/s Bangalore Club vs. CIT (Supreme Court)
January 15th, 2013
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Interest earned by a mutual association from deposits placed with member banks is not exempt on the ground of "mutuality"
The assessee, a mutual association, claimed that the interest earned by it on fixed deposits kept with the bank (which was a corporate member) was not taxable on the basis of mutuality. The AO rejected the claim though the CIT(A) and Tribunal upheld the claim. The High Court reversed the Tribunal and upheld the stand of the AO. On appeal by the assessee to the Supreme Court, HELD dismissing the appeal:
For a receipt to be exempt on the principles of Mutuality, three conditions have to be satisfied. The first is that there must be a complete identity between the contributors and participators. The second is that the actions of the participators and contributors must be in furtherance of the mandate of the association. The third is that there must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. On facts, though the interest was earned from banks which were corporate members of the club, it was not exempt on the ground of mutuality because (i) the arrangement lacks a complete identity between the contributors and participators. With the funds of the club, member banks engaged in commercial operations with third parties outside of the mutuality, rupturing the 'privity of mutuality', and consequently, violating the one to one identity between the contributors and participators, (ii) the surplus funds were not used in furtherance of the object of the club but were taken out of mutuality when the member banks placed the same at the disposal of third parties, thus, initiating an independent contract between the bank and the clients of the bank, a third party, not privy to the mutuality & (iii) The Banks generated revenue by paying a lower rate of interest to the assessee-club and loaning the funds to third parties. The interest accrued on the surplus deposited by the club like in the case of any other deposit made by an account holder with the bank. A façade of a club cannot be constructed over commercial transactions to avoid liability to tax. Such setups cannot be permitted to claim double benefit of mutuality.
Central Govt. Employees permitted to re-exercise their option upto 31.03.2013
No. 10/2/2011-E-111(A)
Government of India
Ministry of Finance
Department of Expenditure
Government of India
Ministry of Finance
Department of Expenditure
North Block, New Delhi Dated the 3rd January, 2013
OFFICE MEMORANDUM
Subject: Central Civil Services (Revised Pay) Rules, 2008 — the re-exercise of option under Rule 6 of the Central Services (Revised Pay) Rules, 2008 in case of employees covered under the OM dated 19.3.2012.
The undersigned is directed to invite a reference to Rules 5 & 6 of the CCS(RP) Rules, 2008, as per which a Central Government employee had an option to elect to come over to the revised pay structure either from 1.1.2006 or from the date of his next increment or from the date of promotion, upgradation of pay scales. Such an option was to be exercised within 3 months from the date of publication of CCS (RP) Rules, 2008. The rule also provides that the option once exercised shall be final.
2. This Ministry issued instructions vide this Department's OM No. 10/2/2011-E-IIIA dated 19.3.2012, providing that those Central Government employees who were due to get their annual increment between February, 2006 to June, 2006 may be granted one increment on 1.1.2006 in the pre-revised pay scale as a onetime measure and, thereafter, they will get the next increment in the Revised Pay structure on 1.7.2006 as per Rule 10 of the CCS (RP) Rules, 2008.
3. In view of the benefit extended to Central Government employees as per the aforesaid OM dated 19.3.2012, the issue relating to according of a fresh opportunity to Central Government employees to re-exercise their option to come over to the revised pay scale as per CCS(RP) Rules, 2008 was raised by the Staff side of the Joint Consultative Machinery in the meeting of the National Anomaly Committee held on 17.7.2012.
4. The matter has been considered by the Government and having regard to the fact that the provisions of the aforesaid OM dated 19.3.2012 bring about a material change in the basis for exercise of option to come over to the revised pay structure in terms of the CCS(RP) Rules, 2008 in respect of employees who are covered under the said OM dated 19.3.2012, the President is pleased to decide that all those employees who are covered under the provisions of the aforesaid OM dated 19.3.2012 may once again be permitted to re-exercise their option to come over to the Revised pay structure.
5. The benefit under these orders for re exercise of option be available for the period up to 31.03.2013. the Revised option be intimated to the head of the office by the concerned Government Employee in accordance with the provisions of Rule 6(@) of the CCS(RP) rules,2008.
6.All the Ministries and Department are requiested to bring the content of this OM to the notice of their employees can avail themselves of the same with in the stipulated time period.
7. In so far as persons serving in the Indian audit and Accounts Department are concerned ,these orders issue after consultation with the Comptroller and Auditor General of India
----- Forwarded Message -----
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
To: Kanigalla <kanigalla@hotmail.com>
Sent: Tuesday, 15 January 2013 4:48 AM
Subject: GAAR-01-04-2016
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
To: Kanigalla <kanigalla@hotmail.com>
Sent: Tuesday, 15 January 2013 4:48 AM
Subject: GAAR-01-04-2016
| Major Recommendations of Expert Committee on GAAR Accepted |
The Central Government has carefully considered the report of the Expert Committee on General Anti Avoidance Rules (GAAR) and accepted the major recommendations of the Expert Committee with some modifications. This was announced by the Union Finance Minstar Shri P.Chidambaram here today in a press conference. The Finance Minister said that the following decisions have been taken by Government in this regard: (i) An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. The current provision prescribing that it should be "the main purpose or one of the main purposes" will be amended accordingly. (ii) The assessing officer will be required to issue a show cause notice,containing reasons, to theassessee before invoking the provisions of Chapter X-A. (iii) The assessee shall have an opportunity to prove that the arrangement is not an impermissible avoidance arrangement. (iv) The two separate definitions in the current provisions, namely, 'associated person' and 'connected person' will be combined and there will be only one inclusive provision defining a 'connected person'. (v) The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices. The current provision that the Approving Panel shall consist of not less than three members being Income-tax authorities or officers of the Indian Legal Service will be substituted. (vi) The Approving Panel may have regard to the period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement. Such factors may be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement. (vii) The directions issued by the Approving Panel shall be binding on the assessee as well as the Income-tax authorities. The current provision that it shall be binding only on the Income-tax authorities will be modified accordingly. (viii) While determining whether an arrangement is an impermissible avoidance arrangement, it will be ensured that the same income is not taxed twice in the hands of the same tax payer in the same year or in different assessment years. (ix) Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code, Bill, 2010, will be grandfathered. (x) GAAR will not apply to such FIIs that choose not to take any benefit under an agreement under section 90 or section 90A of the Income-tax Act, 1961. GAAR will also not apply to non-resident investors inFIIs. (xi) A monetary threshold of Rs. 3 crore of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR. (xii) Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement. (xiii) Where GAAR and SAAR are both in force, only one of them will apply to a given case, and guidelines will be made regarding the applicability of one or the other. (xiv) Statutory forms will be prescribed for the different authorities to exercise their powers under section 144BA. (xv) Time limits will be provided for action by the various authorities under GAAR. (xvi) Section 245N(a)(iv) that provides for an advance ruling by the Authority for Advance Rulings (AAR) whether an arrangement is an impermissible avoidance arrangement will be retained and the administration of the AAR will be strengthened. (xvii) The tax auditor will be required to report any tax avoidance arrangement. Further, having considered all the circumstances and relevant factors, the Government has also decided that the provisions of Chapter X-A will come into force with effect from April 1, 2016 (as against the current provision of April 1, 2014). A number of countries have provided for General Anti Avoidance Rules (GAAR) in matters relating to taxation. While tax mitigationis recognized, tax avoidance is frowned upon. International literature describes tax avoidance as the legal exploitation of tax laws to one's own advantage and an arrangement entered into solely or primarily for the purpose of obtaining a tax advantage. The principle of GAAR was incorporated in the Direct Taxes Code which was introduced as a Bill in Parliament on August 30, 2010. Pending consideration of the Bill, the Income-tax Act, 1961 was amended by Finance Bill, 2012 to add Chapter X-A titled 'General Anti- Avoidance Rule'. It became part of the law when the Finance Bill was passed by Parliament. Draft GAAR guidelines were also published. Under the current provisions, Chapter X-A would come into force with effect from April 1, 2014. A number of representations were received against the provisions contained in Chapter X-A. Hence, on July 13, 2012, the Prime Minister approved the constitution of an Expert Committee on GAAR to undertake stakeholder consultations and finalize the guidelines for GAAR. Accordingly, an Expert Committee consisting of Dr.Parthasarathi Shome and three others was constituted on July 17, 2012 with broad terms of reference including consultation with stakeholders and finalizing the GAAR guidelines and a roadmap for implementation. The Expert Committee submitted its draft report on August 31, 2012 which was placed in the public domain on September 1, 2012. After examining the responses to the draft, the Expert Committee submitted its final report on September 30, 2012. The final report of the Expert Committee has been now put on the website of the Ministry of Finance i.e.finmin.nic.in. ***** DSM/SS/GN (Release ID :91556) |
Best Wishes
CA. V.M.V.SUBBA RAO
Chartered Accountant
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