Brief of the case:
The Hon’ble Bombay High Court in the above cited case held that merely because a part of surplus was invested in mutual funds it cannot mean that it would render the principle of mutuality inapplicable more so when the invested money has to be utilized for the furtherance of association’s objectives and the income from mutual fund dividends has been offered to tax.
Facts of the case:
The assessee is an association of Air Cargo Agents in India. During the subject assessment year 2007-08 it received subscription/contribution from its members in three forms i.e. annual subscription, member’s annual convention and member’s training programmes aggregating to contribution from the members of Rs.54.07 lakhs.
In its Return of Income the assessee offered an amount of Rs.12.06 lakhs as its Income. However, the aforesaid contribution Rs.54.07 lakhs though credited to profit and loss account was not offered to tax by invoking the principle of mutuality.
AO found that out of surplus funds assessee invested an amount of Rs.9.69 lakhs was invested in mutual funds. This investment not being the object of the association, the concept of mutuality would not apply. Accordingly, the Assessing Officer brought the entire contribution of Rs. 54.07 lakhs received from its members as income chargeable to tax. Aggrieved assessee appealed to CIT(A).
CIT(A) allowed the appeal relying on the decision of Bombay HC in the case of CIT v/s. Common Effluent Treatment Plant (Thane-Belapur) Association 328 ITR 362 wherein it was held that the surplus of income over expenditure would not be charged to income tax if the assessee is covered by the principle of mutuality. This is not lost merely because the excess of income over expenditure is invested in fixed deposits.
Tribunal also dismissed the revenue’s appeal who is in appeal before High Court.
