 (4) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... 3343/A/2010 -do- -do- 2778/A/2011 24.08.2011 2008-09 2835/A/2011 -do- -do- 3444/A/2010 29.09.2010 2007-08 3309/A/2010 -do- -do- 2. This common order is passed in all the appeals as all the years has similar grounds of appeal. 3. I.T.A. No.3443 of 2010 GROUNDS OF APPEAL (Assessment Year 2002-03) (i) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facats of the case by confirming assessment made by the ld. Assessing Officer holding that the appellant company s effluent treatment receipts were not exempt from income on principle of mutuality. (ii) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming action of the ld. Assessing Officer in holding that the amount of Rs.67,36,276/- is business income of the appellant. (iii) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utuality. (ii) The ld. Commissioner of income Tax (Appeals), Valsad has erred in law and on the facts of the case by confirming the action of the ld. A.O. in holding that the amount of Rs.2,03,61,985/- is business income of the appellant. (iii) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by not deciding the ground of appeal in respect of action of the ld. Assessing Officer of not granting set off for carried forward losses of the earlier years and thereby confirming the same. (iv) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on the facts by confirming the action of the ld. Assessing Officer of not granting deduction u/s 801A @ 100% of the total income. (v) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming the disallowance made by the ld. Assessing Officer by not allowing deduction in respect of donation of Rs.10,4000/- as being non-business expenditure. 6. I.T.A. No.2835 of 2011 GROUNDS OF APPEAL (Assessment Year 2008-09) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r are as under:- (i) The assessee was asked to give supporting documents where High Court suggested or directed to make a company which is going to be non profit for mutual one. The same is not furnished. (ii) Regarding distribution of surplus (even before winding up), Shri Sabharajjak (Authorised representative) stated that there is no bar on the same but it would not be called dividends as there is no share capital. (iii) There are associations out side Vapi like Umbergaon Industries Association, SSI association Valsad which are members of solid waste (but not of CETP). (iv) There are few non-members who are members of CETP but not of solid waste. They are given courtesy to accept their waste till they become member and clear Gujarat Pollution Control Board (GPCB). The are charged at normal rate. (v) Rate of charge for solid waste like capital cost, reserve for disposal and reserve for maintenance of received waste are decided by the management. The basis of calculation is to be provided. (vi) There is no membership charge every year but one time fee is charged which is non-transferable non refundable. The A.O. observed that the above facts lead to substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able activity on any receipts i.e. loan received or advances received. The road upgradation project is a community project undertaken on behalf of the industrial and local authority. The assessee company has chosen as a special purpose vehicle for implementation of infrastructure project under the infrastructure upgradation scheme 2003 by the Ministry of Commerce and Industry, Government of India under cluster project scheme. Therefore, the assessee company is not in business of making profit. The cost incurred by the member more or less as per requirement of running the company. It cannot be 100% accurate as sometimes expenses also fluctuates. Therefore, during the year there was a surplus of Rs.4.8 crore. The assessee company has provisions for distribution of surplus at the time of winding up but it is not by way of dividend but its distribution of money belonging to members which they have contributed from time to time. Section 2(22) of the I.T. Act also talks about dividend to the extent of distribution is attributable to the cumulated profit and does not talk of distribution of capital of share holders. Even it is treated as a dividend or otherwise is not a criteria for taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike a cooperative society, it is not a case that assessee is dealing exclusively with its members only and only for limited purpose. It is admitted fact that the assessee is dealing with such entities who are not members and earning from the nonmembers. (iv) There is no basis for charging the members as well as non-members. (v) For applying the principle of Mutuality, the membership is a mandatory criteria and the assessee s case fails on this point because members like Umbergaon Industries Association, SSI Association, Valsad do in turn collect waste from their members. Therefore, actually assessee is providing services to non-members and charging them. Therefore, principle of Mutuality is not applicable. (vi) On the other hand, becoming a member of this organization is also kind of compulsion viz. the member has to prove how it would dispose of effluent. Therefore, to get clearance from Government authorities like Gujarat State Pollution Control Board (GSPCB), its ;membership becomes necessary. (vii) Perusal of the book results for earlier years shows that the book loss incurred is due to doubtful debts of Rs.7,35,65,298/-. On enquiry, it was revealed that these w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r detailed discussion of clause of Memorandum of Association and Article of Association and various case laws cited by the assessee and held as under:- I have carefully considered the facts and circumstances of the case. Also considered the finding of the A.O. and submission of the ld A.R. It is admitted facts that the Hon ble High Court ordered the Industries to comply the GPCB norms for running the factories in this region. The VIA took lead in this regards by taking over CETB from GDIC, to operate the plant for the effluent treatment. All the industries not having secondary effluent treatment facility became the members of the companies, directly or through their respective Industries Association. In the process the appellant serves other Industries Association like Vapi Industrial Association (VIA), Pardi Industrial Association (PIA), Umergaon Industrial Association (UIA), Valsad Industrial Association (VIA) apart from the members directly joined. It is admitted facts that the members do not acquire any inherent right, title or interest in the property and the company itself is an absolute owner of the property. This very submission of the Authorized Representative of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members for remuneration related to those service would come within the purview of section 28(iii) [Indian Tea Planter s Association vs. CIT, (1971) 82 ITR 322 (Cal)]. In order to bring an income within this clause, two essential facts have to be established, namely, that the association rendered specific services to its members, and that a remuneration was paid by the members for these services; and there must also be connection between the remuneration and the service rendered [Chagla, C.J., Ismailia Grain Merchants Association Ltd. v. CIT, (1957) 31 ITR 433, 437 (Bom); South Indian Planting and Commercial Representation fund v. CIT, (1957) 32 ITR 513, 518 (Mad)]. The statute does not require that before income of such association would be chargeable to tax, it should have been earned because of some trade activities by association [CIT v. Hill Goods Truck Owners Union, (1980) 124 ITR 224 (Punj)] This clause is in the nature of a charging provision. It is applicable on its own terms. Further, as held income of a trade association not falling within section 28(iii) is not necessarily exempt [CIT v. Shree Jari Mechants Association (1977) 106 ITR 542 (Guj)]. The idea behind section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Association reported in [2010] 328 ITR 362 (Bom) where Hon ble Bombay High Court has accepted the principle of mutuality and surplus income over expenditure on principle of mutuality is not chargeable to tax. Interest income received on fixed deposit with the bank is not income received from members of assessee but from 3rd party. Investing excess fund with bank in fixed deposit a prudent commercial decision and principle of mutuality does not apply. He further relied on the decision of Sports Club of Gujarat Ltd. Vs. C.I.T. reported in 1987 Vol.171 ITR 504 (Guj.) where Hon ble Gujarat High Court has held that the Sports Club is mutual concern and profit and gain is not assessable as business income. Interest on investment is assessable. The assessee is not entitled to benefit of Section 44 A of the I.T. Act. The Hon ble Gujarat High Court in this case has held that one of the essential of mutuality is that the contributors to the common fund are entitled to participate in the surplus, there by creating an identity between the participants and the contributors, once such identity is established, the surplus income would not be exigible to tax on the principle that no man can make a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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