ORDER
J. Sudhakar Reddy, Accountant Member
1. These four appeals are filed by the assessee. Appeal No. 1916/Hyd./96 for assessment year 1991-92 is directed against the order of the Commissioner of Income-tax (Appeals) HI, Hyderabad dated 19-9-1996. Appeal Nos. 1917 to 1919/ Hyd./96 for assessment years 1992-93, 1993-94 arid 1994-95 are directed against the common order of the CIT(A) V, Hyderabad dated 16-8-1996.
2. As the issues involved in all these appeals are common, for the sake of convenience they are heard together and disposed of by this common order.
3. The only point that arises for adjudication in all these appeals is whether the dividend received by the assessee-company, which is running chit business, as a subscriber to chit groups promoted by it is assessable as income or not on the principle of mutuality.
4. Brief facts of the case as gathered from the record are as follows. The appellant is a public limited company carrying on the business of chits. One of its main activities is to form/promote hundreds of chit groups, with fixed number of subscribers with fixed amount of subscription and for a fixed period. The number of subscribers and the period of the chit are identical i.e. if there are 50 subscribers then the period of chit will be for 50 months only. The monthly subscription varies from group to group depending upon the value of the total chit, the number of subscribers etc.
5. The modus operandi of the chit business can be explained by way of this example, given below.
If the chit group promoted by the company is Rs. 50,000 prize money for 50 months then 50 subscribers join this chit group and each one of them are supposed to contribute Rs. 1,000 per month. Every month there will be an auction of this chit and the successful bidder will get the prize money less discount offered by him. Thus, if subscriber-A were to bid Rs. 50,000 for Rs. 40,000, he will be offering a discount of Rs. 10,000. He will get the prize amount of Rs. 40,000 only. The Foreman will be getting 5 per cent of Rs. 50,000 as commission Le. Rs. 2,500 which will be paid from out of the discount of Rs. 10,000. The balance Rs. 7,500 which is foregone as discount by the successful bidder will be distributed as dividend equally among all the 50 subscribers Le. Each subscriber would get a dividend of Rs. 150. Even the successful bidder would be earning this dividend of Rs. 150. All the members of the chit group would contribute their monthly subscription of Rs. 1,000 after deducting the dividend earned of Rs. 150 i.e. they would be paying Rs. 850 only during that particular month. Similarly, any number of chit groups with variations are floated by the promoter company. The assessee-company can also become a subscriber. The company which promotes these chit groups compulsorily joins each and every group as one of the subscribers (as a foreman). At times it can subscribe to more than one chit in a group. This may become necessary due to business expediency Le. if the required number of subscribers do not enrol to a particular chit group, the company many a times fills in this gap. At times, the company also steps in as a subscriber in cases where certain chit subscribers drop out or discontinue the subscription. There is no bar as to the number of chits a person can subscribe to.
6. When the company joins as a compulsory subscriber i.e. as one of the subscribers to a chit group as a Foreman at the time of auction, the company is entitled to the prize money as a matter of right without offering any discount whatsoever to the other subscribers of the chit group. This is the right of the Foremen. This chit to which the Foreman is entitled to may either be the first chit auction or a subsequent chit auction whereas in the cases where the company joins in as a subscriber either out of compulsion or joins other than in exercise of its rights as the Foreman of the chit, there is absolutely no difference between the assessee and the other subscribers in the amount of monthly subscription or the number of months to be contributed or the rate of subscription or the dividend earned or the rate of discount in an auction.
7. It is the case of the company that it has joined as a subscriber to the chit groups promoted by it and has earned dividend in the process and that it had also suffered loss in the form of discounts offered by it during the course of auction. The assessee-company claimed exemption of the dividends so earned on the principle of mutuality. The Assessing Officer rejected the contention of the assessee and subjected the dividend earned to tax rejecting the place that the income is derived from mutual association. While doing so he relied on the jurisdictional High Court’s judgment in the case of CIT v. Kovur Textiles [1982] 136 ITR 61 (AP). The assessee relied on the judgment of the Hon’ble Punjab & Haryana High Court in the case of Soda Silicate & Chemical Works v. CIT [1989] 179 ITR 5881. The ld. CIT(A) upheld the addition made by the Assessing Officer relying on the unreported judgment of the jurisdictional High Court in CIT v. Sri Purushotham Reddy in the Case Referred No. 36 of 1985. It was the view of the ld. CIT(A) that since the jurisdictional High Court has held that the chit loss was a business loss, on the same reasoning the dividend income from chits should be taken also as business income. Ld. CIT(A) has relied on the judgment of the Hon’ble Kerala High Court in the case of M. George Bros’. Chitty Fund v. CIT [1984] 150 ITR 3331 and the decision of the Madras High Court in the case of CIT v. Dr. Chinna Oomen [1984] 150 ITR 583. Aggrieved of this order, the assessee is in appeal before us.
8. Before the commencement of the arguments, the ld. Deptl. Representative supplied a copy of the unreported judgment of the jurisdictional High Court in the case of Sri Purushotham Reddy (supra), to the ld. counsel for the assessee. On a query from the bench, the ld. counsel for the assessee submitted that he has gone through this judgment copy which is supplied to him and that he was ready to present his case distinguishing this judgment. Hence it is decided to proceed with the case as requested by the ld. counsel for the assessee.
9. Ld. counsel for the assessee submitted that the chit dividend amount received by the appellant qua subscriber is not taxable on grounds of mutuality. He further contended that the assessee though a chit fund company is entitled to be a member of the mutual association as a subscriber and thereby receive dividends which are exempt from taxation on grounds of mutuality. For this proposition that the dividend received are not taxable on grounds of mutuality, he relied on the following judgments:
1. Soda Silicate & Chemical Works’ case (supra).
2. ITO v. Muthoot M. George Chits (India) Ltd. [1990] 34 ITD 1 (Delhi).
He submitted that the special feature of the decision of the Appellate Tribunal is that the department was arguing and contending that the principle of mutuality is applicable to chit fund transactions and chit fund companies. He submitted that it should be appreciated that the respondent was a chit fund company in that case, whereas he is an appellant in this case. He vehemently argued that the principle of mutuality is canvassed and argued by the department itself. He further submitted that the stand of the department is crucial inasmuch as it has to be considered as the stand of the CBDT in turn should be construed as the stand to be taken by the department all over the country. The assessee drew the attention of the bench to pages 1 to 4 of the paper book filed by him and submitted that these demonstrate significant development vis-a-vis the judgment of the Hon’ble Punjab & Haryana High Court in Soda Silicate & Chemical Works’ case (supra) and the reaction of the CBDT to this case. Page 3 of the paper book, he submitted is the order of the Commissioner of Income-tax, New Delhi passed under Section 263 with a view of disallowing chit loss on the ground of mutuality, following the judgment in the case of Soda Silicate & Chemical Works (supra). The communication of the CBDT dated 25-3-1992 is extracted in these proceedings. The CBDT in its proceedings dated 25-3-1992 declined to give instructions to the CITs regarding reopening of assessments under Section 263 on the ground of mutuality. He submitted that in other words, the considered stand of the CBDT is that the CITs are entitled to pass 263 orders to implement the mutuality principle as propounded in the Punjab & Haryana High Court’s judgment in Soda Silicate & Chemical Works Ltd.’s case (supra). In these circumstances, he submitted that it is no more open to the department to contend as an absolute proposition of law that the principles of mutuality is not applicable to chit fund transactions.
10. Ld. counsel for the assessee further argued that the decisions referred to and followed by the ld. CIT(A) in Kovur Textiles’ case (supra), George Bros. Chit Fund’s case (supra) and in Dr. Chinna Oomen’s case (supra) as also the unreported judgment in Shri Purushotham Reddy’s case (supra) are distinguishable as in none of the above decisions, the principle of mutuality has been raised or argued. He vehemently argued that the above four decisions cannot be considered as precedent on the question of mutuality. For this proposition, he relied on the judgment in the case of Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 (SC), where at page 404 of the reported judgment of the Apex Court, the following is what is held in the head note of the decision :
Precedent – Authority only for what it decides – Not for what may remotely or even logically follow – Decision on question not argued cannot be treated as precedent.
Ld. counsel for the assessee submitted that the above 4 decisions considered by the ld. CIT(A) do not in any way come in granting relief to the appellant as prayed for, as they were not even remotely or logically argued or discussed or considered in those cases. Ld. Counsel for the assessee submitted that the CIT(A) had also mentioned the decision of the Hon’ble Supreme Court in the case of CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241 and submitted that in that case, the Hon’ble Supreme Court pointed out there is no compulsion or requirement that all shareholders should borrow and contribute by way of interest, where interest income was contributed by borrowers and where from out of such income dividend was distributed to the shareholders. He submitted that the shareholder got the dividend only in the capacity of shareholder i.e. as shareholder of any company. He distinguished that case by submitting that in the instant case, the assessee is not getting dividend’ as a shareholder but only in exercise of his rights as a subscriber. He vehemently argued that once the assessee joined the chit group as a subscriber he is bound by the rules and regulations applicable to all the subscribers. The rights of the assessee-company as a subscriber are identical in all respects with the rights and obligations of the other subscribers. He argued that there is not even a slight variation in any manner or to any extent in such circumstances. He further submitted that the case of Kumbakonam Mutual Benefit Fund Ltd. considered by the Hon’ble Supreme Court is not a case of a chit fund company or a case where chit fund transactions are involved. He argued that in fact in the case of CIT v. Natraj Finance Corporation [1988] 169 ITR 732′ (AP) relied upon by judgment of the P&H High Court in Soda Silicate & Chemical Works Ltd. ‘s case (supra), at page 169 have pointed out that what is required is that the members of a class should contribute to a common fund and participators as a class must be able to participate in surplus. He submitted that this view has been approved by the judgment of the Hon’ble Supreme Court in the case of CIT v. Bankipur Club Ltd. [1997] 226 ITR 972 the relevant passage is at page 103 which is extracted hereunder :
The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. The Madras, Andhra Pradesh and the Kerala High Courts have held that the test of mutuality does not require that the contributors to the common fund should willy-nilly distribute the surplus amongst themselves; it is enough if they have a right of disposal over the surplus, and in exercise of that right they may agree that on winding up the surplus will be transferred to a similar association or used for some charitable objects.
Thus in the light of the above submission the applicant prayed for relief.
11. As regards the decision relied upon by the revenue authorities, ld. counsel for the assessee submits that the decision in Purushotham Reddy’s case (supra} should not be followed for the following among other reasons:
(a) A copy of the judgment of Shri Purushotham Reddy’s case (supra) was furnished only at the time of the hearing before the Hon’ble ITAT by the Departmental Representative in the course of his arguments on 20-12-2001. The copy of the statement of case however was not furnished.
(b) The decision in Shri Purushotham Reddy’s case (supra) had been rendered ex parte since the assessee was not represented. No doubt the High Court appointed Shri KVS Bhaskar Rao, Advocate as amicus curiae.
(c) The following two questions were referred under Section 261 which read as under :
1. Whether on the facts and in the circumstances of the case the Appellate Tribunal is justified in holding that the dividend allotted to the subscriber, where the subscription to the Chit is not in the course of business cannot be considered as a profit arising or accruing from the trade or vocation which they carried on.
2. Whether on the facts and in the circumstances of the case the Appellate Tribunal is justified in holding that the dividend received by the assessee in the present case cannot be considered as income or profit in the hands of the assessee even under the head “Other Sources.
It may be appreciated, he argued that the question as to whether the dividend income of Rs. 3,438 received by the assessee was exempted on grounds of mutuality was not raised as one of the question for answer by the Honourable High Court under Section 261.
(d) There is not even any mention in the entire judgment about any argument in relation to the claim for exemption on grounds of mutuality. As a matter of fact the word ‘mutuality’ has not been mentioned even once in the course of the entire judgment.
The judgment of the Andhra Pradesh High Court in Dhoosa Narasimloo v. Yelala Rajanna ILR (1958) AP 409 wherein Justice Srinivasacharya held that chit fund in essence an organisation for mutual benefit had not been brought to the notice of the judges of the Andhra Pradesh High Court while hearing Shri Purushotham Reddy’s case (supra).
(e) The above judgment in Dhoosa Narasimloo’s case (supra) was considered by Their Lordships of the Supreme Court in the case of Shriram Chits & Investments Ltd. v. Union of India AIR 1993 (SC) 2063 at page, 2075 (Right hand side bottom) a copy of the judgment AIR 1993 (SC) was already submitted to IT AT on 20-11-2000 by the appellant’s counsel. This finding of the Supreme Court is binding on all courts in India in view of Article 141 of the Constitution of India.
He further argued that it is a settled proposition of law that the High Court can only answer those questions which are referred to it and it cannot answer new questions which has not been so referred vide the following cases :
(a) CIT v. Maharajadhiraja Kameswar Singh of Darbhanga [1933] 1 ITR 94 at page 107 (PC)
(b) Sir Rajendra Narayan Bhanja Deo v. CIT [1940] 8 ITR 495 (PC)
(c) Kusumben D. Mahadevia v. CIT [1960] 39 ITR 540 (SC)
(d) B.B. Irani v. CIT[1966] 60 ITR 437 (SC)
(e} CIT v. Smt. Anusuya Devi [1968] 68 ITR 750 (SC)
(f) CIT v. Krishna & Sons [1968] 70 ITR 733 (SC)
The Hon’ble Supreme Court in Krishna & Sons’ case (supra) observed as under:
The jurisdiction of Supreme Court arising over judgment of High Court on a reference under the Income-tax Act is also advisory. The Supreme Court can only record its opinion on questions which are referred and not questions which could have been but have not been referred. In Krishna & Sons’ case, the question as to whether omnibus permit was a capital asset though considered by the Tribunal was not raised by the High Court effectively. The Supreme Court declined to go into the matter. The jurisdictional High Court under Section 256 of Income-tax Act, 1961 is also advisory and the High Court cannot answer a question which was not raised. Actually the Andhra Pradesh High Court in Shri Purushotham Reddy’s case (supra) did not consider the question of mutuality as it was manifestly outside the sweep of the questions raised before the High Court and extracted in Para IV(e). Thus 3 things arc very clear on a plain reading of the judgment in Shri Purushotham Reddy’s case (supra) viz,
(a) The principle of mutuality was not raised as a question.
(b) The principle of mutuality was not argued as a point for determination.
(c) The High Court also did not decide the issue of mutuality as will be evident from the order of judgment.
Thus the appellant submits that the decision of Andhra Pradesh High Court in the case of Purushotham Reddy (supra) cannot be treated as an authority on the mutuality principle in relation to chit transaction especially, in the light of the above Supreme Court judgments including Krishna & Sons’ case (supra) and the decision of the Supreme Court rendered in Goodyear Tyre’s case (supra) and the decision of the Supreme Court in Shriram Chits & Investments Ltd.’s case (supra). The appellant also submits that the stand of the department has to be evident from Muthoot M. George’s case (supra) (pages 10 to 19 of the paper book) and the CBDT Circular at page 3 of the paper book wherein it had declined to stop the Commissioner from passing order under Section 263 of the Income-tax Act invoking the principle of mutuality as enunciated in Soda Silicate case are also very significant developments subsequent to the decision of the Andhra Pradesh High Court in Purushotham Reddy’s case (supra) which was rendered on 1-3-1988. The present stand of the department at New Delhi that the principle of mutuality would apply to chit transaction would make a qualitative difference.
(f) It has also been held by Courts that the routine clause “on the facts and in the circumstances ‘of the case” which occurs in questions of law formulated for the Court’s determination would not entitle the courts to deal with a question of law in respect of which there has been no application for reference vide (1) CIT v. D. Arokiaswami Chetti [1948] 16 ITR 404 (Mad.) at page 411 (2) Gurdayal Berlia v. CIT [1966] 62 ITR 494 (SC) at page 502 (3) Addl CIT v. Glass Miniature Bulb Industries [1981] 130 ITR 41 (All).
In the light of the above submission and case law ld. counsel for the assessee submits that the ratio of Their Lordships of the Punjab & Haryana High Court rendered in Soda Silicate & Chemical Works’ case (supra) and followed by IT AT, New Delhi should be applied to the appellant’s case so as to hold that the net dividend received by the appellant is not to be taxed on grounds of mutuality.
12. Summing up his arguments, the ld. counsel for the assessee, as to whether chit fund companies arc entitled to relief, submits that a businessman can earn non-taxable income vide pp. 47-48, 113 & 127 of Palkhivala on Income-tax Vol. I., 8th Edition, in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 at pp. 458 and 459, Their Lordship of the Supreme Court have held that when a sugar company cultivates sugarcane for the purpose of manufacturing sugar, the profits referable to agricultural activities are exempt. At page 48 of Palkhivala on Income-tax 8th Edition Vol. I, it is digested as under :
The exemption is conferred, and conferred indelibly, on a particular kind of income and does not depend on the character of the recipient.
The ld. counsel for the assessee submits that the assessee though carrying on chit business, is entitled to exemption from taxation so far it relates to its dividend receipts on grounds of mutuality particularly in view of the decision of the Apex Court supra. He also submits that businessmen earning non-taxable income can be in many ways. For instance, a dealer in shares can get dividend income during the period when the shares are held as stock-in-trade. Manifestly such incomes are exempt by reason of Section 10(33) of the Income-tax Act, 1961. Thus, the ld. counsel for the assessee prayed that the Tribunal may be pleased to allow the appeals deleting the additions made by the Assessing Officer, on the principle of mutuality.
13. Ld. Departmental Representative vehemently opposed the contentions of the assessee’s counsel and submitted that a copy of the judgment of the Hon’ble A.P. High Court in the case of Shri Purushotham Reddy (supra) and the judgment of this Tribunal in Shri Purushotham Reddy IT( Appeal No. 1160 (Hyd.) of 1982 on which the judgment of the jurisdictional High Court lies, were both supplied to the ld. counsel for the assessee, and the ld. counsel for assessee has tried to distinguish the same after going through the same. He argued that it is not open any more to the ld. counsel for the assessee to state that the unreported judgment is not given to him. He further submitted that the assessee and its counsel have not made any efforts whatsoever to obtain copies of the unreported judgment.
14. The ld. DR vehemently contended that the case is squarely covered by the judgment of the Hon’ble A.P. High Court, both in the case of Shri Purushotham Reddy (supra) as well as by the judgment in the case of Kovur Textiles & Co. (supra). He relied on the judgment of the Hon’ble Kerala High Court in the case of M. George Bros. Chitty Fund (supra) and submitted that the principles of mutuality so vehemently contended, are not applicable to this case. The ld. DR took this bench through the order of the Tribunal dated 31-1-1984, in the case of Shri Purushotham Reddy (supra) wherein at paragraph-2, it is stated thus :
According to the facts of this case in a note appended to the return of income dividend from a chit with M/s. Aishwarya Chit Funds Pvt. Ltd. was shown at Rs. 6,875 and the same was claimed as exempt as only surplus from mutual association.
He drew the attention of the Bench to paragraph-5 at page-2 of the Tribunal’s order supra, wherein it was observed thus :
The submission of the assessee was that the surplus arising to a mutual association is not taxable either in the hands of the association or in those, of the members thereof. According to the assessee this is based on the principles that no person can make profit but of himself.
He further took this bench to paragraph-10 at page-5 of that order, wherein it was held thus :
The matter came to be considered more elaborately by the special Bench in UD v. Kosamattam Chitty Fund & Investments (Selected orders of the Tribunal Vol. Ill page 16) and it was categorically held that veethapalisa in the hands of the foreman since in his case it arose out of a business transaction was clearly income.
He argued that the principles of mutuality was very much considered by this bench of the Tribunal in Shri Purushotham Reddy’s case (supra) and the statement of facts before the Hon’ble High Court amply reflected these findings which were approved. He argued that the Hon’ble A.P. High Court had considered the statement of facts and also the judgment of this Tribunal while deciding the matter and hence it is not correct for the ld. counsel of the assessee to argue that the principles of mutuality was never considered by the jurisdictional High Court. He further argued that the judgment of the jurisdictional High Court is binding on this Tribunal and thus the order of the ld. CIT(A) should be upheld. He relied on the judgment of the Hon’ble Kerala High Court in the case of M. George Bros. Chitty Fund (supra) and submitted that the issue is covered in his favour. He distinguished the judgment of the Punjab & Haryana High Court in the case of Soda Silicate & Chemicals Works (supra) and submitted that in that case, the assessee was a mere subscriber and not a chit fund company. He also relied on the jurisdictional High Court’s judgment in the case of Kovur Textiles (supra). He also relied on the judgment of the Hon’ble Madras High Court in the case of Dr. Chinna Oomen (supra). He submitted that it is wrong to compare and apply the decisions in the case of Maharashtra Sugar Mills Ltd. (supra) of this case on the ground that taxability of a particular kind of income does hot depend on the character of the recipient as dividend on chits can in no way be compared with agricultural income. He controverted all the arguments of the ld. counsel for the assessee at length and relied heavily on the orders of the ld. CIT(A) and submitted that the same should be upheld.
15. Heard both sides. Read all the papers on record, the orders of the authorities below and the case law cited. The only issue that has to be decided is whether the principles of mutuality is applicable to the assessee, which is a chit fund company. Admittedly, the assessee is a commercial entity formed to derive profits and gains from the business of chits. Though at the first blush the arguments of the ld. counsel for the assessee seem very attractive and convincing, we do not agree to the same as it is a settled proposition of law that the principles of mutuality is not applicable to commercial organisations formed with an object of earning profit of a commercial nature. It is pertinent to note that we are considering the case of a company which carries on the business of chit funds and not that of an assessee who joins as a subscriber to chits for personal savings or otherwise. The issue on hand is the taxability of the dividend earned by the assessee-company, which joined the chit groups promoted by it either as a Foreman in fulfilment of the requirement of law i.e. Chit Funds Act, 1982 (Central Act 40 of 1982) or on the assessee-company entering into the shoes of defaulting subscribers or in some cases to fill up vacant chits as a matter of necessity or expediency of its business and not by choice. It is not the case of the assessee-company that it participates in chits promoted by other companies or entities. The basic principle of mutuality cannot be applied to income from commercial pursuits. Profit earning is the motto of the assessee-company. The profits in question arise and accrue from the trade or vocation which it carried on.
16. The judgment of the Delhi Tribunal in Muthoot M. George Chits (India) Ltd. ‘s case (supra) so heavily relied on by the assessee’s counsel does not come to its rescue as in that case the fact that the assessee-company was a mutual association was not in dispute. The Bye-laws of this company do not demonstrate that it is a mutual association. The judgment of the Hon’ble Punjab and Haryana High Court, in the case of Soda Silicate & Chemical Works (supra) also to our mind, is distinguishable on facts, as there, the Hon’ble High Court was considering the case of an assessee who is a subscriber in a chit fund and not of the chit fund company per se. Even otherwise the jurisdictional High Court’s decision is in favour of the revenue. This Bench of the Tribunal in Shri Purushotham Reddy’s case (supra), had in fact held that in the hands of the Foreman, the dividends received was taxable, as it arose out of business transaction and thus was clearly income. While holding so, it followed a Special Bench decision of the Tribunal. The Hon’ble A.P. High Court while considering the case of CIT v. Margadarsi Chit Funds P. Ltd. [1985] 155 ITR 442′, on the issue of dividends earned on “vacant chits”, held that it is taxable as per the “Method of accounting” followed by them, though apparently the principle of mutuality had not been considered therein. No doubt, the taxability of income was not disputed by the assessee in that case and hence we feel this case is not applicable to the case on hand.
17. The principles of mutuality are based on the concept that no one can make profits out of himself.
CIT v. The Royal Western India Turf Club Ltd. [1953] 24 ITR 551 (SC).
The essence of mutuality is of complete identity between the contributor and the participator.
Kurnbakonam Mutual Benefit Fund Ltd. ‘s case (supra). We examine the applicability of these principles to this case. Section 21 of the Chit Funds Act, 1982 reads as follows :
Rights of Foreman-(1) The Foreman shall be entitled-
(a) in the absence of any provision in the chit agreement to the contrary, to obtain the chit amount at the first instalment without deduction of the discount specified in the chit agreement, subject to the condition that he shall subscribe to a ticket in the unit:
Provided that in a case where the Foreman has subscribed to more than one ticket, he shall not be eligible to obtain more than one chit amount in a chit without discount;
(b) to such amount not exceeding five per cent of the chit amount as may be fixed in the chit agreement, by way of commission, remuneration or for meeting the expenses of running the chit;
(c) to interest and penalty, if any, payable on any default in the payment of instalments and to such other amounts as may be payable to him under the provisions of the chit agreement.
This demonstrates that the Foreman’s role and rights are at variance with the other participators and contributors. The Foreman need not forego discount or loss and can take the first instalment. Thus, it cannot be said that there is complete identity between the Foreman and other participators in the chit. It cannot also be said that the profit is made out of itself. Thus, the principles of mutuality cannot on this count also be applied to chit fund companies.
18. The Hon’ble Kerala High Court in the case of M. George Bros. Chitty Fund (supra), in the head note (pp. 333-334) held as follows :
(ii) that the assessee was a business firm and its aim was to make profits. It was in the course of carrying on the business it had become a subscriber to the chitties. Thus, it had made it clear that it was in the habit of adopting other ways also to acquire a gain. The way in which the assessee was conducting the business indicated that the receipt of “veethapalisa” was inseparably connected with the ownership of the business.
This judgment is in favour of revenue and squarely applies to the case on hand. We respectfully follow the same. We do not want to go into the other case law relied upon by the ld. counsel for the assessee to establish his case that the income in question is governed by the principles of mutuality, as we have held that the assessee was a business concern and its aim was to make profits and thus, the principles of mutuality cannot be applied to it. In view of our finding that the assessee is not a mutual concern, we do not go into the arguments of the assessee’s counsel that the treatment of a particular kind of income i.e. (exempt income) does not depend on the character of the recipient as the income derived is held as not exempt. We hold that the issue on hand on principle, is covered by the judgment of the jurisdictional High Court in the case of Kovur Textiles case (supra), inasmuch as the assessee has earned this income for the purposes of its business and to be utilised only for the purposes of his business. Even in the case of Nataraj Finance Corporation (supra) the findings of the jurisdictional High Court was that the assessee did not carry on any business and thus, the principles of mutuality was applied. There, the company was not considered to be carrying on business which is not so in this case. The issue is squarely covered in favour of the revenue by the decision of the jurisdictional High Court vide its judgment in the case of Shri Purushotham Reddy (supra), as we see that the only plank on which exemption was claimed in that case, was mutuality and nothing else. It can be said that this is a consistent view of the jurisdictional High Court. As far as the arguments of the ld. counsel for the assessee regarding the binding nature of these judgments as precedents, we answer the same by referring to the judgment of the Hon’ble Supreme Court in the case of Kesho Ram & Co. v. Union of India [1989] 3 SCC 151 wherein, at page 160 where it is held, “The binding effect of a decision of this Court does not depend upon whether a particular argument was considered or not, provided the point with reference to which the argument is advanced subsequently was actually decided in an earlier decision”. Similar is the view of the Hon’ble Supreme Court in the case of Ambica Prasad Mishra v. State of U.P. [1980] 3 SCC 719 dealing with the point where it is held that under Article 141 every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. The judgment of the Hon’ble Supreme Court, in the case of Shriram Chits & Investments (P.) Ltd. (supra), so heavily relied on by the ld. counsel for the assessee does not further the case of the assessee, as in that case what was being considered was a chit fund transaction vis-a-vis a loan transaction. Nowhere in that judgment, a ratio is laid down that the dividend income from chits of a chit fund company is exempt on principles of mutuality. The facts and the issues involved are entirely different. Thus, we uphold the order of the ld. CIT(A) and dismiss the appeals of the assessee.
19. In the result, appeals of the assessee are dismissed.