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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI PAVAN KUMAR GADALE, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI
BEFORE SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER
ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India v. ITO (EXEMPTION)- II(1) Unit Nos. 1401 to 1403 5th Floor Piramal chambers, Lalbaug Wing “A”, Kailas Business Park Parel, Mumbai - 400012 Veer Sawarkar Road, Parksite Vikroli (W), Mumbai - 400079 PAN: AAACI9045G (Appellant) (Respondent)
Assessee Represented by : Ms. Krupa Gandi & Shri Ayushi Modani Department Represented by : Ms. Deepika Arora
Date of Conclusion of Hearing : 05.06.2023 Date of Pronouncement : 23.08.2023
O R D E R PER S. RIFAUR RAHMAN (AM)
These appeals are filed by assessee against common order of 1. Learned Commissioner of Income Tax (Appeals)-3, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 23.09.2019 for the A.Ys. 2010-11 and 2011-12.
ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India 2. Since the issues raised in both these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No.7885/Mum/2019 for Assessment Year 2011-12 as a lead case.
Brief facts of the case are, assessee filed its return of income on 28.09.2011 along with the income and expenditure account, balance sheet and audit report in Form No. 10B declaring total income at ₹. NIL. The case was selected for scrutiny under CASS and notices u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response Authorised Representative of the assessee attended from time to time and submitted the relevant information as called for.
The Assessing Officer observed during the assessment proceedings that the registration u/s. 12A of the Act was cancelled vide Director of Income Tax (Exemption), Mumbai order dated 23.12.2011. Therefore, assessee is not eligible to claim its income exempt u/s.11 of the Act. Further, Assessing Officer observed that assessee has earned income by way of interest to the tune of ₹.26,86,975/-. The assessee was asked to
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ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India explain why the above interest income should not be added as taxable income as the assessee is an organization limited to its members.
In response, Ld. AR of the assessee submitted that assessee was registered u/s. 12A of the Act having advancement of other object of general public utility as one of its charitable purposes and that Company had made investment in bank fixed deposits as per section 11(5) of the Act. Further, he submitted that registration u/s 12A was withdrawn and since the company had earned interest on fixed deposits, the interest also partakes the character of funds for its activities which have been utilized for the activities of the company, so there was no question of considering interest on fixed deposit with bank as income from other sources and taxing it.
After considering the submissions of the assessee, Assessing Officer observed that assessee is an organization which is limited to its members, therefore, principle of mutuality applies in this case and accordingly, he invoked the decision of Hon'ble Supreme Court in the case of Bangalore Club v. CIT & Anr in Civil Appeal No. 124 of 2007 dated 14.01.2013, accordingly, he added the interest income to the taxable income of the assessee.
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ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India 7. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions, for the sake of clarity it is reproduced below: -
“During the course of appellate proceedings, the appellant submitted as under: a) The appellant had certificate of registration under Section 12AA(1)(b)(i) of the Income-tax Act, 1961 (the Act) with effect from 24 October 2001. Considering the same, the appellant for the relevant assessment year in its return of income declared nil income claiming exemption under Section 11 of the Act as it applied 85% of its income as required under Section 11(1) of the Act and/or accumulated/set-apart 15% of its income under Section 11(2) of the Act as shown in the statement of total income. b) At the time of the assessment proceedings, the appellant's registration under Section 12AA(1)(b)(i) of the Act stood cancelled with effect from the assessment year 2009-2010 as the Director of Income Tax (Exemption), Mumbai [DIT (E)] had passed an order under Section 12AA(3) of the Act dated 23 December 2011 cancelling the registration under Section 12AA(1)(b)(i) of the Act. c) Accordingly, in the assessment order passed under Section 143(3) of the Act, the Learned Income Tax Officer (Exemption)- II(1), (the Ld. AO) denied exemption claimed under Section 11 of the Act and applied principle of mutuality to the income of the appellant thereby treating the interest income on bank fixed deposits as a taxable income holding that the principle of mutuality did not apply to the interest income on bank fixed deposits. d) The DIT(E) restored back the registration under Section 12AA(1)(b)(i) of the Act retrospectively from the assessment year 2009-2010 after examining the matter afresh on the being remanded back by the order of the Income Tax Appellate Tribunal, Mumbai (ITAT) in ITA No 1396/M/2012. The DIT (E) passed order dated 21 February 2017 under Section 12AA(1)(b)(i) read with Section 254 of the Act and passing rectification order dated 7 March 2017 under Section 12AA(1)(b)(i) read with Section 154 of the Act.
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ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India e) Presently, the appellant is having registration under Section 12AA(1)(b)(1) of the Act retrospectively from the assessment year 2009-2010 hence the appellant is eligible to claim exemption under Section 11 of the Act and there is no need for application of the principle of mutuality to the interest income on bank deposits of the appellant. f) The entities having registration under Section 12AA(1)(b)(i) of the Act are required to make deposit/investment of its funds in the forms or modes of investment/deposit specified in Section 11(5) of the Act. Section 11(5)(ii) of the Act inter alia permits deposit in any account with a scheduled bank. g) The appellant having registration under Section 12AA(1)(b)(i) of the Act has made deposit of its funds in terms of Section 11(5)(ii) of the Act with the HDFC Bank Limited which is a scheduled bank. It has earned interest income on the bank fixed deposits which has been applied under Section 11(1) of the Act and/or accumulated/set- apart under Section 11(2) of the Act thus the same is exempt under Section 11 of the Act and it no requirement to look into it from the perspective of the principle of mutuality. h) In this regards, we rely of the following decisions of various courts and the tribunal which rules that interest income on bank fixed deposits in case of the assessees having registration under Section 12A is exempt from tax under Section 11 of the Act. i. Commissioner of Income Tax (Exemptions) v Bombay Presidency Golf Club Ltd [2019] 106 taxmann.com 58 (Bombay). ii. Commissioner of Income Tax-II, Chandigarh v Sikh Education Society [2010] 2 taxmann.com 124 (Punjab & Haryana). iii. Advertising Agencies Association of India v Assistant Director of Income-tax (E) Mumbai [2019] 104 taxmann.com 218 (Mumbai-Trib.). iv. Bombay Presidency Golf Club Ltd v Income Tax Officer (Exemptions)-1(1), Mumbai. [2016] 69 taxmann.com 208 (Mumbai-Trib.) Page No. | 5
ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India i) The Ld. AO relied on the decisions of Bangalore Club v Commissioner of Income-tax [2013] 29 taxmann.com 29 (SC) and of Commissioner of Income-tax v Common Effluent Treatment Plant (Thane Belapur) Association [2010] 192 Taxman 238 (Bombay). In both these decisions, the interest income on bank fixed deposits was not exempted from tax on the basis of principle of mutuality. The need to apply principle of mutuality to the interest income on bank deposits in both these decisions arose as the assessees concerned in both these decisions were not eligible to claim exemption under Section 11 of the Act in the absence of registration under Section 12A of the Act hence claimed exemption to tax of the interest income on bank deposits by applying the principle of mutuality which was not granted by the courts. On this reasoning the Bombay High Court has in the decision Commissioner of Income Tax (Exemptions) v Bombay Presidency Golf Club Ltd (supra) in para 6 distinguish the decision of Commissioner of Income-tax v Common Effluent Treatment Plant (Thane Belapur) Association. j) In fact, the decision of the Bombay High Court in the case of the Commissioner of Income Tax (Exemptions) v Bombay Presidency Golf Club Ltd (supra) is on the similar facts as that of the appellant wherein exemption under Section 11 of the Act in respect of the interest income on bank deposits was granted to the assessee being registered under Section 12A of the Act. k) The appellant is registered under Section 12A of the Act hence its interest income on bank deposits is exempt under Section 11 of the Act without considering the principle of mutuality. We therefore request your Honour to kindly grant exemption under Section 11 of the Act deleting the addition made in respect of interest on bank fixed deposits. l) Accordingly, your appellant prays that the Ld. AO be directed to allow exemption under Section 11 of the Act in respect of interest on bank fixed deposits.” 8. After considering the submissions of the assessee, Ld.CIT(A) sustained the additions made by the Assessing Officer by relying on several decisions and provisions of section 2(15) of the Act and held that
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ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India interest on surplus fund invested in fixed deposits in Banks is not income from members of the assessee but was from third party and therefore principle of the mutuality does exists in this case and addition made by the Assessing Officer on account of interest income is upheld.
Aggrieved assessee is in appeal before us raising following grounds in its appeal: -
“1) On the facts, and in the circumstances of the case, and in law, the Learned Commissioner of Income Tax (Appeal) [CIT(A)] has legally erred in denying exemption to the Appellant under Section 11 to Section 13 of the Act read with Section 2(15) of the Act. 2) On the facts, and in the circumstances of the case, and in law, the Learned CIT(A) has legally erred in holding that the Appellant is carrying on an activity in the nature of trade, commerce or business, or an activity of rendering any service in relation to any trade, commerce or business for a case of fee or any other consideration under proviso to Section 2(15) of the Act. 3) On the facts, and in the circumstances of the case, and in law, the Learned CIT(A) has erred in disregarding that the Director of Income Tax (Exemption) [DIT(E)], after cancelling the registration under Section 12AA of the Act from assessment year 2009-10 considering the proviso to Section 2(15) of the Act, had restored hack the registration retrospectively from the assessment year 2009- 2010 after examining the cancellation matter afresh on the being remanded back by the order of the Income Tax Appellate Tribunal, Mumbai (ITAT). 4) On the facts, and in the circumstances of the case, and in law, the Learned CIT(A) has legally erred in holding that the interest income of Rs 24,84,310/- on money deposited in fixed deposits with scheduled bank in accordance with the provisions of Section 11 to Section 13 of the Act are not exempt under those sections and added the same applying the principal of mutuality.
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ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India 5) On the facts, and in the circumstances of the case, and in law, the Learned CIT(A) has erred in not accepting the order passed by the Learned CIT(A)-7 in case of the Appellant for the assessment year 2009-10 allowing exemption under Section 11 to 13 of the Act to the interest income on fixed deposits with scheduled bank which was added in the assessment order passed under Section 143(3) of the Act applying the principal of mutuality. 6) On the facts, and in the circumstances of the case, and in law, the Learned CIT(A) has legally erred in not dealing appropriately with the most relevant cases pressed into service in the course of Appellate proceedings and dismissing them with a bald statement. 7) In reaching to the conclusion and making such addition the Learned CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was influenced and prejudiced by irrelevant considerations and factors. 8) In view of above, the Appellant prays that the exemption under Section 11 to 13 of the Act be granted to the interest income on fixed deposits with scheduled bank.” 10. At the time of hearing, Ld. AR of the assessee submitted that assessee is Section 25 company and he brought to our notice Page No.19 of the Paper Book which is the certificate of incorporation and he also brought to our notice object of the assessee company which is to promote the use of copper and copper related products in India and to promote, develop, initiate and other activities in copper technology research and international market development for the promotion and expansion of the use of copper and copper related products.
Further, he brought to our notice Page No. 8 of the Paper Book which is the income and expenditure account and submitted that assessee
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ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India has earned membership fee of ₹.7,08,250/- and interest on fixed deposit of ₹.24,84,311/- and miscellaneous income of ₹.2,05,271/- and total income declared by the assessee is 33,97,832/- and at the same time assessee has incurred the establishment and other expenses to the extent of ₹.6,81,23,223/- and the excess expenditure over and above the income earned by the assessee to the extent of ₹. 6,47,25,391/- is reimbursed by its parent company International Copper Association Limited, New York. Therefore, he submitted that assessee is not in existence totally from the membership fee or services fees received from the members.
Further, he brought to our notice that registration u/s. 12A of the Act which was revoked earlier was restored back to the assessee by the DIT (Exemptions) on the directions of ITAT by analyzing the provisions of section 2(15) of the Act. Accordingly, the registration u/s. 12A of the Act was restored to the original date. Therefore, the exemption claimed by the assessee u/s. 11 of the Act is available to the assessee for the current Assessment Year also. In support of his contentions he relied on the following case law: - 1. Bombay Presidency Gold Club Ltd v. CIT (106 taxmann.com 58) (Bom HC) 2. India Habitat Centre v. CIT (114 taxmann.com 84) (Del HC) 3. Gemological Institute of India v. DIT (105 taxmann.com 180) (SC) 4. Surat City Gymkhana v. ACIT (170 taxman 612) (SC) 5. Hiralal Bhagwati v. CIT (246 ITR 188) (Guj HC) Page No. | 9
ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India 6. Gagan Education Society v. Add CIT (10 taxmann.com 156) (Agra T) 7. Mehta Jivraj Makandas & Parekh Govindaji Kalyanji Modh Vanik Vidyarthi Public Trust v. DIT (12 taxmann.com 335) (Mumbai T)
On the other hand, Ld. DR relied on the orders passed by the lower authorities.
Considered the rival submissions and material placed on record, we observe that the assessee is a company incorporated u/s. 25 of the Companies Act and the object of assessee company is to promote the use of copper and copper related products in India and to promote, develop, initiate and other activities in copper technology research and international market development for the promotion and expansion of the use of copper and copper relating products. From the record, we observe that assessee’s activities are designed such a way that assessee will collect membership fee and interest on deposit and other miscellaneous expenses are being adjusted in the establishment expenses incurred by the assessee during the assessment year and the net difference over and above the income earned by the assessee are being reimbursed by the parent company. Therefore, there is no income and expenditure at the end of every assessment year. Apparently it looks like a mutual entity, however, the activates are not being fully carried out only for the benefit
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ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India of the existing members. However, to promote the copper and copper related products in India. The mutuality concept will come into existence only when the members of the society are contributed towards the services availed by themselves. In the given case the services are being extended to all the members in order to promote the business and utilization of the copper and copper related products and majority of the establishment expenses are being reimbursed by the parent company in order to promote the objects of the company. Therefore, this organization cannot be brought under the principle of mutuality. Therefore, the interest earned by the assessee is part and parcel of the establishment expenditure. Further, we observe that the registration u/s. 12A of the Act was restored back to the assessee from the date of original approval, the exemption u/s. 11 of the Act is available to the assessee for the current Assessment Year also. Considering the above facts on record, we are in agreement with the submissions of the assessee that its expenses are for charitable purposes and promotion of copper and copper related products and accordingly, the ground raised by the assessee are accordingly allowed and we direct the Assessing Officer to delete the additions proposed by him in the current Assessment Year.
In the result, appeal filed by the assessee is allowed. Page No. | 11
ITA NOs. 7884 & 7885/MUM/2019 (A.Ys: 2010-11 & 2011-12) International Copper Association India ITA.No. 7884/MUM/2019 (A.Y. 2010-11)
Coming to the appeal relating to A.Y. 2010-11, since facts in this case are mutatis mutandis, therefore the decision taken in A.Y. 2011-12 is applicable to this Assessment Year also. Accordingly, this appeal is allowed.
To sum up, appeals filed by the assessee are allowed.
Order pronounced in the open court on 23rd August, 2023.
Sd/- Sd/- (PAVAN K UMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 23/08/2023 Giridhar, Sr.PS
Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum
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