M/s. Boat House Club Ltd., Uttrakhand V. DCIT, Nainital

ITA 4600/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53365 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-12-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 17-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Assessee Lawyers: SUDHANSHU SRIVASTAVA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.4600/DEL/2011 ASSESSMENT YEAR : 2008-09 BOAT HOUSE CLUB LTD., NAINITAL, UTTARAKHAND. PAN : AABCB7593H VS. DCIT, NAINITAL. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUDHANSHU SRIVASTAVA, ADVOCATE REVENUE BY : MRS. ANUSHA KHURANA, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 4 TH AUGUST, 2011 FOR ASSESSMENT YEAR 2008-09. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THAT THE LEARNED AUTHORITIES BELOW WERE NOT JUSTIFIED IN ADDING BACK A SUM OF RS.8,25,425/- ON THE GROUND THAT THE SAME COULD NOT BE LINKED TO ANY PERMANENT MEMBER. THEY FAI LED TO APPRECIATE THE RELEVANT FACT THAT IT IS NOT A LEGAL REQUIRE MENT THAT THE CASH MEMOS/CASH RECEIPTS SHOULD MENTION THE NAME OF THE CUSTOMERS/MEMBERS. 2. BECAUSE THE LD. COMMISSIONER OF INCOME TAX (APP EALS)-II, DEHRADUN SIMPLY FOLLOWED THE ORDER OF THE LD. CIT (A) -II, DEHRADUN IN THE ASSESSEES CASE FOR A.Y. 2007-08 AND DELETED RS.4,00,000/- ON ACCOUNT OF RECEIPTS FROM THE CATERING CONTRACTOR AND CONFIRMED THE ADDITION OF RS.8,25,425/- CREDITED UNDER THE ACCOUNT HEAD GUEST FEE WITHOUT APPRECIATING THE LAW LAID DOWN BY THE HONBLE APEX COURT IN CIT VS. BANKIP UR CLUB LTD. 226 ITR 97,CHELMSFORD CLUB VS. CIT, 159 CTR 235 , AND THAT OF THE HONBLE DELHI HIGH COURT IN CIT VS. STANDING CO NFERENCE OF PUBLIC ENTERPRISES IN 319 ITR 179, ETC. ITA NO.4600/DEL/2011 2 3. BECAUSE THE LEARNED CIT (A)-II, DEHRADUN ALSO F AILED TO APPRECIATE THE FACT THAT THE BY-LAWS OF THE CLUB DO NOT ALL OW THE NON-MEMBERS TO ENJOY FACILITIES/AMENITIES OF THE CLUB. 4. BECAUSE IN ANY VIEW OF THE MATTER, THE ORDER UNDER APPEAL IS WRONG ON FACTS AS WELL AS IN LAW AND IS LIABLE TO BE REVERSED AND THE APPEAL ALLOWED. 5. THAT IN ANY VIEW OF THE MATTER THE FINDINGS OF THE FIR ST APPELLATE AUTHORITY ARE WRONG AND AGAINST THE SPIRIT OF TH E LEGAL POSITION. (B) THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY OF THE GROUNDS OF APPEAL. 2. AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL FILED AS ABOVE, THE SOLE GRIEVANCE OF THE ASSESSEE IS REGARDING A SUM OF ` 8,2 5,425/- WHICH HAS BEEN CONSIDERED TO BE ASSESSABLE IN THE HANDS OF THE A SSESSEE ON THE GROUND THAT PRINCIPAL OF MUTUALITY WILL NOT BE APPLICABLE TO THAT AMOUNT. THE ASSESSEE IS A SERVICE CLUB AND ITS INCOME HAS BEEN CONSIDERED TO BE EXEMPTED ON THE BASIS OF PRINCIPLE OF MUTUALITY. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDIN GS FOUND THAT OUT OF CASH RECEIPTS OF ` 9,10,125/- AS GUEST FEE ON A SUM OF ` 8,25,425/- COULD NOT BE LINKED WITH THE MEMBERS. TH EREFORE, HE TREATED THE SAID AMOUNT AS RECEIPTS FROM NON-MEMBERS. ACCORDINGLY, THE SAID AMOUNT WAS BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. IN THE STATEMENT OF FACTS FILED BEFORE THE CIT (A), IT W AS SUBMITTED THAT THE ASSESSING OFFICER HAD FAILED TO APPRECIATE THAT NON -MEMBER HAS COMPULSORILY TO BECOME GUEST OF SOME PERMANENT MEMBER AND SUCH PERMANENT MEMBER ALONE IS RESPONSIBLE FOR THE ACTIVITI ES OF THE GUESTS AND THE AMENITIES AVAILED AND FOR THE PAYMENT OF BIL LS. 3. IN THE STATEMENT OF FACTS FILED BEFORE US, IT HAS BE EN STATED THAT NON-MEMBERS ARE NOT ALLOWED TO ENJOY THE FACILITIES P ROVIDED BY THE CLUB. ANY NON-MEMBER CAN ENTER/USE THE CLUB FACILIT IES ONLY ON THE INTRODUCTION AND AUTHENTICATION BY THE PERMANENT ME MBERS OF THE CLUB ITA NO.4600/DEL/2011 3 AND ONLY PERMANENT MEMBER INTRODUCING THE GUEST OF T EMPORARY MEMBER IS RESPONSIBLE FOR THE ACTIVITIES, GOOD BEHAVIOU R AND PAYMENT OF THE BILL OF SUCH GUEST/TEMPORARY MEMBER. 4. BEFORE US, IT IS THE CASE OF THE ASSESSEE THAT IN VIEW OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. BANKIPUR CLUB LTD. 226 ITR 97, THE AMOUNT OF ` 8,25,425/- UNDER THE HE AD GUEST FEE CANNOT BE ADDED ON THE GROUND THAT IT IS OUTSIDE THE PRINCIPLE OF MUTUALITY. TO SUPPORT SUCH CONTENTION THE ASSESSEE IS ALSO PLACING RELIANCE ON THE DECISION OF ITAT IN THE CASE OF BHUBN ESHWAR CLUB LTD. VS. ACIT DATED 29 TH AUGUST, 2006 IN ITAT NO.125 (CTK) OF 2000 AND ITA NO. 117 OF (CTK) OF 2000 AND COPY OF SUCH DECISION IS PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE AS ANNEXURE 5. OUT ATT ENTION WAS DRAWN TO THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL:- THUS, IN OUR CONSIDERED OPINION, THE CONCEPT OF MEM BER IS SPACIOUS ENOUGH TO INCLUDE GUESTS AND RELATIVES OF THE MEMBERS AND MEMBERS OF AFFILIATED CLUBS, AND IF IT IS SO, THEN IN THE CASE OF APPELLANT THE INCOME DERIVED BY LETTING O UT ITS PREMISES OR BY ALLOWING THE GUESTS AND RELATIVES OF THE MEMBERS AND MEMBERS OF AFFILIATED CLUBS WILL NOT BE S UBJECTED TOT AX. THUS, IN OUR CONSIDERED OPINION, SERVICES OF FERED TO THE GUESTS, RELATIVES AND AFFILIATED CLUBS CANNOT BE TREATED AS TRADING ACTIVITY, THEREFORE, CANNOT BE TAINTED WITH COMMERCIALITY. ACCORDINGLY, WE HOLD THAT HE APPELLAN T CLUB IS A MUTUAL CLUB AND THE VARIOUS ACTIVITIES HIGHLIGHTED BY THE AUTHORITIES BELOW CANNOT BE PUT IN THE CATEGORY OF TRADING ACTIVITY OR IN THE CATEGORY OF ADVENTURE IN THE NATURE OF TRADE, HENCE, NOT TAXABLE. 5. IT WAS PLEADED THAT IN THE CASE OF BANKIPUR CLUB L TD. (SUPRA), THE DECISION OF HONBLE PATNA HIGH COURT REPORTED IN 198 ITR 261 WAS CONFIRMED. THUS, IT WAS PLEADED BY THE LEARNED AR TH AT THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT (A) SHOULD BE DELETED. ITA NO.4600/DEL/2011 4 6. ON THE OTHER HAND, IT WAS VEHEMENTLY PLEADED BY T HE LEARNED DR THAT THE SAID AMOUNT COULD NOT BE EXEMPTED UNDER THE PRINCIPLE OF MUTUALITY AS THE SAID RECEIPTS BELONGS TO NON-MEMBERS AN D UNLESS THERE IS A LINK ESTABLISHED BETWEEN THE RECEIPTS FROM T HE MEMBER, PRINCIPLE OF MUTUALITY WILL NOT BE APPLICABLE, THER EFORE, SHE PLEADED THAT ADDITION HAS RIGHTLY BEEN SUSTAINED BY THE CIT (A ) AND HIS ORDER SHOULD BE CONFIRMED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE IMPUGNED RECEIPT IS IN THE NATURE OF NON-GUEST FEES WHICH MEANS THAT ANY GUEST COMING WITH T HE MEMBERS WILL HAVE TO PAY SOME FEES AND BY PAYMENT OF THAT FEE S THE FACILITIES EXTENDED TO THE MEMBER WILL BE MADE AVAILABLE TO TH E GUEST ALSO. HOWEVER, GENERALLY, ALL THESE FEES ARE PAID BY THE ME MBER WITH WHOM THE GUESTS ACCOMPANIES. THE EXEMPTION FROM SUCH FEE ON THE PRINCIPLE OF MUTUALITY IS NO MORE RES INTEGRA AS HONBLE SUPREME COURT IN THE CASE OF CIT VS. BANKIPUR CLUB LTD. 226 ITR 97 (SC) HAVE UPHELD THE DECISION OF FULL BENCH OF PATNA HIGH COURT IN TH E CASE OF BANKIPUR CLUB LTD. AND ALSO IN THE DECISION OF PATNA HIGH COU RT IN THE CASE OF RANCHI CLUB LTD. (1992) 196 ITR 137 (PAT) WHEREIN T HE OBSERVATIONS OF THEIR LORDSHIPS OF HONBLE SUPREME COURT ARE AS UNDER: - IN C.A. NO. 505/92 AND C.A. NO. 3974/92 (GROUP-B) , THE ASSESSEE IS RANCHI CLUB LTD. THE MAIN DECISION IS ON E RENDERED IN T.C. 54/80, SUBJECT-MATTER OF C.A. 505/92. THE JUD GMENT IS DT. 24TH SEPT, 1991 AND IS REPORTED IN CIT VS. RANCHI C LUB LTD. (1991) 100 CTR (PAT) 295 : (1992) 196 ITR 137 (PAT) ( FB) : TC 38R.576. THE QUESTIONS REFERRED TO THE HIGH COURT ARE A S FOLLOWS : '(I) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE TRIBUNAL HAS RIGHTLY HELD THAT THE ASSESSEE-CLUB IS A `MUTUAL CONCERN'? (II) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE TRIBUNAL HAS RIGHTLY HELD THAT THE INCOME DERIVED B Y THE ASSESSEE-CLUB FROM ITS HOUSE PROPERTY LET TO ITS MEMBERS AND THEIR GUESTS IS NOT CHARGEABLE TO TAX? ITA NO.4600/DEL/2011 5 (III) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL HAS RIGHTLY HELD THAT THE INCOME DERIVED BY THE ASSESSEE-CLUB FROM SALE OF LIQUOR, ETC., TO ITS MEMBER S AND THEIR GUESTS IS NOT TAXABLE IN ITS HANDS?' IN THESE CASES, THE ASSESSEE WAS A COMPANY FORMED WITH THE MAIN OBJECT OF PROVIDING A CLUB HOUSE AND OTHER CONVENIENCES FOR THE USE OF ITS MEMBERS AND THEIR FRIE NDS. THE MEMORANDUM OF ASSOCIATION PROVIDED FROM CONTRIBUTION B Y THE MEMBERS TO THE COMMON FUND OF THE CLUB, GUARANTEE TOWARD S DEBTS AND LIABILITIES, AND UPON WINDING UP, THEIR PARTI CIPATION IN THE SURPLUS. APART FROM THE CONCEPT OF 'MEMBER' ENVISAG ED IN THE MEMORANDUM, IT HAD CREATED ONE MORE CLASS DESCRIBE D AS TEMPORARY MEMBERS. THE TEMPORARY MEMBERS WEE NOT DEEMED TO BE MEMBERS. FOR THE ASST. YR. 1977-78, THE ASSESSEE HAD FILED ITS RETURN SHOEING ITS INCOME UNDE R THE HEAD 'HOUSE PROPERTY' REPRESENTING THE INCOME ARISING OUT OF GROSS RENT AND RESERVATION CHARGES RECEIVED BY IT FRO M PERSONS OTHER THAN MEMBERS. BUT, THE ITO, WHILE ASSESSING THE IN COME. ALSO INCLUDED THE AMOUNT RECEIVED BY THE ASSESSEE EVEN FROM ITS MEMBERS ON ACCOUNT OF RENT FROM THE CLUB PROPERTY AN D THE RECEIPTS ON SALE OF LIQUOR, ETC., TO ITS MEMBERS AND THE IR QUESTS. THE DECISION RENDERED BY THE HIGH COURT AS SUMMARISED IN THE HEAD-NOTE [(1992) 196 ITR 137 (PAT) : TC 38R.576 (SUP RA) AT PAGE 139] IS AS FOLLOWS : '........THAT MERELY BECAUSE THE ASSESSEE-COMPANY HAD ENTERED INTO TRANSACTIONS WITH NONMEMBERS AND EARNED PROFITS OUT OF TRANSACTIONS HELD WITH THEM, ITS RIGHT TO CLAIM EXEMPTION O N THE PRINCIPLE OF MUTUALITY IN RESPECT OF TRANSACTIONS HELD B Y IT WITH ITS MEMBERS WAS NOT LOST. THE ASSESSEE WAS A MUTUAL CON CERN. THE INCOME DERIVED BY IT FROM ITS HOUSE PROPERTY LET TO ITS MEMBERS AND THEIR GUESTS AND FROM THE SALE OF LIQUOR. ETC., TO ITS MEMBERS AND THEIR GUESTS WAS NOT TAXABLE IN ITS HANDS .' (EMPHASIS SUPPLIED). 8. AS IT CAN BE SEEN FROM THE ABOVE OBSERVATIONS, THIS T YPE OF CASE WHERE SUCH FEES IS CHARGED HAS BEEN TERMED TO BE GROUP B CASE AND COMBINED WITH OTHER CASES, WHICH WERE DIVIDED IN GROU PS A TO D (FOR OUR PURPOSE RELEVANT WILL BE B GROUP), THEIR LORDSHIP S OF HONBLE SUPREME COURT OBSERVES AS UNDER:- NOW WE TURN TO THE MAIN QUESTION CANVASSED BY THE REVENUE IN THE APPEALS COMING UNDER GROUPS A TO D, NA MELY, WHETHER THE ASSESSEEMUTUAL CLUBSARE ENTITLED TO EXEMPTION FOR THE RECEIPTS OR SURPLUS ARISING FROM THE SALES OF ITA NO.4600/DEL/2011 6 DRINKS, REFRESHMENTS ETC. OR AMOUNTS RECEIVED BY WAY O F RENT FOR LETTING OUT THE BUILDINGS OR AMOUNTS RECEIVED BY WA Y OF ADMISSION FEES, PERIODICAL SUBSCRIPTIONS AND RECEIPTS OF SIMILAR NATURE, FROM ITS MEMBERS? IN ALL THESE CASES, THE TRIBU NAL AS ALSO THE HIGH COURT HAVE FOUND THAT THE AMOUNTS RECEIVED BY THE CLUBS WERE FOR SUPPLY OF DRINKS, REFRESHMENTS OR OTHER GOODS AS ALSO THE LETTING OUT OF BUILDING FOR RENT OR THE AMOUNTS RECEIVED BY WAY OF ADMISSION FEES, PERIODICAL SUBSC RIPTION ETC. FROM THE MEMBERS OF THE CLUBS WERE ONLY FOR/TOWARDS CH ARGES FOR THE PRIVILEGES, CONVENIENCES AND AMENITIES PROVID ED TO THE MEMBERS, WHICH THEY WERE ENTITLED TO AS PER THE RULES AN D REGULATIONS OF THE RESPECTIVE CLUBS. IT HAS ALSO BEEN F OUND THAT DIFFERENT CLUBS REALISED VARIOUS SUMS ON THE ABOVE CO UNTS ONLY TO AFFORD TO ITS MEMBERS THE USUAL PRIVILEGES, ADVANTAGE S, CONVENIENCES AND ACCOMMODATION. IN OTHER WORDS, THE SE RVICES OFFERED ON THE ABOVE COUNTS WERE NOT DONE, WITH ANY PR OFIT MOTIVE, AND WERE NOT TAINTED WITH COMMERCIALITY. THE FACI LITIES WERE OFFERED ONLY AS A MATTER OF CONVENIENCE FOR THE U SE OF THE MEMBERS, (AND THEIR FRIENDS, IF ANY, AVAILING OF THE FACILITIES OCCASIONALLY). IN THE LIGHT OF THE ABOVE FINDINGS, IT NECESSARILY FOLL OWS THAT THE RECEIPTS FOR THE VARIOUS FACILITIES EXTENDED BY THE CLUB S TO ITS MEMBERS, AS STATED HEREINABOVE, AS PART OF THE USUAL PRIVILEGES, ADVANTAGES AND CONVENIENCES, ATTACHED TO THE MEMBERSHIP OF THE CLUB, CANNOT BE SAID TO BE 'A TRADING ACTIVITY.' THE SURPLUSEXCESS OF RECEIPTS OVER THE EXPENDITUREAS A RESULT OF MUTUAL ARRANGEMENT, CANNOT BE SAID TO BE 'INCOME' FOR THE PURPOSE OF THE ACT. 8.1 AND FINALLY THEIR LORDSHIPS HAVE CONCLUDED AS UNDE R:- IN THE RESULT, WE HOLD THAT THE JUDGMENTS AND ORDERS PASSED BY THE HIGH COURTS COVERED BY GROUPS A, B, C A ND D, AS STATED ABOVE, DO NOT MERIT ANY INTERFERENCE. THE REASON ING AND CONCLUSION OF THE HIGH COURTS IN THE JUDGMENTS AND ORDERS IMPUGNED ARE IN ACCORD WITH THE SETTLED LEGAL PRINCIPLE S AS LAID DOWN BY COURTS. THE 16 APPEALS COVERED BY GROUPS A TO D FILED BY THE REVENUE ARE, THEREFORE, DISMISSED WITH COSTS, IN CLUDING ADVOCATES' FEES WHICH WE ESTIMATE AT RS. 5,000 IN EACH APPEAL. 9. IN VIEW OF THE AFOREMENTIONED OBSERVATIONS OF THEI R LORDSHIPS, WE FIND NO JUSTIFICATION IN THE ADDITION UPHELD BY LEAR NED CIT (A). THE SAME IS DIRECTED TO BE DELETED AND THE APPEAL FILED B Y THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. ITA NO.4600/DEL/2011 7 10. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.12.20 11. SD/- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 28.12.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES