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2016 (9) TMI 250 - ITAT AHMEDABAD

2016 (9) TMI 250 - ITAT AHMEDABAD - TMI - Rectification of mistake - Claim of section 11 exemption without section 12A registration after its conversion to a section 25 companies - mutuality principle application - Held that:- There is no quarrel between that the assessee has raised its mutuality plea qua members contributions only as collected by organizing gala dinners, property shows and cricket tournaments. Shri Rajdeep Singh fails to rebut the factual position that all these events are in t .....

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particular level or form by which a mutual association is known to be insignificant, the activities concerned should be in furtherance to mandate of the association and there should not be any scope of profiteering by the contributors from a fund made by them which could only be expanded or retuned to themselves. We deem it appropriate to observe that our order under challenge does not deal with the above stated third aspect of mutuality. - As extracted clause reveals that assessee has to ma .....

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ogethers for promoting brotherhood between members only. We observe in these peculiar facts that our appreciation of this clause is not as per the language incorporated in the relevant object clause. We admit our two findings hereinabove to be suffering from mistakes apparent on the face of record in view of all this detailed discussion. There is further no denial of the fact that our order does not deal with third aspect of mutuality principle - ROM application allowed - MA Nos. 82 to 87/Ah .....

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) s lower appellate order dated 02-02-2015. 2. We advert to the relevant facts first. This assessee is a section 25 company registered since 01-09-2007. It does have its object clauses (a to l) forming part of the main order. The assessee organized gala dinners, property shows and cricket tournaments. Its members as well as non members/outsiders made their respective contributions to the same. These figures read ₹ 37,08,050/- and ₹ 16,27,100/- in assessment year 2006-07 for example. .....

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ritable organization aspect. 3. The assessee preferred appeal. The CIT(A) rejected assessee s contentions in the lower appellate common order inter alia by holding that it had been adopting different stand throughout, it did not disclose true and correct facts till 2010-11 scrutiny, assessee was accused for having raised claim of section 11 exemption without section 12A registration after its conversion to a section 25 companies, its objects did not provide for the mutuality principle applicatio .....

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ing. 4. The assessee filed six main appeal hereinabove in as many assessment years from 2006-07 to 2011-12. We declined all these cases by a common order subject matter of the instant miscellaneous applications as follows:- 9. We have heard both the parties and perused the case files. There is no dispute that the assessee-company is registered u/s. 25 of the Indian Companies Act, 1956. Its memorandum of objects already stands reproduced. It has carried out some fiestas, property shows and cricke .....

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at there has to be a complete identity between the class of contributors and participators and the particular lable or form by which a mutual association is known is of no consequence. Second feature is that action of the participators and contributors must be in furtherance of the mandate of the mutual association. Third feature is that there should not be any scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. Their lordshi .....

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ise a distinction qua the one collected from members to that derived from non members. We disagree with this argument. The fact remains that it is the overall nature of the contribution that matters for applying mutuality concept which acts as an exception to the general principles of the assessee's income. Therefore, we observe that the assessee's contribution do not satisfy the abovestated preposition of complete identity between contributors and participators since the non members ide .....

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the assessee may collect and accept contributions from members as and when required as determined by the association and to make and create therefrom a fund for office maintenance, salary to employees, provide essential services to members and raise a sinking fund for emergency and or other contingencies. There is no mechanism provided in the abovestated objects for raising receipts from non members. And also in carrying out any activities of fiestas, property shows and cricket tournaments. The .....

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e assess fails qua this second feature. We quote case law of CIT v/s. Royal Western Turf Ltd.,(1953) 24 / ITR 551 (SC) holding money realised from both members and non-members in lieu of the very services rendered in course of the same business thereby denying mutuality exemption. Their lordships quote absence of any mutual dealing between the members interse and no putting up of a common trend for discharging common obligations undertaken by the contributors for their mutual benefits. The said .....

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the assessee has dealt with members and non members in raising the impugned contributions qua its activities of organizing fiestas, property fair and cricket tournaments. 11. Coming to the third feature, we notice from the abovestated case law that their lordships hold that there is no scope of profiteering by the contributor from a fund made by them which could only be expended or returned to themselves. We deem it appropriate to observe that once the assessee does not fulfill the above two fea .....

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ase as indicated in the preceding paragraphs. The next case law is that of Chelmsford Club v/s. CIT (2000) 243 ITR 89. This assessee-club owned a club house providing recreational and refreshment facilities exclusively to its members on no profit no loss basis as against facts of the instant case. The same is accordingly distinguished. The third judgement quoted before us is that of (2015) 59 taxmann.com 104 (Guj.) CIT vs. Prabhukunj Cooperative Housing Society Ltd., This society received contri .....

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uj.) Junagadh Gymkhana vs. ITO. This club's members had paid guest charges and utilized it for benefit and development of themselves. The hon'ble jurisdictional high court held this case to be covered by mutuality concept on the ground that the same created an identity between the participants and contributors. Just because some transactions are non mutual would not destroy mutuality factor. We find that the non members therein were only brought to the club and they had not paid any amou .....

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sessee's case. 13. The assessee has filed before us another compilation of judgments, i.e. (1987) 168 240 (Ker) Cochin Oil Merchants Association, (1984) 150 ITR 394 (AP) CIT v/s. West Godavari District Rice Mill Association, (1994) 209 ITR 28 (Kol) CIT v/s. Indian Paper Mills Association. All these judicial precedents deal with issue of surplus arising from receipts from members by way of subscription or otherwise which has been held to be, covered by mutuality concept. We repeat that the as .....

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butions. The same have been held to be covered by mutuality concept. We again revert back to the facts of the present case wherein the assessee has carried out property fairs, fieastas and cricket tournaments without proving nexus thereof with the above extracts objects and also received contributions from members and non members. We accordingly conclude that the assessee's arguments claiming its v receipts from members as covered by mutuality concept have to be rejected. We order accordingl .....

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on the face of record as per case law of (2008) 305 ITR 227 (SC) CIT vs. Saurashtra Kutch Stock Exchange holding therein that rectification of an order flows from the fundamental principle putting justice above all technicalities. Shri Rajdeep Singh is learned Departmental Representative appearing for the Revenue. He invites our attention to the order sought to be rectified and contends that the same has taken into account all the material facts as well as case laws whilst rejecting asssessee s .....

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eration to rival contentions. Hon ble apex court has very much settled the law (supra) that such a rectification u/s. 254(2) of the act is maintainable by treating justice above all technicalities. Their lordships elaborately discuss scope and ambit of section 254(2) of the act to hold first of all that a patent, manifest and self evident error not requiring any discussion of evidence or argument can be said to be an error apparent on the face of record. Hon ble court is of the view that such a .....

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n that all these events are in the nature of annual get together being organized for the purpose of promoting brotherhood. Nor is it his case that the relevant figures in this records point out losses really from these activities as evident in assessment year 2006-07. We notice from our order that we had considered case law of Bangalore Club vs. CIT 350 ITR 509 (SC) propounding three essential conditions that there has to be a complete identity between the class of contributors and participators .....

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ur order reproduced hereinabove. Our view therein is that the moment assessee s members contributions combines with the non-members contributions, proposition of complete identity between contributors and participators is lost. We notice that our finding goes contrary to hon ble jurisdictional high court s decision in case of Junagarh Gymkhana (2015) 56 taxmann.com 281 (Guj) holding therein that non-mutual transactions in dispute involving non-members do not destroy the principle of mutuality. A .....

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accept assessee s argument qua our findings on the first essential aspect of mutuality. 9. We now proceed to examine correctness of our latter finding holding that the assesseee s activities are not as per mandate of the association. We heavily relied on clause j of its objects to conclude that the members contributions in question arise in case of as and when basis required for the purpose of meeting office maintenance, employees salary, essential services and for creation of a sinking fund. T .....

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