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2014 (1) TMI 1227 - AT - Income TaxApplication of principle of mutuality Transactions with non-members also Failure to produce documentary evidences - The survey divulged that the assessee was also entering into transactions with non-members Held that:- The decision in Deputy Director of Income-tax (International Taxation)-21, Mumbai Versus Societe International De Telecommunication [2012 (11) TMI 948 - ITAT MUMBAI] followed - In a case of a non-mutual organization, a few transactions with the members do not convert its non-mutual status to mutual also, the otherwise status of mutuality of an organization cannot be destroyed because of a few transaction with the non-members - What extent of participation by non-members destroys the otherwise mutual status of an organization or what extent of participation by members changes the otherwise status of non-mutuality depends on the consideration of the totality of facts and circumstances of each case - mere fact that a person at the time of resignation or retirement is not entitled to share in the reserves of the organization, would not damage the mutuality so long as the persons who are entitled to share such reserves continue to be the members as a class. The assessee is covered by the principle of mutuality to the extent of its transactions with the members - Income from transactions with non-members is outside the purview of mutuality thus, the income is exempt from taxation and only the income from the transactions from non-members is outside the purview of principles of mutuality Decided against Revenue. Reimbursement of cost to income Error in Calculating net income - Application of section 44C of the Act Application of section 40(a)(iii) of the Act - Estimation of income at 5% of the gross amount recovered from non-members Disallowance made u/s 32 of the Act Held that:- the decision in Deputy Director of Income-tax (International Taxation)-21, Mumbai Versus Societe International De Telecommunication [2012 (11) TMI 948 - ITAT MUMBAI] followed - Both the sides of the assessee's Income and expenditure are matching paisa to paisa and there is no under-recovery or over-recovery shown as an asset or a liability in its balance sheet - the accounts of the assessee were maintained at the HO level, there remains nothing to doubt the correctness view taken by the CIT(A) that the accounts of the assessee do not divulge the correct income - Not only the basis of allocation of expenses but also that of the revenue, as done by the HO is not known to the assessee. Section 44C only talks of HO expenses, which mean executive and general administrative expenditure incurred by the assessee outside India including expenditure in respect of rent, rates, repairs etc - It is only the allocation of general and administrative expenses which is covered within the purview of section 44C - neither the income side nor the expenditure side of the assessee's Income and expenditure account is fully capable of verification - It is in such circumstances that Rule 10 of Income-tax Rules, 1962 comes to the rescue of the Revenue for determination of income in the case of non- residents - It is this very rule which has been invoked by the Assessing Officer and also applied by the learned CIT(A) in estimating the income of the assessee thus, the CIT(A) was more than justified in estimating the income at 5% of the gross receipts from non-members there was no merit in the grounds of the assessee Decided against Assessee. Levy of interest u/s 234D of the Act Held that:- The decision in CIT v/s Common Effluent Treatment Plant, (Thane-Belapur) Association, [2010 (6) TMI 52 - BOMBAY HIGH COURT] followed - interest received from F.D. with the bank does not possess the same character of "Mutuality" and the interest income would, therefore, be taxable under the head "Income From Other Sources" Decided against Assessee.
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