Subscription Fee Received By Deloitte Exempted From Tax On Principle Of Mutuality: Delhi High Court

The Delhi High Court has held that subscription fees received by Deloitte are exempted from tax on the principle of mutuality.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that the expression “mutuality” flows from the expression “mutual”, which indicates reciprocity of arrangement in which the concerned parties have reciprocal rights or understanding or arrangement to abide by the mandate of the group for benefit of other members. 

The arrangement is unlike an arrangement in which one member would be subjected to the absolute discretion of another in such a manner that the entire liability may fall upon one, whereas benefits are reaped by all or all others. 

In a mutual concern, an obligation to pay may or may not be there, but at the same time, the overriding discretion of one member over others cannot be sustained in order to preserve the real essence of mutuality. In other words, the association created should operate only for the convenience and benefit of its members.

The respondent/assessee is an association (Verein), established in Switzerland, with its members being Chartered Accountant firms situated across the world. The 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 assessee also claimed a refund of Rs. 1,35,18,298.

The assessee, aggrieved by the assessment orders, preferred appeals before the Commissioner of Income Tax. The appeals of the assessee were allowed by CIT (A).

The CIT(A) observed that Verein is registered as a not-for-profit entity under Swiss laws, and the recoveries made by the assessee from its members could not be held to be in the nature of trading receipts. It is covered by the concept of mutuality.

The first appeal filed by the appellant/revenue was dismissed by the Income Tax Appellate Tribunal. The ITAT reaffirmed that the Articles of Verein, coupled with the rest of the records, established that Verein was functional on the principles of mutuality, and consequently, the money received by it in the form of subscriptions is not amenable to tax.

The issue raised was whether the Tribunal erred in holding that the receipts of the assessee were not in the nature of fees for technical services and that the same were exempt from tax on the principle of mutuality.

The department contended that the order is not sustainable in the eyes of the law since the Tribunal failed to appreciate that the assessee was rendering specific services to its members and those services were being commercially exploited by the latter. The so-called subscription fee charged for the services rendered by the assessee to its members cannot be termed a contribution. It was a payment made by the members of the assessee in lieu of various services, including information technology-related services. Thus, the assessee was trading with its members and not with itself.

The assessee contended that it 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 fee for technical services.

The court held that the receipts of the 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.

Counsel For Petitioner: Puneet Rai

Counsel For Respondent: Percy J. Pardiwalla

Case Title: CIT Versus Deloitte Touche Tohmastu

Citation: 2023 LiveLaw (Del) 995

Click Here To Read The Order