9911796707
TMI Blog2023 (10) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... member firms to Verein and vice versa as well as obligations of member firms to each other. Merely because members of Verein are able to avail various technological services and license to use goodwill of Verein, their contributions cannot be regarded as quid pro quo. The Articles of Verein clearly show that all member firms of Verein come together and contribute to a common fund for achieving common objectives, which objectives qua Verein are non-commercial objectives and that all member firms contribute towards budgeted operating expenses of Verein and are entitled to proportionate share in the surplus lying with Verein in case of dissolution. Nothing in the Articles of Verein even feebly indicates any commercial nexus between the contributions and benefits enjoyed by its member firms. There is, thus, a complete identity between contributors and participants. Consequently, the first test of mutuality stands satisfied. Second test of mutuality is non-profiteering - As held in the case of Yum Restaurants [ 2020 (4) TMI 827 - SUPREME COURT] the mutuality and non-profiteering character of the concern are to be determined in the light of its actual working structure; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning bodies consistent with the Articles of Verein and supplemental regulations qua professional standards and methodologies, governance of the Verein and systems for quality control and risk management and other matters specified in or pursuant to the supplemental regulations. Article 6.2(b) stipulates that if due to local laws, any member firm is unable to comply with any of the provisions of the Articles or supplemental regulations or any other obligation undertaken in connection with membership of Verein it shall promptly inform the Verein of the particulars so that Verein may waive compliance or establish alternate requirement. Thus, third test of mutuality also stands satisfied in the present case. All three tests of mutuality having been satisfied as aforesaid, we are of the considered view that the receipts of the respondent/assessee Verein from its members were not in the nature of fees for technical services and that the same were exempt from tax having regard to the principle of mutuality . Accordingly, the substantial question of law framed above is answered in favour of the respondent/assessee and against the appellant/revenue. The order of the Tribunal, impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee Verein from its members could not be held to be in the nature of trading receipts and the same stood covered by the concept of mutuality. 2.4 The first appeal filed by the appellant/revenue was dismissed by the Income Tax Appellate Tribunal, reaffirming that the Articles of Verein coupled with rest of the records established that Verein was functional on the principles of mutuality and consequently the money received by it in the form of subscriptions is not amenable to tax. 2.5 Hence, the present appeal. 3. In the above backdrop, following solitary substantial question of law as proposed by learned counsel for appellant/revenue was framed: Whether the Tribunal erred in holding that the receipts of the assessee were not in the nature of fees for technical services and the same were exempt from tax on the principle of mutuality? After framing of the above substantial question of law, learned counsel for both sides kindly consented to address final arguments at this stage itself. Accordingly, we heard learned counsel for both sides. 4. Learned counsel for appellant/revenue contended that the impugned order is not sustainable in the eyes of law since the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s through the relevant Articles and Regulations of Verein, showing that the respondent/assessee is an association of its members, managed by its members and providing services solely for the benefits of its members. Placing reliance on the judgments in the cases of CIT vs Bankipur Club Ltd, (1997) 5 SCC 394; Chelmsford Club vs CIT, (2000) 3 SCC 214 and Commissioner of Income Tax vs Common Effluent Plant (Thane Belapur) Association, (2010) SCC OnLine Bom 2042, learned counsel for the respondent/assessee strongly contended that the present case clearly stands governed by the concept of mutuality. 6. Thence, fulcrum of the present dispute being on the concept of mutuality, it would be apposite to briefly traverse through this doctrine. The doctrine of mutuality originated from the basic principle that an individual cannot engage into business with herself and it is deemed in law that if identity of the seller and the buyer is marked by oneness, then no profit motive can be attached to such a venture. On account of profit motive, excess of income over the expenditure or the surplus remaining in the hands of such venture cannot be regarded as income amenable to tax under law. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration would lead to the non-uniform participation of an external element or entity in the transaction, thereby opening the scope for a manifest or latent profit-based dealing in the transaction with parties outside the closed circuit of members. It would be amenable to income tax as per Section 2(24) of the 1961 Act. (emphasis is ours) In the said case, an outsider namely Pepsi Foods Ltd contributed to the common pool of funds but did not participate as beneficiary in surplus because it was not a franchisee of Yum Restaurants, therefore, the case was held to be not covered by the doctrine of mutuality. 7.1 In contrast, in the present case, it is nobody s claim that any outsider contributed to the common pool of funds of Verein. In the case of Common Effluent Treatment Plant (supra), Bombay High Court observed thus: 7. The principle of mutuality postulates that all the contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus are contributors to the common fund. It is in this sense that the law postulates that there must be a complete identity between the contributors and the participators. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits enjoyed by its member firms. 7.5 There is, thus, a complete identity between contributors and participants. Consequently, the first test of mutuality stands satisfied. 8. The second test of mutuality is non-profiteering. As held in the case of Yum Restaurants (supra), the mutuality and non-profiteering character of the concern are to be determined in the light of its actual working structure; and the factum of corporation or incorporation or the firm in which it is clothed is immaterial. Therefore, one has to examine the actual framework of the Verein vis a vis its member firms. 8.1 Article 1.2 of the Articles of Verein show that the Verein was established for specific purposes mentioned in the articles. Those articles do not reflect even iota of element of commerciality between the members themselves or between the members and the Verein or between the Verein and any outsider. Article 7.5 contemplates that Verein shall not provide services to clients or direct or control the manner in which each member firm provides audit or other services to its clients and the Verein shall not share profits and losses of the member firms. Read in entirety, the Articles of Vere ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
