GALLANT INFOTECH P. LTD, MUMBAI V. DCIT CEN CIR 41, MUMBAI

ITA 6493/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8385 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 05-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 03-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI H. L. KARWA, PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO. 6493/MUM/2010 ASSESSMENT YEAR : 2007-08 M/S. GALLANT INFOTECH PRIVATE LIMITED, AKRUTI TRADE CENTRE, ROAD NO.7, MAROL MIDC, ANDHERI (E), MUMBAI-400 093 PAN NO: AABCG 3543 J VS. DCIT, CENTRAL CIRCLE 36, AAYAKAR BHAVAN, M.K RD., MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI AMARDEEP DATE OF HEARING : 05.11.2012 DATE OF PRONOUNCEMENT : 09.11.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.6.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. T HE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING APPLICABILITY OF CONCEPT OF MUTUALITY. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHO IS A PRIV ATE LIMITED COMPANY WAS ENGAGED IN THE MANAGEMENT AND ADMINISTRAT ION OF AKRUTI SOFTECH PARK AT MAROL, MIDC, ANDHERI(E). THE AO DURING THE ITA NO.6493/M/2010 A.Y. 2007-08 2 ASSESSMENT PROCEEDINGS AFTER EXAMINING VARIOUS DETAILS FILE D BY THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD CLAIMED EXEMPTION OF INCOME ON THE GROUND OF MUTUALITY. THE AO TOOK THE VIEW TH AT SINCE THE ASSESSEE WAS A COMPANY BEING A DISTINCT LEGAL ENTITY ENGAGE D IN THE BUSINESS OF MAINTAINING SOFTECH PARKS WAS NOT EXEMPT ON TH E GROUND OF MUTUALITY. THE AO ALSO OBSERVED THAT CONCEPT OF MUTU ALITY WAS APPLICABLE ONLY TO ENTITIES LIKE CLUBS, GROUPS ETC. CREATE D FOR MUTUAL BENEFIT OF ITS MEMBERS. THE AO THEREFORE, DISALLOWED T HE CLAIM OF EXEMPTION. THE AO DISALLOWED THE CLAIM FOLLOWING THE DECISION TAKEN IN ASSESSMENT YEAR 2006-07. 2.1 IN APPEAL ASSESSEE SUBMITTED THAT THE AO HAD NOT ACCEP TED THE CONCEPT OF MUTUALITY ON THE GROUND THAT THE MAIN OBJE CTIVE OF THE ASSESSEE COMPANY WAS TO DO BUSINESS. IT WAS POINTED OUT THAT MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY WER E AMENDED IN THE EXTRA-ORDINARY GENERAL MEETING HELD ON 27.1.2004 AS PER WHICH THE COMPANY WAS NOT PERMITTED TO UNDERTAKE A NY NEW BUSINESS OTHER THAN BUSINESS SPECIFIED IN SUB-CLAUSE 2A OF PA RT B OF CLAUSE III OF THE MEMORANDUM OF ASSOCIATION. THE SAID CLA USE 2A IS REPRODUCED BELOW AS READY REFERENCE : TO MANAGE, ADMINISTER, IMPROVE, RECONSTRUCT AND AL TER LANDS, BUILDINGS, INFOTECH/COMMERCIAL PROJECT NAMEL Y AKRUTI SOFTECH PARK AT MAROL MIDC, ANDHERI (EAST), MUMBAI, REQUIRED FOR ATTAINING MAIN OBJECT, WHETHER BELONGING TO THE COMPANY OR NOT, TO ENTER INTO CONT RACTS ITA NO.6493/M/2010 A.Y. 2007-08 3 AND ARRANGEMENTS OF ALL KINDS AS MAY BE EXPEDIENT W ITH THE OCCUPIES THEREOF, TO EQUIP THE SAME OR ANY PART THEREOF WITH ALL OR ANY AMENITIES, FACILITIES AND CONVENIENCES AND TO COLLECT MAINTENANCE CHARGES AND OTHER OUTGOINGS FROM THE OCCUPIERS OF THE PREMISES UNDER THE OWNERSHIP OR MANAGEMENT OF THE COMPANY. 2.2 ASSESSEE FURTHER POINTED OUT THAT THE AO HAD DISALLO WED THE CLAIM OF MUTUALITY IN ASSESSMENT YEAR 20206-07 ALSO ON TH E SAME GROUND BUT THE TRIBUNAL IN THE ORDER DATED 2.1.2010 IN ITA NO.2963/MUM/2009 HAD RESTORED THE ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION AFTER NECESSARY EXAMINATION IN THE LIGHT O F AMENDMENT MADE TO THE MEMORANDUM AND ARTICLES OF ASSOCIATION AFTE R ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. IT WAS ALSO POINT ED OUT THAT THE AO IN THE FRESH ORDER DATED 21.6.2010 HAD ALLOWE D THE CLAIM OF THE ASSESSEE OF BEING A MUTUAL CONCERN. 2.3 CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISE D. IT WAS OBSERVED BY HIM THAT THE TRIBUNAL HAD RESTORED THE ISSU E TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. THE AO HOWEVER DID NOT MAKE ANY EXAMINATION AND ALLOWED THE CLAIM OF TH E ASSESSEE. THE AO DID NOT EXAMINE THE IMPACT OF THE AMENDMENT ON TH E APPLICABILITY OF CONCEPT OF MUTUALITY. CIT(A) FURTHER OBSERVED THAT CLAUSE 29 OF THE ARTICLE OF ASSOCIATION ONLY PROVIDED THAT THE COMPANY WILL NOT UNDERTAKE ANY NEW BUSINESS OTHER THAN BUSINESS SPECIFIED IN SUB CLAUSE 2A OF PART B OF CLAUSE III OF MEMORANDUM OF ASSOCI ATION WITHOUT ITA NO.6493/M/2010 A.Y. 2007-08 4 AFFIRMATIVE CONSENT OF ALL EQUITY SHARE HOLDERS IN GEN ERAL MEETING. THUS THE STATUS OF THE COMPANY REMAINED A BUSINESS ENTIT Y AND NOT MUTUAL CONCERN AS OPTION OF CARRYING ON BUSINESS AND PROFE SSION OTHER THAN MAINTENANCE WAS NOT FOREGONE PERMANENTLY. IT WAS ALSO NOT CLEAR AS TO HOW THE COMPANY WOULD TREAT SURPLUS WHICH WAS THE MAIN INGREDIENT OF MEMORANDUM OF ASSOCIATION OF MUTUAL CONCER NS. CIT(A) THEREFORE DID NOT ACCEPT THE VIEW TAKEN BY THE AO IN ASSESSMENT YEAR 2006-07 AND REJECTED THE CLAIM OF BENEFIT OF MUTUALI TY. AGGRIEVED BY SAID DECISION ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR SUBMITTED THAT IDENTICAL ISSUE HAD BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 (SUPRA) IN WHICH THE TRIBUNAL RESTORED THE ISSUE TO THE FILE OF AO FOR FRESH DECISION IN ACCORDANCE WITH LAW AFTER CONSIDER ING THE AMENDMENTS MADE TO MEMORANDUM OF ASSOCIATION. IT WAS ALSO POINTED OUT THAT IN FRESH ASSESSMENT, THE AO HAD ACCEPTED THE CLAI M OF THE ASSESSEE OF APPLICABILITY OF PRINCIPLE OF MUTUALITY. IT WAS ACCORDINGLY URGED THAT THE CLAIM SHOULD BE ALLOWED IN THIS YEAR A LSO. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BEL OW AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE RESPECTIVE ORDERS. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING APPLICA BILITY OF DOCTRINE ITA NO.6493/M/2010 A.Y. 2007-08 5 OF MUTUALITY IN CASE OF THE ASSESSEE WHO IS A PRIVATE LIM ITED COMPANY ENGAGED IN THE MANAGEMENT AND ADMINISTRATION OF AKRU TI SOFTECH PARK AT MAROL, MIDC, ANDHERI(E). THE SHARE HOLDERS OF THE ASSESSEE COMPANY HAD THE RIGHT OF OCCUPATION IN THE SAID PREMISES . THE ASSESSEE HAS CLAIMED THAT IT IS A MUTUAL CONCERN AND INCOME E ARNED BY IT IS EXEMPT FROM TAX. THE AO NOTED FROM THE MEMORAN DUM OF ASSOCIATION OF THE ASSESSEE COMPANY THAT IT HAD SEVERAL CLAU SES SUCH AS MAIN CLAUSE AND OTHER ANCILLARY CLAUSES WHICH RELATED T O CARRYING ON OF BUSINESS AND THEREFORE, THE AO HELD THAT THE ASSESSEE W AS NOT A MUTUAL CONCERN. THE CASE OF THE ASSESSEE IS THAT MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY WAS AMENDED IN THE GENER AL MEETING HELD ON 27.1.2004 IN WHICH CLAUSE 2A WAS INSERTE D WHICH HAS BEEN REPRODUCED IN PARA 2.1 EARLIER. FURTHER, ARTICL E OF ASSOCIATION WAS ALSO AMENDED TO INSERT CLAUSE-29 AS PER WHICH THE COMPANY WAS NOT TO UNDERTAKE ANY NEW BUSINESS OTHER THAN BUSINESS SPECIFIED I N SUB- CLAUSE 2A. IT HAS ACCORDINGLY BEEN ARGUED THAT THE ASSESSEE COMPANY IS ENGAGED IN ACTIVITIES ONLY FOR THE BENEFIT OF THE MEMBERS WHO ARE SHARE HOLDERS AND OCCUPIERS IN THE SAID BUILDING. THE ASSESSE E HAS ALSO ARGUED THAT THE SAME ISSUE HAD COME UP IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 IN WHICH THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF AO FOR FRESH DECISIONS AFTER CONSIDERING T HE AMENDMENTS AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSE SSEE AND IN THE ITA NO.6493/M/2010 A.Y. 2007-08 6 FRESH ASSESSMENT, THE AO HAS ACCEPTED THE CLAIM OF THE MUTU ALITY. CIT(A) HAS HOWEVER NOT ACCEPTED THE CONTENTIONS RAISED. I T HAS BEEN OBSERVED BY HIM THAT IN ASSESSMENT YEAR 2006-07, THE AO SIMPLY ACCEPTED THE CLAIM WITHOUT ANY EXAMINATION OF THE ISSU E FOR WHICH THE MATTER HAD BEEN RESTORED TO THE AO BY ITAT. CIT(A) H AS ALSO OBSERVED THAT EVEN IN TERMS OF THE AMENDMENT, THE ASSESSEE WAS NOT ALLOWED TO UNDERTAKE ANY BUSINESS OTHER THAN BUSINESS SPECIFIED IN C LAUSE-(2A ) WITHOUT AFFIRMATIVE CONSENT OF ALL EQUITY SHARE HOLDE RS WHICH MEANT THAT THE ASSESSEE COULD TAKE UP OTHER BUSINESSES ALSO WITH THE CONSENT OF EQUITY SHAREHOLDERS AND THUS OPTION OF CARRYING ON A NY OTHER BUSINESS WAS NOT FOREGONE. 4.1 WE HAVE CAREFULLY CONSIDERED ALL ASPECTS OF THE MAT TER. THE SAME ISSUE HAD ARISEN IN ASSESSMENT YEAR 2006-07 IN WHICH THE TR IBUNAL HAD RESTORED THE ISSUE TO THE FILE OF AO FOR EXAMINING THE APPLICABILITY OF DOCTRINE OF MUTUALITY IN CASE OF THE ASSESSEE IN VIEW OF T HE AMENDMENTS MADE TO THE MEMORANDUM OF ASSOCIATION AND AR TICLE OF ASSOCIATION. THE AO HOWEVER ACCEPTED THE CLAIM WITHOUT A NY EXAMINATION. THEREFORE, IN OUR VIEW WHETHER DOCTRINE OF MUTUALITY APPLIES IN CASE OF THE ASSESSEE OR NOT REQUIRES TO BE EXAMI NED PROPERLY. IT IS A SETTLED POSITION OF LAW THAT, FOR TH E DOCTRINE OF MUTUALITY TO APPLY THERE HAS TO BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS. IT IS ESSENTIAL THAT ALL CO NTRIBUTORS TO THE ITA NO.6493/M/2010 A.Y. 2007-08 7 COMMON FUND ARE ENTITLED TO PARTICIPATE IN THE SURPLUS AND ALL PARTICIPATORS IN SURPLUS ARE CONTRIBUTORS. ONCE THESE CONDITIONS ARE SATISFIED, THE SURPLUS GENERATED BY THE MUTUAL CONCER N CAN NOT BE CONSIDERED AS TAXABLE PROFIT. FURTHER, THE TEST OF MUT UALITY DOES NOT REQUIRE THAT THE CONTRIBUTORS TO THE COMMON FUND WILLI NGLY WILL DISTRIBUTE SURPLUS AMONG THEMSELVES. IT IS ENOUGH IF THEY HAVE THE RIGHT OF DISPOSAL OVER SURPLUS. 4.2 THE CLAIM OF THE ASSESSEE IS THAT IT HAS BEEN SET UP FO R UNDERTAKING CERTAIN ACTIVITIES FOR THE BENEFIT OF THE OCCUPIERS OF THE PREMISES WHO ARE ITS SHARE HOLDERS AND WHO ARE CONTRIBUTI NG TO THE COMMON FUND IN THE FORM OF SUBSCRIPTION ETC. THIS CLAIM O F THE ASSESSEE IS REQUIRED TO BE EXAMINED PROPERLY WHICH HAS NO T BEEN DONE. WE DO NOT AGREE WITH THE OBSERVATIONS OF CIT(A) THAT SINCE THE AMENDMENT DOES NOT DE-BAR THE ASSESSEE PERMANENTLY FROM DOING ANY BUSINESS OTHER THAN THE ACTIVITIES SPECIFIED IN CLAUSE (2A), IT WOULD LOOSE ITS CHARACTER OF MUTUAL CONCERN. THE OBJECTS IN THE MEMORANDUM OF ASSOCIATION ARE NOT CONCLUSIVE IN DECIDING THE TRUE NA TURE OF ACTIVITIES. THE ACTUAL ACTIVITIES OF THE ASSESSEE ARE REQUI RED TO BE EXAMINED IN DETAIL BEFORE ARRIVING AT ANY CONCLUSION REGARDING TRUE NATURE OF ACTIVITIES. IN CASE IT IS FOUND THAT ASSESSEE HAS UNDERTAKEN ACTIVITIES MENTIONED IN CLAUSE (2A) AND IF THOSE ACTIVITI ES ARE FOUND TO HAVE CHARACTERISTICS OF A MUTUAL CONCERN, THE ASSESSEE COMPANY CAN ITA NO.6493/M/2010 A.Y. 2007-08 8 NOT BE DENIED THE CLAIM OF MUTUALITY ONLY ON THE GRO UND THAT IN FUTURE IT MAY TAKE UP ANY OTHER ACTIVITY. ONLY AFTER DETAIL ED EXAMINATION OF THE ACTUAL ACTIVITIES DURING THE YEAR ANY CONCLUSION CAN BE ARRIVED IN THE MATTER. WE THEREFORE SET ASIDE THE ORDER OF CIT( A) AND RESTORE THE ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER PROPER EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND IN ACCORDANCE WITH LAW AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09.11.2012. SD/- SD/- (H.L. KARWA ) PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 09.11.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.