D.C.I.T Cir - 8,kolkata., Kolkata V. M/s The Saturday Club Ltd, Kolkata

ITA 339/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4111 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 04-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 18-02-2013
• Court: TRIBUNAL
• Department Lawyers: VIJAYENDRA KUMAR
• Assessee Lawyers: J P KHAITAN; P JH
• Keywords: Revised return

Judgement Text

ITA NO.1340/KOL/2012&339/KOL/2013-M/S. THE SATURDAY CLUB LTD. A.Y.2008-09 & 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI P.M.JAGTAP, AM & SRI N.V.VASUDEVAN, JM ] I.T.A NOS.1340/KOL/2012 & 339/KOL/2013 ASSESSMENT YEARS : 200 8-09 & 2009-10 D.C.I.T., CIRCLE-8, -VS.- M/S. THE SATURD AY CLUB LTD. KOLKATA KOLKATA [PAN : AABCT1662R (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI VIJAYENDRA K UMAR, JCIT FOR THE RESPONDENT : SHRI J.P.KHAITAN, A DVOCATE & SHRI P.JHUNJHUNWALA,ADVOCATE DATE OF HEARING : 24.11.2016. DATE OF PRONOUNCEMENT : 02.12.2016. ORDER PER N.V.VASUDEVAN, JM ITA 1340/KOL/12 IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 11.6.2012 OF CIT(A)-VIII, KOLKATA, RELATING TO AY 2 008-09. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA DS AS FOLLOWS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CITCA) ERRED IN DELETING THE ADDI DON MADE BY THE: A. O. UNDER THE HEAD OF RENTAL INCOME AMOUNTING TO RS. 2,83,332/-. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CITCA) ERRED IN DELETING THE ADDITION MADE BY THE A. O. UNDER THE H EAD OF RENTAL INCOME AMOUNTING TO RS. 78,49,798/-. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CITCA) ERRED IN- DELETING THE ADDITION MADE BY A. O. UNDER THE HEAD OF INTEREST INCOME AMOUNTING TO RS.4L ,61 ,798/- IN RELATION TO ASSESSMENT YEAR 200 8-09. 4. THAT THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO ANY GROUND(S) OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPE AL. 3. THE ASSESSEE IS A COMPANY WHICH WAS INCORPORATE D AS A COMPANY LIMITED BY GUARANTEE UNDER THE INDIAN COMPANIES ACT, 1882. TH E OBJECTS OF THE COMPANY, INTERALIA, INCLUDE AFFORDING PRIVILEGES, ADVANTAGE AND ACCOMMODATION OF A CLUB AND PROMOTION OF SOCIAL AMUSEMENT AND ENTERTAINMENT ETC . FOR AY 2008-09, THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS .4,51,514/- AND A REVISED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.8,81,516/-. TH E ASSESSMENT WAS COMPLETED U/S.143(3) OF THE INCOME TAX ACT, 1961 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AFTER MAKING SEVERAL ADDITIONS. SOME OF THE ADDITI ONS SO MADE BY THE AO WERE ITA NO.1340/KOL/2012&339/KOL/2013-M/S. THE SATURDAY CLUB LTD. A.Y.2008-09 & 2009-10 2 DELETED BY THE CIT(A). AGGRIEVED BY THE ORDER OF T HE CIT(A), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WITH THIS BACKGROUND, WE WILL TAKE UP THE INDIVIDUAL GROUNDS OF APPEAL OF THE REVENUE. 4. AS FAR AS GR.NO.1 RAISED BY THE REVENUE IS CONC ERNED, THE FACTS ARE THAT THE ASSESSEE HAD ALLOWED ONE M/S.TAPAN ART CENTRE TO PU T ADVERTISEMENT BOARD IN AND AROUND TENNIS COURT. THE ASSESSEE RECEIVED A SUM O F RS.2,83,332/- FROM M/S.TAPAN ART CENTRE FOR ALLOWING THEM TO DISPLAY THEIR ADVER TISEMENT IN THE CLUB PREMISES. THE AO HELD THAT THE AFORESAID SUM WAS CHARGEABLE TO TA X UNDER THE HEAD INCOME FROM BUSINESS. ON APPEAL BY THE ASSESSEE, THE CIT(A) H ELD THAT THE SAID SUM WAS NOT TAXABLE BY APPLYING THE PRINCIPLE OF MUTUALITY. THE PRINCIPLE OF MUTUALITY IS BASED ON THE CONCEPT THAT NO ONE CAN MAKE PROFIT OUT OF HIMS ELF AND, THEREFORE, THE IDENTIFICATION OF THE COMMONNESS OF THE CONTRIBUTOR S AND PARTICIPATORS IS THE MEDIA BY WHICH THE MUTUALITY CONCEPT IS REGARDED AS APPLICAB LE OR INAPPLICABLE DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THE LAW I N THIS REGARD IS ESSENTIALLY THE RESULT OF JUDICIAL PRONOUNCEMENTS, THERE BEING NOTHING EXP LICITLY PROVIDED IN THE STATUTE IN THIS REGARD. 5. THE LAW IN THIS REGARD HAS BEEN RECENTLY LAID D OWN BY THE HONBLE SUPREME COURT IN THE CASE OF BANGALORE CLUB V/S. CIT 350 ITR 509 (SC), WHERE THE QUESTION FOR DETERMINATION BEFORE THE HONBLE SUPREME COURT WAS AS TO WHETHER OR NOT THE INTEREST EARNED BY THE ASSESSEE ON THE SURPLUS FUNDS INVESTE D IN FIXED DEPOSITS WITH THE CORPORATE MEMBER BANKS IS EXEMPT FROM LEVY OF INCOM E TAX, BASED ON THE DOCTRINE OF MUTUALITY? THE HONBLE SUPREME COURT ANSWERED THE AFORESAID QUESTION IN FAVOUR OF THE REVENUE BY HOLDING THAT INTEREST EARNED FROM DE POSITS WITH BANKS WHO ARE MEMBERS OF THE CLUB WOULD NOT BE EXEMPT ON THE PRIN CIPLE OF MUTUALITY BECAUSE THE TESTS FOR APPLICATION OF THE PRINCIPLE OF MUTUALITY WERE NOT SATISFIED. THE APEX COURT HELD THAT NO SOONER ANY AMOUNT IS INVESTED BY AN AS SOCIATION CLAIMING TO BE MUTUAL CONCERN IN A FIXED DEPOSIT WITH THE BANKS THE COMPL ETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS IN THE FUND ON TH E AMOUNTS INVESTED IN MEMBER BANKS ITA NO.1340/KOL/2012&339/KOL/2013-M/S. THE SATURDAY CLUB LTD. A.Y.2008-09 & 2009-10 3 IS RUPTURED. IT HELD THAT TILL THE SURPLUS FUNDS WE RE GENERATED AND WAS USED ONLY AMONGST THE MEMBERS/CONTRIBUTORS, THE COMPLETE IDEN TITY BETWEEN CONTRIBUTORS AND PARTICIPANTS CONTINUED. HOWEVER THE MOMENT THE FUND S ARE INVESTED IN FIXED DEPOSITS WITH THE BANKS AND THE FUNDS ARE USED FOR ADVANCING LOANS ETC. BY THE BANK TO ITS CUSTOMERS, THE IDENTITY OF PARTICIPANTS AND CONTRIB UTORS IS SAPPED. THUS THE INTEREST EARNED ON FIXED DEPOSITS IS TO BE BROUGHT TO TAX. 6. IN THE LIGHT OF THE LAW AS LAID DOWN BY THE HON BLE SUPREME COURT, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THIS ISSUE IS UNSUSTAINABLE AND THE INCOME IN QUESTION IS CHARGEABLE TO TAX. EVEN THE PERSON DIS PLAYING ADVERTISEMENT BOARD IS A MEMBER STILL THE PRINCIPLE OF MUTUALITY WILL NOT AP PLY AS HE DISPLAYS THE ADVERTISEMENT BOARD IN HIS CAPACITY NOT AS MEMBER BUT INDIVIDUAL CAPACITY FOR THE PURPOSE OF HIS BUSINESS. THE LEARNED COUNSEL FOR THE ASSESSEE HOW EVER SUBMITTED THAT THE CLUB CANNOT BE SAID TO BE ENGAGED IN ANY SYSTEMATIC AND CONTINUOUS ACTIVITY IN THE NATURE OF BUSINESS AND THEREFORE THE INCOME IN QUESTION HAS T O BE REGARDED AS INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR INCOME FROM O THER SOURCES AND APPROPRIATE DEDUCTIONS UNDER THE AFORESAID HEAD OF INCOME HAS T O BE ALLOWED AND ONLY THE NET INCOME HAS TO BE BROUGHT TO TAX. 7. WE ARE OF THE VIEW THAT THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE IS ACCEPTABLE AND THE INCOME IN QUESTION CANNOT BE REG ARDED AS INCOME FROM BUSINESS. THE INCOME IN QUESTION CANNOT BE REGARDED AS INCOM E FROM HOUSE PROPERTY ALSO BECAUSE M/S.TAPAN ART CENTRE WAS MERELY ALLOWED TO DISPLAY ADVERTISEMENT BOARD IN AND AROUND THE TENNIS COURT. U/S.22 OF THE ACT WHA T IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS ANNUAL VALUE O F PROPERTY CONSISTING OF ANY BUILDING OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER. SINCE THE RIGHT TO DISPLAY ADVERTISEMENT IN THE PREMISES OF T HE ASSESSEE ALONE WAS GIVEN, THE INCOME IN QUESTION HAS TO BE REGARDED ONLY AS INCOM E UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AO IS DIRECTED TO TAX THE INC OME IN QUESTION ACCORDINGLY AND ALLOW DEDUCTIONS PERMISSIBLE WHILE COMPUTING DEDUCT ION UNDER THE HEAD INCOME ITA NO.1340/KOL/2012&339/KOL/2013-M/S. THE SATURDAY CLUB LTD. A.Y.2008-09 & 2009-10 4 FROM OTHER SOURCES. THE GROUND OF APPEAL OF THE R EVENUE IS ACCORDINGLY PARTLY ALLOWED. 8. AS FAR AS GROUND NO.2 IS CONCERNED, THE FACT AR E THAT THE ASSESSEE RECEIVED A SUM OF RS.78,49,798/- AS RENT FROM M/S.RELIANCE INDUSTR IES LTD., WHO WAS ITS MEMBER. THE INCOME IN QUESTION WAS CLAIMED TO BE NOT TAXABL E IN THE LIGHT OF THE PRINCIPLE OF MUTUALITY. THE AO HOWEVER REJECTED THE PLEA OF THE ASSESSEE AND TAXED THE INCOME IN QUESTION UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE CIT(A) HELD THAT THE INCOME IN QUESTION IS NOT TAXABLE APPLYING THE PRIN CIPLE OF MUTUALITY. 9. WE HAVE ALREADY HELD THAT PRINCIPLE OF MUTUALIT Y WILL NOT APPLY IN THE CIRCUMSTANCES OF THE CASE AS EXPLAINED BY THE HONB LE SUPREME COURT IN THE CASE OF BANGALORE CLUB (SUPRA). IN VIEW OF THE SAID DECISI ON, WE ARE OF THE VIEW THAT THE INCOME IN QUESTION IS TAXABLE AND UNDER THE HEAD I NCOME FROM HOUSE PROPERTY. GR.NO.2 RAISED BY THE REVENUE IS ALLOWED. 10. AS FAR AS GR.NO.3 IS CONCERNED, THE SAME RELAT ES TO INTEREST ON FIXED DEPOSIT WITH BANK WHO ALSO HAPPENS TO BE A MEMBER OF THE CLUB. THE INCOME IN QUESTION WAS CLAIMED TO BE NOT TAXABLE IN THE LIGHT OF THE PRINC IPLE OF MUTUALITY. THE AO HOWEVER REJECTED THE PLEA OF THE ASSESSEE AND TAXED THE INC OME IN QUESTION UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CIT(A) HELD THAT THE INCOME IN QUESTION IS NOT TAXABLE APPLYING THE PRINCIPLE OF MUTUALITY. 11. WE HAVE ALREADY HELD THAT PRINCIPLE OF MUTUALI TY WILL NOT APPLY IN THE CIRCUMSTANCES OF THE CASE AS EXPLAINED BY THE HONB LE SUPREME COURT IN THE CASE OF BANGALORE CLUB (SUPRA). IN VIEW OF THE SAID DECISI ON, WE ARE OF THE VIEW THAT THE INCOME IN QUESTION IS TAXABLE AND UNDER THE HEAD I NCOME FROM OTHER SOURCES. THE AO IS DIRECTED TO TAX THE INCOME IN QUESTION ACCORD INGLY AND ALLOW DEDUCTIONS PERMISSIBLE WHILE COMPUTING DEDUCTION UNDER THE HEA D INCOME FROM OTHER SOURCES. GR.NO.3 RAISED BY THE REVENUE IS ALLOWED. ITA NO.1340/KOL/2012&339/KOL/2013-M/S. THE SATURDAY CLUB LTD. A.Y.2008-09 & 2009-10 5 12. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED TO THE EXTENT INDICATED ABOVE. ITA NO. 339/KOL/13 (A.Y.2009-10) 13. AS FAR AS THE AFORESAID APPEAL IS CONCERNED, T HE SAID APPEAL IS AGAINST AN ORDER DATED 21.11.2012 OF THE CIT(A)-VII, KOLKATA, RELATI NG TO AY 2009-10. 14. THE GROUNDS OF APPEAL RAISED BY THE REVENUE RE ADS THUS: 1. THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW AND IN HOLDING THAT RENTAL INCOME EARN ED BY THE ASSESSEE-CLUB WAS EXEMPT FROM TAX DUE TO THE PRINCIPLE OF MUTUALITY; WHEREAS , LETTING OUT OF ITS PREMISES AND EARNING OF RENTAL INCOME WAS IN THE NATURE OF COMME RCIAL ACTIVITIES IN WHICH THE ELEMENT OF MUTUALITY IS WANTING IN VIEW OF THE HON'BLE SUPR EME COURT'S DECISION IN THE CASE OF BANGALORE CLUB - VS.- COMMISSIONER OF INCOME TAX [2 013] 29 TAXMAN.COM 29(SC). 2. THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE AMOUNT EARNED FROM ADVERTISEMEN T AND SPONSORSHIP WAS NOT LIABLE TO TAX DUE TO PRINCIPLE-OF MUTUALITY; WHEREAS, SUCH AC TIVITIES WERE IN THE NATURE OF TRADELBUSINESS/TRANSACTION AND NOT QUALIFIED TO BE COVERED BY THE PRINCIPLE OF MUTUALITY AS HAS BEEN HELD BY THE SUPREME COURT AND, THEREFOR E, SUCH WRONG PRESUMPTION OF LAW BY THE LD. CIT(A) IS UNSUSTAINABLE AND LIABLE TO BE QUASHED. 3. THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN WRONG PRESUMPTION OF LAW THAT, INTEREST INCOME E ARNED BY THE ASSESSEE COMPANY FROM THE MEMBER BANKS AS EXEMPT FROM TAX UNDER THE DOCTR INE OF MUTUALITY; WHEREAS, THE HON'BLE SUPREME COURT HAS HERD THAT SUCH INCOME DOE S 'NOT FALL WITHIN THE AMBIT OF MUTUALITY PRINCIPLE AND ELIGIBLE TO INCOME-TAX IN T HE HANDS OF THE ASSESSEE-CLUB IN ITS JUDGEMENT IN THE CASE OF BANGALORE CLUB- VS.- COMMI SSIONER OF INCOME TAX[2013] 29 TAXMAN.COM 29 (SC). 4. THAT THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO ANY GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 15. GROUND NO.1 RAISED BY THE REVENUE IS IDENTICAL TO GROUND NO.1 RAISED BY THE REVENUE IN THE APPEAL FOR AY 08-09. FOR THE REASON S STATED THEREIN THE AO IS DIRECTED TO TAX THE INCOME IN QUESTION ACCORDINGLY AND ALLOW DEDUCTIONS PERMISSIBLE WHILE COMPUTING DEDUCTION UNDER THE HEAD INCOME FROM OTH ER SOURCES. THE GROUND OF APPEAL OF THE REVENUE IS ACCORDINGLY PARTLY ALLOWED . 16. AS FAR AS GR.NO.2 RAISED BY THE REVENUE IS CON CERNED, THE FACTS ARE THAT THE ASSESSEE RECEIVED A SUM OF RS.72,88,884/- FROM VARI OUS SPONSORS FOR VARIOUS EVENTS THAT THE CLUB ORGANIZES ON FESTIVALS AND OTHER OCCA SIONS. THE SPONSORSHIP AMOUNTS ITA NO.1340/KOL/2012&339/KOL/2013-M/S. THE SATURDAY CLUB LTD. A.Y.2008-09 & 2009-10 6 WERE CLAIMED TO BE EXEMPT ON THE PRINCIPLE OF MUTUA LITY. THE CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE HELD THAT THE SUM IN QUESTION IS NOT TAXABLE. IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F BANGALORE CLUB (SUPRA), WE ARE OF THE VIEW THAT THE SUM IN QUESTION IS TAXABLE. H OWEVER, AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE SUM IN QUESTI ON HAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE ASSESSEE SHOULD BE ALLOWED ALL EXPENSES PERMISSIBLE AS DEDUCTION WHILE COMPUTING INCOME UND ER THE SAID HEAD OF INCOME. WE HOLD AND DIRECT ACCORDINGLY. 17. AS FAR AS GR.NO.3 IS CONCERNED, THE SAID GROUN D IS IDENTICAL TO GR.NO.3 RAISED BY THE REVENUE IN AY 2008-09. FOR THE REASONS STATED THEREIN, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED. 18. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE ALLOWED TO THE EXTENT INDICATED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.12.2016 ORDER PRONOUNCED IN THE COURT ON 2.12.2016. SD//- SD/- [P.M.JAGTAP] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2.12.2016. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. THE SATURDAY CLUB LTD., 7, WOOD STREET, KOLK ATA-700016. 2. D.C.I.T., CIRCLE-8, KOLKATA. 3. CIT(A)-VIII, KOLKATA 4. C.I.T.-III, KO LKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGISTRAR, KOLKATA BENCHES