Koramangala Club vs. ITO (Karnataka High Court)

DATE: February 26, 2016 (Date of pronouncement)
DATE: March 2, 2016 (Date of publication)
AY: -
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S. 44AB/ 271B: Belief that a mutual association like a club is not liable for tax audit is a bona fide one and constitutes reasonable cause u/s 273B

(i) Under the general law relating to mutual concerns, the surplus accruing to a mutual concern cannot be regarded as income, profits or gains for the purpose of the Act (s.4), and where the contributors are to receive back a part of their own contributions, the complete identity between the contributors and recipients negatives the idea of any profit, for no man can make profit out of himself. Therefore, a mutual concern can carry on an activity with its members, though the surplus arising from such activity is not taxable income or profit. The principle of mutuality has also been accepted in the case of a voluntary organization, which receives contributions from its members. The assessee’s contention that Section 44AB of the Act is not applicable to a club being a mutual concern is supported by several judgements (JOINT COMMERCIAL TAX OFFICER vs. YOUNG MEN’S INDIAN ASSOCIATION [AIR 1970 SC 1212 CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND vs. DEPUTY COMMISSIONER OF INCOME TAX reported in [(2009) 308 ITR 202 referred]

(ii) Without entering into the issue of applicability of Section 44AB of the Act, the assessee had the bonafide belief which constituted reasonable cause to absolve him from the levy of penalty. Section 273(B) of the Act makes it clear that that no penalty shall be leviable to a person or on assessee for any failure referred to under the provision of Section 271B of the Act, if, it is proved that there was reasonable cause for such failure. (ASSISTANT COMMISSIONER OF INCOME TAX AND ANOTHER VS DR K SATISH SHETTY [(2009) 310 ITR 0366], INCOME TAX OFFICE VS SACHINAM TRUST [(2010) 320 ITR 0445 referred]

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