TaxTMI 
TaxTMI 
2018 (11) TMI 1114
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....il return stating as under: "The assessee is a Mutual benefit society which came into existence with effect from April, 1984. The activities of the society are confined to the members of the society. The accounts of the society have duly been audited by a Chartered Accountant. The Balance Sheet, Income and Expenditure account for the year ended 31.03.2014 have been prepared and certified by the Chartered Accountant. The excess of income over expenditure as per the statement is Rs. 1,06,23,856/-. The income is exempt as it is a Mutual benefit society. Hence, a NIL return is filed and the income of Rs. 1,06,23,856 is claimed exempt': 2.2 The Assessing Officer observed that the assessee is registered under the Andhra Pradesh (Telangana Area) Public Societies Registration Act, 1350 in the office of the Registrar of Societies, Andhra Pradesh, Hyderabad on 3rd July, 2005 with the name of "The Gujarati Social Welfare society". He further observed that though the society is a mutual benefit society, it is seen from the Income & Expenditure that the income of the assessee includes the interest from, bank is of Rs. 31,90,148/-. In this regard, when the assessee asked to explain as to ....
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.... "Under the Income-tax Act, what is taxed is, the "income, profits or gains" earned or "arising", "accruing" to a "person". 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, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular form the association takes. Trading between persons associating together in this way does not give rise to profits which are chargeable to tax. Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of the facilities which it offers does not affect the mutuality of the enterprise. The decisions of the Supreme Court in CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 ; CIT v. Kumbakonam Mutual Benefit Fund Ltd., [1964] 53 ITR 241 and Fletcher (on his own behalf and on behalf of Trustees and Committee of Doctor's Cave Bathing Club) v. ITC [....
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....ntages, conveniences and accommodation. In other words, the services offered on the above counts were not done with any profit motive, and were not tainted with commerciality. The facilities were offered only as a matter of convenience for the use of the members (and their friends, if any, availing of the facilities occasionally). Held, dismissing the appeals, that in the light of the findings of fact the receipts for the various facilities extended by the clubs to its members, as part of the usual privileges, advantages and conveniences, attached to the membership of the club, could not be said to be "a trading activity." The surplus-excess of receipts over the expenditure-as a result of mutual arrangement, could not be said to be "income" for the purpose of the Act. By THE COURT : The above four sets of cases falling in groups A to D shall alone be covered by this judgment. With regard to seven cases/appeals falling in group E, the assessee is the Cawnpore Club Ltd. The Gujarati Social Welfare Society It is seen that the income that was sought to be assessed in the case of the assessee, was one derived from property let out and also interest received from F. D. R., N. S. C.....
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....tion. There is also a dichotomy between the juridical personality who contributes to the club, and the nominees (who can be changed) who actually avail of facilities and receive benefits from the club activities. An important facet of the principle of mutuality is not only the identity of the contributors of, and the recipients from, the fund, but also the right to be returned the contribution in the event of the aggregate of members getting dissolved. If the continuance of the original contributors till the end or till the achievement of the objects for forming the association or society/club is uncertain, the principle of mutuality ceases to apply. When a person deposits money in a bank, the relationship is that of creditor and debtor, and they would be bound by the contract that regulates the deposit and payment of interest thereon. When a club deposits its funds with a bank, the latter does not treat the club any differently from its other depositors, nor is a higher rate of interest offered. The assessee was a social and recreational club. It was not registered either as an association or a society. It was a mutual association and not a profit making concern. None of its a....