TMI Blog2013 (12) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... it carried on. The principles of mutuality are based on the concept that no one can make profits out of himself. The essence of mutuality is of complete identity between the contributor and the participator - Decided against the assessee. Commission on cancelled chits - Held that:- Following assessee's own case for A.Y. 2009-10 - The amount that is payable to the defaulting subscriber consequent to his replacement by another person the company is entitled to deduct 5% as commission - This has nothing to do with the regular commission Income of the assessee - The commission Income accrues when the accounts have been finally settled to the defaulting non subscriber - In case of a non-prized subscriber the amount of 5% would be deducted from the amounts due to him much before the settlement of his account and recognised as income by way of transfer from current liabilities to profit and loss account - Decided against Revenue. Royalty payment - Held that:- The payment of royalty at 0.5% of having regard to the business requirements of the assessee is for legitimate benefit taken in the course of business and from any standard, it cannot be said that payment of Rs.1 lakh as royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts of Rs. 28,56,19,123.44, amounting to Rs. 27,13,38,167/- was disallowed and added back to the total income of the assessee. He also rejected the alternative claim of the bad debts u/s 37(1) and as business u/s 28. 4. On appeal, the CIT(A) following the decisions of ITAT on this issue, directed the Assessing Officer to allow the bad debts relatable to terminated chits and also directed the Assessing Officer to compute bad debts relatable to running chits as per the directions in the order of the ITAT on this issue. 5. Aggrieved by the order of CIT(A) both the assessee and revenue are in appeal before us contending as under: Assessee's Grounds: "The learned CIT(A) ought to have also held that the deduction of irrecoverable amounts in respect of running and terminated chits was deductible u/s 28 of the IT Act, 1961 and loss arising in the course of carrying on business by the appellant. The learned CIT(A) failed to note that the Assessing Officer for the earlier years following the directions of ITAT allowed the deduction for bad debts in respect of running chits and therefore erred in giving the directions once again to compute the irrecoverable amounts in respect of run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer to re-examine the issue in the light of the order of earlier years i.e., 1995-96, 1997-98, 1998-99 and 1999-2000 (supra). This ground of the assessee is allowed for statistical purposes." 9. Respectfully following the said decision of the coordinate bench, we remit the issue to the file of the Assessing Officer with identical directions. Accordingly, ground Nos. 2 3 raised by assessee and Ground No. 2 by revenue are allowed for statistical purposes. 10. The Assessee in Ground No. 4 contended that the CIT(A) erred in upholding the taxability of foreman dividend at Rs. 9,79,21,623/-. 11. Assessee claimed Foreman's dividend of Rs. 9,79,21,623/- as exempt on the principle of mutuality. The Assessing Officer rejected the claim and brought this amount to tax. The CIT(A) upheld the action of the Assessing Officer following the decision of coordinate bench in assessee's own case reported in 83 ITD 792. 12. Aggrieved, assessee is in appeal before us. 13. After hearing the parties and perusing the record, we find that this issue is squarely covered against the assessee by the decisions of ITAT in earlier years in assessee's own case. For AY 2009-10 (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat of an assessee who joined as a subscriber to chits for personal savings or otherwise. The issue on hand was the taxability of the dividend earned by the assessee-company, which joined the chit groups promoted by it either as a foreman in fulfilment of the requirement of law, i.e., Chit Funds Act, 1982 (Central Act 40 of 1982) or on the assessee- company entering into the shoes of defaulting subscribers or in some cases to fill up vacant chits as a matter of necessity or expediency of its business and not by choice. It was not the case of the assessee-company that it participated in chits promoted by other companies or entities. The basic principle of mutuality cannot be applied to income from commercial pursuits. Profit earning was the motto of the assessee- company. The profits in question arose and accrued from the trade or vocation which it carried on. The principles of mutuality are based on the concept that no one can make profits out of himself. The essence of mutuality is of complete identity between the contributor and the participator. Under section 21 of the Chit Funds Act, 1982, the foreman 5 role and rights are at variance with the other participators and contributo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequential in nature, therefore, the Assessing Officer is directed accordingly. 16. Ground No. 1 5 in Revenue's appeal are general in nature. Ground No. 2 has already been decided while deciding assessee's appeal. 17. Ground No. 3 is that the learned CIT(A) ought to have upheld the disallowance made by the Assessing Officer towards commission on cancelled chits. 18. The Assessing Officer made the addition of Rs. 1,06,15,700 being commission of cancelled chits claimed by the Assessee. The CIT(A) observed that the Tribunal has held in earlier years in assessee's own case that the method of accounting of commission on called chits adopted by the assessee was correct. He, therefore, following the decision of Tribunal in earlier years, directed the Assessing Officer to delete the addition made on this count. 19. Revenue is aggrieved and is in appeal before us. 20. We have heard both the parties and perused the record. We find that this issue is squarely covered by the decision of the coordinate bench in assessee's own case in earlier years. In AY 2009-10 the Tribunal in ITA No. 975/Hyd/2012 vide order dated 12/10/2012 dismissed the ground raised by the revenue observing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions of the ITAT in assessee's own case for earlier years. The learned DR, on the other hand, did not controvert the submission made by the learned counsel for the assessee nor brought any contrary decision in this regard. 14. We have heard both the parties and perused the record. We find that the issue is squarely covered by the decisions of the ITAT in assessee's own cases in earlier years. In AY 2008-09 being ITA Nos. 390/Hyd/2012(Revenue's appeal) and 324/Hyd/2012 (assessee's appeal), the Tribunal dismissed similar ground raised by the revenue by observing as under:- "11. In ground No.3, the revenue has challenged the deletion of the amount of Rs.1,62,45,800/- towards commission on cancelled chits. We find identical issue came up before the ITAT, Hyderabad Bench in assessee's own case passed in ITA No.120/Hyd/2010 the ITAT following its earlier order passed in assessee's own case upheld the order of the CIT (A) in allowing the commission on cancelled chits. The observation of the ITAT in para-15 which is extracted hereunder:- "15. Similar issue came up for consideration before this Tribunal in assessee's own case in earlier orders for the assessment years 1998-99, 1999 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08-09, respectfully following the decision of the coordinate bench in that year, we uphold the order of the CIT(A) in deleting the addition of Rs. 74,78,677/- made by the AO and dismiss the ground of appeal of the revenue. 21. As the issue under consideration is identical to that of AY 2009-10 (supra), respectfully following the decision of the coordinate bench in that year, we uphold the order of the CIT(A) on this issue and dismiss the ground raised by the revenue. 22. Ground No.4 raised by the revenue is that the learned CIT(A) ought to have upheld the disallowance of royalty payment made by the Assessing Officer. 23. When the Assessing Officer made the disallowance of royalty payment of Rs. 3,33,86,186/- the CIT(A) following the decision of the Tribunal in assessee's own case in earlier years, directed the Assessing Officer to allow the disallowance. 24. Aggrieved, revenue is in appeal before us. 25. After hearing the parties and perusing the record, we find that this issue also decided by the Tribunal in assessee's own case in earlier years. In AY 2009-10 in ITA No. 975/Hyd/2012 vide order dated 12/10/2012, the coordinate bench dismissed the similar ground raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnataka Increased over the years upto 1990-91 when the auction turnover touched Rs.80.39 lakhs. 2. Srlram Chits and Investments (P) Ltd. decided to expand its business In Karnataka by forming a subsidiary company Srlram Chits (Bangalore) (P) Ltd. 3. In the year 1990, Srlram Chits (Bangalore) (P) Ltd. was formed and was carrying on the business of Chit Funds In the State of Karnataka and Srlram Chits and Investments (P) Ltd. gradually stopped floating new groups allowing the subsidiary company to expand. 4. Srlram Chits (Bangalore) (P) Ltd. since Inception continued to book new business by using the logo of its Holding Company. 5. The business growth of Srlram Chits (Bangalore) (P) Ltd. over the years can be Inferred from the following figures: FY 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996- 97 No.of 4 6 7 9 11 19 19 Branches Business 29.49 66.41 105 81.26 184.01 260.05 359.05 (In lakhs) Auction 29.49 95.9 181.15 225.69 348.29 542.28 753.23 Turnover 6. The right to use the logo from the Holding Company Sriram Chits and Investments (P) Ltd. was formally given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new business as also auction turnover from what was only 29.49 lakhs In assessment 1990-91 to Rs:225.69 lakhs In the assessment year 1994-95 and Rs.348.29 lakhs In the assessment year 1995- 96 and the business has been substantially growing from year to year. The financing business and conducting of the chit business Is not that easy unless It Is backed by the promoters who have highest Integrity and trustworthiness. MIs Srlram Chits and Investments (P) Ltd. Madras (holding company has been In the names for Itself with the investors In the south. We are, therefore, of the considered opinion that the payment of royalty at 0.5% of having regard to the business requirements of the assessee. In our view, the payment Is for, legitimate benefit taken In the course of business and from any standard, It cannot be said that payment of Rs.1 lakh as royalty Is sufficient to produce the business of the magnitude procured by the assessee over the years. The holding company has entered Into similar agreements with other subsidiary companies and the CIT(A) has considered the same to be reasonable business outflow property under a specific agreement executed by the parties Is very much reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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