ITO 3(1)(1), MUMBAI V. THE AIR CARGO AGENTS ASSOCIATES OF INDIA, MUMBAI

ITA 7472/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2547 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 15-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Rule of consistency
• Section: 143(3); 260A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.7472/MUM/2014 ASSESSMENT YEAR: 2011-12 INCOME TAX ACT OFFIER-3(1)(1) AAYAKAR BHAVAN, M.K. ROAD MUMBAI 40002 / VS. M/S. THE AIR CARGO AGENCIES ASSOCIATION OF INDIA 28, NARIMAN BHAVAN NARIMAN POINT MUMBAI 400021 ( / REVENUE) ( !'# $ /ASSESSEE) PAN. NO. AAACT1460A / REVENUE BY SHRI KAILASH KANOJIYA !'# $ / ASSESSEE BY SHRI B.V. JHAVERI % & $ ' / DATE OF HEARING : 18/07/2016 & $ ' / DATE OF ORDER: 20/07/2016 ITA NO. 7472/MUM/2014 THE AIR CARGO AGENCIES ASSOCIATION OF INDIA 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 29.09.2014 OF LD. COMMISSIONER OF INCOME TAX. THE FIRST GROUND RAISED BY THE REVENUE IS WITH REGARD T O DELETION OF ADDITION OF RS.87,61,337/- BEING AMOUNT RECEIVED BY THE ASSESSEE FROM ITS MEMBERS AND INVES TED IN MUTUAL FUNDS ON THE GROUND THAT THE DOCTRINE OF MUTUALITY APPLIES TO THE ASSESSEE. 2. DURING HEARING SHRI KAILASH KANOJIYA ADVANCED ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED. HOWEVER, SHRI B.V. JHAVERI, LEARNED COUNSEL FOR THE ASSESSEE CLAIMED THAT THE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION IN DCIT VS. M/S. CARGO ASSOCIATION OF INDIA (ITA NO. 1774/MUM/2012 A ND ANOTHER DECISION IN ITA NO. 2540/MUM/2012 AND ITA N O. 3043/MUM/2012). THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE LEARNED D.R. 2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE AB OVE WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE AFORESAID DECISION IN ITA NO. 1774/MUM/2012 FOR REA DY REFERENCE AND ANALYSIS: - THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-5, MUMBAI AND IT PERTAINS TO A .Y. 2007- 08. 2. THE ONLY GROUND URGED BEFORE US READS AS UND ER: - ITA NO. 7472/MUM/2014 THE AIR CARGO AGENCIES ASSOCIATION OF INDIA 3 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE AD DITION OF RS.54,07,484/- MADE BY HOLDING THAT THE CONTRIBU TION RECEIVED FROM MEMBERS AND INVESTED IN MUTUAL FUNDS IS NOT THE OBJECT OF THE ASSOCIATION, WITHOUT APPRECIA TING THE FACT THAT THERE IS NO OFFICIAL GAZETTE WHICH CO VERS THE PROFESSIONAL AIR CARGO AGENT AS SPECIFIED IN SECTIO N 10(23A) AND FURTHER PROVISIONS OF SECTION 44A OF TH E I.T. ACT ARE NOT APPLICABLE IN ASSESSEES CASE AS THE ASSESSEE IS HAVING POSITIVE INCOME. 3. FACTS NECESSARY FOR THE PURPOSE OF APPRECIATING THE ISSUE ON HAND ARE STATED IN BRIEF. THE ASSESSEE IS AN ASS OCIATION OF AIR CARGO AGENTS IN INDIA. IN THE YEAR UNDER CONSID ERATION IT RECEIVED SUBSCRIPTION IN THREE FORMS, I.E. ANNUAL S UBSCRIPTION, MEMBERS ANNUAL CONVENTION AND MEMBERS TRAINING PROGRAMMES. THE SUM TOTAL OF THE AFOREMENTIONED REC EIPTS WORK OUT TO RS.54,07,484/-, WHICH WAS CLAIMED AS EX EMPT BY APPLYING THE PRINCIPLE OF MUTUALITY. 4. IT IS NOT IN DISPUTE THAT THE ASSOCIATION IS REG ISTERED AS A CORPORATE BODY UNDER SECTION 25 OF THE COMPANIES AC T AND ITS MAIN OBJECT IS TO TAKE CARE OF THE WELFARE AND BENE FITS OF ITS MEMBERS. IT IS ALSO NOT IN DISPUTE THAT IN THE PROC ESS OF ACHIEVING ITS OBJECT THE ASSOCIATION WAS ACTING AS A PLATFORM BETWEEN THE MEMBERS AND THE MINISTRIES OF COMMERCE, CIVIL AVIATION, AIRPORT AUTHORITY OF INDIA, CUSTOMS AND O THER MINISTRIES/AGENCIES CONCERNED WITH REFERENCE TO THE BUSINESS OF AIR CARGO. THOUGH THE COLLECTION IS BASICALLY UT ILISED FOR RUNNING THE ACTIVITIES OF THE ASSOCIATION, THE SURP LUS AMOUNT AVAILABLE WITH THE ASSOCIATION WAS TEMPORARILY UTIL ISED FOR INVESTMENT IN SHARES/MUTUAL FUNDS. SINCE THE INVEST MENT IN SHARES/MUTUAL FUNDS IS NOT PART OF THE BUSINESS OF THE ASSOCIATION, INCOME THEREFROM WAS OFFERED TO TAX. T HE AO WAS, HOWEVER, OF THE OPINION THAT EVEN THE INVESTME NT IN SHARES/MUTUAL FUNDS WOULD BE SUFFICIENT TO COME TO A CONCLUSION THAT THE CONTRIBUTIONS RECEIVED FROM THE MEMBERS WERE NOT UTILISED FOR THE OBJECTS OF THE ASSOCIATIO N AND ITA NO. 7472/MUM/2014 THE AIR CARGO AGENCIES ASSOCIATION OF INDIA 4 ACCORDINGLY THE AO CONCLUDED THAT THE CONTRIBUTIONS RECEIVED FROM ITS MEMBERS ARE NOT COVERED BY THE PRINCIPLES OF MUTUALITY AND THEREFORE LIABLE TO BE TAXED. 5. AGGRIEVED, IT WAS CONTENDED BEFORE THE CIT(A) TH AT THE ASSESSEE COMPANY IS WORKING ON NO PROFIT, NO LOSS BASIS. IT RECEIVED MEMBERSHIP SUBSCRIPTION FROM ITS MEMBERS E VERY YEAR APART FROM SPECIFIC CONTRIBUTIONS FROM MEMBERS FOR SPECIAL OCCASIONS SUCH AS TRAINING PROGRAMMES, ETC. SINCE ALL THESE CONTRIBUTIONS ARE FOR THE BENEFIT OF THE MEMB ERS WHEREIN THE CONTRIBUTORS AND PARTICIPANTS ARE THE S AME CLASS OF PERSONS, I.E. MEMBERS OF THE ASSESSEE COMPANY, P RINCIPLES OF MUTUALITY IS APPLICABLE IN WHICH EVENT THE CONTR IBUTIONS RECEIVED FROM THE MEMBERS ARE COVERED BY THE PRINCI PLES OF MUTUALITY. RELIANCE WAS PLACED UPON SEVERAL DECISIO NS IN SUPPORT OF ITS CONTENTION THAT THE LEARNED AO HAD W RONGLY APPRECIATED THE ISSUE; THE ISSUE INVOLVED HEREIN WA S WITH REGARD TO MEMBERS SUBSCRIPTION AND NOT REGARDING T HE INCOME EARNED ON THE INVESTMENTS MADE BY UTILISING MEMBERS CONTRIBUTIONS 6. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE AND IN THIS REGARD HE OBSERVED AS UNDER: - 3.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPELL ANT AND PERUSED THE ASSESSMENT ORDER. FROM THE ASSESSMENT ORDERS U.S. 143(3) FOR THE A.YRS. 2001-0 2, 2002-03, 2003-04, 2004-05, 2005-06 & 2006-07, IT IS SEEN THAT THE APPELLANT WAS ASSESSED AS MUTUTAL CONCERNS AND PRINCIPLE OF MUTUALITY WAS ACCEPTED BY THE AO IN ALL THESE YEARS. THE AO HAS NOT BROUGHT ANY N EW FACT ON THE RECORD TO MAKE HIM ABLE TO DEVIATE FROM THE FINDINGS OF THE EARLIER YEAR. IN VIEW OF SUBMISSION OF THE APPELLANT AND RESPECTFULLY FOLLOWING BOMBAY HIGH COURTS DECISION IN THE CASE OF CIT VS. COMMON EFFL UENT TREATMENT PLANT (THANE0BELAPUR) ASSOCIATION (328 IT R 362), BOM), THE ADDITION MADE BY THE AO IS DIRECTED TO BE DELETED. ITA NO. 7472/MUM/2014 THE AIR CARGO AGENCIES ASSOCIATION OF INDIA 5 7. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A) THE REVENUE IS IN APPEAL BEFORE US. THE LEARNED D.R. PLACED REL IANCE UPON THE LATEST DECISION OF THE HON'BLE APEX COURT IN TH E CASE OF BANGALORE CLUB VS. CIT [2013] 29 TAXMAN.COM 29 WHER EIN THEIR LORDSHIPS OBSERVED THAT SO LONG AS THE FLOW O F MONEY IS MAINTAINED WITHIN CLOSED CIRCUIT, I.E. FROM THE MEM BERS IT DOES NOT AFFECT THE PRINCIPLES OF MUTUALITY. HOWEVE R, SINCE THESE FUNDS WERE PLACED IN FIXED DEPOSITS WITH BANK , THE CLOSED FLOW OF FUNDS BETWEEN THE BANK AND THE CLUB SUFFERED FROM DEFLECTIONS DUE TO EXPOSURE TO COMMERCIAL BANK ING OPERATIONS AND TO THAT EXTENT THERE IS NO PRINCIPLE S OF MUTUALITY. THE LEARNED D.R. SUBMITTED THAT IN THE L IGHT OF THE AFORECITED DECISION THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF MUTUALITY. 8. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE FACTS OF THE AFORECITED DECISION ARE DISTINGUISHABLE. THAT WAS A CASE WHERE THE ASSESSEE WAS AN AOP. THE CONCERNED BANKS ARE ALL CORPORATE MEMBE RS OF THE CLUB. THE INTEREST EARNED FROM THE FIXED DEPOSI TS KEPT WITH NON-MEMBER BANK WAS OFFERED FOR TAXATION. UNDE R THESE CIRCUMSTANCES THE COURT HAD TO EXAMINE THE CASE OF THE ASSESSEE IN RELATION TO THE INTEREST EARNED ON FIXE D DEPOSIT WITH THE MEMBER BANKS ON THE PRINCIPLES OF THREE CU MULATIVE CONDITIONS, NAMELY, (A) IDENTITY OF THE CONTRIBUTOR S AND PARTICIPANTS, (B) WHETHER TREATMENT OF EXCESS FUNDS WAS IN FURTHERANCE OF THE OBJECT OF THE CLUB, AND (C) TAKI NG CARE OF CONTRIBUTIONS OF IT MEMBERS. THE COURT ALSO NOTICED THAT IN THE AFOREMENTIONED CASE, BEFORE THAT THE FUNDS WERE RET URNED TO THE CLUB THEY ARE EXPENDED ON NON-MEMBERS, I.E. CLI ENTS OF THE BANK. BANK GENERATE REVENUE BY PAYING A LOWER R ATE OF INTEREST TO CLUBASSESSEE, THAT MAKES DEPOSITS WITH THEM, AND THEN LOAN OUT THE DEPOSITED AMOUNTS AT A HIGHER RAT E OF INTEREST TO THIRD PARTIES. THIS LOANING OUT OF FUND S OF THE CLUB ITA NO. 7472/MUM/2014 THE AIR CARGO AGENCIES ASSOCIATION OF INDIA 6 BY BANKS TO OUTSIDERS FOR COMMERCIAL REASONS SNAP T HE LINK OF MUTUALITY, THUS BREACHES THE THIRD CONDITION. 9. IN THE CASE OF THE ASSESSEE BEFORE US THE FACTS ARE ENTIRELY DIFFERENT. THE CONTRIBUTIONS RECEIVED FROM THE MEMB ERS ARE UTILISED FOR THE BENEFIT OF THE CONTRIBUTORS ONLY A ND NO SPECIAL BENEFIT GOES TO ANY ENTITY OTHER THAN THE MEMBERS. APART FROM THAT THE AO HAS ACCEPTED THE CASE OF THE ASSESSEE I N SECTION 143(3) PROCEEDINGS FOR ALL THE EARLIER ASSESSMENT Y EARS. HE ALSO PLACED RELIANCE UPON THE DECISION OF THE HON'B LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. COMMON EFFLUENT T REATMENT PLANT, (THANE-BELAPUR) ASSOCIATION 328 ITR 362 WHER EIN ON IDENTICAL CIRCUMSTANCES THE HON'BLE JURISDICTIONAL HIGH COURT HELD THAT MERELY BECAUSE THE ASSESSEE UTILISED THE SURPLUS FUNDS FOR INVESTMENT IN FIXED DEPOSIT IN THE BANK, ETC. IT WILL NOT LOSE ITS IDENTITY AS MUTUAL BENEFIT SOCIETY; WH ILE INVESTING THE FUNDS WITH A BANK OR A FINANCIAL INSTITUTION, T HE ASSESSEE ASSUMES THE CHARACTER OF A CUSTOMER OF THE BANK OR INSTITUTION AND THE RELATIONSHIP WITH THAT IS ENGEN DERED IS THAT BETWEEN A BANKER AND ITS CUSTOMER. THE FACT TH AT THE FUNDS WHICH ARE INVESTED HAVE THEIR SOURCE IN THE CONTRIBUTION BY THE MEMBERS OF THE ASSESSEE CANNOT BE DISPOSITIVE OF THE NATURE OF THE RECEIPT OBTAINED B Y THE ASSESSEE ON ACCOUNT OF THE INTEREST PAYMENTS ON THE DEPOSITS MADE. THE LEARNED COUNSEL FOR THE ASSESSEE THUS STR ONGLY RELIED UPON THE ORDER PASSED BY THE LEARNED CIT(A). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. AS CORRECTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE WE ARE CONCERNED HERE WITH THE CONTRIBUTIONS MADE BY THE MEMBERS OF THE ASSOCIATIO N. IT IS NOT IN DISPUTE THAT THE AMOUNT COLLECTED FROM THE M EMBERS WERE UTILISED FOR THE WELFARE OF THE MEMBERS. THE C ASE OF THE REVENUE IS THAT MAKING USE OF THE FUNDS FOR DEPOSIT ING THE SAME IN THE BANKS VIOLATED THE PRINCIPLES OF MUTUAL ITY. AS ITA NO. 7472/MUM/2014 THE AIR CARGO AGENCIES ASSOCIATION OF INDIA 7 RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THE DECISION IN THE CASE OF BANGALORE CLUB (SUPRA) IS DISTINGUISHABLE ON FACTS. ON THE OTHER HAND, THERE IS A DIRECT DECISION OF THE HON'BLE BOMBAY HIGH COURT WHEREIN O N IDENTICAL CIRCUMSTANCES THE HON'BLE HIGH COURT OBSE RVED THAT DEPOSITING EXCESS FUNDS WITH THE BANKS/FINANCIAL IN STITUTIONS WOULD NOT RENDER UTILISATION OF THE FUNDS FOR PURPO SES OTHER THAN MUTUAL BENEFIT AND THE COURT OBSERVED THAT THE DOCTRINE OF MUTUALITY IS APPLICABLE IN SUCH CASES. SINCE THE VIEW TAKEN BY THE LEARNED CIT(A) IS IN CONFORMITY WITH THE VIE W TAKEN BY THE HON'BLE JURISDICTIONAL HIGH COURT, WE DO NOT FI ND ANY MERIT IN THE CONTENTION OF THE REVENUE AND THUS THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21ST MARCH, 2 013. 2.2 SO FAR AS THE ISSUE OF MAINTAINABILITY OF THE A DDITION OF SUM OF RS.56.83 LAKHS AS CONTRIBUTION FROM MEMBERS BY THE ASSESSEE ASSOCIATION AND INVESTED IN MUTUAL FUNDS C AME UP FOR CONSIDERATION BEFORE THE TRIBUNAL FOR ASSESSMEN T YEAR 2008-09 (ITA NO. 2540 & 3043/MUM/2012. THE RELEVANT PORTION OF THE SAME HAS BEEN CONSIDERED AND REPRODU CED AT PAGE 5 ONWARDS OF THE IMPUGNED ORDER AND THE SAME I S NOT BEING REPEATED BEING MATTER OF RECORD. NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE. IT ALSO NOTED THAT HON'B LE JURISDICTIONAL HIGH COURT IN THE CASE OF THE ASSESS EE FOR ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 31.03.2016 IN THE APPEAL FILED BY THE REVENUE UNDER SECTION 260A OF T HE ACT (ITA NO. 2455 OF 2013 AFFIRMED THE ORDER OF THE TRI BUNAL WHEREIN THE DECISION IN BANGALORE CLUB VS. CIT 350 ITR 509 (SC) WAS CONSIDERED AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THUS FOLLOWING THE DECISION OF THE TRIBUN AL AND THE ITA NO. 7472/MUM/2014 THE AIR CARGO AGENCIES ASSOCIATION OF INDIA 8 PRINCIPLE OF CONSISTENCY AND FURTHER RESPECTFULLY F OLLOWING THE ORDER FROM HON'BLE JURISDICTIONAL HIGH COURT, WE FI ND NO MERIT IN THE GROUND RAISED BY THE REVENUE, THEREFORE, THE STAND OF THE LEARNED CIT(A) IS AFFIRMED. RESULTANTLY THE APP EAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING ON 18.07.2016. SD/- SD/- ( RAJESH KUMAR ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER % MUMBAI; ) DATED : 20/07/2016 AA P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,-. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 1 1 2$ ( +, ) / THE CIT-3, MUMBAI. 4. 1 1 2$ / CIT(A)-7, MUMBAI 5. 45 /$ ! , 1 +,' +! 6 , % / DR, ITAT, MUMBAI 6. 7' 8% / GUARD FILE. / BY ORDER, 04,$ /$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI