IN THE ITAT MUMBAI BENCH ‘L’
Deputy Director of Income-tax (International Taxation)
Versus
Societe International De Telecommunication
IT APPEAL NO. 4970 (MUM.) OF 2005
CO NO. 67 (MUM.) OF 2006
[ASSESSMENT YEAR 1996-1997]
SEPTEMBER 26, 2012
ORDER
R.S. Syal, Accountant Member
This appeal by the Revenue and Cross Objection by the assessee arise out of the order passed by the CIT (A) on 23.3.2005 in relation to assessment year 1996-1997.
2.1. First ground of assessee’s cross objection is against the unfavourable decision of the ld. CIT (A) on the question of initiation of the re-assessment proceedings u/s 147.
2.2. Briefly stated the facts of the case are that the assessee was founded in 1949, in Belgium. Its branches are in more than 200 countries. The assessee claimed itself to be a co-operative society for the benefit of International Airlines for providing a telecommunication network to all the airlines. A survey u/s 133A was carried out on 29.11.2002 at the business premises of the assessee in Mumbai. During the course of survey, it was observed that the assessee was rendering services to its own members (hereinafter called the ‘SITA members’) and also non-members. For the reasons recorded by the Assessing Officer as set out hereunder, the re-assessment proceedings were initiated after issuing notice u/s 148. Following are the reasons for initiating the re-assessment proceedings.
“Reasons for reopening the case M/s. Societe International De Telecomnications Aeronautiques (SITA) for the AY 1996-97.
In this case, the assessee company filed its return of income on 01/01/1997 for AY 1996-97 declaring total income at NIL. The return of income was processed u/s 143(1)(a) on 25.3.1997 accepting the return of income.
The facts of the case are as under:
The assessee is a company founded in 1949 in Belgium. It has branches in over 220 countries. The assessee has claimed to be a cooperative society for the benefit of International Airlines to provide a telecommunication network to all the airlines. The assessee claimed that it is a mutual benefit society, which is confirmed by the Hon’ble High Court of Bombay in ITA/304/91 (CIT, City-1 vs SITA for AY 1981-82).
A survey u/s 133A was carried out on 29.11.2002 at 24th Floor, Express Towers, Nariman Point, Mumbai.
The assessee claimed that it is a impartial, non-political, non-commercial organization. The assessee claimed that all the SITA members shared cost of the SITA Network Worldwide. Annual running cost are apportioned between the members according to each member’s use of the Network in each country.
On verification of past records, it was noted that assessee’s case was scrutinized for AY 1981-82. The Tribunal accepted the contention of the assessee that its income is exempt under mutuality concept. The appeal filed by the Department against the ITAT’s order was rejected by the High Court on technical grounds of delay.
As laid down by the various courts, an income of an organization can be exempt under the concept of mutuality, if the following conditions are satisfied:
(a) It should be an association rendering services to its members only.
(b) There should be contribution by Members.
(c) Surplus, if any, to be refunded to the Members.
(d) The contributors to the fund and participators in the surplus must be the same.
(e) It should not have dealing with outside body which results in surplus.
During the course of survey, the following facts were gathered:
(i) The Indian Branch is rendering services to more than 200 customers but it is receiving payments in India from only a few persons.
(ii) The assessee claimed that there are SITA customers and Equant customers. The assessee could not explain who are Equant customers.
(iii) The assessee is rendering services to non-members also. Thereby violating the condition mentioned at (a) above for claiming exemption of income from tax under the concept of mutuality.
(iv) Nobody at the branch office could explain how the cost and revenue are being apportioned globally.
(v) The books of accounts of the assessee are maintained globally on a online software. The accounts of the branch are finalized at the Head Office and no audit of the accounts of the Indian Branch is carried out in India.
As the assessee company is rendering services to non-members as well, the assessee is not entitled for the benefit of mutuality. It also needs to be examined whether the assessee has accumulated reserves in general reserve of the company. If the assessee has the balance in the general reserves, the ITAT order could not be applicable to the assessee’s case.
Since, the benefit of mutuality is not applicable to the assessee, I have reason to believe that the income has escaped assessment within the meaning of the provisions of section 147 of the IT Act, 1961.
In view of the above facts, your kind approval is solicited to issue a notice u/s 148 of the IT Act, 1961 in order to bring to tax the above escaped income u/s 147 of the IT Act, 1961.”
2.3 The reasons so recorded were supplied to the assessee on request. Thereafter, the assessee raised certain objections to the initiation of the re-assessment proceedings vide its letter dated 29.3.2004. It was contended that no income escaped from assessment as the assessee was not liable to tax in India on the ‘principle of mutuality’ as confirmed by the Tribunal in assessee’s own case for earlier years starting from A.Ys. 1972-73 to 1983-84. It was also submitted that the SITA had effected only cost recoveries from non-members and not earned any income. As such, it was claimed that there was no reason to snatch away its tax exempt status in India. It was highlighted that as the assessee simply made recoveries, representing reimbursement of actual costs incurred in providing its facilities to these non-members and Equant, these constituted only the reimbursement of its cost, which cannot be regarded as income. It was reiterated that since SITA was operating on a non-profit basis, it did not generate any surplus from the cost recoveries made from members as well as non-members. It was reemphasized that SITA remained overwhelmingly a membership organization, which fact was evidenced by the following factual information.
