DCIT, CIR-8(2), KOLKATA, KOLKATA vs. M/S THE SATURDAY CLUB LTD, KOLKATA

These two appeals for A.Ys.2010-11 & 2011-12 pertain to a single assessee namely the Saturday Club Ltd.. The Revenue has preferred its appeal the CIT(A)-3, Kolkata’s order dated 31.03.2015 passed in Appeal No. 100/CIT(A)-3/Cir-8(1)/14-15/(13-14/Kol, reversing Assessing Officer’s action making addition (s) of Rs.55,87,395/- and Rs.40,88,325/- in respect of rental income and service fee received from M/s. Reliance Industries Ltd thereby holding the same to be covered under ‘mutuality ‘ principle. The assessee’s appeal ITA No.2377/Kol/2016 for A.Y.2011-12 on the other hand, emanates from the CIT(A)-2, Kolkata’s order dated 08.09.2016 passed in Appeal No.53/CIT(A)-2/16-17 upholding the Assessing Officer’s action denying it ‘mutuality’ benefit qua interest ITA No.837/Kol/2015 & 2377/Kol/2016-The Saturday Club Ltd A.Y.2010-11&2011-12 income on fixed deposit rental income and service fee (latter two receipts in case of its above payee) involving amounts of Rs.1,47,77,243/- Rs.57,98,259/- and Rs.43,50,052/-; respectively. Relevant proceedings in both the cases are u/s 143(3) of the Income Tax Act, 1961 (hereinafter the Act).

A perusal of the above narrated issues involved makes it clear that these appeals filed at the behest of Revenue and assessee in both assessment years raise identical substantive grounds qua application of mutuality principle regarding rental income and service fee received from its corporate member/payee M/s. Reliance Industries Ltd.

The Revenue’s grievance before us is that Assessing Officer had rightly treated the impugned rental income as well as service fee to be not covered under mutuality principle. The assessing authority had quoted hon’ble apex court’s decision in Bangalore Club vs CIT [2013] 350 ITR 509 (SC) settling the law that there are three conditions to be satisfied in case an assessee claims itself to be covered under ‘mutuality’ principle. They are (i) there has to be complete identity between the contributors and the participants (ii) their action(s) must be in furtherance of mutual mandate and also that there should not be any scope of profiteering by the contributor from a fund made by them which can be expended or returned to themselves; respectively. 4. It transpires in former assessment year 2010-11 that CIT(A)follows his order dated 20.06.2014 for A.Y.2007-08 while deleting the two additions of rental income and service fee received from corporate member M/s. Reliance Industries Ltd. The CIT(A) relies upon honourable jurisdictional decision in CIT vs Bankipur Club Ltd 226 ITR 97 and Darjeeling Club Ltd 153 ITR 676 in holding the impugned sums to be covered under mutual principle. It emerges from perusal of the case file in the former assessment year that CIT(A)’s order in the said preceding assessment year 2007-08 follows identical finding in A.Y.2004-05 and 2008-09. The Revenue’s appeal for A.Y.2007-08 was also fixed along with the instant cases. It stands adjourned to 19.06.2018 as per assessee’s request as well as in view of the fact ITA No.837/Kol/2015 & 2377/Kol/2016-The Saturday Club Ltd A.Y.2010-11&2011-12 that not all issues raised in these cases taken together are identical. We thus take up the instant two appeals for disposal.

We advert the merits of the issue now. The CIT(A) in former A.Y.2010-11 admittedly follows his finding in preceding assessment years while deleting the two impugned disallowances/additions in respect of rental income and service fee. Case file shows that the coordinate bench in for A.Y.2008-09 (supra) decided on 02.12.2016 denies the very mutual benefit to the assessee itself on the ground that the payee/corporate member concerned; although a member, displayed its advertisement for the purpose of its business. Learned coordinate bench thus concludes that assessee’s identical income received from the said payee is to be assessed as income from house property than that covered under ‘mutuality’ principle. No distinction of facts or law is forthcoming in case records. We accept Revenue’s arguments as well as its former substantive ground seeking to revive the impugned addition of rental income to the tune of Rs.55,87,395/-.

Coming to the Revenue’s next ground seeking to restore service fee addition of Rs.40,88,325/- received from the very payee, we sought to know the exact nature of services provided by the tax payer. It emerges from the CIT(A)’s order in para-5.2 that the service charges in question have been received in respect of the very let out premises. We thus are of the view that the assessee is not entitled for the above mutuality benefit qua instant service fee received as well. The Revenue’s latter substantive ground as well as the impugned appeal ITA No.837/Kol/2015 is accepted accordingly.

This leaves us with assessee’s appeal ITA.2377/Kol/2016 . Its first substantive ground is that both the lower authorities have erred in facts and on facts in disallowing its interest income of Rs.1,47,77,243/- considering on that term investment, fixed deposit and “other” head; respectively. We notice herein as well that the above coordinate bench in A.Y.2008-09 and 2009-10 (supra) in its order dated 02.12.2016 has held similar interest income to be under the head “income from other sources” as per the hon’ble apex court’s decision in Bangalore Club (supra). The assesseé’s instant first substantive ground is declined. ITA No.837/Kol/2015 & 2377/Kol/2016-The Saturday Club Ltd A.Y.2010-11&2011-12

The assessee’s next two substantive grounds seek to delete additions of Rs.57,98,259/- and Rs.43,50,052/- in respect of rental income and service fee; respectively received from the above stated payee M/.s. Reliance Industries Ltd. Suffice to say, we have already accepted revenue’s corresponding grounds in preceding assessment year in the foregoing discussion. Both parties are very fair in not drawing on distinction of facts in the impugned assessment year. We thus confirm CIT(A)’s findings qua all these three issues raised in the instant appeal. Thus assessee’s appeal fails accordingly.

The Revenue’s appeal ITA No.837/Kol/2015 for A.Y.2010-11 is allowed whereas assessee’s appeal ITA No2377/Kol/2016 for A.Y.2011-12 is dismissed.