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Facts
The assessee, a club, filed its ITR 7 for AY 2014-15, declaring nil taxable income based on the principle of mutuality. An intimation u/s 143(1) subsequently brought the entire receipts to tax. The assessee's rectification/revision requests were rejected due to time limits and the Goetze case precedent.
Held
The Tribunal held that the club operated on the principle of mutuality, and profits from dealings with members are not taxable. It directed the Assessing Officer to consider the income and expenditure account and tax only the net income, following the precedent from the immediately preceding assessment year (AY 2013-14) for the same assessee, despite the incorrect ITR form filing.
Key Issues
Whether the entire gross receipts of a club are taxable despite the principle of mutuality and an incorrect ITR form filing. And whether tax authorities should consider substantive facts over procedural errors in intimation u/s 143(1).
Sections Cited
250, 143(1), 12A, 139(5), 154
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K, Vice- & Shri Inturi Rama Rao
:Asst.Year 2014-2015 The United Club The Income Tax Officer Mangalassery, Koratty South v. Ward 2(1) Thrissur – 680 308. Thrissur. PAN : AABAT1794N. (Appellant) (Respondent) Appellant by : Sri.Abraham Joseph Markos, Advocate Respondent by : Smt.Leena Lal, Senior AR Date of Date of Hearing :13.05.2025 Pronouncement : 14.05.2025 O R D E R
Per George George K, Vice-President :
This appeal at the instance of the assessee is directed against Commissioner of Income-tax (Appeals)’s [hereinafter “the CIT(A)”] order dated 21.03.2025 passed u/s.250 of the Income-tax Act, 1961 (hereinafter “the Act”). The relevant assessment year is 2014-2015.
The grounds raised read as follows:-
“A. The impugned order of the Commissioner (Appeals) is bad in law and on facts. B. The Commissioner (Appeals) erred in confirming the demand made under Section 143(1). He ought to have found that the Assessing Officer had no jurisdiction to pass such an order under Section 143(1).
. The United Club. C. The Intimation itself is unreasonable and in clear violation of the principles of natural justice. No notice whatsoever was given prior to issue of the same. D. The CIT(A) failed to appreciate that the Petitioner has not received any taxable income for the year. The Petitioner's dealing with its members does not constitute any taxable activity on account of the principle of mutuality. In any view of the matter the income and expenditure amount will clearly show the Petitioner has suffered loss for the year in question. The Petitioner filed return in Form ITR 7 on the bonafide belief that its activities and property are in trust for its members. The view that ITR 7 is applicable only for charitable institution registered under Section 12A is not correct. In any view of the matter the authorities below ought to have considered the operations of the Petitioner and seen that there is no taxable income. Merely because the Petitioner has chosen to file its return in ITR 7 should not be a ground to treat entire receipts as taxable. E. The CIT(A) ought to have followed the view taken for AY 2013-14 in the appeal for that year. This has been accepted by the Department and order has been given effect. The failure to follow the order has vitiated the impugned order on the principle of lack of consistency. F. The CBDT has directed by various circulars that it is the duty of the Income Tax Department to assist an assessee. The Assessing Officer have also been directed to give relief when an assessee has wrongly filed return. For Assessment Year 2013-14 this aspect was correctly considered by the Commissioner (Appeals). For Assessment Year 2014-15 also such an approach ought to have been taken by the Department. G. The Assessing Officer has failed to carry out the rectification of errors and mistakes in the computation which has caused a great hardship and miscarriage of justice. It is submitted that the appellant had filed its return of income for 2014-15 on 17.09.2014, declaring Nil assessable income. There was no hearing afforded to the appellant on the return filed. Upon receipt of the intimation, the appellant also pointed out the errors and mistakes and seeking rectification and correction. But this was not acceded to. There is thus, gross miscarriage of justice. H. Even assuming that the Appellant has committed mistake in the Original return this Hon'ble Tribunal is permitted to take on record additional grounds as held by the Supreme Court in National Thermal Power Case. The reliance placed in the case of Goetze is clearly misplaced. Even when a revised return is not possible this Tribunal can consider any ground not originally taken before the AO. I. The AO himself has accepted similar returns filed for other assessment years and should have followed the rule of consistency.
. The United Club. 3. Brief facts of the case are as follows: The assessee is a club. For the assessment year 2014-2015, the return of income was filed on 17.09.2014 in ITR 7 showing total receipts amounting to Rs.84,98,403 against which the expenses were shown as application of income, resulting in `Nil’ taxable income. The assessee received intimation u/s.143(1) of the Act dated 28.02.2016, bringing to tax the entire receipts of Rs.84,98,403 and tax payable of Rs.32,97,059.
Against the intimation issued u/s.143(1) of the Act, the assessee filed appeal before the first appellate authority. The assessee submitted that it had wrongly filed return in ITR 7 on bonafide belief that its activities and property are held in trust for its members. It was submitted that the authorities ought to have considered the operation of the assessee and seen that there is no taxable income. Merely because the assessee club chosen to file ITR 7, the same should not be taken as a ground to treat the entire receipts as taxable. The CIT(A), however, rejected the contention of the assessee by observing as under:-
“8. The submission of the appellant is not found to be tenable for the following reasons. It is seen that the appellant has filed the rectification applications to revise the income details offered in the Return of income. However, the same were rejected. The appellant wanted to revise the Income Tax return which was not allowed due to the reason "statutory limit to file the revised return was lapsed as per the provisions of the section 139(5) of the Act." In this regard it is held that it is settled law that the appellant-assessee has to file the true particulars of the income as per the provisions of the Act within the due dates prescribed as per the Act. It is pertinent to mention that the due dates are same to the appellant- assessees as per the respective status. The time limits for filing the Income Tax Returns cannot be changed for the mistake of each appellant-assessee. 8.1. The appellant has admittedly to have committed mistake in the Return of income filed on 17/09/2014 and wanted to file the revised return of . The United Club. income after the due date for furnishing revised return lapsed. But, the e- filing portal has not allowed the revised return filed by the appellant since due date is over. The request made by the appellant in the appeal cannot be entertained as there is no mistake committed by the AO-CPC in the intimation order. Further, the appellant has also submitted rectification application before jurisdictional assessing officer which was also rejected stating no mistake apparent from record is there in the order which is prima facie requirement to proceeding to rectification order u/s. 154 of the Act. 8.2. In this regard, reliance is placed on Hon'ble Apex Court decision in the case of Goetze (India) Ltd. Vs. CIT in Civil Appeal No. 1761 OF 2006 IN [2006] 157 Taxman 1 (SC) dated March 24, 2006 wherein it was held that "assessee cannot amend a return filed by him for making a claim for deduction other than by filing a revised return". Respectfully following the above judgement and in light of the above discussion, the appellant's request to revise the return of income is not acceded. Hence, the Ground nos. 2, 3, 4 & 5 are hereby dismissed.”
Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The learned AR reiterated the submissions made before the Income Tax Authorities and relied on the grounds raised.
The learned Departmental Representative supported the order of the CIT(A).
We have heard rival submissions and perused the material on record. On perusal of the income and expenditure statement, it is clear that the assessee had not received any taxable income. The assessee was dealing with its members, and on account of principle of mutuality, any profits out of dealings with the members would not be liable to tax. The assessee had wrongly filed return in ITR 7. Inspite of return being wrongly filed in ITR 7, the Income Tax Authorities ought to have considered the operation of the assessee-club and ought to have brought . The United Club. to tax only the net income. However, the CPC has erred in bringing to tax the entire gross receipts as taxable income. On identical facts, for earlier assessment year, viz., A.Y. 2013-2014, the CIT(A) had directed the Assessing Officer (hereinafter “the AO”) to consider the income as per the income and expenditure account. The relevant finding of the CIT(A) for the immediately preceding assessment year, in assessee’s own case, reads as follow:- “I hold that rectification application filed by the appellant on 17.06.2015 through e-filing portal showing net loss of Rs. 39,70,620/- as per income and expenditure account should be considered. The Assessing Officer is therefore directed to consider the revised income filed by the appellant in rectification application. In view of this, grounds of the appeal is allowed.”
In the instant case, the assessee had filed the rectification application through e-filing portal, showing no income from operation as per income and expenditure statement. Accordingly, the AO is directed to consider the income and expenditure account of the assessee and bring to tax only the net income and not the gross receipts as it was done in the intimation issued u/s.143(1) of the Act. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on this 14th day of May, 2025.