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Facts
The assessee, International Air Transport Association (Canada), a non-profit organization and tax resident of Canada with an Indian branch, filed an appeal for AY 2012-13. The core issue, Ground No.6(c), pertains to the taxability of membership fees, which the assessee contends should not be taxed based on the principle of mutuality. This matter was recalled for fresh adjudication regarding this specific ground.
Held
The Tribunal observed that a Dispute Resolution Panel (DRP) in the assessee's own case for AY 2014-15 had previously held that the assessee qualifies as a mutual concern. As this DRP finding was accepted by the Revenue and not challenged, the Tribunal applied the same principle, concluding that the surplus arising from membership fees is not taxable in India.
Key Issues
Whether the membership fees collected by the assessee are exempt from tax based on the principle of mutuality, and thus not taxable as business profits under the India-Canada tax treaty.
Sections Cited
Article 7 of the India-Canada tax treaty, Article 5 of the India-Canada tax treaty, Section 143(3) of the Income Tax Act, Section 144C(13) of the Income Tax Act
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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI RAJ KUMAR CHAUHAN, JM
ITAT vide 01. Miscellaneous Application no.474/Mum/2023, dated 23rdFebruary 2024, has recalled the order of the Tribunal dated 9thMarch 2023, for A.Y. 2012-13, for adjudication of ground no.6 of this appeal only.
Ground no.6 of the appeal is as under:- 02.
“Ground No.6- Collection of membership fees, BSPL ink charges and fees for IATA clearing House facility’ (ICH facility).
In relation to collection of membership fees. b. Erred in failing to provide any reason or basis for deeming the contribution/ membership fees received from the members, by which they obtain membership with the Appellant and get access to information pertaining to the various services provided by the Appellant, as being related to IATA branch office which is specifically involved in providing BSP services only as per the approval of the RBI. c. Without prejudice to the above, erred in not appreciating the contention of the Appellant that it qualifies as a mutual association and hence, the membership fees received from the members should not be liable to tax having regard to the principle of mutuality under the Act.”
In relation to BSPLink charges from airlines and IATA branch for onward remittances to Accelya World SLU, Spain (Accelya Spain) (categorized as Provision of E- Services) e. Erred in not accepting the contentions of the Appellant that the BSPLink charges collected by the Appellant for onward payment to Accelya Spain are in the nature of reimbursement of expenses/ cost, without any mark up, and hence, in the absence of any income element in respect of such charges, the same cannot be taxed as 'business profits' under Article 7 of the India Canada tax treaty.
In relation to fees for ICH facility f. Erred in treating the Indian branch office of the Appellant as being the PE of the Appellant in India as per Article 5 of the India - Canada tax treaty, without appreciating the fact that the activity of provision of ICH facility is completely independent and separate from the BSP services provided by the Indian branch office and accordingly, taxing the said receipts as 'business profits' under Article 7 of the India - Canada tax treaty. g. Erred in not accepting the contentions of the Appellant that as the ICH facility is provided by the Appellant outside India and the income is also received by the Appellant in a bank account maintained outside India, h. Erred in failing to provide any reason or basis for deeming that the receipts in relation to the ICH facility provided by the Appellant outside India are related to the IATA branch office in India which is specifically involved in providing BSP services as per the approval of the RBI.
In relation to attribution of profits i. Erred in estimating 40% of the gross receipts of the Appellant as being the income attributable to the PE (i.e., the Indian branch office) in India, on an arbitrary and ad-hoc basis; and j. Erred in estimating 90% of the gross receipts attributed to the PE of the Appellant in India, as being the profits attributable to such PE in India, on an arbitrary and ad-hocbasis.
As per ground no. 6 (c), it was the claim that assessee qualifies as 03. the mutual association and hence, the membership fees received from the members should not be chargeable to tax having regard to the principle of mutuality under the Act.
The brief fact of the case shows that assessee is a corporation 04. incorporated under the Special Act of Parliament of Canada and is a tax resident of Canada. The assessee holdsa valid tax residency Subsequently, a Miscellaneous Application No.131/Mum/2021 in 06. MA order dated 24th August, 2021, wherein at page no.12, the original order passed dated 8th January, 2021, was recalled for the limited purpose of disposal of ground no.6 of the appeal wherein the assessee has claimed that the collection of membership fees, BSPI ink charges and fees for IATA clearing house facility (ICH facility) are not taxable in India. The registry was directed to fix the hearing of the appeal on 30thSeptember 2021. On that date this appeal was heard by the ITAT and vide Para no.7 the co-ordinate Bench held as under:-
“7. In principle we concur with the submissions of learned Counsel for the assessee. We find that the directions of Dispute Resolution Panel in assessee’s Looking carefully at Para no.7, ground no. 6(c), was allowed for 07. statistical purposes.
Subsequently, the assessee filed a second Miscellaneous Application in MA No.474/Mum/2023 which came to be decided on 23rdFebruary 2024. In this Miscellaneous Application, it was claimed that the Tribunal had failed to record the correct submission of the assessee on the principle of mutuality and BSP Link charges. Vide paragraph no.5 of the order, the co-ordinate Bench held that certain mistakes have been crept in the order of the Tribunal while recording the facts are in turn has led to aberration in the decision making So, there were two Miscellaneous applications in the same ITA on 09. the same issues and now ITAT has recalled orders on both occasions to decide the same issue. We are not here to adjudicate whether an MA on MA is possible or not because rightly or wrongly it has been recalled by ITAT already. Now our job is to decide what is recalled.
Thus, now the issue is with respect to the decision in ground no.6 of the appeal to be decided afresh.
Before us, the assessee submitted that assessee qualifies as mutual association hence, the membership fees received from the members should not be allowable to tax having regard to the principles of mutuality under the Act. The learned Authorized Representative, after discussing the concept of mutuality held that the learned Dispute Resolution Panel for A.Y. 2014-15, in assessee’s own case has accepted that assessee is a mutual concern. Therefore, the Revenue has accepted ground no.6(c). The direction of the learned Dispute panel-1, Mumbai in objection no.157, dated 22ndSeptember 2017, was produced before us, wherein this issue was decided as per paragraph no.7 at page no.20-25 of the direction. The learned Authorized Representative has categorically argued that assessee is a mutual concern.
The learned Departmental Representative vehemently opposed and stated that the surplus arising in the hands of the assessee cannot be considered as not taxable in India on the principle of mutuality.
In the result, ground no.6(c) of the appeal is allowed.
Order pronounced in the open court on 10.07.2024.