SANKARI LORRY URIMAIYALARGAL,SANKARI vs. DCIT CIRCLE-2, SALEM

First, we shall take appeal in ITA No.383/Chny/2024 AY 2010-11 for adjudication.

The assessee raised 9 grounds of appeal amongst which, the only issue emanates for our consideration as to whether the ld.CIT(A) is justified in confirming the addition of Rs.92,46,175/- by rejecting the claim of exemption of income on account of principles of mutuality in the given facts and circumstances of the case.

Brief facts relating to the case are that the assessee is an AOP and filed return of income for AY 2010-11 admitting an income of Rs.1,10,45,669/-. The return filed by the assessee was processed u/s.143(1) of the Income Tax Act, 1961 [“Act” in short]. Subsequently, the case was manually selected for scrutiny and the Assessing Officer(AO) issued notice u/s.143(2) of the Act dated 23.09.2011. While computing its taxable income, the assessee has claimed certain income, which is shown as receipts in the Profit and Loss Account, as inadmissible income and reduced the same from its gross total income and computed the tax on such net total income. The assessee claimed such inadmissible amounts representing members' subscription (Rs.88,580/- ), donation from members (Rs.82,55,600/-), New Member Donation (Rs.7,20,000/-), Five-rupee donation (Rs.1,80,795/-) and entrance Fees from Members (Rs.1,200/-) as inadmissible and exempt. On perusal of the Accounts and other relevant details filed by the assessee, the AO held that the dominant activities engaged by the assessee were not covered under the Principles of Mutuality to claim the said income as inadmissible and exempt. In view of the same, rejecting the claim of Principles of Mutuality, the AO disallowed the inadmissible claim of deduction of Rs.92,46,175/- and added to the total income of the assessee and completed the assessment u/s.143(3)

The ld.AR Shri T.Vasudevan, Advocate submits that the amount of Subscription, Entrance Fee, Donation from Existing and New members and Five Rupee Donation etc. received from members are kept as common fund along with the funds generated from the commercial transactions. He further submits that the receipts in the said accounts are recorded for the payments of various expenses of the sangam activities under the objects of the Sangam which are exclusively for the benefit of the members and also to meet the expenses on commercial activities including the payment of Discount to members and to pay the Rebates to the members on their purchases. The discount to non-members are accounted by deducting the same in the cash receipts on the sales. These above specific items of receipts from members and the receipts on commercial transactions with members and non-members are held together (as a single fund) and not separately. He argued that the Entrance fee, Subscription and Donation from members are only contribution by the members and not a revenue receipts or income from business. The income earned by the sangam on commercial transaction both with members and non-members are offered for taxation. The ld.AR submits that the receipts of the sangam are utilized as stated above both for commercial activities and for the activities directly for the benefit of the members of the sangam and hence the ultimate beneficiaries of the income and funds of the sangam are only the members. No separate account is maintained for the transactions with members and non-members to arrive at the direct benefit to the members.

1 Further, the ld.AR submitted the paper book consisting of 72 pages containing computation of total income, Statements of discount given, and also the submissions made before the lower authorities. The ld.AR also filed the tax audit report, Trading and profit and loss account, Balance sheet of the assessee for the year ending 31.03.2008, 31.03.2009, 31.03.2010 and 31.03.2011 in support of the investments made in the assets of the organisation out of the capital fund contributed by the members along with profits earned from business (after taxes).

The ld. DR Shri P. Krishna Kumar, JCIT submits that there is no clarity in the submissions of the assessee as to whether the said funds were utilized for welfare of the members. He referred to page No.12 of the order of the ld.CIT(A). The AO and the ld.CIT(A) discussed the same in detail and placed reliance on the finding of the ld.CIT(A). The ld.DR prayed to dismiss the grounds raised by the assessee.

Heard both the parties and perused the material available on record. We note that the assessee is a Lorry Owners Association registered as a Society with the