Surplus returned from Common Fund contributed by persons together doesn't amount to profit, No need to be taxed: ITAT [Read Order]

The Jaipur bench of the Income Tax Appellate Tribunal has held that surplus returned from a common fund contributed by persons together doesn’t amount to profit and ruled that no need to be taxed.

The assessee was represented by Shri B.P. Mundra and the revenue was represented by Shri A.S. Nehra.

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 areas financially and follow a concept of self-help through savings. Society has carried out activities for encouragingwomen’s empowerment. The activity includes providing loans by recognizing them as members of society, thereby obtaining regular savings by providing loans for various purposes. The return of income was filed declaring a total income of Rs. NIL and the Assessee claimed exemption of Rs. 12,41,850/- u/s 4 of the Income Tax Act.

The assessing officer also held that section 4 of the Income-tax Act was 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 was not allowable. 

On appeal, the CIT(A) upheld the view taken by the assessing officer and denied the claim of the principle of mutuality deduction by placing reliance on the judgment in Chelmsford Club Vs CIT 243 ITR 89(SC).

It was observed that where several persons combine 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. Further observed that trading betweenpersons associating together does not give rise to profits which were chargeable to tax.

The Tribunal comprisingShri Sandeep Gosain, JM & Shri Rathod Kamlesh Jayantbhai, AM heldthat the assessee was entitled to the deduction of Rs. 12,41,850/- and allowed the appeal by reversing the order of the Commissioner (Appeals).

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Savitri Phule Mahila Bahu Uuddeshiya Sahakari Samiti Ltd. vs ACIT , 2022 TAXSCAN (ITAT) 971 , Shri B.P. Mundra , Shri A.S. Nehra