TaxTMI 
TaxTMI 
2022 (8) TMI 487
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....hat 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 Income Tax erred in passing the order u/s. 263 of the Income Tax Act, 1961 on a ....
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....aw, 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-temporary members. 3.(c) 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 none of the....
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....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. 4.(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in not appreciating the fact that assessee does not carry on any trade or commerce and is a sports/social club established with the object fo....
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.... 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 interest of the revenue. 6.(b) On the facts and in the circumstances of the case and in law the learned CIT erred in directing the A.O. to investigate into the matter of claiming the interest income and capital gain as exempt income under principle of mutuality without appreciating that the said claims have been suo-moto withdrawn in the assessment proceedin....
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....ct, 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 on 9.11.1933 as a company limited by guarantee, each member guaranteeing contribution of Re. 1 each towards debts and liabilities including expenses costs and charges in the event of the company being wound up. The assessee is claimed to be a 'mutual concern' income of which is not chargeable to tax on principles of mutuality. This claim has been accepted in the past by the revenue. 3.1. The return of income for the Asst Year 2010-11 was....
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.... 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 revenue accruing to the assessee which may become a potential reason for holding that the order of Ld. AO is erroneous and prejudicial to the interest of revenue. In response, the assessee has filed necessary details vide letters and wherein it was categorically explained that the revenue from cricket activity (namely Test matches and IPL matches have been duly offered to tax. However, the Ld. PCIT rejected the contention of the assessee and vide order dated 30.03.2015 set ....
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....t 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 1970-71 and 1972-73 and by placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT vs R.W.I.T.C. reported in 24 ITR 551 (SC) held that the assessee is a mutual association and the amounts received by it from its members for sale of tickets to a cricket match do not have the character of income. It was submitted by the ld. AR as a statement from the Bar, that against this order of tribunal, no appeal has been preferred by the department before the Hon'ble Bombay High ....
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....on 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 Court, holding that no referable question of law arose for its decision. 4.1.1. The said judgement of the Hon'ble Supreme Court is relevant because the Ld. PCIT has revived the same issues and denied exemption on the ground that the assessee has temporary members, the surplus may not be distributed equally on winding-up and there are taxable transactions with non-members. 4.2. In the Asst Year 2004-05, the ld. AO had reopened the assessment on the ground that certain receipts by the assessee f....
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.... 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 6.6.2019. The relevant question raised before the Hon'ble Bombay High Court is as under:- (iii) Whether on the facts and circumstances of the case and in law, the Tribunal was correct in upholding the order of CIT(A) in deleting the addition of Rs 9,20,825/- made on account of club share income of assessee from caterer, on the ground that the same was exempt under principle of mutuality? The Hon'ble Bombay High Court disposed of this question by observing as under:- 5. Last surviving question pertains to an addition of Rs 9....
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....t 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 uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar Courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why Courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent y....
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.... 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 claimed to be workmen. The principal objects of the Club are to encourage and promote various sports, particularly the game of cricket in India and elsewhere, to lay out grounds for the game of cricket, and also to finance and assist in financing cricket matches and tournaments. In addition, it provides avenue for sports and games as well as facilities for recreation and entertainment for the Members. It maintains Tennis Courts in pursuance of another outdoor activity. The indoor games for which provision is made include Billiards, Table Tennis, Badminton and Squash. It also maintains a swimming pool. The Club has also provision....
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....rovision 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 conclusion that the Club is an 'industry', so that this reference under the Act is competent. The Club, which has come up in appeal, contends that the decision of the Tribunal is not correct and that, on the ratio of the decision of this Court in The Secretary Madras Gymkhana Club Employees' Union v. The Management of the Gymkhana Club(1), this Court should hold that the Club is not an industry. 4. Our task for the decision of this case has been simplified, because this Court, in the case of Madras Gymkhana Club(1), has clearly laid down the principles of law which have to be applied in determining when a Club can be h....
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....ctivity 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 industry is run with capital and with a view to profits. These two circumstances may not exist when Government or a local authority enter upon business, trade, manufacture or an undertaking analogous to trade." It was also decided by the Court that if a Club is a member's selfserving institution, it cannot be held to be an industry. These are the main principles which have to be kept in view in arriving at the decision whether the Club is an industry or not. 5. The principal argument of Mr. Vimadalal, learned counsel for the Club, was that there is a basic and overall similarity between the Club and the Madras Gymkhana Club, so that the decision of this Court in the case of the latte....
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....pearing 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 like the Madras Gymkhana Club. Our attention was drawn to objects of the Club as given in paragraph 3, clauses (a), (c), (d), (g), (1) and (na) of the Memorandum of Association of the Club. It was argued that the activity of encouraging and promoting the game of cricket in India and elsewhere mentioned in Clause (a), financing and assisting in financing visits of foreign teams and of visits of Indian teams to foreign countries in cl. (c), organising and promoting or assisting in the organisation or promotion of Provincial Cricket Associations and Inter-Provincial Tournaments in el. (d), buying, repairing, making, supplying, selling and dealing in all kinds of apparatus and appliances and all kinds off provisions,....
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....nstructing 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 thereof would come within the definition of 'industry'. The properties of the C.C.I. which are let out, viz. 48 residential f1flats, 40 ordinary and air-conditioned rooms; and the premises let to shops and offices form a very large group of properties; the management of them as well as the earnings from them, particularly in the case of the rooms which are let out with compulsory boarding require co-operation between capital and labour." In examining this aspect, the Tribunal a ears to have fallen into an error in ignoring the circumstance that the income, which earned by the Club from investment on these immovable properties, cannot be held to be income that accrues to it with the aid and co-operation of the employees. T....
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....at 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 permitted to stay in these residential rooms, but, in such cases, they are all made Honorary Members of the Club. The facility is thus availed of by them in the capacity of Members of the Club, even though that membership is honorary. The principle of having honorary members is quite common to most Clubs and existed even in the Madras Gymkhana Club. Once a person becomes an honorary member, provision of facilities of the Club for him partakes of the same nature as for other members and, consequently, such an activity by the Club continues to remain a part of it as a self-serving institution. It is quite wrong to equate it with the activity of a Hotel. It may also be mentioned that there is definite evidence given on behalf of the Club that the cha....
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....ng 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 of stalls on two such occasions in a year with this limited object cannot be held to be an under- taking of the nature of business or trade. 12. It was then pointed out that there have been occasions when very big parties have been held in this Club where catering has been provided by the Club and, at these parties, non- members have attended in large numbers. On behalf of the respondent Union, an example was cited of an occasion when a function was held to celebrate the Golden Jubilee of the Bank of India and catering was provided for a large number of guests at the Club. In answer to interrogatories served by the workmen, it was admitted by the Secretary of the Club that there was also another function of celebration of the silver Jubilee of the Bom....
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....ns. 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, the total number of functions at which the attendance was 800 and more, including Members of the Club, was 28. We were told that the Tribunal had asked for the figures of functions held during these four years at which the attendance was 800 or more, and, thereupon, this information was supplied in the affidavit of Tarapur. There is no material to show how many of these 28 functions were of the nature of the two functions held for celebration of Jubilees of the two Banks. It is quite likely that a large number of these parties at which the attendance was 800 or more may have been given personally by Members of the Club on their own account in order to entertain people for their own personal celebrations on occasions such as marriages of sons or daughters. In fact, the evidenc....
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.... 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 cricket, and the third object 'is clearly for the purpose of encouraging matches between Indian and foreign teams. It is clear that the Cricket grounds are being maintained by the Club in pursuance of these objectives. The game of cricket can only be promoted and encouraged if, when matches are held, facilities are provided not merely for holding the matches, but also for people to watch the matches and to create interest in the public in general in the game of cricket. It was obviously with this object that the Stadium was constructed. Its use by spectators interested in the matches or by members of other organisations interested in the game of cricket is purely for the purpose of encouraging and promoting the game of cricket in pursuance of that primary object of forming the Club.....
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....rcumstances, 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 objects as incorporated in the Memorandum of Association. The holding of the Test Matches is primarily organised by the Club for the purpose of promoting the game of cricket. This activity by the Club cannot, by itself in our opinion, lead to the inference that the Club is carrying on an industry. 14. Lastly, reference was made to the circumstance that, unlike the Madras Gymkhana Club, the Club has been incorporated as a Limited Company under the Indian Companies Act. It was urged that the effect of this incorporation in law was that the Club became an entity separate and distinct from its Members, so that, in providing catering facilities, the Club, as a separate legal entity, was entering into transactions with the Members who were distinct from the Club itself. In our opinion, t....
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....ore 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. Hence we are unable to persuade ourselves to agree to the contention of the ld. PCIT that the order of the ld. AO is erroneous. Hence initiation of revision proceedings u/s 263 of the Act deserves to be quashed on this count itself as cumulative twin conditions for invoking section 263 proceedings are not satisfied in this case. On Enhancement notice issued by ld. CIT(A) for A.Y. 2009-10 and reliance placed by ld. PCIT in the order passed u/s 263 of the Act for A.Y. 2010-11 8. We further find that the main basis of revision proceedings u/s 263 of the Act for A.Y. 2010-11 was the Enhancement Order of A.Y. 2009-10 passed by the Ld. CIT(A). Against the said enhancement order, the assessee company had preferred an appeal before this Tribunal. With regard to the ground relating to enhancement of asse....
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.... 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 income of Rs. 11,18,21,686/-. v) The issue of Income from House property has been considered by the ITAT, Mumbai in their order dated 4.10.2017 and the matter was restored to the file of the AO as per para 11 to 15. Therefore, this issue do not require any further consideration at this stage. 5.3. In view of above discussion, I do not find merit in going ahead with the enhancement notice dated 22.08.2014 and the same is hereby withdrawn. The AO is directed to assess the total income, in light of the assessment order passed on 21.12.2011 as modified/amended in light of the directions of the ITAT Mumbai vide order dated 04.10.2017. 5.4. Grounds 7 (raised before the ITAT) consisting of ground nos 7.1 to 7.3 are alternative grounds to ground no. 6 (on the issue of enhancement). Since, the enhancement notice has been withdrawn, the other gr....
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....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 revision order u/s 263 of the Act. This goes to prove the complete non-application of mind on the part of the ld. PCIT in the instant case, while invoking his revisionary jurisdiction u/s 263 of the Act. Hence the order of the ld. PCIT u/s 263 of the Act deserves to be quashed on this count also in respect of this issue. Enquiries carried out by the ld. AO in original scrutiny assessment proceedings 10. With regard to the fact as to whether the assessee is a mutual association or not ; with regard to taxability of 'Catering Revenue' ; allowability of expenses incurred for holding cricket matches together with its revenue ; taxability of interest income and short term capital gains u/s 111A of the Act , we find that the ld. AO had issued notice u/s 142(1) of the Act dated 8.11.2012 in the scrutiny assessment proceedings, wherein vide Point (ii), Point (vii) enclosed ....