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Income Tax Appellate Tribunal, B Bench, Mumbai
O R D E R
Per R.C. Sharma, AM
This appeal has been filed by Revenue against the order of the CIT(A)-2, Mumbai dated 11.07.2016 for A.Y. 2012-13 in the matter of order passed under Section 143(3) of the Income Tax Act (hereinafter “the Act”).
Revenue has taken the following grounds of appeal: “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is right in deleting the addition of Rs.41,19,029/- on account of complimentary liquor received free of cost from non members and sold to non members ?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is right in deleting the addition account of complimentary liquor, ignoring the finding of the AO that the profit arising to the assessee on sale of such free liquor to non members, constitutes taxable income in the hands of the assessee company as the concept of mutuality is not satisfied?
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is right in deleting the addition of Rs. 11,28,094/- on account of sponsorship receipts from non- members as income of assessee considering them be not falling under principle of mutuality?”
M/s. Bombay Gymkhana Ltd.
We have considered the rival contentions carefully and gone through the orders of the Authorities below and find from record that the assessee is a club, which was operating on the principle of mutuality and is incorporated under the Indian Companies Act, 1913. It is engaged in promotion and management of sport activities, competitions, matches, recreation, etc. The assessee is a mutual association and does not carry out any business activity. However, during the course of assessment the AO made addition on account of sale of complimentary liquor and also on account of sponsorship fees. By the impugned order the CIT(A) deleted both the additions, against which Revenue is in further appeal before us.
At the outset the learned A.R. placed on record the orders of the Tribunal in assessee’s own case for assessment years 2007-08, 2008-09, 2009-10 and 2010-11 wherein both the issues have been dealt with by the Tribunal. We have carefully gone through the order of the Tribunal for A.Y. 2007-08 dated 13.03.2015 wherein we find that the addition made on account of sponsorship fees was deleted after having the following observation: - “4. We have heard the parties and perused the record. The assessee is a mutual association and it filed its return of income declaring a total income of Rs.10,23,460/-. The AO, during the course of assessment proceedings, noticed that the assessee has claimed certain receipts as exempt from taxation under mutuality principles. The first issue relates to the assessment of Rs.1,25,000/- relating to the amounts received by way of sponsorship for various events organized by the assessee. The AO noticed that the following companies have contributed to certain events organized by the assessee. Diego India P Ltd (Barnite event) - Rs.35,000/- McDowell Ltd (Jazznite event) - Rs.40,000/- Centurion Bank Ltd (Holi event) - Rs.50,000/-. Since the contributors were non-members, the AO took the view that the above said contributions are assessable as the income of the assessee. Accordingly he assessed the above said receipts as income of the assessee and the Ld CIT(A) also confirmed the same.
The main submission of Ld A.R was that the above said companies have only contributed to the conducting of events by way of M/s. Bombay Gymkhana Ltd. sponsorship and the same goes to reduce the cost of expenditure incurred in respect of those events. Accordingly he submitted that there is no income element involved in these receipts. In the alternative, he submitted that the corresponding expenditure should be allowed as deduction, if the above said receipts were considered to the income of the assessee. However, the Ld D.R submitted that the assessee has received this amount from non-members and hence the concept of mutuality will not apply to these receipts.
6. There is no dispute that the companies, cited above, are non- members. However, we are of the view that one has to see the object behind the receipt of these contributions from the above said companies. There is no dispute that the assessee has been organizing various events for the mutual benefit of its members. The contributions, if any, received from the members were utilized for conducting the events and the surplus, if any, is accepted as exempt under the principles of mutuality. The above said companies have partly sponsored the events, apparently as a part of their respective sales promotion activities. Hence, the objective of the assessee in receiving these contributions, in our view, can only be considered to be to meet part of the expenditure incurred in organizing the events. Hence, in our view, there is no intention to earn any income out of the above said contributions, since it only goes to reduce the expenditure. Hence, we are of the view the above said contribution cannot be subjected to tax as income in the hands of the assessee. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete this addition.”
5. The addition made on account of complimentary liquor was confirmed by the Tribunal after having the following observation: - “7. The next issue contested by the assessee relates to the value of complimentary liquors assessed by the AO as income of the assessee. The AO took the value of complimentary liquors is to be assessed as income of the assessee, since the assessee has failed to furnish the details of persons who consumed the complimentary liquor. He also took the view that the complimentary liquor could have been used by non- members also and accordingly assessed the sale value of complimentary liquor as income of the assessee. The Ld CIT(A) also confirmed the same.
The Ld A.R submitted that the assessee has sold the complimentary liquors only to its members. He further submitted that non-members are not allowed to utilize the services of the club. The non-members, if any, come to the club only as guests of members and hence the sale of liquor has to be considered as sale to members only. On the contrary, the Ld D.R placed strong reliance on the order of Ld CIT(A).
M/s. Bombay Gymkhana Ltd.
We find merit in the view taken by tax authorities. It is an accepted fact that the complimentary liquor has been sold at a price, meaning thereby the intention of the assessee was to make profit out of sale of complimentary liquors. Thus the action of the assessee was commercial in nature. It was not shown to that the liquor companies, who have given complimentary liquors, are members of the assessee. Hence, we do not find any infirmity in the decision of the ld.CIT(A) on this issues.”
Both the learned D.R. and learned A.R. agreed that the issue is squarely covered by the order of the Tribunal in assessee’s own case, Respectfully following the order of the Tribunal in assessee’s own case we confirm the action of the CIT(A) for deleting the addition on account sponsorship fees. However, the addition on account sale of complimentary liquor is being upheld.
In the result, the appeal filed by Revenue is allowed in part.
Order pronounced in the open court on 11th July, 2018.