The ACIT, Circle-6, Surat V. Shri Rughnathpura Saurashtra Nagril Dhiran Sahakari Mandli Ltd., Surat

ITA 1828/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5835 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 07-08-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: M K PATEL
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.1828/AHD/2006 A. Y.: 2003-04 THE A. C. I. T., CIRCLE-6,SURAT, ROOM NO.218, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS SHRI RAGHUNATHPURA SAURASHTRA NAGRIK SAHKARI MANDLI LTD. 6/2595, SWAMINARAYAN-NI-WADI, RAGHUNATHPURA, SURAT PA NO. AAAAR 1048 Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI K. M. MAHESH, DR RESPONDENT BY SHRI M. K. PATEL, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-IV, SURAT D ATED 09 TH MAY, 2006 FOR ASSESSMENT YEAR 2003-04 CHALLENGING THE ORDER OF TH E LEARNED CIT(A) IN DELETING THE ADDITION OF RS.31.14 LACKS MADE BY THE ASSESSING OFFICER. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND T HE MATERIALS AVAILABLE ON RECORD. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO HAS OBSERVED THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND STARTED A SC HEME OF SABHASAD SURAKSHA YOJANA (IN SHORT SSY). AS PER RULES OF TH E SAID SCHEME, ALL THE MEMBERS OF THE SOCIETY WOULD CONTRIBUTE RS.5 AS ENT RY FEE AND RS.500/- AS CONTRIBUTION TO SABHASAD SURAKSHA FUND (IN SHORT SSF). THIS WAS A KIND OF INSURANCE SCHEME AND IN CASE OF DEATH OF A MEMBER, A SUM OF RS.1 LAKH WAS PAID TO THE NEXT OF THE DECEASED. DUR ING THE YEAR THE ASSESSEE COLLECTED A SUM OF RS.36,81,000/- FROM ITS MEMBERS @ RS.40/- ITA NO.1828/AHD/2006 ACIT VS SHRI RAGHUNATHPURA SAURASHTRA NAGRIK DHIRAN SAHKARI MANDLI LTD. 2 PER MEMBER TOWARDS CONTRIBUTION TO BE PAID TO THE D EPENDENTS OF THE DECEASED MEMBERS BESIDES COLLECTING RS.9,33,000/- I N THE FORM OF REGULAR CONTRIBUTION. THE AO FURTHER OBSERVED HAT T HE PAYMENT OF RS.1 LAKH WAS MADE OUT OF THE FUNDS MAINTAINED UNDER THE SCHEME BUT OUT OF RS.40/- CONTRIBUTED BY EACH MEMBERS AT THE TIME OF DEATH OF A MEMBER OF THE SCHEME AND A SUM OF RS.500/- PAID BY THE NEW MEMBER WAS NEITHER REFUNDABLE NOR WAS USED FOR PAYING COMPENSA TION AT THE TIME OF DEATH OF A MEMBER AND THEREFORE, THERE WAS NO PRINC IPLE OF MUTUALITY IN THIS CASE. THE AO FURTHER OBSERVED THAT THE SOCIETY WAS ALSO DERIVING INTEREST INCOME FROM THE FUND OF SSY WHICH WAS CRED ITED TO THE FUND ITSELF AND NOT UTILIZED FOR THE SAID PURPOSE. THE A O, THEREFORE, CAME TO THE CONCLUSION THAT A SUM OF RS.9,33,000/- COLLECTE D BY THE SSY FUND WAS INCOME OF THE ASSESSEE AS ALSO THE SURPLUS AMOU NT OF RS.21,81,000/- WHICH WAS LEFT AFTER PAYMENT OF COM PENSATION TO THE DEPENDENT OF THE MEMBER OUT OF COLLECTION @RS.40/- FROM EACH MEMBER AND MADE ADDITION OF RS.31,14,000/- TO THE INCOME O F THE ASSESSEE ON THIS ACCOUNT. 4. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND IT WAS SUBMITTED THAT THE SOCIETY HAD STARTED THE SSY SCHE ME FOR THE BENEFIT OF ITS MEMBERS AND WAS A LIFE INSURANCE POLICY. THE CO NTRIBUTIONS TO THIS SCHEME INCLUDED RS.5/- AS ENTRY FEE, RS.10/- FOR ST ATIONERY, RS.15/- AS ADMINISTRATIVE CONTRIBUTION AND RS.500/- AS YOJANA FUND. OUT OF THIS CONTRIBUTION, STATIONERY AND ADMINISTRATIVE CONTRIB UTION WAS TREATED AS INCOME IN THE BOOKS OF SSY WHEREAS THE OTHER RECEIP TS OF RS.500/- AND RS.5/- WERE TRANSFERRED TO SSY FUND ACCOUNT AND RES ERVE FUND ACCOUNT RESPECTIVELY WHICH WOULD APPEAR IN THE BALANCE SHEE T AND WERE IN THE NATURE OF CAPITAL RECEIPTS. THE SOCIETY ALSO DECIDE D TO COLLECT RS.40/- AS CONTRIBUTION FROM EACH MEMBER AT THE TIME OF DEATH OF ANY MEMBER AND THIS COLLECTION WOULD CONTINUE TILL THE END OF 15 Y EARS AFTER WHICH THE SOCIETY WOULD HAVE SUFFICIENT FUNDS TO EARN INTERES T INCOME OUT OF WHICH ITA NO.1828/AHD/2006 ACIT VS SHRI RAGHUNATHPURA SAURASHTRA NAGRIK DHIRAN SAHKARI MANDLI LTD. 3 PAYMENT OF RS.1 LAKH WOULD BE MADE AT THE TIME OF D EATH OF A MEMBER. THE BASIC PURPOSE OF DEBITING THE ACCOUNT OF MEMBER S BY RS.40/- AT THE TIME OF DEATH OF A MEMBER WAS TO CREATE A CORPUS FU ND TO MAKE THE SSY SELF SUFFICIENT. IT WAS FURTHER SUBMITTED THAT THE YEAR UNDER CONSIDERATION WAS THE FIRST YEAR AND THEREFORE, THE CORPUS WAS NO T ENOUGH TO BE UTILIZED AT THE TIME OF DEATH OF A MEMBER. THE LEARNED COUNS EL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE SSY WAS MUTUAL ASSOCIATI ON WHERE THE MEMBERS AGREE TO CONTRIBUTE FUNDS FOR SOME MUTUALLY BENEFICIAL PURPOSE AND RECEIVED BACK THE SURPLUS IN THE SAME CAPACITY IN WHICH THEY MADE THE CONTRIBUTION. THE MEMBERS CONTRIBUTED NOT WITH AN IDEA TO TRADE BUT FOR RENDERING MUTUAL HELP AND THE RECEIPT WHICH WOU LD COME IN THEIR HANDS WOULD NOT BE PROFIT, BUT WAS OF A CAPITAL IN NATURE BEING DIRECTLY CREDITED TO FUND ACCOUNT AND SHOWN IN THE BALANCE S HEET AND IN SUPPORT OF HIS CLAIM VARIOUS JUDICIAL PRONOUNCEMENTS WERE R ELIED UPON. 5. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND MATERIAL ON RECORD DELETED THE ENTIRE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS AND HAVE ALSO GO NE THROUGH THE CONTENTS OF THE SCHEME AS ALSO THE BALA NCE SHEET OF THE SOCIETY. UNDER THE INCOME-AX ACT, WHAT IS TA XED IS THE INCOME, PROFIT OR GAIN EARNED OR ACCRUING TO A PERS ON. IN THE INSTANT CASE, THERE IS A PRINCIPLE OF MUTUALITY IN THE SENSE THAT IDENTITY OF CONTRIBUTORS TO THE FUND AND THE RECIPI ENTS FROM THE FUND IS SAME. THE SCHEME WAS MADE FOR THE MUTUAL BE NEFIT OF THE MEMBERS AND THERE IS NO BUSINESS TRANSACTION BE TWEEN THE CONTRIBUTOR AND THE SOCIETY. THE FUNDS ARE COLL ECTED BY THE SOCIETY FOR CREATION OF THE CORPUS THE INCOME FROM WHICH WOULD BE UTILISED FOR THE BENEFIT OF THE MEMBERS ONLY. I AM OF THE VIEW THAT CONTRIBUTION TO THE FUND IS LIKE CONTRIBU TION TO CAPITAL ACCOUNT OF A FIRM WHICH COULD NOT BE TREATED AS INC OME OF THE FIRM. SIMPLY BECAUSE THE AMOUNT CONTRIBUTED BY THE MEMBERS IS SURPLUS IN A PARTICULAR YEAR, THE SAID AMOUNT CA NNOT BE CONSIDERED AS INCOME OF THE APPELLANT. THERE IS A P RINCIPLE OF MUTUALITY SINCE THE FUNDS SO COLLECTED BY THE SOCIE TY CANNOT BE UTILISED FOR ANY OTHER PURPOSE THAN FOR THE BENEFIT OF ITS ITA NO.1828/AHD/2006 ACIT VS SHRI RAGHUNATHPURA SAURASHTRA NAGRIK DHIRAN SAHKARI MANDLI LTD. 4 MEMBERS ONLY. THERE IS NO ELEMENT OF INCOME AS DEFI NED BY SECTION 2(24) OF THE I. T. ACT IN HIS CASE AND THER EFORE THE ACTION OF THE AO IN TREATING THESE CONTRIBUTIONS AS INCOME OF THE APPELLANT SOCIETY IS NOT CORRECT. ADDITION ON T HIS ACCOUNT IS, THEREFORE, DIRECTED TO BE DELETED. 6. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT NO EVIDENCE WAS PRODUCED IN SUPPORT OF CLAIM OF PAY MENT TO THE DEPENDENTS OF THE DECEASED MEMBERS OUT OF THE FUNDS . THE LEARNED DR FURTHER SUBMITTED THAT THE AMOUNT RECEIVED FROM THE MEMBERS BY THE ASSESSEES CO-OPERATIVE SOCIETY WAS ITS INCOME WHIC H HAS BEEN WRONGLY CONSIDERED AS CAPITAL RECEIPT. THE LEARNED DR, THER EFORE, SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING TH E ADDITION. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND RECEIVED CORPUS FUNDS TOWA RDS THE SCHEME OF SSY FOR THE BENEFIT OF ITS MEMBERS. THEREFORE, CORP US FUNDS CANNOT BE TREATED AS INCOME OF THE ASSESSEE. HE HAS SUBMITTED THAT INCOME OF MUTUAL CONCERN IS NOT ASSESSABLE AS INCOME UNDER TH E INCOME TAX ACT. HE HAS SUBMITTED THAT LEARNED CIT(A) ON PROPER APPR ECIATION OF FACTS AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. THE ASSESSEE IS A CO-OPERATIVE SOCIETY A ND STARTED THE SCHEME OF SABHASAD SURAKSHA YOJANA (SSY) FOR ITS MEMBERS. AS PER RULE OF SSY, ALL THE MEMBERS OF THE ASSESSEE SOCIETY WOULD CONTR IBUTE THE AMOUNT AS CONTRIBUTION TO THE SSY SCHEME. THIS SCHEME WAS A K IND OF INSURANCE SCHEME AND IN THE EVENT OF DEATH OF MEMBERS OF THE SOCIETY, THE AMOUNT WOULD BE PAID TO THE FAMILY MEMBERS OF THE DECEASED . IT IS, THEREFORE, CLEAR THAT THE ASSESSEE SOCIETY ACCEPTED THE FUNDS FROM ITS MEMBERS TOWARDS THE SSY SCHEME FOR BETTER FUTURE OF ITS MEM BERS. IT IS, THEREFORE, A CORPUS FUND RECEIVED BY THE ASSESSEE SOCIETY FROM THE MEMBERS TOWARDS SSY SCHEME. THERE WAS NO ELEMENT OF INCOME EARNED BY THE ITA NO.1828/AHD/2006 ACIT VS SHRI RAGHUNATHPURA SAURASHTRA NAGRIK DHIRAN SAHKARI MANDLI LTD. 5 ASSESSEE ON RECEIPT OF THE CORPUS FUNDS FROM ITS ME MBERS. IT IS ALSO CLEAR THAT THE PURPOSE OF DEBITING THE AMOUNT OF THE MEMB ERS AT THE TIME OF DEATH OF MEMBERS WAS TO CREATE A CORPUS FUND TO MAK E THE SSY SELF SUFFICIENT. IT WAS STATED TO BE THE FIRST YEAR OF T HE ASSESSEE, THEREFORE, CONSIDERING THE FACT THAT CORPUS FUND WAS NOT SUFFI CIENT FURTHER AMOUNT WAS RECEIVED FROM THE MEMBERS. THE ASSESSEE HAS ALS O SHOWN THE SAME IN THE BALANCE SHEET AS CAPITAL RECEIPT TOWARDS THE FUND. THE CONTRIBUTION OF THE MEMBERS OF THE SOCIETY TOWARDS THE SCHEME OF THE ASSESSEE SOCIETY THUS COULD NOT BE TREATED AS ANY TRADE OR BUSINESS OF THE ASSESSEE SOCIETY. HONBLE SUPREME COURT IN THE CASE OF GODHR A ELECTRICITY COMPANY LTD. VS CIT 225 ITR 746 HELD THAT UNDER THE INCOME TAX ACT, INCOME CHARGEABLE TO TAX IS THE INCOME THAT IS RECEIVED OR IS DEEMED TO HAVE BEEN RECEIVED IN INDIA IN THE PREVIO US YEAR RELEVANT TO THE YEAR FOR WHICH ASSESSMENT IS MADE OR THE INC OME THAT ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE I N INDIA DURING SUCH YEAR. THE COMPUTATION OF SUCH INCOME IS TO BE MADE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IF INCOME DOES NOT RESULT AT ALL, THE RE CANNOT BE A TAX, EVEN THOUGH ANY BOOK KEEPING ENTRIES MADE ABOUT HYP OTHETICAL INCOME, WHICH DOES NOT MATERIALIZE. THE HONBLE SUPREME COURT IN THE CASE OF CHELMSFORD CLUB VS CIT 243 ITR 89 HELD HAT INCOME OF MUTUAL CONCERN IS NOT ASSESSABLE. IT WAS FURTHER HELD THAT REVERSING THE DECISION OF THE HIGH COURT, THAT THE ASSESSEES BUSINESS WAS GOVERNED BY THE DOCTRINE OF MUTUALITY. IT WAS AN ADMITTED FACT THAT THE BUSINESS OF THE ASSESSEE DID NOT COME WITHIN THE SCOPE OF BUSINESS REFERRED TO SECTION 2(24)(VII ). IT WAS NOT ONLY THE SURPLUS FROM THE ACTIVITIES OF THE BUSINESS OF THE CLUB THAT WAS EXCLUDED FROM THE LEVY OF INCOME-AX, EVEN THE ANNUA L VALUE OF THE CLUB HOUSE, AS CONTEMPLATED IN SECTION 22 OF THE AC T, WOULD BE OUTSIDE THE PURVIEW OF THE LEVY OF INCOME-TAX. ITA NO.1828/AHD/2006 ACIT VS SHRI RAGHUNATHPURA SAURASHTRA NAGRIK DHIRAN SAHKARI MANDLI LTD. 6 8. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE DECISIONS IT IS CLEAR THAT UNDER THE INCOME TAX ACT THE INCOM E COULD BE TAXED, PROFIT OR GAINS EARNED OR ACCRUING TO A PERSON. IN THE APPEAL UNDER CONSIDERATION, THERE IS A PRINCIPLE OF MUTUALITY IN THE SENSE THAT IDENTITY OF THE CONTRIBUTORS I.E. BY THE MEMBERS OF THE SOCI ETY TO THE FUNDS AND THE RECIPIENT I.E. MEMBERS OF THE ASSESSEE SOCIETY ARE THE SAME. THE SCHEME WAS MADE FOR THE MUTUAL BENEFITS OF THE MEMB ERS OF THE ASSESSEE SOCIETY AND THERE WAS NO BUSINESS TRANSACTION BETWE EN THE MEMBERS OF THE SOCIETY AND THE SOCIETY. THE FUNDS ARE COLLECTE D BY THE SOCIETY FOR CREATION OF THE CORPUS, THE INCOME FROM WHICH WOULD BE UTILIZED FOR THE BENEFIT OF THE MEMBERS OF THE ASSESSEE SOCIETY ONLY . THE CONTRIBUTION TO THE CAPITAL ACCOUNT OF THE SOCIETY CANNOT BE TREATE D AS ITS INCOME. SIMILARLY, BECAUSE THE AMOUNT CONTRIBUTED BY THE ME MBERS IS SURPLUS IN A PARTICULAR YEAR, THE SAID AMOUNT CANNOT BE CONSID ERED AS INCOME OF THE ASSESSEE. THERE IS A PRINCIPLE OF MUTUALITY SINCE T HE FUNDS SO COLLECTED BY THE ASSESSEE SOCIETY CANNOT BE UTILIZED FOR ANY OTH ER PURPOSE THAN FOR THE BENEFITS OF ITS MEMBERS ONLY, THERE IS NO ELEMENT O F INCOME AS DEFINED UNDER THE INCOME TAX ACT. WE, THEREFORE, DO NOT FIN D ANY MERIT IN THE DEPARTMENTAL APPEAL. WE CONFIRM THE FINDINGS OF THE LEARNED CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 10. AS A RESULT, THE DEPARTMENTAL APPEAL IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-06-2010 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 30-06-2010 LAKSHMIKANT/- ITA NO.1828/AHD/2006 ACIT VS SHRI RAGHUNATHPURA SAURASHTRA NAGRIK DHIRAN SAHKARI MANDLI LTD. 7 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD