The Jt.CIT., (OSD)Circle-5, Ahmedabad V. Rajpath Club Ltd., Ahmedabad

ITA 3203/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57205 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 20-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: C BENCH: AH MEDABAD BEFORE SHRI MUKUL KR.SHRAWAT, J.M. & SHR I A.MOHAN ALANKAMONY, A.M.) . ITA NO. 3203/AHD./2011 : - 2008-2009 JT. CIT (OSD), CIRCLE-5, AHMEDABAD VS- RAJP ATH CLUB LTD., AHMEDABAD (PAN: AAACR 7379A) ( /APPELLANT) ( /RESPONDENT ) / APPELLANT BY : SHRI VINOD TANWANI, SR.D.R. / RESPONDENT BY : SHRI P.M.MEHTA, A.R. !'# / DATE OF HEARING : 22/02/2012 $% !'# / DATE OF PRONOUNCEMENT : 2/03/2012 &' &' &' &' / ORDER PER SH RI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER : THE REVENUE AGGRIEVED BY THE ORDER OF THE LD. CIT(A ) IN APPEAL NO. CIT(A)-XI/330/10-11 DATED 11.10.2011 FOR THE AS SESSMENT YEAR 2008-2009 PASSED UNDER SECTION 250 READ WITH SECTIO N 143(3) OF THE ACT IS IN APPEAL BEFORE US. 2. THE REVENUE HAS RAISED FOUR GROUNDS IN ITS APPEA L WHEREIN GROUND NO.3 AND 4 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. GROUND NOS.1 AND 2 ARE REPRODUCED HEREIN-BELOW FOR REFERENCE. 1. THE LD. COMMISSIONER OF INCOME TAX (A)HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.39,56,802/- BEING INCOME EARNED BY THE ASSESSEE FROM THE LETTING OUT OF LAWN AND A. C. HALL ITA NOS. 3203-AHD-2011 2 2. THE LD. COMMISSIONER OF INCOME TAX (A) HAS FAILE D TO TAKE INTO CONSIDERATION THE FACT THAT SUCH INCOME WAS EA RNED FROM NON-MEMBERS, AND HENCE WAS NOT COVERED UNDER THE PRINCIPLE OF MUTUALITY. 3. THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE ACTIVITY OF PROVIDING CLUB FACILITY TO ITS MEMBERS. THE ASSESSE E FILED ITS RETURN OF INCOME ON 26.9.2008 DECLARING AN AMOUNT OF RS.54.66 LAKHS AS ITS INCOME. INITIALLY, THE RETURN WAS PROCESSED UNDER S ECTION 143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS TAKEN UP FOR SCRU TINY AND ASSESSMENT WAS COMPLETED ON 18.11.2010 UNDER SECTIO N 143(3) OF THE ACT. DURING THE COURSE OF THE SCRUTINY ASSESSMENT P ROCEEDINGS, IT WAS NOTICED BY THE LD. AO THAT THE CLUB HAD GENERATED I NCOME FROM ITS MEMBERS TOWARDS ROOM RENT, RESTAURANT BILLS, BOOKIN G OF LAWNS, AC HALLS, CATERING SERVICE, INTEREST, DIVIDEND ETC. THE LD. A O REQUIRED THE ASSESSEE TO PROVIDE DETAILS OF INCOME ARISING FROM BOOKING O F LAWNS, AC HALL WITH COMPLETE DETAILS IN ORDER TO CONSIDER THE APPLICABI LITY OF THE CONCEPT OF MUTUALITY. THE ASSESSEE FURNISHED DETAILS VIDE ITS LETTER DATED 04.11.2009 WHICH DISCLOSED AN AMOUNT OF RS.1,41,82,595/- BEING GROSS AMOUNT RECEIVED FROM LAWN BOOKING AND HALL BOOKING FROM IT S MEMBERS AND THE MEMBERS GUESTS. ON FURTHER SCRUTINY, IT WAS NOTICE D BY THE LD. AO THAT AN AMOUNT OF RS.39,56,802/- PERTAINS TO USAGE OF TH ESE FACILITIES BY THE GUESTS OF THE MEMBERS. THE LD. AO QUERIED AS TO WHY SUCH INCOME SHOULD NOT BE TAXED SINCE THE SAME IS NOT DERIVED O UT OF THE CONCEPT OF MUTUALITY AS CLAIMED BY THE ASSESSEE. THE ASSESSEE SUBMITTED BEFORE THE LD. AO THAT FOR THE FOLLOWING REASONS, THE ABOV E-MENTIONED RECEIPTS FALL WITHIN THE CONCEPT OF MUTUALITY. I) ALL THE BOOKINGS FOR LAWN AND HALL ARE MADE IN T HE NAME OF THE MEMBERS OF THE CLUB AND NOT IN THE NAME OF THE GUESTS. ITA NOS. 3203-AHD-2011 3 II) THE CLUB IS RUN ON THE CONCEPT OF THE MUTUALITY AND THE RECEIPTS ARE ACCOUNTED IN THE NAME OF THE MEMBERS. THE INCOME DERIVED FROM THE MEMBERS OF THE CLUB ON THEIR USAGE FALLS WITHIN THE SCOPE OF MUTUALITY. III) THE EARLIER ORDERS OF THE LD. CIT(A) AND THE T RIBUNAL HELD THE SAME IN FAVOUR OF THE ASSESSEE IN ITS OWN CASES. 3.1 HOWEVER, AFTER CONSIDERING THE SUBMISSION OF TH E ASSESSEE, LD. A.O. HELD THAT SINCE THE INCOME OF RS.39,56,802/- W AS DERIVED FROM THE USAGE OF THE CLUB BY NON-MEMBERS FOR FUNCTIONS HELD BY THEM, THE PRINCIPLES OF MUTUALITY CANNOT BE INFERRED AND THER EFORE SUCH INCOME IS LIABLE TO BE TAXED. LD. AO PLACED RELIANCE ON THE D ECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT-VS- TRIVANDRUM CLUB [(282 ITR 505 (2006)] WHEREIN IT WAS HELD THAT IF THE OBJECT OF THE ASSESSEE COMPANY CLAIMING TO BE A MUTUAL CONCERN OR CLUB IS TO C ARRY ON A PARTICULAR BUSINESS AND MONEY IS REALIZED BOTH FROM THE MEMBER S AND FROM NON- MEMBERS, FOR THE SAME CONSIDERATION BY GIVING THE S AME OR SIMILAR FACILITIES TO ALL IN RESPECT OF THE ONE AND THE SAM E BUSINESS CARRIED ON BY IT, THE DEALINGS AS A WHOLE DISCLOSE PROFIT EARNING MOTIVE AND ARE ALIKE TAINTED WITH COMMERCIALITY. IN OTHER WORDS, THE ACT IVITY CARRIED ON BY THE ASSESSEE IN SUCH CASES, CLAIMING TO BE MUTUAL CONC ERN OR MEMBERS CLUB IS A TRADE OR AN ADVENTURE IN THE NATURE OF T RADE AND THE TRANSACTION ENTERED INTO WITH THE MEMBERS OR NON-MEMBERS ALIKE IN A TRADE/BUSINESS/ TRANSACTION AND THE RESULTANT SURPLUS IS INCOME LIA BLE TO TAX. 4. WHEN THE MATTER WAS TAKEN UP BEFORE THE LD. CIT( A), THE APPEAL OF THE ASSESSEE WAS ALLOWED FOLLOWING THE DECISION OF THE TRIBUNAL IN ITA NO.3338/AHD/2007 DATED 28.01.2008 IN THE ASSESSEES OWN CASE AND ITA NOS. 3203-AHD-2011 4 THE DECISION OF THE LD. CIT(A) IN APPEAL NO. CIT(A) -XI/586/08-09 DATED 15.01.2010 AND IN APPEAL NO.CIT(A)/929/09-10 DATED 02.07.2010. 5. LD. D.R. VEHEMENTLY ARGUED THAT INCOME DERIVED F ROM THE RECEIPTS FROM THE NON-MEMBERS WILL NOT FALL WITHIN THE AMBIT OF MUTUALITY AND THEREFORE IT HAS TO BE BROUGHT UNDER THE TAX NET AS HELD BY THE HONBLE KERALA HIGH COURT ( SUPRA ). HE FURTHER SUBMITTED THAT THE PAYMENTS WERE RECEIVED FROM NON-MEMBERS DIRECTLY, THOUGH THE BOOK ING WAS DONE BY THE MEMBERS AND THE FACILITY WAS EXTENDED TO THE NO N-MEMBERS GENERATING AN INCOME TO THE CLUB FOR RS.39,56,802/- WHICH CLEARLY ESTABLISHES THAT THE PRINCIPLES OF MUTUALITY WILL N OT BE APPLICABLE. 6. LD. A.R., STOUTLY ARGUED THAT THE ISSUE WAS COVERED BY THE EARLIER ORDERS OF THE TRIBUNAL AND THEREUPON RELIED ON THE ORDER OF THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE ORDER OF THE TRIBUNAL AND OTHER MATERIALS FURNISHED BY BOTH THE PARTIES. THE TRIBUNAL IN ITS EARLIER FINDINGS HAD ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE PRINCIPLES OF MUTUALITY WILL APPLY SINCE THE ME MBERS THEMSELVES UTILIZED THE CLUB FACILITY TO FACILITATE THEIR GUES TS. HOWEVER THE FINDING OF THE LD. AO FOR THE RELEVANT ASSESSMENT YEAR IS THAT THE MEMBERS SIMPLY BOOKED THE CLUB FACILITIES WHILE AS PAYMENT ARE MAD E BY THE GUESTS DIRECTLY WHICH CLEARLY ESTABLISH THAT THE MEMBERS A CTED ONLY AS AN CONDUIT TO BOOK THE CLUB FACILITIES AND THIS ASPECT REQUIRES TO BE EXAMINED AND UNDERSTOOD IN THE LARGER PROSPECTIVE. IN MODERN TIMES THE CLUBS HAVE EVOLVED AND PROGRESSED ACCORDING TO THE MODERN DAYS REQUIREMENTS. VARIOUS TYPES OF MEMBERSHIP ARE OFFER ED LIKE, PERMANENT MEMBERS, SHORT-TERM MEMBERS, CORPORATE MEMBERS-BY P AYMENT OF HEFTY SUM FOR TENURE MEMBERSHIP, NON-RESIDENT MEMBERS, GA RRISON MEMBERS, ITA NOS. 3203-AHD-2011 5 SERVICE MEMBERS ETC. EVERY CATEGORY OF MEMBERS ARE MET OUT WITH DIFFERENT TREATMENT WITH RESPECT TO - RIGHT TO VOT E IN THE GENERAL MEETINGS, TO PARTICIPATE IN THE MANAGEMENT OF THE C LUB, TERM AND TERMS FOR BEING A MEMBER, PROCESS FOR INDUCTION OF MEMBER SHIP ETC.. IN SUCH COMPLEX CIRCUMSTANCE IT IS MANDATORY TO EXAMINE FRO M THE ROOT OF THE ISSUE AS TO WHICH CATEGORY OF MEMBERS WILL FALL WITHIN THE AMBIT OF THE DOCTRINE OF MUTUALITY. IT IS PERTINENT TO ME NTION HERE THAT FACTS HAVE TO BE CLEARLY ESTABLISHED BEFORE US SINCE TRIB UNAL IS HELD TO BE THE HIGHEST FACT FINDING AUTHORITY. IN ORDER TO EXAMINE ALL THE ISSUES MENTIONED ABOVE AND ALSO TO ARRIVE AT A CLEAR FINDI NG WHETHER PAYMENTS ARE RECEIVED FROM THE MEMBERS TO EXTEND THE CLUB FA CILITY TO THE GUESTS OF THE MEMBERS THE CASE IS REMITTED BACK TO THE FILE O F THE LD. AO. WE ALSO MAKE IT CLEAR THAT THE LD. AO SHALL ARRIVE AT A DEC ISION IN THE LIGHT OF THE ORDER OF THE TRIBUNAL CITED BY THE ASSESSEE SUPRA A ND OTHER RELEVANT DECISION OF HIGHER AUTHORITIES AND AS PER FACTS OF THE CASE AND LAW. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 TH DA Y OF MARCH, 2012. ( &' $% )& 2/ 03 /2012 % * +, - SD/ - SD/ - (MUKUL KR.SHRAWAT) (A.MOHAN ALAN KAMONY) JUDICIAL MEMBER ACCOUNT ANT MEMBER DATED: 2/03/2012 ITA NOS. 3203-AHD-2011 6 &' &' &' &' ! . ! . ! . ! . /.! /.! /.! /.! - 1. 2. 3. 3 ! 4 4. 4- - 5. .7- ! , , 9+&3& : 6. -< =( &' , >/9 @ , 9+&3&: TALUKDAR/ SR. P.S.