ITO 3(1)(1), MUMBAI vs. THE AIR CARGO AGENTS ASSOCIATES OF INDIA, MUMBAI

by the Revenue is with regard to deletion of addition of Rs.87,61,337/- being amount received by the assessee from its members and invested in Mutual Funds on the ground that the doctrine of mutuality applies to the Assessee.

Facts necessary for the purpose of appreciating the issue on hand are stated in brief. The assessee is an association of Air Cargo Agents in India. In the year under consideration it received subscription in three forms, i.e. annual subscription, members’ annual convention and members’ training programmes. The sum total of the aforementioned receipts work out to Rs.54,07,484/-, which was claimed as exempt by applying the principle of ‘mutuality’.

It is not in dispute that the Association is registered as a corporate body under section 25 of the Companies Act and its main object is to take care of the welfare and benefits of its members. It is also not in dispute that in the process of achieving its object the Association was acting as a platform between the members and the Ministries of Commerce, Civil Aviation, Airport Authority of India, Customs and other Ministries/agencies concerned with reference to the business of air cargo. Though the collection is basically utilised for running the activities of the Association, the surplus amount available with the Association was temporarily utilised for investment in shares/mutual funds. Since the investment in shares/mutual funds is not part of the business of the Association, income therefrom was offered to tax. The AO was, however, of the opinion that even the investment in shares/mutual funds would be sufficient to come to a conclusion that the contributions received from the members were not utilised for the objects of the Association and The Air Cargo Agencies Association of India accordingly the AO concluded that the contributions received from its members are not covered by the principles of mutuality and therefore liable to be taxed.

Aggrieved, it was contended before the CIT(A) that the assessee company is working on ‘no profit, no loss’ basis. It received membership subscription from its members every year apart from specific contributions from members for special occasions such as training programmes, etc. Since all these contributions are for the benefit of the members wherein the contributors and participants are the same class of persons, i.e. members of the assessee company, principles of mutuality is applicable in which event the contributions received from the members are covered by the principles of mutuality. Reliance was placed upon several decisions in support of its contention that the learned AO had wrongly appreciated the issue; the issue involved herein was with regard to members’ subscription and not regarding the income earned on the investments made by utilising members’ contributions 6. Having regard to the circumstances of the case the learned CIT(A) accepted the contention of the assessee and in this regard he observed as under: - “3.2 I have considered the submission of the appellant and perused the assessment order. From the assessment orders u.s. 143(3) for the A.Yrs. 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 & 2006-07, it is seen that the appellant was assessed as mututal concerns and principle of mutuality was accepted by the AO in all these years. The AO has not brought any new fact on the record to make him able to deviate from the findings of the earlier year. In view of submission of the appellant and respectfully following Bombay High Court’s decision in the case of CIT vs. Common Effluent Treatment Plant (Thane0Belapur) Association (328 ITR 362), Bom), the addition made by the AO is directed to be deleted.”

On the other hand, the learned counsel for the assessee submitted that the facts of the aforecited decision are distinguishable. That was a case where the assessee was an AOP. The concerned banks are all corporate members of the club. The interest earned from the fixed deposits kept with non-member bank was offered for taxation. Under these circumstances the court had to examine the case of the assessee in relation to the interest earned on fixed deposit with the member banks on the principles of three cumulative conditions, namely, (a) identity of the contributors and participants, (b) whether treatment of excess funds was in furtherance of the object of the club, and (c) taking care of contributions of it members. The court also noticed that in the aforementioned case, before that the funds were returned to the club they are expended on non-members, i.e. clients of the bank. Bank generate revenue by paying a lower rate of interest to clubassessee, that makes deposits with them, and then loan out the deposited amounts at a higher rate of interest to third parties. This loaning out of funds of the club The Air Cargo Agencies Association of India by banks to outsiders for commercial reasons snap the link of mutuality, thus breaches the third condition.

In the case of the assessee before us the facts are entirely different. The contributions received from the members are utilised for the benefit of the contributors only and no special benefit goes to any entity other than the members. Apart from that the AO has accepted the case of the assessee in section 143(3) proceedings for all the earlier assessment years. He also placed reliance upon the decision of the Hon'ble Bombay High Court in the case of CIT vs. Common Effluent Treatment Plant, (Thane-Belapur) Association 328 ITR 362 wherein on identical circumstances the Hon'ble jurisdictional High Court held that merely because the assessee utilised the surplus funds for investment in fixed deposit in the bank, etc. it will not lose its identity as mutual benefit society; while investing the funds with a bank or a financial institution, the assessee assumes the character of a customer of the bank or institution and the relationship with that is engendered is that between a banker and its customer. The fact that the funds which are invested have their source in the contribution by the members of the assessee cannot be dispositive of the nature of the receipt obtained by the assessee on account of the interest payments on the deposits made. The learned counsel for the assessee thus strongly relied upon the order passed by the learned CIT(A).

We have carefully considered the rival submissions and perused the record. As correctly pointed out by the learned counsel for the assessee we are concerned here with the contributions made by the members of the association. It is not in dispute that the amount collected from the members were utilised for the welfare of the members. The case of the Revenue is that making use of the funds for depositing the same in the banks violated the principles of mutuality. As The Air Cargo Agencies Association of India rightly pointed out by the learned counsel for the assessee the decision in the case of Bangalore Club (supra) is distinguishable on facts. On the other hand, there is a direct decision of the Hon'ble Bombay High Court wherein on identical circumstances the Hon'ble High Court observed that depositing excess funds with the banks/financial institutions would not render utilisation of the funds for purposes other than mutual benefit and the court observed that the doctrine of mutuality is applicable in such cases. Since the view taken by the learned CIT(A) is in conformity with the view taken by the Hon'ble jurisdictional High Court, we do not find any merit in the contention of the Revenue and thus the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 21st March, 2013.” 2.2 So far as the issue of maintainability of the addition of sum of Rs.56.83 lakhs as contribution from members by the assessee association and invested in mutual funds came up for consideration before the Tribunal for Assessment year 2008-09 (ITA No. 2540 & 3043/Mum/2012. The relevant portion of the same has been considered and reproduced at page 5 onwards of the impugned order and the same is not being repeated being matter of record. No contrary decision was brought to our notice. It also noted that Hon'ble jurisdictional High Court in the case of the assessee for Assessment year 2007-08 vide order dated 31.03.2016 in the appeal filed by the Revenue under section 260A of the Act (ITA No. 2455 of 2013 affirmed the order of the Tribunal wherein the decision in Bangalore Club vs. CIT 350 ITR 509 (SC) was considered and decided the issue in favour of the assessee. Thus following the decision of the Tribunal and the The Air Cargo Agencies Association of India principle of consistency and further respectfully following the order from Hon'ble jurisdictional High Court, we find no merit in the ground raised by the Revenue, therefore, the stand of the learned CIT(A) is affirmed. Resultantly the appeal of the Revenue is dismissed. This order was pronounced in the open court in the presence of Ld. Representative from both sides at the conclusion of the hearing on 18.07.2016. Sd/- Sd/- (Rajesh Kumar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 20/07/2016 ÇAÑA P.S/.�न.स.