TMI Blog2015 (5) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in [2015 (5) TMI 113 - ITAT MUMBAI] for A.Y. 2006-07 dated 14-11-2012 wherein exactly similar issue has been decided against the assessee holding that reimbursement cost is income. The ld. A.R. also placed on record order of the Tribunal in [2014 (1) TMI 1227 - ITAT MUMBAI] for A.Y. 2007-08 dated 22-1-2014 wherein this issue has been decided against of the assessee at para 7 to 9 at page No. 10 to 13 of the order. As the facts and circumstances 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. Estimation of profits at 5% of gross amount recovered from non-members - 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 [2015 (5) TMI 114 - ITAT MUMBAI] for A.Y. 2008-09 dated 31-01-2013. As the facts and circumstances during the year was same, respectfully following the order of Tribunal in assessee’s own case, we uphold the action of lower authorities estimating the profit of assessee company at 5% of gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue is directed against the order passed by the ld. CIT(A) -11, Mumbai dated 14-06-2012 for the assessment years 2009-10 and the Cross Objection by the assessee in the matter of order passed u/s 144C (3) r.w.s. 143(3) of the Income Tax Act, 1961. 2. Following grounds have been taken by the Revenue in this appeal:- 1) Whether On the facts and in the circumstances of the case and in law, the LD. CIT (A) is correct in holding that the assessee is covered by the principal of mutuality despite the fact that: (i) The assessee has made transactions with the non members also, and (ii) Assessee has failed to produce any documentary evidences regarding the expenses and thereby, failed to satisfy the Assessing Officer that the revenue received were matched by 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3. 12. Fallowing principles of mutuality can be deduced from the above discussion:- a. No one can trade with himself and hence there can be no profit from self. b. When individuals join and form an association and such association sells/provides goods/services or facilities ONLY TO ITS MEMBERS, there can invariably be no profit motive. Even if some profit ensues to the organization from members on transactional level, while pursuing the Objects of the association in providing goods and services to its members, there can be no tax on such profit on the basis of the principle of mutuality. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the facts of the instant case on the touchstone of the brooder principles of mutuality as figured out by us in preceding para. It is observed that the assessee extended facilities to Airport Authorities. United Nation. IFC. UNESCO and Equant customers. It is evident from page 27 para 74 of the 'Statement of facts' filed by the assessee before the learned CIT(A) that the assessee company and Equant shared network outside India in order to achieve economies of scale. Under this arrangement, the costs incurred by each party were shared according to usage and these costs recharged were shown in its Income and Expenditure account. The fact that the assessee rendered services to Equant customers is also borne out from its letter doted 25. 03.2004. a copy of which is placed on page 29 onwards of the paper 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be rejected in entirety was with reference to Articles 20 and 50 of the Articles of association of the assessee. It was submitted that since the retiring or resigning members are not entitled to participate in the reserves to some extent, the mutuality was lost. It was argued that the contributor to and participator in the surplus fund should be considered on the level of individual persons. For this proposition, he relied on the judgment in the case of Wankaner Jain Social, Welfare Society (supra). In this case the Hon'ble Madras High Court considered the facts in which the object of the society was to create and cultivate the habit of saving and thrift among the members of the society to help by way of loan or other assistance to members in case of a bona fide need. The rules and regulations of the society 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 hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surplus was distributed amongst members according to their shareholding after making a provision for reserves etc. The shareholders who were entitled to participate in the surplus need not have either token loans or made recurring deposits. From these facts, it is palpable that the shareholders were different as a class from the persons who availed the loan facility as a class. It was not necessary for a shareholder either to take loan or to make a recurring deposit. Thus the contributors to the funds were different as 0 group from the participators, being, the shareholders of the club as a group. 3.22. In view of the fact that Articles 20 and 50 debar the retiring or resigning members from participating in the reserves available cannot be considered as a factor eclipsing the principle of mutuality. It is so far the reason 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bursement cost as income. 9. The ld. A.R. placed on record order of the Tribunal in ITA No. 572/Mum/10 for A.Y. 2006-07 dated 14-11-2012 wherein exactly similar issue has been decided against the assessee holding that reimbursement cost is income. The precise observation of the Tribunal is as under:- 6. We have heard the ld. Sr. counsel for the assessee as well as the ld. DR and considered the relevant material on record. It is fairly admitted by both the parties that the issue raised in the Cross Objection has also been considered and decided by this Tribunal in assessee's own case for the Assessment Year 1996-97. However, the Id Sr counsel for the assessee has submitted that the Tribunal has made certain observations/remarks in para 5.5 of the order for the Assessment Year 1996-97 at page 77 of the order regarding the correctness 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in such reimbursement. 5. However we find that this principle is not applicable in the facts and circumstances of the instant case. It is observed from the statements of Shri S. Gopalakrishnan and Mr. Andrew C1eak recorded at the time of survey that the basis of allocation of costs to different countries by the HO was not known. It was admitted that the HO allocates a proportion of its general administrative and financing cost to other branches to exactly match the total cost incurred in each country in each month. It was also admitted that there was no verification of the expenses allocated by the HO because the basis of charge was known to HO alone and the details of such computation were not provided to the Indian branch. On a question about the recording of revenues, it was admitted that the entry was passed on the receipt of intimation from 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 let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue, as done by the HO is not known to the assessee. Under such circumstances, the contention that the assessee was only recovering costs from its non-members and there was no profit element in it, is not open for verification. 7.2 When the Tribunal has decided this issue after considering the rival contention and relevant facts, then in the absence of any new facts or material, we do not find any substance in the contention of the ld Sr counsel for the assessee regarding the marks of the Tribunal in the earlier year. Moreover, the same does not effect the findings of the Tribunal on this issue. 10. The ld. A.R. also placed on record order of the Tribunal in ITA No. 3807/Mum/10 for A.Y. 2007-08 dated 22-1-2014 wherein this issue has been decided against of the assessee at para 7 to 9 at page No. 10 to 13 of the order. As the facts and circumstances 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the HO was not known. It was admitted that the HO allocates a proportion of its general administrative and financing cost to other branches to exactly match the total cost incurred in each country in each month. It was also admitted that there was no verification of the expenses allocated by the HO because the basis of charge was known to HO alone and the details of such computation were not provided to the Indian branch. On a question about the recording of revenues, it was admitted that the entry was passed on the receipt of intimation from 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 India. The learned AR has invited our attention towards 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal has decided this issue after considering rival contention and relevant facts, then in the absence of any new facts or material, we do not find any substance in the contention of the ld Sr counsel for the assessee regarding the remarks of the Tribunal in the earlier year. Moreover, the same does not effect the findings of the Tribunal on this issue. 7.3 As regards ground no.2 to 9 of the CO are concerned, the Tribunal has considered the same in para 5.6 5.7 as under: 5.6. The learned AR also pressed into service the provisions of section 44C to contend that where the basis of allocation of HO expenditure is not known, deduction for such HO expenses has to be made in terms of section 44C. In the light of this section, the learned AR contended that only a small portion of the HO expenses ought to have been disallowed by the Id. CIT(A) instead of computing income at 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AR also pressed into service the provisions of section 44C to contend that where the basis of allocation of HO expenditure ;s not known, deduction for such HO expenses has to be made in terms of section 44C. In the light of this section, the learned AR contended that only a small portion of the HO expenses ought to have been disallowed by the ld. CIT(A) instead of computing income at 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 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fairly conceded that this ground also covered against the assessee by the order of the Tribunal in assessee s own case for assessment years 2007-08 and 2008-09. Respectfully following the order dated 22-1- 2014 and 31-1-2013 for assessment years 2007-08 and 2008-09 of the Tribunal in assessee s own case, we dismiss ground No. 9 taken in the C.O. by the assessee. 21. Ground No. 10 relates to interest u/s 234B of the Act. 22. The DDIT held that the entire income of the assessee company is subject to tax and accordingly levied interest u/s 234B of the assessee. We find that this issue is covered in favour of the assessee by the order dated 26- 9-2012 of the Tribunal for A.Y. 1996-97. The relevant observations of the Tribunal given at para 4.1 to 4.2 are as under:- 4.1. Second ground taken by the Revenue in its appeal is against the direction of the learned CIT(A) not to charge interest u/s 234B. 4.2. Having 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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