M/S CITY CLUB,MANDYA vs. ITO, MANDYA

The assessee is a club and is assessed as AOP. In the course of assessment proceedings, the Assessing Officer called for books of account, in particular regarding ‘Madhura Sammilana’, a rummy tournament conducted by the Club on 4.1.2009. Since the assessee did not furnish the details, an Inspector was deputed to cause enquiries. Even a proposition notice was sent proposing to print the entire receipts of ‘Madhura Sammilana’, for which also there was no response. Accordingly, the assessment was concluded based on the material available before the AO.

During the previous year, the assessee made a collection of Rs.53,29,100 from ‘Madhura Sammilana’, a rummy tournament. The assessee in its letter dated 16.10.2011 stated that this amount was collected from their members only towards conducting the sports and no outsiders were allowed. The assessee pleaded that the profit of Rs.26,24,952 was utilized for the activities of the Club and based on the concept of mutuality, the assessee being a social club registered under the Societies Registration Act, is a mutual association and hence the surplus is not taxable. The assessee was asked to produce the relevant books and documents of the tournament which was not produced. The AO observed that the assessee is trying to mislead the department. Shri Bhaktavatsala, who was the Special Committee Member of ‘Madhura Sammilana’, stated that the books of account is looked after by the Treasurer and Secretary of the Club and he does not know anything about the books. The AO came to the conclusion that since the addresses of the participants were not furnished and the concerned books of account were not produced, the assessee was not entitled to claim exemption on the basis of principle of mutuality. The AO concluded that the gross collection of Rs.53,29,100 was cash credit and taxed the same u/s. 68 of the Act.

On appeal before the CIT(Appeals), the ld. AR argued that the gross amount of Rs.53.29 lakhs has been disclosed in the income & expenditure account under Schedule 16, which is part of the audited accounts. The CIT(A) held that though the assessee was given enough opportunities at the time of assessment, the assessee claiming that it needs copies of statements of the department by AO from members which were furnished.

The CIT(Appeals) held that to attract principles of mutuality, the assessee should establish that the collections were from the members only and no outsiders were involved. The assessee filed list of members who contributed Rs.9,000 before the AO vide letter dated 28.8.2011 along with their membership nos. From the membership nos., identification of members were clearly established and some of the members were examined by the AO at the time of assessment, but they denied having contributed. The CIT(A) observed that during the remand proceedings, the same members confirmed their contribution. Hence there were lot of contradictions in the statements of the assessee. Further, the CIT(A) noted that Mr. Bhaktavatsala explained to the AO that some of the members of affiliated club also participated in the event, but the list of contributors shows that the entire contribution is made from members only. The CIT(A) held that the assessee could not furnish details of participants for this programme either before the AO or during the proceedings before him.

Aggrieved, the assessee is in appeal before us. The ld. counsel for the assessee reiterated the stand that the sum of Rs.53.29 lakhs on ‘Madhura Sammilana’ was contributed by the club members and there is complete identity between the contributors and the participants and the amount has been collected by the club from the members of the club only.

We have heard both the parties and perused the record. We have gone through the sworn statement made by Mr. Bhaktavatsala, but since there are contrary statements made before the AO on the issue of participation of non-members also, we deem it fit to remit the matter back to the file of AO. Accordingly, the issue is restored to the file of the AO, who shall once again examine the issue with respect to participation of non- members in the ‘Madhura Sammilana’ event, after affording reasonable opportunity of being heard to the assessee. In case the assessee establishes that the ‘Madhura Sammilana’ event was organized by the club for the members only inasmuch as the assessee fully demonstrates with evidence that the contributors to the event were participants in the event and that non-members did not participate in the event, the assessee would satisfy the principles of mutuality and the AO shall refrain from taxing the surplus arising from the ‘Madhura Sammilana’ event as business income.

In the result, the appeal by the assessee is allowed for statistical purposes.