TMI Blog1983 (9) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... 61, which represented the collections made by the association from its members for construction of a building at Tadepalligudem and Bhimavaram. The association adopted a resolution in the general body meeting held on September 3, 1970, that it would collect monies for construction of buildings. Each member who obtained permit was required to contribute at the rate of 50 paise per quintal of rice exported. On these facts, the ITO came to the conclusion that the assessee acted as an agent or forum on behalf of the rice millers for obtaining export permits from the State Government. The ITO, therefore, held that the entire collection of Rs. 5,17.461 was taxable tinder s. 28(iii) of the I.T. Act, 1961. The matter was taken to the AAC in appeal. It was contended before the AAC that the subscription from the members were not received for any specific services rendered. It was also contended that the principle of mutuality would apply and, hence, the receipts in the form of subscription would fall outside the ambit of taxation. It was urged that the collections were not made in return for obtaining any permits by the association to its members. The permits issued by the Government and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 2 TC 460 (HL). The association is a mutual benefit society. It is constituted by the rice millers in West Godavari District for the avowed object of promoting unity among such millers. A mutual association is an association of persons who agree to contribute funds for some common purpose mutually beneficial and receive back the surplus left out in the same capacity in which they have made the contributions. Therefore, the capacity as contributors and participants remains the same. The), contribute not with an idea to trade but with an idea of rendering mutual help. They receive back the surplus which is left after meeting the expenditure of the association which is incurred for the common purpose in the same capacity in which they have contributed. Thus, they receive back what was really their own. The receipt in their hands is not really a profit as no man can make a profit out of himself, just as he cannot enter into a trade or business with himself. Thus, the main test of mutuality is complete with the identity of contributors with the recipients. It is well-settled that the identity need not be necessarily of individuals because it is the identity of status or capacity whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir 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 themselves are to deal with the surplus, if any, at the time of winding up, it cannot be said that they are not participators in the surplus. This clause is only a fetter in the manner of disposal. The participation envisaged in the principle of mutuality is not that the members should willy-nilly take the surplus to themselves. It is enough if they had a right of disposal over the surplus to show that they were the participators." This case, in our opinion, is directly applicable to the facts of the present case. Rule 21 of the memorandum of association says that the surplus should not go to the members and it should be made over to associations with similar objects by a decision of 3/5ths majority of the association is almost in identical terms. As the owners of the property, they have the right to dispose of the same in the manner they choose and if they decided that it should be given to associations with allied objects, it is difficult to say that the doctrine of mutuality is not attra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered is whether s. 28(iii) of the Act is attracted. Section 28(iii) of the I.T. Act is as follows "28. The following income shall be chargeable to income-tax under the head 'Profits and gains of business or profession' ....... (iii) income derived by a trade, professional or similar association from specific services performed for its members." From the language it is clear that income derived by a trade or association from specific services performed for its members alone is exigible to tax. This is in the nature of an exception to the principle of doctrine of mutuality. Now let us examine the facts of this case in the light of s. 28(iii) of the Act. The assessee-association was formed by the Rice Millers of West Godavari District for the object of promoting unity among such millers as manifested from the articles of association. The association passed a resolution No. 13/70 in which it was resolved that all members should contribute 0.50 paise per quintal on all the damaged and discoloured rice and broken rice permits and that members of Bhimavaram and Tadepalligudem Millers Association should provide suitable sites. They also resolved to request the members of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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