The ACIT,Vapi Circle, Vapi V. Vapi Waste & Effulent Management Company Ltd., Vapi

ITA 1776/AHD/2010

• Counselvise Citation: 177620514 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 30-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 26-05-2010
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Charitable institution; Bad and doubtful debts
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH BEFORE: SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER A ND SHRI T. R. MEENA, ACCOUNTANT MEMBER SL. NO. ITA NO. A.Y. APPELLANT VS RESPONDENT 1. 1310/AHD/2010 2006- 07 VAPI WASTE & EFFLUENT MANAGEMENT CO. LTD. VIA HOUSE, PLOT NO.135, GIDC, VAPI-396 195 PAN NO.AAACV8289P THE ADDL. C.I.T. VALSAD RANGE, VALSAD 2. 1776/AHD/2010 2006- 07 ASSISTANT COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI VS VAPI WASTE EFFLUENT MANAGEMENT COMPANY LTD. GIDC, VAPI 3. 3308/AHD/2010 2002- 03 ASSISTANT COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI VS VAPI WASTE & EFFLUENT MANAGEMENT COMPANY LTD. PLOT NO.135, VIA HOUSE CHAR RASTA, GIDC, VAPI 4. 3443/AHD/2010 2002- 03 VAPI WASTE & EFFLUENT MANAGEMENT CO. LTD., VIA HOUSE, PLOT NO.135, GIDC, VAPI-396195 PAN NO.AAACV8289P VS THE ASST. COMMISSIONER OF INCOME TAX, VALSAD CIRCLE, VALSAD 5. 2778/AHD/2011 2008- 09 ASSTT. COMMISSIONER M/S VAPI WASTE & ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 2778 & 2835 OF 2011 2 OF INCOME TAX, VAPI CIRCLE, VAPI VS EFFLUENT MANAGEMENT CO. LTD. 135, VIA HOUSE, GIDC, CHAR RASTA, VAPI 6. 2835/AHD/2011 2008- 09 VAPI WASTE & EFFLUENT MANAGEMENT CO. LTD., VIA HOUSE, PLOT NO.135, GIDC, VAPI-396195 PAN NO.AAACV8289P VS ASSTT. COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI 7. 3444/AHD/2010 2007- 08 VAPI WASTE & EFFLUENT MANAGEMENT CO. LTD., VIA HOUSE, PLOT NO.135, GIDC, VAPI-396195 PAN NO.AAACV8289P VS THE ASST. COMMISSIONER OF INCOME TAX, VALSAD CIRCLE, VALSAD 8. 3309/AHD/2010 2007- 08 ASSTT. COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI VS M/S VAPI WASTE & EFFLUENT MANAGEMENT COMPANY LTD. PLOT NO.135, VIA HOUSE CHAR RASTA, GIDC, VAPI SL.NO. ASSESSEE BY REVENUE BY 1 TO 8 SHREE M.G. PATEL WITH M/S ARTI N. SHAH SHREE S.K. GUPTA, C.I.T., DR DATE OF HEARING: 30.03.2012 DATE OF PRONOUNCEMENT: 20.04.2 012 / ORDER PER BENCH : T.R. MEENA, ACCOUNTANT MEMBER ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 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 A S 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 CONFIR MING ASSESSMENT MADE BY THE LD. ASSESSING OFFICER HOLDING THAT THE A PPELLANT COMPANYS 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 CONFIRM ING ACTION OF THE ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 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 ER RED IN LAW AND ON FACTS OF THE CASE BY NOT DECIDING THE GROUND OF AP PEAL IN RESPECT OF ACTION OF THE LD. ASSESSING OFFICER OF NOT GRANTIN G SET OFF CARRIED FORWARD LOSSES OF THE EARLIER YEARS AND THEREBY CONFI RMING THE SAME. (IV) WITHOUT PREJUDICE TO ABOVE GROUNDS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS), VALSAD HAS ER RED IN LAW AND ON FACTS BY CONFIRMING THE ACTION OF THE LD. ASSESSI NG 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 ER RED IN LAWS AND ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWAN CE MADE BY THE LD. ASSESSING OFFICER BY NOT ALLOWING DEDUCTION IN R ESPECT OF DONATION OF RS.89,735/- AS BEING NON-BUSINESS EXPEND ITURE. 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 C ONCEPT OF MUTUALITY IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT. ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 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 CON FIRMING THE CONTENTION OF THE LD. A.O.THAT THE INCOME OF RS.6,08,7 2,639/- IS BUSINESS INCOME OF THE APPELLANT AND IS NOT EXEMPT ON TH E 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 FUL LY THE DISALLOWANCE OF RS.5,47,410/- OUT OF OPERATING EXPEN SES MADE BY THE LD. A.O. AS BEING NON-BUSINESS EXPENDITURE. (V) WITHOUT PREJUDICE, THE LD. COMMISSIONER OF INCO ME 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 YEAR S. 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 CONFIRM ING ASSESSMENT MADE BY THE LD. ASSESSING OFFICER HOLDING THAT THE AP PELLANT ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 2778 & 2835 OF 2011 6 COMPANYS 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 CON FIRMING THE ACTION OF THE LD. A.O. IN HOLDING THAT THE AMOUNT OF R S.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 ER RED IN LAW AND ON FACTS OF THE CASE BY NOT DECIDING THE GROUND OF AP PEAL IN RESPECT OF ACTION OF THE LD. ASSESSING OFFICER OF NOT GRANTING SET OFF FOR CARRIED FORWARD LOSSES OF THE EARLIER YEARS AND THER EBY CONFIRMING THE SAME. (IV) WITHOUT PREJUDICE TO ABOVE GROUNDS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS), VALSAD HAS ER RED IN LAW AND ON THE FACTS BY CONFIRMING THE ACTION OF THE LD. ASSES SING OFFICER OF NOT GRANTING DEDUCTION U/S 801A @ 100% OF THE TOTAL INC OME. (V) WITHOUT PREJUDICE TO ABOVE GROUNDS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS), VALSAD HAS ER RED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE M ADE BY THE LD. ASSESSING OFFICER BY NOT ALLOWING DEDUCTION IN RESPEC T 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 AN D 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 CONFIRM ING ASSESSMENT MADE BY THE LD. ASSESSING OFFICER HOLDING THAT THE AP PELLANT COMPANYS 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 CONFIRM ING ACTION OF THE LD. ASSESSING OFFICER IN HOLDING THAT THE AMOUNT OF R S.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 ER RED IN LAW AND ON FACTS BY CONFIRMING THE ACTION OF THE LD. ASSESSI NG 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 2 011 GROUNDS OF APPEAL (I) THE LD. CIT(A) HAS ERRED IN ALLOWING DEPRECIAT ION OF RS.2,84,48,791/- IN ASSESSMENT YEAR 2002-03, RS.3,0 2,97,496/- IN ASSESSMENT YEAR 2006-07, RS.3,08,90,405/- IN ASSESSM ENT 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 AN D 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 I S 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 I S INCORPORATED BECAUSE BEFORE THE HONBLE GUJARAT HIGH COURT, VAPI INDUSTRIES ASSOCIATION (VIA) SHOWED COMMITMENT TO TAKE EFFECTIVE ST EPS FOR CONTAINING POLLUTION BEING GENERATED BY ITS MEMBERS. THEREFORE, VIA TOOK OVER PLANT OF GIDC FOR TREATMENT OF EFFLUEN T. 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 HAZA RDOUS WASTE DISPOSAL UNDER COMMON SOLID WASTE PROJECT (CSWP). 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT I S PLEADED THAT THE ARTICLES OF ASSOCIATION OF THE COMP ANY DO NOT PERMIT DISTRIBUTION OF DIVIDEND SIGNIFYING THEREBY THA T THE COMPANY WAS INCORPORATED AS A NON-PROFIT ORIENTED MUTUAL ASSO CIATION. THE CAPITAL COST OF THE PLANT WAS CONTRIBUTED BY VIA MEM BERS ON THE BASIS OF AVERAGE CONSUMPTION OR SELF ASSESSED CAPAC ITY 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 AN D 2778 & 2835 OF 2011 9 (I) THE ASSESSEE WAS ASKED TO GIVE SUPPORTING DOCUM ENTS WHERE HIGH COURT SUGGESTED OR DIRECTED TO MAKE A COM PANY WHICH IS GOING TO BE NON PROFIT FOR MUTUAL ONE. THE SAME IS NOT FURNISHED. (II) REGARDING DISTRIBUTION OF SURPLUS (EVEN BEFOR E WINDING UP), SHRI SABHARAJJAK (AUTHORISED REPRESENTATIVE) S TATED THAT THERE IS NO BAR ON THE SAME BUT IT WOULD NOT BE CALLED DIVI DENDS AS THERE IS NO SHARE CAPITAL. (III) THERE ARE ASSOCIATIONS OUT SIDE VAPI LIKE UMB ERGAON 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 AC CEPT THEIR WASTE TILL THEY BECOME MEMBER AND CLEAR GUJARAT POLL UTION CONTROL BOARD (GPCB). THE ARE CHARGED AT NORMAL RATE. (V) RATE OF CHARGE FOR SOLID WASTE LIKE CAPITAL COS T, 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 O NE TIME FEE IS CHARGED WHICH IS NON-TRANSFERABLE NON REFUN DABLE. 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 AN D 2778 & 2835 OF 2011 10 ACTIVITY IN ROUTINE COURSE. EVEN THOUGH THERE IS NO S HARE CAPITAL, THE COMPANY IS RAISING FUNDS BY WAY OF SUBSCRIPTION FEE S 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 ASSESSEES CLAIM THAT IT IS DOING A NON PROFIT MAKING MUTUAL ACTIVITY, IS INCORRECT AS IS EVIDENT FROM TH E ACCOUNTS SHOWING HUGE SURPLUS DURING THE YEARS UNDER CONSIDERATION AS ITS BOOK RESULTS. IT IS ALSO HAVING HUGE SURPLUS IN THE PREC EDING 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 SAM E. 11. THE APPELLANT CLAIMED THAT ASSESSEE COMPANY HAS BEEN RUNNING ON THE PRINCIPLE OF MUTUALITY. VAPI INDUSTRI AL ASSOCIATION CAME TOGETHER TO CARRY ON ACTIVITY FOR TREATMENT OF AFFL UENT DISCHARGE BY THE INDUSTRIES LOCATED IN VAPI INDUSTRI AL ESTATE. THE MOTIVE OF THE COMPANY WAS NOT TO EARN PROFIT AND THEY WERE ATTRIBUTED AS PER DISCHARGE OF EFFLUENT LIKE A HOUSI NG SOCIETY OR CLUB. ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 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 MEMORAN DUM OF ASSOCIATION WHICH HAVE BEEN INCORPORATED IN M.O.A. IN ROUTINE MANNER BUT NO PROFIT WAS EARNED BY THE COMPANY. TH E INTEREST INCOME RECEIVED BY THE COMPANY FROM THE BANK HAVE BE EN 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 IMPORTA NCE. WHAT IS IMPORTANT IS THE ACTUAL ACTIVITY AND ACTUAL RECEIPTS. U NDER ANY CIRCUMSTANCES, ANY PERSON WHETHER INDIVIDUAL, PARTNER SHIP FIRM, COMPANY ETC. RECEIPTS MAY BE TAXABLE OR NOT TAXABLE. I N CASE OF ANY NORMAL COMPANY CARRYING ON BUSINESS ACTIVITY WO ULD 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 AU THORITY. THE ASSESSEE COMPANY HAS CHOSEN AS A SPECIAL PURPOSE VE HICLE FOR IMPLEMENTATION OF INFRASTRUCTURE PROJECT UNDER THE INFR ASTRUCTURE UPGRADATION SCHEME 2003 BY THE MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA UNDER CLUSTER PROJECT SC HEME. ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 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 10 0% ACCURATE AS SOMETIMES EXPENSES ALSO FLUCTUATES. THEREFORE, DU RING THE YEAR THERE WAS A SURPLUS OF RS.4.8 CRORE. THE ASSESSEE C OMPANY HAS PROVISIONS FOR DISTRIBUTION OF SURPLUS AT THE TIME OF W INDING 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 E XTENT 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 TAXABILIT Y 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 BIL L RAISED IN CASE OF ANY SHORTAGE OF FUND AFTER DECIDED BY THE GR IEVANCE COMMITTEE OF THE COMPANY. 12. THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION O F ASSETS AS PER THE COMPANY LAW. THE A.O. HAS WRONGLY REDUCED CAPITAL COST CONTRIBUTION FROM THE COST WHICH WAS RECE IVED FROM THE MEMBERS AS CONTRIBUTION FOR SOME ADDITIONAL FACILITY . EVEN ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 2778 & 2835 OF 2011 13 GUARANTEE GIVEN BY THE GOVERNMENT ON THE BASIS OF INV ESTMENT MADE AND NOT TO ACQUIRE ANY SPECIFIC ASSETS, IS NOT R EQUIRED TO REDUCE FOR THE CALCULATION OF THE DEPRECIATION. IN N ORMAL COMPANY ALSO SHARE CAPITAL IS USED IN PURCHASING OF ASSETS A ND NEVER REDUCED FROM THE COST OF ASSETS. IN THIS CASE THE HONBLE G UJARAT HIGH COURT HAS SUGGESTED TO FORM A COMPANY FOR TREATMENT OF EFFLU ENT. 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-TAX ABLE. THE RECEIPTS ARE ONLY TAXABLE WHEN THE ASSESSEE DOES NO T 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 A LL AGAINST SURPLUS OF SHARE AS PER ACCOUNTS AND AS PER I.T. LAW S. AS SUCH THERE WAS NO CALCULATION AS PER I.T. LAW ABOUT DEFICIT IF TH E 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, C ONSIDERING LAST TEN YEARS FOR DEDUCTION, THIS IS ONLY 4 TH YEAR AND THEREFORE, THE INCOME WOULD NOT BE LIABLE TO BE TAXED. 13. THE A.O. AFTER CONSIDERING THE ASSESSEES REPL Y CONCLUDED AS UNDER:- ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 2778 & 2835 OF 2011 14 (I) AS POINTED OUT EARLIER, THERE IS NO MENTION IN THE HONBLE HIGH COURTS ORDER THAT IT IS GOING TO BE NON-PROFIT M AKING/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 ON LY AND ONLY FOR LIMITED PURPOSE. IT IS ADMITTED FACT THAT THE ASSESSEE I S DEALING WITH SUCH ENTITIES WHO ARE NOT MEMBERS AND EARNING FROM TH E NON- MEMBERS. (IV) THERE IS NO BASIS FOR CHARGING THE MEMBERS AS WELL AS NON-MEMBERS. (V) FOR APPLYING THE PRINCIPLE OF MUTUALITY, THE ME MBERSHIP IS A MANDATORY CRITERIA AND THE ASSESSEES CASE FAILS ON THIS POINT BECAUSE MEMBERS LIKE UMBERGAON INDUSTRIES ASSOCIATI ON, SSI ASSOCIATION, VALSAD DO IN TURN COLLECT WASTE FROM THE IR 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 AN D 2778 & 2835 OF 2011 15 (VI) ON THE OTHER HAND, BECOMING A MEMBER OF THIS ORGANIZATION IS ALSO KIND OF COMPULSION VIZ. THE MEM BER HAS TO PROVE HOW IT WOULD DISPOSE OF EFFLUENT. THEREFORE, T O GET CLEARANCE FROM GOVERNMENT AUTHORITIES LIKE GUJARAT STATE POLLUTI ON 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 BIL LS BY THE INDUSTRIES WHO DISPUTED THAT THEY ARE NON POLLUTING ( THEREFORE, NO REQUIRED TO BE THE MEMBERS). FROM THIS, IT IS APPARE NT THAT THE ASSESSEE IS DEALING WITH SUCH PARTIES WHO ARE NON-ME MBERS AND THE TRANSACTIONS WITH SUCH PARTIES VITIATE PRINCIPLE OF MUTU ALITY. 14. FURTHER HE ANALYZED THE VARIOUS ASPECTS ON PAGE 13, 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 TH E TIME OF WINDING UP AS PER PART-VI OF THE M.O.A. DOES NOT FAL L UNDER THE DEFINITION OF DIVIDEND IN THE ABSENCE OF SHARE CONTRI BUTION IS NOT CONVINCING. THE ASSESSEE HAS SHOWN CONTRIBUTION FRO M 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 AN D 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 I NCOME TAX ACT HAS NO BEARING AS ASSESSEES RECEIPTS ARE HAVING NATURE OF BUSINESS. THE INDUSTRY OR TRADE ASSOCIATION CLAIM BO TH TO BE CHARITABLE INSTITUTION AS WELL AS MUTUAL ORGANIZATION A ND THEIR ACTIVITIES ARE RESTRICTED TO CONTRIBUTION FROM AND PAR TICIPATION OF ONLY THEIR MEMBERS, THIS WOULD NOT FALL UNDER THE PURVIEW O F THE PROVISIONS 2(15) OWING TO THE PRINCIPLE OF MUTUALITY . HE FURTHER CONCLUDED THAT THE ASSESSEE COMPANY IS NEITHER A CHAR ITABLE INSTITUTION NOR A MUTUAL ORGANIZATION. ALTERNATIVEL Y, THE ORGANIZATION CANNOT BE CALLED TO BE HAVING OBJECT OF GENERAL PUBLI C UTILITY ALSO, IN VIEW OF THE FACT THAT THE ACTIVITIES BEING RENDERED AR E INVOLVING TRADE OR BUSINESS ONLY. THE CARRY FORWARD OF LOSS IS AGA INST 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 ASSESS ED BUSINESS INCOME OF RS.6,08,72,639/- AND INCOME FROM OTHER SOU RCE RS.2,02,39,762/- IN ASSESSMENT YEAR 2006-07. IN OTH ER YEARS ALSO THE INCOME HAS BEEN ASSESSED AS BUSINESS INCOME. ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 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 O RDER ON VARIOUS DATES AFTER DETAILED DISCUSSION OF CLAUSE OF MEMORAND UM OF ASSOCIATION AND ARTICLE OF ASSOCIATION AND VARIOUS CA SE LAWS CITED BY THE ASSESSEE AND HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMS TANCES OF THE CASE. ALSO CONSIDERED THE FINDING OF THE A.O. AND SUBMISSION OF THE LD A.R. IT IS ADMITTED FACTS THAT THE HONBLE HIG H COURT ORDERED THE INDUSTRIES TO COMPLY THE GPCB NORMS FOR R UNNING THE FACTORIES IN THIS REGION. THE VIA TOOK LEAD IN THIS REGARDS BY TAKING OVER CETB FROM GDIC, TO OPERATE THE PLANT FOR THE EFF LUENT TREATMENT. ALL THE INDUSTRIES NOT HAVING SECONDARY EF FLUENT TREATMENT FACILITY BECAME THE MEMBERS OF THE COMPANIES , DIRECTLY OR THROUGH THEIR RESPECTIVE INDUSTRIES ASSOCIATION. IN TH E PROCESS THE APPELLANT SERVES OTHER INDUSTRIES ASSOCIATION LIKE V API INDUSTRIAL ASSOCIATION (VIA), PARDI INDUSTRIAL ASSOCIATION (PIA) , UMERGAON INDUSTRIAL ASSOCIATION (UIA), VALSAD INDUSTRIAL ASSOC IATION (VIA) APART FROM THE MEMBERS DIRECTLY JOINED. IT IS ADMITTE D FACTS THAT THE MEMBERS DO NOT ACQUIRE ANY INHERENT RIGHT, TITLE OR INTEREST IN THE PROPERTY AND THE COMPANY ITSELF IS AN ABSOLUTE OWN ER OF THE PROPERTY. THIS VERY SUBMISSION OF THE AUTHORIZED REPR ESENTATIVE OF THE APPELLANT PROVES THAT THE COMPLETE IDENTITY BETWEEN THE ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 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 UNDERTOO K CERTAIN PROJECTS WHICH HAS NO RELEVANCE OR NO DIRECT NEXUS WI TH 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 MA DE 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/SURP LUS OF THE APPELLANT IS NOT EXEMPTED FROM TAX. I AM ALSO CONSC IOUS 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. S ECTION 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 INSURAN CE COMPANY OR BY A COOPERATIVE SOCIETY. IT IS IN THE NATURE OF AN EXCEPTION TO THE GENERAL RULE OF MUTUALITY. NEXT, UNDER CLAUSE (V) O F SECTION 2(24) ANY SUM CHARGEABLE U/S 28(III) IS DEEMED TO BE INCOM E. THUS, INCOME DERIVED FROM A TRADE, PROFESSIONAL OR SIMILA R ASSOCIATION FROM SPECIFIC SERVICES PERFORMED FOR ITS MEMBERS IS CHARGEABLE ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 2778 & 2835 OF 2011 19 UNDER THE HEAD PROFITS OR GAINS. THE IDEA CLEARL Y IS TO TAX THE SURPLUS ARISING FROM SERVICES RENDERED BY SUCH ASSO CIATIONS TO ITS MEMBERS WHICH WOULD OTHERWISE HAVE BEEN OUTSIDE THE TA X NET. THUS I AM OF THE OPINION THAT THE INCOME OF THE APPEL LANT IS TAXED U/S 28(III). SECTION 28 CLAUSE III APPLIES TO INCOM E DERIVED BY A TRADE, PROFESSIONAL OR SIMILAR ASSOCIATION FROM SPEC IFIC SERVICES PERFORMED FOR ITS MEMBERS. A TRADE ASSOCIATION I S AN ASSOCIATION OF TRADESMAN, BUSINESSMEN OR MANUFACTURERS FOR THE P ROTECTION AND ADVANCEMENT OF THEIR COMMON INTEREST. [WEBSTERS NEW INTERNATIONAL DICTIONARY, 2 ND 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 IT R 632 (MYS); INDIAN TEA PLANTERS ASSOCIATION V CIT, (1971) 82 IT R 322(CAL] EVERY TRADE, PROFESSIONAL OR SIMILAR ASSOCIATION WHI CH RENDERS SPECIFIC SERVICES TO ITS OWN MEMBERS FOR REMUNERATIO N RELATED TO THOSE SERVICE WOULD COME WITHIN THE PURVIEW OF SECTION 28(III) [INDIAN TEA PLANTERS ASSOCIATION VS. CIT, (1971) 82 ITR 322 (CAL)]. IN ORDER TO BRING AN INCOME WITHIN THIS CLAUSE, TWO E SSENTIAL FACTS HAVE TO BE ESTABLISHED, NAMELY, THAT THE ASSOCIATION R ENDERED SPECIFIC SERVICES TO ITS MEMBERS, AND THAT A REMUNER ATION WAS PAID BY THE MEMBERS FOR THESE SERVICES; AND THERE MUST ALS O BE CONNECTION BETWEEN THE REMUNERATION AND THE SERVICE RENDERED ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 2778 & 2835 OF 2011 20 [CHAGLA, C.J., ISMAILIA GRAIN MERCHANTS ASSOCIATION LTD. V. CIT, (1957) 31 ITR 433, 437 (BOM); SOUTH INDIAN PLANTING A ND COMMERCIAL REPRESENTATION FUND V. CIT, (1957) 32 ITR 513, 518 (MAD)]. THE STATUTE DOES NOT REQUIRE THAT BEFORE INCO ME 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)] THI S 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 F ALLING WITHIN SECTION 28(III) IS NOT NECESSARILY EXEMPT [CIT V. SHR EE JARI MECHANTS ASSOCIATION (1977) 106 ITR 542 (GUJ)]. THE IDEA BEHI ND SECTION 28(III) CLEARLY IS TO TAX THE SURPLUS ARISING FROM S ERVICES 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 ME ANS DEFINITE, DISTINCTLY FORMULATED OR STATED WITH PRECISION. THE WO RD PERFORMING SPECIFIC SERVICES IN THIS CLAUSE MEANS CONFERRING PARTICULAR BENEFITS:, I.E., CONFERRING ON THE MEMBERS SOME TANG IBLE 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 AN D 2778 & 2835 OF 2011 21 CIRCUMSTANCE, I AM CONSTRAINED TO UPHOLD THE ACTION TA KEN BY THE ASSESSING OFFICER. THIS GROUND OF APPEAL IS DISMIS SED: 16. THE LD. CIT(A), AFTER ANALYZING THE WHOLE CONCEP T OF BUSINESS AND GAIN HAS ALLOWED THE DEPRECIATION BUT D EDUCTION U/S 80 1-A HAS NOT BEEN ALLOWED DUE TO ASSESSEE HAS SHOWN I NCOME IN RETURN NIL AND NOT CLAIMED DEDUCTION IN RETURN OF INCOM E. HE ALSO RELIED UPON GOETZE (INDIA) LTD. VS. CIT (2006) 284 ITR 323 (SUPREME COURT) AND DISALLOWANCE OUT OF OPERATING EXI STENCE HAS MADE 50% I.E. PARTLY. 17. BEING AGGRIEVED FORM THE ORDER OF CIT(A) THE ASS ESSEE IS BEFORE US. THE A.R. OF THE ASSESSEE COMPANY CONTEN DED THAT THE COMPANY FALL U/S 25 OF THE COMPANIES ACT. IT IS COM PANY BY GUARANTEE OF SHARE. THE MAIN OBJECT OF THE COMPANY W AS NOT TO EARN ANY PROFIT. IT IS FOR TREATMENT OF EFFLUENT IN TH E VAPI INDUSTRIAL AREA ON THE SUGGESTION OF HONBLE GUJARAT HIGH COURT AND CONTRIBUTION IS MADE BY THE MEMBERS ONLY. THE SURPLU S OF THE COMPANY HAS NEVER DISTRIBUTED AMONG THE MEMBERS. IT IS SET UP ON THE PRINCIPLE OF MUTUALITY TO TRADE THE WASTAGE OF CHEM ICAL/WATER FROM THE VARIOUS INDUSTRIAL UNITS. THE CHARGES AND CONTRIBUTION BOTH THE FIXED ON THE BASIS OF DEPOSITION OF SOLID WASTE A ND IT IS NON-PROFIT COMPANY. THE A.R. SUBMITTED THE COPY OF RETURN FOR A.Y. 2007-08, COPY OF DECISION OF HONBLE GUJARAT HIGH COURT, COPY OF ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 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 TRE ATMENT PLANT (THANE-BELAPUR) ASSOCIATION REPORTED IN [2010] 328 I TR 362 (BOM) WHERE HONBLE BOMBAY HIGH COURT HAS ACCEPTED THE PRI NCIPLE OF MUTUALITY AND SURPLUS INCOME OVER EXPENDITURE ON PR INCIPLE OF MUTUALITY IS NOT CHARGEABLE TO TAX. INTEREST INCOME RECEIVED ON FIXED DEPOSIT WITH THE BANK IS NOT INCOME RECEIVED FRO M MEMBERS OF ASSESSEE BUT FROM 3 RD PARTY. INVESTING EXCESS FUND WITH BANK IN FIXED DEPOSIT A PRUDENT COMMERCIAL DECISION AND PRIN CIPLE OF MUTUALITY DOES NOT APPLY. HE FURTHER RELIED ON THE D ECISION OF SPORTS CLUB OF GUJARAT LTD. VS. C.I.T. REPORTED IN 1 987 VOL.171 ITR 504 (GUJ.) WHERE HONBLE GUJARAT HIGH COURT HAS HELD THAT THE SPORTS CLUB IS MUTUAL CONCERN AND PROFIT AND GAIN IS N OT ASSESSABLE AS BUSINESS INCOME. INTEREST ON INVESTMENT IS ASSESSA BLE. THE ASSESSEE IS NOT ENTITLED TO BENEFIT OF SECTION 44 A OF THE I.T. ACT. THE HONBLE GUJARAT HIGH COURT IN THIS CASE HAS HELD THAT ONE OF THE ESSENTIAL OF MUTUALITY IS THAT THE CONTRIBUTORS TO THE C OMMON FUND ARE ENTITLED TO PARTICIPATE IN THE SURPLUS, THERE BY CRE ATING AN ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 2778 & 2835 OF 2011 23 IDENTITY BETWEEN THE PARTICIPANTS AND THE CONTRIBUT ORS, 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 PRESE NCE OF TRANSACTIONS WHICH ARE NOT MUTUAL IN CHARACTER. THE PR INCIPLE OF MUTUALITY CAN, IN SUCH CASE, BE CONFINED TO TRANSACT IONS WITH MEMBERS. THE TWO ACTIVITIES CAN, IN APPROPRIATE CASE S BE SEPARATED AND THE PROFIT DERIVED FROM NON-MEMBERS CAN BE BROU GHT 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 DEPOS IT WITH BANK. THE LD. CIT DR VEHEMENTLY RELIED UPON THE ORDER OF TH E LD. A.O. AND CIT (A) AND HAS DRAWN THE ATTENTION ON THE CLAUSE OF ME MORANDUM OF ARTICLES AND ASSOCIATION OF ARTICLE BY WHICH HE EM PHASIZED THAT NO CONCEPT OF MUTUALITY HAS BEEN FOLLOWED BY THE ASSES SEE. THE MAIN OBJECTS AND ANCILLARY OBJECTS ARE FOR RUNNING THE BU SINESS TO EARN THE PROFIT. HE FURTHER ARGUED THAT OUTSIDERS ALSO ARE MEMBER NAMELY, UMARGAON INDUSTRY ASSOCIATION, S.S.I. ASSOCI ATION, VALSAD AND MEMBERS OF SOLID WASTE. THERE ARE FEW NON-MEMBE RS WHO ARE MEMBERS OF CETP BUT NOT OF SOLID WASTE. THE A.R. ACCE PTED THAT TILL THEY BECOME MEMBER AND CLEARED BY GUJARAT POLLUTION CONTROL BOARD, THEY ARE CHARGED AT NORMAL RATE. THEREFORE, H E ARGUED THAT ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 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 AN D HEARD THE ARGUMENT FROM BOTH SIDES. THE BASIC OBJECT OF THE COM PANY IS TO GIVE TREATMENT OF EFFLUENT IN THE FORM OF LIQUID AND SO LID TO PREVENT THE POLLUTION IN VAPI INDUSTRIAL AREA ON THE SUGGESTIO N OF THE HONBLE GUJARAT HIGH COURT. THE COMPANY IS LIMITED BY GUARA NTEE. THERE IS NO SHARE CAPITAL OF THE MEMBERS. ONLY SUBSCRIPTION I S MADE ON THE BASIS OF WASTAGE DELIVERED BY THEIR PLANTS. NO DIVIDE ND HAS BEEN DISTRIBUTED BY THE COMPANY SO FAR. THE OBJECT MENTIONED IN THE MAIN AND ANCILLARY OBJECT ARE AS PER THE LINE OF TH E 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 INDUSTR IAL ASSOCIATION. ON THE BASIS OF DECISION OF HONBLE GU JARAT HIGH COURT IN THE CASE OF SPORTS CLUB OF GUJARAT (SUPRA) THE ASS ESSEE ALSO HAS DECLARED THE INTEREST INCOME IN RETURN AS TAXABLE ON FI XED DEPOSIT WITH BANK HOWEVER, IT WAS ADMITTED THAT NO OUTSIDER H AD PROVIDED THE SERVICES OF THE COMPANY BUT THE AO IS DIRECTED TO VE RIFY 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 AN D 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 PRIN CIPLE OF MUTUALITY HAS BEEN ACCEPTED BY THIS COURT. THE OTHE R GROUNDS OF APPEAL OF THE ASSESSEE LIKE DEDUCTION U/S 80 IA, DI SALLOWANCE UNDER HEAD OPERATING EXPENSES AND CARRY FORWARD LOSS OF E ARLIER 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 DISP OSED OF FOR STATISTICAL PURPOSE. 20/ 0 4 /2012 THIS ORDER PRONOUNCED IN OPEN COURT ON /04/ 2012 . SD/- SD/- (MUKUL SHRAWAT) (T.R. M EENA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) - /04/2012 NKC ! '# ! '# ! '# ! '# $' ! $' ! $' ! $' ! / COPY OF ORDER FORWARDED TO:- 1. #% &' / APPELLANT 2. (&' / RESPONDENT 3. )! * + / CONCERNED CIT 4. * + - #% / CIT (A) 5. ',- % ! ) , * #%% )* , / DR, ITAT, AHMEDABAD 6. ./ 0 / GUARD FILE. BY ORDER/ , 1# / #2% * * #%% )* , ITA NO.1310,1776,3308, 3443, 3444 & 3309 OF 2010 AN D 2778 & 2835 OF 2011 26