Upper India Hire Purchase Co. Vs. Commissioner of Income-tax - Court Judgment

SooperKanoon Citationsooperkanoon.com/708478
SubjectDirect Taxation
CourtDelhi High Court
Decided OnJan-18-2001
Case NumberI.T.R. Nos. 97-107 of 1982
Judge Arijit Pasayat, C.J. and; D.K. Jain, J.
Reported in[2001]251ITR642(Delhi)
ActsIncome-tax Act, 1961 - Sections 11 and 256(1)
AppellantUpper India Hire Purchase Co.
RespondentCommissioner of Income-tax
Appellant Advocate R.C. Pandey and; Ajay Jha, Advs
Respondent AdvocateNone
Excerpt:
- - in the case before us the position for the assessed is much worse because here clause 10 reproduced above clearly laid down that the surplus is not to be distributed between the members of the company but shall be transferred to such other company having objects similar to the objects of the company to be deter-mined by the members of the company at the time of dissolution or in default by the high court that may have jurisdiction in the matter.arijit pasayat, c.j. 1. at the instance of the assessed, the following questions have been referred for the opinion of this court under section 256(1) of the income-tax act, 1961 (in short 'the act') by the appellate tribunal (in short, 'the tribunal') : 'whether, on the facts of the case, the income-tax appellate tribunal was legally right in holding that the petitioner-association was not a mutual association in so far as subscription received from temporary hirer members is concerned and thus exempt from taxation whether, on the facts of the case, the income-tax appellate tribunal was right in holding that the petitioner-association was not a charitable association and thus exempt from taxation under section 11 of the income-tax act, 1961 ?' 2. this dispute relates to the assessment year 1968-69. 3. the dispute relates to assessability of receipts on account of subscription charges of hirer members. the assessed's stand was that this was exempt under section 11 of the act. the income-tax officer held that subscription received from regular members or entry fee may not be taxable, but so far as hirer members are concerned, the position would be different. appeals were preferred before the commissioner of income-tax (appeals) (in short 'the cit (a)'). he held that even subscription received from the hirer members cannot be taxed on the ground of mutuality. the revenue filed an appeal before the tribunal. it was held by the tribunal with reference to various clauses of the articles and memorandum of association that there was no mutuality so far as hirer members are concerned. it was, inter alia, observed as follows : 'since on dissolution according to the clause above quoted the surplus was liable to be distributed even amongst non-members, it was held that the assessed was not a mutual association. in the case before us the position for the assessed is much worse because here clause 10 reproduced above clearly laid down that the surplus is not to be distributed between the members of the company but shall be transferred to such other company having objects similar to the objects of the company to be deter-mined by the members of the company at the time of dissolution or in default by the high court that may have jurisdiction in the matter. we do not agree with learned counsel for the assessed that mutuality means participation in the benefits alone and not in the surplus because this argument runs counter to all the authorities on the question of mutual association. the power to dispose of the surplus is not something as sharing it or receiving it. the fact that the department has accepted the assessed as mutual association so far as the subscription by the regular members is concerned is no reason to hold that it is a mutual association, so far as the temporary hirer members are concerned. the position of the temporary hirer members is much worse. they really received no benefit from the assessed but the main income of the assessed is from them as is clear from page 8 of the paper book. they have no right of vote and no right to decide the destiny of the surplus on winding up. their membership ends as soon as the hiring in each particular case ends. they really received no benefit and thereforee so far as they are concerned the assessed could not be called a mutual association.' 4. on being moved under section 256(1), the tribunal has referred the questions as set out above. we have heard learned counsel for the revenue. there is no appearance for the assessed despite notice. 5. the issue relating to mutuality and exemption from tax has been examined elaborately by the apex court in chelmsford club v. cit [2000] 243 itr 89. when the conclusions arrived at by the tribunal are considered in the light of the above judgment, the tribunal's view is irreversible. accordingly, the questions are answered in favor of the revenue and the against the assessed.
Judgment:

Arijit Pasayat, C.J.

1. At the instance of the assessed, the following questions have been referred for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (in short 'the Act') by the Appellate Tribunal (in short, 'the Tribunal') :

'Whether, on the facts of the case, the Income-tax Appellate Tribunal was legally right in holding that the petitioner-association was not a mutual association in so far as subscription received from temporary hirer members is concerned and thus exempt from taxation

Whether, on the facts of the case, the Income-tax Appellate Tribunal was right in holding that the petitioner-association was not a charitable association and thus exempt from taxation under Section 11 of the Income-tax Act, 1961 ?'

2. This dispute relates to the assessment year 1968-69.

3. The dispute relates to assessability of receipts on account of subscription charges of hirer members. The assessed's stand was that this was exempt under Section 11 of the Act. The Income-tax Officer held that subscription received from regular members or entry fee may not be taxable, but so far as hirer members are concerned, the position would be different. Appeals were preferred before the Commissioner of Income-tax (Appeals) (in short 'the CIT (A)'). He held that even subscription received from the hirer members cannot be taxed on the ground of mutuality. The Revenue filed an appeal before the Tribunal. It was held by the Tribunal with reference to various clauses of the articles and memorandum of association that there was no mutuality so far as hirer members are concerned. It was, inter alia, observed as follows :

'Since on dissolution according to the clause above quoted the surplus was liable to be distributed even amongst non-members, it was held that the assessed was not a mutual association. In the case before us the position for the assessed is much worse because here Clause 10 reproduced above clearly laid down that the surplus is not to be distributed between the members of the company but shall be transferred to such other company having objects similar to the objects of the company to be deter-mined by the members of the company at the time of dissolution or in default by the High Court that may have jurisdiction in the matter. We do not agree with learned counsel for the assessed that mutuality means participation in the benefits alone and not in the surplus because this argument runs counter to all the authorities on the question of mutual association. The power to dispose of the surplus is not something as sharing it or receiving it. The fact that the Department has accepted the assessed as mutual association so far as the subscription by the regular members is concerned is no reason to hold that it is a mutual association, so far as the temporary hirer members are concerned. The position of the temporary hirer members is much worse. They really received no benefit from the assessed but the main income of the assessed is from them as is clear from page 8 of the paper book. They have no right of vote and no right to decide the destiny of the surplus on winding up. Their membership ends as soon as the hiring in each particular case ends. They really received no benefit and thereforee so far as they are concerned the assessed could not be called a mutual association.'

4. On being moved under Section 256(1), the Tribunal has referred the questions as set out above. We have heard learned counsel for the Revenue. There is no appearance for the assessed despite notice.

5. The issue relating to mutuality and exemption from tax has been examined elaborately by the apex court in Chelmsford Club v. CIT [2000] 243 ITR 89. When the conclusions arrived at by the Tribunal are considered in the light of the above judgment, the Tribunal's view is irreversible. Accordingly, the questions are answered in favor of the Revenue and the against the assessed.