ITO v. Sarvodaya Mutual Benefit Trust (2013) 22 ITR 277(Chennai) (Trib.)

S.4:Charge of income-tax –Mutuality- Non-Government organisations managing self-help groups of villagers

and their families principle of mutuality is applicable income is not liable to tax.

An all India national apex body called the Association of Sarva Seva Farms, a national level trust, formed for the

upliftment of poor villagers who had received in the past, parcels of land distributed by the Boodhan movement but were not in a position to raise resources to carry on agricultural and other related activities in the land allotted to them, arranged for funds for distribution among the Boodhan land allottees, on the security of the Boodhan land. The national apex body was a charitable institution and a non-profit organisation. The assessee-trusts were non-Government organisations registered in Tamil Nadu, to manage self-help groups of villagers and their families and undertaking programmes to generate income for the benefit of the members of that self-help group. The assessee-trusts were under a common umbrella micro financing company, which obtained loans from statutory corporations and nationalised banks and distributed them to the assessees. The assessees, in turn, lent the money to the self-help groups under them. The umbrella company charged interest at the rate of 12 per cent on the net balance method for the amount advanced by it to the assessees. The assessees, in turn, advanced these loans to their self-help groups at a flat rate of 12 per cent. This differential method generated surplus income in the hands of the assessees. The bye-laws of the assessee-trusts provided that 95 per cent of such surplus would be distributed among the members of the self-help groups working under them and 5 per cent of the surplus retained by the assessee-trusts for their own maintenance and other administrative overheads. Field organisations like the umbrella company, the assessee-trusts and individual self-help groups worked under the overall guidance and policy formulation of the national apex body. In the course of the assessments of these assessee-trusts, the Assessing Officer held that because the distribution of 95 per cent made by the assessee-trusts to

member self-help groups was not determinate with reference to individual recipients 95 per cent of surplus distributed by the assessee-trusts to their member self-help groups had to be treated as income of the respective trusts.Tribunal held thatmonies obtained by assessee-trusts from umbrella micro financing organisation lent to self-help groups under them - 95 per cent of surplus income of assessees distributed among members of self-help groups. Details of every member belonging to self-help group available on record. Details of loans availed of by various self-help groups properly recorded. Distribution of funds by self-help groups to individual members properly documented. Tribunal held that finding that share of every self-help group or share of every individual member indeterminate without any basis.  Distribution by assessee trusts to self-help groups under them was assessable as income of those self-help groups themselves. Assessee is governed by principles of mutuality hence is not taxable income. (A.Ys.2007-2008, 2008-2009)