TMI Blog2020 (1) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the principle of mutuality becomes superfluous in view of the fact that the activities were held to be charitable. Applying the principle of consistency, CIT(A) held that there is no fundamental change in the nature of activities of the assessee for the period prior to AY 2008-09 and subsequent years. The ITAT has confirmed the findings of the CIT(A). Though the principles of res judicata are not applicable to the income tax proceedings, however, at the same time, one cannot ignore the fact that there is no dispute with respect to the consistency in the nature of activities of the assessee. All the income tax authorities have held that the assessee is a charitable institution and this consistent finding of fact entitles the assessee to have its income computed under Section 11, 12 and 13 of the Act. It was imperative for the Revenue to establish that there was an element of profit motive in the activities of the assessee, to deny the benefit. If any surpluses have been generated on account of some of the activities of the assessee, it would not ipso facto be determinative of the fact that there was an element of profit motive. The contentions raised by the Revenue, do not im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mutuality or otherwise. Entire surplus in I E account, amounting to ₹ 5,83,92,860/- was treated as taxable income of the assessee. The CIT (A) vide order dated 28.01.2016, allowed the appeal of the assessee by relying upon the judgment of this Court in assessee s own case, dated 12.10.2011 for AY 1988-89 to 2006-07 and the decision of Hon ble Supreme Court in the case of Radha Soami Satsang V. CIT,(193 ITR 321). 7. Revenue s appeal against the aforesaid order of CIT (A) was dismissed by ITAT vide order dated 28.02.2019, which is impugned in the present appeal. 8. Mr. Ajit Sharma, Sr. Standing Counsel for Revenue argued that order of ITAT is perverse. Findings of the Assessing Officer (AO) have been reversed, merely by relying upon earlier decisions of ITAT and of this Court in assessee s own case, without adverting to the merits of the present case with an independent application of mind. He submitted that principle of res judicata does not apply to income tax proceedings. Each assessment year being a separate unit, decisions of earlier years are not binding, particularly when facts have been differentiated by the AO. He further contended that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws of England, 4th Edition, Reissue, Vol. 23, paras 161 and 162 (pp. 130 and 132) states: Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of the facilities which it offers does not affect the mutuality of the enterprise. ** ** ** Members' clubs are an example of a mutual undertaking; but, where a club extends facilities to non-members, to that extent the element of mutuality is wanting.... 14. Simon's Taxes, Vol. B, 3rd Edn., paras B1.218 and B1. 222 (pp. 159 and 167) formulate the law on the point, thus: ..it is settled law that if the persons carrying on a trade do so in such a way that they and the customers are the same persons, no profits or gains are yielded by the trade for tax purposes and therefore no assessment in respect of the trade can be made. Any surplus resulting from this form of trading represents only the extent to which the contributions of the participators have proved to be in excess of requirements. Such a surplus is regarded as their own money and returnable to them. In order that this exempting element of mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indings of CIT (A) which read as under: Findings 6.3 It is quite clear from the facts that the IHC has not generated any surplus for anyone - members or non members. All its activities are geared towards providing services for its members with the bulk of the expenditure going towards maintaining the complex and thus providing the physical environment that it was expected to do. It is also not correct to state that the assessee has claimed partially relief as a charitable organization and partly as a mutual association. The assessee has claimed both and therefore it is not correct that the assessee should maintain separate accounts to claim these 2 kinds of benefits. Accordingly, it is clear that the assessee is fully entitled to claim benefits on the principle of mutuality as well as the ground that its activities are charitable although the former becomes superfluous in view of the latter. Nevertheless on the grounds of completeness it is necessary to give a specific finding on this important point. 6.4 The assessee has pointed out that the Delhi High Court vide its judgment delivered on 12th October2011 took note of the fact that from Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the period prior to AY 2008-09 and subsequent years. Accordingly based on the aforesaid High Court Judgments and the fact that he assessing officers have consistently from AY 2008-09 treated IHC as a mutual association IHC has to begiven the befit of mutuality. Thus the Grounds of appeal at numbers 1 -10 are allowed. 8. On the issue of concealment of income/furnishing inaccurate particulars I find that the assessee s contention is pre-matured since penalty is not yet imposed. 9. In view of the foregoing it is not necessary to examine ground 12-14 10. In the result, the appeal is allowed. [Emphasis Supplied] 13. The ITAT dismissed the appeal of the Revenue by holding that there has been no material change in the fundamental facts of the case for several years and the income of the assessee has to be computed under Section 11, 12 and 13 of the Act. The relevant portion of the impugned order is extracted herein below: 12. We have gone through the record. It is not the case of the revenue that there is any change in the fundamental facts involving the assessment of India Habitat Centre for the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or the Hon ble High Court, the consistent view has been that the assessee is a charitable institution and its income has to be computed u/s 11 12 13 of the Act. Unless and until, any change in the fundamental facts is brought on the record, we find it difficult to take a different view for this assessment year. Our this view is well fortified by the decisions of the Hon'ble jurisdictional High Court in the assessee's own case for the earlier assessment year so also the consistent view taken by the Tribunal for the AYs 2008-09 and 2009-10. 15. With this view of the matter, we find no irregularity or illegality either in the reasoning or in the conclusion reached by the learned CIT(A) and, therefore, accordingly find that the appeal of the revenue is devoid of merit and as such dismissed. 16. In the result, appeal of the Revenue is dismissed. [Emphasis Supplied] 14. The Revenue has sought to rely upon Section 2(15) of the Act to contend that the income of the assessee has to be computed as Association of Persons (AOP) and not on the basis of the Section 11, 12 and 13of the Act or on principle of mutuality. The assessee is a Soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by relying on the same. Further, it has been held that even if the assessee s activities do not fall in the first limb, since the assessee is promoting activities of general public utility, it would be covered by the second limb of the definition. 17. Applying the test of profit motive, it was held that the surpluses generated by the assessee are not being appropriated by any individual or group of individuals. Merely because the assessee is charging for certain goods and services, it does not render such activities as commercial activities and the fact that the AO has accepted that the assessee is promoting public interest as provided in the proviso to Section 2(15), there cannot be any doubt that the assessee should be regarded as charitable organisation and given the full benefit of exemption provided to such organisations under the Act. Relying on this premise, it has been held that since the assessee has not generated any surpluses from anyone-members or non-members, it was not correct to say that the assessee has claimed relief partly as charitable organisation and partly as mutual association. 18. Further, it was rightly held that the principle of mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid case was an unincorporated Association of Persons. It is apparent that the assessee in the present case is a registered Society under the Societies Act, 1860 and is also registered under Section 12A of the Act. This registration is still in force. In view of this and the grounds discussed herein before, we are of the view that the assessee is entitled to claim relief under Section 11, 12 and13 of the Act. The decision of this Court in Delhi Gymkhana Club (supra), elucidates that the interest income on the deposits made out of contributions from the members of the society is not taxable and is covered by the principle of mutuality. In the present case, since the assessee is registered as a charitable trust, the application of principle of mutuality for the computation of its income is not required to be gone into as the income is to be computed as per Section 11, 12 and 13 of the Act. 21. In this background, we find no ground to disentitle the assessee to the benefits of Section 2(15) of the Act. This being the position, we find no perversity in the impugned decision and, therefore, no question of law, much less substantial question of law arises for consideration. As a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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