The assessee argued that the case was selected for limited ...

Assessee argued limited scrutiny, but mutuality principle examination was necessary for deduction evaluation. Court ruled breach of contributor-beneficiary identity commercializes transactions, taxing surplus.

Case Laws     Income Tax

July 30, 2024

The assessee argued that the case was selected for limited scrutiny, limiting it to verifying deductions u/s 57. However, the interconnected nature of deductions and the principle of mutuality necessitated examining the mutuality issue, as it directly impacts deduction evaluation. The statutory provision allowing benefits only to members while extracting contributions from non-members violated the mutuality principle. The Supreme Court ruled that any breach of identity between contributors and beneficiaries transforms transactions into commercial ones, subjecting surplus to taxation. The Andhra Pradesh Advocates' Welfare Fund Act inherently breached mutuality by creating two classes of contributors: members and non-members, with differential treatment. Despite welfare objectives, the Fund's financial autonomy and income generation imparted a quasi-commercial character. The doctrine of repugnance was inapplicable as the Central Act deferred to State law. The State Act outlined structured fund application but did not grant overriding spending authority. Exemption under the Income Tax Act required adherence to mutuality, which the State Act violated. Consequently, the ITAT upheld the impugned orders and dismissed the assessee's appeals.

View Source