INCOME TAX ACT, 1961

Section 11

Charitable trust - Exemption under section 11 - Assessee wrongly applied mutuality principle -

Assessee was a company registered under section 25 of Companies Act, and was registered as a charitable organization under section 12A. During the course of assessment proceedings, assessee submitted that it had filed revised working of taxable income as per mutuality concept and offered contributions received from non-members for participating in various programmes conducted by assessee on pro-rata basis. Object of assessee company was education and income of assessee company in respect of amount received from non members was exempt from income-tax, however to avoid litigation, assessee voluntarily offered to income-tax the contributions received from non members for participating in training programmes and other programmes income was subsequently, assessee filed another Letter, as per which assessee claimed that assessee company was formed to carry out charitable activities and even though there was amendment in section 2(15) with effect from assessment year 2009-10, still assessee company was not affected by such insertion of amending proviso of section 2(15) and assessee requested AO to assess income of assessee under section 11 and ignore earlier claim of assessee on mutuality concept and in this respect, assessee relied on few case law. After considering the submission of assessee, AO rejected contention of assessee and completed assessment based on mutuality concept and further noticed that assessee has declared interest and miscellaneous income received from banks. AO by relying on case of Bangalore Club v. CIT treated the interest income and misc. income as income from other sources and accordingly, AO made addition.Held: Though assessee was declaring income based on mutuality concept, and the reasons best known to the assessee or by professional advice. However, when assessee was providing services to its members as well as non members, it could never be categorized under mutuality concept. The mutuality concept could be applied only when a mutual concern or AOP, agree to contribute funds for common purpose and receive back the surplus left out in the same capacity in which they made the contribution. Therefore, capacity as contributors and participants remain same. When they cannot separate the activities of participants and non members, they can never be considered as mutual concern. Therefore, activities carried on by assessee could never be assessed under the concept of mutuality. AO invoked ratio of Bangalore Club, simply considering the fact that assessee has filed its return of income based on mutuality concept overlooking the actual facts. Therefore, issue was remanded back to verify books of account and analyze with its objects and re-do assessment as per law. Considering the complete facts on record like assessee was granted registration under section 12A and also assessee carried on activities based on its charitable objectives.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2012-13

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