9911796707
TMI Blog2015 (5) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses incurred. (2) The Appellant prays that the order of the Ld. CIT (A) on the above ground(s) be set aside and that of the Assessing Officer restored." 3. Rival contentions have been heard and record perused. Facts in brief are that assessee M/s Societe International De Telecommunications Aeronautiques SC (SITA) is a company formed in 1949 in Belgium. It has branches over 220 countries. The assessee is claimed to be a cooperative society for the benef it of International Airl ines to provide a telecommunication network to al l the airl ines. The assessee had claimed that it is a mutual benef it society and its income is exempt. Survey u/s 133A was carried out in the premises of the assessee on 29-11-2002. The A.O. has held that the assessee is not a mutual benef it society and its income is not entitled for exemption being an income of mutual concern.By the impugned order, the ld. CIT(A) held that the assessee is covered by principle of mutuality. Aggrieved by this the Revenue is in further appeal before us. 4. The ld. A.R. has placed on record order of the ITAT in assessee's own case in ITA No. 572/Mum/2010 for A.Y. 2006-07 dated 14-11-2012 wherein exactly similar is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The reason is that the contributors to the profit and participators in such profit are the same persons as a class. If no profit follows from the transactions with the members, obviously, there can be no tax even de hors the rule of mutuality. c. If. an organization of the nature as discussed in point no. b above, apart from entering into transactions with its members in furtherance of its objects, invests its funds or makes deposit in bonk, the return or interest on such investment/deposits will not be covered by the character of mutuality and such an amount will be liable to tax. It is so for the reason that the principle of mutuality will lack as the contributors of such interest income will not be participating in such income. However, mutual character of the organization in respect of transactions with its members will continue and income there from will enjoy exemption. d. When individuals join and form an association and such association sells/provides goods/services/facilities ONLY TO public at large, that is, NON-MEMBERS, there may or may not be profit motive. When there is profit motive and profits actually follows, such profit is liable to tax. If there is no profit mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book. From para (ivc), it can be noticed that : "SITA and Equant shared network resources in certain countries outside India, in order to maximize such economies of scale. Under those arrangements, the costs incurred by each party were shared according to usage". It shows that non-members did avail the facilities extended by the assessee. 3.14. Now let us see the volume of transactions with such nonmembers. The assessee's contention is that it was simply recovering costs from its members and non-members for rendering services and there was no profit motive. The total of cost recoveries from government, international organizations and Equant customers, constituting non-members as a group, is 0.07% of the total cost recoveries. It shows that the assessee provided services to its members at 99.93% of its total operations. This fact evidences that non-members availed the facilities provided by the assessee to a very limited extent less than even 0.1% of total. 3.15. At this moment, we will try to ascertain if the assessee was set up with a profit motive. We have perused Articles of association of the assessee, a copy of which is placed at page 116 onwards of the paper book. Obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty made it compulsory for every member to participate in the scheme of deposit. The Assessing Officer denied the mutuality on the ground that every depositor was not necessarily borrower and therefore, the interest paid by the borrowers and distributed amongst the non-borrower members dented the mutuality. The Hon'ble Madras High Court upheld this principle by holding that since the interest income was available for being distributed amongst al/ the members including those who had not borrowed moneys, the identity between the contributors and participators was lost and hence the principle of mutuality was not satisfied. 3.19. The question which, therefore, arises for our consideration is whether the mutuality is lost by reason of a member resigning or retiring from the society and not getting any shore in the reserves. In other words, the larger question is whether the contributors to the fund and participators in the fund should be the same persons on an individual level or a class level. The Hon 'ble jurisdictional High Court in the case of Sind Co-operative Housing Society (supra) considered the question of mutuality on the transfer fees received by the co-operative soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the persons who are entitled to share and participate in the reserves of the society continue to remain the same as a group or class of persons. The mere fact that a person at the time of resigna1T6n 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. 3.23. Be that as it may, it is observed that this fact has been considered by the Tribunal while deciding the principle of mutuality in relation to assessment years 1974-75 and 1975-76. The Tribunal has elaborately reproduced and discussed these two Articles in its order and thereafter recorded a positive conclusion granting the status of mutual organization to the assessee. Same is true in respect of the creation of reserves as well. The learned AR has pointed out that the reserves so referred to by the learned Departmental Representative were created many years ago in accordance with the Belgian statutory requirements or arose due to revaluation or refurbishment cost or due to capitalization of refurbishment cost. The question of reserves has also been discussed in the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the income divulged from the accounts of the assessee. The ld Sr counsel has submitted that it may be case of non verifiability of the items; but it cannot be said that the accounts of the assessee are not correct. Thus. the Id Sr counsel has submitted that there is no material on record does not reflect the correct income as held by the Commissioner of Income on the basis of which it can be conclusively said that the accounts of the assessee Tax(Appeals} and accepted by the Tribunal for the Assessment Year 1996-97. He has referred the notes of accounts in the audit report and submitted that the accounts of the Head Office are audited by some other auditors and the audit report of the other auditor has been relied upon by the auditor of the assessee. 6.1 On the other hand, the Id DR has submitted that the issue as well as the facts are identical in the Assessment Year under consideration to those of Assessment Year 1996-97 and therefore, the Tribunal. after taking note of the fact that it was found that both sides of the assessee's income and expenditure are matching paisa to paisa and no under recovery or over recovery shown as an asset or liability in its balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HO and how such revenues are determined, was not known. In response to question nos. 12 and 13, Shri Gopalakrishnan admitted that accounts were finalized by the HO and after finalization of such accounts, a signed copy of the balance sheet was sent to the branch office in Indio. The learned AR has invited our attention towards its letter doted 5.02.2005 addressed to the Id. CIT(A) about the basis of allocation. From this letter it is crystal clear that the assessee stated before the learned OT(A) that "the global cost recoveries made by the SIT A HO are allocated to all of the SITA branches worldwide so as to match the costs borne by those branches. Thus, the overall effect of allocating head office costs to the SITA branches worldwide is to increase both the branch costs and also the corresponding cost recoveries which are allocated to each branch to match those costs". From this letter it is also observed that the basis of allocation of costs amongst various branches is known only at the HO level with no intimation to the Indian branch about such basis. At this stage, we would like to highlight that India is concerned only with the tax revenues relating to Indian operations. Unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances during the year under consideration are same, respectfully following the order of the Tribunal in assessee's own case we hold that reimbursement of cost was not income of assessee. 11. The ground raised with regard to estimating the profit of the assessee company at 5% of gross amount recovered from non-members is covered against the assessee by the order of the Tribunal in ITA No. 6651/Mum/11 for A.Y. 2008-09 dated 31-01-2013. Precise observation of the Tribunal at para 8 to 9 at page No. 8 to 11 of the order is as under:- "8. The learned Counsel for the assessee submitted before us that the issue raised in the cross objection has been decided against the assessee in assessee's own case for assessment year 1996-97 and in the assessment year 2006-07, decided by the Tribunal, vide order dated 14th November 2012. The relevant findings given by the Tribunal in relation to grounds No.1 and 2 of the cross objection are as under:- "7 Having considered the rival submissions and the relevant material on record, we find that the facts regarding the issue raised by the assesseed in the CO are identical. 7.1 The issue raised in ground no.1 and 2 of the CO has been dealt by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds its letter dated 5.02.2005 addressed to the Id. CIT(A) about the basis of allocation. From this letter it is crystal clear that the assessee stated before the learned CIT( A) that "the global cost recoveries made by the SITA HO are allocated to all of the SITA branches worldwide so as to match the costs borne by those branches. Thus, the overall effect of allocating head office costs to the SITA branches worldwide is to increase both the branch costs and also the corresponding cost recoveries which are allocated to each branch to match those costs". From this letter it is also observed that the basis of allocation of costs amongst various branches is known only at the HO level with no intimation to the Indian branch about such basis. At this stage, we would like to highlight that India is concerned only with the tax revenues relating to Indian operations. Unless it is properly established that all the expenses claimed by the Indian branch represents the assessee's share in a proper manner, it cannot be accepted Societe International De Telecommunications Aeronautiques that the allocation was made on some rational basis. Here is a case in which both the sides of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 5% of the gross receipts. 5.7. We are not convinced with this contention for the reason that 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 ITA No. 572/Mum/2010 & CO No.159/Mum/2010 Societe International De Telecommuni-cations Aeronautiques section 44C. On the contrary, we are considering a case in which not only the basis of allocation of expenses is not known, but the basis of allocation of income is equally unknown at India level. This brings us to a situation where 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 --~.-". voked by the Assessing Officer and also applied by e learned CIT( A) in estimating the income of the assessee. In our consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nown, but the basis of allocation of income is equally unknown at Indio level. This brings us to a situation where 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. In our considered opinion the learned CIT(A) was more than justified in estimating the income at 5% of the gross receipts from non-members. These grounds taken by the assessee are not aIlowed." 8. Following the ear1ier order of the Tribunal, we find no merit in the ground no 1 to 9 of the CO raised by the assessee, accordingly, the same are dismissed". 15. Exactly similar issue has been decided by the Tribunal in A.Y. 2007-08 in ITA No. 3807/Mum/2010 dated 22-01-2014 against the assessee. As the facts and circumstances during the year under consideration are same, we hold that provisions of section 44C of the Act apply to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the rival submissions and perused the relevant material on record we find that the issue of charging of interest u/s 234B in the present case is no more res integra in view of the judgment of the Hon'ble jurisdictional High Court in the case of Director of income-tax (International Taxation) v. NGC Network Asia LLC [(2009) 313ITR 187 (Bom.)] in which it has been held that when the duty is cast on the payer to deduct tax at source, on failure of the payer to do so, no interest can be charged from the payee assessee u/s 234B. The same view has been reiterated in DIT (IT) v. Krupp UDHE GmbH [(2010) 38 DTR (Born.) 251]. As the assessee before us is a non-resident, naturally any amount payable to it which is chargeable to tax under the Act, is otherwise liable for deduction of tax at source. In that view of the matter and respectfully following the above precedents, we hold that no interest can be charged under sections 234B and 234C of the Act. This ground is, therefore, not allowed." 23. Respectfully following the above order of Tribunal in assessee's own case, we allow this ground in favour of the assessee. 24. In the result, appeal of the Revenue is dismissed and the C.O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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