9911796707
TMI Blog2023 (10) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... chine tool industry engaged in the manufacture and trade in machine tools, small tools, cutting tools, etc., therefore number of persons combine together and contribute to a common fund for a common venture or the object. The surplus from activities by those persons cannot be regarded in any sense as profit. As per the assessee, the income from members is non-taxable not u/s 11 of the Act but the same is not taxable as per the principle of mutuality. An activity between persons associated together does not give rise to profit which is chargeable to tax, as the members cannot trade with themselves. No person or body of persons can earn profit out of himself or themselves jointly. We find from the Memorandum of Association that it was also resolved that upon winding up or dissolution of the assessee if any property whatsoever remains then the same shall not be distributed amongst the members of the assessee but shall be given or transferred to such other association having similar objects. On the basis of the principle of mutuality, the income earned from members in respect of holding seminars, exhibitions, and other activities is not taxable. Accordingly, the plea of the assessee re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by all the persons of the society and is benefited to limited person i.e. Members of the assessee company only. Then, the proviso to section 11 of the IT. Act is not applicable in the case of the assessee. 2. Whether on the facts of the case and in law the Ld. CIT(A) was justified in directing the AO to allow the benefit of exemption u/s 11 of the IT. Act even though the activities of assessee company involves providing cover for credit risk to various public through insurance, and the same are in the nature of trade, commerce or business governed by the general commercial principles and the receipts from the such activities is more than 20% of the total receipt of the trust, the proviso to section 2(15) is applicable. 3. Whether on the facts and circumstances of the case and in law and in light of the law laid down by hon'ble Supreme Court in the case of Civil Appeal No.21762 of 2017 in various batch of appeals and SLP's lead case ACIT (Exemptions) Vs. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278 (SC)] the Hon'ble ITAT erred in not appreciating that even if the activities of the assessee are held to be covered under residuary part of section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year under consideration. The Appellant craves leave to add to, alter, amend, modify, substitute or withdraw the above Ground of Appeal before or at the time of hearing of the Appeal as they may be advised from time to time." 4. The brief facts of the case, as emanating from the record, are: The assessee is an association formed to promote the machine tool industry, engaged in the manufacture and trade in machine tools, small tools, cutting tools, foundry, furnace, and moulding equipments and also to render assistance to the machine tool industry in India. The assessee is registered under section 25 of the Companies Act, 1956. During the year under consideration, the assessee filed its return of income on 30/09/2014 declaring a total income of Rs. 15,92,10,230. During the assessment proceedings, from the financials of the assessee, it was observed that assessee's major income is from holding exhibitions for both members and non-members and it also has a permanent exhibition Centre at Bengaluru, which is also rented to outsiders for holding exhibitions. It was noticed that during the year, the assessee earned exhibition income of Rs. 21.57 crore, exhibition hall hire income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r business transactions and the resultant surplus is profit-income liable to tax. Thus, the AO held that the assessee is not a mutual concern, the income being covered under the proviso to section 2(15) of the Act and the profits from the activity are taxable and no exemption can be granted to the assessee u/s 11 of the Act. 6. The learned CIT(A), vide impugned order, upheld the contention of the assessee that the principle of mutuality is applicable with respect to the receipts from members, and thus the same is not taxable in the hands of the assessee. The relevant findings of the learned CIT(A), vide impugned order, are reproduced as under:- "1.1. After having considered the facts of the case and the appellant's submission these grounds are allowed due to the following reasons- 1. The Assessing Officer has not given any cogent reasons for deviating from the tax treatment afforded to the appellant by Revenue in earlier assessment years. 1. The Assessing Officer has not provided any reasons why principle of mutuality does not apply to the members of the Appellant's Association. 1. The Assessing Officer has not given any reasons why exhibition to promote the activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with all their assets and liabilities including the registration of members thereof as on the date of registration of this Company." 9. Accordingly, in the year under consideration, the assessee had the following major activities:- (i) Holding of exhibitions in which there was participation from members and non-members; (ii) Organising seminars and conferences for members and non-members; (iii) Letting out of the exhibition centre; (iv) Receiving income from investments. 10. As per the assessee, while filing its return of income, it has offered for taxation the income from holding of exhibitions and organising of seminars arising from participation by non-members, whereas the income arising from participation by members was claimed exempt on the principle of mutuality. As regards the income derived from letting of exhibitions centre and income derived from investments, the assessee has also offered the said income to tax. As is evident from the record, the AO did not agree with the differential treatment of income from non-members and members by the assessee, when the nature of income from the exhibition and seminar was the same from both non-members and members. Since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted separately in its books of accounts and the related expenditure to each activity has also been duly accounted and bifurcated between members and non-members in the ratio of actual receipts. 13. We find from the Memorandum of Association that it was also resolved that upon winding up or dissolution of the assessee if any property whatsoever remains then the same shall not be distributed amongst the members of the assessee but shall be given or transferred to such other association having similar objects. Further, it is also undisputed that the assessee is registered under section 25 of the Companies Act, 1956, and thus surplus, if any, can be applied only for the furtherance and attainment of its objects alone. Therefore, we find merit in the submissions of the assessee that on the basis of the principle of mutuality, the income earned from members in respect of holding seminars, exhibitions, and other activities is not taxable. Accordingly, the plea of the assessee regarding the non-taxability of receipts from members is upheld on the basis of the principle of maturity. Since the AO on the erroneous assumption that the assessee has claimed exemption under section 11 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
