THE ADIT(IT)-4(1), v. M/S. LIONS CLUB INTERNATIONAL FOUNDATION, MUMBAI

ITA 3861/MUM/2008 | 2004-2005
Pronouncement Date: 15-10-2010 | Result: Allowed

Appeal Details

RSA Number 386119914 RSA 2008
Assessee PAN ODEOF1954S
Bench Mumbai
Appeal Number ITA 3861/MUM/2008
Duration Of Justice 2 year(s) 4 month(s) 12 day(s)
Appellant THE ADIT(IT)-4(1),
Respondent M/S. LIONS CLUB INTERNATIONAL FOUNDATION, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-10-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted A
Tribunal Order Date 15-10-2010
Date Of Final Hearing 25-03-2010
Next Hearing Date 25-03-2010
Assessment Year 2004-2005
Appeal Filed On 02-06-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO JUDICIAL MEMBER. S.NO. I.T.A. NO. ASSTT. YEAR APPELLANT RESPONDENT. 1. 3861/MUM/2008 2004-05 DY./ASSTT. DIRECTOR OF INCOME TAX(IT) 4(1) MUMBAI. LIONS CLUB INTERNATIONAL FOUNDATION FREEPRESS HOUSE 14 TH FLOOR FREEPRESS JOUR MUMBAI -400 021. 2. 3862/MUM/2008 2005-06 -DO- -DO- 3. 2762/MUM/2009 2006-07 -DO- 4. 5198/MUM/2007 1998-99 ADIT (IT)- 3(2) MUMBAI. -DO- 5. 5199/MUM/2007 1999- 2000 -DO- -D0- 6. 5200/MUM/2007 2000-01 -DO- -DO- 7. 5201/MUM/2007 2001-02 -DO- -DO- 8. 5202/MUM/2007 2002-03 -DO- -DO- 9. 5203/MUM/2007 2003-04 -DO- -DO- 10. 5138/MUM/2007 1998-99 -DO- LIONS CLUB INTERNATIONAL FREEPRESS HOUSE 14 TH FLOOR FREEPRESS JOUR MUMBAI - 400 021. 11. 5139/MUM/2007 1999- 2000 -DO- -DO- 12. 5140/MUM/2007 2000-01 -DO- -DO- 13. 5141/MUM/2007 2001-02 -DO- -DO- 14. 5142/MUM/2007 2002-03 -DO- -DO- 15. 5143/MUM/2007 2003-04 -DO- -DO- 2 S. NO. C.O. NO. ARISING OUT OF ITA NO. ASSTT. NO. CROSS OBJECTOR RESPONDENT. 1. 198/MUM/2008 3861/MUM/2008 2004-05 LIONS CLUB INTERNATIONAL FOUNDATION FREEPRESS HOUSE 14 TH FLOOR FREEPRESS JOUR MUMBAI 400 021. DY./ASSTT. DIRETOR OF INCOME TAX (IT)-4(1) MUMBAI. 2. 199/MUM/2008 3862/MUM/2008 2005-06 -DO- -DO- 3. 214/MUM/2009 2762/MUM/2009 2006-07 -DO- -DO- DEPARTMENT BY : SHRI R.S. RANA. ASSESSE E BY : SHRI F.V. IRANI. O R D E R PER BENCH : ALL THESE APPEALS ARE FILED BY THE REVENUE AND ARE DIRECTED AGAINST THE SEPARATE BUT IDENTICAL ORDERS OF THE CIT(APPEALS) P ASSED ON DIFFERENT DATES I.E. ON 31-03-2008 25-05-2007 09-03-2007 15-05-2007 . A S THE ISSUES ARISING IN ALL THESE APPEALS ARE COMMON FOR THE SAKE OF CONVENIEN CE THEY ARE HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS COMMON ORDER. 3 2. THE ASSESSEE HAS FILED CROSS OBJECTIONS FOR THE ASSESSMENT YEARS 2004- 05 2005-06 AND 2006-07 IN THE CASE OF LIONS CLUB I NTERNATIONAL FOUNDATION. IN THE CROSS OBJECTIONS THE ASSESSEE CHALLENGED THE REOPE NING OF ASSESSMENTS. 3. FACTS IN BRIEF : BEFORE THE CIT(APPEALS) THE ASSESSEE FILED A STAT EMENT OF FACTS ALONG WITH FORM 35. IN THE CASE OF LIONS CLUB INTERNATION AL FOUNDATION. THE STATEMENT OF FACTS READS AS FOLLOWS : (1) LIONS CLUBS INTERNATIONAL FOUNDATION HEREIN REFER RED TO AS LCIF IS A PUBLIC NON-PROFIT TAX-EXEMPT CORPORATION AS DESCR IBED IN SECTION 501(C)(3) OF THE U.S. INTERNAL REVENUE CODE OF 1954 . LCIF WAS INCORPORATED IN THE UNITED STATES ON JUNE 13 1968 AS THE CHARITABLE ARM OF LIONS CLUBS INTERNATIONAL. LCIF IS A VEHICLE BY WHICH CONTRIBUTIONS LARGE AND SMALL ARE RECEIVED AND DISBURSED TO AID LIONS WORLDWISE IN HUMANITARIAN SERVICE ENDEAVORS. THE FOUNDATIONS MISSION IS TO SUPPORT THE EFFORTS OF LIONS CLUBS AROUND THE WORLD IN SERVING THEIR LOCAL COMMUNITIES AND TH E WORLD COMMUNITY THROUGH HUMANITARIAN SERVICE MAJOR DISASTER RELIEF AND VOCATIONAL ASSISTANCE PROGRAMS. (2) THE MEMBERS OF THE BOARD OF TRUSTEES OF THIS CORPOR ATION AS FROM TIME TO TIME CONSTITUTED SHALL BY VIRTUE OF SUCH POSIT IONS BE VOTING MEMBERS OF THIS CORPORATION AND SHALL COMPRISE THE ENTIRE VOTING MEMBERSHIP THEREOF. ANY PERSON WHO CEASES TO HOLD A POSITION S HALL CEASE THEREON TO BE A VOTING MEMBER OF THIS CORPORATION. THE EXECUTI VE ADMINISTRATOR OF THE INTERNATIONAL ASSOCIATION OF LIONS CLUBS (LCI) SHALL BE THE EXECUTIVE ADMINISTRATOR OF LCIF. 4 (3) LCIFS GRANTS GIVEN TO MEMBER CLUBS HAVE BEEN UTILI ZED FOR DISTRIBUTION OF FOOD AND CLOTHING TO VICTIMS OF NATURAL DISASTER S BY WAY OF DONATIONS FOR THE GUJARAT AND ORISSA CYCLONE RELIEF GUJARAT AND MAHARASHTRA EARTHQUAKE ETC. BESIDES PROVIDING VOCATIONAL TRAINI NG AND EQUIPPING CLINICS AND HOSPITALS FOR THE YOUTH AND DISABLED. T HE BOARD OF TRUSTEES SCRUTINIZES ALL APPLICATIONS FOR PROJECTS REQUIRING DONATIONS AND GIVES GRANTS FOR DESERVING PROJECTS. LCI STAFF WITH THE APPROVAL OF THE LCIF CHAIRPERSON SHALL CONDUCT SITE VISITS TO SELECTED GRANT FUNDED PROJECTS TO ASCERTAIN PROGRESS AND VERIFY APPROPRIATE USE OF AW ARDED GRANT MONIES. (4) THE SOURCE OF FUNDS FOR LCIF IS ONLY DONATIONS WHIC H ARE VOLUNTARY AND GRANTS FROM HEADQUARTERS TO SUPPLEMENT SHORTFALL I F ANY. (5) IN THE ASSESSMENT THE LEARNED ASSESSING OFFICER RE JECTED THE APPLICABILITY OF THE PRINCIPLE OF MUTUALITY TO THE APPELLANTS AND FURTHER ADDED A SUM OF RS.14 72 32 660/- TO THE INCOME OF T HE APPELLANT BY APPLYING THE PROVISIONS OF SECTION 68 OF THE ACT ON THE BASIS THAT THE GENUINENESS IDENTITY AND CREDITWORTHINESS OF THE D ONORS COULD NOT BE ESTABLISHED. 4. IN THE CASE OF LIONS CLUB INTERNATIONAL NO STAT EMENT OF FACT HAS BEEN FILED BY THE ASSESSEE BEFORE THE CIT(APPEALS). HOWE VER BEFORE THE LEARNED CIT(APPEALS) THE FACTS HAVE BEEN NARRATED. THESE AR E VERY ELABORATELY STATED. A BRIEF BACKGROUND AND FACTS ARE GIVEN IN THE OPINIO N EXTRACTED BY THE LEARNED CIT(APPEALS) IN HIS ORDER. WE EXTRACT THE FACTS FRO M THIS OPINION : OPINION OF BANSI S. MEHTA: THE ACTIVITIES OF LIC ARE COMPRISE OF ADMINISTERI NG THE FUNCTIONING OF EACH AND EVERY MEMBER CLUB (LIONS CLUB) AND CO-OR DINATING THEIR ACTIVITIES. ALL INDIVIDUAL MEMBERS ARE REQUIRED TO PAY DUES (IN THE FORM OF 5 ENTRANCE FEES MEMBERSHIP FEES ETC.) THE ANNUAL DUE S WHICH ARE RECEIVED FROM THE LION MEMBERS ARE USED BY LCI TO DEFRAY SUB SCRIPTION PRICE OF THE LION MAGAZINE. ADMINISTRATIVE AND ANNUAL CONVENTION COSTS OF LCI AND SIMILAR DISTRICT COSTS LCI HOLDS PROGRAMS SEMINARS AND INSTITUTES FOR LEADERSHIP DEVELOPMENT AND OTHER FORUMS AND THESE P ROGRAMMES ARE ONLY FOR LION MEMBERS AND NON LIONS ARE NOT ALLOWED TO T AKE PART. THUS FUNDS RECEIVED FROM MEMBERS ARE UTILIZED FOR MUTUAL BENEF IT OF MEMBERS. FURTHERMORE ON PERUSAL OF THE ARTICLES/MEMORANDUM/ CONSTITUTION & BY LAWS IT CLEARLY INDICATES THAT THE ADMINISTRATION AND WORKING OF THE ASSOCIATION AND IMPLEMENTATION OF POLICIES ARE ESTA BLISHED AND ARE IMPLEMENTED ON THE CONCEPT OF MUTUALITY. EACH MEMBE R IS EQUALLY REPRESENTED WITH INDIVIDUAL IDENTITY AND STATUS THE REBY ESTABLISHING THE FACT OF COMPLETE TRANSPARENCY I.E. THE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS OF THE ASSOCIATION AND FOUNDATION. OPINION OF GRANT THORNTON. FACTS AND BACKGROUND 1. THE INTERNATIONAL ASSOCIATION OF LIONS CLUBS ALSO K NOWN AS LIONS CLUBS INTERNATIONAL (LCI) IS A NON PROFIT MAKING ORGANIZA TION REGISTERED IN LLIONS UNITED STATES OF AMERICA (USA) AND HAS MANY MEMBERS ALL OVER THE GLOB. 2. LIONS CLUB INTERNATIONAL FOUNDATION (LCIF) CHARITA BLE GRANT MAKING ARM OF LCI IS ALSO A NON PROFIT MAKING CHARITY ORGANIZ ATION REGISTERED IN THE STATE OF LLINOIS USA. 3. LCI PURSUES ITS CHARITABLE OBJECTIVE THROUGH LCIF I N MULTIFARIOUS WAYS BY BUILDING / RUNNING HOSPITALS CLINICS SCHOOLS PLAYGROUNDS ETC. OTHER HEALTH CARE CHARITABLE ACTIVITIES. 4. LCI HAS AN OFFICE IN MUMBAI THAT HAS BEEN SET UP TO ASSIST THE US HEAD QUARTERS ADMINISTRATION AND TO SUPPORT AND ASSIST THE LIONS CLUBS IN INDIA AND NEIGHBORING COUNTRIES IN CARRYING OUT TH EIR CHARITABLE OBJECTIVES. 5. THE MUMBAI OFFICE MAINTAINS SEPARATE NRO ACCOUNTS W ITH UNION BANK OF INDIA FOR BOTH LCI & LCIF RESPECTIVELY FOR RECE IPTS OF FUNDS AND FOR MAKING ELIGIBLE EXPENDITURE. THE ABOVE ACCOUNTS ARE EXCLUSIVELY OPERATED BY AUTHORIZED PERSONS FROM HEADQUARTERS I. E. USA. 6. LCI AND ALL ITS MEMBER CLUBS ARE REQUIRED TO MAINTA IN TWO SEPARATE BANK ACCOUNTS ONE FOR ADMINISTRATIVE EXPENSES AND OTHER FOR DONATIONS / 6 CHARITY. THE RECEIPTS IN DONATION/CHARITY ACCOUNT A RE USED EXCLUSIVELY FOR THE PURPOSE OF DONATION / CHARITY AND NO AMOUNT IS UTILIZED FOR ADMINISTRATION PURPOSES. 7. THE RECEIPTS IN LCIS ADMINISTRATIVE NRO ACCOUNT AR E MAJORLY COMPRISED OF THE FOLLOWING : RECEIPTS FROM INDIAN MEMBER CLUBS (I) ANNUAL MEMBERSHIP FEES (II) ENTRANCE FEES FROM NEW MEMBER CLUBS. (III) PREMIUM FEES FROM FEW MEMBERS OPTING TO BECOME FOUNDER MEMBERS REMITTANCE FROM LCI HEAD QUARTERS FOR SHORTFALL IF ANY IN THE ADMINISTRATIVE EXPENDITURE. 8. THE PAYMENTS FROM LCIS ADMINISTRATIVE NRO ACC OUNT CAN BE BROADLY BIFURCATED AS UNDER : - ADMINISTRATIVE EXPENSES (SALARIES ETC) FOR ASSISTIN G THE MEMBER CLUBS IN INDIA AND NEIGHBORING COUNTRIES; - IF LCIF IS SHORT OF FUNDS OR PURPOSES TO GRANT SOM E FUNDS TO LIONS CLUBS IN INDIA FOR SOME CHARITABLE PURPOSE AN D THERE ARE UNUTILIZED FUNDS WITH LCI THE SAME MAY BE TRANS FERRED TO LCIFS NRO ACCOUNT. 9. WE HAVE BEEN INFORMED THAT LCI MAINTAINS ADEQUATE D OCUMENTATION FOR THE RECEIPTS FROM THE INDIAN MEMBER CLUB. 10. LCIF IS THE CHARITABLE ARM OF LCI PROVIDING GRANT S FOR VARIOUS CHARITABLE PURPOSES INCLUDING EVENTS LIKE NATURAL D ISASTERS BY WAY OF EMERGENCY GRANTS. 11. THE SOURCES OF DEPOSITS IN LCIFS NRO ACCOUNT ARE; - DONATIONS RECEIVED FROM VARIOUS MEMBER CLUBS OF LCI AND - GRANTS RECEIVED FROM HEADQUARTERS / TRANSFER FROM L CIS NRO ACCOUNT; 7 12. ALL ACCOUNTS RECEIVED BY LCIF AS DONATION / GRANT IN ITS NRO ACCOUNT HAVE BEEN EXPENDED TOWARDS GIVING GRANTS TO THE IND IAN MEMBER CLUBS OF LCI FOR CHARITABLE PURPOSES. 5. THE AO ISSUED A NOTICE U/S 148 ASKING THE ASSES SES TO FURNISH THEIR RETURNS OF INCOME WITHIN A PERIOD OF 30 DAYS. THE A SSESSEE FILED A RETURN DECLARING NIL INCOME. 6. THE AO OBSERVED THAT THE ASSESSEE IS A TRUST RE GISTERED IN ILLINOIS USA. HE FURTHER OBSERVED THAT AS PER NOTICE TO THE COMPUTATION OF INCOME IT WAS STATED THAT THE ORGANIZATION IS A NON PROFIT MAKING ORGANIZATION. AS FAR AS LIONS CLUB INTERNATIONAL FOUNDATION IS CONCERNED THE AO OBSERVED THAT IT IS A CHARITABLE GRANT MAKING ARM OF LIONS CLUB INTERNATIONAL. IT WA S FURTHER OBSERVED THAT THE ASSESSEE CLAIMED THAT ONLY SOURCE OF RECEIPT IS VOL UNTARY DONATIONS FROM THE MEMBERS AND IN VIEW OF THE PRINCIPLES OF MUTUALITY NO INCOME ARISES OUT OF THESE ACTIVITIES. THE AO TOOK INTO ACCOUNT THE AMOUNTS RE CEIVED BY THE ASSESSEE IN THE BANK STATEMENT. HE NOTED THAT THE REPRESENTATIVE O F THE ASSESSEE HAS STATED THAT ALL THE BOOKS OF ACCOUNTS WERE MAINTAINED IN USA AND TH AT NO INDIAS SPECIFIC ACCOUNT IS MAINTAINED. HE ALSO RECORDED THE SUBMISS ION THAT THE GRANT RECEIVED FROM USA AND THE SOURCES OF THE SAME COULD NOT BE F URNISHED. THE MODUS OPERANDI OF THE LIONS CLUB INTERNATIONAL AND LIONS CLUB INTE RNATIONAL FOUNDATION WERE EXPLAINED TO THE AO. THE AO REJECTED THE CONTENTION S OF THE ASSESSEE THAT THESE ARE ORGANIZATIONS GOVERNED BY PRINCIPLE OF MUTUALITY. H E OBSERVED THAT THE ASSESSEE IS A CHARITABLE ORGANIZATION AND FOUND THAT IT HAS NO T TAKEN REGISTRATION WITH THE COMMISSIONER OF INCOME TAX U/S 12A OF THE ACT. FURT HER HE OBSERVED THAT THE PRINCIPLE OF MUTUALITY DOES NOT APPLY AND THAT THE NATURE OF GRANTS RECEIVED IS TAXABLE IN INDIA. HE RECORDED THAT THE ASSESSEE DID NOT FURNISH THE STATEMENT OF DONATIONS NOR COULD IT FURNISH PAN AND ADDRESS OF I NDIA SPECIFIC DONORS. HE HELD 8 THAT THE PROVISIONS OF SECTION 68 ARE APPLICABLE. T HUS HE BROUGHT THE TOTAL DONATIONS TO TAX. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY AFTER ELABORATELY CONSIDERING THE SUBMISS IONS OF THE ASSESSEE HELD THAT THE ASSESSES ARE COVERED BY PRINCIPLES OF MUTUALITY AND THUS THE INCOME IS NOT TAXABLE. FOR THE SAKE OF BREVITY THE FINDING AND CONCLUSIO NS OF THE LEARNED CIT(APPEALS) ARE NOT REPEATED. SUFFICE TO SAY THE WRITTEN SUBMI SSIONS OF THE ASSESSEE ARE EXTRACTED AND THEREAFTER THE SAME WERE FORWARDED TO THE AO REPLIES OBTAINED. REASONS FOR ADMISSION OF ADDITIONAL EVIDENCE WERE GIVEN. THE LEARNED CIT(APPEALS) REFERRED TO VARIOUS OPINIONS OBTAINED AND CASE LAWS AND ULTIMATELY ARRIVED AT A CONCLUSION THAT THE PRINCIPLES OF MUTU ALITY APPLY. AGGRIEVED THE REVENUE FILED THESE APPEALS BEFORE US. 7. SHRI S.S. RANA LEARNED DR APPEARED ON BEHALF OF THE REVENUE AND SHRI F.V.IRANI LEARNED COUNSEL APPEARED ON BEHALF OF THE ASSESSEE. BOTH PARTIES AGREED THAT THE WORDING OF THE LEARNED CIT(APPEALS) IN ALL THE ORDERS ARE THE SAME AND THAT ONE LEAD ORDER MAY BE TAKEN UP AND THAT TH IS WHEN ADJUDICATED CAN BE APPLIED TO ALL CASES. 8. MR. RANA SUBMITTED THAT LIONS CLUB INTERNATIONA L AND LIONS CLUB INTERNATIONAL FOUNDATION ARE NON GOVT. ORGANIZATION S (NGOS) WHICH RECEIVES GRANTS NOT ONLY FROM THE GOVT. OF USA BUT ALSO FROM VARIOUS OTHER CHARITABLE INSTITUTIONS. HE SUBMITTED THAT BOTH THESE CONCERNS ARE NONRESIDENT TRUST. HE RELIED ON THE ORDER OF THE AUTHORITY OF ADVANCE RUL INGS IN THE CASE OF GENERAL ELECTRIC PENSION TRUST IN RE 280 ITR 425 (AAR) AN D SUBMITTED THAT THE INCOME OF BOTH THESE NONRESIDENT TRUST ARE NOT TAXABLE IN USA AND THUS THEY DO NOT GET THE BENEFIT OF DOUBLE TAXATION AVOIDANCE AGREEMENT. THU S HE SUBMITTED THAT THE 9 INCOME IS SUBJECT TO DOMESTIC LAW. HE ARGUED THAT TH E RELEVANT SECTIONS THAT ARE TO BE CONSIDERED ARE SECTIONS 5(2) 2(24)(II)(A) AN D 10(21). HE SUBMITTED THAT THE CASE OF THE ASSESSEE IS NOT COVERED BY SECTION 10 AND AS THE ASSESSEE HAS NOT OBTAINED REGISTRATION U/S 12A OF THE ACT HE CANNOT CLAIM EXEMPTION U/S 11 12 AS A CHARITABLE ORGANIZATION. 9. THUS HE SUBMITS THAT AS PER THE DEFINITION GIV EN U/S 2(24) ALL VOLUNTARY CONTRIBUTION RECEIVED BY THE ASSESSEE ARE INCOME. HE VEHEMENTLY CONTENDED THAT THE PRINCIPLE OF MUTUALITY DOES NOT APPLY TO THE ASSESSEE. HE SUBMITTED THAT THE CIT(APPEALS) AT PARA 5.19 PAGE 6 0 TALKED ABOUT ONLY MEMBERSHIP FEE AND NOT DONATIONS. HE SUBMITTED THAT THE ASSESSMENTS WERE COMPLETED U/S 144 AND NOBODY VERIFIED WHETHER THE A SSESSEE RECEIVED ANY VOLUNTARY CONTRIBUTIONS. HE REFERRED TO THE WEBSITE OF THE ASSESSEE-INSTITUTIONS AND SUBMITTED THAT IT IS STATED THEREIN THAT THE ASSESSEE HAS IN FACT INVITEDDONATIONS. HE POINTED OUT THAT THE ARTICLES OF ASSOCIATION OF LIONS CLUB OF INDIA AND LIONS CLUB OF INTERNATIONAL FOUNDATION HA VE NOT BEEN FILED BY THE ASSESSEE EITHER BEFORE THE AO OR BEFORE THE CIT(APP EALS) AND THUS THEY HAVE REMAINED UNEXAMINED. HE VEHEMENTLY CONTENDED THAT T HE PRINCIPLES OF MUTUALITY I.E. THE CONTRIBUTORS TO THE FUND ARE THE SAME PER SONS WHO ARE ALSO THE PARTICIPANTS OF THE FUND IS NOT SATISFIED IN THESE CASES. IN CHARITABLE ORGANIZATION AS PER THE LEARNED DR THE CONTRIBUTORS ARE DIFFERE NT FROM THE RECIPIENTS OR BENEFICIARIES OF THE FUND. HE POINTED OUT THATIN B OTH THESE THE CONDITION THAT THE CONTRIBUTORS TO THE FUND MUST BE ENTITLED TO PARTIC IPATE IN THE SURPLUS IS NOT SATISFIED. HE REFERRED TO PAGE 51 OF THE CIT(APPEAL S) ORDER AND SUBMITTED THAT IT IS RECORDED THEREIN THAT THE INTERNAL REVENUE CODE (IRC) AND REGULATIONS OF USA 10 TREASURY DEPARTMENT WOULD NOT PERMIT ANY DISTRIBUTI ON THAT WOULD INURE TO THE BENEFIT OF ANY PRIVATE INTEREST MEMBER OR INDIVIDU AL. IT IS ALSO MANDATORY UNDER THE IRC AND REGULATIONS THAT ON DISSOLUTION OF A NO N PROFIT ENTITY THE REMAINING ASSETS SHOULD BE DISTRIBUTED FOR PUBLIC CHARITABLE PURPOSE. THIS AS PER THE LEARNED DR IS CONTRARY TO THE PRINCIPLES OF MUTUALITY. HE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CHELMSFORD CLU B VS. CIT 243 ITR 89 (SC) AND SUBMITTED THAT SURPLUS SHOULD BE FOR MEMBERS WELFAR E AND NOT FOR CHARITY. HE ALSO RELIED ON THE JUDGMENT OF WANKANER SOCIAL WELFA RE SOCIETY VS CIT 260 ITR 241 (MAD). HE POINTED OUT THAT THE BENEFIT FROM THE CONTRIBUTION OF THE MEMBERS IS FOR THE PUBLIC AT LARGE. 10. MR. RANA FURTHER SUBMITTED THAT THE ASSESSEE H AS NOT FILED THE BYE- LAWS OR THE ARTICLES OF ASSOCIATION. HENCE IT IS NO T KNOWN AS TO WHAT IS THE TYPE OF ORGANIZATION I.E. WHETHER IT IS THE SOCIETY TRUST SECTION 25 COMPANY ETC. HE POINTED OUT THAT IT IS TRUE THAT GRATE SERVICE IS B EING RENDERED BY BOTH LIONS CLUB OF INDIA AND LIONS CLUB INTERNATIONAL FOUNDATION BU T SUBMITTED THAT THE GOOD WORK IS NOT RELEVANT TO THE DECISION ON THE ISSUE. HE SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED ACCOUNTS AND UNDER THOSE CIRCUMST ANCES THE FIRST APPELLATE AUTHORITY WAS WRONG AND THAT HIS FINDING THAT THIS IS A MUTUAL ORGANIZATION IS TO BE VACATED. 11. THE LEARNED COUNSEL FOR THE ASSESSEE MR. F.V. IRANI SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE JODHPUR BENCH OF THE TRIBUNAL IN THE CASE OF VARIOUS LIONS CLUBS VIDE ITA NO. 519/JDPR/2007AND OTHERS ORDER DATED 10-10-2007 A CO PY OF WHICH IS FURNISHED BEFORE US. HE SUBMITTED THAT THE ASSESSEE IS NOT CL AIMING EXEMPTION EITHER U/S 10 11 OR U/S 11 12 & 13 AND THUS THE ARGUMENTS OF THE LE ARNED DR ON THIS ISSUE ARE NOT RELEVANT. HE SUBMITTED THAT THE ONLY CONTROVERSY THAT IS RELEVANT IS WHETHER THE ASSOCIATIONS IN QUESTION ARE MUTUAL ASSOCIATIONS OR NOT. HE EXPLAINED BEFORE THE BENCH THE CONCEPT OF MUTUALITY. HE REFERRED TO PAGE 35 OF THE CIT(APPEALS) ORDER SPECIFICALLY TO PARA 4.5 AND ARGUED THAT THE MAIN CLAIM OF THE ASSESSEE IS THAT THE LIONS CLUB ALL OVER THE WORLD HAVE JOINED T OGETHER FOR THE DEVELOPMENT OF THEIR MEMBERS AND ALSO TO CARRY OUT THE COMMON OBJEC TS OF THE ASSOCIATION WHICH INCLUDES THE CIVIL CULTURAL SOCIAL AND MORAL FOR WELFARE OF THE COMMUNITY. HE REFERRED TO THE CIRCUMSTANCES UNDER WHICH THE ASSES SEE COULD NOT FURNISH CERTAIN DETAILS BEFORE THE AO AND JUSTIFIED THE DECISION OF THE FIRST APPELLATE AUTHORITY TO ACCEPT THE ADDITIONAL EVIDENCES AND SUBMISSIONS OF THE ASSESSEE. HE RELIED ON THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT I N THE CASE OF CIT VS. NORTHERN INDIA MOTIONS PICTURES ASSOCIATION 180 ITR 160 AND SUBMITTED THAT IN THIS DECISION THE HONBLE COURT HELD THAT JUST BECAU SE THE MEMBERS AGREED TO CONTRIBUTE THE SURPLUS IN THE EVENT OF DISSOLUTION OF THE ASSOCIATION TO A SIMILAR ASSOCIATION OR TO A CHARITABLE TRUST DOES NOT LEAD TO A CONCLUSION THAT THE ASSESSEE WOULD NOT BE ENTITLED TO THE BENEFIT OF PR INCIPLES OF MUTUALITY. THUS HE SUBMITS THAT THE ARGUMENT OF THE LEARNED DR THAT ON DISSOLUTION THE ASSETS HAVE TO BE GIVEN TO CHARITY AND HENCE THE PRINCIPLES OF MUTUALITY IS LEGALLY NOT CORRECT. MR. IRANI SUBMITTED THAT THE TEST IN THIS CASE IS W HETHER THE MEMBERS HAVE CONTROL ON THE DISPOSAL OF THE SURPLUS. HE SUBMITTE D THAT THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF N ORTHERN INDIA MOTIONS PICTURE ASSOCIATION HAS BEEN APPROVED BY THE HONBL E SUPREME COURT IN THE CASE OF CIT VS. BANKIMPUR CLUB LTD. 226 ITR 97 (SC).HE S UBMITTED THAT THE JODHPUR BENCH WAS CONSIDERING THE CASE OF INDIVIDUAL LIONS CLUBS AT THE BOTTOM OF THE 12 THREE TIRE ORGANIZATION AND IT HAS TAKEN A VIEW THA T THESE ARE MUTUAL ORGANIZATIONS. HE SUBMITTED THAT THE TESTS ARE AS T O WHO HAS CONTRIBUTED AND WHO IS ENTITLED TO THE SURPLUS AND THAT THE PURPOSE OF WHICH THE ASSOCIATION IS FORMED IS NOT IMPORTANT. HE VEHEMENTLY CONTENDED THAT IT I S NOT RELEVANT TO GO INTO THE ISSUE AS TO WHO IS THE PERSON WHO WOULD BENEFICIAL IN TERMS OF THE OBJECTS OF THE ASSOCIATION. HE FILED A BOOKLET CONTAINING BYE-LAW S OF LIONS CLUB INTERNATIONAL AND DREW THE ATTENTION OF THE BENCH TO THE SAME. HE FUR THER REFERRED TO PAGE 9 OF THE CIT(APPEALS) ORDER AND SUBMITTED THAT THE CHARITY IN QUESTION IS DONE THROUGH MEMBERS CLUB ONLY. ON A QUERY FROM THE BENCH HE SUB MITTED THAT THE FULL BENCH OF THE HONBLE PATNA HIGH COURT IN THE CASE OF CIT VS. RANCHI CLUB LTD. 196 ITR 137 HELD THAT MERELY BECAUSE THE ASSESSEE HAD ENTERED I NTO TRANSACTION WITH NON MEMBERS AND EARNED PROFIT OUT OF THE TRANSACTIONS H ELD WITH THEM ITS RIGHT TO CLAIM EXEMPTION ON THE PRINCIPLE OF MUTUALITY IN RE SPECT OF ITS TRANSACTIONS WITH ITS MEMBERS WAS NOT LOST AND THE ASSESSEE CONTINUES TO BE A MUTUAL CONCERN. HE CONTENDED THAT AS FAR AS THE RECEIPTS OF THIS ORGAN IZATION ARE CONCERNED THE AO HAS ONLY BROUGHT TO TAX MEMBERSHIP FEES ONLY AND AR GUED THAT THEY CANNOT BE TAXED AS THE SAME WOULD NOT BE HAVING THE CHARACTER OF INCOME. HE RELIED ON THE JUDGMENT OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. WEST GODAVARI DISTRICT RICE MILLERS ASSOCIATION 150 ITR 394 FOR THE PROPOSITION THAT THE TEST OF MUTUALITY OF THE PARTICIPATION OF THE MEMBE R ENVISAGED IS NOT THAT THE MEMBER SHOULD TAKE THE SURPLUS TO THEMSELVES BUT IT WOULD BE ENOUGH IF THEY HAVE A RIGHT OF DISPOSAL OVER THE SURPLUS. 12. MR. IRANI SUBMITTED THAT THE FORM OF THE ORGA NIZATION IS NOT RELEVANT FOR THE PURPOSE OF DECIDING WHETHER THE INSTITUTION IS GOVERNED BY THE PRINCIPLES 13 OF MUTUALITY OR NOT. HE SUBMITTED THAT THE ENTITY I S JUST A METHODOLOGY ON CONVENIENCE AND IS NOT RELEVANT. ALTERNATIVELY MR. IRANI SUBMITTED THAT WITHOUT PREJUDICE TO HIS ARGUMENTS IN CASE THE BENCH COMES TO A CONCLUSION THAT THE CONCERNS ARE NOT GOVERNED BY THE PRINCIPLES OF MUTU ALITY THEN THE PROPOSITIONS LAID DOWN BY THE HYDERABAD B-BENCH OF THE TRIBUNAL IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS. ITO 71 ITD 152 (HYD) HAS T O BE APPLIED FOR COMPUTATION OF INCOME ON COMMERCIAL LINES. HE ALSO RELIED ON THE D ECISION OF HYDERABAD B-BENCH OF THE TRIBUNAL IN THE CASE OF SOCIETY FOR INTEGRA TED DEVELOPMENT IN URBAN AND RURAL AREAS (SINDUR) VS. DCIT REPORTED IN 90 ITD 49 3 (HYD.). 13. THE LEARNED DR ON THE OTHER HAND FILED CERTA IN MATERIAL PAPERS DOWN-LOADED FROM THE INTERNET TO DEMONSTRATE THAT I N THE UNITED STATES THE CHARITABLE ORGANIZATION IS AN ORGANIZATION THAT IS ORGANIZED AND ASSOCIATED FOR PURPOSES THAT ARE BENEFICIAL TO THE PUBLIC INTEREST AND TOOK THE BENCH THROUGH THE VARIOUS CLASSIFICATIONS THAT ARE GIVEN IN IRS OF TH E USA. HE ALSO FILED A DOCUMENT WHICH IS DOWN LOADED FROM THE WEBSITE OF THE LIONS CLUB INTERNATIONAL WHICH DECLARES THAT THE FOUNDATION IS A NON PROFIT TAX EX EMPT CORPORATION. HE SUBMITTED THAT THESE ORGANIZATIONS ARE ONLY FOR CHARITY AND N O INDIVIDUAL CAN BE BENEFITED AND HENCE THE PRINCIPLES OF MUTUALITY DO NOT APPLY. HE ALSO RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF BAN KIMPUR CLUB LTD. (SUPRA) SPECIFICALLY AT PAGE 7 PARA 12 AND ARGUED THAT THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT HAS NOT BEEN APPROVED BY THE H ONBLE SUPREME COURT AS CLAIMED BY THE LEARNED COUNSEL FOR THE ASSESSEE. ON THE OTHER HAND HE RELIED UPON THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HI GH COURT IN THE CASE OF HARYANA STATE COOPERATIVE LABOUR AND CONSTRUCTION F EDERATION LTD. VS. CIT 252 14 ITR 265 (P&H) (PAGE 4 PARA 12) FOR THE ABOVE PROPOS ITION THAT THE JUDGMENT OF NORTHERN INDIA MOTION PICTURES ASSOCIATION (SUPRA) IS NOT APPROVED BY THE SUPREME COURT. HE SUBMITTED THAT THE DECISION OF TH E JODHPUR BENCH OF THE TRIBUNAL DOES NOT APPLY TO THE FACTS OF THE CASE. 14. ON A QUERY FROM THE BENCH THE LEARNED DR MR. RANA THOUGH NOT LEAVING HIS GROUND AGREED THAT IN CASE THE BENCH H OLDS THAT THESE ARE NOT MUTUAL ORGANIZATIONS THEN GROSS RECEIPTS CANNOT BE BROUGH T TO TAX AND THAT INCOME SHOULD BE COMPUTED AS PER COMMERCIAL PRINCIPLES AND OTHER WELL SETTLED PRINCIPLES OF DETERMINING INCOME AS BROUGHT OUT BY THE DECISION OF THE TRIBUNAL IN NIRMAL AGRL. SOCIETY AS WELL AS IN SINDUR (SUPRA). 15. MR. IRANI REFERRING TO THE CROSS OBJECTIONS SU BMITTED THAT THERE ARE ISSUE OF REOPENING FOR THE ASSESSMENT YEARS 2004-05 2005-06 AND 2006-07 IN THE CASE OF LIONS CLUB INTERNATIONAL FOUNDATION. THE L EARNED COUNSEL FOR THE ASSESSEE HAS NOT MADE ANY ARGUMENTS ON THE ISSUE OF REOPENIN G.IN THE ABSENCE OF ANY ARGUMENTS ON THE VALIDITY OF RE-OPENING WE DISMISS THESE CROSS OBJECTIONS. 16. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED W E HOLD AS FOLLOWS : 17. THE HONBLE SUPREME COURT IN THE CASE OF CHELM SFORD CLUB VS. CIT 243 ITR 89 AFTER CONSIDERING A NUMBER OF DECISIONS ON THE ISSUE OF MUTUALITY AT PAGE 97 HELD AS FOLLOWS : 15 FROM THE ABOVE EXTRACT OF THE JUDGMENT IT IS CRYS TAL CLEAR THAT THE LAW RECOGNIZES THE PRINCIPLES OF MUTUALITY EXCLUDIN G THE LEVY OF INCOME-TAX FROM THE INCOME OF SUCH BUSINESS TO WHICH THE ABOVE PRINCIPLE IS APPLICABLE. IN THE ABOVE CASE THIS COURT QUOTED WI TH APPROVAL THE THREE CONDITIONS STIPULATED BY THE JUDICIAL COMMITTEE IN THE CASE OF ENGLISH AND SCOTTISH JOINT CO-OPERATIVE WHOLESALE SOCIETY LTD. V. COMMR. OF AGRL. I.T. (1948) 16 ITR 270 (PC); EXISTENCE OF WHICH ESTABLIS HES THE DOCTRINE OF MUTUALITY. THEY ARE AS FOLLOWS (PAGE 559) : (1) THE IDENTITY OF THE CONTRIBUTORS TO THE FUND AND THE RECIPIENTS FROM THE FUND (2) THE TREATMENT OF THE COMPANY THOUGH INCORPORATED AS A MERE ENTITY FOR THE CONVENIENCE O F THE MEMBERS AND POLICYHOLDERS IN OTHER WORDS AS AN INSTRUMENT OBEDIENT TO THEIR MANDATE AND (3) THE IMPOSSIBILITY THAT CONTRIBUTOR S SHOULD DERIVE PROFITS FROM CONTRIBUTIONS MADE BY THEMSELVES TO A FUND WHICH COULD ONLY BE EXPENDED OR RETURNED TO THEMSELVES. 18. IN THE CASE OF CIT VS.BANKIMPUR CLUB LTD. 226 ITR 97 ALSO THE HONBLE COURT DISCUSSED THE PRINCIPLES OF MUTUALITY AND AT PAGE 103 HELD AS FOLLOWS : IT SHOULD BE NOTICED THAT IN THE CASE OF A MUTUA L SOCIETY OR CONCERN (INCLUDING A MEMBERS CLUB) THERE MUST BE COMPLE TE IDENTITY BETWEEN THE CLASS OF CONTRIBUTORS AND THE CLASS OF PARTICIP ATORS. THE PARTICULAR LABEL OR FORM BY WHICH THE MUTUAL ASSOCIATION IS KNOWN I S OF NO CONSEQUENCE. THE SAID PRINCIPLE WHICH HAS BEEN LAID DOWN IN THE LEADING DECISIONS AND EMPHASIZED IN THE LEADING ENGLISH TEXT BOOKS MENTIO NED ABOVE HAS BEEN EXPLAINED WITH REFERENCE TO INDIAN DECISIONS IN TH E LAW AND PRACTICE OF INCOME-TAX (ENGLISH EDITION VOLUME I 1990) BY KA NGA AND PLKHIVALA AT PAGE 113 THUS : THE CONTRIBUTORS TO THE COMMON FUND AND THE PAR TICIPATORS IN THE SURPLUS MUST BE AN IDENTICAL BODY. THAT DOES NOT ME AN THAT EACH MEMBER SHOULD CONTRIBUTE TO THE COMMON FUND OR THAT EACH M EMBER SHOULD PARTICIPATE IN THE SURPLUS OR GET BACK FROM THE SUR PLUS PRECISELY WHAT HE WAS PAID. THE MADRAS ANDHRA PRADESH AND THE KARNA TAKA HIGH COURTS HAVE HELD THAT THE TEST OF MUTUALITY DOES NOT REQUI RE THAT THE CONTRIBUTORS 16 TO THE COMMON FUND SHOULD WILLY-NILLY DISTRIBUTE TH E SURPLUS AMONGST THEMSELVES : IT IS ENOUGH IF THEY HAVE A RIGHT OF D ISPOSAL OVER THE SURPLUS AND IN EXERCISE OF THAT RIGHT THEY MAY AGREE THAT N ON WINDING UP THE SURPLUS WILL BE TRANSFERRED TO A SIMILAR ASSOCIATION OR USE D FOR SOME CHARITABLE OBJECTS 19. NOW WE EXAMINE THE ARTICLES OF INCORPORATION O F LIONS INTERNATIONAL FOUNDATION A COPY OF WHICH IS FILED WITH US. ARTICL E II READS AS FOLLOWS : THE PURPOSE OR PURPOSES FOR WHICH THE CORPORATION IS FORMED ARE AS FOLLOWS : TO OPERATE EXCLUSIVELY FOR CHARITABLE SCIENTIFIC LITERARY OR EDUCATIONAL PURPOSES OR FOR THE PREVENTION OF CRUE LTY TO CHILDREN OR ANIMALS INCLUDING BUT NOT LIMITED TO MAKING GIFTS AND CONTRIBUTIONS TO ONE OR MORE ORGANIZATIONS (OTHER THAN ORGANIZATIONS TES TING FOR PUBLIC SAFETY) DESCRIBED IN SECTION 501 (C)(3) OF THE INTERNAL REV ENUE CODE OF 1954 SUB-CLAUSE 4 OF ARTICLE II READS AS FOLLOWS : 4. NO COMPENSATION OR PAYMENT SHALL EVER BE PAID O R MADE TO ANY MEMBER OFFICER DIRECTOR TRUSTEE CREATOR OR ORG ANIZER OF THIS CORPORATION OR SUBSTANTIAL CONTRIBUTOR TO IT EXCEPT AS A REASO NABLE ALLOWANCE FOR ACTUAL EXPENDITURES OR SERVICES ACTUALLY MADE OR RENDERED TO OR FOR THIS CORPORATION; AND NEITHER THE WHOLE NOR ANY PART OR PORTION OF THE ASSETS OR NET EARNINGS CURRENT OR ACCUMULATED OF THIS CORPO RATION SHALL EVER BE DISTRIBUTED TO OR DIVIDED AMONG ANY SUCH PERSON; PR OVIDED FURTHER THAT NEITHER THE WHOLE NOR ANY PART OR PORTION OF SUCH A SSET OR NET EARNING SHALL EVER BE USED FOR ACCRUE TO OR INURE TO THE BENEFI T OF ANY MEMBER OR PRIVATE INDIVIDUAL WITHIN THE MEANING OF SECTION 50 1 (C)(3) OF THE CODE. CLAUSE 6 OF ARTICLE II READS AS FOLLOWS : 6. IN THE EVENT OF TERMINATION DISSOLUTION OR WIN DING UP OF THIS CORPORATION IN ANY MANNER OR FOR ANY REASON WHATSOE VER ITS ASSETS REMAINING AFTER THE PAYMENT OF ALL DEBTS AND CHARGE S AGAINST THE 17 CORPORATION IF ANY SHALL BE DISTRIBUTED TO (AND O NLY TO) ONE OR MORE ORGANIZATIONS ORGANIZED AND OPERATED EXCLUSIVELY FO R ONE OR MORE PURPOSES WITHIN THE MEANING OF SECTION 501 (C)(3) OF THE COD E AS THE BOARD OF TRUSTEES OF THE CORPORATION SHALL DETERMINE. ARTICLE VII READS AS FOLLOWS : THE NUMBER AND NAMES AND ADDRESSES OF THE FIRST B OARD OF TRUSTEES ARE AS FOLLOWS: 1) EDWARD E. DAVIS M. LINDSEY 226 WATERLOO STREET LA WRENCEBURG TENNESSEE 38464 2) FINIS E. DAVIS 1701 SPRUCE LANE LUUISVILLE KENTUC KY 40207. 3) WILLIAM K. RICHARDSON KNOX COUNTRY COURT HOUSE GA LESBURG ILLINOIS 61401. 4) JOSEP W. GANIM POST OFFICE BOX A STRATFORD CON NECTICUT 06497 5) WILLIAM C. FROGALA 7120 LITTLE RIVER TURNPIKE ANN ANDALE VIRGINIA. ARTICLE VIII READS AS FOLLOWS : THE TERM OF THIS CORPORATION IS PERPETUAL. 20. THIS ORGANIZATION HAS BEEN REGISTERED AS STAT E OF ILLINOIS OFFICE OF THE SECRETARY OF STATE UNDER THE GENERAL NOT FOR PROFI T CORPORATION ACT. 21. ON A PERUSAL OF THESE DOCUMENTS WE ARE NOT AB LE TO PERSUADE OURSELVES TO AGREE WITH THE CONCLUSIONS OF THE FIRS T APPELLATE AUTHORITY THAT THE PRINCIPLES OF MUTUALITY APPLY IN THIS CASE. THIS IS A CHARITABLE ORGANIZATION. THE FOUNDATION HAS NO MEMBERS. IT HAS ONLY MEMBERS WHO ARE TRUSTEES AND ARE TO MANAGE THE AFFAIRS OF THE TRUST. THIS IS NOT AN ASS OCIATION OR ORGANIZATION FORMED BY THE MEMBERS. IN OUR CONSIDERED OPINION THE PRI NCIPLE THAT THE CONTRIBUTORS TO THE COMMON FUND AND THE PARTICIPATORS IN THE SURPLU S MUST BE AN IDENTICAL BODY IS NOT MET IN THIS CASE OF LCIF. THE BOARD OF TRUSTEES ARE EMPOWERED TO MANAGE THE 18 AFFAIRS AND BUSINESS OF THE FOUNDATION. THE ORGANIZ ATION HAS BEEN FOUNDED FOR UNDERTAKING CHARITY FOR THE PUBLIC AT LARGE. WHEN S UCH IS THE OBJECT AND PURPOSE OF THE ORGANIZATION THE FACT THAT THE BOARD OF TRU STEES SHALL BE COMPOSED OF ALL VOTING MEMBERS OF THE BOARD OF DIRECTORS OF THE INT ERNATIONAL ASSOCIATION OF LIONS CLUBS ETC. DOES NOT COME TO THE RESCUE OF THE ASSES SEE. WHEN AN ORGANIZATION IS NOT A MEMBERS ORGANIZATION THE QUESTION OF HOLDING SUCH AN ORGANIZATION AS A MUTUAL CONCERN BY THE LEARNED CIT(APPEALS) IN OUR OPINION IS ERRONEOUS. 22. IN VIEW OF OUR ABOVE FINDING THAT THE ABOVE OR GANIZATION IS A CHARITABLE ORGANIZATION AND IS NOT FORMED BY MEMBER S BUT IS A TRUST THE PRINCIPLE THAT NO PERSON CAN MAKE A PROFIT OUT OF H IMSELF DOES NOT APPLY AND THUS WE NEED NOT GO INTO THE OTHER PROPOSITIONS CA NVASSED BY BOTH THE PARTIES. SUFFICE TO SAY THAT THE PRINCIPLES OF MUTUALITY CAN NOT BE APPLIED TO THIS ORGANIZATION I.E. LIONS CLUB INTERNATIONAL FOUNDATI ON. THUS WE REVERSE THE ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE. AT THE S AME TIME WE SET ASIDE THE MATTER TO THE AO FOR FRESH ADJUDICATION OF QUANTUM O F INCOME FOR THE REASONS GIVEN IN THE LAST TWO PARAS OF THIS ORDER. 23. NOW WE CONSIDER THE CASE OF THE INTERNATIONAL ASSOCIATION OF LIONS CLUB. THE ARTICLES OF ASSOCIATION OF THE INTERNATIO NAL ASSOCIATION OF LIONS CLUB HAS BEEN FILED BEFORE US. ARTICLE 2 AND 3 ARE EXTRACTE D BELOW FOR READY REFERENCE : ARTICLE II PURPOSES. THE PURPOSES OF THIS ASSOCIATION SHALL BE : 19 A) TO ORGANIZE CHARTER AND SUPERVISE SERVICE CLUBS TO BE KNOWN AS LIONS CLUBS. B) TO COORDINATE THE ACTIVITIES AND STANDARDIZE THE AD MINISTRATION O F LIONS CLUBS. C) TO CREATE AND FOSTER A SPIRIT OF UNDERSTANDING AMON G THE PEOPLES OF THE WORLD. D) TO PROMOTE THE PRINCIPLES OF GOOD GOVERNMENT AND GO OD CITIZENSHIP. E) TO TAKE AN ACTIVE INTEREST IN THE CIVIC CULTURAL SOCIAL AND MORAL WELFARE OF THE COMMUNITY. F) TO UNITE THE CLUBS IN THE BONDS OF FRIENDSHIP GOOD FELLOWSHIP AND MUTUAL UNDERSTANDING. G) TO PROVIDE A FORUM FOR THE OPEN DISCUSSION OF ALL M ATTERS OF PUBLIC INTEREST; PROVIDED HOWEVER THAT PARTISAN POLITICS AND SECTARIAN RELIGION SHALL NOT BE DEBATED BY CLUB MEMBERS. H) TO ENCOURAGE SERVICE-MINDED PEOPLE TO SERVE THEIR COMMUNITY WITHOUT PERSONAL FINANCIAL REWARD AND TO ENCOURAGE EFFICIE NCY AND PROMOTE HIGH ETHICAL STANDARDS IN COMMERCE INDUSTRY PROFESSION S PUBLIC WORKS AND PRIVATE ENDEAVORS. I) ARTICLE III MEMBERSHIP. THE MEMBERSHIP OF THIS ASSOCIATION SHALL CONSIST OF LIONS CLUBS DULY ORGANIZED AND CHARTERED UNDER THE PROVISIONS HEREOF . IT HAS BEEN HELD BY THE LEARNED CIT(APPEALS) AT PAR A 5.8 TO 5.11AT PAGES 53 TO 55 FOR A.Y. 2002-03 AS FOLLOWS: 5.8 LIONS CLUB INTERNATIONAL IS ESSENTIALLY A MEMB ERS CLUB. IT IS NOT A TRADE OR PROFESSIONAL ASSOCIATION. THE CHARACTER OF THE CLUB IS NOT THAT OF TRADE OR PROFESSIONAL CLUB. THE CLUB WAS FORMED TO CARRY OUT THE MUTUAL AIM OF THE MEMBERS TO CARRY OUT THE CHARITABLE ACTIVITI ES AS WELL AS THE ACTIVITIES CONNECTED WITH THE PERSONALITY DEVELOPMENT OF THE M EMBERS. THE CLUB EXISTS FOR THE MEMBERS AND NOT TO CARRY ON ANY BUSI NESS. THE HONBLE DELHI 20 HIGH COURT IN THE CASE OF CIT VS. DELHI RACE CLUB ( 1940) LTD. 75 ITR 111 HAS HELD AS FOLLOWS : THE PRIVILEGE IN THE CASE OF THE ROYAL WESTERN IN DIAN TURF CLUB WAS LIMITED TO ADMISSION INTO A SEPARATE ENCLOSURE WHER E THEY WERE NOT DISTURBED BY THE INTRUSION OF NON MEMBERS. THEY LI KE THE NON MEMBERS HOWEVER PAID AN ADMISSION FEE IN THAT CAS E. THE PRIVILEGE IN THE PRESENT CASE IS EXTENDED FURTHER TO SIMILAR ADMISSION IN THE ENCLOSURES FOR VIEWING AND PARTICIPATING IN THE RAC ES BEING FREE. THIS EXTRA FACILITY IN THE PRESENT CASE IS INCIDENTAL TO MEMBERSHIP AND IS THEREFORE COMPLETELY IMMUNE FROM EVERY TAINT OF CO MMERCIALITY. THE CHARACTER OF THE SUBSCRIPTION PAID BY THE MEMBE RS IN THIS CASE CANNOT BE SAID TO UNDERGO A CHANGE MERELY BECAUSE T HE FACILITIES OR THE PRIVILEGES ENJOYED BY THE MEMBERS OF THE ASSESSE E ARE MORE THAN THE FACILITIES AND PRIVILEGES ENJOYED BY THE MEMBERS OF THE ROYAL WESTERN INDIA TURF CLUB. THESE FACILITIES AND PRIVI LEGES MAY BE MORE OR LESS IN A GIVEN CASE. THE TEST IS WHETHER THEY A RE REFERABLE TO THE CONTRIBUTIONS BY MEMBERS AS SUCH AND ARE IMMUNE FRO M THE TAINT OF COMMERCIALITY. THE ENTRANCE FEES AND PERIODICAL SU BSCRIPTIONS PAID BY THE MEMBERS FOR OBTAINING MEMBERSHIP OF THE ASSE SSEE CLUB IN THE PRESENT CASE AND WHICH REMAIN PAYABLE EVEN IF T HE RACING IS STOPPED OR SUSPENDED CANNOT BE SAID TO BE RECEIVED BY THE ASSESSEE OUT OF ANY PROFIT MOTIVE; AND THEY REMAIN IMMUNE FR OM THE TAINT OF COMMERCIALITY EVEN WHEN THE MEMBERS ARE ALLOWED THE PRIVILEGE OF A FREE ADMISSION INTO STANDS WHERE NON MEMBERS WOULD BE REQUIRED TO PAY THE SAID MEMBERS PRIVILEGES BEING CLEARLY REFERABLE TO THEIR MEMBERSHIP OF THE CLUB. THE RECEIPTS FROM MEMBERS SUBSCRIPTIONS OR ENTRANCE FEES BY THE ASSESSEE CANNOT THEREFORE FORM PART OF ITS ASSESSABLE INCOME; AND THE SUM OF RS.11000 RECEIVED BY THE ASSESSEE IS SUBSCRIPTION FROM ITS MEMBERS IS NOT TA XABLE. 5.9 FROM THE ABOVE DISCUSSION IT IS VERY CLEAR TH AT THE MEMBERSHIP FEE IN A MEMBERS CLUB IS NOT TAXABLE IF IT IS IMMUNE FROM TH E TAINT OF COMMERCIALITY. IT IS VERY PERTINENT TO NOTE THAT LIONS CLUB INTERN ATIONAL DOES NOT CARRY OUT ANY COMMERCIAL ACTIVITY. 21 5.10 THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MADRAS RACE CLUB 105 ITR 433 HAS OBSERVED IN PAGE 444 AS FOLLOW S : THE SECOND ASPECT RELATES TO CASES OF ABSENCE OF A TRADE OR BUSINESS WHICH PRODUCED PROFITS. FOR INSTANCE A MEMBERS CL UB IS INTENDED TO PROMOTE SOCIAL INTERCOURSE AMONG THE MEMBERS CLUB IS INTENDED TO PROMOTE SOCIAL INTERCOURSE AMONG THE MEMBERS. IT DO ES NOT PURCHASE OR SELL COMMODITIES. IT IS MERELY A CONVEN IENT INSTRUMENT FOR THE PURPOSE OF PROVIDING FACILITIES FOR THE MEM BERS. THERE IS NO ELEMENT OF PROFIT OR CONCEPT OF TRADE IN SUCH A CLU B. UNLESS THE STATUTE ITSELF INTERVENES AND SAYS THAT THE TRANSAC TION BETWEEN THE CLUB AND THE MEMBERS SHALL BE TREATED AS A SALE AS HAS BEEN DONE BY THE TAMIL NADU GENERAL SALES TAX ACT THERE WILL BE NO QUESTION OF ANY TRADING BETWEEN THE CLUB AND ITS MEMBERS. ANY S URPLUS REALISED FROM THE MEMBERS WOULD NOT HAVE THE CHARACTER OF IN COME LIABLE TO BE TAXED. 5.11 LIONS CLUB INTERNATIONAL IS A MEMBERS CLUB AN D THERE IS NO ELEMENT OF PROFIT OR CONCEPT OF TRADE. HENCE ANY SURPLUS RECEI VED FROM THE MEMBERS CONTRIBUTION CANNOT BE TAXED. IT IS ALSO SEEN THAT THE FUNDS ARE UTILIZED TO CARRY OUT THE PROGRAMMES OF THE MEMBERS CLUBS. THE CONTRIBUTIONS TO THE FUND ARE MEMBER CLUBS AND THE USER OF THE FUNDS ARE ALSO MEMBERS CLUB. THERE IS COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. THE ITEM OF RECEIPT IN LCI NRI ACCOUNT WHICH ARE B ROUGHT TO TAX ARE 1) ANNUAL MEMBERSHIP FEES 2) ENTRANCE FEE FROM NEW MEMBERS C LUB AND 3) PREMIUM FEES FROM FEW MEMBER OPTING TO BECOME FOUNDER MEMBERS ALL THESE AMOUNTS OF FEES FROM THE MEMBERS IN OU R CONSIDERED OPINION BEING CONTRIBUTED BY MEMBERS ARE GOVERNED BY THE PRINCIPLE OF MUTUALITY. WE UPHOLD THESE FINDINGS OF THE CIT(A) O N THIS ISSUE NOW LET US LOOK INTO THE PAYMENT FROM LCI NRO ACC OUNT. THERE ARE A) ADMINISTRATIVE EXPENSES (SALARIES ETC.) FOR ASSISTI NG THE MEMBER CLUBS IN INDIA AND NEIGHBORING COUNTRIES B) MAGAZINE C) SPECIAL PROG RAMMES FOR MEMBERS D) LIABILITY INSURANCE E) DG AND DGE EXPENSES F) CON VENTION FUND. 22 24. IT IS ALSO STATED THAT THERE ARE REMITTANCES F ROM LCI HEAD QUARTERS FOR ANY SHORTFALL IN ADMINISTRATIVE EXPENDITURE. ON THE SE FACTS WE COME TO THE FOLLOWING CONCLUSIONS : AS THE ORGANIZATION IN QUESTION IS AN ORGANIZATI ON BY THE MEMBERS AND AS IN OUR CONSIDERED OPINION THERE IS COMPLET E IDENTITY BETWEEN THE MEMBERS CONTRIBUTING TO THE FUND AND THE MEMBERS PA RTICIPATING IN THE ACTIVITIES OF THE ASSOCIATION LIONS CLUB INTERNATIONAL IS A M UTUAL ORGANIZATION. ON A PERUSAL OF THE ARTICLES MEMORANDUM CONSTITUTIONAL BY-LAWS OF LIONS CLUB INTERNATIONAL IT LEADS TO A CONCLUSION THAT THE WORKING OF THE ASSOC IATION AND IMPLEMENTATION OF POLICIES ARE GOVERNED BY THE CONCEPT OF MUTUALITY. IT HAS BEEN ALREADY POINTED OUT THAT THE FORM OF ORGANIZATION IS NOT RELEVANT IN DE CIDING THE CONCEPT OF MUTUALITY. IT HAS ALSO BEEN POINTED OUT THAT THE TEST OF MUTUA LITY IS WHETHER THE MEMBERS HAVE A RIGHT OF PARTICIPATE IN THE SURPLUS. THE FA CT THAT THEY ARE NOT BENEFICIARIES OF THE SURPLUS IS NOT RELEVANT. THUS WE HOLD THAT A S FAR AS ANNUAL MEMBERSHIP FEE ENTRANCE FEE FROM NEW CLUB MEMBERS AND PREMIUM FEE FROM FOUNDER MEMBERS ARE EXEMPT FROM PRINCIPLE OF MUTUALITY. NEVERTHLESS WE FIND FROM THE SUBMISSIONS AND THE PAPERS ON RECORD THAT LCI IS REQUIRED TO MAINTAIN TWO SEPARATE ACCOU NTS ONE FOR ADMINISTRATIVE EXPENSES AND OTHER FOR DONATION/CHARITY. THE RECEIP T OF DONATIONS/CHARITY CANNOT BE GOVERNED BY PRINCIPLES OF MUTUALITY. EVEN THE RE MITTANCES FROM LCI HEAD OFFICE HAVE TO BE VIEWED AS NON MUTUAL INCOME. THUS LIONS CLUB INTERNATIONAL HAS BOTH INCOME WHICH IS EXEMPT ON THE GROUND OF MUTUALITY A ND INCOME FROM TRANSACTIONS WITH NON-MEMBERS WHICH IS NOT GOVERNED BY THE PRIN CIPLES OF MUTUALITY AND IS 23 ASSESSABLE AS INCOME. THE HONBLE PATNA HIGH COURT IN THE CASE OF CIT VS. RANCHI CLUB LTD. 296 ITR 137 AT PAGE 139 HELD AS FOLLOWS : HELD THAT MERELY BECAUSE THE ASSESSEE-COMPANY HAD E NTERED INTO TRANSACTIONS WITH NON-MEMBERS AND EARNED PROFITS OU T OF TRANSACTIONS HELD WITH THEM IT IS RIGHT TO CLAIM EXEMPTION ON THE PR INCIPLE OF MUTUALITY IN RESPECT OF TRANSACTIONS HELD BY IT WITH ITS MEMBERS WAS NOT LOST. THE ASSESSEE WAS A MUTUAL CONCERN. THUS APPLYING THE ABOVE PRINCIPLES TO THE FACTS O F THE CASE THE RIGHT TO CLAIM EXEMPTION ON THE PRINCIPLE OF MUTUALITY IN RESPECT OF THE TRANSACTION HELD BY LCI WITH ITS MEMBERS IS TO BE UPHELD. AT THE S AME TIME AS FAR AS TRANSACTIONS WITH NON-MEMBERS ARE CONCERNED INCOME HAS TO BE AS CERTAINED BY FOLLOWING AND APPLYING COMMERCIAL PRINCIPLES AND OTHER DOCTRINES SUCH AS DOCTRINE OF OVERRIDE TITLE ETC. AS IN THIS CASE THE AO HAS BROUGHT TO T AX ONLY FEES RECEIVED FROM MEMBERS TO TAX WE UPHOLD THE CIT(APPEALS) ORDER T HAT THE SAME CANNOT BE TAXED ON THE PRINCIPLE OF MUTUALITY. IN VIEW OF OUR ABOVE DISCUSSION WE CONCLUDE THAT IN THE CASE OF LCIF THE INCOME IS NOT GOVERNED BY PRINCIPLE OF MUTUALIT Y AND IN THE CASE OF LCI RECEIPTS FROM MEMBERS ARE GOVERNED BY THE PRINCIPLE OF MUTUALITY. AS FAR AS ARRIVING AT THE TAXABLE INCOME OF LCIF IS CONCERNE D THIS YEAR WE HOLD THAT A FRESH EXERCISE HAS TO BE DONE BY THE AO WHILE APPLYING TH E PROPOSITIONS LAID DOWN BY THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS. ITO 71 ITD 153 (HYD) AS WELL AS THE JUDGMENT OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SOCIETY OF INTEGRATED DEVE LOPMENT IN URBAN AND RURAL AREAS (SINDUR) VS. DCIT 90 ITD 493 (HYD) WHEREIN I T IS HELD AS FOLLOWS : 24. COMING TO THE SECOND LIMB OF THE ARGUMENT OF TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE ENTIRE RECEIPTS CANNOT BE TAXED WE FIND T HAT THE ISSUE IS COVERED BY THE JUDGMENT OF THIS BENCH IN NIRMAL AGRICULTURAL SOCIETY VS. ITO (SUPRA ). IN THAT CASE IT HAS BEEN HELD (AS PER HEAD NOTE) AS UNDER : 24 'THE ASSESSEE HAD NOT BEEN GRANTED REGISTRATION UND ER S. 12A AS THE CIT THOUGHT IT FIT TO REFUSE TO CONDONE THE LONG DELAY CAUSED BY THE ASSE SSEE IN APPLYING FOR THE REGISTRATION. THEREFORE THE AO HAD NO OTHER OPTION BUT TO COMPLE TE THE ASSESSMENTS IN THE STATUS OF AOP ALSO CLOSING HIS EYES TOWARDS S. 11 AND S. 13. TO THAT EXTENT THE AO WAS RIGHT AS HE HAD ACTED ONLY ACCORDING TO WILL OF LAW. BUT AS FAR AS THE CONTENTS OF THE ASSESSMENTS WERE CONCERNED EVEN WHEN THE ASSESSEE HAD BEEN ASSESSED AS AOP AND DEPRIVED OF S. 11 BENE FITS THE AO COULD ASSESS ONLY NET INCOME OF THE ASSESSEE AND NOT GROSS RECEIPTS. AS F AR AS THE ASSESSEE WAS CONCERNED CONSTRUCTION OF HOUSES RECLAMATION OF LAND ETC. WERE PART OF ITS REGULAR ACTIVITIES. HOUSES WERE BUILT ON THE LAND OF POOR AGRICULTURIST S. THE ASSESSEE-SOCIETY HAD NO LEGAL TITLE OR RIGHT OVER THE LAND OR HOUSES OF THOSE VIL LAGERS/AGRICULTURISTS WHO WERE THE BENEFICIARIES. THE PURPOSE AND ACTIVITY OF THE ASSE SSEE-SOCIETY WAS TO ENGAGE IN SUCH CHARITABLE ACTIVITIES. WHATEVER AMOUNT HAD BEEN SPE NT ON THOSE PROGRAMMES/PROJECTS IT WAS SPENT IN THE USUAL COURSE OF CARRYING ON ITS AC CLAIMED OBJECTS. THEREFORE THERE WAS NO BASIS WHATSOEVER FACTUAL OR LEGAL TO HOLD THAT THE AMOUNTS SPENT BY THE ASSESSEE IN CONSTRUCTING HOUSES OR RECLAIMING LAND WERE CAPITAL EXPENDITURE. AS FAR AS THE ASSESSEE WAS CONCERNED THOSE EXPENSES WERE REVENUE EXPENSES . THE ASSESSEE HAD NO RIGHT OR TITLE OVER THOSE PROPERTIES. THOSE EXPENSES WERE INCURRED AS PART OF ITS NORMAL ACTIVITIES FOR WHICH THE SOCIETY WAS FORMED. THEREFORE THE MONEY SPENT BY THE ASSESSEE-SOCIETY IN CONSTRUCTING HOUSES RECLAIMING THE LAND FOR NON-F ORMAL EDUCATION ETC. HAD TO BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF INCOME. THE GRANTS RECEIVED FROM FOREIGN DONOR WERE FOR SPE CIFIC PURPOSES. THE GRANTS WHICH WERE FOR SPECIFIC PURPOSES DID NOT BELONG TO THE AS SESSEE-SOCIETY; SUCH GRANTS DID NOT FORM CORPUS OF THE ASSESSEE OR ITS INCOME. THOSE GR ANTS WERE NOT DONATIONS TO THE ASSESSEE SO AS TO BRING THEM UNDER THE PURVIEW OF S . 12. VOLUNTARY CONTRIBUTIONS COVERED BY S. 12 ARE THOSE CONTRIBUTIONS FREELY AVAILABLE T O THE ASSESSEE WITHOUT ANY STIPULATION WHICH THE ASSESSEE CAN UTILISE TOWARDS ITS OBJECTIV ES ACCORDING TO ITS OWN DISCRETION AND JUDGMENT. TIED-UP GRANTS FOR A SPECIFIED PURPOSE WO ULD ONLY MEAN THAT THE ASSESSEE WHICH WAS A VOLUNTARY ORGANISATION HAD AGREED TO A CT AS A TRUSTEE OF A SPECIAL FUND GRANTED BY DONOR WITH THE RESULT THAT IT NEED NOT B E POOLED OR INTEGRATED WITH THE ASSESSEE S NORMAL INCOME OR CORPUS. IN THE INSTANT CASE T HE ASSESSEE WAS ACTING AS AN 25 INDEPENDENT TRUSTEE FOR THAT GRANT JUST AS SAME TR USTEE COULD ACT AS A TRUSTEE OF MORE THAN ONE TRUST. TIED-UP AMOUNTS NEED NOT THEREFORE BE TREATED AS AMOUNTS WHICH WERE REQUIRED TO BE CONSIDERED FOR ASSESSMENT FOR ASCERT AINING THE AMOUNT EXPENDED OR THE AMOUNT TO BE ACCUMULATED. THE ASSESSEE SHOULD HAVE ACTUALLY CREDITED THE GRAN T IN THE PERSONAL ACCOUNT OF THE DONOR AND ANY AMOUNT SPENT AGAINST THAT GRANT SHOULD HAVE BEEN DEBITED TO THAT SEPARATE ACCOUNT OF THE DONOR. THAT INCOMING AND OUTGOING NEED NOT B E REFLECTED IN THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE. AT THE END OF THE PROJECT THE BALANCE IF ANY AVAILABLE TO THE CREDIT OF THE DONOR COULD BE TREA TED AS INCOME OF THE ASSESSEE IF THE DONOR DID NOT INSIST FOR THE REPAYMENT OF THE BALAN CE AMOUNT. THEREFORE THE AO WAS TO BE DIRECTED TO REDO THE A SSESSMENT ON THE FOLLOWING LINES : (1) THE TIED-UP GRANTS RECEIVED FROM THE DONOR BRE AD FOR THE WORLD WILL BE TAKEN OUT OF THE COMPUTATION OF INCOME FROM THE INCOME-SIDE. (2) ALL THE MONEY SPENT UNDER THE TIED-UP PROGRAMME S DIRECTED BY THE DONOR ALSO WILL BE TAKEN OUT OF THE COMPUTATION OF INCOME FROM THE EXP ENSES-SIDE. (3) ANY NON-REFUNDABLE CREDIT BALANCE IN THE PERSO NAL ACCOUNT OF BREAD FOR THE WORLD WILL BE TREATED AS INCOME IN THE YEAR IN WHICH SUCH NON-REFUNDABLE BALANCE WAS ASCERTAINED. (4) THE EXPENSES INCURRED BY THE ASSESSEE FOR HOUSE CONSTRUCTION RECLAMATION OF LAND NON-FORMAL EDUCATION PROGRAMME (OTHER THAN COVERED BY THE TIED-UP GRANTS) WILL BE DEDUCTED AS REVENUE EXPENSES.' 25. HON BLE RAJASTHAN HIGH COURT IN THE CASE OF S UKHDEO CHARITY ESTATE VS. CIT (SUPRA) HELD AS FOLLOWS (AS PER HEAD NOTE) : 'IT WAS FOR THE SPECIFIC PURPOSES OF IMPLEMENTATION OF THE WATER SUPPLY SCHEME THAT THE REQUEST FOR CONTRIBUTION HAD BEEN MADE BY THE ASSES SEE-TRUST AND IT WAS IN RESPONSE TO THAT REQUEST THAT THE AMOUNT HAD BEEN GIVEN BY THE CALCU TTA TRUST. IT WAS CLEAR THAT THE INTENTION OF THE DONOR AND THE DONEE WAS TO TREAT T HE MONEY AS CAPITAL TO BE SPENT FOR THE WATER SUPPLY SCHEME. THE FACT THAT THE AMOUNT HAD N OT BEEN PAID OVER TO THE STATE GOVERNMENT AND WAS KEPT UNUTILISED IN THE ACCOUNT O F THE ASSESSEE-TRUST WAS NOT RELEVANT. 26 THE AMOUNT COULD NOT BE SAID TO BE 'INCOME' AND COU LD NOT BE INCLUDED AS PART OF THE ASSESSABLE INCOME OF THE TRUST UNDER THE PROVISIONS OF S. 12(2).' IN YET ANOTHER JUDGMENT IN THE CASE OF SUKHDEO CHAR ITY ESTATE VS. ITO (SUPRA) HON BLE RAJASTHAN HIGH COURT HELD AS FOLLOWS (AS PER HEAD N OTE) : 'THE INTENTION OF THE DONOR-TRUST AS WELL AS THE DO NEE-TRUST WAS TO TREAT THE MONEY AS CAPITAL TO BE SPENT FOR THE LADNU WATER SUPPLY SCHE ME. IT WAS OF NO SIGNIFICANCE WHETHER THE AMOUNT HAD SINCE BEEN PAID TO THE STATE GOVERNM ENT OR KEPT IN THE ACCOUNT OF THE SAID SCHEME BY THE ASSESSEE- TRUST. THE AMOUNT OF RS. 70 000 DID NOT CONSTITUTE INCOME OF THE PETITIONER. THE REASSESSMENT PROCEEDINGS WERE NOT V ALID AND WERE LIABLE TO BE QUASHED.' THIS BENCH OF THE TRIBUNAL IN THE CASE OF ARYA VYSY A ABHYUDAYA SANGHAM VS. DY. CIT (SUPRA) TO WHICH ONE OF US WAS A PARTY WAS INCLINED TO UPHO LD THE VIEW OF THE CIT(A) IN THAT CASE BY HOLDING IN PARA 15 OF THAT ORDER AS FOLLOWS : 'THOUGH WE FIND CONSIDERABLE FORCE IN THE OTHER ARG UMENT OF THE ASSESSEE S COUNSEL I.E. THE INCOME SHOULD BE COMPUTED ON COMMERCIAL PRINCIP LES AS WE HAVE HELD THAT THE ASSESSEE-SOCIETY IS ELIGIBLE FOR EXEMPTION UNDER S. 11 OF THE ACT AND WE HAVE ALSO HELD THAT THE OBJECTS OF THE SOCIETY WERE OF CHARITABLE NATURE WITHIN THE MEANING OF S. 2(15) OF THE ACT AND AS WE HAVE FURTHER HELD THAT THERE IS NO VIOLATION WHATSOEVER OF THE PROVISIONS OF SS. 13(1)(C) AND (D) OF THE IT ACT 1 961 THE OTHER GROUNDS OF THE ASSESSEE NEED NOT BE GONE INTO AS IT WOULD BE OF ACADEMIC I NTEREST ONLY.' 25. WE DIRECT THE AO TO FOLLOW THE PRINCIPLES LAID DOWN IN THE ABOVE TWO DECISIONS AND RECOMPUTE THE INCOME OF L.I.C.F. FOR ALL THESE YEARS. IN THE CASE OF LCI IF THE AO HAS ORIGINALLY BROUGHT TO TAX ANY OT HER RECEIPTS OTHER THAN MEMBERSHIP FEES TO TAX ONLY IN SUCH CASES THE OTH ER RECEIPT CANNOT BE TAXED ON GROSS BASIS AND THE ABOVE PRINCIPLE OF COMPUTATION OF INCOME HAS TO BE FOLLOWED. THIS IS A LIMITED REMAND. 27 26. IN THE RESULT THE APPEALS FILED BY THE REVENU E ARE ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 15 TH DAY OF OCT. 2010. SD/- SD/- (VIJAY PAL RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI DT: 15 TH OCT. 2010. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR F-BENCH (TRUE COPY) BY OR DER ASSTT. R EGISTRAR ITAT MUMBAI B ENCHES