ACIT, CHENNAI V. M/s. Madras Gymkhana Club, CHENNAI

ITA 1963/CHNY/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90512 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-06-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 18-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Benefit of exemption

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , . # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI V.DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NOS . 533 TO 536/MDS/2013 ( / ASSESSMENT YEAR: 2004-05, 2007-08 TO 2009-10) M/S. MADRAS GYMKHANA CLUB, THE ISLAND, ANNA SALAI, CHENNAI-600 002. VS ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE-VI CHENNAI. PAN:AAATM7562R ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NOS . 1963 & 1964/MDS/2010 ( / ASSESSMENT YEAR: 2004-05 & 2006-07) ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE-VI CHENNAI. VS M/S. MADRAS GYMKHANA CLUB, THE ISLAND, ANNA SALAI, CHENNAI-600 002. PAN:AAATM7562R ( /APPELLANT) ( /RESPONDENT) ASSESSEE BY : MR. S.SRIDHAR, ADVOCATE REVENUE BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 9 TH JUNE, 2015 /DATE OF PRONOUNCEMENT : 19 TH JUNE, 2015 / O R D E R PER CHANDRA POOJARI, AM: ITA NOS. 533 TO 536/MDS/2013 FILED BY THE ASSESSEE AND ITA NOS.1963 & 1964/MDS/2010 FILED BY THE REVEN UE ARE DIRECTED AGAINST DIFFERENT ORDERS OF COMMISSIONER O F INCOME TAX (APPEALS) FOR THE ABOVE ASSESSMENT YEARS. SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THEY A RE 2 ITA NOS.533 TO 536 /MDS/2013 & 1963 & 1964/MDS/2010 CLUBBED AND HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON GROUND IN ALL THESE APPEALS IS WHETHER INTEREST INCOME EARNED BY THE ASSESSEE ON INVESTMENT IS TAXABLE OR NOT AND WHETHER PRINCIPLES OF DOCTRINE OF MUTUALITY ARE APPLICABLE OR NOT. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE CLAIME D INCOME OF THE ASSESSEE AS EXEMPT ON THE PRINCIPLES OF MUTUALITY IN THESE ASSESSMENT YEARS WHICH WAS REJEC TED BY THE ASSESSING OFFICER IN ALL THESE ASSESSMENT YEARS . HOWEVER FOR THE ASSESSMENT YEARS 2004-05 AND 2006-0 7, IN THE APPEALS OF THE REVENUE, THE COMMISSIONER OF IN COME TAX (APPEALS) AGREED WITH THE ASSESSEE AND OBSERVE D THAT INTEREST INCOME EARNED BY THE ASSESSEE ON INVESTMEN T IS NOT TAXABLE SINCE IT IS COVERED BY THE DOCTRINE OF MUT UALITY. HOWEVER FOR THE ASSESSMENT YEARS 2004-05, 2007-08 TO 2009-10 IN THE APPEALS OF THE ASSESSEE, COMMISSIONE R OF INCOME TAX (APPEALS) OBSERVED THAT PRINCIPLES OF MU TUALITY IS NOT APPLICABLE ON THE INTEREST EARNED ON DEPOSITS A ND 3 ITA NOS.533 TO 536 /MDS/2013 & 1963 & 1964/MDS/2010 INVESTMENTS MADE AND THE COMMISSIONER OF INCOME TAX (APPEALS) AGREED WITH THE FINDINGS OF THE ASSESSING OFFICER, AGAINST WHICH BOTH REVENUE AND ASSESSEE ARE IN APPE AL BEFORE US ON THIS ISSUE. 4. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE JU DGEMENT OF JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE REPORTED IN 328 ITR 348. DEPARTMENTAL REPRESENTATIVE ALSO SU BMITTED THAT SIMILAR ISSUE ALSO CAME UP BEFORE THE SUPREME COURT IN THE CASE OF BANGALORE CLUB VS. CIT (350 ITR 509) AN D AS SUCH THE COMMISSIONER OF INCOME TAX (APPEALS) IS NO T JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE ON THE CONCEPT OF MUTUALITY APPLIES TO INTEREST INCOME EARNED FROM INVESTMENTS. 5. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSES SEE SUBMITS THAT FUNDS OF THE ASSESSEE WHICH ARE TEMPOR ARY SURPLUS FUNDS AND HAVE BEEN UTILIZED TOWARDS IMPROV EMENT OF INFRASTRUCTURAL FACILITIES TOWARDS DEVELOPMENT IN T HE INTEREST OF ALL THE MEMBERS OF CLUB IN A PHASED MANNER. THE FUN DS ARE 4 ITA NOS.533 TO 536 /MDS/2013 & 1963 & 1964/MDS/2010 BEING SPENT AS AND WHEN REQUIRED AS APPROVED BY THE COMMITTEE FROM TIME TO TIME AND THIS IS IN LINE WIT H THE DECISION OF MADRAS HIGH COURT IN THE ASSESSEES OWN CASE AND THAT INTEREST INCOME FROM DEPOSITS WITH BANKS I S COVERED UNDER DOCTRINE OF MUTUALITY AS THE FUNDS ARE UTILIZ ED FOR THE BENEFIT OF MEMBERS OF THE CLUB. ACCORDING TO THE C OUNSEL, SURPLUS FUNDS ARE GENERATED FROM MEMBERS ONLY AND U SED FOR THE PURPOSE OF MUTUAL BENEFIT OF ALL THE MEMBERS AN D THUS CONCEPT OF PRINCIPLES OF MUTUALITY TO BE APPLIED IN THE CASE OF THE ASSESSEE. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS ON RECORD. A SIMILAR ISSUE WAS CONSIDERE D BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.747/MDS/2009 WHEREIN THE TRIBUNAL FOLLOWED THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN TAX CASE (APPEAL) NOS. 397 T O 204 OF 2008 REPORTED IN 226 CTR 176 (MAD) HOLDING THAT INVESTMENT OF SURPLUS FUNDS BY ASSESSEE CLUB WITH S OME OF THE MEMBER BANKS IN THE FORM OF FIXED DEPOSITS NOT WITH A DEFINITE IDEA OF USING THE SAME IN ANY SPECIFIC PRO JECTS FOR THE 5 ITA NOS.533 TO 536 /MDS/2013 & 1963 & 1964/MDS/2010 FURTHER DEVELOPMENT OF INFRASTRUCTURAL FACILITIES O F THE CLUB DID NOT SATISFY THE CONCEPT OF MUTUALITY AND THEREFORE BENEFIT OF EXEMPTION CANNOT BE EXTENDED TO THE INTEREST INCOME . CONTRARY TO THIS LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT IN THESE ASSESSMENT YEARS SURPLUS FUNDS WERE D EPOSITED IN FIXED DEPOSITS IN BANKS WITH A DEFINITE IDEA OF USING THE SAME IN ANY SPECIFIC PROJECTS FOR THE FURTHER DEVEL OPMENT OF THE INFRASTRUCTURAL FACILITIES OF THE CLUB FOR MUTU AL BENEFIT OF ALL THE MEMBERS. BEING SO, THE ABOVE JUDGEMENT TO BE A PPLIED IN FAVOUR OF THE ASSESSEE. THIS ISSUE WAS ALSO TRAV ELLED TO SUPREME COURT IN THE CASE OF BANGALORE CLUB VS. CIT (350 ITR 509). THE SUPREME COURT AFTER CONSIDERING THE C ONCEPT OF MUTUALITY OBSERVED THAT IF THE OBJECT OF THE ASS ESSEE COMPANY CLAIMING TO BE MUTUAL CONCERN OR CLUB IS TO CARRY ON A PARTICULAR BUSINESS AND MONEY IS REALIZED BOTH FROM THE MEMBERS AND FROM NON-MEMBERS FOR THE SAME CONSIDERA TION BY GIVING THE SAME OR SIMILAR FACILITIES TO ALL ALI KE IN RESPECT OF THE ONE AND THE SAME BUSINESS CARRIED ON BY IT, THE DEALINGS AS A WHOLE DISCLOSE THE SAME PROFIT EARNING MOTIVE AND ARE ALIKE TAINTED WITH COMMERCIALITY. BEING SO, WE ARE OF THE 6 ITA NOS.533 TO 536 /MDS/2013 & 1963 & 1964/MDS/2010 OPINION THAT THE ISSUE IS ALREADY SETTLED BY THE SU PREME COURT IN THE CASE OF BANGALORE CLUB CITED SUPRA. RESPECTF ULLY FOLLOWING THE ABOVE JUDGEMENT, WE ARE INCLINED TO H OLD THAT CONCEPT OF MUTUALITY IS NOT APPLICABLE TO INTEREST INCOME EARNED BY THE ASSESSEE ON INVESTMENTS. ACCORDINGLY, THIS GROUND IS DECIDED AGAINST THE ASSESSEE. 7. THE NEXT COMMON GROUND IN ITA NOS. 533 TO 536/MDS/2013 IS WITH REGARD TO SUSTAINING ADDITION ON THE APPLICATION OF SECTION 41(1) OF THE ACT IN COMPUTAT ION OF TAXABLE INCOME WITHOUT ASSIGNING ANY REASON OR JUST IFICATION. WHILE COMPLETING THESE ASSESSMENTS, ASSESSING OFFIC ER INVOKED PROVISIONS OF SECTION 41(1) OF THE ACT FOR THE REASON THAT THERE IS WRITTEN BACK OF CREDIT BALANCES TO PR OFIT AND LOSS ACCOUNT. THE COMMISSIONER OF INCOME TAX (APPEALS) I N THESE ASSESSMENT YEARS CONCLUDED THAT THE ASSESSING OFFICER IS JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 41(1) OF THE ACT AS THE LIABILITY CEASED TO EXIST. SECTION 41(1 ) REFERS TO AN ALLOWANCE OR DEDUCTION MADE IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY T HE 7 ITA NOS.533 TO 536 /MDS/2013 & 1963 & 1964/MDS/2010 ASSESSEE.ON THE WORDS OF THESE PROVISION, IT IS NOT SUFFICIENT THAT ALLOWANCE OR DEDUCTION HAS BEEN GRANTED IN THE ASSESSMENT TO THE ASSESSEE IN AN EARLIER ASSESSMENT YEAR; IT IS ALSO NECESSARY THAT ALLOWANCE OR DEDUCTION SO GR ANTED RELATES TO LOSS, EXPENDITURE OR TRADING LIABILITY B UT THERE IS NO SUCH FINDING GIVING BY THE LOWER AUTHORITIES TO THI S EFFECT. BEING SO, IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE BACK TO THE COMMISSIONER OF INCOME TAX (APPEALS) TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. 8. THE NEXT COMMON ISSUE IN ITA NOS. 534, 535 & 536/MDS/2013 IS WITH REGARD TO SUSTAINING THE ADDIT ION IN RESPECT OF MISCELLANEOUS RECEIPTS / SPONSORSHIP REC EIPTS BY REJECTING THE APPLICABILITY OF PRINCIPLES OF MUTUAL ITY IN COMPUTATION OF TOTAL INCOME. 9. AS DISCUSSED IN EARLIER PARAGRAPHS WITH REGARD T O INTEREST INCOME, WE ARE OF THE OPINION THAT CONCEPT OF MUTUALITY CANNOT BE APPLIED WITH THIS INCOME/ RECEI PTS AS HELD BY THE SUPREME COURT IN THE CASE OF BANGALORE CLUB CITED SUPRA. HOWEVER, WE MAKE IT CLEAR THAT ONLY NE T INCOME 8 ITA NOS.533 TO 536 /MDS/2013 & 1963 & 1964/MDS/2010 TO BE CONSIDERED AND NOT THE GROSS INCOME FOR THE P URPOSE OF TAXATION AND THE ASSESSEE SHALL BE GIVEN AN OPPORTU NITY TO FURNISH THE DETAILS OF EXPENSES INCURRED. WITH THES E OBSERVATIONS, WE REMIT THIS ISSUE ALSO TO THE FILE OF THE COMMISSIONER OF INCOME TAX (APPEALS) FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW. 10. IN THE RESULT, APPEALS OF THE REVENUE IN ITA NO S.1963 & 1964/MDS/2010 ARE ALLOWED AND APPEALS OF THE ASSESS EE IN ITA NOS.533 TO 536/MDS/2013 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JUNE, 2015 SD/- SD/- ( . ) ( # ) ( V.DURGA RAO ) ( CHANDRA POOJARI ) & ' / JUDICIAL MEMBER ' / ACCOUNTANT MEMBER & /CHENNAI, * /DATED 19 TH JUNE, 2015 SOMU ,- .- /COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3. / () /CIT(A) 4. / /CIT 5. - 3 /DR 6. /GF .