1983 (1) TMI 45 - HC - Income Tax

Court rules income from club facilities exempt from tax under 'income from other sources' category.

The court confirmed that the income was assessable as 'income from other sources' as it did not fit into any specific category under the Income Tax Act. ... Income Issues Involved:1. Assessability of the income of the assessee as 'income from other sources.'2. Classification of the income as 'income from property' or 'business income.'3. Applicability of the principle of mutuality to exempt the income from tax.Issue-wise Detailed Analysis:1. Assessability of the Income as 'Income from Other Sources':The Tribunal concluded that the income from letting out rooms to members was assessable as 'income from other sources.' The court upheld this view, noting that the income did not fit any specific category under section 14 of the I.T. Act, 1961. The court referenced section 56(1), which states that any income not covered under the specified heads in section 14 must be charged under 'income from other sources.' The court also cited the Supreme Court's decision in Sultan Brothers P. Ltd. v. CIT, emphasizing that the income arose not merely from the ownership of the building but also from the provision of furniture and other services.2. Classification of the Income:Given the affirmative answer to the first issue, the second question on whether the income was from property or business became redundant. However, the court discussed precedents such as CIT v. Wheeler Club Ltd., CIT v. National Storage P. Ltd., and Dr. P. A. Varghese v. CIT to illustrate that the income could not be classified solely as 'income from house property' under section 22. The court distinguished these cases by noting that the income derived included charges for furniture and services, making it more appropriate to classify it under 'income from other sources.'3. Applicability of the Principle of Mutuality:The court examined whether the income was exempt from tax based on the principle of mutuality, which holds that a person cannot trade with himself. The court cited various cases, including CIT v. Royal Western India Turf Club Ltd., CIT v. Merchant Navy Club, and Presidency Club Ltd. v. CIT, to establish that income derived from members for facilities provided by a club is not taxable, as it is essentially a transaction among the members themselves. The court concluded that the principle of mutuality applied, and thus, the income was exempt from tax.Conclusion:The court answered the first question affirmatively, confirming that the income was assessable as 'income from other sources.' The third question was answered negatively, indicating that the income was exempt from tax based on the principle of mutuality. As a result, the second question was deemed unnecessary to answer. The case was remanded to the Tribunal to pass orders in conformity with the court's judgment. The assessee was awarded costs assessed at Rs. 250.