MEDIA RESEARCH USERS COUNCIL, MUMBAI V. ADIT (E) 1(1), MUMBAI

ITA 6459/MUM/2012

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 5845 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 22-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Wholly owned subsidiary; Tax effect; Liquidation
• Section: 11; 12A; 13(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) “B” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER AND ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council 128, TV Industrial Estate S.K. Ahire Marg, Worli Mumbai – 400012 PAN: AAATM5433F v. Addl. DIT(E)– 1(1) Piramal Chambers, Lalbaug Mumbai – 400 012 (Appellant) (Respondent) ITA NO. 7108/MUM/2010 (A.Y: 2007-08) Media Research Users Council 128, TV Industrial Estate S.K. Ahire Marg, Worli Mumbai – 400012 PAN: AAATM5433F v. Addl. DIT(E)– Range 1 Piramal Chambers, Lalbaug Mumbai – 400 012 (Appellant) (Respondent) ITA.No. 6393/MUM/2011 (A.Y: 2008-09) Media Research Users Council 128, TV Industrial Estate S.K. Ahire Marg, Worli Mumbai – 400012 PAN: AAATM5433F v. Dy. DIT(E)– 1(1) Piramal Chambers, Lalbaug Mumbai – 400 012 (Appellant) (Respondent) 2 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council ITA NO. 5840/MUM/2011 (A.Y: 2008-09) Addl. DIT (E)– 1(1) Room No. 504, 5th Floor Piramal Chambers, Lalbaug Mumbai – 400 012 v. Media Research Users Council 128, TV Industrial Estate S.K. Ahire Marg, Worli Mumbai – 400012 PAN: AAATM5433F (Appellant) (Respondent) Assessee by : Shri Percy Pardiwala & Shri Niraj Sheth Department by : Shri C.T. Mathews Date of Hearing : 24.01.2022 Date of Pronouncement : 29.03.2022 O R D E R PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER) 1. These appeals are filed by assessee against the different orders of Learned Commissioner of Income Tax (Appeals)-1, [hereinafter in short “Ld.CIT(A)”] dated 31.05.2010, 16.05.2011 and 05.07.2012 for the A.Y.2007-08, 2008-09 and 2006-07 respectively. Revenue filed appeal challenging the order of the Ld.CIT(A) for the A.Y. 2008-09. 2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed 3 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council off by this consolidated order. We are taking Appeal in ITA.No. 7108/MUM/2010 for Assessment Year 2007-08 as a lead case. 3. Brief facts of the case are, assessee is a company registered under section 25 of the Companies Act, 1956. It conducts market surveys and compiles reports of readership and listenership of various media and provides them to its members and non-members on subscription basis. The reports enable subscribers to plan strategies for advertising in newspapers, periodicals, TV, radio, etc. The assessee is registered under section 12A of the Income-tax Act, 1961 ("the Act") vide certificate dated 7 th June 1994 and claims benefit under section 11 of the Act. Ground 1: Denial of benefit of section 11 by invoking section 13 4. During the previous year ended 31 st March 2007, the assessee entered into an agreement with Hansa Research Group Pvt. Ltd. ("HRG") (Page 45-58 of PB - IRS 2007) where under HRG agreed to conduct market survey and compile reports styled as Indian Readership Survey ("IRS") to be provided by the assessee to its subscribers. The subscription revenues were agreed to be shared between the assessee and HRG as per clause V of the agreement (page 48) as under: - 4 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council (i). Upto Rs. 350 lakh of subscription revenues - HRG 90% and assessee 10% (ii). Next Rs. 50 lakh - Hansa 85% and assessee 15% (iii). Next Rs. 50 lakh - Hansa 75% and assessee 25% (iv). Next Rs. 50 lakh - Hansa 65% and assessee 35% (v). Next Rs. 50 lakh - Hansa 55% and assessee 45% (vi). Anything above - Equally 5. The assessee paid ₹.4,80,13,895/- to HRG as per this agreement as its share. In its accounts, the amount ₹.5,15,13,708 paid to research agencies (₹. 4,80,13,895 to HRG and ₹.34,99,813 to A.C. Neilson Org- Marg Pvt. Ltd - an unrelated entity) were netted off against the gross subscription revenues of ₹.5,86,02,356/- received by the assessee and the net revenue of ₹.70,88,648/- was shown (page 62 read with page 66 of PB). Apart from this, ₹.68,07,442/- was shown under the head "Loans and Advances" as Advance Research and Survey Fees / Payments (page 65 of PB), which were amounts advanced by the assessee to HRG from time to time for carrying out research work. The advances so paid were set off against the payments due to them. 6. Mr. Shekar Swamy, who was a director in the assessee company, and his family members, held 100% shares in a company called Tiruvengadam Investment Pvt. Ltd. ("TIPL") and TIPL, in turn, held 64.19% shares in HRG. 5 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council 7. The Assessing Officer (pages 8-10 of the assessment order) held that the provisions of section 13(1)(c) read with sections 13(2) and 13(3) were applicable in the case of the assessee and, hence, the benefit under section 11 would be unavailable to the assessee. He contended that if the corporate veil of TIPL was lifted, then, Mr. Shekar Swamy and his relatives held a substantial interest of 64.19% in HRG and, therefore, HRG was to be regarded as a person covered by section 13(3)(e) of the Act. The assessee objected that he did not explain how he considered Mr. Shekar Swamy and his relatives as persons covered under sections 13(3)(a) to 13(3)(d). Assessing Officer of the view that Mr. Shekar Swamy would be covered under section 13(3) since he is a director of HRG by removing the corporate veil (see page 8, last para; page 9, 6 th para and page 13, 4th para after the table). 8. Thereafter, the Assessing Officer referred to sections 13(2)(a), (c), (g) and (h). With a view to examine whether the payment made by the assessee to HRG was excessive, he called for the details of payments made by the assessee. The assessee submitted the following details: • Reasons for giving advances to research agencies — advances were given because research was carried out by Hansa by way of an extensive exercise covering various parts of the country and by involving a large number of people. It was a long-drawn and expensive exercise, which required funds to be disbursed in advance. 6 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council It was pointed out that the total debit to Income and Expenditure account for payment to research agencies was Rs. 5.15 crore whereas the advance was only Rs. 68.07 lakh (page 11 of the assessment order). • Arrangement for remunerating the research agencies — it was explained that the payment to research agencies was made as a percentage of subscription receipts. It was explained that the apparently lower percentage of payment made to AC Neilson ORG MARG (unrelated entity — ORG MARG stands for Operations Research Group - Marketing and Research Group) as compared to Hansa was on account of the scope of work being different. It was pointed out that the more appropriate comparison would be between work done by Hansa and similar work done by other research agencies in past. The said data was provided. On comparison, it was seen that ORG MARG was paid 87.5% of subscription revenues from IRS 2001 upto Rs. 425 lacs and NFO MBL (National Family Opinion Market Behaviour Ltd) was paid 87.5% upto Rs. 300 lacs and 85% from Rs. 300 — 475 lacs in respect of IRS 2002. In comparison Hansa was paid 90% upto Rs. 330 lacs and 85% from Rs. 330 — 365 lacs for IRS 2006 and 90% upto Rs. 350 lacs and 85% from Rs. 350 — 400 lacs for IRS 2007 (pages 11-13 of the assessment order). • It was submitted that if IRS 2001 and 2002 had achieved the same subscription amount as IRS 2007, the effective rate of payment made to earlier research agencies would have been comparable (page 15 of the assessment order). This explanation was rejected by the Assessing Officer by holding that the assessee had itself submitted that at the time of entering into a contract, there can be no forecast of the ultimate amount that will be received. It may be noted that the assessee's submission has not been correctly reproduced by the AO. The assessee vide its submission dated 18th December 2009 had given a detailed working to show that the effective rate was less than the amounts paid to unrelated entities (pages 8-13 of PB @ pg 9 read with pages 12 and 13). 9. The assessing officer rejected the contentions of the assessee and completed the Assessment order with the following observations: (from Page No. 11 to 15) “6.11 The assessee contended that that no direct or indirect benefit was given to the person covered u/s 13(3). It was argued that: 7 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council “Reasons for giving Advances to Research Agencies The research / survey is carried out by the Research Agencies by way of an extensive exercise covering various parts of Indian and large number of people. It is a long drawn expensive exercise for which the method of remunerating is as explained in Annexure V For such an expensive and extensive exercise, the Agencies will need funds in advance. It will be noticed that the told debit to Income and Expenditure A/c for payment of research Agencies is Rs. 5.15 crore whereas the Advance is only Rs. 68.07 Lakh.” Arrangement of Remunerating the two research Agencies The two Research Agencies are remunerated by way of percentage of the subscription received from the subscribers of the reports covering Research/ survey conducted by the two agencies as under: Hansa Research Group Pvt. Ltd. “IRS 2007 Subscription Slab paid as fees Percentage of Subscription received for Reports Upto Rs.350 Lakhs 90% Ac Nielsen — -ORG —-MARG: (i) Mumbai and Delhi Subscription Slab paid as fees Percentage of Subscription received for Reports Rs. 20 — Rs. 23 lakhs 80% Rs. 23.1— Rs. 30 lakhs 50% > Rs. 30 lakhs 25% (ii) Other Cities “Rs. 10—Rs.11.5 lakhs 80% Rs. 11.6 Rs. 15 lakhs 50% > Rs. 15 lakhs 25% The apparent lower percentage of payment to A C Nielsen —ORG — MARG is explained hereunder: The IRS Research Fees payable should be seen in the context of past arrangements and not in comparison with another project of a different type, albeit in the same time frame. Please see the following historical data on IRS Research fees with other research agencies as compared to the fees payable in the current year. 8 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council IRS Year Research Slab Structure Revenue Sharing % IRS 2001 Operations Research India Ltd and Marg Marketing & Research Group Pvt. Ltd., (Referred to as ORG-MRG) Upto 425 Lacs 87.5 ₹.425 – 525 Lacs 75.0 IRS 2002 NFO MBL India Pvt. Ltd., Upto 300 Lacs 87.5 ₹.300-475L 85.0 IRS 2006 Hansa Research Group Pvt. Ltd., Upto 330 Lacs 90.0 ₹.330 – 365 Lacs 85.0 IRS 2007 Hansa Research Group Pvt. Ltd., Upto 350 Lacs 90.0 ₹.350-400 L 85.0 You will observe that the payment to Operations Research India Ltd., and Marg Marketing & Research Group Pvt. Ltd. and NFO MBL India Ltd. are comparable 6.12. The assessee was asked to give the actual sale statistic in different years and to compare the common total sale vis-à-vis payment made to different agencies. The data submitted by the assessee is reproduced for sake of ready reference: “IRS Subscription sale reports for various research /surveys Sr. No. Research Agency IRS Year IRS Subscription ₹. 1 Operations Research India Ltd. And Marg Marketing & Research Group Pvt. Ltd., IRS 2001 Rs. 31,956,792 2 NFO MBL India Pvt. Ltd. IRS 2002 31,268,593 3 Hansa Research Group Pvt. Ltd. IRS 2006 58,799,678 4. Hansa Research Ne Group Pvt. Ltd IRS 2007 66,546, 252 Based on the above we have reworked the average percentage of payment to Research Agencies on a common total sale Rs. 3 crore. On this basis the average will be as under: IRS Year Payment of Fees as a percentage of subscription received for reports IRS 2001 87.5 IRS 2002 87.5 IRS 2006 90.0 9 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council IRS Year Payment of Fees as a percentage of subscription received for reports IRS 2007 90.0 Even in the above case the payment is only slightly more. But this is not relevant because when a contract is made there cannot be an exact forecast of the ultimate amount that will be received under the arrangement. The scope of research/surveys had also expanded.” 6.13 Thus, it is seen that the assessee after all self serving arguments finally agreed that the payment is slightly more. Section 13(1)(c) read with section 13(2) does not envisage quantum benefit. The words used in the provisions of the section are: 13. (1) Nothing contained in section 11 [or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof - “(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly Or indirectly for the benefit of any person referred to in sub- section 3 : The benefit prohibited is both directly or indirectly given to person who is covered ( under section 13(3) of the Act. The -point to be taken note of in the - resent case is that Shri Shekar Swam - who is director of the assessee and also director of Hansa Research Group is also in the Board of Governor of the assessee. He is undoubtedly at the helm of affair. The benefit whether huge or minuscule is prohibited. The assessee itself had argued in earlier years that unless there is Violation of section 11 or 13, benefit of section 11 cannot be denied. Now, when it is established beyond doubt that there is violation of section 13, the assessee is Providing self serving contradicting arguments. It is seen from careful perusal of Different data/statistic that the average common Sale in different years on which payment of fees is 10 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council based is Rs. 3 crore. Therefore, the data to be compared is upto sale of Rs. 3 crore. It is seen from the Copy of Agreements of Research Agencies that percentage of subscription received for Reports paid as fees in different years for sale upto 3 crore are as under: IRS 2001 87.5% to ORG +12.5% to Media research (Assessee) IRS 2002 87.5% to NFO +12.5% to Media research (Assessee) IRS 2003 90% to Hansa Ltd +10% to Media research (assessee) IRS 2007 90% to Hansa Ltd +10% to Media research (assessee) Thus, it is seen that till 2002 the assessee was giving 87.5 % of the Subscription amount to Research Agencies and as soon as agreement is signed with Hansa Research Company (person covered under section 13(3)) the percentage is increased to 90% to the said Research Agency. The sudden increase in percentage of fees to - person covered u/s 13 3 in 2003 has not been satisfactorily explained. During the year also, the assessee is making payment to two Research Agencies namely Hansa research group and A C Nielsen - ORG-MARG, The assessee is paying 90% Subscription profit to Hansa Research whereas ONLY 80% TO A C Nielsen -ORG-MARG AGENCIES which is much higher and cannot be called comparable from any stretch of imagination. 6.14 Therefore, from whatever angle it is looked from, whether in the context of past arrangements or in comparison with another project of a different type, albeit in the same time frame, it is seen that the assessee is making EXCESS PAYMENT FOR SERVICES TO EXCLUDEDPERSONS (persons covered u/s 133 read with Section 13(2)(c). The assessee has also given huge sum of advance to the said company. Section 13 of the Income Tax Act, specifies the circumstances under which the benefits under section 11 would not be available to an organization. Since, the assessee has given income of a trust directly or indirectly for the benefit of any person referred to in section 133 Nothing contained in section 11 for section 12 shall operate as per the provisions of the section 13 of the Act. Therefore, the assessee is not entitled to the benefits of section 11 of the Act. 11 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council 6.15 The courts have held that there can be no sympathy or equities could be extended, particularly for an organization, which received exemption purely for the welfare of the under-privileged and needy class of the society. Reliance is placed on the judgment in the following case: “enabling one of members of the assessee, to avail loan without adequate security and consideration, and certain transaction of purchase of lands was routed through an AOP in which all members were directors and employees of assessee, the misutilization was glaring and it could not escape the clutches of law, nor any sympathy or equities could be extended, particularly for an organization, which received donations purely for the welfare of the under-privileged and needy class of the society. In view of the fact that entire transaction was within personal knowledge of trustees, it could be said that the funds of assessee were diverted and misutilised. On fact, the assessee had violated provisions of section 13(1)(c)(ii) read with section 13(2)(b) and, thus, was not entitled for exemption - Action for Welfare & Awakening in Rural Environment (AWARE) v. Dy. CIT[2003] 130 Taxman 82/263 ITR 13 (AP).” In the case of [2003] 126 Taxman 365 Supreme Court of India Director of Income-tax v. Bharat Diamond Bourse It was held that “In the result, we disagree with the view taken by the High Court and the Tribunal and affirm the view taken by the Assessing Officer and the Appellate Commissioner of Income- tax (Appeals). We hold that Bharat Shah was a founder of the assessee on institution; that during the previous years relevant to the assessment years 1989-90 and 1990-91, a substantial amount of money to the extent of Rs. 70 lakhs was lend to Ne an Bharat Shah without adequate security cr interest. Consequently, the assessee would “38 pose the benefit under section 11 of the Act by falling within ihe mischief of section ' 3(3)(a), read with 13(1)(c){ii) of the Income-tax Act, 1961” 6.16 It was further contended by the assessee that : “Had IRS 2001 and IRS 2002 achieved the same subscription amount as above IRS2007), the effective rate of payment to the earlier research Agencies would we peen....” comparable The assessee at one point of argument in Annexure 7 letter dated 7/12/09 had said that: 12 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council when a contract is made there cannot be a forecast of the ultimate amount that will be received under the arrangement.” Therefore, as per assessee’s Own admission, at the time of signing an agreement, assessee would not know the total subscription amount during the year. Therefore, how can assessee sign at a higher % rate than the earlier years with a person covered u/s 13(3) without knowing the total expected subscription income. It was also argued that one Mr. Ashok Das, who was president of AC Nielson left and joined Hansa Ltd. in 2002. This further proves that since Hansa Ltd. was getting higher % of Subscription amount therefore a person as senior as Mr. Ashok Das, president of AC Neilson left the company to join Hansa Ltd. to make more profit. 6.17 It was FINALLY argued by the assessee vide letter dated 11/12/2009 that: “We finally submit that in the event of your disallowing our claim of exemption u/s 11, you should then kindly grant exemption on grounds of mutuality and tax only income from interest plus other income to the extent it is attributable to non members.” The argument advanced by the assessee has been duly considered but the same is not accepted for the following reasons. It was submitted by the assessee vide letter dated 27" November, 2009 that IRS subscription is received both from members and non members. It was further stated that Subscription of Rs. 21,00,749/was received for 140 non members. Thus it is seen that sizeable amount of subscription is made by non-members. Assessee has also NOT claimed to be a mutual association and Department has also NOT held the assessee has mutual association in earlier years. Reliance is placed on the judgment in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321(SC) wherein it was held rule of consistency must be followed. This judgment has been relied upon in the case of the assessee by the Hon'ble Tribunal. Further, in the case of Mafatlal Industries Ltd. v. Wealth-tax Officer, 95 ITD 66 (Mum.) it was held that “General presumption is that a taxpayer should not take inconsistent view and expected to be consistent with the view already taken. It is also expected that taxpayer should not change its stand as Suits to its requirement and advantageous in different proceedings. 13 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council Therefore, respectfully following the above referred judicial decisions, the claim of the assessee to be alternatively held as Mutual association is hereby rejected.” 10. The Assessing Officer at page 13, para 6.13 concluded that the assessee had agreed that the amount paid to HRG was more than the amount paid to unrelated entities. On a common base of Rs. 3 crores, he noted that 87.5% was paid to unrelated entities whereas 90% was paid to HRG. He also noted that the payments made to ORG MARG (unrelated entity) during the year at 80% was much lower than 90% paid to HRG. Thus, he concluded that the assessee was making excess payment to HRG. He also alleged that a huge sum was given by way of advance to HRG (page 14, para 6.14 of the assessment order). He relied on the judgment in the case of Bharat Diamond Bourse, wherein exemption under section 11 was denied since substantial amounts were lent without adequate security or interest to founder. He held that since the assessee had made the aforesaid payments of ₹.4,80,13,895/- and ₹.68,07,442/- to HRG, it had violated provisions of section 13. Accordingly, he denied benefit of section 11. 11. The assessee made a without prejudice submission before the Assessing Officer that benefit of mutuality may be given and only interest and income from non-members may be assessed (page 15, para 6.17 of 14 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council the assessment order). This submission was rejected on the ground that subscription of ₹.21,00,749/- was received from 140 non-members and, therefore, there was significant dealing with non-members. The Assessing Officer also examined the issue of allowability of section 11 benefit even without invoking section 13. This aspect of the matter is covered in favour of the assessee by the earlier orders of the Tribunal in the assessee's own case, wherein the Tribunal has held that the Assessing Officer cannot deny benefit of section 11 if registration under section 12A is not cancelled (pages 1-4 of PB — ITAT order for AY 2000-2001 and pages 5-7 — ITAT orders for AY 1998-99, 1999-2000, 2001-02 and 2002-03). It may be noted that the Assessing Officer at page 3 (top) refers to ₹.8,33,119 dues from M/s R.K. Swamy / BBDO Advertising Pvt. Ltd. ("BBDO") shown under Sundry Debtors. However, there is no reference to this aspect in the assessment order thereafter. It was submitted that, this amount is receivable from BBDO for reports sold to it and, hence, is not "lent" to BBDO. Moreover, Mr. Swamy does not hold any shares in BBDO. Mr. Swamy holds 100% in TIPL and TIPL holds 49.90% in BBDO. Therefore, these dues cannot be a reason for invoking section 13 of the Act. 12. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) concurred with the view of the Assessing Officer that section 15 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council 13(3)(e) applied to HRG. In para 5.4 at page 13, the Ld.CIT(A) held that the advance of ₹.68,07,442 was covered by section 13(2)(a). In para 6.16 at page 21, he held that the payments to HRG were excessive and, therefore, section 13(3)(c) was attracted. 13. Before the Ld.CIT(A), assessee reiterated its submissions made before the Assessing Officer, the assessee further pointed out that HRG was not dependent on the assessee and that it worked with over 100 companies for research and did over 500 research reports in a year and that it had a 100% subsidiary in the US which did over 50 projects a year for US companies [page 10, para (e)]. 14. Ld.CIT(A) rejected the above submissions and observed as under: - “6.16 I have carefully considered the arguments of the Assessing officer and have also gone through the written submissions, oral submissions as also letter dated 18th December 2009. The authorized representative by giving lengthy statements and calculations has tried to establish that the payments to HRG are not excessive. However, from the facts it is clear that the initial slabs of payment of fees to HRG has been 90% as compared to 87.5% to the earlier agencies for IRS 2001 and 85% to the earlier agencies for IRS 2002. The rate of 90% is certainly more than the rates of 87.5% and 85% to the earlier agencies. Further in the same accounting year Research is also handled by another agency viz., A C Nielsen - ORG Marg in respect to whom the initial slab is only 80%. I am not impressed by the lengthy explanation of the appellant’s A/R justifying a lower rate of payment to A C Nielson - ORG Marg. Thus according to me the terms of payment to HRG are not at arm length and certainly in excess of what may be reasonably paid for such services. The appellant fails on its third ground and since I have already dismissed the first ground, the appellant is also to be denied the 16 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council exemption u/s 11 for making excessive payment to a concern in which it has a substantial interest.” 15. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - I The CIT (A) ought to have held that the Appellant is entitled to exemption under section 11 in respect of its total income. II. The learned CIT (A) has seriously erred in coming to the conclusion that Hansa Research Group Pvt. Ltd. (hereafter referred as HRG) and R K Swamy / BBDO Pvt. Ltd. are concerns in which Mr. Shekar Swamy and / or his relatives have a substantial interest. 2. He failed to appreciate and ought to have held that since Mr. Shekar Swamy and / or his relatives do not hold any shares in either HRG (barring an insignificant holding of 0.39%) or in R K Swamy / BBDO Pvt. Ltd., the question of their having substantial interest in the said companies does not arise. III. 1. Without prejudice to Ground Il and assuming, without admitting, that Mr. Shekar Swamy and / or his relatives have a substantial interest in HRG or R K Swamy / BBDO Pvt. Ltd., he erred in holding that -- (i) any advance is made to HRG (ii) in any event payment made to HRG or amount due from R K Swamy / BBDO Pvt. Ltd. are covered by section 13 (2) (a) 2. He failed to appreciate and ought to have held that in view of the facts of the case and in Law, the said amounts are not loans and hence not covered by the disabling provisions of section 13 (2) (a). IV. Without prejudice to Ground Il and assuming, without admitting, that Mr. Shekar Swamy and / or his relatives have a substantial interest in HRG, the learned CIT (A) has erred in holding that payments to HRG are in excess of what may be reasonably paid for the services rendered by them, or are otherwise violative of any provisions of section 13. 2. He failed to appreciate and ought to have held that payments made to HRG were not in excess of what may be reasonably 17 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council paid for such services or are violative of any other provisions of Section 13. V. 1. Without prejudice to the above Grounds, the appellant submits that if, in the opinion of the CIT (A), the appellant was not entitled to exemption u/s 11, he erred in not granting exemption on grounds of mutuality to the entire Income other than income attributable to non members. 2. He failed to appreciate and ought to have held that if exemption is to be denied under section 11, the appellant is fully entitled to claim and be allowed exemption on grounds of mutuality in respect of income attributable to members. VI. The learned CIT (A) has erred in confirming the disallowance / add backs of the following items in computing the taxable income: Provisions for Gratuity ₹. 11,702 Provisions for Leave encashment 1,14,097 Loss on sale of Fixed Assets 4,598 VII. The CIT (A) has erred in treating the sum of % 12 lac as income chargeable to tax for the assessment year 2008-09 VIII. The CIT (A) erred in not considering the Accumulation under clause (2) of Explanation. to section 11 (1) for, the current year amounting to ₹.25,50,000 as application towards objects of the institution.” 16. Ld. Counsel for the assessee submitted that HRG is not a person covered under section 13(3)(e) as Mr. Shekhar Swamy is not a person covered in clauses (a) to (d) of section 13(3). Learned Counsel for the assessee submitted that HRG is not a person covered under section 13(3)(e) of the Act. It is undisputed that Mr. Shekar Swamy and his relatives hold 100% shares in TIPL and TIPL, in turn, owns 64.19% shares 18 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council in HRG. However, neither Mr. Shekar Swamy nor his relatives hold any shares in HRG directly. Section 13(3)(e) refers to "any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest". Explanation 3 to section 1 3 provides that a person shall be deemed to have a substantial interest in a concern if its shares carrying not less than 20% of the voting power are, at any time during the previous year, owned beneficially by such person. As per these provisions, only TIPL can fall within section 13(3)(e), not HRG. Reliance is placed on the decision of the Hon’ble Bombay High Court in the case of HDFC Bank Ltd. vs. ACIT410 ITR 247. In this case, HDFC Bank purchased loans of HDFC Ltd. and the question arose whether HDFC Ltd. held substantial interest in HDFC Bank Ltd. Admittedly, HDFC Ltd. held 16.39% of the shareholding in HDFC Bank Ltd., which was below the required limit of 20% and therefore on the plain reading of section 40A(2)(b)(iv) read with Explanation (a) thereof [which is worded similarly to Explanation 3 to section 13 with which the present case is concerned] HDFC Ltd. would not be a person who would have a substantial interest in HDFC Bank. However, HDFC Ltd. held 100% shares in HDFC Investment Ltd. and HDFC Investment Ltd. in turn held 6.25% in HDFC Bank Ltd. Therefore, the Revenue contended that the requirement of having more than 20% 19 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council of the voting power was established when the holding of 16.39% was clubbed with the holding of 6.25% through the 100% subsidiary. Negativing the said contention, the Hon’ble Bombay High Court held: (paras 27-31)" “27. On a plain reading of the aforesaid provisions, we are unable to agree with the submissions of the Revenue. What Explanation (a) to section 40A(2)(b) clearly stipulates is that a person shall be deemed to have a substantial interest in a business or profession in a case where the business or profession is carried on by a company. such person is, at any time during the previous Veal. the beneficial owner of shares carrying not less than 20% of the voting pow. In other words, Explanation (a) when broken down, requires two conditions that need to be fulfilled. The first condition is that, that the person should be the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits); and second that these shares (of which the person is the beneficial owner) are carrying not less than 20% of the voting power. In the facts of the present case, admittedly HDFC Ltd., on its own, is not the beneficial owner of shares carrying at least 20% of the voting power as required under explanation (a) to section 40A (2) (b) of the I. I. Act. The shareholding that HDFC Ltd. has in the Petitioner is only 16.39%. 28. We cannot, and the law does not permit us, to hold that HDFC Ltd. is the beneficial owner of 22.64% of the shares in the Petitioner by clubbing the shareholding of HDFC Investments Ltd. with the shareholding of HDFC Ltd. If we were to do this, we would be effectively holding that HDFC Ltd., being a shareholder of HDFC Investments Ltd., is the beneficial owner of the shares which HDFC Investments Ltd. holds in the Petitioner. This, in law, is clearly impermissible because a shareholder of a company can never have any beneficial interest in the assets (movable or immovable) of that company. In the present case, if we were to accept the contention of the Revenue, it would mean that HDFC Ltd. is the beneficial owner of the shares which HDFC Investments Ltd. holds in the Petitioner. This would be contrary to all canons of Company Law. It is well settled that a shareholder of a company can never be construed either the legal or beneficial owner of the properties and assets of the company in which it holds the shares. This being the position in law, we find that the Revenue is incorrect in trying to club the shareholding of HDFC Investments Ltd. in the Petitioner along with the shareholding of HDFC Ltd. in the Petitioner, to cross the 20 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council threshold of 20% as required in explanation (a) to section 40A(2)(b). We are supported in the view that we take by a decision of the Supreme Court in the case of Bacha F. Guzdar (supra). The relevant portion of this decision reads thus: "7. It was argued by Mr Kolah on the strength of an observation made by Lord Anderson in Commissioners of Inland Revenue v. Forrest [8 Tax Cases, p 704 at 710] that an investor buys in the first place a share of the assets of the industrial concern proportionate to the number of shares he has purchased and also buys the right to participate in any profits which the company may make in the future. That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word 'assets' in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder vis-a-vis the company was explained in the Sholapur Mills Case [(1950) SCR 869, 9041. That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company. It is true that the shareholders of the company have the, sole determining voice in administering the affairs of the company and are entitled, as provided by the Articles of Association to declare that dividends should be distributed out of the profits of the company to the shareholders but the interest of the shareholder either individually or collectively does not amount to more than a right to participate in the profits of the company. The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. Reliance is placed on behalf of the appellant on a passage in Buckley's Companies Act (12th Edn.), p. 894 where the etymological meaning of dividend is given as dividendum, the total divisible sum but in its ordinary sense it means the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient. This statement does not justify the contention that shareholders are owners of a divisible sum or that they are owners of the 21 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council property of the company. The proper approach to the solution of the Question is to concentrate on the plain words of the definition of agricultural income which connects in no uncertain language revenue with the land from which it directly springs and a stray observation in a case which has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it." (emphasis supplied) 29. This proposition has again been reiterated by the Supreme Court in Vodafone International Holdings BV (supra). Paragraphs 256 to 258 of this decision read thus: "256. Subsidiary companies are, therefore, the integral part of corporate structure. Activities of the companies over the years have grown enoimously of its incorporation and outside and their structures have become more complex. Multinational companies having large volume of business nationally or internationally will have to depend upon their subsidiary companies in the national and international level for better returns for the investors and for the growth of the company. When a holding company owns all of the voting stock of another company, the company is said to be -a WOS of the parent company. Holding companies and their subsidiaries can create pyramids, whereby a subsidiary owns a controlling interest in another company, thus becoming its parent company. 257. The legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. In Bacha F. Guzdar v. CIT [AIR 1955 SC 74], this Court held that shareholders' only right 22 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council is to get dividend if and when the company declares it, to participate in the liquidation proceeds and to vote at the shareholders' meeting. Refer also to Carew and Co. Ltd. v. Union of India [(1975)2 SCC 791] and Carrasco Investments Ltd. v. Directorate of Enforcement [(1994) 79 Comp Cas 631 (Del)]. 258. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any Director if it so desires by a resolution in the general body meeting of the subsidiary. Holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the status of the entire business enterprises. Shares of stock in the subsidiary company are held as assets on the books of the parent company and can be issued as collateral for additional debt financing. Holding company and subsidiary company are, however, considered as separate legal entities, and subsidiary is allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries."(emphasis supplied) 30. In the facts before us it may be true that HDFC Ltd. may indirectly have 20% of the voting power in the Petitioner because HDFC Investments Ltd. is a wholly owned subsidiary of HDFC Ltd. However, that by itself would not mean that HDFC Ltd. has a substantial interest in the Petitioner as required and stipulated in explanation (a) to section 40A(2)(b). As mentioned earlier, for a person to have a substantial interest as contemplated under explanation (a), two conditions have to be fulfilled, namely (i) that the person has to be the beneficial owner of the shares and (ii) those very shares have to carry not less than 20% of the voting power. It is only when these two conditions are fulfilled that explanation (a) can be pressed into service. In the facts before us, if we were to accept the submission of the Revenue, then we would have to hold that HDFC Ltd. is the beneficial owner of the 6.25% shareholding that HDFC Investments Ltd. has in the Petitioner. This 6.25% shareholding of HDFC Investments Ltd in the Petitioner is the movable property and an asset of HDFC Investment Ltd. That would mean that HDFC Ltd., holding 100'/o shares of HDFC Investments Ltd., would have to be construed as the beneficial owner of the properties/assets of HDFC Investments Ltd. This can never be the case because that would he contrary to all canons of company law as well as the decisions of the Supreme Court in the case of Bacha F. Guzder and Vodafone International Holdings BV(supra). This being 23 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council the case, HDFC Ltd., by no stretch of the imagination can be said to be the beneficial owner of the shares that HDFC Investments Ltd. holds in the Petitioner. This is simply because the shares that HDFC Investments Ltd. holds in the Petitioner is its asset, and HDFC Ltd., though being a 100% shareholder of HDFC Investments Ltd., cannot be termed as the owner (beneficial or otherwise) of the assets and properties of HDFC Investments Ltd. In these circumstances, therefore, the shareholding of HDFC Ltd. and HDFC Investments Ltd. cannot be clubbed together to cross the threshold of 20% as required under explanation (a). This being the position, we have no hesitation in holding that the HDFC Ltd. does not have a substantial interest in the Petitioner, and therefore, is not a person as contemplated under section 40A(2)(b)(iv) for the present transaction to fall within the meaning of a SDT as set out in section 92BA (i) of the I. T. Act. 31. There is another reason for coming to this conclusion. If we were to interpret this provision as is sought to be contended by the Revenue, it would lead to an absurd situation, as correctly contended by Mr. Mistri. It is undisputed that there cannot be more than one beneficial owner of the same shares. If we were to take the example that was given by Mr. Mistri during arguments. it would effectively lead to a completely absurd result. Take for example Company 'A' has a wholly owned subsidiary Company W. In turn, the shares of Company 'C are held 90% by Company 'B' and 10% by Company W. If one was to give the interpretation as sought for by the Revenue, then it would, mean that Company 'A' beneficially owns 100% of Company 'C which would, lead to an absurd situation that Company 'B'; though owning 90% of the shareholding in Company 'C, would not be regarded as having a substantial interest in Company 'C as Company 'B' cannot be said to be the beneficial owner of its 90% shareholding in Company 'C'. Further, if the interpretation of the Revenue was to be held as correct then one will not have to not stop there and then also see the shareholders of Company 'A' as the beneficial owner of the shares of Company 'C. This would then lead to absurd results, namely, that then even Company 'A' also would not have a substantial interest in Company 'C and it would be the shareholders of Company 'A that would have a substantial interest in Company 'C'. This would lead to startling results. It is now well settled that whilst interpreting a statutory provision, an interpretation which would lead to an absurdity, should always be avoided. This is yet another reason why we are unable to accept the submission of the Revenue that this particular transaction would fall within the meaning of a SDT as understood and set out in section 92BA (i) of the I. T. Act." 24 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council 17. Ld.AR submitted that the Hon'ble Bombay High Court has categorically held, a shareholder cannot be regarded as the owner of the assets of the company in which it holds shares. Applying the ratio of this decision, Mr.Shekhar Swamy and his relatives, who hold 100% shares in TIPL, which. in turn, holds 64% shares in HRG, cannot be regarded as beneficial owners of shares in HRG. Therefore, HRG cannot be regarded as a person falling within the ambit of section 13(3)(e) of the Act. The language used in Explanation 3 to section 13 can be contrasted with the provisions of section 2(24)(iv) and section 64, wherein even indirect holding is to be had regard to. It is further submitted that lifting of corporate veil of TIPL is not permissible in the present case. Corporate veil can be lifted only in cases where an attempt is made to defraud revenue by putting up facades which have no commercial substance, which is not so in the present case. In the present case, TIPL is assessed in its own right in respect of its income. It is not open to the Revenue to disregard the existence of TIPL for the limited purpose of applicability of Explanation 3. 18. Learned Counsel for the assessee submitted that if the above submissions are accepted, other issues raised in the present appeal as to whether or not the advance given to HRG is a loan and whether or not 25 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council the amounts paid to HRG are excessive will not have to be decided as being of an academic nature. 19. Ld. Counsel for the assessee, however, for sake of completeness, submitted the submissions on these issues which are reproduced below:- “General - Applicability of Section 13(1)(c) Since section 13(2)(a) and 13(2)(c) deal more specifically with payments for services and monies lent, section 13(1)(c) ought not to be invoked for such payments. In any event, the amounts are not used or applied. Payment made for services cannot be regarded as use or application of money as contemplated in section 13(1)(c). Making payment for availing services cannot be regarded as providing a benefit. Otherwise, every payment made to a person referred in section 13(3) will be tantamount to use or application for the benefit of such person. Further, to be regarded as use or application, the income which has been so used or applied must be identifiable. As regards the advance of Rs. 68,07,442 - applicability of Section 13(2)(a) The advances of ₹.68,07,442 were given by the assessee to Hansa from time to time for carrying out research and market survey. The amounts were shown as advances because the reports were not yet dispatched to the subscribers. The advances were given to provide funds for extensive and expensive exercise involved in market research and survey by the research agencies. Therefore, the advances cannot be regarded as monies lent to Hansa. In this connection, a reference can be made to section 2(22)(e), which clearly distinguishes between a loan and an advance. There is no lender-borrower relationship between the assessee and Hansa. Similarly, ₹.8,33,1 19 is receivable from BBDO for sale of reports and does not represent monies lent to it. The AO has merely referred to the said amount of ₹.8,33,119 but has not based his decision thereon. 26 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council As regards the amount of ₹.4,80,13,895 paid to Hansa as its share of the subscription revenues — Applicability of Section 13(2)(c) The agreement with Hansa was to share fees in the agreed ratio based on slabs, the first slab being 90:10, i.e., 90% was to be passed on to Hansa. The assessee had similar agreements with unrelated parties in earlier years wherein the first slab was 87.5%. There was a provision in those agreements that upon timely delivery of the research reports, 90% would be passed on. The Assessing Officer relied on the difference between the initial slabs to hold that the payments to Hansa were excessive. The relevant details of the average effective rates at which the payments were shared with Hansa (in respect of IRS 2006 and IRS 2007) and with unrelated parties (in respect of IRS 2001 and IRS 2002) were filed before the Ld.CIT(A) [page 17-19 of the CIT(A) order, para 6.11 to 6.13]. Detailed statement was provided to the Assessing Officer vide letter dated 18th December 2009 [page 8-13 of PB]. These details show that the average effective rate of payment to Hansa was lower than the rate at which payments were made to unrelated parties. Therefore, the amounts paid to Hansa were not excessive. It may be noted that the payments made to AC Neilson during the year cannot be taken into account for comparison in view of the large difference in the scope, extent and nature of the work done by AC Neilson and by Hansa, as explained at page 7-8 of the statement of facts before the CIT(A). In any event, if a mechanical comparison is to be made of the initial slab (as was sought to be done by the AO), then, the highest slab of payment to AC Neilson was 100% since upto ₹.20 lakh, the amount was fully payable to Neilson and, therefore, even on that count, payment to Hansa is not excessive! Submissions The several differences between the work done by unrelated entities under IRS 2001 and the work done by Hansa under IRS 2007 must be kept in mind while determining the reasonableness of the payments made to Hansa. Mutuality The Assessing Officer rejected the assessee's plea that the assessee was a mutual concern. He noted that the assessee received ₹.21,00,749 from non-members and therefore it was not a mutual concern. At para 8.4, the Ld.CIT(A) dismissed the argument based on mutuality. 27 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council Submissions It is submitted that the assessee has received ₹.5,65,0 1,607/- from members compared to which receipts from non-members are insignificant and, therefore, the assessee must be regarded as a mutual concern. In any event, income to the extent of transaction with members must be regarded as mutual. Whether assessee can be considered as non-charitable Assessing Officer relied on his findings in AY 2006-07 to hold that even without considering the disqualifying provisions of section 13, the exemption under section 11 would not be allowable as the activities of the assessee were not charitable. At para 7.3, the CIT(A) distinguished the Tribunal's orders for earlier years which had reversed the orders of the AO and the CIT(A) on the ground that in those year provisions of section 11 or 12 were found not to have been violated, whereas in this year violation is established. This aspect is covered by the earlier orders of the Tribunal wherein it has been held that the benefit of section 11 cannot be denied by holding that the assessee is not a charitable entity without withdrawing the registration under section 12A. Without prejudice, it is submitted that only such income as falls within the ambit of the provisions of section 13 would lose exemption and not the entire income. Reliance is placed on the judgment in the case of DIT (Exemption) v. Sheth Mafatlal Gagalbhai Foundation Trust 249 ITR 533 (Bom) and CIT (Exemption) v. Audyogik Shikshan Mandal 101 taxmann.com 247 (Bom). Other disallowances and issues Consequent to denying benefit under section 11, the Assessing Officer at pages 21-22: 1) included ₹.36,000 entrance fees directly credited to corpus as income. This was not pressed by the assessee before the Ld.CIT(A) in view of the smallness of the amount. 2) added back provisions for gratuity and leave encashment on the ground that they are only provisions. Though a ground was taken before the CIT(A) challenging these additions, no submissions were made except to state that if the benefit of section 11 is restored then these additions would be deleted. There is no independent finding of the Ld.CIT(A) on these disallowances. 28 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council Submissions These issues are consequential in nature and if the benefit of section 11 is conferred, any increase in the income will also qualify for the said benefit. Ground VII - Add back of ₹. 12,00,000 In Para 13.4 of the Order, Assessing Officer has added amount of Rs. 12,00,000. This amount represents the option exercised by the assessee in the assessment year 2006-07 under clause (2) of the Explanation to Section 11(1) of the Act. The addition of ₹.12 lakhs are not justified irrespective of whether exemption under section 11 is allowed or denied. The explanation for not adding the above amount under either of the two alternatives is given below: I If exemption under Section 11 is not allowed (as has been done in the impugned Assessment Order) While assessing the total income of Assessment year 2006-07 at ₹.24,21,920, the amount of Rs. 12 Lakh was not allowed as an expenditure. Therefore, the same cannot be added to the taxable income in Assessment year 2007-08 as that would result in taxing the same amount twice. II If exemption under section 11 is allowed (as requested by the assessee) If exemption under section 11 is allowed, the option of Rs. 12 Lakh would have been allowed as an application of income in Assessment year 2006-07. In the Assessment year 2007-08, the amount of Rs. 12 Lakh is deducted by the assessee itself to arrive at amount applied for charitable purposes and the taxable income. Since the assessee, having claimed the option of Rs. 12 Lakh as application in Assessment year 2006-07, has itself reduced the above amount from the expenditure applied on objects of the institution in Assessment year 2007-08, the question of adding Rs. 12 Lakh to taxable income in Assessment year 2007-08 does not arise. Ground No. VIII - Deduction of ₹.25,50,000 29 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council The assessee has claimed an amount of ₹.25,50,000 as option under clause (2) of Explanation to section 11(1). The position under two alternatives is as follows: (a) If exemption under section 11 is allowed. The amount of Rs. 25,50,000 is an option under clause (2) of Explanation to section 11(1) and, hence, is clearly allowable if exemption under section 11 is granted. (b) If exemption under section 11 is not allowed In the above case, there will be no effect on the income assessed as the above amount is not deducted to arrive at the assessed total income of Rs. 39,29,660 (Last page of Assessment Order for Assessment year 2007-08).” 20. Ld. DR vehemently supported the orders of the Assessing Officer 21. We have heard the rival submissions, material placed on record and perused the orders of the authorities below. We observe that assessee is engaged in market survey and compiles reports of readership/listenership of various media, it provides the reports to its members on subscription basis. It also extends this services to few nonmembers also. The assessee is registered under section 12A and claims benefit u/s 11 of the Act. In the past, the revenue rejected the claim made u/s 11 but ITAT decided the issue in favor of the assessee. 22. With that background we analyzed the issue under consideration. We observe that Assessing Officer while going thru the financials observed 30 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council that assessee entered into an agreement with HRG and HRG agreed to conduct market survey and reports for the assessee with the agreed formula of sharing the revenue on the basis of agreement, the sharing ratio was effectively, on the basis of revenue stood, at 90% (10:90). The majority of the business was undertaken with the HRG and only small portion was undertaken with other unrelated party. The Assessing Officer observed that HRG falls under the related person category within the meaning of section 13(3) of the Act, by lifting the corporate veil, considering the fact that the key director (Shri Shekar Swamy) of the assessee company, who held indirect substantial interest in the HRG through TIPL. The assessee objected to the above view and it argued before the tax authorities and before us that Assessing Officer has not given clear finding how TIPL and Shekar Swamy violated the provisions of Section 13, when the definition does not attract directly to both the parties i.e., Shri Shekar and TIPL. We consider the submissions carefully and observed that the assessee shares the majority of the revenue with the other entity, whether related or unrelated, in that case the assessee has to conduct its affairs without violating any of the restrictions specified in section 13. On careful evaluation, we observe that the section 13 restrictions are very specific that the assessee cannot share the revenue 31 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council or benefits with any of the persons specified in the section 13(3) of the ACT directly or indirectly. We observed that Shri Shekar Swamy is the key director who controlled the affairs of the assessee company as well as HRG and also held the controlling capacity in the Board of Governor, in such situation it is no doubt that he played very crucial role in controlling the whole operations. It is fact on record that Shri Shekar has not directly held substantial shares in the HRG but held substantial interest in TIPL. The restrictions specified in the section 13 has to be evaluated holistically, not just based on shareholding. The controlling of the other unit plays important role, the controlling interest concept includes the controlling thru shareholding, it does include the controlling the other institution by indirect influence. In the given case, Shri Shekar controls the whole affairs in the assessee company, HRG and also plays a role in the Board of Governors. This shows that Shri Shekar has a say in the decision making process of all the units under his control or in the control of the family. Shri Shekar controls the assessee company and HRG thru indirect holding of shares in TIPL. Therefore, in our considered view, the assessee has shared the revenue with the related concern, the related concern which is indirectly related by applying the concept of controlling the affairs by exercising the control of management. When it is clear that Shri Shekar 32 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council has management control, the corporate veil has to be lifted. Therefore, we are in agreement with the tax authorities in applying the provisions of section 13(3) in the present case. 23. At the time of hearing, Ld counsel for the assessee relied in the case of HDFC Bank Ltd (supra), wherein it was submitted that the Hon’ble Jurisdictional High Court held that in order to establish the holding power/voting power, tax authorities cannot club the holding of shareholding of 100% subsidiary, it was decided in favor of the assessee. On careful evaluation, we observe that the Hon’ble High Court has decided the issue on Section 40A, where the transactions with the related persons, to establish a person, whether he is deemed to have substantial interest, in order to evaluate whether such transactions are within arm’s length. Whereas in the given case, the restrictions contained in the section 13 is altogether for different purpose, in order to restrict any kind of transactions with the related persons who are availing benefit u/s 11 of the Act (unless it is established that there is no benefit passed on to them directly or indirectly). We cannot equate the two sections, which are in two different chapters of the ACT as well as for different purposes. In this case, the Assessing Officer has established that by removing the corporate veil, one of the director falls within the meaning of section 13(3) 33 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council and 13(2)(e) of the Act. Whether the revenue sharing with the other concern are within the arm’s length is subjective, considering the fact that it is sharing 90% of the revenue and transaction with the unrelated party is not substantial and assignments in both the cases are totally different. Therefore, we reject the submissions of the assessee and grounds raised in this regard before us. 24. Coming to the other issue, whether the advances given against the pending research assignments, we do not agree with the Assessing Officer that it falls within the meaning of loan given to the related parties. The Assessing Officer has acknowledged that there exists the transaction between the assessee and HRG, the advances given during the year can be considered as the advance paid for the purpose of business. It cannot be considered for the purpose of section 13 in order to deny the benefit u/s 11. We direct the Assessing Officer accordingly. 25. When we consider the whole submissions of both parties, we observe that the assessee consistently prayed for applicability of Mutuality concept in its case but it was rejected by the tax authorities with the observation that significant dealing with the nonmembers. We observe that the assessee has dealt with the 140 nonmembers and receipt of the 34 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council total subscription from them is ₹.21,00,749/-, which equal to 3.60% of gross subscription. We do not agree with the revenue authorities that it falls under “significant dealing” with the nonmembers. Therefore, whenever a mutual concern deals with the members they have to allow the facilities to nonmembers also due to various reasons for survival. When compared to their gross revenue, if it is within range, say less than 5% of their operation, still it will be regarded as mutual concern/entity. It is the responsibility of such mutual entity to maintain required books to establish the exclusiveness. From the record we observe that the assessee has clearly gave the details to the Assessing Officer that it has dealt only with the 140 nonmembers and details of their subscriptions, it shows that the assessee kept the record of dealing with the nonmembers. Therefore, we are inclined to remit this issue back to the file of Assessing Officer to evaluate the allowability of benefit under mutuality concept to the assessee. It is the duty of the assessing authority to assess the case of the assessee holistically, not restrict themselves to one aspect of assessment merely to complete the assessment, it is their duty to assist the assessee also in their affairs specially when there exist multiple benefits to the assessee. In this case, the assessee specifically placed their alternate plea which was rejected by the Assessing Officer, without 35 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council properly evaluating the case, merely proceeded to reject the plea on focusing the rejection of benefit under section 11. We direct the Assessing Officer to redo the assessment under mutuality concept de novo. Since we are remitting the issue back to the file of Assessing Officer to redo the assessment, the other issues raised by the assessee also remitted to the Assessing Officer to consider the same while completing the assessment under Mutuality. 26. Accordingly, we allow the alternate plea made by the assessee in ground no V, accordingly, it is allowed for statistical purpose. Similarly ground no’s VI, VII and VIII are also remitted to Assessing Officer and allowed for statistical purpose. ITA NO. 5840/MUM/2011 (A.Y: 2008-09) 27. With regard to Revenue appeal in A.Y. 2008-09, we observe that they are aggrieved with the order of Ld.CIT(A), who has directed the Assessing Officer to delete the addition on account of accumulation option u/clause (2) of explanation to section 11 for earlier year. At the time of hearing, both counsels agreed that the tax effect involved in this appeal is below tax limit prescribed in the CBDT Circular No. 17/2019 dated 08.08.2019. We find that the tax effect in this appeal is less than ₹.50 36 ITA NO. 6459/MUM/2012 (A.Y: 2006-07) Media Research Users Council Lakhs and therefore the appeal of the revenue is not maintainable on account of low tax effect in view of the CBDT Circular No. 17/2019 dated 08.08.2019, accordingly, this appeal of the revenue is dismissed. 28. In the net result, all the appeals filed by the assessee are allowed for statistical purpose. Appeal of the Revenue is dismissed. Order pronounced in the open court on 29.03.2022. Sd/- Sd/- (PAVAN KUMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 29.03.2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum