The Delhi High Court recently ruled that the receipts from Chartered Accountant (CA) firms received by Deloitte Touche Tohmastu not fees for technical services and is exempted from income tax following the principle of mutuality.
The respondent/assessee is an association (Verein), established in Switzerland, with its members being Chartered Accountant firms situated across the world. The respondent/assessee Verein filed returns of income for the concerned Assessment Years (2008-09 to 2011-12) declaring its income at nil; however, in the return of income for Assessment Year 2011-12, the respondent/assessee also claimed a refund of Rs.1,35,18,298/-.
The respondent/assessee being aggrieved by the assessment orders preferred appeals before the Commissioner, Income Tax. The said appeals of the respondent/assessee were allowed by CIT(A), observing that Verein is registered as not-for-profit entity under the Swiss laws and examination of records establish that the recoveries made by the respondent/assessee Verein from its members could not be held to be in the nature of trading receipts and the same stood covered by the concept of mutuality.
The counsel for appellant/revenue contended that the impugned order is not sustainable in the eyes of law since the learned Tribunal failed to appreciate that the respondent/assessee was rendering specific services to its members and those services were being commercially exploited by the latter.
It was argued on behalf of appellant/revenue that the so-called subscription fee charged for the services rendered by the appellant/assessee to its members cannot be termed as contributions as the same was payment made by the members of the respondent/assessee in lieu of various services including information technology related services and thus the respondent/assessee was trading with its members and not trading with itself.
It was argued on behalf of the respondent/ assessee that Verein is a non-profit entity registered under Swiss laws and merely because its members contribute to its budgeted expenditure on the basis of their respective turnover does not alter the nature of the subscription into fee for technical services.
A Division Bench comprising Justices Girish Kathpalia and Rajiv Shakdher observed that “We are of the considered view that the receipts of the respondent/assessee Verein from its members were not in the nature of fees for technical services and that the same were exempt from tax having regard to the principle of mutuality. Accordingly, the substantial question of law framed above is answered in favour of the respondent/assessee and against the appellant/revenue.”
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