TaxTMI 
TaxTMI 
2006 (8) TMI 237
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....5 of the IT Act, 1961, is bad in law and not evidenced. 4. That the rejection of the standard accounting procedure adopted by the club is bad in law and not evidenced. 5. That the capital receipts of entrance fees from members amounting to Rs. 12,20,000 and a capital receipt of Rs. 3,00,000 from ITC Ltd. were arbitrarily held to be revenue receipts by the learned AO and the same was confirmed while adjudicating the appeal by the learned CIT(A) is bad in law and not evidenced. 6. That the addition of a sum of Rs. 36,350 on entertainment account by disallowing a loss arising on this account to a tune of Rs. 5,41,338 is bad in law and not evidenced. 7. That disallowance of establishment expenses to a tune of Rs. 1,78,000 from out of a total claim of Rs. 17,85,203 and disallowance of losses arising out of card room, billiards, tennis and other games to a tune of Rs. 1,24,556 on an arbitrary basis is bad in law and not evidenced. 8. That the view taken by the learned CIT(A) on the procedure adopted by the appellant for induction of new members is bad in law and not evidenced. 9. That the appellant craves leave to add, to amend any of these grounds before or at the time....
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....nd in the status of member. Therefore, it is evident that even the normal activities of the assessee include those which geared to the non-members. As such, the AO came to the conclusion that the concept of mutuality is not applicable to the assessee's functioning and it can be simply concluded that the entire fees received by it from its members were revenue receipts. Finally, the learned AO concluded that: "In view of the detailed discussion made in the body of the order, the inability of the assessee to discharge its onus establishing conclusively that it is a mutual concern where mutuality is evident from the manner of maintenance of books of account and records and the other related and circumstantial evidences discussed, it is therefore, reasonable to conclude that the activities of Bhubaneswar Club Ltd. are not in the nature of mutual activities between a group of members who are identical as contributors and participators in privileges/benefits/surplus. Merely having the nomenclature of a 'club' is not enough to prove that it constitutes a mutual undertaking. The claim must be rigorously established from the books of account by the assessee and the receipts must be clear....
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....nbsp; 14,23,028 --------- 28,73,095 Less: Establishment & other charges as discussed (17,85,203 - 1.78,000) 16,07,203 &n....
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....; --------- 5. When the matter came up before the CIT(A), the learned CIT(A) rejected the claim of the assessee that the club is an assessee of mutual concern and its income is exempt. He held that the AO was justified in rejecting the books of account and resorting to the provision of s. 145. He, however, allowed relief to the assessee by deleting certain additions, hence, aggrieved by the order, the Revenue is also in appeal before us with the following grounds: ITA No. 117/Ctk/2000 "On the facts and in the circumstances of the case,. the learned CIT(A) is not justified in deleting the addition of Rs. 6,63,375 representing development fees and Rs. 82,000 representing mutual benefit fund, when he has already held that assessee failed to prove the existence of mutuality." 6. We shall take up first assessee's appeal. 6.1 The learned counsel appearing on behalf of the assessee reiterated the submissions made before the CIT(A) and assailed the order of CIT(A). He also supported the order of learned CIT(A) in deleting the addition of Rs. 6,6....
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....that its income would be exempt on the principle of mutuality, and computing the total income at Rs. 30,52,780 disallowing certain expenses partly and treating certain incomes claimed as capital receipts as revenue receipts. On appeal, the learned CIT(A) while upholding the decision of the AO to deny the benefit of mutuality to the assessee, has allowed its appeal partly granting a relief of Rs. 7,45,375 by his order in ITA No. 11/Co/2000 dt.28th Dec., 2001. The aforesaid order of the learned CIT(A) is now under challenge before the Hon'ble Tribunal by both the assessee and the IT Department. 3. Law relating to mutual trading or mutual undertaking or members club: Principle of mutuality: There is no provisions in the IT Act exempting the incomes of a mutual undertaking or members club. The principle of mutuality is based on the extended commonsense understanding that nobody can earn a profit by trading with himself. The law relating to mutual trading or mutual undertaking has been discussed in detail in the landmark decision of the Hon'ble Supreme Court in the case of CIT vs. Bankipur Club Ltd. (1997) 140 CTR (SC) 102 : (1997) 226 ITR 97 (SC). The law relating to the princ....
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....in the assessment records: Return of income for this asst. yr. 1997-98 disclosing a loss of Rs. 7,39,460 was filed on20th March, 1998. It is evident from the assessment records that the assessment proceeding in this case were initiated by issue of notice under s. 143(2) on16th March, 1999. Subsequently, notices under s. 143(2) were issued calling for specific information and books of account. Hearings before the AO took place on various dates over a period of 12 months and the order-sheet notings in respect of such hearings, as are found in the assessment record, clearly show that adequate opportunities were provided to the assessee to prove the various claims it had made in the return of income and the accompanying accounts. The various books of account produced by the assessee in the course of such hearings were also thoroughly examined and verified by the AO. The detailed and elaborate notes in the order-sheet notings signed by both, the AO and the learned Authorised Representative of the assessee, are quite revealing insofar as they contain vital facts with regard to AO's findings on examination of the accounts, and the assessee's failure to produce certain important details....
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....cility and mostly cash is collected. As such it would be stated that no records are maintained for individual members but for credit sales and these too are maintained till realization of dues only. Therefore it is not possible to furnish any details of members using such facilities. (c) Card room, billiards, entertainment tennis and other games The procedure for realization of these heads from members is same as above and especially in respect of entertainment, it is fully on cash basis, as such, no details are available for individual member. (d) The details of souvenir collection (earlier year collection) are for a sum of Rs. 2,59,500 and the same is from earlier year". Vital information that the above written submissions contain: From the above submissions, it is crystal clear that the assessee company does not maintain any records showing member-wise collections from bar and kitchen. Even for credit sales member-wise details are kept only till the dues care realized. The details of members using such facilities are not maintained. The same procedure is followed in respect of collections from card room, billiards, entertainment, tennis and other games. Especially in....
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....nt of any mutual trading activity, and hence, is chargeable to tax. 5. Reasons for which the AO has rejected the assessee's claim for exemption on the principle of mutuality: 1. The assessee has categorically expressed its inability to establish that the receipts shown under the heads of various activities such as entertainment, Kitchen, bar, etc. have flown only from the members. It has failed to discharge its onus of establishing that all its receipts have flown only from its members and that the participators in the privileges/conveniences and the contributors are identical. 2. On examination of the books of account and the submissions made in the course of hearings, the irrefutable conclusion that emerges is that the assessee cannot, and has not been able to prove that the receipts under the various heads of activities have flown only from the members and that they alone have enjoyed the facilities and privileges offered by the club. 3. The books of account indicate that the club is operating more as a commercial venture and the concept of mutuality, with its cardinal principle of identity between the contributors and the participators, is not evident. This taint of....
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.... 1. The primary and proper evidence in support of the entries in the books of account have not been properly maintained and most of them were not even produced for verification. While payments have been made to various parties both through bank and in cash, the relevant details such as bank vouchers, bills in support of purchases, primary documents such as kitchen order token, money receipts, etc. could not be produced in support of all entries in the books of account. Only some of the cash vouchers were produced in evidence of cash outgoings but these did not cover the entire period of transaction. 2. No journal vouchers or journal registers have been maintained by the assessee even though the ledger account descriptions under all the heads repeatedly refer to journalized transactions. 3. From an examination of the accounts, even though the same are shown as audited, it is difficult and impossible to ascertain the correctness of all the expenses debited under various heads, especially entertainment, house-keeping expenses, repair and maintenance, staff welfare, printing and postage, etc. 4. Comparison with the expenses claimed under various heads for the earlier years ....
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....appellant claimed the benefit of exemption of income for the purpose of taxation under the principle of mutuality. In the IT return form there is a specific space (Part V of return form) which an assessee claiming exemption of income must fill up. In the tax returns filed by the appellant club right from the asst. yr. 1994-95 it has never claimed any part of its income as exempt through Part V of the return form. 2. No record is maintained to ascertain the amount received from each member for various purposes. In respect of expenses also, member-wise accounts including expenditure vouchers are not available with the appellant. 3. Major activities of the club are bar and kitchen. In respect of these activities no records are maintained for individual members. Member-wise break-ups for receipts from guest-rooms and games are also not available.Salememos arising out of sales from kitchen, restaurant and bar do not bear the names of the members of the club. 5. It is noticed that the club has hired out. its open lawns etc. in the name of members for holding large parties on the occasion of weddings and other functions. Hundred of guests including non-members who partake the fac....
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.... club but for the development/construction of the club and benefit of the spouse of the members in case of member's death, such receipts cannot be regarded as revenue receipts. 2. The AO appearing before him on one of the dates of hearing i.e.14th March, 2001did not object to these submissions. 9. Reasons why the decision of the CIT(A) deleting the additions is not justified 1. It is now well-settled that in order to decide whether or not a receipt is a revenue receipt, its true nature and substance must be looked into. The classification of the receipt in the form of accounts is not of any importance in considering whether the receipt is taxable as revenue receipt. [Hoshiarpur Electric Supply Co. vs. CIT (1961) 41 ITR 608 (SC)]. It is the true nature and quality of the receipt, and not the head under which it is entered in the account books, Which would prove decisive. If the receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as a trading receipt or revenue receipt. [Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC)]. While determin....
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.... a subsequent assessment year to claim it as the rule of res judicata do not apply. It is also not factually correct that the scrutiny assessment is for the first year. Such an assessment was done for the asst. yr. 1995-96 where the loss was accepted. This fact is capable to be tested from the records of the Department where it says that assessment for 1995-96 was assessed under s. 143(3) and accepted the loss. In this assessment year the entrance fee was treated as capital but not as revenue. 3. So far as the mutuality is concerned the appellant continues to maintain that it is a mutual concern and this fact can be verifiable from the books of account produced on which the learned AO on15th Feb., 2000says 'The books of account on various activities of the club are examined. Case is discussed'. Thereafter on22nd Feb., 2000,27th March, 2000and28th March, 2000, it is open for the AO to specific re-examination and to find out non-mutuality than travelling elsewhere denying on by reference to some other untested facts in other years. None of these allegations were confronted and therefore they are untested materials not admissible for making assessment. 4. In para 4 it reiterated....
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....t. If the funds of the mutual organization are invested for earning interest, its character is not altered to result into non-mutuality. 11. An argument of no-mutuality is about Dreamers Festival. They do not relate to the year and in fact it was the club's programme where a group was invited to perform." 8. The learned counsel has also filed his reply to various issues raised by the authorities below which is reproduced below: "1. The claim of the assessee-appellant, a member's club, whose liability is limited by guarantee, incorporated under s. 26 of the Indian Companies Act, 1882, and subject to s. 27 of the said Act (presently correspond to ss. 25 and 26 respectively of the Companies Act, 1956) is that their surplus on the doctrine of mutuality is not income as defined under s. 2(45) of the IT Act. 2. The AO misunderstood this claim as a claim for exemption under s. 10 and denied it for the reason that the assessee has not discharged its burden. The authorities below held that the claim cannot be allowed as (i) s. 145 applies to it's accounts are rejected, (ii) there are contributions by non-members to the common fund as well as participation by them for which there....
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.... : Jones 11 Tax Cases 814] or by diverting the surplus (Ecentric Club). The principle of mutuality is extended to different institutions, such as voluntary social organisation. 5. The assessee is a 'members club', where a number of persons combine together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body. As part of the usual privileges, advantages and conveniences attached to the membership of the club, it extends various facilities to its members by way of (i) sale of food, refreshments, beverages (ii) letting out the guest-rooms and lawns (iii) games and sports like tennis, billiards, cards, swimming pool, etc. The amounts received by the assessee-club are by providing the above facilities, by way of entrance (admission) fees, periodical subscription from the members for various activities of the club. The facilities/services are offered by the assessee-club as a matter of convenience for the use of its members, their family members and invited guests, done with any profit motive nor tainted with commercially. There is complete identity between the contributors and the participa....
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....e of the assessee-club. Further, the learned AO treated the receipts of Rs. 3,00,000 from ITC Ltd. as revenue receipt on an observation that rightfully the above receipt is not a receipt to construct a capital asset specifically but a receipt towards allowing ITC to use the club's prime display space for promotion of the ITC brand image. The learned AO found fault with the assessee-club in maintaining the books of account and other related documents and accordingly rejected the assessee-club's books of account under s. 145 of the IT Act and estimated the income. Consequently she computed the assessee-club's total income at Rs. 30,52,781 as against the net loss of Rs. 92,830 and bought the above income into the tax net. 8. In the assessee-club's appeal, the learned CIT(A) mostly agreed with the findings of learned AO on issues connected to the exclusion of the principles of mutuality, receipts from ITC Ltd. and the estimation of income, and consequently sustained the additions on those accounts. However, he deleted the additions of the receipts on account of development fund and mutual benefit fund as an investment in mutual fund. Submissions vis-a-vis findings of the lower autho....
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....ome form or other. (b) Claim in the form of return The claim of mutuality is a factual claim keeping in view the principle that no person can trade with himself. There is no specific provision in the IT Act for exempting the income of a mutual enterprise from the tax net. It is the judicial dictum which made the doctrine of mutuality operative on the mutual associations clubs. Therefore, the question of claiming the exemption of the assessee-club's income at Part V of the form of return does not arise. The learned AO's observations recorded at para 4 of p. 4 of the assessment order that 'in the returns filed by the assessee from asst. yr. 1994-95 onwards it has never claimed any part of its income as exempt in Part V of the return form' is improper, unjustified and devoid of any merit. The assessee-club is entitled to claim any deduction/exemption in course of the proceedings for assessment or in appeal, and so it has rightly claimed for the application of the principles of mutuality at the assessment proceedings. (c) Bar and kitchen services The BOT and KOT are made out by the waiters while taking orders for supply of beverages and food. The items and the quantities thereof ....
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.... how much was received from him and/or outstanding in his name and the date on which the same was cleared up. In respect of the credit sales, the collections ostensibly made on a later date are not evidenced by money receipts or any other evidence indicating the identity of the payer. Similar procedure, as in case of the kitchen sales, is adopted in the two bars also where the primary evidence of each transaction i.e. the bar order token (BOT) does not contain details or identity of the person who has utilized the privileges or partaken of the facilities offered by the club. In fact, in the bar section even memos are not raised and the entire transactions are accounted for in an ad hoc manner by entering the total quantity consumption as per the BOT at the end of the day in the stock account. Likewise, in the entertainment activities also the receipts are fully on cash basis and no details are available for individual members'. Consequently, the learned AO's conclusion at para 3 of p. 5 continued at p. 6 of the assessment order that the books of account indicate that the club is operating more as a commercial venture and the concept of mutuality, with its cardinal principle betw....
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....Bankipur Club Ltd. and many other Hon'ble High Courts have not held that providing the above facilities by a members' Club would constitute the performance of specific service. The words 'performing specific services' means, 'conferring particular and tangible benefits' on the members which otherwise would not be available to them as such except for payment received by the association in respect of those services-CIT vs. Calcutta Stock Exchange Association Ltd. (1959) 36 ITR 222 (SC). Specific services are performed by trade, professional or similar association but not by members' club. (g) On the facts and in the circumstances stated hereinabove, the assessee-club humbly submits that there can be no argument that a club which is incorporated as a company has a personality separate and distinct from the members and, therefore, sales of goods and services to the members will amount to business activity of the company with another person and, in the eyes of law, it is earning. profit just as an ordinary tradesman by selling goods to his customers makes profits and thus it has wholly discharged its onus of proving its claim of mutuality. 10. Re: Entrance fee The normal accountin....
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.... entertainment account is given hereunder: (A) Sale of Food and Beverages Rs. Rs. 20-7-1996 4,844 30-8-1996 10,735 31-1-1997 35,560 51,139 (B) Sponsors Date Name Membership No. Rs. 21-9-1996 Cadet &....
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....sp; OP023 25,0009-3-1997 Misc. charges 3,000 (C) Sale of tickets to members for dinner, etc. on New Year Eve/Disco 24-12-1996 4,45025-12-1996 2,55026-12-1996 ....
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....p; 26,70031-12-1996 16,30031-12-1996 34,7004-1-1997 30012-2-1997 &....
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.... kitchen order tokens, money receipts etc. could not be produced in all the entries in the books of account. (iii) Only some of cash vouchers were produced in evidence of cash outgoings but these did not cover the entire period of transaction. (iv) No journal vouchers or journal registers have been maintained even though the ledger account descriptions under all the heads repeatedly refer to journalised transaction. (v) From an examination of accounts, even though the same are shown as audited, it is difficult and impossible to verify the correctness of all the expenses debited under various heads, especially substantial expenses under the head of entertainment account (Rs. 9,04,827) house-keeping expenses (Rs. 1,092,266), repairs and maintenance (Rs. 3,44,052), staff welfare (Rs. 57,516 introduced for the first time in the account) printing and postage (Rs. 1,01,254), etc. (vi) The outgoings under a number of heads of expenditure are disproportionately higher in this year compared to the earlier years and the trend of receipts. In the entertainment account where a huge loss of Rs. 5,41,338 has been posted the expenses are claimed at Rs. 9,04,827 against receipts of Rs.....
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....cy and priority as regards the grant of membership and any deviation does not destroy the mutuality. 15. The following cases apply to the assessee: (i) New York Life Insurance Co. vs. Styles (Surveyor of Taxes) (1889) 2 Tax Cases 460 (HL) (ii) Jones vs. South West Lanchashire Coal Owners' Association Ltd. (1926-27) 11 Tax Cases 814 (iii) CIT vs. Bar Council of Maharashtra (1981) 22 CTR (SC) 106 : (1981) 130 ITR 28 (SC) (iv) CIT vs. Merchant Navy Club (1974) 96 ITR 261 (AP) (v) CIT vs. Madras Race Club 1976 CTR (Mad) 377 : (1976) 105 ITR 433 (Mad) (vi) Presidency Club Ltd. vs. CIT (1981) 127 ITR 264 (Mad) (vii) CIT vs. West Godavari District Rice Millers Association (1984) 40 CTR (AP) 335 : (1984) 150 ITR 394 (AP) (viii) CIT vs. Darjeeling Club Ltd. (1984) 42 CTR (Cal) 338 : (1985) 153 ITR 676 (Cal) (ix) CIT vs. Cochin Oil Merchants Association (1988) 67 CTR (Ker) 212 : (1987) 168 ITR 240 (Ker) (x) CIT vs. Bankipur Club Ltd. (1997) 140 CTR (SC) 102 : (1997) 226 ITR 97 (SC) (xi) CIT vs. Cement Allocation Co-ordinating Organisation (1999) 153 CTR (Bom) 361 : (1999) 236 ITR 553 (Bom) (xii) Chelmsford Club vs. CIT (2000) 159 CTR (SC) 235" 9. Var....
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....p; kept for long periods with Member-wise break-ups for the Revenue and without receipt from guest-room and giving opportunity to games are not available. clarify any doubts arising Sale memos arising out of out of the same, the Revenue sales from kitchen, chose to make above restaurant and bar do not sweeping/arbitrary statement. bear the names of the members of the club. 3. The club has hired out The club vests certain its open lawn, etc. in the inherent rights and names of members for holding privileges to its members large parties on the occasion and they have legitimate of weddings, other functions, right to hire out club lawns etc. Hundreds of users for holding parties or even including non-members who large parties on oc....
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....nbsp; transactions, the club's right to claim exemption on the principle of mutuality in respect of such transactions held by it with its members is not lost and &....
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....p; available to members and their guests. The Supreme Court of India held in the case of Bankipur Club Ltd., that where the "trade or activity is mutual, the fact ....
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....bsp; cultural function of the assessment year under appeal) "Dreamers" (a cultural under the aegis of "Dreamers" organisation) held in the and that neither the club for the benefit of the participants of the function club members, free of nor most of the organizers charge, to prove the point were members of the club. against the club's mutuality The club has let out its principle is totally lawns and club services to irrelevant to the contentious non-members and, as such, AO issue for twin reasons that and CIT(A) opined that the the event was held after the principle of mutuality is year under assessment and not applicable and the that the club has the income of the club is not inherent right to hold free from taxation. Such cultural functions for the income earned i....
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....p; in the case of Chelmsford Club Ltd., wherein the apex Court clarified that there is clear identity between the contributors and the participators to the fund and &nbs....
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.... as a club, as a mere entity for the convenience of the members and their guests, in other words, as an instrument obedient to their mandate; and  ....
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....p; applicability of mutuality principle of the club. So long as the club's services provided to the members and their guests are paid by the host members, the question of &nbs....
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.... that the assessee company (club) is formed with the main object of providing various conveniences/ privileges for use of its members and their friends. &nbs....
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....ith them, its right to claim exemption on the principle of mutuality in respect of transactions held by it with its members was not lost. The assessee was a ....
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.... the doctrine of mutuality. It was stated in the case of the CIT vs. The Bankipur Club Ltd., the Supreme Court of India recognised the following ....
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.... claim of the club for mutuality principle. 6. While computing the total The AO cannot determine the revenue income and level and type of functions expenditure of the assessee, and entertainment programmes the AO did not accept the of members, organised for the net loss arrived at by the members' benefits, during club's statutory auditors; the course of year. The instead learned AO estimated club is not a commercial the net profit by reducing entity seeking to jack up the expenditure at 10 per artificially any revenue cent of the gross receipts ....
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....; estimating lesser amount of expenditure on a presumptuous basis instead of on real expenditure basis. The reasoning that the receipts/ expenses are not co-relatable &n....
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.... entertainment events regularly every month by way of recreational facility for its members. Bit functions like New Year's Eve function, Christmas Eve, Diwali Eve,  ....
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....head was more than last year is not acceptable under any logic. Similarly, the learned CIT(A) grossly erred in confirming the &....
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....bsp; as such the expenditure cannot be dismissed by stroke of a pen by adducing that they are excessive and substantial, unverifiable, etc. The appe....
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....; jurisdiction of the AO. 7. Learned CIT(A) held by Contrary to the standard agreeing with learned AO that practices and accepted the "entrance fee" of Rs. principles of accounting, 12,00,000 received by the generally allowed by ICAI, club from its members at the the learned CIT(A) grossly time of seeking membership erred in agreeing with AO of the club, as revenue that "entrance fees" received receipt (instead of capital by the club to be treated as receipt) by adducing that "revenue receipt" instead of the concept of mutuality is "capital receipt" on the plea not applicable in this case that the articles of and that the appellant club association of the club do has not challenged the not sp....
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....p; club is limited by guarantee and the articles of association of the club do not provide for separate equity capital for the reason that the club ....
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....bsp; including that of exercising the vote in the annual general meeting. Based on standard practices adopted by ICAI and accounting practices followed by....
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....sp; for accounts purposes, under the funds and liabilities of the club by the chartered accountants, instead of revenue account under P&L a/c. It may be stated that &nbs....
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....p; be treated as "income" for the purpose of the IT Act, [vide Supreme Court judgment dt. 8th May, 1997 under Civil Appeal Nos. 854 to 858 of 1984, etc. in respect of CIT &nbs....
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.... capitalised under a common fund viz., "general fund" and cannot be clubbed with revenue income for the purpose of computing tax liability since it is neither &nbs....
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....p; of the club has no provision to either transfer the entrance fee or refund the same and when the member ceases to be member. As stated above, the entrance  ....
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....that "entry fee collected from members and used for providing club service to members and non-members has been correctly held as revenue &n....
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....sp; The club does not receive any payment from the guests (who may be non-members) and hence the attempt for classifying the entry fee un....
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....p; are prepared in accordance with the provisions of s. 210 and s. 211 of the Act ibid. The accounting standards are based on the national advisory committee ....
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....; annual general meeting of the club as per the provisions of the Companies Act. When the above process of accounting/ auditing/reporting/adopting of the accounts under the &n....
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....nbsp; treatment of the "entrance/ entry fees" as a revenue receipt; obviously they erred with prejudice against the club without any substance. It is relevant to cite here &nb....
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....p; to go behind.... P&L a/c except to the extent provided in Explanation to s. 115J". The apex Court further clarified that "if the legislature intended the AO &nb....
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....nbsp; judgment is aptly applicable to the present case of the club and the AO per se has no jurisdiction to alter the audited/certified accounts and adopted by the members &nb....
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....nbsp; Incidentally, the learned CIT(A), after enjoying the membership of the club till end of December, 2001, made an application to the club for seeking refund of his &n....
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....bsp; course, do not provide for refund of the entrance fees whether on resignation or otherwise. Nowhere in the articles of association, there is any mention of &n....
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....le of it) is in the nature like Wills Pub is rather of revenue receipt and not irrational and bereft of capital receipt by reason judicial prudence. The that the nature of money capital expenditure received for advertisement construction of Wills Pub as as is the case with other per the request of the ITC advertisements by way of Ltd. was far more than Rs. display on the notice board 3 lakhs as funded by the of the club or hoardings is sponsorer and the balance a revenue receipt brought to amount of the capital tax as such. expenditure was met by club's capital funds. There ....
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....bsp; ITC Ltd. for construction of Wills Pub is to be reckoned as revenue expense, there cannot remain a physical asset like Wills Pub in the club premises. The appellate  ....
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....; receipt for expenditure towards capital asset by virtue of the fact that the amount has been incurred for creating a physical/capital asset for the club. 9. Club's KOTs/BOTs do not The learned CIT(A) is wr....
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.... bear the membership number and name of member, as wrongly adduced by the learned CIT(A), the matter of procedural lapse does not efface the mutuality ....
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....25th club is not only irrelevant Sept., 2001 and 18th Oct., to the issue and also bad 2001, the appellant in law since the matter of conveniently avoided processing applications for furnishing numbers P-751 membership of the club is and P-826 to P-875 which purely an internal matter and would have reinforced above is privy to the management. findings and also that some The practice of induction of persons have been new members varies from club arbitrarily made members on to club depending on the receipt of even lower than exigencies and the club the minimum prescribed fees reserves it right to choose and some even on the its own discretionary out-of-turn basis,....
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.... relevance to the contentions issue. However, the details of receipt and processing of application forms received from applicants as called for by the learned CIT(A) were &nbs....
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.... of persons seeking membership of the club are to be proposed and seconded by existing eligible members. The processing of such applications and time taken &n....
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....nbsp; that applications for membership are finalized without the approval of the executive committee. It is possible that due to exigencies, some applications &nbs....
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.... "reinforcing the finding" of the appellate authority. Incidentally, the information called for processing of applications for admission of members by learned CIT(A) is ....
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....sp; members of the club, by keeping the disposal of the appeal pending for a long time. Many of his persons (including a lady), proposed/seconded by him &nbs....
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....; for reasons of equity and justice and, therefore, it is obvious that his issue of appellate judgment (timed with his transfer from Bhubaneswar) in the &nbs....
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....ions held by it with its members is not lost. The assessee was a mutual concern. The income derived by it from its house property let to its members and their guests and from the sale of liquor, etc., to its members and their guests was not taxable in its hands', Patna High Court vide CIT vs. Ranchi Club Ltd. (1991) 100 CTR (Pat)(FB) 295 : (1992) 196 ITR 137 (Pat) : Tax Cases 38R 576. 'Even the Hon'ble Supreme Court held in the case of CIT vs. The Bankipur Club Ltd. "Where the trade or activity is mutual, the fact that, as regards certain activities, certain members of the club only take advantage of its facilities which it offers does not affect the mutuality of the enterprise". The Revenue failed to take cognizance of the apex Court's view and accept the claim of the club on mutuality principle. Again, the Hon'ble Supreme Court of India (in the case of Chelmsford Club vs. CIT (2000) 159 CTR (SC) 235] held further that even deemed income from property of the club is also outside the purview of levy of income-tax. The apex Court contended that the club's business is governed by the principle of mutuality, which, in turn, is based on a doctrine that no person can earn from himself. ....
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....cted only to the members but non-members and outsiders have access to its benefits, services and privileges. (iv) Fourthly, that the members of affiliated clubs are also entitled to the benefit, services and privileges of the club. (v) Fifthly, guest-room facilities which are its substantial sources of earning, are available to both members, non-members and their guests and affiliated clubs. Before coming to various reasons given by the learned counsel to deny the claim of exemption of income on the principle of mutuality, it is considered necessary to discuss the principle of mutuality. Hon'ble Andhra Pradesh High Court in the case of CIT vs. Merchant Navy Club (1974) 96 ITR 261 (AP) after reviewing and discussing the leading cases on the subject has summarised the principle of mutuality as under: "No person can trade with himself and make an assessable profit. If instead of one person more than one combine themselves into a distinct and separate legal entity for the purpose of rendering services to themselves or for the supply of refreshments, beverages, entertainment, etc., by overcharging themselves, the resulting surplus is not assessable to tax if the surplus is to b....
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.... was never made before. We find that this observation of the AO has been fully replied in its written submissions, the sum and substance of which are that, in past, such occasion never arose and it is only first time that the issue was raised by the AO. Consequently, the assessee had to claim in black and white that the club was a mutual concern and its income was not subject to tax. We are in full agreement with the reply of the assessee on this ground. 11.2 The second ground taken by the AO that the books of account were not properly maintained is also of not much importance for the purpose of deciding whether the club is a mutual concern though the club has properly maintained books of account and no serious defects have been pointed out in the maintenance of books of account. There may be lapses here and there but there was no such serious defect which may lead to rejection of books of account and that cannot be a valid ground for claiming that the income of the assessee is not exempted as because club is a mutual concern. Now, coming to the enjoyment facility benefit services and privileges of the club by the alleged non-members, we find that the authorities below have a wr....