THE SPORTS CLUB OF GUJARAT LTD.,,AHMEDABAD vs. THE PR. CIT-4, AHMEDABAD

आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-

This is an appeal filed by the assessee against the order of the ld. Pr. Commissioner of Income Tax-4, Ahmedabad vide order dated 13/03/2020 passed for the assessment year 2015-16.

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 2 The Sports Club of Gujarat Ltd. vs. Pr. CIT

order u/s. 263 dated 13-3-2020 on the following amongst the other Grounds.

I. On Legality: (1) CIT has erred in holding that order u/s. 143(3) dated 21-12-17 is erroneous and prejudicial to the interest of the revenue and has further erred in setting aside the same with a direction to carry out further inquiries from details and documents in order to examine taxability of Rs.8,63,92,930/- being entrance fees received from the members treating the same to be a revenue receipt and taxable income of the Appellant.

(2) It is submitted that the CIT has passed the order without giving a chance of personal hearing to the Appellant and has further erred in setting it aside particularly since the AO., in the course of passing order u/s.143(3) dated 21-12-17 has specifically asked for the details of the entrance fees, has examined the nature and character of its receipt and has taken a well considered view that the same is in the nature of capital receipt and hence not taxable income of the Appellant.

(3) Further, the order of the AO has merged with that of the order of CIT(A) on identical issue of taxability or otherwise of subscription received from the members which are not taxable on principles of mutuality.

(4) The order of the C1T therefore be cancelled as an erroneous order and the order of the AO be reinserted.

II. On Merits: (1) Without prejudice to above, the CIT has erred in holding that Rs.8,63,92,930/- being entrance fees received from the members is a revenue receipt and hence taxable as income of the Appellant.

(2) It is submitted that as per the provisions of Companies Act, Accounting Standards laid down by ICAI and as per accounting practice adopted by the Appellant since its inspection since 1966-67

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 3 The Sports Club of Gujarat Ltd. vs. Pr. CIT

which is accepted by the Department, the CIT has erroneously treated nature of receipt of entrance fees as revenue receipt.

(3) Alternatively, without prejudice and assuming without admitting that the nature and character of entrance fees is a revenue receipt, even then the same is not taxable on principles of mutuality because the same is contributed by the members who are also the participators which is an established principle of Law by Hon. Supreme Court, Hon. Gujarat High Court, Hon. ITAT, Ahmedabad and in Appellant's own case since its inspection since 66-67 and therefore also, the C1T has erroneously held that entrance fees of Rs.8,63,92,930/- is revenue receipt and taxable as income of the Appellant. It is therefore submitted that relieves claimed above be allowed and the order of the Pr. Comm. of be modified accordingly. Your Appellant reserves right to add, alter or amend any or all of the above Grounds of Appeal.”

3.1 Ld. Pr. CIT issued notice u/s order passed u/s 263 of the Act to the assessee on the ground that during the year under consideration, the assessee had received entrance fees of Rs.8,63,92,930/- which had been capitalized in

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 4 The Sports Club of Gujarat Ltd. vs. Pr. CIT

the balance sheet. At the time of assessment, there were several decisions which had held that entrance fees received by the assessee-club at the time of entrance of new members is a receipt of revenue nature and chargeable to tax in the hands of the club viz. the Supreme Court decision in the case of Delhi Stock Exchange Ltd. Vs. CIT(1959) 36 ITR 222(Supreme Court). However, the A.O. did not take note of the above-referred decision and did not tax the amount of Rs.8,63,92,930/- as taxable receipts. Thus, the assessment order passed u/s 143(3) of the Act on 21.12.2017 was erroneous and prejudicial to the interest of the revenue so far as non-taxing of these receipts is concerned.

3.2 In response to this notice, the assessee-company has filed letter dated 03.03.2020 and made various submissions which challenged the issuance of notice u/s order passed u/s 263 of the Act since the two pre-requisite to exercise revisionary powers that the order of the A.O. should be erroneous and it should also be prejudicial to the interest of the revenue are not met in the instant facts. The assessee submitted the issue with respect to non- taxability of entrance fees on account of mutuality as well as considering the same as capital in nature has already been examined by the A.O. during the assessment proceedings u/s 143(3) of the Act and after due application of mind, Ld. Assessing Officer had considered such entrance fees as non- taxable item. The view expressed by the A.O. through the assessment order cannot lead to invocation of provisions of section 263 of the Act for the reason that a different view has been adopted by the revisionary authority. The A.O. had sought details and explanation in respect of various issues including the entrance fees which have been provided by the assessee vide

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 5 The Sports Club of Gujarat Ltd. vs. Pr. CIT

its letter dated 24.11.20.17 and the details so "furnished included the details of members, annual subscriptions credited to income & expenditure account of Rs.1,30,23,177/- and those of entrance fees credited to reserve and surplus for Rs. 8,63,92,099/- with supporting evidences. The assessee submitted that the treatment given by the assessee to such type of receipts, i.e. entrance fees received from the members has been approved in its own case by the Hon'ble ITAT for the assessment year 1966-67, 67-68,68-69 and 69-70. Merely for the reason that the issue of entrance fees had not been discussed in the assessment order cannot lead to hold that the assessment order was erroneous and hence can attract the provisions of section 263 of the Act. The fees so received have been contended to be "a one time entrance fee which is non-refundable to him during his tenure of membership". This fee has been treated as capital receipt and taken over under the head "Reserves & Surplus" in accordance with the Companies Act, 2013. After paying the onetime entrance fees, the members are also subjected to pay annual subscription fee and activity fees for participating in the activities offered by the club which are treated as revenue receipts against which the expenditure has also been incurred and debited in the profit &. loss account. The assessee also relied on the following decisions:- (a) ACIT Vs. Karnavati Club Ltd.(2010) 4 ITR (T) 724 (b) ACIT Vs. W.I.A.A. Club Ltd.(1979) 2 Taxman 57. (c) CIT Vs. Dinners Business Services (Pvt.) Ltd. (200) 132 Taxman. 758 (d) ACIT, Circle-2 Vs. Royal Western India Turf Club Ltd.(2017) 88 Taxman.com 567.

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 6 The Sports Club of Gujarat Ltd. vs. Pr. CIT

3.3 Ld. Pr. CIT however, rejected the assessee’s contentions on the grounds firstly, that the careful perusal of the entire case-records revealed that the A.O. did not raise specific query with regard to crediting of the amount of Rs.8,63,92,099/- as capital receipts either through a written communication or through an order-sheet entry. Thus, there is an omission on the part of the A.O. for carrying out necessary inquiries or verification of the issue as mentioned above. Secondly, the very basis of resorting to the revisionary proceedings u/s 263 of the Act is the decision of the Hon'ble Supreme Court of India in the case of Delhi Stock Exchange Ltd. Vs. CIT reported at (1961) 41 ITR 486 which affirmed the decision of the Hon'ble High Court of Delhi reported (1959) 36 ITR 222(S.C.) in which the identical issue has been dealt with. The assessee’s case is squarely covered by these decisions. Thirdly, reliance by the assessee on the decision of the Hon'ble ITAT rendered in its own case for A.Yrs.1966-67, 1967-68, 1968-69 and 1969-70 dated 21.03.1975 is misplaced since the core issue in these cases was denial of exemption u/s 10(23) of the Act by the A.O. In the present case, the issue of receiving the lifetime membership or onetime membership fees transferred to the balance-sheet as reserve and surplus has not been precisely examined as it was not the core issue in the above cases. Therefore, this decision is held to be rendered in respect of the claim made u/s 10(23) of the Act and thus not applicable to the present case on hand. Ld. Pr. CIT accordingly set aside the assessment order by holding that the same is erroneous and prejudicial to the interests of the Revenue.

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 7 The Sports Club of Gujarat Ltd. vs. Pr. CIT

for the assessee submitted that CIT(A) served the order on the assessee on 13-03-2020 and 60 days time limit for filing appeal was expiring on 12-05- 2020. However, due to nationwide lockdown on account of Covid 19, the appeal could be filed only on 24-06-2020. Ld. Counsel for the assessee submitted that the Hon’ble Supreme Court extended time-line for all statutory filing vide suo moto Writ Petition (Civil) No. 3 of 2020 dated 23- 03-2020 till 30-06-2020. Ld. Counsel for the assessee accordingly submitted there is no delay in filing the appeal in view of the above. The Ld. Departmental Representative has not objected to or contested the arguments in support of condonation of delay put forth by Ld. Counsel for the assessee.

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 8 The Sports Club of Gujarat Ltd. vs. Pr. CIT

counsel for the assessee submitted that the assessee’s case is squarely covered by the decision of ACIT vs. Karnavati Club 4 ITR (T) 174, CIT vs. W.I.A.A. Club Ltd. 2 taxmann 57 and CIT vs. Diners Business Services 132 taxmann 758 which have held that entrance fee charged by assessee-club as a one-time fee for enrolment as members of 'executive centre', which was not refundable, was a capital receipt. The Ld. Counsel for the assessee submitted that the same were discussed with Pr. CIT, who has not given any cogent reasons for disregarding the same. Ld. Counsel for the assessee further submitted that the Pr.CIT has not been able to distinguish the above decisions on facts and has given no reason why the same should not apply to assessee’s set of facts. The ld. counsel for the assessee relied on the case of State of West Bengal v. Calcutta Club Ltd [2019] 110 taxmann.com 47 (SC) to submit that SC in the above case has held that doctrine of mutuality is applicable to incorporated and unincorporated members' clubs and thus sales tax could not have been levied on such clubs for supply of food and drinks to permanent members (in VAT proceedings). The Hon’ble Supreme Court has upheld that the doctrine of mutuality is applicable to incorporated clubs like the assessee. He argued that if revenue receipts are exempt on the basis of principles of mutuality, then, capital receipts in the nature of one-time membership fees should also be exempt from taxation. The ld. counsel for the assessee drew our attention to page 69 of paper book and submitted that for the past 12 years i.e. from Assessment Year 2004-05 onwards, the assessee has been getting entrance fees from Members and the Revenue has never taxed entrance fees as revenue receipts in the hands of the assessee. The ld. counsel for the assessee submitted that the case laws relied upon by the ld. pr. CIT are distinguishable on facts and

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 9 The Sports Club of Gujarat Ltd. vs. Pr. CIT

hence have no applicability to the present case. Hence, the LPr. CIT erred in passing order u/s. 263 of the Act. In response, the ld. D.R. relied on the observations made by the Pr. CIT in the 263 order.

7.1 We shall first briefly discuss the applicability of the cases cited by Ld. Counsel for the assessee to the assessee’s set of facts. We note that in the case of ACIT vs. Karnavati Club 4 ITR (T) 174, the only issue involved

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 10 The Sports Club of Gujarat Ltd. vs. Pr. CIT

was whether entrance fees received by the assessee club are "capital receipt " and not "revenue receipt". While deciding in favour of the assessee, the jurisdictional Ahmedabad ITAT observed as below:

“12. The issue is directly covered in favour of the assessee by the aforementioned decision of the hon'ble Bombay High Court in the case of CIT v. Diners Business Services (P.) Ltd. [2003] 263 ITR 1 , as in the said case, the entrance fee was charged by the assessee for enrolment of its customers as members of 'executive centre'. The entrance fee was a one-time fee and only members were eligible to avail of the facilities available in the 'executive centre' and the entrance fee was non-refundable, following the decision in the case of CIT v. W. I. A. A. Club Ltd. [1982] 136 ITR 569 (Bom), it is held by the Bombay High Court that the entrance fees were paid to the club in order to acquire the right to avail of the services and facilities extended by the club and therefore, the receipts constituted capital receipts.

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 11 The Sports Club of Gujarat Ltd. vs. Pr. CIT

7.2 In our view, the facts in the assessee’s case and the Karnavati Club case supra are identical, wherein the jurisdictional ITAT has decided the issue in favour of the assessee. The Ld. Pr. CIT has not brought on record any cogent reason why the jurisdictional ITAT decision on identical facts will not apply to the assessee’s set of facts.

7.3 It is also apt to discuss the applicability of case relied upon by ld. Pr. CIT to assessee’s set of facts, while initiating proceedings u/s. 263 of the Act. The Ld. Pr. CIT has relied on the decision of Delhi Stock Exchange Ltd. Vs. CIT(1959) 36 ITR 222(Supreme Court) to form a view that entrance membership fee is a receipt of revenue nature and hence chargeable to tax in the hands of the club. In fact, order passed u/s 263 of the Act proceedings have been initiated by Ld. Pr. CIT on the basis of the above decision, wherein at para 3.1 of order passed u/s 263 of the Act order, he has observed “3.1 The very basis of resorting to the revisionary proceedings u/s 263 of the Act is the decision of the Hon'ble Supreme Court of India in the case of Delhi Stock Exchange Ltd. Vs. CIT reported at (1961) 41 ITR 486 which affirmed the decision of the Hon'ble High Court of Delhi reported (1959) 36 ITR 222(S.C.) in which the identical issue has been dealt with”. We will discuss the above decision to see their applicability in the assessee‘s set of facts. We note that the Supreme Court in the case of Delhi Stock Exchange supra upheld the taxability of members' admission fees in hands of assessee as revenue receipts on the ground that since body of trading members and shareholders were not identical, the element of mutuality was lacking. However, we note that in the in the case of State of West Bengal v. Calcutta Club Ltd [2019] 110 taxmann.com 47 (SC), the Hon'ble

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 12 The Sports Club of Gujarat Ltd. vs. Pr. CIT

Supreme Court has that upheld that the doctrine of mutuality is applicable to both unincorporated and incorporated Member Clubs, while holding that sales tax could not have been levied on such clubs for supply of food and drinks to permanent members. Further, the Ld. CIT(A), in appeal against the assessment order which is sought to have revised in order passed u/s 263 of the Act proceedings, has granted relief to the assessee on the principles of mutuality. The Hon'ble ITAT in the assessee’s own case for AY 1966-67 has held that the principles of mutuality applies to surplus arising to the Club, which would be otherwise taxable under the head ‘profits and gains from business and profession’. It would also be apt to refer to the decision of ITAT in the case of DCIT v. Bengal Rowing Club [1994] 48 ITD 512 (Calcutta), where the ITAT discussed and distinguished the applicability of Delhi Stock Exchange case supra to facts of the assessee’s case, which was a Rowing Club, in the following words: “18. It was then doubted whether the subscription paid by the members for the services rendered by the club cannot be taxed in view of the decisions of the Supreme Court in the case of CIT v. Calcutta Stock Exchange Association. Ltd. [1959] 36 ITR 222 and in the case of Delhi Stock Exchange Association Ltd. v. CIT [1961] 41 ITR 495 (SC). Under section 28(iii) of the Income-tax Act, 1961, income derived by a trade, professional or similar association from specific services performed for its members are taxable as income from business. The fore-runner of this provision In the Act of 1922 was section 10(6) thereof. The decisions of the Supreme Court cited above were concerned with section 10(6) of the 1922 Act. In the present case, we are not concerned with the Income of any trade or

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 13 The Sports Club of Gujarat Ltd. vs. Pr. CIT

professional or similar association. A trade or professional association is an association of businessmen or professionals to protect their common interests. The assessee can neither be stated to be trade association nor a professional association. The assessee does not carry on any business and this fact is also not disputed. The assessee is purely a members' Club. In the case of Calcutta Stock Exchange Association Ltd. (supra) and in the case of Delhi Stock Exchange Association Ltd. (supra) the assesses were not members' Club, but they were trade associations. It was not suggested on behalf of the Department that the assessee was an association similar to a trade or professional association. Even if it is so suggested, that cannot be accepted because the word 'similar' In section 28(iii) has to be interpreted 'Ejusdem generis' with the word 'trade or professional'. A members' Club such as the present assessee is wholly different from a trade or professional association. and therefore there is no scope for roping the same into the provisions of section 28(iii). A similar contention was advanced on behalf of the Department before the Delhi High Court in the case of CIT v. Delhi Race Club [1940] Ltd. [1970] 75 ITR 111. That was a case of the Delhi Race Club, which was an incorporated body. The finding of the Tribunal was that the assessee was essentially a members' club and it was neither a trade nor professional association. On this finding of fact, the contention advanced on behalf of the revenue was expressly repelled by the Delhi High Court. At pages 116 and 117 of the report, the High Court held as under:

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 14 The Sports Club of Gujarat Ltd. vs. Pr. CIT

"The learned counsel for the revenue had referred to section 10(6) of the Indian Income-tax Act, 1922, but this has no application to the present case. As held by the Supreme Court in Royal Western India Turf Club case. section 10(6) has no application, for the assessee is not a trade or professional or other similar association within the meaning of that sub- section. Trade association is not the same thing as a trading association. A trade association may be an association of tradesmen to protect their common interest. The assessee, as found by the Tribunal in the statement of the case, is not such an association; nor is it a professional association. The said section, therefore, does not apply to the case of the assessee.

The cases of Calcutta Stock Exchange Association and of the Delhi Stock Exchange Association are entirely different, as the said associations are not members' clubs. The receipts sought to be charged in both cases are referable to certain specific services, which are not privileges of membership."

It is, therefore, not possible to countenance the proposition that the subscription paid by the members for the privileges and services enjoyed by them can be taxed under section 28(iii) of the Act.

7.4 In view of the above discussion, we are of the considered view that the Delhi Stock Exchange case would not apply to the assessee’s set of facts, firstly, for the reason the Hon'ble Supreme Court in the said case taxed the

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 15 The Sports Club of Gujarat Ltd. vs. Pr. CIT

income in the hands of the Trade Association on the basis that the principle of mutuality is lacking, whereas in the case of State of West Bengal v. Calcutta Club Ltd [2019] 110 taxmann.com 47 (SC), the Hon'ble Supreme Court in VAT proceedings has upheld that the incorporated Members Clubs are governed by the principle of mutuality. Secondly, as aptly noted in the DCIT v. Bengal Rowing Club [1994] 48 ITD 512 (Calcutta), the facts of trade associations cases and that of Membership Clubs are on a different footing and ratio of one case cannot be applied to the other. Thirdly, it would not be out of place of mention that ITAT in the assessee’s own case for AY 1966-67, 67-68, 68-69 and 69-70 has upheld the principle of mutuality while adjudicating on the taxability of surplus arising to the club as revenue receipts.

7.5 Another, issue for consideration for us is that the Ld. Counsel for the assessee has submitted that from AY 2004-05, the assessee has been earning entrance membership and the assessee has been regularly assessed to tax, but entrance membership has never been brought to tax as revenue receipts in the hands of the assessee. Therefore, on principles of consistency, if the Revenue has taken a certain position in the case of the assessee in prior years, unless there is a material change in the facts, the same position should be adopted in the later years as well. Though, we note from the assessment orders that taxability of entrance fee does not find a specific mention, but the Ld. Counsel for the assessee has relied on page 69 of the Paper-Book years (where year-wise details of Entrance Membership received by the assessee has been mentioned) to aver that since AY 2004-05, the assessee has been earning Entrance Membership, which had been capitalized and for all years

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 16 The Sports Club of Gujarat Ltd. vs. Pr. CIT

and in all the above years, detailed scrutiny assessment has taken place in which such Entrance membership has not been brought to tax as revenue receipts. We note that in the case of ACIT v. Royal Western India Turf Club Ltd. [2017] 88 taxmann.com 567 (Mumbai - Trib.) the facts were that in earlier years, in the case of assessee, the entrance fee was accepted as capital receipt and it goes to balance sheet as reserve account. The ITAT held that where one-time entrance fees received by assessee, race club, from its members had been treated as capital receipts in earlier years, on basis of principle of consistency, such fees would be treated as capital receipt unless and until contrary facts are brought on record by revenue. The ITAT observed as below while passing the order: “2.5 The sum and substance of the aforesaid judicial pronouncements is that on the basis of principle of judicial discipline, consistency has to be followed and once in a particular year, if any view is taken, in the absence of any contrary material, no contrary view is to be taken as finality to the litigation is also a principle which has to be followed. Before us, no contrary facts or any adverse material was brought on record by the Revenue, therefore, on the principle of consistency also, the assessee is having a good case in its favour, thus, considering the totality of facts, we find no infirmity in the order of the Ld. Commissioner of Income Tax (Appeal).

7.6 In our considered view, since the assessee has been validated that from AY 2004-05, he has been receiving entrance membership, which has never been brought to tax as revenue receipts in the hands of the assessee, even on the principles of consistency, the Ld. Pr. Ld. CIT(A), in our view,

I.T.A No. 360/Ahd/2020 A.Y. 2015-16 Page No. 17 The Sports Club of Gujarat Ltd. vs. Pr. CIT

has erred in revising the order passed u/s 263 of the Act, without bringing on record any material change in facts from the previous years.

7.7 In the result, we are of the view that in light of the discussion above, Ld. Pr. CIT has erred in facts and in law, erred in initiating proceedings u/s 263 of the Act and setting aside the assessment order on the ground that it is erroneous and prejudicial to the interests of the Revenue.

Order pronounced in the open court on 28-04-2022

Sd/- Sd/- (P.M. JAGTAP) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 28/04/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file.

By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद