AKRUTI CENTER POINT INFOTECH P. LTD, MUMBAI V. DCIT CEN CIR 36, MUMBAI

ITA 6494/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8383 (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. 6494/MUM/2010 ASSESSMENT YEAR : 2007-08 M/S. AKRUTI CENTER POINT INFOTECH PRIVATE LIMITED. AKRUTI TRADE CENTRE, ROAD NO.7, MAROL MIDC, ANDHERI (E), MUMBAI-400 093 PAN NO. AACCA 5208 P 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 D ATED 25.6.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING APPLICABILITY OF CONCEPT OF MUTUALITY IN CASE OF THE ASSESSEE. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A COMPANY ENGAGE D IN THE BUSINESS OF MAINTENANCE OF BUILDING NAMED AS AKRUTI CENT RE POINT LOCATED AT ANDHERI (E), MUMBAI. FOR THE RELEVANT ASSESSM ENT YEAR, THE ITA NO. 6494/M/2010 A.Y. 2007-08 2 ASSESSEE EARNED INCOME OF RS.91,483/- WHICH HAD BEEN CLAIME D EXEMPT ON THE GROUND OF CONCEPT OF MUTUALITY. THE AO OBSERVED THAT THE ASSESSEE WAS A COMPANY WHICH IS A SEPARATE LEGAL ENTITY ENGAGED IN THE BUSINESS OF MAINTENANCE OF BUILDING AT AKRUTI C ENTRE POINT AND THEREFORE THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY CLAIM OF MUTUALITY SHOULD NOT BE REJECTED. THE ASSESSEE SUBMITTED T HAT THE ASSESSEE COMPANY WAS ESTABLISHED EXCLUSIVELY FOR THE BENEFIT OF MEMBERS WHO OWN UNITS AT AKRUTI CENTRE POINT AT MIDC, ANDHERI. IT WAS FURTHER SUBMITTED THAT EACH SHARE HOLDER OF THE ASSESS EE COMPANY ACQUIRED RIGHT OF OCCUPATION OF PART OF AKRUTI CENTRE POINT ON ACQUIRING THE REQUISITE NUMBER OF SHARES AND ON PAYMENT OF NECESSAR Y FEES. THUS EACH AND EVERY SHAREHOLDER WAS PART OCCUPIER OF AKR UTI CENTRE POINT. IT WAS POINTED OUT THAT THE ASSESSEE COMPANY RECEI VED FUNDS FROM MEMBERS AND FUNDS THUS COLLECTED WERE SPENT FOR THE BENEFIT OF MEMBERS. NO SERVICE WAS PROVIDED TO ANY OUTSIDER BY ASSESSE E COMPANY. THE CONCEPT OF MUTUALITY WAS THEREFORE APPLICA BLE IN CASE OF THE ASSESSEE. THE AO HOWEVER DID NOT ACCEPT THE ARGUME NTS ADVANCED. IT WAS OBSERVED BY HIM THAT THE CONCEPT OF MUT UALITY WAS APPLICABLE TO ENTITIES LIKE CLUBS, GROUPS ETC. CREATED F OR MUTUAL BENEFIT OF ITS MEMBERS. IN THIS CASE THE ASSESSEE COMPANY WAS AN ENT ITY ENGAGED IN BUSINESS AND THEREFORE THE INCOME WAS TAXABL E. ITA NO. 6494/M/2010 A.Y. 2007-08 3 ACCORDINGLY THE AO REJECTED THE CLAIM OF MUTUALITY AND TAXED THE INCOME EARNED BY THE ASSESSEE. 2.1 IN APPEAL, ASSESSEE SUBMITTED THAT THE AO HAD NOT ACCE PTED 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 27.1.2006 AS PER WHICH THE COMPANY WAS NOT PERMITTED TO UNDERTAKE A NY NEW BUSINESS OTHER THAN BUSINESS SPECIFIED IN SUB-CLAUSE (2A) OF P ART 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 CENTRE POINT AT MAROL MIDC, ANDHERI (EAST), MUMBAI, REQUIRED FOR ATTAINING MAIN OBJECT, WHETHER BELONGING TO THE COMPANY OR NOT, TO ENTER INTO CONT RACTS 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 SIMILAR CLAIM OF MUTUALITY IN ASSESSMENT YEAR 2006-07 OF GALLANT INFOTECH (P) LTD. ON THE SAME GROUND BUT THE TRIBUNAL IN THE ORDE R 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 LI GHT OF ITA NO. 6494/M/2010 A.Y. 2007-08 4 AMENDMENT MADE TO THE MEMORANDUM AND ARTICLES OF ASSOCI ATION AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. IT WAS ALSO POINTED OUT THAT THE AO IN THE FRESH ORDER DATED 21.6.2010 H AD ALLOWED THE CLAIM OF THE SAID COMPANY 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 OF CLAIM OF MUTUALITY AND A LLOWED THE CLAIM OF THE ASSESSEE. THE AO DID NOT EXAMINE THE IMPACT OF TH E AMENDMENT ON THE APPLICABILITY OF CONCEPT OF MUTUALITY. CIT(A) F URTHER OBSERVED THAT CLAUSE (29) OF THE ARTICLE OF ASSOCIATION ONLY PROV IDED THAT THE COMPANY WILL NOT UNDERTAKE ANY NEW BUSINESS OTHER THAN BUSINESS SPECIFIED IN SUB CLAUSE (2A) OF PART B OF CLAUSE III OF M EMORANDUM OF ASSOCIATION WITHOUT AFFIRMATIVE CONSENT OF ALL EQUITY SHA RE HOLDERS IN GENERAL MEETING. THUS THE STATUS OF THE COMPANY REMAINE D A BUSINESS ENTITY AND NOT MUTUAL CONCERN AS OPTION OF CARRYING ON BUSINESS AND PROFESSION OTHER THAN MAINTENANCE WAS NOT FOREGONE PERM ANENTLY. IT WAS ALSO OBSERVED BY HIM THAT THE AMENDMENT HAD BEEN M ADE ON 15.2.2010 WHICH WAS MUCH AFTER THE END OF THE RELEVANT ASSESSMENT YEAR. CIT(A) FURTHER OBSERVED THAT IT WAS ALSO NOT CLEA R AS TO HOW THE COMPANY WOULD TREAT THE SURPLUS WHICH WAS THE MAIN INGRE DIENT OF MEMORANDUM OF ASSOCIATION OF MUTUAL CONCERNS. CIT(A) THE REFORE DID ITA NO. 6494/M/2010 A.Y. 2007-08 5 NOT ACCEPT THE VIEW TAKEN BY THE AO IN ASSESSMENT YEAR 2 006-07 IN CASE OF GALLANT INFOTECH LTD. AND REJECTED THE CLAIM OF BENEFIT OF MUTUALITY. AGGRIEVED BY SAID DECISION ASSESSEE IS IN APPEA L BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR SUBMITTED THAT IDENTICAL ISSUE HAD BEEN DECIDED BY THE TRIBUNAL IN CASE OF GALLANT INFOTECH LT D. FOR ASSESSMENT YEAR 2006-07 (SUPRA), IN WHICH THE TRIBUNAL RE STORED THE ISSUE TO THE FILE OF AO FOR FRESH DECISION IN ACCORDANCE WI TH LAW AFTER CONSIDERING THE AMENDMENTS MADE TO MEMORANDUM OF ASSOCIAT ION. IT WAS ALSO POINTED OUT THAT IN FRESH ASSESSMENT, THE AO HAD ACCEPTED THE CLAIM OF THE ASSESSEE OF APPLICABILITY OF PRINCIPLE OF MUTUALITY. IT WAS ACCORDINGLY URGED THAT THE CLAIM SHOULD BE ALLOWED I N THIS YEAR ALSO. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORD ERS OF AUTHORITIES BELOW 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 OF MUTUALITY IN CASE OF THE ASSESSEE WHO IS A PRIVATE LIM ITED COMPANY ENGAGED IN THE BUSINESS OF MAINTENANCE OF AKRUTI CENTRE POINT AT MAROL, MIDC, ANDHERI(E). THE SHARE HOLDERS OF THE ASSES SEE COMPANY HAD THE RIGHT OF OCCUPATION IN THE SAID PREMISES. THE A SSESSEE HAS ITA NO. 6494/M/2010 A.Y. 2007-08 6 CLAIMED THAT IT IS A MUTUAL CONCERN AND INCOME EARNED BY IT IS EXEMPT FROM TAX. THE AO NOTED FROM THE MEMORANDUM OF ASSOCIAT ION OF THE ASSESSEE COMPANY THAT IT HAD SEVERAL CLAUSES SUCH AS MAIN CLAUSE AND OTHER ANCILLARY CLAUSES WHICH RELATED TO CARRYING ON OF B USINESS AND THEREFORE, THE AO HELD THAT THE ASSESSEE WAS NOT A MUTUA L CONCERN. THE CASE OF THE ASSESSEE IS THAT MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY WAS AMENDED IN THE GENERAL MEETING HELD ON 27.1.2006 IN WHICH CLAUSE (2A) WAS INSERTED WHICH HAS BEEN REPRODUCED IN PARA 2.1 EARLIER. FURTHER, ARTICLE 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 ASSESSE E COMPANY IS ENGAGED IN ACTIVITIES ONLY FOR THE BENEFIT O F THE MEMBERS WHO ARE SHARE HOLDERS AND OCCUPIERS OF THE SAID BUILDING. THE ASSESSEE HAS ALSO ARGUED THAT THE SAME ISSUE HAD COME UP IN CASE OF GALLANT INFOTECH LTD. FOR ASSESSMENT YEAR 2006-07 (SUPRA), IN WH ICH THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF AO FOR F RESH DECISION AFTER CONSIDERING THE AMENDMENTS AND AFTER ALLOWING OPPORTUN ITY OF HEARING TO THE ASSESSEE AND IN THE FRESH ASSESSMENT THE AO HAS ACCEPTED THE CLAIM OF THE MUTUALITY. CIT(A) HAS HOWEVER NOT ACCEPTE D THE CONTENTIONS RAISED. IT HAS BEEN OBSERVED BY HIM THAT IN ASSESSMENT YEAR 2006-07 IN CASE OF GALLANT INFOTECH LTD., THE AO SIMPLY ACCEPTED ITA NO. 6494/M/2010 A.Y. 2007-08 7 THE CLAIM WITHOUT ANY EXAMINATION OF THE ISSUE FOR WH ICH THE MATTER HAD BEEN RESTORED TO THE AO BY ITAT. CIT(A) HAS ALSO O BSERVED THAT EVEN IN TERMS OF THE AMENDMENT THE ASSESSEE WAS NOT ALLOW ED TO UNDERTAKE ANY BUSINESS OTHER THAN BUSINESS SPECIFIED IN CL AUSE-(2A) WITHOUT AFFIRMATIVE CONSENT OF ALL EQUITY SHARE HOLDE RS WHICH MEANT THAT THE ASSESSEE COULD TAKE UP OTHER BUSINESSES ALSO WITH T HE CONSENT OF EQUITY SHAREHOLDERS AND OPTION OF CARRYING ON ANY O THER BUSINESS WAS NOT FOREGONE. MOREOVER, THE ASSESSMENT HAD BEEN MADE AFTER THE END OF THE RELEVANT ASSESSMENT YEAR. 4.1 WE HAVE CAREFULLY CONSIDERED ALL ASPECTS OF THE MATTE R. IN ASSESSMENT YEAR 2006-07 IN CASE OF GALLANT INFOTECH LTD. T HE TRIBUNAL HAD RESTORED THE ISSUE TO THE FILE OF AO FOR EXAMININ G THE APPLICABILITY OF DOCTRINE OF MUTUALITY IN CASE OF THE ASSESSEE IN VIEW O F THE AMENDMENTS MADE TO THE MEMORANDUM OF ASSOCIATION AND AR TICLE OF ASSOCIATION. THE AO HOWEVER ACCEPTED THE CLAIM WITHOUT AN Y 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 THE DOCTRINE OF MUTUALITY TO APPLY THERE HAS TO BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. IT IS ESSENTIAL THAT ALL CONTRIBUTORS TO COMMON FUND AR PARTICIPATORS IN THE SURPLUS AND ALL PART ICIPATORS IN SURPLUS ARE CONTRIBUTORS. ONCE THESE CONDITIONS ARE SATI SFIED, THE ITA NO. 6494/M/2010 A.Y. 2007-08 8 SURPLUS GENERATED BY THE MUTUAL CONCERN CAN NOT BE CONSID ERED AS TAXABLE PROFIT. FURTHER, THE TEST OF MUTUALITY DOES NOT REQUIRE THAT THE CONTRIBUTORS TO THE COMMON FUND WILLY-NILLY DISTRIBUTE SURPLUS AMONG THEMSELVES. IT IS ENOUGH IF THEY HAVE THE RIGHT OF DISP OSAL OVER SURPLUS. THE CLAIM OF THE ASSESSEE IS THAT IT HAS BEEN SET U P FOR UNDERTAKING CERTAIN ACTIVITIES FOR THE BENEFIT OF THE OCCUPIERS OF THE PREMISES WHO ARE ITS SHARE HOLDERS AND WHO ARE CONTRIBUT ING TO THE COMMON FUND IN THE FORM OF SUBSCRIPTION ETC. THIS CLAIM O F THE ASSESSEE IS REQUIRED TO BE EXAMINED PROPERLY WHICH HAS N OT BEEN DONE. WE DO NOT AGREE WITH THE OBSERVATIONS OF CIT(A) THAT SINCE THE AMENDMENT DOES NOT DE-BAR PERMANENTLY DOING ANY BUSI NESS OTHER THAN THE ACTIVITIES SPECIFIED IN CLAUSE (2A), IT WOULD L OOSE ITS CHARACTER OF MUTUAL CONCERN. THE OBJECTS IN THE MEMORANDUM OF ASSO CIATION ARE NOT CONCLUSIVE IN DECIDING THE TRUE NATURE OF ACTIVITIES . THE ACTUAL ACTIVITIES OF THE ASSESSEE ARE REQUIRED TO BE EXAMINED I N DETAIL FOR ARRIVING AT ANY CONCLUSION REGARDING TRUE NATURE OF A CTIVITIES. IN CASE IT IS FOUND THAT ASSESSEE HAS UNDERTAKEN ACTIVITIES MENTIONED IN CLAUSE (2A) AND IF THOSE ACTIVITIES ARE FOUND TO HAVE CHARACT ERISTICS OF A MUTUAL CONCERN, THE ASSESSEE COMPANY CAN NOT BE DENIED THE CLAIM OF MUTUALITY ONLY ON THE GROUND THAT IN FUTURE IT MAY TAKE UP ANY OTHER ACTIVITY. WE MAY ALSO POINT OUT THAT CIT(A), IS NOT CO RRECT IN STATING THAT THE AMENDMENTS WERE MADE AFTER THE END OF THE R ELEVANT YEAR. ITA NO. 6494/M/2010 A.Y. 2007-08 9 THE COPY OF MOA PLACED ON RECORD SHOWS THAT THE AMENDMEN TS WERE MADE ON 27.1.2006 AND NOT 15.2.2010. EVEN IF THE AM ENDMENTS WERE MADE LATER, IF THE ACTIVITIES ACTUALLY UNDERTAKEN ARE THOSE MENTIONED IN CLAUSE (2A) AND IF THESE MEET THE TESTS OF MUTUALITY, TH E CLAIM CAN NOT BE REJECTED. ONLY AFTER DETAILED EXAMINATION, ANY CO NCLUSION CAN BE ARRIVED IN THE MATTER. WE THEREFORE SET ASIDE THE ORD ER OF CIT(A) AND RESTORE THE ISSUE TO THE FILE OF AO FOR PASSING A FRESH O RDER 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 9.11.2012. SD/- SD/- (H.L. KARWA ) PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 9.11.2012. JV. ITA NO. 6494/M/2010 A.Y. 2007-08 10 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.