AAR held that Liaison office of non-resident non profit organisation for the benefit of members in the absence of profit motive and surplus if any was ploughed back in to the organisation again to be utilised for same objects therefore the income cannot be asssseed as business income. Receipts from non members only 2.05% and also isolated incident which has not affected the dominant object of the applicant. Membership fee and contribution from members is also not liable to tax in India under the provisions of income -tax Act or the DTAA . Once principle of mutuality is applied , the question of a permanent establishment did not arise . Where the principle of mutuality operates and the profits cannot be distributed , but only be utilised for the benefit of members and confined to the objects of the organisation, the receipts or income cannot be taxed .
International Zinc Association In re ( 2018) 404 ITR 766/167 DTR 81/ 303 CTR 474 ( AAR)
S. 4 : Charge of income-tax – Income derived by a trade , professional or similar association from specific services performed for its members -Non-Resident- Mutuality – Liaison office of non-resident non profit organisation for the benefit of members in the absence of profit motive and surplus if any was ploughed back in to the organisation again to be utilised for same objects-Income cannot be asssseed as business income -Receipts from non members only 2.05% and also isolated incident which has not affected the dominant object of the applicant – Membership fee and contribution from members is also not liable to tax in India – Once principle of mutuality is applied , the question of a permanent establishment did not arise – Receipt or income cannot be taxed applying the principle of mutuality .[ S.28(iii)]