Income Tax Appellate Tribunal - Ahmedabad
Vapi Waste & Effulent Management ... vs Department Of Income Tax on 30 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL AT
AHMEDABAD
AHMEDABAD "C" BENCH
Before: Shri Mukul Kumar Shrawat, Judicial Member and
Shri T. R. Meena, Accountant Member
Sl. ITA No. A.Y. Appellant Vs Respondent
No.
1. 1310/Ahd/2010 2006- Vap i Waste & The Addl.
07 Effluent C.I.T. Valsad
Manag ement Range,
Co. Ltd . VIA Valsad
House, Plot
No.135, GIDC,
Vap i-396 195
PAN
No.AAACV8289P
2. 1776/Ahd/2010 2006- Assistant Vs Vapi Waste
07 Commissioner Effluent
of Income Tax, Manag ement
Vap i Circle, Comp any Ltd .
Vap i GIDC, Vap i
3. 3308/Ahd/2010 2002- Assistant Vapi Waste &
03 Commissioner Effluent
of Income Tax, Vs Manag ement
Vap i Circle, Comp any Ltd .
Vap i Plot No.135,
VIA house
Char rasta,
GIDC, Vap i
4. 3443/Ahd/2010 2002- Vap i Waste & The Asst.
03 Effluent Commissioner
Manag ement Vs of Income
Co. Ltd ., VIA Tax, Valsad
House, Plot Circle, Valsad
No.135, GIDC,
Vap i-396195
PAN
No.AAACV8289P
5. 2778/Ahd/2011 2008- Asstt. M/s Vap i
09 Commissioner Waste &
ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 2
of Income Tax, Vs Effluent
Vap i Circle, Manag ement
Vap i Co. Ltd . 135,
VIA House,
GIDC, Char
Rasta, Vapi
6. 2835/Ahd/2011 2008- Vap i Waste & Asstt.
09 Effluent Vs Commissioner
Manag ement of Income
Co. Ltd ., VIA Tax, Vap i
House, Plot Circle, Vap i
No.135, GIDC,
Vap i-396195
PAN
No.AAACV8289P
7. 3444/Ahd/2010 2007- Vap i Waste & The Asst.
08 Effluent Commissioner
Manag ement Vs of Income
Co. Ltd ., VIA Tax, Valsad
House, Plot Circle, Valsad
No.135, GIDC,
Vap i-396195
PAN
No.AAACV8289P
8. 3309/Ahd/2010 2007- Asstt. M/s Vap i
08 Commissioner Waste &
of Income Tax, Vs Effluent
Vap i Circle, Manag ement
Vap i Comp any Ltd .
Plot No.135,
VIA house
Char rasta,
GIDC, Vap i
Sl.No. Assessee by Revenue by
1 to 8 Shree M.G. Patel with Shree S.K. Gup ta, C.I.T.,
M/s Arti N. Shah DR
Date of hearing: 30.03.2012
Date of pronouncement: 20.04.2012
आदे श/ORDER
PER BENCH : T.R. MEENA, ACCOUNTANT MEMBER
ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 3 These eight appeals of the different I.T.A. numbers, as mentioned above, arise from the different orders of Ld. Commissioner of Income-tax (Appeals), Valsad as per details below:-
ITA No. CIT(A) order dated A.Y. 1310/A/2010 26.03.2010 2006-07 1776/A/2010 -do- -do- 3338/A/2010 29.09.2010 2002-03 3343/A/2010 -do- -do- 2778/A/2011 24.08.2011 2008-09 2835/A/2011 -do- -do- 3444/A/2010 29.09.2010 2007-08 3309/A/2010 -do- -do-
2. This common order is passed in all the appeals as all the years has similar grounds of appeal.
3. I.T.A. No.3443 of 2010
GROUNDS OF APPEAL (Assessment Year 2002-03)
(i) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facats of the case by confirming assessment made by the ld. Assessing Officer holding that the appellant company's effluent treatment receipts were not exempt from income on principle of mutuality.
(ii) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming action of the ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 4 ld. Assessing Officer in holding that the amount of Rs.67,36,276/- is business income of the appellant.
(iii) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by not deciding the ground of appeal in respect of action of the ld. Assessing Officer of not granting set off carried forward losses of the earlier years and thereby confirming the same.
(iv) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts by confirming the action of the ld. Assessing Officer of not granting deduction u/s 801A @ 100% of the total income.
(v) Without prejudice to above grounds, the ld.
Commissioner of Income Tax (Appeals), Valsad has erred in laws and on facts of the case by confirming the disallowance made by the ld. Assessing Officer by not allowing deduction in respect of donation of Rs.89,735/- as being non-business expenditure. 4. I.T.A. No.1310 of 2010
GROUNDS OF APPEAL (Assessment Year 2006-07)
(i) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law as well as on the facts of the case by holding that the appellant is carrying on business activities and concept of mutuality is not applicable to the facts of the case of the appellant. ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 5
(ii) The ld. Commissioner of income Tax (Appeals), Valsad has erred in law and on the facts of the case by confirming the contention of the ld. A.O.that the income of Rs.6,08,72,639/- is business income of the appellant and is not exempt on the ground of principle of mutuality.
(iii) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on the facts by confirming the action by the ld. A.O. of not granting deduction u/s 801A @ 100% of the total income.
(iv) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on the facts by not deleting fully the disallowance of Rs.5,47,410/- out of operating expenses made by the ld. A.O. as being non-business expenditure.
(v) Without prejudice, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming the action by the ld. A.O. of not allowing set off in respect of carried forward losses of the earlier years. 5. I.T.A. No.3444 of 2010
GROUNDS OF APPEAL (Assessment Year 2007-08)
(i) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming assessment made by the ld. Assessing Officer holding that the appellant ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 6 company's effluent treatment receipts were not exempt from income on principle of mutuality.
(ii) The ld. Commissioner of income Tax (Appeals), Valsad has erred in law and on the facts of the case by confirming the action of the ld. A.O. in holding that the amount of Rs.2,03,61,985/- is business income of the appellant.
(iii) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by not deciding the ground of appeal in respect of action of the ld. Assessing Officer of not granting set off for carried forward losses of the earlier years and thereby confirming the same.
(iv) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on the facts by confirming the action of the ld. Assessing Officer of not granting deduction u/s 801A @ 100% of the total income.
(v) Without prejudice to above grounds, the ld.
Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming the disallowance made by the ld. Assessing Officer by not allowing deduction in respect of donation of Rs.10,4000/- as being non-business expenditure. 6. I.T.A. No.2835 of 2011 ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 7 GROUNDS OF APPEAL (Assessment Year 2008-09)
(i) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming assessment made by the ld. Assessing Officer holding that the appellant company's effluent treatment receipts were not exempt from income on principle of mutuality.
(ii) The ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts of the case by confirming action of the ld. Assessing Officer in holding that the amount of Rs.5,42,19,854/- is business income of the appellant.
(iii) Without prejudice to above grounds, the ld. Commissioner of Income Tax (Appeals), Valsad has erred in law and on facts by confirming the action of the ld. Assessing Officer of not granting deduction u/s 801A @ 100% of the total income.
7. I.T.A. No. 3308, 1776 & 3309 of 2010 & 2778 of 2011 GROUNDS OF APPEAL
(i) The ld. CIT(A) has erred in allowing depreciation of Rs.2,84,48,791/- in assessment year 2002-03, Rs.3,02,97,496/- in assessment year 2006-07, Rs.3,08,90,405/- in assessment year 2007-08 and Rs.1,58,09,941/- in assessment year 2008-09.
8. The brief facts of case are as under:-
ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 8 The assessee company has filed return of income electronically on 29.11.2006 declaring income of Rs. 2,02,39,762/- and a photo copy of the said return acknowledgement is filed on 15.12.2006. This return is processed u/s 143(1) of the I.T. Act, 1961. The Assessee is a Public Ltd. Company which is incorporated because before the Hon'ble Gujarat High Court, Vapi Industries Association (VIA) showed commitment to take effective steps for containing pollution being generated by its members. Therefore, VIA took over Plant of GIDC for treatment of effluent. For this purpose, various members of the VIA formed a company and took over Common Effluent Treatment Plant (CETP) from GIDC. Later on it also undertook the steps for disposal of solid hazardous waste disposal under common solid waste project (CSWP).
9. During the course of assessment proceedings, it is pleaded that the Articles of Association of the company do not permit distribution of dividend signifying thereby that the company was incorporated as a non-profit oriented mutual Association. The capital cost of the plant was contributed by VIA members on the basis of average consumption or self assessed capacity of the plant used by them.
10. The finding of the A.O. at page 4 of assessment order are as under:-
ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 9
(i) The assessee was asked to give supporting documents where High Court suggested or directed to make a company which is going to be non profit for mutual one. The same is not furnished.
(ii) Regarding distribution of surplus (even before winding up), Shri Sabharajjak (Authorised representative) stated that there is no bar on the same but it would not be called dividends as there is no share capital.
(iii) There are associations out side Vapi like Umbergaon Industries Association, SSI association Valsad which are members of solid waste (but not of CETP).
(iv) There are few non-members who are members of CETP but not of solid waste. They are given courtesy to accept their waste till they become member and clear Gujarat Pollution Control Board (GPCB). The are charged at normal rate.
(v) Rate of charge for solid waste like capital cost, reserve for disposal and reserve for maintenance of received waste are decided by the management. The basis of calculation is to be provided.
(vi) There is no membership charge every year but one time fee is charged which is non-transferable -non refundable.
The A.O. observed that the above facts lead to substantiate that the assessee company is doing normal business ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 10 activity in routine course. Even though there is no share capital, the company is raising funds by way of subscription fees which is reflected in the balance sheet. There is specific clause viz. 25. VI of the Articles of Association which reads as under -
"VI. If upon the winding up or dissolution of the company, there remains after the satisfactions of all debts and liabilities any property whatsoever, the same shall be paid to or distributed among the members in equal shares."
From the Article of Association, it is seen that there is no bar so far as distribution of surplus is concerned.
The assessee's claim that it is doing a non profit making mutual activity, is incorrect as is evident from the accounts showing huge surplus during the years under consideration as its book results. It is also having huge surplus in the preceding years. In fact, it is this surplus which is invested in the form of deposits with bank and the company is earning interest from the same.
11. The appellant claimed that assessee company has been running on the principle of mutuality. Vapi industrial association came together to carry on activity for treatment of affluent discharge by the industries located in Vapi Industrial Estate. The motive of the company was not to earn profit and they were attributed as per discharge of effluent like a housing society or club. ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 11 These contentions have been accepted by the A.O. in preceding year by scrutinizing the case u/s 143(3) of the I.T. Act and no taxable income was assessed by him. It further claimed that profit making clause mentioned in Sl. No. 7, 17 and 22 of memorandum of association which have been incorporated in M.O.A. in routine manner but no profit was earned by the company. The interest income received by the company from the bank have been disclosed for taxation. It is further clarified that clause in memorandum of association stating that some business can be carried out or some profitable activity can be carried out is not of importance. What is important is the actual activity and actual receipts. Under any circumstances, any person whether individual, partnership firm, company etc. receipts may be taxable or not taxable. In case of any normal company carrying on business activity would not be taxed just because its memorandum has a clause to carry out profitable activity on any receipts i.e. loan received or advances received. The road upgradation project is a community project undertaken on behalf of the industrial and local authority. The assessee company has chosen as a special purpose vehicle for implementation of infrastructure project under the infrastructure upgradation scheme 2003 by the Ministry of Commerce and Industry, Government of India under cluster project scheme. ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 12 Therefore, the assessee company is not in business of making profit. The cost incurred by the member more or less as per requirement of running the company. It cannot be 100% accurate as sometimes expenses also fluctuates. Therefore, during the year there was a surplus of Rs.4.8 crore. The assessee company has provisions for distribution of surplus at the time of winding up but it is not by way of dividend but its distribution of money belonging to members which they have contributed from time to time. Section 2(22) of the I.T. Act also talks about dividend to the extent of distribution is attributable to the cumulated profit and does not talk of distribution of capital of share holders. Even it is treated as a dividend or otherwise is not a criteria for taxability of any company. This concept is exactly contrary to the view held in case of Northern India Motion Pictures' Association where surplus was not distributed to members of winding up but given to a charitable trust, the concept of mutuality was vitiate, the supplementary bill raised in case of any shortage of fund after decided by the grievance committee of the company.
12. The assessee company has claimed depreciation of assets as per the company law. The A.O. has wrongly reduced capital cost contribution from the cost which was received from the members as contribution for some additional facility. Even ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 13 guarantee given by the Government on the basis of investment made and not to acquire any specific assets, is not required to reduce for the calculation of the depreciation. In normal company also share capital is used in purchasing of assets and never reduced from the cost of assets. In this case the Hon'ble Gujarat High Court has suggested to form a company for treatment of effluent. The registration u/s 25 of the Companies Act and u/s 11 & 12 is not necessary to consider on assets as taxable or non-taxable. The receipts are only taxable when the assessee does not fulfil the criteria of Section 11 & 12. In past there was a huge deficit and all such deficit should be taken into account and to set all against surplus of share as per accounts and as per I.T. laws. As such there was no calculation as per I.T. law about deficit if the I.T. law is applied, there will be certainly deficit which has to be carry forwarded. If receipts are business and profession, still deduction at the rate of 100% is allowed u/s 80 1A of the I.T. Act since the deduction is for ten consecutive years in 15 years, considering last ten years for deduction, this is only 4th year and therefore, the income would not be liable to be taxed.
13. The A.O. after considering the assessee's reply concluded as under:-
ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 14
(i) As pointed out earlier, there is no mention in the Hon'ble High Court's order that it is going to be non-profit making/mutual set up.
(ii) The argument that the company is doing activities in public interest i.e. 'charitable' one, is also totally incorrect in view of the fact that the company is earning heavy surplus by charging the members as per their discretion. No definite basis for charging the members is submitted in spite of ample opportunity.
(iii) Unlike a cooperative society, it is not a case that assessee is dealing exclusively with its members only and only for limited purpose. It is admitted fact that the assessee is dealing with such entities who are not members and earning from the non-
members.
(iv) There is no basis for charging the members as well as non-members.
(v) For applying the principle of Mutuality, the 'membership' is a mandatory criteria and the assessee's case fails on this point because 'members' like Umbergaon Industries Association, SSI Association, Valsad do in turn collect waste from their members. Therefore, actually assessee is providing services to non-members and charging them. Therefore, principle of Mutuality is not applicable.
ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 15
(vi) On the other hand, becoming a member of this organization is also kind of compulsion viz. the member has to prove how it would dispose of effluent. Therefore, to get clearance from Government authorities like Gujarat State Pollution Control Board (GSPCB), its ;membership becomes necessary.
(vii) Perusal of the book results for earlier years shows that the book loss incurred is due to doubtful debts of Rs.7,35,65,298/-. On enquiry, it was revealed that these were unpaid bills by the industries who disputed that they are non polluting (therefore, no required to be the members). From this, it is apparent that the assessee is dealing with such parties who are non-members and the transactions with such parties vitiate principle of Mutuality.
14. Further he analyzed the various aspects on page13, 14 & 15 of assessment order and concluded that income is taxable because assessee is not dealing exclusively with its members only. The assessee was also engaged in the other activity. The assets distributed among the members as dividend and also at the time of winding up as per part-VI of the M.O.A. does not fall under the definition of dividend in the absence of share contribution is not convincing. The assessee has shown contribution from the members as revenue receipts but actually these receipts are towards cost of assets and same has to be reduced from it. The ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 16 assessee has not provided working and depreciation as per I.T. law during the course of assessment proceedings. Thus, depreciation is not allowed at Rs.3,02,97,496/-. Section 11 & 12 of Income Tax Act has no bearing as assessee's receipts are having nature of business. The Industry or Trade Association claim both to be charitable institution as well as mutual organization and their activities are restricted to contribution from and participation of only their members, this would not fall under the purview of the provisions 2(15) owing to the principle of mutuality. He further concluded that the assessee company is neither a charitable institution nor a mutual organization. Alternatively, the organization cannot be called to be having object of general public utility also, in view of the fact that the activities being rendered are involving trade or business only. The carry forward of loss is against the bad debts written off which require verification. 100% claim u/s 80 1-A cannot be entertained because it has not been claimed in return by the assessee. The A.O. had not allowed depreciation of Rs.3,02,97,496/-, donation Rs.5,47,410/- and assessed business income of Rs.6,08,72,639/- and income from other source Rs.2,02,39,762/- in assessment year 2006-07. In other years also the income has been assessed as business income. ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 17
15. Being aggrieved by the decision of the A.O. the assessee was before C.I.T. (appeal), Valsad who has passed order on various dates after detailed discussion of clause of Memorandum of Association and Article of Association and various case laws cited by the assessee and held as under:-
"I have carefully considered the facts and circumstances of the case. Also considered the finding of the A.O. and submission of the ld A.R. It is admitted facts that the Hon'ble High Court ordered the Industries to comply the GPCB norms for running the factories in this region. The VIA took lead in this regards by taking over CETB from GDIC, to operate the plant for the effluent treatment. All the industries not having secondary effluent treatment facility became the members of the companies, directly or through their respective Industries Association. In the process the appellant serves other Industries Association like Vapi Industrial Association (VIA), Pardi Industrial Association (PIA), Umergaon Industrial Association (UIA), Valsad Industrial Association (VIA) apart from the members directly joined. It is admitted facts that the members do not acquire any inherent right, title or interest in the property and the company itself is an absolute owner of the property. This very submission of the Authorized Representative of the appellant proves that the complete identity between the ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 18 contributors and participants is missing in the instant case of the appellant. Thus, the principle ingredient of concept of Mutuality is not satisfied. Further the appellant company undertook certain projects which has no relevance or no direct nexus with the contribution of the members which indicates that there is no concept of mutuality. From the Financial Statements furnished by the appellant company it is also observed funds are made available through the outside sources. Thus, the claim of the appellant of concept of mutuality is rejected.
In these circumstances, I hold that the income/surplus of the appellant is not exempted from tax. I am also conscious that the appellant company was formed by the Industries and Industries Association for the protection and upliftment of their common interest. The object of the Act is to tax 'income'. Section 2(24) defines 'income'. It is an inclusive definition and not an exhaustive one. Clause (vii) thereof expressly includes profits and gains of any business of insurance carried on by a mutual insurance company or by a cooperative society. It is in the nature of an exception to the general rule of mutuality. Next, under clause (v) of section 2(24) any sum chargeable u/s 28(iii) is deemed to be income. Thus, income derived from a trade, professional or similar association from specific services performed for its members is chargeable ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 19 under the head 'Profits or gains'. The idea clearly is to tax the surplus arising from services rendered by such associations to its members which would otherwise have been outside the tax net. Thus I am of the opinion that the income of the appellant is taxed u/s 28(iii). Section 28 Clause iii applies to income derived by a trade, professional or similar association from specific services performed for its members. A "Trade Association" is an "association of tradesman, businessmen or manufacturers for the protection and advancement of their common interest." [webster's New International dictionary, 2nd addition, page 264, referred to in CIT v. Royal Western India turf Club, (1953) 24 ITR 551, 566 (SC): Bellary District Mine Owners' Association v CIT, (1964) 53 ITR 632 (Mys); Indian Tea Planter's Association v CIT, (1971) 82 ITR 322(Cal] Every trade, professional or similar association which renders specific services to its own members for remuneration related to those service would come within the purview of section 28(iii) [Indian Tea Planter's Association vs. CIT, (1971) 82 ITR 322 (Cal)]. In order to bring an income within this clause, two essential facts have to be established, namely, that the association rendered specific services to its members, and that a remuneration was paid by the members for these services; and there must also be connection between the remuneration and the service rendered ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 20 [Chagla, C.J., Ismailia Grain Merchants Association Ltd. v. CIT, (1957) 31 ITR 433, 437 (Bom); South Indian Planting and Commercial Representation fund v. CIT, (1957) 32 ITR 513, 518 (Mad)]. The statute does not require that before income of such association would be chargeable to tax, it should have been earned because of some trade activities by association [CIT v. Hill Goods Truck Owners Union, (1980) 124 ITR 224 (Punj)] This clause is in the nature of a charging provision. It is applicable on its own terms.
Further, as held income of a trade association not falling within section 28(iii) is not necessarily exempt [CIT v. Shree Jari Mechants Association (1977) 106 ITR 542 (Guj)]. The idea behind section 28(iii) clearly is to tax the surplus arising from services rendered by such association to its members which would otherwise have been outside the tax net. The appellant has been providing Specific Services to its members. The word 'specific' only means definite, distinctly formulated or stated with precision. The word "performing specific services" in this clause means "conferring particular benefits:, i.e., conferring on the members some tangible benefit which would not be available to them unless they paid the specific fees charges for such benefits as held in the case of CIT Vs. Calcutta Stock Exchanged Association Ltd., (1971) 82 ITR 322 (Cal). In this ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 21 circumstance, I am constrained to uphold the action taken by the Assessing Officer. This ground of appeal is dismissed:"
16. The ld. CIT(A), after analyzing the whole concept of business and gain has allowed the depreciation but deduction u/s 80 1-A has not been allowed due to assessee has shown income in return NIL and not claimed deduction in return of income. He also relied upon GOETZE (INDIA) LTD. Vs. CIT (2006) 284 ITR 323 (Supreme Court) and disallowance out of operating existence has made 50% i.e. partly.
17. Being aggrieved form the order of CIT(A) the assessee is before us. The A.R. of the assessee company contended that the company fall u/s 25 of the Companies Act. It is company by guarantee of share. The main object of the company was not to earn any profit. It is for treatment of effluent in the Vapi Industrial Area on the suggestion of Hon'ble Gujarat High Court and contribution is made by the members only. The surplus of the company has never distributed among the members. It is set up on the principle of mutuality to trade the wastage of chemical/water from the various industrial units. The charges and contribution both the fixed on the basis of deposition of solid waste and it is non-profit company. The A.R. submitted the copy of return for A.Y. 2007-08, copy of decision of Hon'ble Gujarat High Court, copy of ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 22 memorandum of association and article of association, list of the CETP and CSWP as on 31.03.2007 with address, copy of the written submission made before the CIT(A), copy of the annual report for A.Y. 2002-03, 2006-07, 2007-08 and 2008-09.
18. The learned A.R. further relied on Bombay High Court decision in the case of CIT Vs. Common Effluent Treatment Plant (Thane-Belapur) Association reported in [2010] 328 ITR 362 (Bom) where Hon'ble Bombay High Court has accepted the principle of mutuality and surplus income over expenditure on principle of mutuality is not chargeable to tax. Interest income received on fixed deposit with the bank is not income received from members of assessee but from 3rd party. Investing excess fund with bank in fixed deposit a prudent commercial decision and principle of mutuality does not apply. He further relied on the decision of Sports Club of Gujarat Ltd. Vs. C.I.T. reported in 1987 Vol.171 ITR 504 (Guj.) where Hon'ble Gujarat High Court has held that the Sports Club is mutual concern and profit and gain is not assessable as business income. Interest on investment is assessable. The assessee is not entitled to benefit of Section 44 A of the I.T. Act. The Hon'ble Gujarat High Court in this case has held that one of the essential of mutuality is that the contributors to the common fund are entitled to participate in the surplus, there by creating an ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 23 identity between the participants and the contributors, once such identity is established, the surplus income would not be exigible to tax on the principle that no man can make a profit out of himself. The principle of mutuality is not extracted by the presence of transactions which are not mutual in character. The principle of mutuality can, in such case, be confined to transactions with members. The two activities can, in appropriate cases be separated and the profit derived from non-members can be brought to tax. The Authorized Representative pleaded that the surplus of the company is not taxable. The receipts from the outsider have been offered for taxation including interest on fixed deposit with bank. The ld. CIT DR vehemently relied upon the order of the ld. A.O. and CIT (A) and has drawn the attention on the clause of memorandum of articles and association of article by which he emphasized that no concept of mutuality has been followed by the assessee. The main objects and ancillary objects are for running the business to earn the profit. He further argued that outsiders also are member namely, Umargaon Industry Association, S.S.I. Association, Valsad and Members of Solid Waste. There are few non-members who are members of CETP but not of solid waste. The A.R. accepted that till they become member and cleared by Gujarat Pollution Control Board, they are charged at normal rate. Therefore, he argued that ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 24 receipts from the outsider is to be taxed on the basis of judgment delivered in case of Sports Club of Gujarat (supra).
19. We have perused the assessment order, order of the CIT(A), submission of the Authorized Representative and heard the argument from both sides. The basic object of the company is to give treatment of effluent in the form of liquid and solid to prevent the pollution in Vapi Industrial area on the suggestion of the Hon'ble Gujarat High Court. The company is limited by guarantee. There is no share capital of the members. Only subscription is made on the basis of wastage delivered by their plants. No dividend has been distributed by the company so far. The object mentioned in the main and ancillary object are as per the line of the company act but it is not for profit earning. The Board of Director has to pass resolution to allow the outsider to get the services of the company. No director is outside from the members of Vapi Industrial Association. On the basis of decision of Hon'ble Gujarat High Court in the case of Sports Club of Gujarat (supra) the assessee also has declared the interest income in return as taxable on fixed deposit with bank however, it was admitted that no outsider had provided the services of the company but the AO is directed to verify the claim of the assessee whether any outsider is getting services or not from non-members, has to be taxed accordingly after giving full ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 25 opportunity to the assessee. The assessee is also directed to cooperate with the A.O. and give all the evidences as required by the A.O. for his satisfaction. The revenue appeal on allowance of depreciation by the CIT(A) has no bearing as the principle of mutuality has been accepted by this Court. The other grounds of appeal of the assessee like deduction u/s 80 IA, disallowance under head operating expenses and carry forward loss of earlier year has no meaning when principle of mutuality has been held in favour of the appellant.
20. In the result, the appeals are set aside and disposed of for statistical purpose.
इस आदे श कȧ घोषणा Ǒदनांकः 20/04/2012 को खुले Ûयायालय मɅ कȧ गई । This Order pronounced in Open Court on /04/2012.
Sd/- sd/- (Mukul Shrawat) (T.R. Meena) (Judicial Member) (Accountant Member) Ǒदनांकः- /04/2012 अहमदाबाद । NKC
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, ITA No.1310,1776,3308, 3443, 3444 & 3309 of 2010 and 2778 & 2835 of 2011 26 अहमदाबाद ।