ITO, Panchkula V. M/s Gymkhana Club, Panchkula

ITA 252/CHANDI/2007

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6870 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 23-05-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 01-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDER KANTA
• Assessee Lawyers: S K MUKHI
• Keywords: Source of fund; Tax effect

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, A, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER& DR.B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 1084/CHD/2009 ASSESSMENT YEAR: 2006-07 THE ITO, VS. GYMKHANA CLUB, SECTOR 6, WARD-2, PANCHKULA PANCHKULA PAN NO. AAATG0115B ITA NO. 364/CHD/2003 ASSESSMENT YEAR: 2001-02 THE ITO, VS. GYMKHANA CLUB, SECTOR 6, WARD-4, PANCHKULA PANCHKULA PAN NO. AAATG0115B ITA NO. 777/CHD/2007 ASSESSMENT YEAR: 2004-05 THE ITO, VS. GYMKHANA CLUB, SECTOR 3, WARD-2, PANCHKULA PANCHKULA PAN NO. AAATG5668E ITA NO. 778/CHD/2007 ASSESSMENT YEAR: 2004-05 THE ITO, VS. GYMKHANA CLUB, SECTOR 6, WARD-2, PANCHKULA PANCHKULA PAN NO. AAATG0115B 2 ITA NO. 252/CHD/2007 ASSESSMENT YEAR: 2003-04 THE ITO, VS. GYMKHANA CLUB, SECTOR 3, WARD-2, PANCHKULA PANCHKULA PAN NO. AAATG5668E & ITA NO. 535/CHD/2014 ASSESSMENT YEAR: 2010-11 THE ITO, VS. GYMKHANA CLUB, SECTOR 6, WARD-3, PANCHKULA PANCHKULA PAN NO. AAATG0115B (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. CHANDERKANTA RESPONDENT BY : SH. S.K. MUKHI DATE OF HEARING : 03.08.2017 DATE OF PRONOUNCEMENT : 26.09.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE CAPTIONED APPEALS HAVE BEEN RESTORED BACK BY THE HON'BLE HIGH COURT OF PUNJAB & HARYANA FOR DECISION S AFRESH VIDE SEPARATEORDERS DATED 30.11.2015 PASSED IN ITA NOS. 690 OF 2005 (O&M), 70 OF 2006 (O&M), ITA NO. 243 TO 246 OF 2006 , 420 OF 2006, 553 OF 2008 (O&M), 883 OF 2008(O&M) AND DATED 5.1.2 2015IN ITA NOS. 277 &278 OF 2011(O&M). THE HON'BLE HIGH COURT HAS DIRECTED 3 TO ADJUDICATE THE ISSUE AS PER DIRECTIONS GIVEN IN THE DECISION OF THE HON'BLE HIGH COURT PASSED IN ITA NO. 690 OF 2005 (O &M) DATED 30.11.2015. 2. THE COMMON ISSUE IN ALL THE APPEALS INVOLVED IS AS TO WHETHER THE PRINCIPLE OF MUTUALITY WOULD BE APPLICABLE IN THE CASE OF ASSESSEE OR NOT. 3. THIS IS THE SECOND ROUND OF APPEAL BEFORE US. TH E BRIEF FACTS RELEVANT TO THE ISSUE HAVE BEEN TAKEN FROM ITA NO. 1084/CHD/2009 FOR ASSESSMENT YEAR 2006-07. THE ASSESSEE, GYMKHANA CL UB, SECTOR 6, PANCHKULA HAS BEEN INCORPORATED AS A SOCIETY REGIST ERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 ON 17.1.1994 BY TH E REGISTRAR OF SOCIETIES, HARYANA. THE ASSESSEE CLUB FILED ITS RE TURN OF INCOME FOR ASSESSMENT YEAR 2006-07 ON 31.10.2006 RETURNING NIL INCOME ON THE GROUND THAT IT WAS A MUTUAL CONCERN. THE CASES WAS PICKED UP FOR SCRUTINY BY THE ASSESSING OFFICER. THE ASSESSING O FFICER PERUSED THE TAX AUDIT REPORT FOR ASSESSMENT YEAR 2006-07 FILED BY THE ASSESSEE AND NOTICED THAT THERE WAS SURPLUS OF INCOME OVER EXPEN DITURE AT RS.35,72,081/- INCLUDING INTEREST INCOME AMOUNTING TO RS.21,95,943/-. HE ALSO EXAMINED THE CLAIM OF THE ASSESSEE THAT IT WAS A MUTUAL CONCERN AND, THEREFORE, EXEMPT FROM TAX. HE SCRUTI NIZED THE MEMORANDUM OF ASSOCIATION AND THE BY-LAWS OF THE SO CIETY AND NOTICED THAT THE MANAGEMENT AND CONTROL OF THE ASSE SSEE WAS WHOLLY AND EXCLUSIVELY VESTED IN HUDA (HARYANA URBAN DEVEL OPMENT AUTHORITY) AND, THEREFORE, IT WAS DE-FACTO AN EXTEN DED ARM OF HUDA. 4 HE NOTICED THAT THE ASSESSEE HAD MADE SUBSTANTIAL I NVESTMENTS IN THE FORM OF FDRS IN BANK OVER WHICH THE MEMBERS HAD NO CONTROL AND THAT IT WAS HUDA WHICH ACTUALLY HAD CONTROL OVER THE FUN DS INCLUDING FDRS. HE ALSO NOTICED THAT THE CONTRIBUTORS TO TH E FUNDS WERE NEITHER ENTITLED TO PARTICIPATE IN THE SURPLUS NOR OTHERWIS E HAD ANY SAY IN THE MANAGEMENT INCLUDING FINANCES/FUNDS OF THE CLUB. H E ALSO NOTICED THAT THE CLUB FACILITIES WERE BEING EXTEND TO CERTA IN NON-MEMBERS AGAINST PAYMENTS MADE BY THEM AND THUS CLUB IS ALSO INVOLVED IN PROFIT MAKING ACTIVITIES FROM THIRD PARTIES. TAKI NG INTO ACCOUNT THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AS NARRATED IN DETAIL IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HELD TH AT THERE WAS NO IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPA NTS AND, THEREFORE, HE REJECTED THE CLAIM OF THE ASSESSEE THAT IT WAS A MUTUAL CONCERN. IN SUPPORT OF HIS DECISION, THE ASSESSING OFFICER RELI ED UPON SEVERAL DECISIONS INCLUDING THOSE OF THE HON'BLE JURISDICTI ONAL HIGH COURT. IN THIS VIEW OF THE MATTER THE ENTIRE SURPLUS SHOWN BY THE ASSESSEE IN ITS ACCOUNT INCLUDING INTEREST INCOME WAS BROUGHT TO TA X BY THE ASSESSING OFFICER. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (A) WHO, FOLLOWING THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05, ALLOWED THE CLAIM OF THE A SSESSEE. 5. AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONE R OF INCOME TAX (A), THE DEPARTMENT PREFERRED APPEAL BEFORE THI S TRIBUNAL.THE 5 TRIBUNAL VIDE ORDER DATED 28.2.2011 DISMISSED THE A PPEAL OF THE REVENUE OBSERVING THAT THE FACTS FOR THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2006-07 WERE IDENTICAL TO THAT OF A SSESSEES CASE FOR ASSESSMENT YEAR 2004-05. THAT EVEN IN THE EARLIER YEARS, THE ISSUE HAD CONSISTENTLY BEEN DECIDED BY THE TRIBUNAL IN FA VOUR OF THE ASSESSEE. THE MATTER HAD BEEN FURTHER CARRIED OVER TO THE HON'BLE HIGH COURT WHICH WAS PENDING FOR ADJUDICATION. IT WAS, THEREFORE, HELD THAT THERE WAS NO REASONS TO DEVIATE FROM THE RATIO LAID DOWN IN EARLIER DECISIONS OF THE TRIBUNAL. THE TRIBUNAL ACC ORDINGLY DISMISSED THE APPEAL OF THE REVENUE AND HELD THAT THE PRINCIP LE OF MUTUALITY WAS APPLICABLE TO THE ASSESSEE CLUB AND, HENCE, THE INC OME OF THE ASSESSEE CLUB WAS NOTTAXABLE. IT IS PERTINENT TO MENTION HER E THAT EARLIER THE ISSUE WHETHER THE PRINCIPLE OF MUTUALITY APPLIES TO THE ASSESSEE CONCERN HASARISEN IN ASSESSMENT YEAR 1997-98. THE M ATTER TRAVELLED TO THE HON'BLE HIGH COURT. THE HON'BLE JURISDICTIONAL HIGH COURT WHILEADJUDICATING THE ISSUE AS TO WHETHER THE PRINC IPLE OF MUTUALITY WOULD BE APPLICABLE IN THE CASE OR NOT, WHILE RELY ING UPONTHE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF BANGLORE CLUB VS. CIT (2013) 350 ITR 509 (SC) SUMMED UP TH E CONDITIONS LAID DOWN FOR THE APPLICABILITY OF DOCTRINE. THE RE LEVANT PARTOF THE ORDER DATED 30.10.2015 PASSED IN ITA NO. 690 OF 200 5 FOR ASSESSMENT YEAR 1997-98 IS REPRODUCED AS UNDER:- 13. THE CONDITIONS FOR INVOKING THE PRINCIPLE OF MUTUALITY HAVE BEEN RECENTLY ENUMERATED BY THE APEX COURT IN BANGALORE CLUB'S CASE (SUPRA) WHEREIN AFTE R CONSIDERING VARIOUS OTHER PRONOUNCEMENTS OF THE 6 SUPREME COURT AND THE HIGH COURT ON THE SUBJECT, IT HAS BEEN LAID DOWN THAT PRINCIPLE OF MUTUALITY RELA TES TO THE NOTION THAT A PERSON CANNOT MAKE A PROFIT FR OM HIMSELF. THE CONCEPT OF MUTUALITY HAS BEEN EXTENDED TO DEFINED GROUPS OF PEOPLE WHO CONTRIBUTE TO A COMMON FUND, CONTROLLED BY THE GROUP, FOR A COMMON BENEFIT . ANY SURPLUS AMOUNT TO THAT NEEDED TO PURSUE THE COMMON PURPOSE IS SAID TO BE SIMPLY AN INCREASE OF THE COMMON FUND AND AS SUCH NEITHER CONSIDERED INCOME NOR TAXABLE. BROADLY, THE FOLLOWING CONDITIONS HAVE BEEN LAID DOWN FOR THE APPLICABILITY OF DOCTRINE OF MUTUALITY:- (I) THE FIRST CONDITION TO INVOKE THE PRINCIPLE OF MUTUALITY REQUIRES THAT THERE MUST BE A COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS; (II) THE SECOND FEATURE DEMANDS THAT THE ACTION OF THE PARTICIPANTS AND THE CONTRIBUTORS MUST BE IN FURTHERANCE OF THE MANDATE OF THE ASSOCIATION. HOWEVER, IN THE CASE OF A CLUB, THE STEPS HAVE TO B E TAKEN IN FURTHERANCE OF ACTIVITIES THAT BENEFIT THE CLUB AND IN TURN ITS MEMBERS. THE CONDITION POSTULATES A DIRECT STEP WITH DIRECT BENEFITS TO THE FUNCTIONING OF THE CLUB. THE MANDATE OF THE CLUB REQUIRES TO BE EXAMINED IN THE FACTUAL MATRIX KEEPING IN VIEW THE MEMORANDUM OR ARTICLES OF ASSOCIATION, RULES OF MEMBERSHIP, RULES OF THE ORGANIZATION ETC. HOWEVER, IT CANNOT BE CONSTRUED MYOPICALLY. IN SOME SITUATIONS, THE BENEFIT MAY BE EVIDENT DIRECTLY IN THE SHORT RU N, IN OTHERS, THEY MAY BE ACCRUABLE TO AN ORGANIZATION INDIRECTLY, IN THE LONG RUN AND THE SPACE MUST BE M ADE FOR BOTH SUCH FORMS OF INTERACTIONS BETWEEN THE ORGANIZATION AND ITS MEMBER; (III) FURTHER, THERE MUST BE NO SCOPE OF PROFITEERI NG BY THE CONTRIBUTORS FROM A FUND MADE BY THEM WHICH COU LD ONLY BE EXPENDED OR RETURNED TO THEMSELVES AND IT I S A DIFFICULT QUESTION OF FACT THAT AT WHAT POINT MUTUA LITY ENDS AND COMMERCIALITY BEGINS. 7 6. THE HON'BLE HIGH COURT FURTHER OBSERVED THAT THE TRIBUNAL WHILE ADJUDICATING THE APPEAL HAD NOT RECORDED ANY DEFINI TE FINDINGOF FACTON THE BASIS OF THE LEGAL ENUNCIATIONS ON THIS ISSUE. THE HON'BLE HIGH COURT THEREFORE, REMANDED THE MATTER BACK TO THE TR IBUNAL TO ADJUDICATE THE SAME AND PASS A SPEAKING ORDER AFTER HEARING BOTH THE PARTIES. FOLLOWING THE SAID ORDER DATED 30.11.2015 FOR ASSESSMENT YEAR 1997-98 PASSED IN ITA NO. 690 OF 2005 (O&N), THE HO N'BLE HIGH COURT SUBSEQUENTLY RESTORED THE MATTER TO THE FILE OF THE TRIBUNAL FOR ALL SUBSEQUENT YEARS ACCORDINGLY. 7. THE APPEALS OF THE DEPARTMENT IN SOME OF THE YEA RS HAVE ALREADY BEEN DISMISSED BEING TAX EFFECT INVOLVED THEREIN LE SS THAN RS. 10 LAKHS AND THUS THE SAME BEING NOT MAINTAINABLE AS PER CIR CULAR NO. 21/2015 OF CBDT DATED 10.12.2015, WHICH HAS BEEN MADE APPLI CABLE RETROSPECTIVELY TO THE PENDING APPEALS ALSO. SINCE THE TAX EFFECT INVOLVING IN THE CAPTIONED APPEALS IS MORE THAN THE MONETARY LIMIT PRESCRIBED, HENCE, THE CAPTIONED APPEALS WEREHEARD ON MERITS AS DIRECTED BY THE HON'BLE HIGH COURT. 8. THE MAIN CONTENTION OF THE REVENUE IS THAT THE A SSESSEE CLUB HAS BEEN FORMED UNDER THE CONTROL OF HARYANA URBAN DEVE LOPMENT AUTHORITY (HUDA) WHICH IS AUTHORITY ESTABLISHED BY HARYANA GOVERNMENT. HUDA IS TOTALLY A GOVERNMENT ENTITY. TH E CHIEF ADMINISTRATOR OF HUDA IS AN EX-OFFICIO PRESIDENT OF THE ASSESSEE CLUB. THE MEMORANDUM OF ASSOCIATION FURTHER PROVIDES FOR CONSTITUTION OF A BOARD OF PATRONS CONSISTING OF VICE CHAIRMAN, HUDA & CHIEF 8 SECRETARY TO THE GOVT. OF HARYANA, P.S.C.M., COMMIS SIONER & SECRETARY TO GOVT. OF HARYANA IN THE DEPARTMENT OF TOWN & COUNTRY PLANNING, CHIEF ADMINISTRATOR, HUDA AND A REPRESENT ATIVE OF DEFENSE SERVICES (WESTERN COMMAND) NOT BELOW THE RA NK OF LT. GEN. (TO BE NOMINATED). THE BOARD OF PATRONS HAS VETO POWER ON THE DECISIONS TAKEN BY ANY COMMITTEE/BODY OF THE SOCIET Y. THE MEMORANDUM OF ASSOCIATION ALSO PROVIDES FOR THE CON STITUTION OF AN EXECUTIVE COMMITTEE TO LOOK AFTER THE DAY-TO-DAY MA NAGEMENT OF THE CLUB. THE EXECUTIVE COMMITTEE CONSISTS OF THE PRES IDENT WHO HAS NECESSARILY TO BE THE CHIEF ADMINISTRATOR, HUDA, VI CE PRESIDENT OF THE SOCIETY WHO HAS TO BE THE ADMINISTRATOR OF HUDA AND SIMILAR OTHER OFFICERS OF THE GOVT. THE ABOVE-MENTIONED OFF ICIALS OF HUDA EXERCISE CONTROL OVER THE ASSESSEE CLUB.THAT ASSESS EE CLUB IS NOT INDEPENDENT ENTITY BUT WORKING UNDER THE CONTROL OF HUDA. ALL THE FINANCIAL DECISIONS ARE BEING TAKEN BY HUDA AUTHORI TY. BESIDES THIS, PRESIDENT, VICE PRESIDENT AND OTHER MEMBERS ARE ALS O NOT ELECTED FROM THE MEMBERS OF THE CLUB. ALL THE EXPENDITURE IS IN CURRED THROUGH HUDA. THIS ISSUE OF CONTROL IS BEING HIGHLIGHT TO S HOW THAT THERE IS NO COMPLETE EQUALITY BETWEEN THE CONTRIBUTORS OF TH E CLUB. FURTHER, THE ASSESSEE CLUB IS RECEIVINGINTEREST INCOME FROM FIXE D DEPOSITS HELD WITH VARIOUS BANKS. THESE AMOUNTS DEPOSITED IN FIXED DEP OSITS HAVE MOSTLY BEEN RECEIVED FROM MEMBERS OF THE CLUB AS MEMBERSHI P FEE, RENEWAL FEE OR IN THE FORM OF OTHER CHARGES LIKE SUBSCRIPTI ONS AND GUEST CHARGES. THIS WHOLE AMOUNT IS DEPOSITED WITH VARIOU S BANKS. THE WITHDRAWALS OF THIS AMOUNT AND THE USE TO WHICH IT CAN BE PUT, IS 9 TOTALLY IN THE HANDS OF THE MANAGEMENT OF THE CLUB, WHICH COMPRISES, THE OFFICIAL OF HARYANA GOVERNMENTI.E. CHIEF ADMINI STRATOR. IT HAS ALSO BEEN CONTENDED THAT AS PER CLAUSE 5(D) OF THE MEMORANDUM OF ASSOCIATION, UPON THE WINDING UP OR DISSOLUTION OF THE SOCIETY, IF, THERE REMAINS AFTER SATISFACTION OF ALL ITS DEBTS A ND LIABILITIES ANY PROPERTY,THE SAME SHALL NOT BE PAID TO OR DISTRIBUT ED AMONG THE MEMBERS OF THE SOCIETY, BUT SHALL BE GIVEN OR TRANS FERRED TO SOME OTHER INSTITUTION HAVING OBJECTS SIMILAR TO THE OBJECTS O F THE SOCIETY TO BE DETERMINED BY MEMBERS OF THE SOCIETY AT OR BEFORE T HE TIME OF DISSOLUTION. THE LD. DR THEREFORE HAS CONTENDED THA T THE SURPLUS IS NOT SHARED BY MEMBERS OF THE CLUB, HENCE PRINCIPLE OF M UTUALITY DOES NOT APPLY TO THE CASE OF ASSESSEE SOCIETY. 9. ON THE OTHER HAND, THE CONTENTION OF THE LD. AR HAS BEEN THAT THOUGH, ASPER THE MEMORANDUM OFASSOCIATION, FORADMINISTRATIVEPURPOSES, THE MANAGEMENT OF THE CL UB HAS BEEN GIVEN TO THE HIGH OFFICIALS OF THE HUDA, HOWEVER, THE FUN DS OF THE CLUB ARE USED FOR THE COMMON PURPOSES AND BENEFITS OF MEMBER S.CONTRIBUTIONS TO THE FUNDS AS WELL AS PARTICIPATORS WERE COMPLETE LY IDENTIFIABLE. THAT AS PER THE OBJECTS OF THE SOCIETY FUNDS OF THE CLUB CAN BE APPLIED TOWARDS THE PROMOTION OF THE OBJECTS OF THE CLUB AN D NO PORTION THEREOF CAN BE PAID OR TRANSFERRED DIRECTLY OR INDI RECTLY TO THE MEMBERS OF THE CLUB / SOCIETY. HE HAS ALSO RELIED UPON THE WINDING UP CLAUSE IN THE MEMORANDUM OF THE SOCIETY AND HAS SUBMITTED THAT AFTER SATISFYING ITS LIABILITIES, THE REMAINING ASSETS / PROPERTIES IS NOT TO BE 10 PAID OR DISTRIBUTED AMONG THE MEMBERS OF THE SOCIE TY BUT SHALL BE GIVEN OR TRANSFERRED TO SOME OTHER INSTITUTION HAV ING OBJECTS SIMILAR TO THAT OF THE SOCIETY. HE, THEREFORE, HAS STATED T HAT NO PROFIT ELEMENT IS INVOLVED IN THE ACTIVITIES OF THE SOCIETY AND TH AT THE PRINCIPLE OF MUTUALITY IS APPLICABLE TO THE ASSESSEE SOCIETY. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND HA VE ALSO GONE THROUGH THE RECORDS. BEFORE GOING DEEP IN THE CONT ROVERSY, IT IS IMPERATIVE TO FIRSTLY DISCUSS THE AIMS / OBJECTIVES AND OTHER RELEVANT CONDITIONS AND CLAUSES REGARDING ITS CONSTITUTION A ND MEMBERSHIP. THE AIMS AND OBJECTS OF THE SOCIETY HAVE BEEN ENUMERATE D IN PARA 4 OF THE MEMORANDUM OF ASSOCIATION, WHICH READS AS UNDER:- AIMS/ OBJECTIVES & FUNCTIONS OF THE SOCIETY THE OBJECTIVES FOR WHICH THE SOCIETY IS FORMED ARE - I) TO AFFORD ITS MEMBERS ALL THE USUAL PRIVILEGES, ADVANTAGES AND CONVENIENCES OF A CLUB SOCIETY. II) TO PROMOTE UNDERSTANDING AND AMITY AMONGST THE MEMBERS OF THE CLUB / SOCIETY III) TO PROVIDE FACILITIES FOR DEVELOPMENT OF PHYSICAL, CULTURAL AND TAKING OF HEALTHY EXERCISES,BY PROVIDING ALL TYPE OF AMENITIES FOR IMPARTINGINSTRUCTIONS, IN THE GAMES SUCH AS SWIMMING, TENNIS,BADMINTON, TABLE TENNIS,BILLIARDS, SQUASH AND OTHER INDOOR AS WELL AS OUTDOOR GAMES ETC. IV) TO INVITE AS AND WHEN FEASIBLE, RENOWNED ARTISTS, MASTERS, SPORTSMEN, CULTURALLEADERS, SCHOLARS, SCIENTISTS AND CREATIVE ARTISTS, WHO MAY OR MAY NOT BE MEMBERS OF THE SOCIETY TO TAKE ADVANTAGE OF THE FACILITIES OFFERED BY THE SOCIETY. 11 V) TO PROMOTE OR HOLD EITHER ALONE OR JOINTLY WITH ANY ASSOCIATION OR PERSONS, MEETINGS, TOURNAMENTS, COMPETITIONS AND MATCHES RELATING TO GAMES TO OTHER HEALTHEXERCISE AND TO OFFER, GIVE OR CONTRIBUTE PRIZES, MEDAL AND AWARDS AND TO PROMOTE, GIVE OR SUPPORT DANCE, CONCERTS AND OTHER SOCIAL SUPPORTING OR CULTURAL, ENTERTAINMENTS EVENTS. VI) TO ESTABLISH, PROMOTE OR ASSIST IN ESTABLISHING OR PROMOTING AND TO SUBSCRIBE TO OR BECOME A MEMBER OF ANY OTHER ASSOCIATION WHOSE OBJECTS ARE SIMILAR OR IN PART OF SIMILAR TO THE OBJECTS OF THE CLUB OR THE ESTABLISHMENT OR PROMOTION OF WHICH MAY BE BENEFICIAL TO THE CLUB. THE HUDA GYMKHANA CLUB MAY AFFILIATE WITH ANY OTHER CLUB. 11. ARTICLE 5 DEALS WITH THE CONDITION WHICH PROV IDES THAT INCOME AND PROPERTY OF THE SOCIETY SHALL BE APPLIED TOWARD S THEPROMOTION OF THE OBJECTS OF THE SOCIETY AND NO PART THEREOF SHAL L BE TRANSFERREDDIRECTLY OR INDIRECTLY TO THE MEMBERS OF THE SOCIETY. FURTHER, NO MEMBER OF THE GOVERNING BODY OF THE SOC IETY SHALL BE PAID ANY SALARY. FURTHER, CLAUSE (D) OF ARTICLE 5, AS DISCUSSED ABOVE, PROVIDES THAT ON ITSDISSOLUTION OF THE CLUB, THE PR OPERTY WILL NOT VEST IN THE MEMBERS OF THE SOCIETY RATHER THE SAME SHALL BE TRANSFERRED TO SOME OTHER INSTITUTION HAVING OBJECTS SIMILAR TO TH E OBJECTS OF THE SOCIETY. ARTICLE 6 DEALS WITH MANAGEMENT AND AFFAI RS OF THESOCIETY WHICH SAYS THAT THE SAME WILL REST IN A GOVERNINGBO DY OF WHICH THE FOLLOWING WILL BE THE FIRST MEMBERS: 12 S.NO. NAME ADDRESS OCCUPATION DESIGN. 1 SH. BHASKAR CHATTERJEE CHIEF ADMINISTRATOR SERVICE PRESIDENT 2 SH. K.K.KHANDELWAL ADMINISTRATOR, HUDA, PANCHKULA VICE PRESIDENT 3 SH. PARVEEN KUMAR ESTATE OFFICER, HUDA, PANCHKULA SERVICE` GENERAL SECRETARY 4 SH. S.C. KANSAL C.C.G.HUDA SERVICE TREASURER 5 SH. S.K. SARDANA LEGAL REMEMBRANCE, HUDA SERVICE JOINT SECRETARY 6 SH. T.R. SHARMA D.C. PANCHKULA SERVICE MEMBER 7 SH. K.P.SINGH S.P. PANCHKULA SERVICE MEMBER 8 SH. S.K.MONGA ADMINISTRATOR (HQ) SERVICE MEMBER 9 SH. B.P. SINHA C.T.P. HUDA SERVICE MEMBER 10 SH. R.C. TANEJA S.E. HUDA SERVICE MEMBER THEREAFTER, WE FIND MENTION OF THE NAMES OF 11 PERS ONS WHO HAVE DECIDEDTO FORM THE SOCIETY IN THE NAME OF GYMKHANA CLUB, SECTOR 6, AND PANCHKULA, AS UNDER:- 1 SH. G.S. OJHA, IAS CHIEF SECRETARY TO GOVERNMENT HARYANA 2 SH. DHARMENDRA KUMAR, IAS P.S.C.M. 13 3 SH. PRADEEP KUMAR, IAS COMMISSIONER & SECRETARY TO GOVERNMENT TOWN & COUNTRY & URBAN ESTATES 4 SH. BHASKERCHATERJEE, IAS CHIEF ADMINISTRATOR, HUDA, PANCHKULA 5 SH. K.K. KHANDELWAL ADMINISTRATOR, HUDA, PANCHKUL A 6 SH. S.R. MONGA, IAS ADMINISTRATOR (HQ), HUDA, MANI-MAJRA 7 SH. O.P. SARDANA LEGAL REMEMBRANCE, HUDA 8 SH. B.P. SINHA CHIEF TOWN PLANNER, HUDA 9 SH. S.K. KAPOOR CHIEF TOWN PLANNER, HARYANA 10 SH. S.L.GULATI CHIEF ENGINEER, HUDA 11 SH. PARVEEN KUMAR, HCS ESTATE OFFICER, HUDA PANCHKULA FURTHER, IT HAS BEEN PROVIDED AS UNDER:- CONSTITUTION: THERE WILL BE A BOARD OF PATRONS CONSISTING OF THE FOLLOWING:- 1 VICE CHAIRMAN, HUDA AND CHIEF SECRETARY TO GOVERNMENT. HARYANA CHAIRMAN, BOARD OF PATRONS 2 P.S.C.M. MEMBER 3 COMMISSIONER & SECRETARY TO GOVERNMENT. HARYANA, TOWN & COUNTRY PLANNING DEPARTMENT MEMBER 4 CHIEF ADMINISTRATOR, HUDA MEMBER 14 5 REPRESENTATIVE OF DEFENCE SERVICES (WESTERN COMMAND) NOT BELOW THE RANK OF LT. GEN. (TO BE NOMINATED) MEMBER THE BOARD OF PATRON SHALL HAVE THE ABSOLUTE POWERS IN TERMS OF TAKING DECISION PERTAINING TO ANY MATTER R ELATING TO CLUB AND TO DO ALL SUCH OTHER LAWFUL THINGS AS A RE INCIDENTAL OR CONDUCIVE TO THE ATTAINMENT OF THE AB OVE OBJECTS. IT WILL HAVE VETO POWER ON THE DECISION TA KEN TO ANY COMMITTEE / BODY RELATING TO THE CLUB. 5. MANAGEMENT OF THE CLUB- THE MANAGEMENT OF THE CLUB SHALL BE LOOKED AFTER BY AN EXECUTIVE COMMITTEE WITH THE FOLLOWING MEMBERS:- 1 PRESIDENT ONE 2 VICE-PRESIDENT ONE 3 GENERAL SECRETARY ONE 4 JOINT SECRETARY ONE 5 TREASURER ONE 6 EXECUTIVE MEMBER FIVE 7 NON OFFICIAL MEMBERS FOUR TOTAL 14 NOTE:- 1. THE CHIEF ADMINISTRATOR, HUDA WILL BE EX-OFFICIO PRESIDENT OF THE GYMKHANA CLUB, PANCHKULA. 2. THE ADMINISTRATOR, HUDA, PANCHKULA WILL BE EX- OFFICIO VICE PRESIDENT OF THE CLUB. 3. THE ESTATE OFFICER HUDA OR ANY OTHER OFFICER TO BE NOMINATED BY THE PRESIDENT OF THE CLUB WITH THE PRI OR 15 APPROVAL OF THE BOARD OF PATRONS WILL BE THE EX- OFFICIO GENERAL SECRETARY OF THE CLUB. 4. C.C.F. HUDA OR ANY OTHER OFFICER NOMINATED BY THE PRESIDENT OF THE CLUB WITH THE PRIOR APPROVAL OF TH E BOARD OF PATRONS WILL BE THE EX-OFFICIO TREASURER O F GYMKHANA CLUB. 5. THE JOINT SECRETARY OF THE CLUB SHALL BE NOMINATED BY THE PRESIDENT WITH THE PRIOR APPROVAL OF THE BOARD OF PATRONS. 6. OFFICE EXECUTIVE MEMBERS: 7. THERE WILL BE FIVE OFFICIAL EXECUTIVE MEMBERS TO BE NOMINATED BY THE PRESIDENT WITH THE PRIOR APPROVAL OF THE BOARD OF PATRONS 8. THERE WILL BE FOUR NON OFFICIAL MEMBER TO BE NOMINATED BY THE PRESIDENT GYMKHANAS CLUB, WITH THE PRIOR APPROVAL OF THE BOARD OF PATRONS. 12. THERE ARE SEPARATE CATEGORIES OF THE MEMBERS OF THE CLUB:- A) PERMANENT MEMBERS B) DEPENDENT MEMBERS C) CORPORATE MEMBERS D) HUDA MEMBERS E) SERVICE MEMBERS 13. IT HAS BEEN FURTHER PROVIDED THAT PERMANENTMEMB ER HAS TO PAY AN ENTRANCE FEE, ANNUAL SUBSCRIPTION, MONTHLY SUBSCRIP TION AND SUCH OTHER FEES AS MAY BE FIXED FROM TIME TO TIME BY THE EXECU TIVE COMMITTEE.THE DEPENDENT MEMBERS ARE THE SPOUSE AND DEPENDENT CHILDREN OF THE MEMBERS. GUEST OF THE PERMANENT ME MBERS CAN ALSO USE THE FACILITY ON PAYMENT OF CERTAIN AMOUNT. THE CORPORATE MEMBER 16 MEANS A LIMITED COMPANY OR AN ORGANIZATION WHO WILL HAVE THE RIGHT TO NOMINATE NOT MORE THAN THREE PERSONS WHO WILL BE ENTITLED TO ENJOY CLUBFACILITIES ON PAYMENT OF SUBSCRIPTION FEE. ANOT HER CLAUSE OF MEMBERS IS HUDA MEMBERS, WHO ARE MEMBERS OF THE AUT HORITY AND GAZETTED OFFICERS OF HUDA POSTED AT PANCHKULA/CHAND IGARH AND THEY ARE ELIGIBLE TO BECOMEPERMANENTMEMBERS ON PAYMENT O F FEE OF RS. 250/- AND MONTHLY SUBSCRIPTION OF RS. 50/- OR SUCH FEE AND SUBSCRIPTION AS MAY BE DETERMINED BY THE EXECUTIVE COMMITTEE. IN THE CATEGORY OF SERVICE MEMBERS, ALL THE CLASS-I & II O FFICERS OF THE STATE GOVERNMENT / CENTRAL GOVERNMENT, BOARDS / CORPORATI ONS ETC. HAVE BEEN MADE ELIGIBLE TO BECOME PERMANENTMEMBERS OF TH E CLUB ON PAYMENT OF FEE OF RS. 500/- AND MONTHLY SUBSCRIPTIO N OF RS. 50/- OR SUCH FEE AND SUBSCRIPTION AS MAY BE DETERMINED BY T HE EXECUTIVE COMMITTEE. THE ADMISSION OF ANY PERSON INTO ANY CAT EGORY OF THE MEMBERS OF THE CLUB IS SUBJECT TO THE DECISION OF T HE EXECUTIVE COMMITTEE. 14. THE MAIN THRUST OF THE LD. DR IS THAT THE CONTR IBUTION AND MANAGEMENT OF THE CLUBSOLELY RESTS WITH THE GOVERNM ENT OFFICIALS OF THE HUDA ONLY. THE NON-OFFICIALS OR THE MEMBERS FRO M THE PUBLIC HAVE NO SAY IN THE MANAGEMENT AND FUNCTIONING OF TH E CLUB. THE HIGH RANK OFFICIALS OF THE HUDA HAVE BEEN MADE EX.OFFICI O PRESIDENT, VICE PRESIDENT, SECRETARY, JOINT SECRETARY, TREASURER ET C. OF THE CLUB WHICH MEANS THAT ANY PERSON WHO WILL BE POSTED ON THE SAI D POSTS LIKE THAT OF CHIEF ADMINISTRATOR OR ADMINISTRATOR OF HUDA ETC., WILL 17 AUTOMATICALLY HOLD THE POSITION OF PRESIDENT ORVICE PRESIDENT AS PER THE RANK OF HIS POST IN HUDA IN THE EXECUTIVE COMMI TTEE OF THE CLUB. THE MEMBERS FROM THE PUBLIC CAN BE ADMITTED ONLY TO ENJOY THE FACILITIES OF THE CLUB ON PAYMENT OF SUBSCRIPTION F EE AND OTHER CHARGES BUT THEY ARE NOT ENTITLED TO HOLD ANY POSITION IN T HE MANAGEMENT OF THE CLUB EXCEPT THE FOUR NON-OFFICIAL MEMBERS TO BE NOM INATED BY THE PRESIDENT. 15. IN THE ABOVE BACKGROUND, NOW WE HAVE TO DISCUSS AS TO WHETHER THE PRINCIPE OF MUTUALITY APPLIES TO THE CLUB OR NOT. IT IS REVEALED THAT ORIGINALLY THE HIGHER RANK OFFICIALS OF THE HU DA HAVE CREATED AN ASSOCIATION IN THE NAME OF ASSESSEE SOCIETY I.E. GY MKHANA CLUB, PANCHKULA. IT WAS RESOLVED BY THEM THAT CERTAIN HIG H RANK OFFICIALS OF THE HUDA WILL BE ONLY WILL LOOK AFTER THE MANAGEMEN T OF THE SOCIETY. THE MEMBERSHIP WAS ALSO OPEN TO THE PERSONS FROM PU BLIC SUBJECT TO THE APPROVAL BY THE EXECUTIVE COMMITTEE. IT IS ALS O AN ADMITTED FACT THAT ONLY THE MEMBERS OF THE CLUB ARE ENTITLED TO E NJOY THE FACILITIES OF THE CLUB. IT IS ALSO AN ADMITTED FACT THAT SURPLUS IS TO BE EXPENDED FOR THE COMMON BENEFIT OF THE CLUB MEMBERS OR FOR CARRY ING OUT THE OBJECTIVES OF THE CLUB. ALL THE MEMBERS OF THE CLUB ENJOY THE EQUAL RIGHT SO FAR AS THE UTILIZATION OF THE FACILITIES O F THE CLUB OR THE COMMON BENEFITS OF THE MEMBERS ARE CONCERNED. AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF BANGLORE CLUB (SUPRA), THE PRINCIPAL OF MUTUALITY, RELATES TO TH E NOTION THAT A PERSON CANNOT MAKE A PROFIT FROM HIMSELF. AN AMOUNT RECEIV ED FROM ONESELF 18 IS NOT REGARDED AS INCOME AND IS THEREFORE, NOT SUB JECT TO TAX. THE CONCEPT OF MUTUALITY HAS BEEN HAS BEEN EXPLAINED TO DEFINE GROUP OF PEOPLE WHO CONTRIBUTE TO A COMMON FUND, CONTROLLED BY THE GROUP, FOR A COMMON BENEFIT. ANY AMOUNT SURPLUS TO THAT NEEDED TO PURSUE THE COMMON PURPOSES IS SAID TO BE SIMPLY AN INCREASE OF COMMON FUND AND AS SUCH NEITHER CONSIDERED INCOME NOR TAXABLE. IN T HE LIGHT OF THE ABOVE PRINCIPLES, WE HAVE TO DECIDE AS TO WHETHER T HE SURPLUS ACCRUED / COLLECTED DURING THE YEAR IS TAXABLE INCOME OF THE ASSESSEE OR THE SAME IS JUST THE COLLECTION OF THE COMMON FUND TO WHICH PRINCIPLE OF MUTUALITY APPLIES. 16. THE HON'BLE SUPREME COURT IN THE CASE OF BANGAL ORE CLUB (SUPRA) HAS ALSO DISCUSSED THE NATURE AND FUNCTIONI NG OF THE MUTUAL ORGANIZATIONS. IT HAS BEEN OBSERVED THAT A COMMON F EATURE OF MUTUAL ORGANIZATION IN GENERAL AND OF LICENSED CLUB IN PAR TICULAR IS THAT PARTICIPATORS USUALLY DO NOT HAVE PROPERTY RIGHT TO THEIR SHARES IN THE COMMON FUND, NOR THEY CAN SELL THEIR SHARE. AND WHE N THEY CEASE TO BE MEMBERS, THEY LOSE THEIR RIGHT TO PARTICIPATE WITHO UT RECEIVING A FINANCIAL BENEFIT FROM THE SURRENDER OF THEIR MEMBE RSHIP. A FURTHER FEATURE OF THE LICENSED CLUB IS THAT THERE ARE BOTH MEMBERSHIP FEE AND THE PRICE CHARGED FOR CLUB SERVICES ARE GREATER THA N THEIR COST AND FURTHER ADDITIONAL CONTRIBUTIONS. IT IS THIS KIND O F PRICE AND / OR ADDITIONAL CONTRIBUTIONS WHICH CONSTITUTES MUTUAL F UND. THE NATURE, FORMATION AND FUNCTIONING OF THE ASSESS EE CLUB BEFORE US ALSO RESEMBLES TO THE CHARACTERISTIC AND PARAMETERS OF A 19 MUTUAL ORGANIZATION AS DISCUSSED ABOVE. THE ONLY DI STINGUISHING FEATURE IN RESPECT OF THE ASSESSEE CLUB IS THAT THE MANAGEMENT AND CONTROL OF THE CLUB VESTS IN CERTAIN PRE-AUTHORIZED /PRE DETERMINED PERSONS ACCORDING TO THEIR RANK AND STATUS IN THE G OVERNMENT ORGANIZATION HUDA (HARYANA URBAN DEVELOPMENT AUTHOR ITY), WHICH MEANS THAT MEMBERS OF THE CLUB DO NOT ENJOY EQUAL R IGHTS SO FAR AS THE MANAGEMENT AND DECISION MAKING IN SOCIETY IS CONCER NED. THEY ALSO DO NOT HAVE VOTING RIGHTS TO ELECT THEIR REPRESENTA TIVES FOR RUNNING THE MANAGEMENT AND AFFAIRS OF THE CLUB ON THEIR BEHALF, RATHER, THE MEMBERS IN THE MANAGEMENT COMMITTEE COME BY DEFAUL T BECAUSE OF THEIR OFFICIAL POSITION IN HUDA. THIS BEING THE POS ITION, NOW WE EXAMINE AS TO WHETHER THE ASSESSEE CLUB CONFORMS TO THE PARAMETERS REQUIRED OF A MUTUAL ORGANIZATION. 17. ONE OF THE POINT OF VIEWS CAN BE THAT THE DECIS ION TO APPOINT EX- OFFICIO MEMBERS WAS TAKEN BY THE FIRST MEMBERS OF T HE CLUB AT THE TIME OF ITS CREATION WHICH ALSO FINDS MENTION IN THE MEM ORANDUM OF ASSOCIATION. THE OTHER MEMBERS ENTERING INTO THE CL UB HAVE AGREED TO THE AFORESAID AIMS AND OBJECTS, HENCE, IT CAN BE SA ID TO BE A MUTUAL DECISION OF THE MEMBERS OF THE CLUB TO ADOPT SUCH A PROCEDURE OF APPOINTING EX-OFFICIO MEMBERS IN THE MANAGEMENT COM MITTEE. THAT THE MEMBERS MAY MUTUALLY AGREE TO APPOINT ANY PERSON OR PERSONS OR TO GIVE RESPONSIBILITY TO ANY OF ITS MEMBERS TO RUN TH E DAY TO DAY AFFAIRS OF THE CLUB. HENCE MANAGEMENT OF THE CLUB HAS NOTHI NG TO DO WITH THE 20 MUTUAL STATUS OF THE CLUB. HOWEVER THIS VIEW HAS A REBUTTAL THAT IF THE MEMBERS HAVE A RIGHT TO MUTUALLY TAKE A DECISION TO APPOINT ANY PERSON/PERSONS IN THE MANAGEMENT, THEN THE MUST GOT RIGHT TO MUTUALLY TAKE A DECISION TO REMOVE OR DISCHARGE THAT PERSON /PERSONS FROM THE MANAGEMENT OF THE CLUB. RIGHT TO APPOINT INCLUDES R IGHT TO REMOVE OR DISCHARGE ALSO. NOW IF WE ADMIT THE PLEA THAT IT IS THE MUTUAL DECISION OF THE CLUB MEMBERS TO GIVE THE RESPONSIBILITY OF T HE MANAGEMENT OF THE CLUB TO THE HIGH RANK OFFICERS OF HUDA, WHETHER ANY RIGHT OF REVERSE ACTION THAT IS TO DIVEST THE OFFICIALS OF H UDA FROM THE MANAGEMENT OF THE CLUB LIES WITH THE MEMBERS OF THE CLUB? THE ANSWER IS NO. WE HAVE GONE THROUGH THE MEMORANDUM OF THE A SSOCIATION BUT HAVE NOT FOUND ANY CLAUSE GIVING ANY SUCH RIGHT IN PARTICULAR OR ANY OTHER RIGHT IN GENERAL TO THE MEMBERS OF THE CLUB I N GENERAL. ALL THE RIGHTS VESTS IN THE EXECUTIVE COMMITTEE. THE BOARD OF PATRON HAVE THE ABSOLUTE POWERS IN TERMS OF TAKING DECISION PERTAIN ING TO ANY MATTER RELATING TO CLUB.THEY HAVE VETO POWER ON THE DECISI ON TAKEN TO ANY COMMITTEE / BODY RELATING TO THE CLUB. UNDER THESE CIRCUMSTANCES, IT CAN NOT BE SAID THAT THE APPOINT OF MANAGEMENT OR V ESTING OF ALL RIGHTS RELATING TO THE RUNNING OF AFFAIRS OF THE CLUB INCL UDING TAKING FINANCIAL DECISIONS RELATING TO THE MANNER AND ITEMS ON WHICH THE SURPLUS IS TO BE APPLIED. IN GENERAL PARLANCE, AS WE UNDERSTAND, THE PARTICIPATION IN THE SURPLUS INCLUDES NOT ONLY THE RIGHT TO GET COMM ON BENEFIT OUT OF SURPLUS BUT ALSO THE RIGHT TO PARTICIPATE IN THE D ECISION MAKING AS TO IN WHAT MANNER OR ON WHAT ITEM OR SERVICES THE SURPLU S IS TO BE APPLIED. HAVING SAID SO, WE DO NOT MEAN THAT THE CONSENT OF EACH OR EVERY 21 MEMBER IS REQUIRED TO BE TAKEN, BUT IT MUST COME FR OM THE MEMBERS AS A CLASS OR BY OR THROUGH THEIR REPRESENTATIVES EITH ER ELECTED OR SELECTED MUTUALLY BY THE MEMBERS. IN THE CASE OF THE ASSESSE E CLUB, THE REPRESENTATIVES WHO TAKES THE DECISIONS RELATING TO THE CLUB ARE NEITHER ELECTED NOR SELECTED BY THE MEMBERS OF THE CLUB BUT THEY COME BY DEFAULT AS PER THE CLAUSE OF THE MEMORANDUM OF ASSO CIATION. EVEN THERE IS NOTHING PROVIDED IN THE MEMORANDUM OF ASSO CIATION THAT MEMBERS/ GENERAL BODY OF THE MEMBERS HAVE GOT ANY R IGHT TO BRING ANY CHANGE IN ANY CLAUSE OF THE MOA. AS DISCUSSED ABOVE , THE HON'BLE SUPREME COURT IN PARA 7 OF THE ORDER IN THE CASE OF BANGLORE CLUB (SUPRA) HAS OBSERVED THAT THE CONCEPT OF MUTUALITY HAS BEEN EXPLAINED TO DEFINE GROUP OF PEOPLE WHO CONTRIBUTE TO A COMMO N FUND, CONTROLLED BY THE GROUP , FOR A COMMON BENEFIT. IN THE CASE OF ASSESSEE CLUB, THOUGH THE CONTRIBUTION TO COMMON FUND FOR A COMMON BENEFIT IS PRESENT, HOWEVER, WE HAVE OUR DOUBTS, IN VIEW OF TH E DISCUSSION MADE ABOVE, THAT IT CAN IN THE REAL SENSE BE SAID THAT T HE CLUB IS CONTROLLED BY THE GROUP. HAVING SAID SO, THE NEXT QUESTION COMES AS TO WHETH ER THE ASSESSEE SOCIETYFALLS SHORT OF A MUTUAL ORGANIZATIO N, SO FAR AS THE TAXABILITY OF THE INCOME IS CONCERNED ? AS DISCUSSE D ABOVE, ALL THE CONTRIBUTORS ARE THE MEMBERS OF THE CLUB. THE SURPL US HAS TO BE EXPENDED FOR THE MUTUAL BENEFIT AND IN CARRYING OUT THE OBJECTS OF THE CLUB. THE REVENUE HAS NOT POINTED OUT ANY PROFIT MO TIVE SO FAR AS THE 22 COLLECTIONS, ACTIVITIES AND CONTRIBUTION OF THE FUN DS, ACTIVITIES RUN BY THE ASSESSEE CLUB AND THE PARTICIPATION IN THE FUND S IS CONCERNED. 18. NO DOUBT, CLAUSE (IV) OF THE MEMORANDUM OF ASSO CIATION PROVIDES TO INVITE NON-MEMBERS WHO ARE EMINENT PERS ONS OF THE SOCIETY SUCH AS RENOWNED ARTISTS, MASTERS, SPORTSME N, CULTURAL LEADERS, SCHOLARS, SCIENTISTS AND CREATIVE ARTISTS, TO TAKE ADVANTAGE OF THE FACILITIES OFFERED BY THE SOCIETY . IN OUR VIEW THAT ITSELF DOES NOT GIVE ANY IMPRESSION THAT INVITING SUCH MEMBERS TO ENJOY THE FACILITIES OF THE CLUB HAS ANY PROFIT MOTIVE. THE FACILITIES OF T HE CLUB ARE NOT OFFERED TO NON-MEMBERS AS A MATTER OF PRACTICE BUT IT IS RESTRICTED ONLY TO THE EMINENT PERSONS OF THE SOCIETY WHO ARE INVIT ED BY THE CLUB TO AVAIL THE FACILITIES OF THE CLUB. IT IS NOT THE CAS E OF THE REVENUE THAT FUNDS OF THE CLUB HAVE BEEN RAISED OR COLLECTED WIT H A PROFIT ELEMENT TO THE HUDA OR TO THE OFFICIAL MANAGEMENT WHO ARE E X-OFFICIO MEMBERS OF THE CLUB. NO DOUBT THE PARTICIPATION IN THE SURPLUS OF THE NON-OFFICIAL MEMBERS IS RESTRICTED TO THE ENJOYMENT AND USE OF FACILITIES OF THE CLUB AND THEY ARE NOT ENTITLED TO PARTICIPATE IN THE DECISION MAKING AS TO ON WHICH ACTIVITY AND IN WHAT MANNER FUNDS ARE TO BE EXPENDED FOR THE COMMON BENEFIT OF THE MEMBER S OR FOR CARRYING OUT THE OBJECTS OF THE CLUB. SUCH A RESTRICTION THO UGH MAY BE OF SOME IMPORTANCE WITH THE QUESTION AS TO THE MUTUALLY EQU AL RIGHTS IN THE MANAGEMENT OF CLUB IF ANY SUCH DISPUTE ARISES INTER SE BETWEEN THE MEMBERS. HOWEVER, SO FAR AS THE TAXABILITY OF THE S URPLUS IS 23 CONCERNED, THE SURPLUS FUNDS CANNOT BE SAID TO BE I NCOME OF THE SOCIETY AS THERE IS LACK OF BUSINESS PROFIT MOTIVE INVOLVED AND THE FUNDS SO COLLECTED HAVE TO BE NECESSARY EXPENDED FO R THE COMMON BENEFIT OF THE CONTRIBUTORS ONLY. IT HAS ALSO BEEN HELD TIME AND AGAIN THAT WHEN WE SPEAK OF THE CONTRIBUTIONS TO THE COMM ON FUND AND THE PARTICIPATION IN THE SURPLUS, THAT DOES NOT MEAN TH AT EACH MEMBER SHOULD CONTRIBUTE TO THE FUND OR THAT EACH MEMBER S HOULD PARTICIPATE IN THE SURPLUS BUT THEY HAVE TO BE SEEN AS A CLASS OF THE PERSONS WHO WERE CONTRIBUTING AND ARE ENTITLED TO PARTICIPATE I N THE SURPLUS. IT IS NOT THE MATTER THAT THE CLASS MAY BE DIMINISHED BY PERSONS COMING OUT OF THE SCHEME OR INCREASED BY OTHERS COMING IN. THE TAXATION UNDER THE INCOME TAX ACT IS TO BE DONE ON THE RECEIPTS OR THE INCOME OF THE SOCIETY. AS DISCUSSED ABOVE, THOUGH THE ASSESSEE CL UB MAY FALL SHORT OF THE DEFINITION OF MUTUAL ORGANIZATION IN COMMON PAR LANCE OR UNDERSTANDING OF THE TERM, HOWEVER, SO FAR AS THE T AXATION OF THE SURPLUS OUT OF THE CONTRIBUTIONS IS CONCERNED, THE SAME CANNOT BE SAID TO BE THE INCOME OF THE CLUB, BEING A COMMON FUND C OLLECTED FOR COMMON BENEFIT OF THE CONTRIBUTORS ONLY. SO FAR AS THE WINDING UP CLAUSE IS CONCERNED, THE L D. DR HAS STRESSED THAT ON WINDING UP, MEMBERS ARE NOT ENTITL ED TO SHARE ANY SURPLUS ON THE WINDING UP. AS DISCUSSED IN EARLIER PARAS OF THIS ORDER, IT HAS BECOME A COMMON FEATURE OF MUTUAL ORGANIZATI ONS IN GENERAL AND LICENSED CLUBS IN PARTICULAR THAT ON WINDING UP THE MEMBERS ARE NOT ENTITLED TO THE SHARE IN THE SURPLUS RATHER THE WHOLE OF THE SURPLUS 24 FUNDS IS DECIDED TO BE SPENT ON CHARITY OR GIVEN TO SOME OTHER ORGANIZATION HAVING SAME OR SIMILAR OBJECTIVES. HON BLE SUPREME COURT IN BANGLORE CLUBS CASE (SUPRA) IN PARA 15 OF THE JUDGEMENT HAS OBSERVED AS UNDER: 15. IN SHORT, THERE HAS TO BE A COMPLETE IDENTITY BETWEEN THE CLASS OF PARTICIPATORS AND CLASS OF CONTRIBUTORS; THE PARTICULAR LABEL OR FORM BY WHICH THE MUTUAL ASSOCIATION IS KNOWN IS OF NO CONSEQUENCE. KANGA & PALKHIVALA EXPLAIN THIS CONCEPT IN 'THE LAW AND PRACTICE OF INCOME TAX' (8T H EDN. VOL. I, 1990) AT P. 113 AS FOLLOWS: '...THE CONTRIBUTORS TO THE COMMON FUND AND THE PARTICIPATORS IN THE SURPLUS MUST BE AN IDENTICAL BODY. THAT DOES NOT MEAN THAT EACH MEMBER SHOULD CONTRIBUTE TO THE COMMON FUND OR THAT EACH MEMBER SHOULD PARTICIPATE IN THE SURPLUS OR GET BACK FROM THE SURPLUS PRECISELY WHAT HE HAS PAID.' THE MADRAS, ANDHRA PRADESH AND KERALA HIGH COURT HAVE HELD THAT THE TEST OF MUTUALITY DOES NOT REQUIRE THAT THE CONTRIBUTORS TO THE COMMON FUND SHOULD WILLY-NILLY DISTRIBUTE THE SURPLUS AMONGST THEMSELVES : IT IS ENOUGH IF THEY HAVE A RIGHT OF DISPOSAL OVER THE SURPLUS, AND IN EXERCISE OF THAT RIGHT THEY MAY AGREE THAT ON WINDING UP THE SURPLUS WILL BE TRANSFERRED TO A SIMILAR ASSOCIATION OR USED FOR SOME CHARITABLE OBJECTS....' 19. WE FURTHER, TAKING CLUE FROM THE OBSERVATIONS O F THE HONBLE SUPREME COURT IN BANGLORE CLUBS CASE (SUPRA), MAY ADD HERE THAT SOMETIMES THE RIGHT TO SHARE IN THE SURPLUS MAY LEA D TO A CONCLUSION OF INVOLVEMENT OF THE MOTIVE OF COMMERCIALITY IN THE O PERATION OR WORKING OF SUCH AN ORGANIZATION RESULTING INTO DENI AL OF THE BENEFIT OF 25 MUTUALITY. IN THIS RESPECT, THE HON'BLE SUPREME COURT IN BANG LORE CLUB (SUPRA) HAS REFERRED TO THE BRITISH COMMON LA W DECISIONS IN THE CASE OF STYLES (SURVEYOR OF TAXES) VS. NEW YORK LI FE INSURANCE CO (1889) 2 TC 460 AND IN THE CASE OF THOMAS VS. RICH ARD EVANS & CO LTD (1927) 11 TC 790 WHEREIN IT HAS BEEN HELD THAT IF PROFITS ARE DISTRIBUTED TO SHAREHOLDERS, THE PRINCIPLE OF MUTUA LITY IS NOT SATISFIED. FURTHER, IN THE CASE OF COMMISSIONER OF INCOME TAX , MADRAS VS. KUMBAKONAM MUTUAL BENEFIT FUND LTD., AIR 1965 SC 9 6, THE HON'BLE SUPREME COURT DENIED THE EXEMPTION ON DIFFE RENT FACTS OF THE CASE BEFORE IT FROM THOSE OF STYLES CASE (SUPRA) A ND DENIED THE EXEMPTION BECAUSE OF THE TAINT OF COMMERCIALITY, O BSERVING AS UNDER:- IT SEEMS TO US THAT IT IS DIFFICULT TO HOLD THAT S TYLEES CASE APPLIES TO THE FACTS OF THE CASE. A SHAREHOLDE R IN THE ASSESSEE COMPANY IS ENTITLED TO PARTICIPATE IN THE PROFITS WITHOUT CONTRIBUTING TO THE FUNDS OF THE COMPANY BY TAKING LOANS. HE IS ENTITLED TOR RECEIVED HIS DIVID END AS LONG AS HE HOLDS A SHARE. HE HAS NOT TO FULFIL ANY OTHER CONDITION. HIS POSITION IS IN NO WAY DIFFERENT FROM A SHAREHOLDER IN A BANKING COMPANY, LIMITED BY SHARES . INDEED, THE POSITON OF THE ASSESSEE IS NO DIFFERENT FROM AN ORDINARY BANK EXCEPT THAT IT LENDS MONEY TO AND RECEIVES DEPOSITS FROM THE SHAREHOLDERS. THIS DOES NOT BY ITSELF MAKE ITS INCOME ANY THE LESS INCOME FROM BUS INESS WITHIN S.10 OF THE INDIAN INCOME TAX ACT. 20. THE HON'BLE SUPREME COURT IN BANGALORE CLUB ( SUPRA) HAS FURTHER OBSERVED IN PARA 23 OF THE ORDER THAT IT I S A DIFFICULT QUESTION OF FACT AS AT WHAT POINT MUTUALITY ENDS AND COMMERC IALITY BEGINS. THE 26 HON'BLE SUPREME COURT HAS REFERRED TO THE DECISION OF THE CIT, BIHAR VS. BANKIPUR CLUB LTD., (1997) 5SCC 394., WHEREIN IT HAS BEEN OBSERVED AS UNDER:- AT WHAT POINT, DOES THE RELATIONSHIP OF MUTUALLY EN D AND THAT OF TRADING BEGIN IS A DIFFICULT AND VEXED QUESTION. A HOST OF FACTORS MAY HAVE TO BE CONSIDER ED TO ARRIVE AT A CONCLUSION. WHETHER OR NOT THE PERS ONS DEALING WITH EACH OTHER, IS A MUTUAL CLUB OR CARR YING ON A TRADING ACTIVITY OR AN ADVENTURE IN THE NATURE OF TRADE IS LARGELY A QUESTION OF FACT [WILCOCKS CAS E - 9 TAX CASES 111, (P.132); C.A. (1925)(1) KB 30 AT P.4 4 AND 45]. IN VIEW OF THE ABOVE, THERE CAN NOT BE SAID TO BE S TRAIGHT JACKET FORMULA TO SAY THAT IN EVERY A MUTUAL CONCERN THE M EMBERS MUST BE ENTITLED TO A SHARE IN THE SURPLUS. IN THE AFORESAI D CASE LAWS AS DISCUSSED BY THE HONBLE SUPREME COURT IN BANGLORE CLIUBS CASE (SUPRA), IF THE SCHEME OR THE MECHANISM OF FUNCTION ING OF A MUTUAL ORGANIZATION IS SO DEVISED THAT A TAINT OF COMMERCI ALITY IS INVOLVED, THE INCOME OF THE ORGANIZATION CAN BE SUBJECTED TO TAX. AS OBSERVED BY THE HONBLE SUPREME COURT, IT IS DIFFICULT AND V EXED QUESTION AS TO AT WHAT POINT OF TIME THE RELATIONSHIP OF MUTUALLY ENDS AND THAT OF TRADING BEGINS. SINCE THE AFFAIRS OF THE ASSESSEE T RUST ARE CONTROLLED BY THE SERVING OFFICERS OF HUDA, HENCE IT HAS TO PASS THROUGH GREATER SCRUTINY AS THE CHANCES OF IT CROSSING THE THIN LIN E BETWEEN THE MUTUALITY AND COMMERCIALITY ARE VERY HIGH. HOWEVER, AT THIS STAGE, SO FAR THE ASSESSMENT YEARS UNDER CONSIDERATION ARE CO NCERNED, THE REVENUE COULD NOT POINT OUT THE TAINT OF COMMERCIAL ITY IN THE 27 CONTRIBUTION, MANAGEMENT AND APPLICATION OF THE SUR PLUS COLLECTED THROUGH CONTRIBUTIONS AND SUBSCRIPTIONS FROM THE ME MBERS AND FOR PRICE OF THE FACILITIES AVAILED BY ITS MEMBERS, HEN CE, THE SAME CANNOT BE SAID TO BE TAXABLE INCOME OF THE SOCIETY. 21. SO FAR AS THE RECEIPT FROM INTEREST ON FDRS IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE SOCIETY HAS FAIRLY AGREED THAT THE ISSUE HAS BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE CA SE OF BANGLORE CLUB (SUPRA) AGAINST THE ASSESSEE BY OBSERVING AS U NDER: 25 . THIS BRINGS US TO THE FACTS OF THE PRESENT CASE. A S AFORESAID, THE ASSESSEE IS AN AOP. THE CONCERNED BA NKS ARE ALL CORPORATE MEMBERS OF THE CLUB. THE INTEREST EARNED FROM FIXED DEPOSITS KEPT WITH NON- MEMBER BA NKS WAS OFFERED FOR TAXATION AND THE TAX DUE WAS PAID. THEREFORE, WE ARE REQUIRED TO EXAMINE THE CASE OF T HE ASSESSEE, IN RELATION TO THE INTEREST EARNED ON FIX ED DEPOSITS WITH THE MEMBER BANKS, ON THE TOUCHSTONE O F THE THREE CUMULATIVE CONDITIONS, ENUMERATED ABOVE. 26. FIRSTLY, THE ARRANGEMENT LACKS A COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS. TILL TH E STAGE OF GENERATION OF SURPLUS FUNDS, THE SETUP RES EMBLED THAT OF A MUTUALITY; THE FLOW OF MONEY, TO AND FRO, WAS MAINTAINED WITHIN THE CLOSED CIRCUIT FORMED BY THE BANKS AND THE CLUB, AND TO THAT EXTENT, NOBODY WHO WAS NO T PRIVY TO THIS MUTUALITY, BENEFITED FROM THE ARRANGE MENT. HOWEVER, AS SOON AS THESE FUNDS WERE PLACED IN FIXE D DEPOSITS WITH BANKS, THE CLOSED FLOW OF FUNDS BETWE EN THE BANKS AND THE CLUB SUFFERED FROM DEFLECTIONS DUE TO EXPOSURE TO COMMERCIAL BANKING OPERATIONS. DURING T HE COURSE OF THEIR BANKING BUSINESS, THE MEMBER BANKS USED SUCH DEPOSITS TO ADVANCE LOANS TO THEIR CLIENTS. HE NCE, IN THE PRESENT CASE, WITH THE FUNDS OF THE MUTUALITY, MEMBER BANKS ENGAGED IN COMMERCIAL OPERATIONS WITH THIRD PARTIES OUTSIDE OF THE MUTUALITY, RUPTURING THE 'PR IVITY OF MUTUALITY', AND CONSEQUENTLY, VIOLATING THE ONE TO ONE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS AS MANDATED BY THE FIRST CONDITION. THUS, IN THE CASE BEFORE US THE FIRST CONDITION FOR A CLAIM OF MUTUALITY IS NOT SATISFIED. 28 27. AS AFORESAID, THE SECOND CONDITION DEMANDS THAT TO CLAIM AN EXEMPTION FROM TAX ON THE PRINCIPLE OF MUTUALITY, TREATMENT OF THE EXCESS FUNDS MUST BE IN FURTHERANCE OF THE OBJECT OF THE CLUB, WHICH IS NOT THE CASE HERE. IN THE INSTANT CASE, THE SURPLUS FUNDS W ERE NOT USED FOR ANY SPECIFIC SERVICE, INFRASTRUCTURE, MAINTENANCE OR FOR ANY OTHER DIRECT BENEFIT FOR THE MEMBER OF THE CLUB. THESE WERE TAKEN OUT OF MUTUALI TY WHEN THE MEMBER BANKS PLACED THE SAME AT THE DISPOS AL OF THIRD PARTIES, THUS, INITIATING AN INDEPENDENT C ONTRACT BETWEEN THE BANK AND THE CLIENTS OF THE BANK, A THI RD PARTY, NOT PRIVY TO THE MUTUALITY. THIS CONTRACT LA CKED THE DEGREE OF PROXIMITY BETWEEN THE CLUB AND ITS ME MBER, WHICH MAY IN A DISTANT AND INDIRECT WAY BENEFIT THE CLUB, NONETHELESS, IT CANNOT BE CATEGORIZED AS AN ACTIVIT Y OF THE CLUB IN PURSUIT OF ITS OBJECTIVES. IT NEEDS LIT TLE EMPHASIS THAT THE SECOND CONDITION POSTULATES A DIR ECT STEP WITH DIRECT BENEFITS TO THE FUNCTIONING OF THE CLUB. FOR THE SAKE OF ARGUMENT, ONE MAY DRAW REMOTE CONNECTIONS WITH THE MOST BRAZEN COMMERCIAL ACTIVIT IES TO A CLUBS FUNCTIONING. HOWEVER, SUCH IS NOT THE D ESIGN OF THE SECOND CONDITION. THEREFORE, IT STANDS VIOLA TED. 28. THE FACTS AT HAND ALSO FAIL TO SATISFY THE THIRD CONDITION OF THE MUTUALITY PRINCIPLE I.E. THE IMPOS SIBILITY THAT CONTRIBUTORS SHOULD DERIVE PROFITS FROM CONTRIBUTIONS MADE BY THEMSELVES TO A FUND WHICH CO ULD ONLY BE EXPENDED OR RETURNED TO THEMSELVES. THIS PRINCIPLE REQUIRES THAT THE FUNDS MUST BE RETURNED TO THE CONTRIBUTORS AS WELL AS EXPENDED SOLELY ON THE CONTRIBUTORS. TRUE, THAT IN THE PRESENT CASE, THE F UNDS DO RETURN TO THE CLUB. HOWEVER, BEFORE THAT, THEY ARE EXPENDED ON NON- MEMBERS I.E. THE CLIENTS OF THE BA NK. BANKS GENERATE REVENUE BY PAYING A LOWER RATE OF INTEREST TO CLUB-ASSESSEE, THAT MAKES DEPOSITS WITH THEM, AND THEN LOAN OUT THE DEPOSITED AMOUNTS AT A HIGHER RATE OF INTEREST TO THIRD PARTIES. THIS LOANING OUT OF F UNDS OF THE CLUB BY BANKS TO OUTSIDERS FOR COMMERCIAL REASO NS, IN OUR OPINION, SNAPS THE LINK OF MUTUALITY AND THUS, BREACHES THE THIRD CONDITION. 29. THERE IS NOTHING ON RECORD WHICH SHOWS THAT THE BANKS MADE SEPARATE AND SPECIAL PROVISIONS FOR THE FUNDS THAT CAME FROM THE CLUB, OR THAT THEY DID NOT LOAN THEM OUT. THEREFORE, CLEARLY, THE CLUB DID NOT GIVE, OR GET, THE TREATMENT A CLUB GETS FROM ITS MEMBERS; THE INTERAC TION BETWEEN THEM CLEARLY REFLECTED ONE BETWEEN A BANK A ND 29 ITS CLIENT. THIS DIRECTLY CONTRAVENES THE THIRD CON DITION AS ELUCIDATED IN STYLES (SURVEYOR OF TAXES) AND KUMBAKONAM MUTUAL BENEFIT FUND LTD. CASE S (SUPRA). ROWLATT J., IN OUR OPINION, CORRECTLY POIN TS OUT THAT IF PROFITS ARE DISTRIBUTED TO SHAREHOLDERS AS SHAREHOLDERS, THE PRINCIPLE OF MUTUALITY IS NOT SAT ISFIED. IN THOMAS (SUPRA), AT PP. 822-823, HE OBSERVED THUS : 'BUT A COMPANY CAN MAKE A PROFIT OUT OF ITS MEMBERS AS CUSTOMERS, ALTHOUGH ITS RANGE OF CUSTOMERS IS LIMITED TO ITS SHAREHOLDERS. IF A RAILWAY COMPANY MAKES A PROFIT BY CARRYING ITS SHAREHOLDERS, OR IF A TRADING COMPANY, BY TRADING WITH THE SHAREHOLDERS - EVEN IF IT LIMITED TO TRADING WITH THEM - MAKES A PROFIT, THAT PROFIT BELONGS TO THE SHAREHOLDERS, IN A SENSE, BUT IT BELONGS TO THEM QUA SHAREHOLDERS. IT DOES NOT COME BACK TO THEM AS PURCHASERS OR CUSTOMERS. IT COMES BACK TO THEM AS SHAREHOLDERS, UPON THEIR SHARES. WHERE ALL THAT A COMPANY DOES IS TO COLLECT MONEY FROM A CERTAIN NUMBER OF PEOPLE - IT DOES NOT MATTER WHETHER THEY ARE CALLED MEMBERS OF THE COMPANY, OR PARTICIPATING POLICY HOLDERS - AND APPLY IT FOR THE BENEFIT OF THOSE SAME PEOPLE, NOT AS SHAREHOLDERS IN THE COMPANY, BUT AS THE PEOPLE WHO SUBSCRIBED IT, THEN, AS I UNDERSTAND THE NEW YORK CASE, THERE IS NO PROFIT. IF THE PEOPLE WERE TO DO THE THING FOR THEMSELVES, THERE WOULD BE NO PROFIT, AND THE FACT THAT THEY INCORPORATE A LEGAL ENTITY TO DO IT FOR THEM MAKES NO DIFFERENCE, THERE IS STILL NO PRO FIT. THIS IS NOT BECAUSE THE ENTITY OF THE COMPANY IS TO BE DISREGARDED, IT IS BECAUSE THERE IS NO PROFIT, THE MONEY BEING SIMPLY COLLECTED FROM THOSE PEOPLE AND HANDED BACK TO THEM, NOT IN THE CHARACTER OF SHAREHOLDERS, BUT IN THE CHARACTER OF THOSE WHO HAV E PAID IT. THAT, AS I UNDERSTAND IT, IS THE EFFECT OF THE DECISION IN THE NEW YORK CASE.' (EMPHASIS APPLIED) IN THE PRESENT CASE, THE INTEREST ACCRUES ON THE SU RPLUS DEPOSITED BY THE CLUB LIKE IN THE CASE OF ANY OTHER DEPOSIT MADE BY AN ACCOUNT HOLDER WITH THE BANK. 30. AN ALMOST SIMILAR ISSUE AROSE IN KUMBAKONAM MUTUAL BENEFIT FUND LTD. CASE (SUPRA). THE FACTS IN THAT CASE WERE THAT THE ASSESSEE, NAMELY, KUMBAKONAM MUTUAL BENEFIT FUND LTD., WAS AN INCORPORATED COMPA NY LIMITED BY SHARES. SINCE 1938, THE NOMINAL CAPITAL OF THE 30 ASSESSEE WAS RS.33,00,000/- DIVIDED INTO SHARES OF RS.1/- EACH. IT CARRIED ON BANKING BUSINESS RESTRICTED TO ITS SHAREHOLDERS, I.E., THE SHAREHOLDERS WERE ENTITLED TO PARTICIPATE IN ITS VARIOUS RECURRING DEPOSIT SCHEME S OR OBTAIN LOANS ON SECURITY. RECURRING DEPOSITS WERE OBTAINED FROM MEMBERS FOR FIXED AMOUNTS TO BE CONTRIBUTED MONTHLY BY THEM FOR A FIXED NUMBER OF MONTHS AS STIPULATED AT THE END OF WHICH A FIXED AM OUNT WAS RETURNED TO THEM ACCORDING TO PUBLISHED TABLES. THE AMOUNT SO RETURNED, COVERED THE COMPOUND INTEREST O F THE PERIOD. THESE RECURRING DEPOSITS CONSTITUTED TH E MAIN SOURCE OF FUNDS OF THE ASSESSEE FOR ADVANCING LOANS . SUCH LOANS WERE RESTRICTED ONLY TO MEMBERS WHO HAD, HOWE VER, TO OFFER SUBSTANTIAL SECURITY THEREFOR, BY WAY OF E ITHER THE PAID UP VALUE OF THEIR RECURRING DEPOSITS, IF A NY, OR IMMOVABLE PROPERTIES WITHIN A PARTICULAR DISTRICT. OUT OF THE INTEREST REALISED BY THE ASSESSEE ON THE LOANS WHICH CONSTITUTED ITS MAIN INCOME, INTEREST ON THE RECURR ING DEPOSITS AFORESAID WAS PAID AS ALSO ALL THE OTHER OUTGOINGS AND EXPENSES OF MANAGEMENT AND THE BALANC E AMOUNT WAS DIVIDED AMONG THE MEMBERS PRO RATA ACCORDING TO THEIR SHARE-HOLDINGS AFTER MAKING PROVISION FOR RESERVES, ETC., AS REQUIRED BY THE MEMORANDUM OR ARTICLES AFORESAID. IT WAS NOT NECESS ARY FOR THE SHAREHOLDERS, WHO WERE ENTITLED TO PARTICIP ATE IN THE PROFITS TO EITHER TAKE LOANS OR MAKE RECURRING DEPOSITS. 31. ON THESE FACTS, AS ALREADY NOTED, THE COURT DISTINGUISHED STYLES (SURVEYOR OF TAXES) CASE (SUPRA) AND OPINED THAT THE POSITION OF THE ASSESSE E WAS NO DIFFERENT FROM AN ORDINARY BANK EXCEPT THAT IT L ENT MONEY AND RECEIVED DEPOSITS FROM ITS SHAREHOLDERS. THIS DID NOT BY ITSELF MAKE ITS INCOME ANY LESS INCOME F ROM BUSINESS. IN OUR OPINION, THE RATIO OF THE SAID DEC ISION IS ON ALL FOURS TO THE FACTS AT HAND. THE INTEREST EAR NED BY THE ASSESSEE EVEN FROM THE MEMBER BANKS ON THE SURP LUS FUNDS DEPOSITED WITH THEM HAD THE TAINT OF COMMERCIALITY, FATAL TO THE PRINCIPLE OF MUTUALITY. 32. WE MAY ADD THAT THE ASSESSEE IS ALREADY AVAILING T HE BENEFIT OF THE DOCTRINE OF MUTUALITY IN RESPECT OF THE SURPLUS AMOUNT RECEIVED AS CONTRIBUTIONS OR PRICE F OR SOME OF THE FACILITIES AVAILED BY ITS MEMBERS, BEFO RE IT IS DEPOSITED WITH THE BANK. THIS SURPLUS AMOUNT WAS NO T TREATED AS INCOME; SINCE IT WAS THE RESIDUE OF THE COLLECTIONS LEFT BEHIND WITH THE CLUB. A FAADE OF 31 A CLUB CANNOT BE CONSTRUCTED OVER COMMERCIAL TRANSACTIONS TO AVOID LIABILITY TO TAX. SUCH SETUPS CANNOT BE PERMITTED TO CLAIM DOUBLE BENEFIT OF MUTUALITY. WE FEEL THAT THE PRESENT CASE IS A CLEAR INSTANCE OF W HAT THIS COURT HAD CAUTIONED AGAINST IN BANKIPUR CLUB (SUPRA), WHEN IT SAID: ' IF THE OBJECT OF THE ASSESSEE COMPANY CLAIMING T O BE A 'MUTUAL CONCERN' OR 'CLUB', IS TO CARRY ON A PARTICULAR BUSINESS AND MONEY IS REALISED BOTH FROM THE MEMBERS AND FROM NON-MEMBERS, FOR THE SAME CONSIDERATION BY GIVING THE SAME OR SIMILAR FACILIT IES TO ALL ALIKE 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 ALI KE TAINTED WITH COMMERCIALITY. IN OTHER WORDS, THE ACTIVITY CARRIED ON BY THE ASSESSEE IN SUCH CASES, CLAIMING TO BE A 'MUTUAL CONCERN' OR MEMBERS CLUB' IS A TRADE OR AN ADVENTURE IN THE NATURE OF TRADE A ND THE TRANSACTIONS ENTERED INTO WITH THE MEMBERS OR NON-MEMBERS ALIKE IS A TRADE/BUSINESS/TRANSACTION AND THE RESULTANT SURPLUS IS CERTAINLY PROFIT - INC OME LIABLE TO TAX. WE SHOULD ALSO STATE, THAT 'AT WHAT POINT, DOES THE RELATIONSHIP OF MUTUALITY END AND T HAT OF TRADING BEGIN' IS A DIFFICULT AND VEXED QUESTION . A HOST OF FACTORS MAY HAVE TO BE CONSIDERED TO ARRIVE AT A CONCLUSION. 'WHETHER OR NOT THE PERSONS DEALING WITH EACH OTHER, IS A 'MUTUAL CLUB' OR CARRYING ON A TRADING ACTIVITY OR AN ADVENTURE IN THE NATURE OF TRADE' IS LARGELY A QUESTION OF FACT [WILCOCK'S CAS E - 9 TAX CASES 111, (132) C.A. (1925) (1) KB 30 AT 44 AND 45].' (EMPHASIS SUPPLIED) 33. IN OUR OPINION, UNLIKE THE AFORESAID SURPLUS AMOUN T ITSELF, WHICH IS EXEMPT FROM TAX UNDER THE DOCTRINE OF MUTUALITY, THE AMOUNT OF INTEREST EARNED BY THE ASS ESSEE FROM THE AFORE-NOTED FOUR BANKS WILL NOT FALL WITHI N THE AMBIT OF THE MUTUALITY PRINCIPLE AND WILL THEREFORE , BE EXIGIBLE TO INCOME-TAX IN THE HANDS OF THE ASSESSEE - CLUB. 22. IN VIEW OF THE ABOVE DISCUSSION OF THE MATTER, IT IS HELD THAT FOR THE ASSESSMENT YEARS UNDER CONSIDERATION, THE ASSES SEE IS ENTITLED TO THE BENEFIT OF THE DOCTRINE OF MUTUALITY IN RESPECT OF THE SURPLUS AMOUNT 32 RECEIVED AS CONTRIBUTIONS OR PRICE FOR SOME OF THE FACILITIES AVAILED BY ITS MEMBERS. HOWEVER THE AMOUNT OF INTEREST EARNED BY THE ASSESSEE FROM THE FIXED DEPOSITS IN THE BANKS WILL NOT FALL WITHIN THE AMBIT OF THE MUTUALITY PRINCIPLE AND WILL THEREFORE, BE EXIG IBLE TO INCOME-TAX IN THE HANDS OF THE ASSESSEE-CLUB. 23. OUR ABOVE DECISION WILL APPLY MUTATIS- MUTANDI S TO ALL THE CAPTIONED APPEALS. IN VIEW OF THE ABOVE ALL THE CAP TIONED APPEALS ARE TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.09.2017 SD/- SD/- ( DR. B.R.R. KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 26 TH SEPT, 2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR