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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
आयकर अपीलीय अधिकरण “I” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI श्री महावीर स ुंह, न्याययक दस्य एवुं श्री एन. के. प्रिान लेखा दस्य के मक्ष । BEFORE SRI MAHAVIR SINGH, JM AND SRI NK PRADHAN, AM Aayakr ApIla saM./ ITA No. 668/Mum/2018 (inaQa-arNa baYa- / Assessment Year 2012-13) Dy. Commissioner of Income Societe Internationael De Tax, (IT)-4(2)(2), Telecommunications Room No. 1613, 16 th Floor, Aeronautiques SC (SITA) Air India Building, Nariman C/o, A.F.L. House, Ground Vs. Point, Mumbai-400 021 Floor Lok Bharti Complex, Marol Maroshi Road, Marol, Andheri (East), Mumbai-400 059 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा सं./PAN No. AAFCS2907Q प्रत्याक्षेप M./ CO No. 81/Mum/2019 (Arising in ITA No. 668/Mum/2018 for AY 2012-13) Societe Internationael De Dy. Commissioner of Telecommunications Income Tax, (IT)-4(2)(2), Room No. 1613, 16 th Floor, Aeronautiques SC (SITA) C/p, A.F.L. House, Ground Air India Building, Nariman Vs. Floor Lok Bharti Complex, Point, Mumbai-400 021 Marol Maroshi Road, Marol, Andheri (East), Mumbai-400 059 (ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent) अपीलाथी की ओर से / Appellant by : Shri Nishant Samaiya, DR प्रत्यथी की ओर से / Respondent by : Shri Nitesh Joshi, AR सुनवाई की तारीख / Date of hearing: 11-06-2019 घोषणा की तारीख / Date of pronouncement : 11-06-2019
2 CO. No. 81/Mum/2019 AadoSa / O R D E R
महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM: These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-55, Mumbai [in short CIT(A)], in appeal No. CIT(A)-55/IT-104/16-17, dated 02.11.2017. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle-4(2)(2) Mumbai (in short ITO/ AO) for the A.Y. 2012-13 vide order dated 07.04.2015, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) holding that the assessee is covered by the Principle of mutuality. For this Revenue has raised the following ground No.1: -
“1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in holding that the assessee is covered by the principle of mutuality without appreciating the fact that :-
i. The assessee was having transactions with the non-members also.
ii. It failed to produce any documentary evidences regarding the expenses and thereby, failed to satisfy the Assessing Officer that the revenue received were matched by the expenses incurred.”
3 CO. No. 81/Mum/2019 3. Briefly stated facts are that the assessee is a non-profit making organization founded in 1949 at the time of International Civil Aviation Organization (ICAO) mandates the airline community to set up and operate their own international communication facilities. The assessee is doing quasi-public service to support international air transport community rather than a commercial aim. Thus, it is acted as non-profit basis in each country and territory world-wide. To run the not-for-profit organization, funds its operating cost on a recovery basis from the Global Accounts in which the expenditure is exactly balanced by corresponding cost recoveries. During the course of assessment proceeding, copy of Global audited receipts and expenditure accounts for FY 2011-12 relevant to AY 2012-13 and copy of Income and Expenditure Account and balance sheet of India Branch was provided to AO. The assessee company has a very limited share capital which is subscribed its members. According to Article 10 of the Articles of Association (AOA), the shares are reallocated between the members each year according to the members. Such capital is insufficient to meet assessee’s financing needs. Therefore, the members not only contribute their share of operating expenditure but also make available funds to meet the co-operative’s working capital requirement and interest investment certificates relating to the funding of its requirement to invest in fixed assets. Further, after the announcement of Foreign Exchange Regulation Act, 1973, assessee made an application to the Reserve Bank of India (RBI) for approval of opening of its branch in India at Mumbai and the same was accorded by RBI vide letter dated 09.03.1977 with certain conditions, which read as under: -
4 CO. No. 81/Mum/2019 “(i) The Society (SITA) shall restrict its activities only in the field for providing tele- communication services to its member airlines on ‘no profit basis’.
(ii) the Society will not, without the prior permission of the Reserve Bank, undertake by itself or in partnership or by otherwise associating with any others, any activity of trading, commercial or industrial nature other than what is approved hereby.
(iii) No remittance facilities will be allowed to the society at any stage for repatriation of surplus funds (if any).”
The AO during the course of assessment proceedings estimated the assessee’s income at the rate of 5% in term of Rule 10 of the Income Tax Rules, 1962 and therefore, he worked out the income of ₹ 4,61,76,743/- / Rs. 92,35,34,855/- * 5%). Out of the said income of ₹ 4,61,76,743/-, the assessee has declared income from non-members of ₹ 74,82,745/- (5% of 14,96,54,896/-) in its tax return. Further, the assessee has also declared the interest income of ₹ 54,37,934/- on account of income-tax refund, in its tax return. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) relying on the order of ITAT for AY 2009-10 in ITA No. 5723/Mum/2012 vide order dated 10.04.2015, wherein it is held that the assessee is entitled for exemption of its income from the transactions entered into with the members in term of Principle of mutuality. However, he directing the income as a result of 5 CO. No. 81/Mum/2019 transactions with non-member is not covered by the Principle of Mutuality. According to him non covered transactions are taxable. However, the transactions entered into with members are covered by the Principle of mutuality is to be exempted. He directed the same in para 3.3. as under: -
“3.3 I have considered the facts of the case and submission of the assessee. I have perused the orders of Ld. CIT(A)-V, CIT(A)-XXXI and CIT(A)-11 for the assessment years mentioned above. I have also seen that there is no change in the facts in AY 2012-13. I agree with the findings of CIT(A)-V, CIT(A)-XXXI and CIT(A)- 11 that the Appellant is entitled to exemption of its income from transaction entered into with the members. However, the income as a result of transaction with non-members is not covered by the principle of mutuality and the same is taxable and the transactions entered into with members are covered by the principle of mutuality which would be exempt. Accordingly, Ground Nos 1 to 6 are partly allowed.”
Aggrieved, now Revenue is in appeal before us.
At the outset, the learned Counsel for the assessee stated that this issue is fully covered in favour of assessee’s own case and against Revenue by following Tribunal’s decision in CO No. 67/Mum/2006 for AY 1996-1997 dated 26.09.2012 vide Para 3.8.6 as under: -
6 CO. No. 81/Mum/2019 “3.8.6 From the above discussion, it follows that when an organization with no profit motive, extends services or facilities only to its members for a specific sum and the surplus emanating from collections at a transactional level is eventually distributable amongst the members at any point of time, there is mutuality. In such a case, the periodic income of such an organization will be exempt from tax on the principle of mutuality.”
Respectfully, following the Tribunal’s decision in assessee’s own case as the facts are identical and we are of the view that there no infirmity in the order of CIT(A) for treating the assessee as covered by principle of mutuality. Hence, we confirm the order of CIT(A). This issue of Revenue’s appeal is dismissed.
The issues raised by the assessee in its CO is regarding reimbursement of cost is not income, computation of total income, grounds not addressed and interest income. For this assessee has raised the following grounds: -
“Reimbursement of Cost is not “Income”
The learned CIT(A) erred in not appreciating that the appellant company recovers at cost only and that reimbursement of costs cannot be regarded as taxable "income", even if recovered from non-members.
Computation of Total Income
7 CO. No. 81/Mum/2019 2. The learned CIT(A) erred in upholding the action of the Deputy Commissioner of Income Tax (International Taxation) - 4(2)(2) (Assessing Officer') in estimating the profits of the appellant company at 5% of the gross amount recovered from non-members.
Grounds Not Addressed
The learned ClT(A) erred in not addressing the following grounds of appeal preferred by the appellant company:
The learned Assessing Officer erred in holding that the provisions of Section 44C of the Act apply to the appellant company in respect of certain expenses incurred at head office level which may not fall within the definition of 'head office expenditure' as defined in Section 44C of the Act.
The learned Assessing Officer also failed to appreciate that head office does not only apportion certain costs to India. but also allocates the matching cost recoveries, so that in the event of any disallowance of head office cost apportionments, then the matching cost recoveries should also be excluded from the taxable income of the branch, applying the principle contended in Article 7(1 Xa) of the Double Taxation Avoidance Agreement between India and Belgium.
8 CO. No. 81/Mum/2019 5. The learned Assessing Officer erred in observing that the provisions of Section 40(a)(i) and 40(a)(iii) of the Act may apply to the appellant company.
The learned Assessing Officer erred in not appreciating that the net income of the Appellant is Nil (even though the Appellant has offered income from nonmembers and interest income to tax in its tax return) as the receipts from nonmembers are mere reimbursements and that the interest income is exempt on the principle of mutuality. Accordingly, the Appellant did not have any taxable income.
The learned Assessing Officer erred in not allowing depreciation allowance under Section 32 of the Act '. 'computing the net income of the appellant company.
Interest Income
The learned CIT(A) erred in not appreciating that the interest received on income tax refunds by the appellant company is covered by the Principle of Mutuality' and therefore, the said income should not be taxable.”
At the outset, the learned Counsel for the assessee fairly conceded that these issues are decided by Tribunal as against the 9 CO. No. 81/Mum/2019 assessee in CO No. 67/Mum/2006 for AY 1996-1997 dated 26.09.2012, wherein Tribunal vide Para 5.7 read as under: -
“5.7. We are not convinced with this contention for the reason that section 44C only talks of HO expenses, which mean executive and general administrative expenditure incurred by the assessee outside India including expenditure in respect of rent, rates, repairs etc. It is only the allocation of general and administrative expenses which is covered within the purview of section 44C. On the contrary, we are considering a case in which not only the basis of allocation of expenses is not known, but the basis of allocation of income is equally unknown at India level. This brings us to a situation where neither the income side nor the expenditure side of the assessee’s Income and expenditure account is fully capable of verification. It is in such circumstances that Rule 10 of Income-tax Rules, 1962 comes to the rescue of the Revenue for determination of income in the case of non-residents. It is this very rule which has been invoked by the Assessing Officer and also applied by the learned CIT(A) in estimating the income of the assessee. In our considered opinion the learned CIT(A) was more than justified in estimating the income at 5% of the gross receipts from non-members. These
10 CO. No. 81/Mum/2019 grounds taken by the assessee are not allowed.” 9. Respectfully following the Tribunal’s decision, we dismiss these issues of assessee’s Cross Objection. 10. In the result, the appeal of Revenue and CO of the assessee, both are dismissed. Order pronounced in the open court on 11.06.2019. (एन. के. प्रधान/ NK PRADHAN) (महावीर ससंह /MAHAVIR SINGH) (लेखा सदस्य / ACCOUNTANT MEMBER) (न्याययक सदस्य/ JUDICIAL MEMBER) मुंबई, ददनांक/ Mumbai, Dated: 11.06.2019. दीप रकार, व.यनजी धिव / Sudip Sarkar, Sr.PS आदेश की प्रयिसलपप अग्रेपिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त(अपील) / The CIT(A) 3. आयकर आयुक्त / CIT 4. ववभागीय प्रयतयनधध, आयकर अपीलीय अधधकरण, मुंबई / DR, ITAT, 5. Mumbai गार्ड फाईल / Guard file. 6. आदेशान ार/ BY ORDER, सत्यावपत प्रयत //// उप/ हायक पुंजीकार (Asstt.