TMI Blog2015 (10) TMI 1896X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules and Regulations in Annexure-I, lead me to a conclusion that concept of mutuality claimed by the assessee was rightly rejected by the Revenue. The Hon’ble Supreme Court in the case of Chelmesford Club (2000 (3) TMI 4 - SUPREME Court) held that “where there is identity in the character of those who contribute and of those who participate in the surplus, the fact of incorporation may be immaterial and the incorporated company may well be regarded as a mere instrument, a convenient agent for carrying out what the members might more laboriously do for themselves”. Their Lordships have laid down the three tests before the principle of mutuality can be applied. In a nutshell, these tests are: (i) the identity of the contributors to the fund and the recipients from the fund; (ii) the organization exists only for mutual benefit; (iii) the funds can be expended for mutual benefit or returned to the contributors. It is only when these tests are fulfilled that the principle of mutuality can be applied. In the present case, the assessee is under no obligation to return the funds to the contributors. - Decided against assessee. - ITA No. 5076/Del/2014 - - - Dated:- 7-10-2015 - Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to refund the funds to the contributors on the dissolution of the society. Accordingly, the AO taxed the appellant's income. 3. Before the First Appellate Authority, the assessee claimed that its income is exempt on the principles of mutuality. Further levy of interest u/s 234A and u/s 234B of the Act was challenged. The First Appellate Authority held that the income of the assessee is not covered by the principles of mutuality. Aggrieved the assessee is before us. 4. We have heard Prof. S.Sampath, C.A. the Ld.Counsel for the assessee and Smt.Rakhi Vimal, JCIT, Ld.D.R. on behalf of the Revenue. 5. The A.O. rejected the claim of the assessee that its income is exempt by the principles of mutuality by relying on: (a) Para 10 of the Memorandum of Association (MOA); (b) Para 12 of the MOA of the Society. 6. Prof.Sampath, the Ld.Counsel s defense is that no funds and donations were received by the assessee during the year and hence mere authorization given to the Society vide para 10 of the MOA, to receive funds and donations from other than Members, does not impinge on the concept of mutuality. 6.1. On Clause no.12 of the MOA, he relied on the submissions made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory agencies and other stake holders; (vii) Spur research on regulatory issues; (viii) Interact, coordinate, facilitate and engage with various international developments, regulations, financial bodies and government or private entities of various countries. Further, it may include any objectives subsidiary and ancillary to the main aim set out above and are to be used only for the attainment of that aim and any income generated there from is to be applied for the aim only. Clause 10 of the rules and regulations in Annexure I read as follows:- Funds and donation etc: 10.1. SAFIR may receive gift, grants, donations and benefactions from any individual, corporate body, association, trust, world bank, or any other statutory or regulatory or financial body, Government or any other source in or outside India and the same shall be used by the association for exercising its objects and discharging its aim subject to the condition that any acceptance from foreign agencies, institutions and government will be on such terms as may be prescribed by statues or law for the time being in force. This includes: 10.1.1. A corpus fund of amount will be created with contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a clear majority of two thirds of the members of its Steering Committee present and voting at t EGM. Should it be decided to wind up as aforesaid, its property shall not be paid to or distributed among its members, but shall be given to some other body having objects similar to SAFIR or to any charitable society to be determined by the votes of not less than three fifths of the members of the Steering Committee present at a meeting called for that purpose. 6.4. A perusal of these Clauses demonstrate that the principles of mutuality are not attracted in this case, for the reason that, there is no identity between the contributor and the participant of the funds. The main object, does not lay down, that the participants are confined to the persons who are Members of the Society. The argument of the Ld.Counsel for the assessee, that Clauses 10 (rules and regulations) and Clause 12 of the MOA cannot be applied, for the reason that no such activity has taken place during the year, or that the happening of dissolution is hypothetical is not correct. When the constitution of the Society authorizes receipt of money by way of funds, donations, contributions, grants, in addition to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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