TMI Blog2018 (2) TMI 1586X X X X Extracts X X X X X X X X Extracts X X X X ..... e Societies Act 1964 would be applicable and in such case, the surplus would be vested with the Registrar who shall hold it in trust and shall transfer it to the reserve funds of the society registered with the similar objects. In the similar circumstances, in CIT Vs. West Godavari District Rice Millers Association [1983 (9) TMI 47 - ANDHRA PRADESH High Court] held that income of the society is exempt even if the surplus goes to some other society with similar objects on dissolution. As the assessee has amended the bye laws and placed before the CIT(A), after got registered with the Registrar of society to enable the assessee to distribute the surplus assets among its members before completion of the appellate proceedings. Therefore, we hold that the assessee is a mutual association and the income of the society is not chargeable to tax u/s 4 of the IT Act - Decided in favour of assessee. - I.T.A. No. 297/Viz/2016 - - - Dated:- 21-2-2018 - Shri V. Durga Rao, Judicial Member And Shri D. S. Sunder Singh, Accountant Member Appellant by : Shri S Rama Rao, AR Respondent by : Shri Y Sesha Srinivas, DR ORDER Per D. S. Sunder Singh, Accountant Member This appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the members on dissolution, the identity between the contributors and recipients would be lost and this would militate against the very basic principle of mutuality. Since there is no bye law regarding distribution of assets on dissolution of society, the AO held that in the absence of bye laws regarding disposal of surplus assets, section 69- B of A.P.Cooperative Societies Act, 1964 will be applicable in the assessee s case for distribution of assets as under : 69-B. Disposal of Surplus Assets : Surplus assets as shown in the final report of the liquidator of a society which has been wound up shall be utilized for such purposes as may be specified in the bye-laws. Where the society has no such bye-laws, the surplus assets shall vest in the Registrar who shall hold it in trust and shall transfer it to the reserve funds of a new society registered with a similar object and serving more or less an area which the society to which the surplus belonged was serving 3.1. During the course of assessment proceedings, the assessee submitted Board Resolution dated 14.10.2010, wherein it was decided to amend the bye law No.47, so as to enable the assessee to distribute the surplus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be taxed since it is formed on the concept of mutuality and with the principle that no man can make profit out of himself and there is a complete identity of contributors and their beneficiaries. The Ld.AR relied on the judgement of Hon ble Supreme Court in the case of CIT Vs.Merchant Navy Club [96 ITR 261] (AP), and CIT Vs. Royal Western India Turf Club Ltd. [24 ITR 551] (SC). The Ld.AR distinguished the reliance placed by AO on the Hon ble Gujarat High Court in the case of Shree Jari Merchants Association and stated that in the case of Shree Jari Merchants Association, as per Rule 38 of its constitution, at the time of dissolution of the assessee society, its surplus is liable to be distributed even amongst non members. The same is not so in the case of assessee society hence argued that the case law relied upon by the AO is distinguishable and not applicable in the assessee s case. It is presumed that if there is no rule or bye law regarding distribution of assets at the time of dissolution, as per AP Cooperative Societies Act assets required to be placed at the disposal of the Registrar which will be distributed to the societies with similar objects or to the Federal socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s 10 of the IT Act on mutuality basis. In the instant case, there is no dispute that contributors and the consumers are one and the same. In the case of Shree Jari Merchants Association, Hon ble Gujarat High Court held that there is no basis for principle of mutuality because of Rule 38 at its constitution, wherein it shows that at the time of dissolution of the association its surplus would be distributed amongst non members. The case law relied upon by the AO is distinguishable since there is no such rule or bye law in the case of the assessee. In the absence of bye laws regarding the disposal of surplus assets, section 69B of AP Cooperative Societies Act 1964 would be applicable and in such case, the surplus would be vested with the Registrar who shall hold it in trust and shall transfer it to the reserve funds of the society registered with the similar objects. In the similar circumstances, Hon ble Jurisdictional High Court in the case of CIT Vs. West Godavari District Rice Millers Association held that income of the society is exempt even if the surplus goes to some other society with similar objects on dissolution. For the sake of clarity and convenience we reproduce rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax on that ground. But Shri Anjaneyulu, the learned counsel for the petitioner, strongly relied upon the decision of the Madras High Court in CIT v. Madras Race Club [1976] 105 ITR 433 and two decisions of this Court in CIT v. Merchant Navy Club [1974] 96 ITR 261 and Addl. CIT v. Secunderabad Club [RC No. 10 of 1974 dated 3-12-1975]. We shall refer to the decision of the Madras High Court in Madras Race Club's case (supra). In this case, the contention of the revenue was that the application of principle of mutuality was excluded because the memorandum of association provided that there could be no distribution of profits and that at the time of winding up the surplus was not divisible among the members, but had to be made over to entities having similar objects. The Madras High Court repelled this contention and observed as follows: The memorandum and articles of association of a company represent the contract between the company and the members. It is only by virtue of their ownership of the surplus assets, if any, that the members had agreed to the clause that they would not take back the surplus, but allow it to be transferred to any similar entity. As they thems ..... X X X X Extracts X X X X X X X X Extracts X X X X
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