TaxTMI 
TaxTMI 
2021 (1) TMI 677
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....me from other sources for the assessment year 2013-14, and the claim of loss being the expenditure over income under the head income from other sources for the assessment year 2015-16, which was not raised before the ld. CIT(A). 2. Brief facts of the case are that the assessee Madras Boat Club is an association of person which is classified as a company in terms of section 25 of the Companies Act. As such the assessee is assessed under the status the 'company' under Income Tax Act, 1961["Act" in short]. The assessee has claimed that the entrance fee collected from non-members is exempt from taxation. The company has been claiming that it is an association of person coming together for the benefit of all the participants because of which the activities falls under the "principles of mutuality" and therefore, the surplus, if any, earned by the company is not chargeable to tax. However, after considering the submissions of the assessee, the Assessing Officer has observed that the entrance fee collected from the non-members by whatever name called and howsoever it may be treated in the books of account of the assessee company in view of its own policies, is chargeable to tax and acc....
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....agriculture credit society or a primary co-operative agriculture and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act. 24) Undoubtedly, if one has to go by the aforesaid definition of co-operative bank, the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P. 25) So far so good. However, it is significant to point out that the main reason for disentitling the appellant from getting the deduction provided under Section 80P of the Act is not sub-section (4) thereof. What has been noticed by the Assessing Officer, after discussing in detail the activities of the appellant, is that the activities of the appellant are in ....
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.... the third party vis-a-vis the assessee entitled between contributor and recipient is lost in such case. The other ingredients of mutuality are also found to be missing as discussed in further paragraphs]. In the present case both the parties to the transaction are the contributors towards surplus, however, there are no participators in the surpluses. There is no common consent of whatsoever for participators as their identity is not established. Hence, the assessee fails to satisfy the test of mutuality at the time of making the payments the number in referred as members may not be the member of the society as such the AOP body by the society is not covered by concept of mutuality at all. 27) These are the findings of fact which have remained unshaken till the stage of the High Court. Once we keep the aforesaid aspects in mind, the conclusion is obvious, namely, the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members. We are afraid such a society cannot claim the benefit of Section 80P of the Act. 28) This appeal, therefore, fails and is hereby dismissed with costs. 5.2 From the above,....
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....867 for the benefit of its members, including the lease of its 5 Club House and grounds, establish, equip, improve, alter, administer, extend, run, maintain and aid Boats construction facilities. (B) Objects incidental or ancillary to the attainment of the main objects: 1). To purchase, acquire, take on lease or mortgage in exchange or otherwise acquire land and movable as also immoveable property including boats of all kinds, furniture and fixtures, electrical and electronics, furniture, fixtures, equipment, instruments, appliances, instruments, vehicles, boat construction facilities could be useful to achieve any one or more of the objects of the club. 2) To operate club facilities for the use of members, their families and dependants and guests, and to procure provisions, other items of food and drinks. 3) To buy, prepare, make, supply, sell and deal in all kinds of apparatus and appliances as also manufacturing facilities in connection with all or any of the objects of the club. 4) To hire and employ Secretaries, Stewards, Clerks, Managers, Professionals, Servants and Workmen and to pay them and other persons for the services rendere....
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....lub. (2) Except with the previous approval of the Central Government, no remuneration or other benefits in money or money's worth shall be given by the Company to any of its members, whether officers or servants of the Company or not, except payment of out of pocket expenses, reasonable and proper interest on money lent or reasonable or proper rent on premises let out to the Company. (3) Except with the previous approval of the Central Government, no member shall be appointed to any office under the Company, which is remunerated by salary, fees or in any other manner not excepted by sub-clause (2). (4) Nothing in this clause shall prevent payment by the Company in good faith of reasonable remuneration to any of its officers or servants (not being members) or to any other person (not being a member), in return for any services actually rendered to the Company. VI. No alteration shall be made to the Memorandum of Association nor to the Articles of Association of the club which are for the time being in force unless the alteration has been submitted to and previously approved by the Regional Director, Southern Region, Ministry of Corporate affairs a....
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....Ltd., 226 ITR 97 had an occasion to deal with the claims of a number of clubs seeking benefit based on the principle of mutuality. The principle laid down by the Apex Court in the case of Bankipur Club Ltd., are summarized, as follows: "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." [ Head Note p.97 of the R....
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....rned 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 law recognizes the principle of mutuality excluding the levy of income-tax from the income of such business to which the above principle is applicable. A perusal of S. 2(24) of the Income-tax Act, 1961, shows that the Act recognizes the principle of mutuality and has excluded all businesses involving such principle from the purview of the Act....
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.... judgements of the Hon'ble Supreme Court, we set aside the orders of authorities below and direct the Assessing Officer to delete the addition made in both the assessment years. 7. In the grounds of appeal for the assessment year 2013-14, the assessee has raised another ground relating to the addition under the head income from other sources of Rs..2,30,727/- being surplus income over expenditure as well as Rs..37,66,492/- being the interest income, which was not raised before the ld. CIT(A). Assuming higher appellate jurisdiction, we proceeded to adjudicate the issue on merits after hearing both the parties. 8. We have considered the rival contentions. It was the submission of the ld. DR that the claim of exemption towards surplus income over expenditure as well as interest income for the assessment year 2013-14 and the claim of loss being the expenditure over income under the head income from other sources for the assessment year 2015-16, the issues are squarely covered against the assessee by the decision of the Hon'ble Supreme Court in the case of Bangalore Club v. CIT [2013] 29 Taxmann.com 29(SC). However, the ld. Counsel for the assessee could not controvert the above s....