Recently in the case of DCIT V. Bombay Gymkhana
Ltd. reported in 2015-TIOL-331-ITAT-Mum, there were
following two key issues before the Hon'ble Income Tax
Appellate Tribunal [ITAT] Mumbai Bench to decide:
(1) Whether when the Assesee has utilized the contribution of
non member sponsors for conducting events and the surplus if any,
is accepted as exempt under the 'principle of
(2) Whether the value of complimentary liquor if sold at a
price, is to be treated as a commercial in nature.
The brief facts of the case are that the Assesee is a mutual
association and use to organize events with the help of sponsors
for the mutual benefit of its members. The contribution, if any,
received from the members was utilized for conducting such events
and the surplus if nay, was accepted by the Income Tax department
as exempt under the principles of mutuality.
For the Assessment Year 2007-08, the Assessing Officer [AO]
observed that certain amounts were received by way of sponsorships
from non members for various events organized by the Assesee. Since
the contributors were non members, the AO assessed the same as the
income of the Assesee and Ld. CIT[A] also confirmed the same.
It was the contention of the Assesee that the said companies
have only contributed to the conducting of the events and thereby
helped in reducing the cost of the expenditure occurred. Further
that there was no element of income in theses receipts.
Alternatively, the Assesee also pleaded that if these receipts were
treated as income, then the corresponding expenditures should also
allowed as deduction. The revenue on the other hand was adamant on
the fact that as the receipts were from non members; the concept of
mutuality will not apply.
The Tribunal on appeal took a view that one has to see the
object behind the receipts of these contributions and not the fact
that the same has been received from members or non members. The
Hon'ble Mumbai ITAT observed that the said non member companies
had partly sponsored the events as a part of their respective sale
promotion activity. And the objective of the Assesee in receiving
these contributions was to meet the part of the expenditure
occurred in organizing such events. Hence, in the view of the ITAT
there was no intention to earn any income and the said receipts on
the other hand only reduced the expenditure. Therefore, they cannot
be subjected to tax.
Alternatively while answering the second issue the Hon'ble
ITAT was of the opinion that the complimentary liquor even if when
sold for a price, clarifies that the intention of the Assesee was
to earn profit out of the sale. Hence the view taken by the AO and
the CIT[A] that since the Assesee had failed to furnish the details
of persons who consumed the complimentary liquor, the same could
have been used by non members was upheld and treated as the income
of the Assesee.
From the aforesaid judgments, it is clear that irrespective of
the fact that the receipts was received from non members and the
liquor was sold to members only, two seperate views were taken by
the Hon'ble ITAT depending upon the intention of the Assesee
while dealing with the transaction to decide whether transaction as
to be treated as commercial or not.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).