Case Law Details

Case Name : CIT-3 Vs. M/s. Air Cargo Agents Association of India (Bombay high Court)
Appeal Number : IT Appeal No. 2455 of 2013
Date of Judgement/Order : 31/03/2016
Related Assessment Year :
Courts : All High Courts (6110) Bombay High Court (1075)
CA Saurabh Chokhra

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.

Contention of the Assessee:

1. Assessee contended that funds invested in mutual funds are likely to be used in the course of furtherance of association’s objectives. Further, the income earned from mutual fund dividends have been offered to

2. Therefore, entire contributions cannot be brought to tax.

Held by Hon’ble High Court:

1. Court observed that the concept of Mutual concerns not being subject to tax is based on the principle of no man can profit out of itself. Therefore the test to be satisfied before an association can be classified as a Mutual concern are complete identity between the individual members and members of association, association operating  for furtherance of its objectives as set out at the time of incorporation  with no scope of profiteering by the contributors from a fund.

2. The case of the Revenue here is that having invested excess amounts in mutual funds the concept of mutuality would not extend to the contribution made by the members of the association even though the contributions are used to achieve the objectives of the association.

3. In the present case the association has offered the dividend received from mutual funds to tax, therefore, no good reason to tax entire contributions merely because some part of it was invested in mutual funds  more so when the invested money has to be utilized for the furtherance of association’s objectives.

Court placed reliance on the its own decision in the case of CIT v/s. Common Effluent Treatment Plant (Thane-Belapur) Association 328 ITR 362

In result the appeal of revenue was dismissed.

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