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August 27, 2022

Surplus returned from common contributed fund cannot be treated as profit

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Surplus returned from common contributed fund cannot be treated as profit

Facts and Issues of the case

The assessee is a registered co-operative credit society and the main object of the society is to help the women in rural and backward area financially and follow a concept of self-help through savings. For the assessment year 2012-2013, the return of income was filed declaring total income of Rs. NIL. The case of the assessee was taken up for scrutiny u/s 143(3) of the Income tax Act, 1961 and statutory notice u/s 143(2) of the Act, was issued and served upon the assessee after claiming exemption of Rs. 12,41,850/- u/s 4 of the I.T.Act. The assessee was asked to file reason for claiming exemption.

However, the assessing officer denied the claim of exemption of Rs. 12,41,850/- u/s 4 of the I.T.Act. The assessing officer also held that that the section 4 of Income tax Act is only related to charging Income Tax, not for allowing exemption, relying upon the Income Tax Act, 1961 the exemption u/s 4 claimed by the assessee is not allowable.

Observations by the Court

The court has heard rival submission and perused the material on record. Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular form the association takes.

Trading between persons associating together in this way does not give rise to profits which are chargeable to tax. Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of the facilities which it offers does not affect the mutuality of the enterprise. In view of these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 12,41,850/- and therefore the appeal of the assessee is allowed by reversing the order of the Commissioner (Appeals). The assessing officer is directed accordingly.

Conclusion

Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and any surplus returned to those persons cannot be regarded as profit.

Savitri-Phule-Mahila-Bahu-Uuddeshiya-Sahakari-Samiti-Ltd.-Vs-ACIT-ITAT-Jaipur

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