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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri P.M.Jagtap, AM & Sri N.V.Vasudevan, JM ]
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : KOLKATA [Before Hon’ble Shri P.M.Jagtap, AM & Sri N.V.Vasudevan, JM ] & 339/Kol/2013 Assessment Years : 2008-09 & 2009-10 D.C.I.T., Circle-8, -vs.- M/s. The Saturday Club Ltd. Kolkata Kolkata [PAN : AABCT1662R (Appellant) (Respondent) For the Appellant : Shri Vijayendra Kumar, JCIT For the Respondent : Shri J.P.Khaitan, Advocate & Shri P.Jhunjhunwala,Advocate Date of Hearing : 24.11.2016. Date of Pronouncement : 02.12.2016. ORDER Per N.V.Vasudevan, JM ITA 1340/Kol/12 is an appeal by the Revenue against the order dated 11.6.2012 of CIT(A)-VIII, Kolkata, relating to AY 2008-09.
The grounds of appeal
raised by the Revenue reads as follows: “1. That on the facts and circumstances of the case and in law, the Ld. CITCA) erred in deleting the addi don made by the: A. O. under the head of rental income amounting to Rs. 2,83,332/-.
2. That on the facts and circumstances of the case and in law, the Ld. CITCA) erred in deleting the addition made by the A. O. under the head of rental income amounting to Rs. 78,49,798/-.
3. That on the facts and circumstances of the case and in law, the Ld. CITCA) erred in- deleting the addition made by A. O. under the head of interest income amounting to Rs.4l ,61 ,798/- in relation to assessment year 2008-09.
4. That the appellant reserves the right to amend, alter or add to any ground(s) of appeal before or at the time of hearing of the appeal.”
The Assessee is a company which was incorporated as a company limited by Guarantee under the Indian Companies Act, 1882. The objects of the company, interalia, include affording privileges, advantage and accommodation of a club and promotion of social amusement and entertainment etc. For AY 2008-09, the Assessee filed return of income declaring total income of Rs.4,51,514/- and a revised return of income declaring total income of Rs.8,81,516/-. The Assessment was completed u/s.143(3) of the Income Tax Act, 1961 determining the total income of the Assessee after making several additions. Some of the additions so made by the AO were ITA No.1340/Kol/2012&339/Kol/2013-M/s. The Saturday Club Ltd. A.Y.2008-09 & 2009-10 2 deleted by the CIT(A). Aggrieved by the order of the CIT(A), the revenue has preferred the present appeal before the Tribunal. With this background, we will take up the individual grounds of appeal of the Revenue.
4. As far as Gr.No.1 raised by the revenue is concerned, the facts are that the Assessee had allowed one M/S.Tapan Art Centre to put advertisement board in and around tennis court. The Assessee received a sum of Rs.2,83,332/- from M/s.Tapan Art Centre for allowing them to display their advertisement in the club premises. The AO held that the aforesaid sum was chargeable to tax under the head “income from Business”. On appeal by the Assessee, the CIT(A) held that the said sum was not taxable by applying the principle of mutuality. The principle of mutuality is based on the concept that no one can make profit out of himself and, therefore, the identification of the commonness of the contributors and participators is the media by which the mutuality concept is regarded as applicable or inapplicable depending upon the facts and circumstances of each case. The law in this regard is essentially the result of judicial pronouncements, there being nothing explicitly provided in the statute in this regard.
5. The law in this regard has been recently laid down by the Hon’ble Supreme Court in the case of Bangalore Club v/s. CIT 350 ITR 509 (SC), where the question for determination before the Hon’ble Supreme Court was as to whether or not the interest earned by the assessee on the surplus funds invested in fixed deposits with the corporate member banks is exempt from levy of Income Tax, based on the doctrine of mutuality? The Hon’ble Supreme Court answered the aforesaid question in favour of the revenue by holding that interest earned from deposits with banks who are members of the club would not be exempt on the principle of mutuality because the tests for application of the principle of mutuality were not satisfied. The Apex Court held that no sooner any amount is invested by an association claiming to be mutual concern in a fixed deposit with the banks the complete identity between the contributors and the participants in the fund on the amounts invested in member banks ITA No.1340/Kol/2012&339/Kol/2013-M/s. The Saturday Club Ltd. A.Y.2008-09 & 2009-10 3 is ruptured. It held that till the surplus funds were generated and was used only amongst the members/contributors, the complete identity between contributors and participants continued. However the moment the funds are invested in fixed deposits with the banks and the funds are used for advancing loans etc. by the Bank to its customers, the identity of participants and contributors is sapped. Thus the interest earned on fixed deposits is to be brought to tax.
6. In the light of the law as laid down by the Hon’ble Supreme Court, we are of the view that the order of the CIT(A) on this issue is unsustainable and the income in question is chargeable to tax. Even the person displaying advertisement board is a member still the principle of mutuality will not apply as he displays the advertisement board in his capacity not as member but individual capacity for the purpose of his business. The learned counsel for the Assessee however submitted that the club cannot be said to be engaged in any systematic and continuous activity in the nature of business and therefore the income in question has to be regarded as income under the head ‘Income from house property” or “Income from other sources” and appropriate deductions under the aforesaid head of income has to be allowed and only the net income has to be brought to tax.
We are of the view that the plea of the learned counsel for the Assessee is acceptable and the income in question cannot be regarded as income from business. The income in question cannot be regarded as “income from house property” also because M/S.Tapan Art Centre was merely allowed to display advertisement board in and around the tennis court. U/s.22 of the Act what is chargeable to tax under the head “Income from House Property” is annual value of property consisting of any building or lands appurtenant thereto of which the Assessee is the owner. Since the right to display advertisement in the premises of the Assessee alone was given, the income in question has to be regarded only as income under the head “Income from other sources”. The AO is directed to tax the income in question accordingly and allow deductions permissible while computing deduction under the head “Income ITA No.1340/Kol/2012&339/Kol/2013-M/s. The Saturday Club Ltd. A.Y.2008-09 & 2009-10 4 from other sources”. The ground of appeal of the Revenue is accordingly partly allowed.
8. As far as Ground No.2 is concerned, the fact are that the Assessee received a sum of Rs.78,49,798/- as rent from M/s.Reliance Industries Ltd., who was its member. The income in question was claimed to be not taxable in the light of the principle of mutuality. The AO however rejected the plea of the Assessee and taxed the income in question under the head “Income from House Property”. The CIT(A) held that the income in question is not taxable applying the principle of mutuality.
We have already held that principle of mutuality will not apply in the circumstances of the case as explained by the Hon’ble Supreme Court in the case of Bangalore Club (supra). In view of the said decision, we are of the view that the income in question is taxable and under the head “Income from House Property”. Gr.No.2 raised by the revenue is allowed.
As far as Gr.No.3 is concerned, the same relates to interest on Fixed Deposit with Bank who also happens to be a member of the club. The income in question was claimed to be not taxable in the light of the principle of mutuality. The AO however rejected the plea of the Assessee and taxed the income in question under the head “Income from other sources”. The CIT(A) held that the income in question is not taxable applying the principle of mutuality.
We have already held that principle of mutuality will not apply in the circumstances of the case as explained by the Hon’ble Supreme Court in the case of Bangalore Club (supra). In view of the said decision, we are of the view that the income in question is taxable and under the head “Income from other sources”. The AO is directed to tax the income in question accordingly and allow deductions permissible while computing deduction under the head “Income from other sources”. Gr.No.3 raised by the revenue is allowed. &339/Kol/2013-M/s. The Saturday Club Ltd. A.Y.2008-09 & 2009-10 5
In the result appeal of the Revenue is allowed to the extent indicated above. (A.Y.2009-10) 13. As far as the aforesaid appeal is concerned, the said appeal is against an order dated 21.11.2012 of the CIT(A)-VII, Kolkata, relating to AY 2009-10. 14. The grounds of appeal
raised by the revenue reads thus: “1. That, on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in law and in holding that rental income earned by the assessee-club was exempt from tax due to the principle of mutuality; whereas, letting out of its premises and earning of rental income was in the nature of commercial activities in which the element of mutuality is wanting in view of the Hon'ble Supreme Court's decision in the case of Bangalore Club - Vs.- Commissioner of Income Tax [2013] 29 taxman.com 29(SC).
2. That, on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in holding that the amount earned from advertisement and sponsorship was not liable to tax due to principle-of mutuality; whereas, such activities were in the nature of tradelbusiness/transaction and not qualified to be covered by the principle of mutuality as has been held by the Supreme Court and, therefore, such wrong presumption of law by the Ld. CIT(A) is unsustainable and liable to be quashed.
3. That, on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in wrong presumption of law that, interest income earned by the assessee company from the member banks as exempt from tax under the doctrine of mutuality; whereas, the Hon'ble Supreme Court has herd that such income does 'not fall within the ambit of mutuality principle and eligible to income-tax in the hands of the assessee-club in its judgement in the case of Bangalore Club- Vs.- Commissioner of Income Tax[2013] 29 taxman.com 29 (SC).
4. That the appellant reserves the right to amend, alter or add to any ground of appeal before or at the time of hearing of the appeal.”
Ground No.1 raised by the Revenue is identical to Ground No.1 raised by the revenue in the appeal for AY 08-09. For the reasons stated therein the AO is directed to tax the income in question accordingly and allow deductions permissible while computing deduction under the head “Income from other sources”. The ground of appeal of the Revenue is accordingly partly allowed.
16. As far as Gr.No.2 raised by the Revenue is concerned, the facts are that the Assessee received a sum of Rs.72,88,884/- from various sponsors for various events that the club organizes on festivals and other occasions. The sponsorship amounts ITA No.1340/Kol/2012&339/Kol/2013-M/s. The Saturday Club Ltd. A.Y.2008-09 & 2009-10 6 were claimed to be exempt on the principle of mutuality. The CIT(A) accepted the plea of the Assessee held that the sum in question is not taxable. In view of the decision of the Hon’ble Supreme Court in the case of Bangalore Club (supra), we are of the view that the sum in question is taxable. However, as rightly submitted by the learned counsel for the Assessee, the sum in question has to be taxed under the head “income from other sources” and the Assessee should be allowed all expenses permissible as deduction while computing income under the said head of income. We hold and direct accordingly.
As far as Gr.No.3 is concerned, the said ground is identical to Gr.No.3 raised by the revenue in AY 2008-09. For the reasons stated therein, this ground of appeal
of the Revenue is allowed.
18. In the result both the appeals of the revenue are allowed to the extent indicated. Order Pronounced in the Open Court on 02.12.2016 Order pronounced in the Court on 2.12.2016. Sd//- Sd/- [P.M.Jagtap] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 2.12.2016. [RG PS] Copy of the order forwarded to: 1.M/s. The Saturday Club Ltd., 7, Wood Street, Kolkata-700016.
2. D.C.I.T., Circle-8, Kolkata. 3. CIT(A)-VIII, Kolkata 4. C.I.T.-III, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.