TMI Blog2001 (4) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... s a mutual association and so its income should be exempted under the principle of mutuality. 3. The assessee-club was registered under the Travancore Cochin Literary, Scientific and Charitable Society Registration Act, 1955, vide certificate of registration No. 414-year 1986, dated 19-11-1986. The relevant clauses of the Memorandum of Association of the Society read as under: "3. The Society shall be non-profit sharing society and its income shall consist only of contribution from members and accrual from such funds. Any income, receipts or surplus of the society shall not be distributed among the members as dividends, or in any other manner. The society shall also not have any business activity. 4. The main objects of the society shall be anyone or more of the following: (a) To promote and encourage investment habit among the members of the society. (b) To encourage and motivate members to practise thrift and savings. (c) To assist members in identifying investment opportunities, sources and avenues. (d) To seek affiliation and/or membership in Association having similar objects. (e) To affiliate and/or manage institutions having objects similar to the society. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98,390 Donations Rs. 1,944 Souvenir Rs. 7,788 Interest received Rs. 418 Misc. income Rs. 356 ------------ Rs. 1,27,159 ------------ The excess of income over expenditure was shown at Rs. 76,103. It may be seen that the main receipt for the year was, what is described as floor charges. It is explained before us that the floor charges represented the fees collected from the members for utilisation of "the floor space for exchange of shares among members of the club". The club is not affiliated or connected with any regular Stock Exchange, like the Cochin Stock Exchange, but it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Commerce [1981] 130 ITR 184. He upheld the order of the Assessing Officer with the following remarks: "Further, the case law relied by the appellant's Authorised Representative in 130 ITR 184 S/C is not applicable in the case of the appellant. In this case, the appellant is doing the activity of commercial transaction and earning profit. The appellant had failed to prove before the Assessing Officer that the profit of the institution is only spent for the charitable purpose. Therefore, the activities of the institution is for the purpose of making profit and there was no definite clause as to how the profit or the income of the Trust is utilised for the charitable purpose. I am relying upon the case law in the case of Gangabhai Charity v. CIT 197 ITR 416. The Hon'ble Supreme Court has held that 'where intention of founder of trust was to provide building for benefit of public to be used by them for social, charitable or religious purpose and there was no mention in the Trust Deed as to how income derived from the property held under Trust was to be utilised, hence the Trust was not entitled to exemption of its income. The same principle is applicable in the appellant's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers had right of disposal over the surplus. According to the learned counsel for the assessee, there is an identity between the contributors to the common fund and the participators in the surplus of that fund, which is the hallmark of any mutual concern. In this context, he relied upon the following decisions: (1) CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241 (SC) (2) CIT v. Bankipur Club Ltd. [1997] 226 ITR 97 (SC) (3) CIT v. National Sports Club of India (No. 1) [1998] 230 ITR 777 (Delhi) (4) CIT v. National Sports Club of India (No. 2) [1998] 230 ITR 780(Delhi) (5) CIT v. Cement Allocation Co-ordinating Organization [1999] 236 ITR 553 (SC) It is contended that in the light of the ratio of the above decisions, the assessee-club has to be regarded as a mutual concern and its income should be exempted on the principle of mutuality. 7. The learned Departmental Representative on the other hand pleaded that the main income of the assessee was the floor charges and the assessee did not produce any evidence in support of its claim that it was collected only from the members and in case it was so collected from the members only, the basis thereof. He inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as profits and gains of business, notwithstanding any mutuality about the concern. She also invited our attention to clause 3 of the memorandum of the assessee-club, which we have extracted herein above, according to which the surplus of the assessee shall not be distributed among the members as dividends, but in terms of clause 20 of the rules and bye-laws of the assessee-club, the surplus, if any, on the dissolution of the society shall be given to the Government of Kerala or to some other society with similar objects. The plea made out is that as the surplus does not come back to the contributors, the assessee concern is not a charity. 10. In his rejoinder, the learned counsel for the assessee mentioned that for a concern to be held as a mutual concern it is not necessary that the surplus should necessarily come back to the contributors of the common fund. What is important is the right of disposal over the surplus and not the actual receipt of the surplus. It does not derogate from mutuality of the assessee-club simply because on being wound up the surplus has to go to Government or to another society. For this proposition, the learned counsel for the assessee relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned counsel for the assessee as to whether any stock exchange has been held by any authority or court as a mutual concern. He could not bring any such decision to out notice. Admittedly, the members could trade in the shares of outsiders. The learned author, Palkhivala refers to the following quotation about a mutual concern in Styles v. New York Life Ins. Co. at page 112 of his book, The Law and Practice of Income-tax, 8th Edition, Volume-I: "In Styles v. New York Life Ins. Co. (2 TC 460, 47 1) (HL) Lord Watson said, 'When a number of individuals agree to contribute funds for it common purpose, such as the payment of annuities or of capital sums, to some or all of them, on the occurrence of events certain or uncertain, and stipulate that their contributions, so far as not required for that purpose, shall be repaid to them, I cannot conceive why they should be regarded as traders, or why contributions returned to them should be regarded as profits'." In the light of the above, in a mutual concern the contributors make payments for a common purpose and the surplus above the expenditure incurred for meeting the purpose comes back to the contributors. Even if it does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into the exemption granted to a mutual concern on general principles. Sampath Iyengar, the learned author of Law of Income-tax, observes at page 1451 of his book, 8th edition, Vol.-II, which was rendered under the old Act, as under: "The present section.--The observations of the Supreme Court referred to above on the language of section 10(6) of 1922 Act are all the more applicable after the change in the language of the section by the 1961 Act, in section 28(iii), which drops out the words 'for remuneration definitely related to those services'. Accordingly, notwithstanding an association being mutual, despite its income in question being received by it from its own members and despite the rendering of the services for a remuneration being one of the objects of the association tax would be charged on the sum derived by it from the rendering of services, if such sum was received by it as remuneration for services outside the general run of services performed by it to its members. On the other hand, the general fees levied by the association on all its members by way of entrance fees or periodical subscription or otherwise, would not be the profits and gains of any business." Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders the principle of mutuality is not satisfied." In the present case, the surplus of the assessee-club is not distributed to the members, but it goes on dissolution, as already mentioned, to the Government of Kerala or to another society. But the right of disposal of the surplus accrues to all the members, irrespective of the fact whether they have contributed to the common fund by way of payment of the floor charges or not. So, we are of the view that there- is no identity between the contributors to the common fund and the participators in the surplus, in the light of the above decision. In short, the assessee-club is like any other stock exchange, though it does not exercise over its members the normal control exercised by a Stock Exchange over its broker-members. It is difficult to visualize a normal Stock Exchange as a mutual concern. We are faced with the same difficulty for holding the assessee-club as a mutual concern. For the foregoing reasons, we reject the contention of the assessee that it is a mutual concern. 15. That leaves us to consider the claim of the assessee as an institution with a charitable purpose within the meaning of section 2(15) of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust or institution in respect Of Such business." The above provision may be contrasted with the same provision as substituted by the Finance (No. 2) Act, 1991 with effect from 1-4-1992. After 1-4-1992 the provision reads as under: "(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust, or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business." In terms of the substituted provision, when a business carried on by the assessee is incidental to the attainment of the objects of the trust, the trust does not disqualify for exemption under section 11. But such concession was not available in section 11(4A) as it stood during the period relevant for the assessment years before us. The collection of floor charges from the members, which constitute the bulk of the income of the assessee is, to our mind, a business carried on by the assessee to our mind it is like any other commission agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. ITA Nos. 361 362 (Coch.)/96: These appeals are directed against the consolidated order of the CIT (Appeals) dated 22-2-1996 for the assessment years 1990-91 and 1991-92. The common ground taken by the Revenue reads as under: "The learned Commissioner of Income-tax (Appeals) erred in cancelling the order under section 154 dated 17-3-1995 for the above assessment year on the view that the assessee having been registered under the Travancore Cochin Literary Scientific and Charitable Societies Registration Act it was not liable to be assessed at maximum marginal rate under section 167B. The learned appellate authority ought to have notice the specific findings in the assessment order that the assessee has not produced any evidence to show that it was registered under the Travancore Cochin Literary Scientific and Charitable Societies Registration Act, 1955. Hence the learned Commissioner of Income-tax (Appeals) ought not to have accepted the assessee's claim that it was registered under the Travancore Cochin Literary Scientific and Charitable Societies Registration Act without verification and ought not to have cancelled the order under section 154." In an order under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
