IN THE HIGH COURT OF KERALA AT ERNAKULAM
ITA.No. 561 of 2009()
1. THE COMMISSIONER OF INCOME TAX, TRICHUR
... Petitioner
Vs
1. M/S.BUS OPERATORS ASSOCIATION,
... Respondent
For Petitioner :SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)
For Respondent : No Appearance
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice B.P.RAY
Dated :01/11/2010
O R D E R
C.R.
C.N.RAMACHANDRAN NAIR &
BHABANI PRASAD RAY, JJ.
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I.T. Appeal Nos.561, 1219 & 1145 of 2009
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Dated this the 1st day of November, 2010.
JUDGMENT
Ramachandran Nair, J.
These are appeals filed by the Revenue challenging the orders of
the Tribunal declaring income tax exemption to the respondent as a
mutual benefit association. We have heard Senior counsel
Sri.P.K.R.Menon appearing for the Revenue and Adv.
Sri.P.Balakrishnan appearing for the respondent assessee.
2. Respondent is an association of Private Bus Operators which is
engaged in purchase and sale of quality tyres, automobile spares etc., to
the members. Admittedly respondent is not engaged in any trade other
than purchase and distribution of tyres, automobile spares etc. to it’s
own members. In other words, the contributors of the respondent are
the beneficiaries or participants of the benefits derived by the
Association. Even though respondent claimed exemption from
payment of income tax on the profit derived by it, by claiming the
ITA 561/09 & conn. 2
principle of mutuality, the Assessing Officer held that the assessee-
Association is not entitled to exemption because the surplus derived by
it amounts to business income falling under Section 28(3) of the
Income Tax Act. Assessments involved in these cases are for the years
2001-2002, 2002-2003 and 2004-2005. Even though first appellate
authority also confirmed the levy and demand of tax, the Tribunal
accepted respondent’s claim for exemption on the principle of mutuality
and declared their eligibility, against which these appeals are filed.
3. The Tribunal allowed the appeals by following various
decisions of the Supreme Court, particularly in COMMISSIONER OF
INCOME-TAX VS. BANKIPUR CLUB LTD. reported in 226 ITR 97,
CHELMSFORD CLUB VS. COMMISSIONER OF INCOME-TAX
reported in 243 ITR 89 and COMMISSIONER OF SALES TAX VS.
SAI PUBLICATION FUND reported in 258 ITR 70. It is clear from
the judgments of the Supreme Court relied on by the Tribunal that the
clubs were engaged in activities similar to the one carried on by the
respondent-assessee. While the clubs purchase food articles, liquor,
beverages etc. and sell the same to members which may yield profit, the
respondent-assessee is engaged in purchase of quality tyres, automobile
ITA 561/09 & conn. 3
spares etc. and supply the same to the members collecting price and the
transaction involves some profit. In the case of the clubs as well as in
the case of the respondent-Association, we do not find any distinction
in the nature of activities in as much as the clubs and the respondent-
Association are serving it’s own members only. The question to be
considered is whether the principle of mutuality declared to be
applicable by the Supreme Court in the case of clubs is applicable to
the respondent-assessee. In our view, the only test to consider whether
the principle of mutuality applies is whether the contributors to the club
or the organisation are the participants in the benefit derived from it.
Admittedly the beneficiaries of the little profit derived by the
respondent-Association as in the case of the clubs are the members. In
other words, the purchases made by the members lead to profit to the
Association which in turn goes to the members or for their own benefit.
In our view, the principle of mutuality squarely applies to the case of
the respondent-Association for the transactions carried on by them. So
much so, we do not find any ground to deviate from the view taken by
the Tribunal following consistent decisions of the Supreme Court in
several cases relied on by the Tribunal, particularly those referred
ITA 561/09 & conn. 4
above.
4. The next question to be considered is with reference to the
scope of Section 28(iii) heavily relied on by the appellant-department.
For easy reference, Section 28(iii) is extracted hereunder:
“Profits and gains of business or profession.
28. The following income shall be chargeable to income-
tax under the head “Profits and gains of business or
profession”,-…………..
…………..
(iii) income derived by a trade, professional or
similar association from specific services performed for its
members.”
5. Standing Counsel for the Revenue relied on decision of the
Supreme Court in COMMISSIONER OF INCOME TAX VS.
CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. reported in
36 ITR 226, wherein the Supreme Court has clarified the meaning of
“specific service” as follows:
“The words “performance of specific services” in Section 10
(6) mean conferring particular service i.e. conferring to the
members some charged benefits which would not have been
available to them unless they paid the specific fees charged
for such special benefits”.
Obviously the “specific services” performed by the Association to the
ITA 561/09 & conn. 5
members referred to in the above provision will not cover the regular
services rendered by the Association to all the members i.e. sale of
tyres, automobile spare parts etc., purchased for distribution among the
members at moderate cost. A specific service obviously will mean a
service which is not available to members generally but specifically
extended to a particular member or members against specific charges
received. In our view, the department has no case that besides the
purchase and distribution of automobile tyres, spares etc. by the
Association to it’s members, the respondent-Association is not involved
in rendering any specific service to any particular member or members
and they have also not charged any amount for any specific service
from any member or members. So much so, in our view, the above
provision does not apply to the facts of this case. The only other
exception for assessment of mutual benefit concerns is only the income
falling under Section 2(24)(vii) which provides for assessment of
profits and gains of any business of insurance carried on by a mutual
insurance company or by a Co-operative Society, computed in
accordance with Section 44 or any surplus taken to be such profits and
gains by virtue of provisions contained in the First Schedule to the Act.
ITA 561/09 & conn. 6
This provision has no application so far as respondent-Association is
concerned. So much so, in our view, the Tribunal rightly upheld the
respondent’s entitlement for exemption from payment of income tax by
applying the principle of mutuality. We, therefore, uphold the orders
of the Tribunal and dismiss the departmental appeals.
C.N.RAMACHANDRAN NAIR
Judge
BHABANI PRASAD RAY
Judge
pms