ORDER
B. L. Khatri, AM
1. These seven appeals have been filed by the assessee against the orders of CIT(A), Jodhpur for A.Ys. 1989-90, 1990-91, 1991-92, 1992-93, 1993-94, 1994-95 and 1995-96. There are common ground of appeals. Therefore for the sake of convenience all these seven appeals are being decided through a consolidated order. The appellant agitated on various grounds. The Ld. A.R. has submitted the following concise grounds of appeal as per Rule 8 of I.T. Rules, 1963 :-
1. The impugned assessment order under Section 143(3)/148, being bad in law, bad in facts, without jurisdiction, barred by limitation and arbitrary, the Ld. CIT(A) has grossly erred in sustaining and maintaining the same as legal and valid.
2. That without prejudice to the foregoing ground of appeal, in the facts and in the circumstances of the case, the Ld. CIT(A) was not justified and has grossly erred in confirming the view/finding/decision of the Ld. AO that the appellant union was not entitled for exemption under Section 10(24) of the I.T. Act, 1961.
3. 3. That without prejudice to both the foregoing grounds of appeal and in the alternative, the Ld. CIT(A) has erred in not accepting the ground of appeal before him, being No. 2(f) that the appellant Trade Union in any event being a mutual concern, and the principle of mutuality being applicable, its income in any event/case is not liable to tax under the provisions of the I.T. Act, 1961.
4. That without prejudice to all the three foregoing grounds of appeal and in the alternative, the Ld. CIT(A) has erred in fact and in law in not allowing ground No. 3 before him that the Ld. A.O. in any event was wrong in treating the entire collection of the appellant as income liable to tax, which was inclusive of capital receipts like admission fee of members and voluntary contribution towards corpus.
5. That in case of failure of grounds No. 1 to 3 above, the Ld. CIT(A) has erred in maintaining the disallowance of various expenses made by Ld. AO while computing the taxable income of the appellant on the ground that these were the personal expenses and not incurred for the purpose of the union.
6. That, on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not canceling the levy of interest under Section 234A and 234B of the Act amounting to Rs. 1,00,890/- and Rs. 1,19,700/-respectively.
7. That, the appellant craves leave to add, amend, alter, substitute, modify or withdraw any of the grounds taken hereinabove on or before the appellate hearing.
8. That, he prays that its appeal may please be allowed canceling the income assessed to NIL alongwith tax and interest liability.
2. In gr. No. 1 the appellant submitted that the orders passed by the A.O. under Sections 143(3)/147 of the I.T. Act, 1961 were bad in law and bad in the facts and without jurisdiction. The AO was unjustified in the facts and circumstances of the case resorting to action under Section 147/148 of the Act even after recording reasons under Section 148. The return was processed accepting the claim of the appellant under Section 10(24) of the Act. Notices were neither served upon the appellant nor on any authorized persons. The AO was not justified in invoking the provisions of Section 148 for all these years because there were escapement of income and any failure on the part of the appellant. It was also submitted that the AO had not deliberately issued notice under Section 143(2) within the stipulated time and had initiated reopening proceedings after the limitation period for the notice issued under Section 143(2). The CIT(A) had considered the submissions of the appellant. The CIT(A) held that the AO was legally justified in initiating the re-assessment proceedings under Section 148 for all these assessment years because the AO had reason to believe that the income chargeable to tax had escaped assessment relating to all these assessment years. He also held that all the orders passed by the AO for all these years under reference were validly made and the AO had proper jurisdiction upon the appellant. The AO had ample justification for resorting to the provisions of Section 148 in the case of the appellant.
3. As regards the service of notice under Section 148 it was held by the CIT(A) that such notices were served on the person who was available at the relevant time in the office of the appellant. Since such notices were willingly accepted by the person available in the office at a later date it cannot be said that the notice under Section 148 was not validly served upon the appellant. The appellant was well aware about such notices and such objections were not raised before the AO during the assessment proceedings. Therefore the CIT(A) held that the notice validly served upon the appellant and the AO had rightly invoked the provisions of Section 147 of the Act.
4. The Ld. A.R. made the following submissions: In gr. No. 1 first of all, the Ld. A.R. objected to reopening of the assessments under Section 147 of the Act on mere change of opinion on the same facts. For the A.Y. 1989-90 it was submitted that the return of income was filed on 28-6-90. Therefore, the issuance of notice under Section 148 was without jurisdiction as it was only on account of change of opinion on the existing facts or record on the basis of which no action under Section 148/147 could be taken. The return of income for this asst, year sated to have been filed on 28-6-90 was not found in the income-tax department. Therefore the assessee filed return of income on 29th July, 1994 under acknowledgement No. 770 declaring nil taxable income after claiming and availing exemption under Section 10(24) of the Act. Therefore on account of change of opinion the initiation of proceedings under Section 148 on the same set of facts was erroneous as held by various courts. He relied upon the judgment of Birla VXL Ltd. v. CIT, 217 ITR 1. Similarly all other assessments had been completed in a summar manner under the provisions of Section 143(1)(a) of the Act.
5. He had also contended that the AO should have issued notice under Section 143(2) for scrutinizing these returns instead of resorting to the provisions of Section 147/148. This action of the AO to issue notice under Section 147/148 was only an action towards the reopening of cases on the basis of change of opinion or to cover up the latches or lapses on his part as the facts were in his knowledge. For such defaults, lapses or latches the statute does not authorize the AO to take action under Section 148 of the Act.
6. We have considered the rival submissions and perused the case-laws on the subject. For the asst, year 1989-90 the return said to have been filed was not available. The AO had reopened the assessments after recording reasons. For all other years the Ld. AR has reported that the returns had been filed and had been processed in summary manner under Section 143(1)(a) of the Act. All the facts were disclosed by the appellant and it was only because of change of opinion that the AO issued notices under Section 148 of the Act. Under Sec. 147 , the AO, where he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, may assess or reassess such income. In this connection it is relevant to reproduce below the proviso to Section 147 of the I.T. Act:
“Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall betaken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.”
7. In the cases where scrutiny assessments under Section 143(3) of the Act are completed and the assessee had disclosed fully and truly all material facts for that asst. year, the AO cannot initiate proceedings under Section 147 after the expiry of four years from the end of the relevant asst. year.
Therefore it is only when the case falls under the proviso to Section 147 then the question of non-disclosure of material facts would become relevant. In such cases, if the assessee made full disclosure of material facts, then even if such income has escaped assessment, no action can be initiated by the AO under Section 147. On proper interpretation of Section 147 it would appear that the power to make assessment or re-assessment, where the initiation has been made under the proviso to Section 147, i.e. where the initiation has been made within four years of the end of the relevant asst. year, would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which correct assessment might have been based in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate proceedings. Thus, the words ‘escaped assessment’ where the return is filed, are apt to cover the case of discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non-consideration, or caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based (Ref. to Praful Chunilal Patel:Vasant Chunilal Patel v. ACIT (1999) 236 ITR 832, 840 (Guj.) From the perusal of the facts of the case and the legal provisions it is evident that even if assessments are completed in summary manner under Section 143(1)(a) of the Act the AO can re-open the assessment under Section 147 of the Act even if the assessee has disclosed all material facts in the returns filed by the assessee. Therefore this ground of the assessee fails.
8. Secondly, in this ground the Ld. A.R. has also objected to initiation of proceedings under Section 147 on the ground that the AO should have issued notice under Section 143(2) instead of resorting to the provisions of Section 147 of the Act. We find that there is no such bar in the Act to issue notice under Section 148, The AO is vested with the power to issue notice under Section 143(2) or resort to the provisions of Section 148 of the Act wherever considered necessary under provisions of law. Therefore this is not a convincing reason given by the Ld. A.R. debarring the AO from initiation of proceedings under Section 147 of the Act.
9. In this ground the assessee has submitted that no action on the basis of invalid service of notice under Section 147/148 is valid and secondly there cannot be a waiver to the notice or acquiescence to the jurisdiction when there is none. The Ld. A.R. submitted that there was no valid service of notice under Section 148 as the same was served on the employee of the office of the appellant union. He also referred to the provisions of Section 282 of the Act and submitted that the notice should have been addressed to the principal officer or any member of the AOP and notices under Section 148 were neither addressed to the Principal Officer nor any member of the Union. The notice was also not served on any Principal Officer, Member or on any authorized person to receive such notices. The CIT(A) has held that it was not correct for the appellant to raise such objection when it has been complying with the notices served upon the employees in the past. It was submitted by the Id. A/R that the CIT(A) had given an unlawful finding waiver of service of notice on the President / Member of the appellant Union. He submitted that there cannot be a waiver or acquiescence to the Jurisdiction.
10. We have considered the rival submissions. We find the Sub-section (1) of section 282 provides for service of a notice on a person therein named, cither by post or as if it were a summon issued by a court under the Court of Civil Procedure, 1908 (5 of 1908). The appellant had never objected on this ground before the AO and the appellant had been receiving notices through the employee of the union and all the notices had voluntarily been complied with. Therefore, we conclude that the service on the employee of the union was a valid service.
11. Secondly he has also objected to the service of notice on the ground that the notice was not issued in the name of the principal officer or any member of the union. It was addressed to the Sumerpur Truck Operators Union. In this connection, reference is made to Section 292B. Section 292B applies to a case where service had already been effected and there is only a technical mistake in the notice . Therefore, we are of the opinion that non-mentioning of the word the principal officer or any member will not render the proceedings invalid. This is a technical curable mistake.
Therefore, this ground of the assessee also fails.
12. Gr. No. 2 is regarding denial of exemption under Section 10(24) of the I.T. Act for all these asst. years. The AO had discussed this issue at length in the asst. order as to whether the appellant is entitled to exemption under Section 10(24) or not. He made a detailed discussion in the asst. order in this regard. According to the AO, Section 10(24) of the I.T. Act is applicable only to the union which is registered and which is formed primarily for regulating the relations between workmen and employers or between workmen and workmen. It is held by him that the appellant at the most can be said to be a union formed primarily for the purpose of regulating the relations between employers and employers and to such a union benefit of Section 10(24) is not applicable. It is held by him that all the members of Sumerpur Truck Operators Union are owners of the truck. Such members can neither be termed as workmen nor employers. They own their trucks and load them on hire. In some cases truck drivers are also the owners of trucks. So there was no question of employer and employee relationship. As a matter of fact, the truck owners who are the members of the appellant union have formed a syndicate in order to restrict the supply of trucks in the Sumerpur Market so as to charge fare at their own rates and to restrict the union members to play in the hands of local businessmen.
They do not allow any outsiders to take load “without paying some sort of money through receipt which in common parlance is termed as parchi. So it was held by the AO that in real terms the appellant is not a union of workmen and workmen nor it was a union of workmen and employers. The AO had referred to the definition of workman as given in Industrial Disputes Act, 1947 in order to conclude that members of the appellant union are not workmen within such definition. It was also held by him that the appellant is a union of truck owners which are in fact not employees and employers in true sense of the term. It was inferred by the AO that the conditions set out in Section 10(24) of the Act are not satisfied by the appellant. Therefore it was not entitled to the benefit of Section 10(24) of the Act. The AO had relied upon in the decision of CIT v. Indian Sugar Mills Association, 97 ITR 486, CIT v. Calcutta Hydraulic Press Association, 121 ITR 414 and Indian Jute Mills Association v. CIT, reported in 55 Taxman 492 in support of his conclusion that the appellant is not a union which is formed primarily for the purpose of regulating relations between workmen and employers or between workmen and workmen. As such the appellant’s income is not exempt from tax in view of Section 10(24) of the I.T. Act,1961.
13 The CIT(A) held that the AO was justified in holding that the appellant’s income is not exempt under Section 10(24) of the Act because the appellant is not a union which is formed primarily for the purpose of regulating relations between workmen and employers or between workmen and workmen. The appellant is merely a union of truck operators and the truck operators can neither be termed as employees nor they can be read as employers. The members of this union are not employers by way of commanding workmen and running any industrial unit . The appellant does not fall in the purview of trade union which is specifically mentioned in Section 10(24). The CIT(A) held that the appellant is not entitled to the benefit of Section 10(24) of the Act because it is not a union which is registered under Trade Union Act and formed primarily for the purpose of regulating relation between the workmen and employers or between workmen and workmen. The appellant is merely a union of truck owners which is formed with the sole purpose of regulating the freight charges to be paid by business community in Sumerpur for transporting goods outside and for protecting the interest of truck owners operating in such areas. It is evident from the fact that no outsider can transport goods from Sumerpur without being a member of this union and without payment of money to the appellant. It is formed with the purpose of deriving maximum benefit from the transportation of goods to other area from Sumerpur. Therefore, the CIT(A) held that the appellant’s income is not exempt under Section 10(24) of the Act.
14. The Ld. A.R. submitted that the AO and the CIT(A) could not appreciate the provisions of law and the facts of the case in its proper and relevant perspective and accordingly arrived at conclusion which is not in consonance with the provision and object of the relevant law. He referred to the provisions of Sub-section (24) of Section 10 which is as under :-
“(24) any income chargeable under the heads “Income from house property” and “Income from other sources” of-
(a) a registered union within the meaning of the Trade Unions Act, 1926 (16 of 1926) formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen; ”
15. The reading of the above quoted section reveals that to claim exemption under this sub-section following aspects must be satisfied :-
(a) The nature of income must be either from house property or from other sources. This condition is satisfied as the Ld. AO admitted that the income of appellant is from other sources only.
(b) The trade union concerned must be registered under the provisions of the T.U. Act, 1926. This condition is also complied with, which the Ld. AO has also admitted.
(c) The trade union concerned should be formed primarily for the purpose of regulating the relation between either the workmen and employers or between the workmen and workmen. This condition as per the Ld. AO was not satisfied for the reasons and view stated above i.e. there is no workmen and accordingly there is no regulation of relation as provided.
16. He submitted that the term “Workmen” had not been defined in the Income-tax, 1961. Therefore this term will have to be understood as defined in the Trade Union Act. Section 2(g) of the Trade Union Act defines two terms. These are “trade dispute” and “workmen”. This definition is reproduced as under :-
2(g) “trade dispute” – means any dispute between employers and workmen or between workmen and workmen, or between employers and employers which is connected with the employment or non-employment, or the terms of employment or the conditions of labour, or any person, and “Workmen” means all persons employed in trade or industry whether or not in the employment of the employer with whom the trade dispute arises;”
17. The above definition of the term “workmen” makes it clear that any person who is employed by others or even if is self employed, is either engaged in the trade or industry they shall be regarded or understood as “workmen” within the meaning of the term as defined in the T.U. Act. Therefore, the truck operators are the self-employed persons in the transport industry they are workmen so far as the T.U. Act is concerned. There is also no dispute that these workmen are engaged in the transport business or industry . Thus there cannot be a denial of the fact that the truck operators are the part and parcel of a systematic economic activity i.e. transport business or industry. Therefore they are covered by the term “workmen” . The mere fact that this trade union is registered under the T.U. Act, it itself is a conclusive fact that the workmen have constituted the same otherwise it would not have been registered as such. The term “Trade Union” is defined in the T.U. Act, as under :-
“2(h) “Trade Union” means any combination, whether temporary or permanent, formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business, and includes any federation of two or more Trade Unions”
18. To understand and explain further with a slightly different angle, it is also submitted that there also existed the existence of employers and workmen so far as this trade union is concerned . This is in the sense that the transport companies engaged in the business of transportation i.e. hiring the trucks, though for a limited object and purpose, or, for that matter the other private person also who are engaging the truck operators for transporting their goods are none other than the employers of the truck operators for that time being, that is, the workmen ( truck operators) who has to act and discharge their duty, job or function as per the direction or command of such employers. Hence the appellant union when acts as a bridge between these two, it only acts to regulate the relation between them, i.e. employers and workmen and nothing else. If the objects of this appellant union are perused or its manner or method of working or operation or the manner of collecting money from its members are considered, or the activities and the purposes etc. on which the union fund is to be spent, there will remain no doubt that neither of the objects nor the manner of working nor the objects or the purposes for which the union money is required to be spent and are spent or is being spent is neither against and nor beyond the object provided in T.U. Act. These all are meant and aimed to regulate the relation between the workmen and others as explained above.
19. Therefore, judging from this angle it is established that seeking permission and paying charges by the members of the union to the union is only aimed to regulate the conduct and relation of the members and it in no manner can be held as a restriction.
20. The appellant union is a union of its members and it is working under its rules and regulations which are jointly made by them and recorded in their constitution.
21. The conclusion of the AO was influenced by the wrong understanding of the decision of the Hon’ble Calcutta high Court in 194 ITR 60.
22. The appellant union is factually and legally a trade union and it is registered as such under the relevant Statute.
23. The CIT(A) while deciding the appeal for A.Ys. 1990-91 to 1995-96 has referred to the decision of Hon’ble Delhi High Court. The said decision had no application on the facts and circumstances of the appellant’s case. The exemption referred to in Section 10(24) of the Act is available only in respect of income chargeable under the heads “Income from house property” and “Income from other sources” of a registered trade union. Thus, the income arising from the activities of business by the trade union shall not be exempt under Section 10(24) of the Act.
24. The Id. D/R relied upon the order of the authorities below.
25. We have considered the rival submissions. The appellant had claimed exemption of its income under Section 10(24) of the I.T. Act. Exemption referred to in Section 10(24) is available only in respect of income chargeable under the heads “Income from House Property” and “Income from Other Sources” of a registered trade union. Thus, income earning from the activities of the business by the trade union shall not be exempt under Section 10(24).
26. In order to claim exemption, the following conditions must be satisfied :-
(i) the trade union should be a registered union within the meaning of the Indian Trade Union Act, 1926 ;
(ii) the trade union should have been formed primarily for the purpose of regulating the relation between :
(a) workman and employer, or
(b) workman and workman
We find that the AO had given detailed reasons as discussed in para 12 of this order that the income of the appellant is not exempt under Section 10(24). Similarly CIT(A) has also given reasons as discussed in para 13 of this order that income of the appellant union is not exempt under Section 10(24). It was held by the authorities below that the appellant is merely a union of truck operators. That truck operators can neither be termed as employees nor they can be termed as employers. The principals of this union are not employers by way of commanding workmen and running any industrial unit. The appellant is merely a union of truck owners, which is formed with the sole purpose of regulating freight charges to be paid by the business community in Sumerpur for transporting goods outside and for protecting the interest of the truck owners operating in such areas. First of all we agree with the view of the authorities below that this union has not been formed for regulating the relation between workman and employers or between workman and workman. In the two sense of the term the truck owners are not employers. Even if it is conceded that it is an association of employers then this association has been formed to regulate relation between employers and employers.
27. Even if it is conceded that it is an association of employers though it is not an association of employers in the true sense of the term. In Indian Sugar Mills Association v. CIT, 150 ITR 593(Cal), it was held that Section 10(24) of the Act grants immunity only to those trade unions which are formed primarily for the purpose of regulating the relation between the workmen and employers or between the workmen and, workmen. It is significant that the Associations which are formed for the purpose of regulating the relation between the employers and employers or imposing restrictive conditions on the conduct of any trade or business or federation year to year mere trade unions have been excluded from the benefit of Section 10(24). It was observed that in reading the rules and regulations there cannot be any doubt that the Indian Sugar Mills Association is an association of employers set up, inter alia, for the protection of the interest of the members. Therefore, it was held that the exemption under Section 10(24) is not available. From the perusal of the facts of the case as mentioned in the order of the AO and the order of the CIT(A) it appears that this is a union of owners of trucks . Therefore this cannot be said to be a union formed for the purpose of regulating the relations between the employers and employers. Therefore, the case of the assessee is covered by the judgment of Indian Sugar Mills Association (supra).
28. Now coming to the decision of Indian Jute Mills Association v. CIT, 194 ITR 60(Cal), it was submitted by the Ld. A.R. that before the court there was neither a finding by the Tribunal nor it was urged by the Association before the Tribunal that it was mainly engaged in regulating the relationship between the employers and the workmen or between the workmen and workmen. In this case it was held where it is only an ancillary object of trade union to regulate relations between workman and employer and/or between workman and workman, exemption under Section 10(24) cannot be granted. It is admitted that the facts of the case are not similar to the facts of the case of the appellant. Therefore, we hold that this is a union which has primarily been formed to protect the interest of the truck owners. The truck owners are not employers nor are they workmen. Therefore, it is concluded that this union has not been formed the purpose of regulating the relation between (a) workman and employer (b) workman and workman. Therefore, we decline to interfere with the order of CIT(A) on this count.
29. In gr. No. 3 the appellant agitated that in the alternative the Ld. CIT(A) erred in not accepting the ground of exemption of income on the principle of mutuality. It was contended by the appellant before the AO and the CIT(A) that the trade union is a mutual association whose income is not liable to be taxed. It was held by the AO that after detailed discussion in the assessment order that its income is not exempt even on the principle of mutuality. In the case of the appellant it was not possible to identify the truck operators who come from outside and operate at Sumerpur in the sense that the transport of goods from Sumerpur after making payment to appellant union. Parchi payment is mandatory charge on every truck which comes to take load from Sumerpur whether it is a member or not. So identity of truck operators cannot be established from various parchi payments received from various trucks during the year which goes away running all over India and it may come only once or twice to Sumerpur. So the principle of mutuality is not found applicable to the activities of the appellant’s case. The CIT(A) concurred with the view of AO and held that the income of the appellant was not exempt from levy of tax because the principle of mutuality is not found applicable to the activities of the appellant being pursued at Sumerpur. By holding so, he relied upon the decision of Hon’ble Delhi High Court in the case of Truck Operators Union v. CIT, New Delhi, 132 ITR 62.
30. The Ld. A.R. submitted that alternatively the appellant’s income in any event was also not taxable on the principle of mutuality. It was pleaded so because of the fact that the appellant trade union was otherwise nothing but only a mutual concern which was collecting fees either as membership fee or voluntary contribution or parchi fee from its members which was to be exclusively used and utilized for the benefit, betterment, interest and for providing facilities etc. to the members on the basis of decision cumulatively taken by the members executed through the executive committee. The by-laws of the union also provided that corpus and funds eventually remaining at the time of dissolution has also to be distributed or used amongst the members as per their decision arrived at by 2/3rd majority. The appellant’s case was fully covered with the decision of Hon’ble Gujarat High Court in the case of CIT v. Adarsh Cop-operative Housing Society Ltd. (1995) 213 ITR 677. In view of this decision, the appellant’s union is nothing but a mutual concern, income of which is not liable to tax under any charging provision of the Act. There is complete identity of the contributors of the fee and the participants in the services rendered by the union. That apart, as per clause No. 28(ii) it is patently clear that in the event of dissolution of the union, as per the decision of the general body, whatever funds remain after discharging the liabilities and obligations, the same shall be spent or used as per 2/3rd majority of the members in general body.
31. The Hon’ble Supreme Court in the case of CIT v. Bankepur Club Ltd. (1997) 226 ITR 97 had held that the income of mutual concern is not taxable as income under the I.T. Act, 1961. The Hon’ble S.C. has also provided in the said decision the general principles of mutual concern which is being reproduced hereunder:-
“Under the Income-tax Act, what is taxed is, the “income, profits or gains” earned or “arising”, accruing” to a “person”. Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular form the association takes. Trading between persons associating together in this way does not give rise to profits which are chargeable to tax. Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of the facilities which it offers does not affect the mutuality of the enterprise.”
32. The Hon’ble Supreme Court had also an occasion to reiterate the meaning of mutual concern and principle of mutuality in the case of Chelmsford Club v. CIT reported in (2000) 243 ITR 89 (SC) as under.-
“Under the Income Tax Act, 1961, what is taxed is, the “income, profits or gains” earned or “arising”, “accruing” to a “person”. Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular form the association takes. Trading between persons associating together in this way does not give rise to profits which are chargeable to tax. Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of the facilities which it offers, does not affect the mutuality of the enterprise. The law recognize the principle of mutuality excluding the levy of income tax from the income of such business to which the above principle is applicable. A perusal of Section 2(24) of the I.T. Act, 1961, shows that the Act recognizes the principle of mutuality and has excluded all businesses involving such principle from the purview of the Act, except those mentioned in Clause (vii) of that section. The three conditions, the existence of which establishes the doctrine of mutuality are (1) the identity of the contributors to the fund and the recipients from the fund, (2) the treatment of the company, though incorporated as a mere entity for the convenience of the members, in other words, as an instrument obedient to their mandate, and (3) the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.”
33. We have considered the rival submissions. It has been held by the CIT(A) that it is not possible to identify the truck operators who come from outside and operates at Sumerpur. In the sense that the transport of goods from Sumerpur after making payment to appellant union is mandatory charge on every truck which comes to take load from Sumerpur whether it is a member or non-member. So the identity of the truck operators cannot be established. We agree with this view of the CIT(A). It was held by the Hon’ble Supreme Court in the case of CIT v. Bankepur Club Ltd. (supra) and also in the case of Chelmsford Club v. CIT (supra) that there must be a complete identity between the contributors and the participants. In this case it is also pertinent to state that the CIT(A) has rightly placed reliance on the judgment of the Hon’ble Delhi High Court in the case of Truck Operators Union v. CIT (supra). The Hon’ble High Court held that the Tribunal was right in holding that the assessee was not a mutual concern and its income was not exempt from tax. The Hon’ble High Court had held that the assessee could not be treated as a mutual concern because there was no complete identity between the contributors and the participants and the assessee was not entitled to exemption since its object provided for carrying on a business undertaking. The decision of the Hon’ble Supreme Court in the case of CIT v. Royal Western India Turf Club Ltd. (1953) 24 ITR 551 (SC) and the CIT v. Kumba Konam Mutual Benefit Fund Ltd (1964) 53 ITR 241 (SC) laid down the broad proposition that if the object of the assessee company claiming to be a ‘mutual concern’ is to carry on a particular business and monies realized both from members and non-members for the same consideration by providing the same and similar facilities to all alike in respective of one and the same business carried on by it, the dealings as a whole, disclose the same profit earning motive and tented with commerciality. Hence the income of the mutual concern under such circumstances is not exempt. We find that the judgment of the Hon’ble Gujarat High Court in the case of CIT v. Adarsh Co-operative Housing Society Ltd. (supra) is of no help to the assessee as the facts of this case are distinguishable from the facts of the case of the assessee. Therefore, keeping in view the legal and factual discussion we decline to interfere with the order of the CIT(A).
34. Gr. No. 4 is regarding without prejudice to all foregoing grounds of appeal and in the alternative the appellant agitated on the ground that the CIT(A) has erred in treating the entire collection of the appellant as income liable to tax which was inclusive of capital receipts like admission fees of the members and the voluntary contribution towards corpus.
35. This issue has not been raised before the AO and the CIT(A). However the Ld. A.R. has made the following submissions before us. This ground was taken by the Ld. A.R. as an abundant precautionary measure and in view of the provisions of Section 28(ii) read with Section 2(24)(v) which speaks that “any sum chargeable to income tax under Clause (ii) of Section 28 or Section 41 or Section 59” is also includible in the definition of income. Sec. 41, or Section 59 which is the extension of Section 41, for the income of the nature of other sources are not applicable in the facts and circumstances of the appellant’s case. Section 28 deals with profits and gains of business or profession chargeable to tax. Section 28 reads as under :-
(i)…………
(ii)………….
(iii) income derived by a trade, professional or similar association from specific services performed for its members.
From the above section it appears that the income derived by a trade or profession or similar association from specific service performed can be treated as income from business and profession. The Ld. A.R. submitted that the appellant trade union is not at all engaged in any business activity and the admitted position as per the AO himself is that the nature of income of the appellant union is from other sources. Alternatively as an abundant precautionary measure the Ld. A.R. submitted that the income of the appellant union shall be only considered the receipt which was credited under the head union income account. The other receipt of membership fee and voluntary contribution in no event is attributable to any specific service rendered to the members by the union. It is only the parchi fee, which can only be construed and that too, alternatively submitted, as an income of the specific services against which various expenses are to be deducted. It was also contended by the Ld. A.R. that the total receipts of the union from its members and membership fees or voluntary contribution is not the income of the union. The voluntary contribution received by the registered union does not from part of the income as defined under Section 2(24) of the I.T. Act, 1961. In view of the fact-situation and the availability of explanation on record the AO as well as the Ld. CIT(A) both have erred in treating the entire receipts of the appellant as its income liable to tax. Therefore, in any event in case the gr. Nos. 1 to 3 fail then the receipts, collection of which is based on loading of goods can only be treated as income and out of this the expenses incurred are necessarily to be deducted.
36. We have considered the rival submissions. It has already been submitted by the Ld. A.R. as mentioned above that the appellant trade union is not at all engaged in business activity and the AO had also held that the assessee derives income from other sources. The assessee has himself mentioned that the net surplus as per the income and expenditure general fund account comes to Rs. 1,62,206/- under the head “Income from other sources”. The Ld. A.R. has contended that in the alternative the income may be treated as business income and deduction for all expenses should be allowed. In view of the above factual position and as admitted by the Ld. A.R. himself the income is to be assessed under the head “Income from other sources” and not as income from business or profession.
Therefore this ground of the assessee also fails.
37. Secondly the assessee has taken the plea that only the parchi income should be assessed as a business income and the total receipts of the union from its member as membership fee or voluntary contribution is not the income of the union. We hold that the AO had rightly assessed and as claimed by the Ld. A.R. in the return of income all receipts as income from other sources. In our opinion the membership fee or voluntary contribution is also the income of the union from other sources. Therefore, this ground of the assessee also fails.
38. Gr. No. 5 the appellant agitated, that the Ld. CIT(A) erred in maintaining of disallowance of various expenses made by the AO while computing the taxable income of the appellant on the ground that these were personal expenses and not incurred by the appellant union. The Ld. A.O. has examined the allowability of various expenses and it is after due consideration that the AO had disallowed certain expenses. The disallowance made by the AO under various heads were considered reasonable by the CIT(A) and such disallowance was sustained. The Ld. A.R. submitted that the AO should have considered the claim of deduction out of the income of the appellant. He contended that the Ld. AO altogether escaped the fact that the assessment before him was that of a registered trade union and in spite of the fact that the exemption under Section 10(24) had been denied to it, yet the incurring of expenditure by such trade unions will have to be judged keeping in view the provisions of T.U. Act, and the by laws of the union. The Trade Union Act through Section 15 categorized and provided the nature of expenses for which the trade union can spend its funds. Section 15 provides that the general funds of a registered Trade Union shall not be spent on any other objects other than the mentioned in Clauses (a) to (k) of Section 15 the nature of expenses for which the union can spend its funds referred in Clauses (c), (h) and (j) of Section 15 of the Trade Union Act.
39. We have considered the rival submissions. The union has not been held as a registered trade union which is being assessed as AOP. The income of this AOP is being assessed as income from other sources. Deduction for any expenses laid out or expended wholly and exclusively for the purpose of making or earning such income are to be allowed under Section 57 of the I.T. Act. We agree with the view of the CIT(A) that the AO has already discussed the details of the expenses in the order and he has correctly disallowed the expenses wherever called for. Therefore we decline to interfere with the order of the CIT(A) on this count.
40. Gr. No. 6 the appellant agitated against the levy of interest under Section 234A and 234B of the Act. The Ld. A.R. relying upon the judgment of Hon’ble Supreme Court in the case of Ranchi Club, 247 ITR 209 submitted that it is clear that in the absence of any specific direction in the asst. order no interest under Section 234A , 234B and 234C could be levied. Therefore it was contended that the levy of interest for the year 1989-90 may be cancelled. Apart from the above illegality in levy of interest and non-considering the ground by CIT(A) in asst. years 1990-91 to 1992-93 and 1994-95 the calculation of interest under Section 234A was excess in all these years by amount of Rs. 53,080/- as per the details available at P.B. 103.
41. We have considered the rival contentions. From the perusal of the order for A.Y. 89-90, we find that there are no specific directions by the AO for charging of interest. Therefore, the interest charged under Section 234A or 234B is directed to be deleted.
42. As regards the illegality in levy of interest and non consideration of the grounds by the CIT(A) in A.Ys. 90-91 to 92-93 and 94-95, the collection of interest under Section 234A was in excess in all the years by amount of Rs. 53,080/-.
We find (hat the CIT(A) has not gone through the facts of the case and he has simply remarked that charging of interest under Section 234 was as per the provisions of law. This issue is restored to the file of the CIT(A) with the direction that he should reconsider this issue in the light of facts and legal position to be explained by the Id. A/R before him.
43. Gr. Nos. 7 and 8 are of general nature.
44. In the result, appeal for the A.Y. 89-90 is allowed in part and the appeal for the A.Ys. 90-91, 91-92, 92-93, 93-94, 94-95 and 95-96 are dismissed, except with the observations that charging of interest under Section 234 is to be read judicated by the CIT(A) for the A.Y. 90-91 to 92-93 and 94-95.