Income Tax Appellate Tribunal - Bangalore
M/S India Semi Conductor Association , ... vs Assessee on 12 August, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER
ITA No.1483/Bang/2015
Assessment year : 2010-11
M/s. India Semi Conductor Vs. The Deputy Director of
Association, Income Tax (Exemptions),
4th Floor, UNI Building, Circle 17(1),
Thimmaiah Road, Bangalore.
Bangalore - 560 052.
PAN: AAATI 5450L
APPELLANT RESPONDENT
Appellant by : None
Respondent by : Dr. P.K. Srihari, Addl. CIT(DR)
Date of hearing : 01.08.2016
Date of Pronouncement : 12.08.2016
ORDER
Per Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of the CIT(Appeals), LTU, Bangalore dated 31.08.2015 inter alia on the following grounds:-
"The appellant begs to prefer the following among, such other additional grounds of appeals as may be urged, at the time of hearing, against the impugned order passed by the Commissioner ITA No.1483/Bang/2015 Page 2 of 8 of Income Tax (Appeals) 14, Bangalore, for the assessment year 2010-11.
5. The Impugned order passed by the AO and the CIT Appeals are without jurisdiction contrary to law facts and evidence on record and liable to be set aside.
6. The AO never discussed the issue pertains to the principal of Mutuality in the order, which is also admitted by the CIT appeals. When there is no finding on the Principal of Mutuality, the CIT Appeals cannot record the finding for the first time, hence on this ground alone the order is liable to be set aside. CIT appeals try to support the order, on which no finding is recorded. The CIT appeals substitute the AO order on Principal Mutuality recording the reason for the first time.
7. It is submitted that, AO was not right in arriving wrong conclusion that, the appellant trust is wholly charitable and mutual at the same time. The law or the Income Tax Provisions prohibits such principals, hence the finding recorded is not correct. The AO has not verified the Trust deed before passing the order. The Trust deed was amended to include the wholly charitable and mutual at the same time. The AO not seen the Trust deed before passing the order.
8. When an trust, members ship is extended to the Trade and Industry the benefit to Principal of mutuality has to be extended. When there is complete identity between the contributors and the participators, the benefit of wholly chartable and mutual has to be extended since those members who have not contributed to the surplus as customers are nevertheless entitled to participate in the surplus. However, if such an association or company distributes the surplus among the customers as such, there would be complete identity between the contributors and the participators, in the present case, the appellant has proved beyond doubt, but still the authority referring to section 2(15) R/w Section 15 rejected the claim.
9. The crucial test of mutuality was laid down by Lord Macmil1an in Municipal Mutual Ins. Ltd. v. Hills. The cardinal requirement is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common ITA No.1483/Bang/2015 Page 3 of 8 fund; in other words, there must be complete identity between the contributors and the participators. Explaining this principle, the Andhra Pradesh High Court held in CIT v/ Merchant Navy Club held that, the contributors to the common fund and the participators in the surplus must be, an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. The Madras, Andhra Pradesh, Kerala, Punjab and Haryana and Calcuta High Courts have held that the test of mutuality does not require that the contributors to the common fund should distribute the surplus amongst themselves; it is enough if they have a right of disposal over the surplus and in exercise of that right they may agree that on winding-up the surplus will be transferred to a similar association or used for some charitable objects. while the complete identity between the class of contributors and the class of participators.
10. The cardinal requirement for satisfaction of the principle of mutuality is that all the contributors to the common fund must be able to participate in the surplus and that all the participators in the surplus must be contributors to the common fund. In other words, it is essential that there must be complete identity between the contributors and the participators. This was held by the Supreme Court in the landmark decision in the case of CIT Vs. Kumbakonam Mutual Benefit Fund Ltd., 53 ITR 241 (SC). However from the facts of the present case as discussed above, it is clear that most of the activities carried out by the Trust by way of organizing trade fairs, vision summits and 'other seminars and conferences were essentially for members and non-members. In fact, substantial part of the total receipts has been received from non-members, which are applied for various activities of the Trust carried out both for members as well as non-members. Therefore, in this case by no stretch of Imagination it can be said that 'there is complete identity between the contributor and the participants'. The Section 13 (8) of the Act, in not applicable in the present case. The appellant has rightly claimed the deduction/ exemption, and if the authority takes the different view, the penalty under section 234, B,D and D is not applicable. The AO has recorded that, the appellant has claimed the exemption under section 11 of the Act, in the computation, taking contrary stand the CIT Appeals held that, the appellant has not claimed the ITA No.1483/Bang/2015 Page 4 of 8 exemption under section 11 of the Act. Each authority is taking different views.
11. The Circular no. 11/2008 dt.19. 12.2008 issued by the CBDT, with specific reference to para 3.1, to claim that industry and trade associations can claim to be both charitable institutions as well as mutual organizations, thereby justifying its claim of exemption under mutuality. The circular is binding on the AO, as held by the Supreme Court and High Court. The AO cannot take different stand, and he has to follow the observations made in the Circular. The CIT appeals rejected the claim of the appellant on the ground that, the bulk of the amount is received from non members. When the appellant trust has proved complete identity between the contributors and the participants of an organization, the CIT appeal was not right in dismissing the CIT appeal, and was not right in confirming the order of the AO. The Hon'ble High Court in case of CIT V. Ranchi Club Ltd, [1992] 64 TAXMANN 433 (PAT.) held that, In this case the Hon'ble Court has held that the principle of Mutuality is based on the premise that no man can make profit out of himself. By applying the principle of mutuality members' clubs always claim exemption in respect of surplus accruing to them out of the contributions received from their members.
The Hon'ble High Court has held that - merely because the assessee company had entered into transactions with non- members and earned profits out of transactions held with them, its right to claim exemption on the principle of mutuality in respect of transactions held by it with its members was not lost. But it has also been held that the principle of establishing complete identity between the contributors and the participators would apply in respect of contributions made by the members.
12. The cardinal requirement for satisfaction of the principle of mutuality is that all the contributors to the common fund must be able to participate in the surplus and that all the participators in the surplus must be contributors to the common fund. In other words, it is essential that there must be complete identity between the contributors and the participators. This was held by the Supreme Court in the landmark decision in the case of CIT Vs. Kumbakonam Mutual Benefit Mutual Benefit Fund Ltd., 53 ITR 241 (SC). In fact, substantial part of the total receipts has ITA No.1483/Bang/2015 Page 5 of 8 been received from non-members which are applied for various activities of the Trust carried out both for members as well as non-members.
13. The AO was not correct to reject the exemption on the ground that, the appellant trust is registered under the service tax Act, Both the Act are different, because the services are taxable, does not mean that, it is taxable under the Income Tax Act. The AO has come to wrong conclusion that, the appellant trust activities are nature of promotion of business/trade activity. Therefore, invoking the first proviso to Sec.2(15) of the Act, the AO has held that the activities of the Trust is not charitable and hence it is not eligible for claiming exemptions u/s. 11 of the Act is not correct. The appellant trust activities are not in the nature of business/trade activity but in the interest of general public and promotion of the activates of the trust., which is very clear from the trust deed. The activities of the trust are not in the nature commercial nature or activites, but wholly charitable. Even though the appellant has not claimed exemption u/s 11 of the Act, the authority could have granted the exemption under section 11 of the Act, R/w 2 (15) of the Act. The respondent authority, has not proved that, the activities of the appellant trust is commercial in nature. Due to changing economy and multinational national companies are entering the Indian market, the activates of the trust are amended and it is wholly charitable.
14. It is submitted that, the appellant relies on the following judgments.
COMMISONER OF INCOME TAX AND ANOTHER V MBA NAHATA CHARITABLE TRUST [2014] 364 ITR 693 (Karn) CHARITABLE TRUST - EXEMPTION AMOUNTS RECEIVED AS DONATIONS TOWRDS BUILDING FUND -
AMOUNTS UTILIZED FOR CHARITABLE PURPOSES -
MAJOR PORTION OF DONATIONS RECEIVED TROUGH CHEQUESFAILURE TO PRODUCE DONORS BEFORE ASSESSING OFFICER - NOT CONCLUSIVE - ASSESSEE ENTITLED TO EXEMPTION - INCOME TAX ACT, 1961, S.
11. ITA No.1483/Bang/2015 Page 6 of 8 The assessee, a charitable trust, was exempted under section 11 of the Income tax Act, 1961. Held, dismissing the appeal, that any voluntary contribution received by a trust created wholly for charitable or religious purpose shall be deemed to be income derived from property held under the trust wholly for charitable and religious purpose. However, the amounts were used for charitable purposes even though the assessee failed to disclose the names and addresses of the donors. Since the amount was utilised by the trust wholly for the charitable or religious purposes, the assessee has fulfilled the condition imposed under section 11. It was entitled to exemption.
The division bench of this court in a judgment reported in DIT (Exemption) v. Sri. Belimatha Mahasamsthana Socio Cultural and Educational Trust [2011] 336 ITR 694 (Karn) held that:
"Since the amounts received from the third party has been accounted and utilized for charitable purposes even though the assessee failed to disclose the names and addresses of the donors as well as the mode of payment, entitled for deduction under section 11 of the Act".
COMMISSIONER OF INCOME TAX V AGRICULTURAL MARKET COMMITTEE [2011] 336 ITR 641 (AP) CHARITABLE PURPOSE - CHARITABLE TRUST - REGISTRATION MEANING OF "CHARITABLE PURPOSE"
AGRICULTURAL MARKETING COMMITTEE ONSTITUTED BY STATE TO PROTECT AGRICULTURISTS
- OBJECT OF GENERAL PUBLIC UTILITY -
AGRICULTURAL MARKETING COMMITTEE IS A PERSON - ENTITLED TO REGISTRATION UNDER SECTION 12A/12AA- INCOME TAX ACT,1961. ss 11. 12A. 12AA.
15. PRAYER WHEREFORE, the Hon'ble Tribunal be pleased to
a) To set aside the order passed by the CIT (Appeals) 14, Bangalore for the assessment years 2010-11.
b) To set aside the order passed by the AO for the assessment years 2010-11.
c) To declare that, the appellant trust wholly charitable trust, under the Income Tax Act.
d) To declare that, appellant has right claimed the deduction/exemption under the head) Principle of mutually.
e) To declare thatt the appellant is eligible for exemption under section 11 of the IT Act.
f) To declare that, the appellant trust is eligible for exemption as per the CBDT Circular dated 19/12/2008.
g) To grant any other relief deemed fit, in the facts and circumstance of the case."
2. This appeal was listed for hearing on 01.08.2016, but none appeared on behalf of the assessee, despite service of notice of hearing. Since none appeared on behalf of the assessee, we have no other option, except to hear the appeals ex parte, qua the assessee.
3. We have carefully examined the orders of the CIT(Appeals) on all the grounds raised before us and we find that the CIT(Appeals) has adjudicated all the grounds in detail in his order. Since no defect has been pointed out in the order of the CIT(Appeals), we confirm the same. ITA No.1483/Bang/2015 Page 8 of 8
4. In the result, the appeal by the assessee is dismissed.
Pronounced in the open court on this 12th day of August, 2016.
Sd/- Sd/-
( S. JAYARAMAN ) (SUNIL KUMAR YADAV )
Accountant Member Judicial Member
Bangalore,
Dated, the 12th August, 2016.
/D S/
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Assistant Registrar,
ITAT, Bangalore.