Income Tax Appellate Tribunal - Jodhpur
Sumerpur Truck Operators Union vs Deputy Commissioner Of Income Tax on 16 May, 2005
Equivalent citations: (2005)97TTJ(JODH)147
ORDER
Hariom Maratha, J.M.
1. This appeal by the assessee, namely, Sumerpur Truck Operators Union is directed against the order of CIT(A), dt. 13th July, 1996, which pertains to asst. yr. 1998-99.
2. Briefly stated, the facts of the case are that the assessee filed return of income declaring loss of Rs. 5,29,240 on 27th Oct., 1998. The returns of income accompanied the requisite audit report, statements of the liabilities and the assets, general fund account, political fund account and computation of total income, below which a note was given that this income of the assessee is exempt from tax being eligible for exemption under Section 10(24) of the Act.
3. But, the learned AO was of the opinion that the assessee was not eligible for exemption under Section 10(24) of the Act. The truck operators are usually truck-owners, of course, few of them also employed drivers but most of them drive their truck themselves. The exemption under Section 10(24) is available only if the aim of the assessee-union was to regulate the relations between the workmen and employers, or for regulating the relations between the workmen and workmen. The truck operators are self-employed persons, who have formed their union to safeguard their interests in their business of transportation qua their customers. The union does not seem to have been formed primarily to regulate the requisite relations between workmen and the employers or between workmen and workmen.
4. This issue is admittedly already decided by the Tribunal in the case of their very assessee, by holding that these truck operators are neither employers nor are they workmen. But, the learned Authorised Representative has further submitted by again taking the same issue in this appeal that this issue was not properly argued in earlier appeals. The definition of "workmen" was imported from the definition of "workmen" given in the Industrial Disputes Act, 1947, whereas the definition of "workmen" given in Section 2(g) of the Trade Union Act, 1926, is not considered, which is only relevant law sofaras provisions of Section 10(24) of the IT Act are concerned. I have gone through the submissions of the learned Authorised Representative which are reiterated in his paper book at pp. 2 to 4. From the above, it is true that the learned AO and the learned CIT(A) and the Tribunal for that matter considered the definition of "workmen" in the light of the Industrial Disputes Act, as this argument was perhaps never put before these authorities. Since, the DB of this Bench has already taken a view on the issue in question, the only course open before me is to respectfully follow the findings of the Tribunal. So by respectfully following the findings of the Tribunal in the case of this assessee, this issue is dismissed.
5. Taken vide ground No. 2, is an alternate plea that as per the principle of mutuality, the contributions made by the members to be used for their betterment, cannot be again taxed in the hands of the assessee-union.
6. I have considered the rival submissions and perused the evidence available on record.
7. It is a settled position of law that any surplus arising out of mutual activity is not liable to be taxed, as no taxable profit can be stated to arise from out of mutual activity because no man can trade with himself. It has been argued by learned Authorised Representative that in earlier year this issue also stood decided against the assessee, but facts of that year are entirely different and distinguishable, in this year, insofar as the members of the union, who are permanent, have been separately listed.
8. In support of ground No. 2, learned Authorised Representative submitted that contribution from permanent and genuine members of appellant union should be held exempted income, In his support, he has even relied upon CIT v. Madras Race Club and Sports Club of Gujarat Ltd. v. CIT , which were also relied upon by learned AO at page No. 27. Learned Authorised Representative further submitted that as per ratio laid down in CIT v. Bankipur Club Ltd. , CIT v. Ranchi Club Ltd. (FB), Chelmsford Club v. CIT (2000) 243 ITR 89 (SC), Wankaner Jain Social Welfare Society v. CIT , CIT v. Escorts Dealers Development Association Ltd. (, Upper India Hire Purchase Co. v. CIT , CIT v. I.T.I. Employees Death & Superannuation Relief Fund , CIT v. Bombay Oilseeds & Oil Exchange Ltd. , CIT v. Cochin Oil Merchants' Association (1987) 168 ITR 240 (Kar), income/contribution from real/permanent/genuine members of a mutual organisation shall not form part of taxable income and income/contribution from non-members or temporary members or ungenuine members shall form part of taxable income and thus, 'principle of mutuality' shall apply only to incomes received from real/permanent/genuine members of the appellant union.
9. Learned Authorised Representative further submitted that as per ratio laid down in above judgments, principle of mutuality shall not apply only to an institution but it applies to various incomes of that institution and thus, contributions by genuine members shall be exempted as per principle of mutuality whereas contribution or income from other persons shall not be empted. This ratio is even accepted by learned AO at page No. 27 while relying on (supra) and (supra).
10. In his written submission at page No. 5, learned Authorised Representative made a bifurcation showing that out of total income (from all types of members) of Rs. 11,82,450, income of Rs. 3,22,148 was received from ordinary and permanent members and Rs. 8,60,302 was received from temporary members which are ungenuine members as per AO's version. In support of this bifurcation, appellant also furnished an affidavit and argued that income/ contribution from ordinary/genuine members to the extent of Rs. 3,22,148 should be treated exempt on principle of mutuality.
11. Learned Authorised Representative also submitted that with reference to Tribunal's order in appellant's own case, facts were altogether different till asst. yr. 1995-96. In those years, bifurcation of income between permanent members and temporary members was not available before Hon'ble Bench and appellant claimed exemption on the principle of mutuality for its entire receipts from all types of members and therefore, Hon'ble Bench relied upon the CIT(A)'s conclusion that it was not possible to identify the truck operators who came from outside and operators at Sumerpur and in fact, in those years, identification of permanent and temporary members was rather not possible from the record of union-appellant. And, therefore, exemption of contribution from permanent/ordinary members on the basis of principle of mutuality does not hit by Hon'ble Bench in appellant's own case.
12. In the rival submissions, learned Departmental Representative stressed upon the decision of the Bench in the appellants own cases for asst. yrs. 1989-90 to 1995-96 and he submitted that CIT(A) and (sic) Bench rightly held that principle of mutuality shall not be applicable to (sic) union.
13. After considering rival submissions, the main question arises, whether principle of mutuality applies to an institution or to an institution as well as to the nature of income or to the nature of income of income? After relying on ratio laid down in all the judgments cited supra, I reached to the conclusion that 'principle of mutuality' applies to an institution as well as to the nature of incomes of that institution. If a mutual institution also receives incomes and contributions from non-members, that income from non-members shall not be governed by the 'principle of mutuality' whereas other incomes from members only towards institute's common fund shall be exempt as per principle of mutuality. Therefore, with due respect to earlier decision of this Bench and decision of various High Courts and apex Court, I conclude that the appellant union is a mutual organisation and direct incomes/contributions from its permanent members should be exempt as per principle of mutuality but contribution/income from temporary and ungenuine members shall not be exempt on the principle of mutuality.
14. Moreover, for the relevant year, learned Authorised Representative not only furnished bifurcation of income from permanent members and temporary members but he also filed an affidavit in support of his bifurcation and the fact mentioned in the affidavit remained uncontroverted by the learned Departmental Representative and, therefore, in these circumstances, I am of the opinion that this issue be restored to the file of the learned AO to decide this issue afresh, after considering the distinguishable facts of this year, as per the submissions of the learned Authorised Representative narrated in paras 8, 9, 10, 11 of this order. This issue may be treated as allowed for statistical purposes.
15. The next issue is taken in ground No. 3 of the appeal. This ground reads as under:
"The learned CIT(A) erred in law in confirming the disallowance of the following various authorised, vouched and verified expenses despite the fact that there was no query, pinpointing defect and any opportunity to explain and by ignoring lawful provisions and constitution of the union itself:
A. Charity and donations Rs. 8,200
B. Telephone expenses Rs. 4,000
C. Travelling expenses Rs. 5,100
D. Jeep expenses Rs. 17,589
E. Misc. expenses Rs. 11,100"
16. The learned Authorised Representative has reiterated almost similar arguments in relation to the above disallowances of certain expenses, besides relying on written submissions filed before the Bench.
17. After giving careful the (sic) to the learned rival submissions, vis-a-vis, the available record, I am of the considered opinion that the impugned disallowances are not called for at all keeping in view the peculiar nature of the assessee-union in question.
18. The AO disallowed Rs. 8,200 out of charity of Rs. 41,055 (p. 33 of the assessment order), Rs. 4,000 out of telephone expenses of Rs. 39,366 (p. 32 of assessment order), Rs. 5,100 out of travelling expenses of Rs. 51,295 (p. 33 of assessment order), Rs. 17,759 out of jeep expenses of Rs. 87,946 (p. 32 of the assessment order), Rs. 11,000 out of Rs. 2,22,138 claimed on account of miscellaneous expenses (p. 33 of the assessment order).
19. The learned CIT(A) also confirmed these additions. These expenses were disallowed at the rate of l/10th in the telephone expenses, l/5th in the jeep repairing expenses, l/10th of travelling expenses and l/20th of miscellaneous expenses, for the element of personal user, which may have occurred in this case.
20. The submissions of the learned Authorised Representative Sh. K.C. Moondra are more convincing because the assessee is a union of truck operators, which is governed by certain rules and regulations. The case of the assessee is more akin to that of a private limited company than that of a businessman. All such expenses are subject to acceptance by the governing body Registrar of Trade Union and the Auditor. The Department has not pointed out any single expense, which could point to any such personal user. In the case of the assessee, all expenses are, undisputedly accepted when these are authorised and approved by the "governed body" duly authorised by the "general body" of the union. All expenses are vouched and verified by the auditors. No contradictions, etc. were noticed by the learned AO. Thus, all the impugned expenses are allowed. The additions are deleted and this ground of appeal is allowed.
21. The next ground relates to charging of interest under Section 234B and 234C of the Act, which is by now settled that charging of such interest is mandatory and consequential. This ground is disposed of accordingly.
22. In the result, the appeal is partly allowed for statistical purposes.