COMMISSIONER OF INCOME TAX ANDHRA PRADESH HYDERABAD Vs. WEST GODAVARI DISTRICT RICE MILLERS ASSOCIATION

JUDGEMENT

(1.) This case came up on a reference under s. 256(1) of the I.T. Act, 1961.

(2.) The West Godavari District Rice Millers Association, Tadepalligudem, is the assessee. It is an association of rice millers. For the period 1/09/1970, to 31/03/1971 the assessee admitted an income of Rs. 5,274 under the head "Other sources". The gross receipts included Rs. 27,750 being subscriptions received from the members of the association. The balance comprised interest of Rs. 4,974. After deducting various outgoing including an expenditure of Rs. 11,243 in the charity account, the net income was declared at Rs. 5,274. The ITO disallowed the claim for deduction of the expenses in the charity account made some minor adjustments and determined the income in the first stage at Rs. 17,060. To this he added a sum of Rs. 5,17,461, which represented the collections made by the association from its members for construction of a building at Tadepalligudem and Bhimavaram. The association adopted a resolution in the general body meeting held on 3/09/1970, that it would collect monies for construction of buildings. Each member who obtained a permit was required to contribute at the rate of 50 paise per quintal of rice exported. On these facts, the ITO came to the conclusion that the assessee acted as an agent or forum on behalf of the rice millers for obtaining export permits from the State Government. The ITO, therefore, held that the entire collection of Rs. 5,17,461 was taxable under s. 28(iii) of the I.T. Act, 1961. The matter was taken to the AAC in appeal. It was contended before the AAC that the subscriptions from the members were not received for any specific services rendered. It was also contended that the principle of mutuality would apply and, hence, the receipts in the form of subscription would fall outside the ambit of taxation. It was urged that the collections were not made in return for obtaining any permits by the association to its members. The permits issued by the Government and the quantity exported formed only a basis for collecting donations from the members. The AAC held that the association was liable to pay tax only on the interest admitted. He held that the collections for the building fund amounting to Rs. 5,17,461 were not the assessees taxable income.

(3.) The Department went up in appeal to the Income-tax Appellate Tribunal. It was contended on behalf of the Department that the amount falls within the mischief of s. 28(iii) of the I.T. Act, 1961. In support of this contention it was contended that the sum of Re. 0.50 paise per quintal collected from the members of the association was remuneration received for performing services to the members within the meaning of s. 28(iii) of the Act and was, therefore, assessable to tax as profits from business. It was also contended that the doctrine of mutuality had no applications to the facts of the present case. The first contention that s. 28(iii) applied was repelled mainly on the ground that the Collectors endorsement dated 12/12/1975, made it clear that the association was not used as a forum for issuing or distributing permits and no service was rendered to the members for obtaining or distribution of permits.