TaxTMI 
TaxTMI 
2022 (8) TMI 487
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....rcumstances of the case and in law, the appellant prays that the order of the learned CIT passed u/s.263 of the Income Tax Act, 1961 may be cancelled being void ab-initio and bad in law. 1.(c) The Id. Commissioner of Income Tax erred in invoking the provision of section 263(1) of the Income Tax Act, 1961 without appreciating the fact that the ld. Assessing officer action was in accordance with law as after making all possible enquiries, examination of facts and proper application of mind, completed the assessment of the assessee u/s 143(3) of the Income Tax Act, 1961 and thereby erred in presuming that the assessment has been passed under blind assumption of assessee being a mutual concern. 1.(d) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in setting aside the assessment and directing the ld. Assessing Officer to make fresh assessment and the reasons assigned by him for doing so are wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made thereunder. 1.(e) On the facts and in the circumstances of the case and in law, the learned Commissioner of In....
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....es of receipts are to be brought to charge of tax and under which head of income. 2.(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in passing said order which is beyond the reasons mentioned in the two show cause notices issued u/s 263, which is wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made thereunder. 3.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in giving a finding that the assessee company is not a mutual company being devoid of any mutuality by the very structure of membership, their contributions by way of entrance fee and annual and local subscription and, the limitations on the kind of and consequently number of members entitled to surplus on dissolution. 3.(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in stating that class of temporary members is merely a surrogate membership for permitting outsiders to enjoy the benefit of amenities and facilities of the appellant club otherwise available to non-t....
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....rplus. This is precisely laid down by SC in case of Bankipur Club Ltd. 226 ITR 97. 3.(h) The Id.CIT failed to appreciate that for the principle of mutuality it is sufficient if the identify as a class is established between the (i) contributors and the participators and it is not necessary to have one to one identity individually. (ii) it is not necessary to establish whether the facility available to members is actually utilized or not by each of the members. 3.(i) The ld.CIT failed to appreciate that the fact that all the members may not contribute or that they may not share the surplus or benefit in the ratio of their contribution does not affect the principle of mutuality as laid down by SC in Bankipur Club Ltd. 4.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in taking a view that exponential growth in operational income and investment made by the appellant and its large quantum leads to existence of commercial motives in contrast to mutuality which is wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made thereunder. ....
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.... of its members. • the principle of mutuality is not destroyed or affected by the presence of transactions which are non mutual in character. • AO has fully applied his mind while passing the assessment order u/s.143(3) and his order is not erroneous so as to attract the provisions of section 263 of the Act Supreme Court in the case of Royal Western India Turf and Club Ltd (24 ITR 551) has given clear ruling in regard to exemption claimed by clubs on grounds of mutuality based upon the impossibility that contributors should derive profits from contributions made by themselves which could only be expanded for mutual benefit or retuned to themselves. 6.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in giving direction that the interest income and capital gains cannot be treated as exempt under principle of mutuality and shall be charged to tax, without appreciating the fact that capital gains and interest income has already been offered to tax by the appellant in the assessment proceedings and as such the order is neither erroneous nor prejudicial to the interes....
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....the issue right now. But the whole philosophy of mutuality gets destroyed in the process. (vii) cricket as an activity has been carried out for profit and in pursuing this activity, benefits have gone to third parties outsiders by way of pilferage of entry coupons" (without any evidence) 8. Without prejudice to the contention that the Assessing Officer's order dated 30.03.2013 u/s.143(3) of the Income Tax Act, 1961 was not erroneous and prejudicial to the interest of revenue, the learned CIT has no power to cancel the assessment wherein the assessing officer's order is subject matter of appeal and hence is illegal, invalid and not tenable. The CIT can give only specific directions on items which were found erroneous and prejudicial to the interest of revenue if any, which in this case were none. The appellant craves leave to add, amend, alter, modify and/or delete any of the above grounds of appeal on or before the date of hearing." 3. We have heard the rival submissions and perused the materials available on record. The brief facts of this case are that the assessee club is incorporated under the Companies Act of 1913 and came into existence o....
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.... and as such most of the receipts are not chargeable to tax on the principles of mutuality. However, certain receipts earned from non-member being not covered by the principle of mutuality were offered to tax namely cricket income (Test matches, IPL matches), Rent income from House Property, Capital Gains on sale of investment and Interest Income on investments. In earlier assessment years, the principle of mutuality has been accepted by the department in assessee's own cases. Thus it was submitted that it is a settled principle of law that application of Principle of mutuality is not destroyed by transaction with non-members. The principle of mutuality can be still confined to transaction to members. (iii) without prejudice, it was submitted that if the assessment is completed by adopting the method adopted by the ld. CIT(A) in AY 2009-10, then the assessed income, if reworked accordingly, would result in total loss of Rs. 2,55,19,015/-. 3.3. The Id. PCIT thereafter issued another notice dated 18.02.2015 calling for further details, in particular called for details related to Test matches and IPL Matches, as in his view, the Ld. AO has not analysed the rev....
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....on the kind of and consequently number of members entitled to surplus on dissolution. The Ld. PCIT set aside the order of assessment with a direction to Ld. AO to frame the order afresh including the finding that the assessee is not a mutual concern by its very structure of members. On applicability of Principles of Mutuality 4. It is not in dispute that the assessee club has been held to be a mutual association for more than 4 decades in the past. It would be relevant to note that the dispute with regard to the status of the assessee as a 'mutual association' arose for the first time in the Asst Year 1970-71, though the order of the Tribunal for that year is not available. There is a reference to this dispute in the Tribunal Order dated 21.10.1976 for the Asst Year 1973-74 which is enclosed in the case law paper book. In the said order dated 21.10.1976 for the Asst Year 1973-74, the Tribunal was concerned with the question whether the amount received by the assessee from sale of tickets of the Test Match between England and India to its own members, was exempt on the principles of mutuality. The Tribunal followed its own order dated 17.6.1974 for the Asst Years 1970-....
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....f the members. Following the decision rendered by the Tribunal, Bombay Bench-A, for the assessment years 1974-75 and 1976-77 rendered in IT Appeal Nos. 1730 and 1913 (Bom.) of 1980, the Tribunal held that no portion of the Club House, Patiala Pavillion, etc., is let out to strangers and that these portions are let out only to the members and so, even if any income had actually accrued due from the members on the above counts, it will not be taxable on the principle of mutuality. In the application filed under section 256(2) of the Act, the High Court declined to refer the question of law posed by the revenue, to the effect, "whether the Appellate Tribunal was justified in law in holding that the income from the property held by the assessee could not be brought to charge under the provisions of sections 22 to 26 of the Act ?" The decision was followed for the assessment year 1978-79 - C.A. No. 10194 of 1995 and the High Court declined to refer any question of law for this year as well. In fact, for both the years, the decision of the Tribunal to the effect that the income received from the aforesaid counts is exempt under the principle of mutuality, was not doubted by the High Cour....
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.... event conducted for the members and for supply of food to members by an outside caterer was not exempt on the principles of mutuality. Both issues were decided in favour of the assessee by this Tribunal vide its common order dated 21.3.2016 for the Asst Years 2004 05, 2007-08 and 2008-09 vide paragraphs 11, 16 and 23 of the order. 4.8. The assessee has always been treated as Mutual Association since its inception for decades upto AY 2008-09 by the department as is evident from the tabulation handed over by the ld. AR at the time of hearing. It was submitted that this has continued even in the subsequent years i.e. Assessment Year 2016-17 to 2018-19 wherein the Ld. AO in the scrutiny assessment treated the assessee as a mutual association and accordingly has accepted Principle of Mutuality in respect of majority of receipts as claimed by the assessee. Taxability of Catering Revenue 5. With respect to the addition of 'Catering Revenue' which is a recurring issue, the Hon'ble Jurisdictional High Court in assessee's own case for A.Y. 2008-09 has dismissed the revenue's appeal against the order of this Tribunal in Income Tax Appeal No. 653 of 2017 dated 6.6.201....
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....18 and 2018-19 were completed in similar fashion u/s 143(3) of the Act vide separate orders dated 22.12.2019 and 24.2.2021 respectively. 5.3. Hence we find that even on the principles of consistency and there being no change in facts, the order of Ld. Pr. CIT is bad in law. Reliance in this regard is placed on the following decisions :- a) Decision of Hon'ble Supreme Court in the case of Radhasoami Satsang vs CIT reported in 193 ITR 321 (SC) wherein it was held as under:- 16. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. b) Decision of Hon'ble Supreme Court in the case of BSNL vs Union of India reported in 282 ITR 273 (SC) wherein it was held as under:- 20. The decisions cited have un....
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....IR 1969 SUPREME COURT 276 dated 7.8.1968, wherein the Hon'ble Supreme Court have categorically rejected the submission of workmen that this activity by the Club is an undertaking in the nature of trade or business. The Hon'ble Supreme Court held that it is, in fact, an activity in the course of promotion of the game of cricket and it is incidental that the Club is able to make an income on these few occasions which income is later utilized for the purpose of fulfilling its other objects as incorporated in the Memorandum of Association. The holding of the Test Matches is primarily organized by the Club for the purpose of promoting the game of cricket. Accordingly, the Hon'ble Supreme Court held that this activity by the Club cannot, by itself lead to the inference that the Club is carrying on an industry. For the sake of convenience, the said judgement is reproduced hereunder:- 1. ........................ 2. The Club is admittedly a Members' Club and is not a proprietary Club, though it is incorporated as a Company under the Indian Companies Act. At the relevant time, the Club had a membership of about 4800 and was employing 397 employees who claime....
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....nder agreements entered into with the Club, to exclusive use of a number of seats in the Stadium whenever there are official and/or unofficial test matches and/or matches of similar status sponsored by the Board of Control for Cricket in India, or when a fixture is played by a foreign team on the Club grounds, though not sponsored by the Board. Under these agreements, these organisations make payment to the Club for the members' seats reserved at prescribed rates and they are at liberty to charge whatever they like from their own members who are admitted to those seats, with the further facility that they can make their own provision for catering and supply of refreshments to their members over part of the land made available to them by the Club. On the occasion. of annual Badminton and Table Tennis open tournaments, a stall is run by the Club where both competitors and spectators are allowed to buy snacks and soft drinks at concessional rates. In the Catering Department alone, the turnover of the Club is in the region of Rs. 10 lakhs a year. The Tribunal, after considering these facts and the various decisions which were available to when it gave its award, has come to the con....
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.... other hand, it may not. It is not necessary that the employer must always be a private individual who carries on the operation with his own capital and with a view to his own profit. The Act in terms contemplates cases of industrial disputes where the Government or a local authority or a public utility service may be the employer." Dealing with the scope of the word "undertaking" , it was held that :- "the word 'undertaking' must be defined as any business or any work or project which one engages in or attempts as an enterprise analogous to business or trade." Further essential features were indicated by laying down that :- "where the activity is to be considered as an industry, it must not be casual but must be distinctly systematic. The work for which labour of workmen is required, must be productive and the workmen must be following an employment, calling or industrial avocation. The salient fact in this context is that the workmen axe not their own masters but render service at the behest of masters. This follows from the second part of the definition of industry. Then again when private individuals are the employers, the industr....
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....ed and laid before and adopted at the annual general meetings. Even in other respects, such as in the matter of admission of Members, relations between members, inter se, convening of meetings, and expulsion of members, the rules are similar. In neither of the two Clubs are profits distributed between members. It was, thus, urged that there is, in fact, no substantial difference between the nature of the Club and the Madras Gymkhana Club and, consequently, it should be held that this Club is not an industry. It was further urged that a few minor differences will not alter the legal inference and will not make the ratio of the Madras Gymkhana Club(1) case inapplicable. 6. Mr. S.B. Naik, counsel appearing for the Union, however, urged that the differences that exist are not minor and they are such as should lead to the inference that this Club carries on its activities in such a manner that it must be held to be an 'industry' as explained in the Madras Gymkhana Club(1) case. 7. The first point urged before us was that an examination of the objects of the Club would show that it is not purely a social or recreational Club confining its activities to Members l....
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.... the Club an industry'. 8. We have already mentioned earlier that the Club has acquired immovable properties of the value of about Rs. 67 lakhs. Some of these properties consist of buildings which are being used by the Members of the Club. These are the main Club building and the residential flats and rooms. In addition, there is a Stadium that is used on occasions when Cricket Matches are held on the grounds maintained by the Club. Apart from all these, there are a certain number of buildings just outside the Stadium which are let out for use as shops and offices by business concerns. The income that the Club earns is primarily from these last-mentioned constructions. It was urged that the Club in thus constructing building for the purpose of earning income from rents payable by business concerns, to whom those premises 'are let out, is carrying on an activity which is in the nature of trade or business and, consequently, it should be held that the Club is an industry. The Tribunal accepted this submission and held :- "A company which has as its business acquiring of immovable properties on a large scale and for making profit out of the rents thereo....
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.... exclusively for the Members of the Club. It has been stated that it is meant primarily for outstation Members of the Club who occupy this residential accommodation when they visit Bombay. In addition, it seems that there are 11 Members of the Club who are residing more or less permanently in 11 of these residential rooms. It is also true that members occupying the residential accommodation are required to take advantage of the catering facilities provided by the Club. They are charged consolidated amounts for occupation of the rooms as well as for the food served to them. The Tribunal has held that this activity is in the nature of keeping a Hotel. The view taken by the Tribunal is clearly incorrect, because it ignores the circumstance that this facility is available only to Members of the Club and to no outsider. It is in the nature of a self-service by the Club organised for its Members. The rules which have been brought to our notice make it clear that, apart from Members, no one is allowed to stay in these residential rooms and that, in exceptional cases where some important visitors come to the Club or competitors taking part in tournaments visit this place, they are permitte....
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....rom Members, competitors and spectators can also buy snacks and soft drinks; and it was urged that this sale of snacks and soft drinks to non,- members is clearly an activity in the nature of business or trade. It appears, however, that these stalls are opened as a rare feature only on occasions when annual Badminton and Table Tennis open tournaments' are held. We have been informed that there is only one Badminton and one Table Tennis open tournament every year, so that these stalls are run only twice a year. Further, there is a clear Statement that the snacks and soft drinks are provided to competitors and spectators at concessional rates. This indicates. that the provision of these stalls is not for the purpose of carrying on an activity of selling snacks and soft drinks to outsiders, but is really intended as provision of a facility to persons participating in or coming to watch the tournament in order that the tournaments may be run successfully. These stalls are thus brought into existence as a part of the activity of promotion of games and is not a systematic activity for the purpose of carrying on transactions of sale of snacks and soft drinks to outsiders. The opening ....
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.... the workmen, it was urged that functions of this nature are numerous and a regular feature in this Club. In fact, the Tribunal in its order has held that :-- "a systematic arrangement by which Companies and other institutions book the grounds through members, whereby the Club makes profit by charging refreshments per head would bring a Club on the other side of the border line so as to make it an industry." In accepting this view, the Tribunal again fell into an error for' two reasons. The first was that the Tribunal did not attach due importance to the circumstances that the functions were arranged by the Club only because of the request of a Member and the Club confined its contract with the Member without in any way dealing with outside organisations. The second point is that there was no material to show that such functions form a systematic arrangement. In fact, only two instances were put forward on behalf of the workmen where functions were arranged for purposes of celebrating the Jubilee functions of two Banks. Further, the affidavit of K.K. Tarapor filed on behalf of the Club shows that, during the four years 1961-62, 1962-63, 1963-64 and 1964-65, th....
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....ing accommodation to the Gymkhana 831 seats in ,the North Stand for a period of 12 years. The allotment was for use by 'the Gymkhana on all occasions when official and/or unofficial Test Matches and/or matches of similar status sponsored by the Board of Control for Cricket in India were held, or a fixture played by a foreign touring team not sponsored by the said Board. Under the Agreement, the Gymkhana had to pay Rs. 5/- per seat for the first fixture; Rs. 5 per seat for the second fixture; Rs. 4 per seat for the third fixture and Rs. 4/- per seat for 'the fourth fixture. The question that arises is whether these charges made by the Club from these organisations, like the Catholic Gymkhana Ltd., or from spectators to whom tickets are sold, bring into existence an activity of the nature of business or trade so as to convert it into an industry. It is to be noted that one of 'the principal objects of the Club is the promotion of the game of cricket. In fact, the very first object mentioned in the Memorandum of Association is 'to encourage and promote the game of cricket in India and elsewhere. The second object is of laying down grounds for playing the game of cricke....
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...., in fact, organised by the Board of Control for Cricket in India. The Board then arranges with the Bombay Cricket Association, which is the controlling body, for the venue of the Test Match. The Bombay Cricket Association has no ground or Stadium of its own. It is the Bombay Cricket Association that approaches the Club to promote the Test Matches to be played at the Brabourne Stadium of the Club, and the Club accedes to these requests. It will thus be seen that the Club comes in at the last stage of providing the venue and making arrangements for the successful holding of the Test Matches and it is for that purpose, on the few occasions when Test Matches are allotted to the grounds of the Club, that the Club is able to sell tickets in the Stadium and make some income. In these circumstances, we are not inclined to accept the submission made on behalf of the workmen that this activity by the Club is an undertaking in the nature of trade or business. It is, in fact, an activity in the course of promotion of the game of cricket and it is incidental that the Club is able to make an income on these few occasions which income is later utilised for the purpose of fulfilling its other obj....
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....r Members have to be treated as activities of a self-serving institution. 15. For these reasons, we consider that the order made by the Tribunal, holding that 'the Club is an 'industry', is incorrect and must be set aside. The appeal is allowed, and the order of the Tribunal. dismissing the preliminary objection of the Club, is set aside. In the circumstances of this case, we direct parties to bear their own costs of this appeal. 6.1. Hence, we find that the Hon'ble Supreme Court in assessee's own case had duly considered the issue relating to holding of cricket matches and had clearly laid down that the activity of cricket cannot be held in the nature of trade or business. In any case, we find that the ld. PCIT had only stated that the assessee could have earned more revenue from holding cricket matches. This is only a mere surmise and conjecture on the part of the ld. PCIT. The law is very well settled that no proceedings could be initiated on an assessee merely on surmise and conjecture. 7. In view of the above, we hold that there is no reason for the ld. AO to take a divergent view while framing the assessment for the year under consideration.....
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.... in the case of CIT vs Bankipore Club 226 ITR 97 where in it was held that there may be dealings with non-members which may give rise to taxable income but that does not affect the right to claim exemption on the principles of mutuality in respect of transactions with the members. The appellant has pointed out that in the order of ITAT Mumbai, dated 4.10.2017, for AY 2009-10, issue regarding mutuality has been accepted while deciding ground no. 2 wherein it was held that the catering revenue is an amount retained by the Club from the bills raised by the caterer and would not be taxable on the ground of mutuality (para6 & 7). Thus, I am inclined to agree with the appellant that the dealings with non-members may give rise to taxable income but that does not affect the right to claim exemption on the principles of mutuality in respect of transactions with the members. iv) Further, I find that if the principle of mutuality is not accepted and the income is computed as per provision of section 144 of the Act and deduction is allowed for the exempt income and the subscriptions received from the members the total income would work out to be a loss figure as against the assessed i....
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....stant case (i.e by placing reliance on the findings given in the enhancement order of ld. CIT(A) for A.Y. 2009-10) gets completely vitiated. Transactions with Non-Members not offered to tax according to ld. PCIT 9. We find that the transactions of the assessee club with its non-members have been duly offered to tax by the assessee itself. But we find that the ld. PCIT had proceeded with the revision proceedings u/s 263 of the Act on the premise that the same is not offered to tax. We have gone through the computation of total income of the assessee for the year under consideration together with the respective returns. We find that the assessee had duly offered the interest income and capital gains to tax in the revised return of income. We find that the ld. PCIT had proceeded completely on incorrect assumption of fact. We hold that the ld. PCIT has grossly erred in stating that the transactions with non-members have not been offered to tax by the assessee. All these facts were duly brought to the knowledge of the ld. PCIT in the reply given to the show cause notice issued u/s 263 of the Act. None of the factual submissions had been considered by the ld. PCIT while passing the....