ITO, Jaipur V. JAIPUR CLUB LTD, Jaipur

ITA 592/JPR/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5567 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 31-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BHATEJA
• Assessee Lawyers: N S VYAS CA DHK
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA -@ ITA NOS. 592 & 418/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2007-08 & 2008-09 INCOME TAX OFFICER, WARD 2(3), JAIPUR. CUKE VS. M/S JAIPUR CLUB LTD., JACOB ROAD, CIVIL LINES, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAAAJ 1464 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI O.P. BHATEJA (ADDL.CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI N.S. VYAS (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 17/11/2015. MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 01/01/2016. VKNS'K@ ORDER PER T.R. MEENA, A.M. BOTH ARE THE APPEALS FILED BY THE REVENUE AGAINST T HE TWO SEPARATE ORDERS OF THE LD. CIT(A)-I & CIT(A)-III, JA IPUR DATED 21/3/2013 AND 03/01/2013 FOR THE ASSESSMENT YEAR 2007-08 & 20 08-09 WHEREIN COMMON GROUND HAS BEEN RAISED BY THE REVENUE, WHICH IS REPRODUCED AS UNDER- ITA NO.592 & 418/JP/2013 ITO VS. M/S JAIPUR CLUB LTD. 2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LD CIT(A) WAS JUSTIFIED IN DECIDING THA T THE PRINCIPLE OF MUTUALITY EXTENDS TO A SITUATIONS WHERE THE CONTRIBUTORS AND PARTICIPATORS TO A MUTUALITY ARE N OT ITS MEMBERS. 2. THE ASSESSEE IS A CLUB FILED ITS RETURN OF INCOME AT NIL FOR BOTH THE ASSESSMENT YEARS I.E. 2007-08 AND 2008-09 ON 30 /10/2007 AND 17/10/2008 RESPECTIVELY. BOTH THE CASES WERE SCRUTIN IZED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE LD ASSESSING OFFICER OBSERVED THAT IN BOTH THE YEARS, THE ASSESSEE HAD N OT MAINTAINED PRINCIPLE OF MUTUALITY IN RESPECT OF SERVICE PROVID ED FOR NON-MEMBERS. THE ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THE ISSUES UNDER THE HEADS, GUEST CHARGES, ROOM CHA RGES, SERVICE CHARGES AND LAWN CHARGES BY FOLLOWING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SPORTS CLUB GUJARAT LIMIT ED VS. CIT 171 ITR 504 AND ALSO RAJPATH CLUB LTD. VS. CIT 211 ITR 379. THE ASSESSEE SUBMITTED REPLY VIDE LETTER DATED 28/11/2009 WHEREIN IT WAS SUBMITTED THAT THERE WAS A DEFICIT AND INTEREST INCOME WAS HARD LY RS. 4,76,990/- IN A.Y. 2007-08 AND IN A.Y. 2008-09 INTEREST INCOME WAS RS. 6,85,899/-. IF THIS AMOUNT IS ADDED IN THE INCOME THEREAFTER TH ERE WILL BE LOSS. ITA NO.592 & 418/JP/2013 ITO VS. M/S JAIPUR CLUB LTD. 3 FURTHER THE ASSESSEE CLUB HAS RETURNED LOSS AND CLA MED BROUGHT FORWARD LOSS FOR THE A.Y. 2004-05 AND 2005-06. IN CA SE OF SPORTS CLUB GUJARAT LIMITED VS. CIT (SUPRA), IT WAS HELD THAT THE INTEREST INCOME IS TAXABLE. THE ASSESSEE SUBMITTED THAT ONCE THERE IS H ON'BLE SUPREME COURT DECISION, THE SAME IS LAW OF LAND AND HON'BLE HIGH COURT CASES CANNOT BE APPLIED. IT IS SUBMITTED THAT ALL ACTIVIT IES ARE CARRIED OUT BY THE CLUB FOR THE MEMBERS AND OF THE MEMBERS. THE GUE STS ARE ALSO OF THE MEMBERS ONLY. THE GUEST CHARGES ARE TAKEN BY THE CLUB FROM THE MEMBERS ONLY TO AVOID UNNECESSARILY CROWN IN THE CLU B, BUT THE FACT REMAINS THAT THE GUESTS CHARGES ARE PAID BY THE MEM BERS ONLY. THERE ARE SEVERAL AFFILIATED CLUB ALL OVER THE INDIA, WHIC H ALSO FACILITATE TO THE CLUB MEMBERS VICE VERSA. AFTER CONSIDERING THE ASSE SSEES REPLY, THE LD ASSESSING OFFICER HELD THAT PRINCIPLE OF MUTUALITY IS BASED ON THE DICTA THAT A MAN COULD NOT MAKE A PROFIT BY TRADING WITH H IMSELF; THIS DEVELOPED INTO THE PROPOSITION THAT WHEN PERSONS C ONTRIBUTE TO A COMMON FUND IN PURSUANCE OF A SCHEME FOR THEIR MUT UAL BENEFIT, HAVING NO RELATIONS WITH ANY OUTSIDE BODY, THEY CANN OT BE SAID TO HAVE MADE A PROFIT WHEN THEY HAVE OVERCHARGED THEMSELVES AND THAT SOME PORTION OF THEIR CONTRIBUTIONS MAY BE SAFELY REFUND ED. FOR THIS DOCTRINE TO APPLY, IT IS ESSENTIAL THAT ALL THE CONTRIBUTORS TO THE COMMON FUND ARE ITA NO.592 & 418/JP/2013 ITO VS. M/S JAIPUR CLUB LTD. 4 ENTITLED TO PARTICIPATE IN THE SURPLUS AND THAT ALL THE PARTICIPANTS IN THE SURPLUS ARE CONTRIBUTORS. THIS MEANS IDENTITY AS A C LASS, SO THAT AT ANY GIVEN MOMENT OF TIME THE PERSONS WHO ARE CONTRIBUTIN G ARE IDENTICAL WITH THE PERSONS ENTITLED TO PARTICIPATE. HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BANKIPUR CLUB LIMITED 226 ITR 97 (SC). THE PRINCIPLE EVOLVED IS THAT SO LONG AS THE INCOME AND SURPLUS ARISES FROM THE DEALINGS/TRANSACTIONS AMONGST THE M EMBERS THEN SUCH SURPLUS/INCOME WILL BE EXEMPT. HOWEVER, IF THERE IS A DEALING WITH THE NON MEMBER AND THERE IS AN INCOME THEN PRINCIPLE OF MUTUALITY WILL FAIL AND SUCH INCOME IS REQUIRED TO BE TAXED UNDER THE I NCOME TAX ACT. HE FURTHER RELIED ON THE DECISION IN THE CASE OF CIT VS . TRIVENDRUM CLUB 153 TAXMAN 481 (KERELA). HE FURTHER HELD THAT THE A SSESSEE RELIED ON THE DECISION IN THE CASE BANKIPUR CLUB LIMITED AND ARGUED THAT THE HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF SPORTS CLUB GUJARAT LIMITED VS. CIT (SUPRA) SHOULD NOT BE APPLIED WITH T HEIR HON'BLE SUPREME COURT DECISION. THE LD ASSESSING OFFICER HEL D THAT HON'BLE SUPREME COURT HAS NOT DECIDED THE ISSUE OF INCOME F ROM NON MEMBER, THE ISSUE WAS WHETHER THE AMOUNT RECEIVED BY THE CLUB FOR SUPPLY OF DRINKS, REFRESHMENT OR FOOD OR OTHER GOODS AS ALSO LETTING OUT OF THE BUILDING, BY WAY OF ADMISSION OF ANY MEMBER, SALE OF FORMS, PERIODICALS ITA NO.592 & 418/JP/2013 ITO VS. M/S JAIPUR CLUB LTD. 5 AND SUBSCRIPTIONS FROM THE MEMBERS OF THE CLUB, NOT TAINTED WITH COMMERCIALITY, ARE EXEMPT FROM THE PRINCIPLE OF MUT UALITY. IN THE DECISION OF HON'BLE SUPREME COURT, IT HAS BEEN HELD THAT AMOUNT RECEIVED BY THE CLUB FROM THE MEMBERS FOR PROVIDING SPECIFIED FACILITIES NOT TAINTED WITH COMMERCIALITY ARE EXEMPT UNDER PRI NCIPLE OF MUTUALITY. THUS IF THE CLUB DERIVES INCOME BY PROVIDING SERVICE S TO THE NON MEMBERS EXCLUSIVELY, THEN SUCH INCOME WILL BE TAXED. THE ASSESSEE CLUB HAS PROVIDED SERVICE TO THE NON MEMBERS AND CHARGED GUEST CHARGES, ROOM CHARGES, LAWN CHARGES AND SERVICE CHARGES. THE A SSESSEE WAS ASKED TO PRODUCE THE COMPLETE RECORD BY THE ASSESSI NG OFFICER TO VERIFY THAT THESE PAYMENTS WERE RECEIVED THROUGH MEMBERS ON LY BUT WHICH WAS FILED BY THE ASSESSEE WITHOUT HIGHLIGHTING WHICH BILLS OF THE GUESTS HAD BEEN PAID BY WHICH MEMBERS. FURTHER THE LD ASSES SING OFFICER HELD THAT INTEREST FROM BANK AT RS. 4,76,990/- IS TAXABL E AND COVERED BY THE HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF SPORTS CLUB GUJARAT LIMITED VS. CIT (SUPRA) AND RAJPATH CLUB LTD. VS, CI T (SUPRA) THEREFORE, HE DISALLOWED 30% OUT OF ROOM AND LAWN CHAR GES AND 50% OUT OF SERVICES CHARGES AND TOTAL ADDITION INCLUDIN G INTEREST INCOME ON FDRS WAS MADE AT RS. 35,31,167/-. THE LD ASSESSING OF FICER ALLOWED BUSINESS LOSS BROUGHT FORWARDED FOR A.Y. 2004-05. SI MILAR PROPORTIONATE ITA NO.592 & 418/JP/2013 ITO VS. M/S JAIPUR CLUB LTD. 6 ADDITION HAD BEEN MADE BY THE ASSESSING OFFICER IN A.Y. 2008-09 AND TOTAL ADDITION INCLUDING INTEREST ON FDRS WAS MADE A T RS. 61,41,930/-. 3. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD ALLOWED THE APPEAL ON THE PRINCIPLE OF MUTUALITY BY FOLLOWING TH E DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BANKIPUR CLUB LIMITED (SUPRA) AND HONBLE PATNA HIGH COURT DECISION IN THE CASE OF CIT VS. RAN CHI CLUB LIMITED (1992) 196 ITR 137 (PATNA (FULL BENCH). THE LD CIT(A) HAS ALSO HELD AS UNDER:- MUTUALITY PRINCIPLE OFFERS A TAX SHELTER, AS LONG AS ITS CHARACTER OF A MUTUAL ASSOCIATION IS RETAINED WITH ITS INCOME NOT TAINTED BY COMMERCIALITY. A FORMAL ORGANIZATION INDICATING MUTUALITY AS BETWEEN MEMBERS WITH BYE LAWS SPELLING OUT MUTUALITY M AY HOWEVER BE NECESSARY AS PROOF OF CLAIM TO MUTUALITY EITHER AS A SOCIETY OR A COMPANY REGISTERED UNDER SECTION 25 OF THE COMPANIES ACT, 1956, OR EVEN AS MANAGED BY A PUBLIC TRUST, WITH SUCH ACTIVITIES PRIMARILY INTENDED TO BE CONFIN ED TO ITS MEMBERS. THE LD CIT(A) HAS FURTHER HELD AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS MADE. IN VIEW OF THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT, ITA NO.592 & 418/JP/2013 ITO VS. M/S JAIPUR CLUB LTD. 7 AND VARIOUS DECISIONS QUOTED BY THE A/R OF THE APPE LLANT IT IS SEEN THAT THE RECEIPTS COLLECTED FROM MEMBERS HAS B EEN USED FOR THE PURPOSE OF CLUBS. IN THIS REGARD THE LATEST DECISION QUOTED BY THE A/R OF THE APPELLANT TO DELHI HIGH CO URT IN THE CASE OF CIT VS TALANGANG COOP GROUP HOUSING SOCIETY L TD. (44 DTR 58) IS APPLICABLE WHEREIN IT WAS HELD THAT ASSESS EE, A CO- OPERATIVE HOUSING SOCIETY, WAS FORMED FOR THE DEVELO PMENT AND CONSTRUCTION OF RESIDENTIAL HOUSE/FLATS FOR ITS MEMBERS AND TO PROVIDE THEM NECESSARY COMMON AMENITIES AND FACI LITIES, AND THEREFORE, THE PRINCIPLE OF MUTUALITY WOULD APP LY TO THE INCOME OF THE ASSESSEE SOCIETY, INCLUDING THE INCOM E FROM THE SALE OF SHOPS, PRINCIPLE OF MUTUALITY IS ATTRACTED ALSO TO THE INTEREST DERIVED FROM DEPOSITS MADE BY THE SOCIETY OUT OF CONTRIBUTIONS MADE BY ITS MEMBERS. HENCE, THE PRIN CIPAL OF MUTUALITY IS TOTALLY APPLICABLE IN THIS CASE. THE AD DITION MADE BY THE A.O. ON ACCOUNT OF GUEST CHARGES RS. 14,19,3 93/-, OUT OF ROOM CHARGES RS. 50,66,673/-, OUT OF SERVICES CH ARGES RS. 5,92,716/-, OUT OF LAWN CHARGES RS. 2,76,584/- IS DE LETED. THE APPELLANT SUCCEEDS ON THIS GROUND. REGARDING INTERE ST ON FDR OF RS. 6,85,899/- THE DECISION QUOTED BY THE A/R OF DELHI HIGH COURT IN THE CASE OF CIT VS DELHI GYMKHANA CLUB LTD. (53 DTR 330) IS CLEARLY APPLICABLE WHEREIN IT WAS HELD THAT T HE INCOME EARNED IN RESPECT OF THE INTEREST BY INVESTING OF S URPLUS FUND IS COVERED UNDER PRINCIPAL OF MUTUALITY. HENCE THE ADD ITION MADE ON THIS ACCOUNT IS, THEREFORE, DELETED. ITA NO.592 & 418/JP/2013 ITO VS. M/S JAIPUR CLUB LTD. 8 IN A.Y. 2007-08, THE LD CIT(A) HAS FOLLOWED THE DECIS ION OF LD CIT(A)-I, JAIPUR GIVEN IN A.Y. 2008-09. 4. NOW THE REVENUE IS IN APPEALS BEFORE US. THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS REITERATED THE ARGUME NTS MADE BEFORE THE LD CIT(A) AND ARGUED THAT THE PRINCIPLE OF MUTUALITY IS APPLICABLE IN CASE OF CLUB. THERE IS NO VIOLATION OF THIS PRINCIPLE BY THE ASSESSEE. THERE IS NO DIRECT BILL IN THE NAME OF NON MEMBERS. IF ANY G UEST HAS BEEN ALLOWED BY ANY MEMBER, THE BILLS WERE ISSUED IN THE N AME OF MEMBER ONLY. HE FURTHER ARGUED THAT THE HON'BLE SUPREME CO URT DECISION IN THE CASE OF BANKIPUR CLUB LIMITED AND HONBLE PATNA HIG H COURT DECISION IN THE CASE OF RANCHI CLUB LIMITED ARE SQUARELY APPLIC ABLE IN THE CASE OF ASSESSEE. HE FURTHER ARGUED THAT THE AMOUNT RECEIVE D BY THE CLUB FROM MEMBERS FOR PROVIDING SPECIFIED SERVICES, NOT BEING TAINTED WITH COMMERCIALITY ARE EXEMPT FROM THE PRINCIPLE OF MUTU ALITY. THEREFORE, HE PRAYED TO UPHOLD THE ORDER OF THE LD CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AS SESSEE HAS NOT ISSUED ANY BILL IN THE NAME OF OUTSIDER. IF ANY SER VICE HAS BEEN PROVIDED ITA NO.592 & 418/JP/2013 ITO VS. M/S JAIPUR CLUB LTD. 9 TO THE GUEST BY THE CLUB, THE BILLS HAS BEEN ISSUED IN THE NAME OF MEMBERS ONLY. THE LD ASSESSING OFFICER HAD NOT SPEC IFICALLY POINTED OUT THE RECEIPTS RECEIVED FROM NON MEMBERS. HE SIMPLY M ADE DISALLOWANCE ON ESTIMATE BASIS. THE ASSESSEE HAS PRODUCED COMPLET E BOOKS OF ACCOUNT DURING THE ASSESSMENT PROCEEDINGS. THEREFOR E, PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF BAN KIPUR CLUB LIMITED (SUPRA) IS SQUARELY APPLICABLE ON PRINCIPLE OF MUTUALITY WHEREIN IT HAS BEEN HELD THAT IN ANY MUTUAL ORGANIZATION, THERE IS AN ELEMENT OF ALTRUISM, SINCE THE BENEFIT AVAILED BY A MEMBER MAY NOT ALWAYS BE COMMENSURATE WITH HIS CONTRIBUTION. IT WAS FOR THIS R EASON THAT EVEN WHERE THERE IS NO RETURN ON THE CONTRIBUTION, AS IN THE CASE OF AN ASSOCIATION FORMED FOR THE PURPOSE OF GENERAL PUBLI C UTILITY, MUTUALITY MAY NOT BE LOST. THE FULL BENCH OF THE HONBLE PATNA HIGH COURT IN THE CASE OF CIT VS. RANCHI CLUB LTD. (SUPRA) HAS ALSO HE LD THAT MERELY BECAUSE THE ASSESSEE COMPANY HAD ENTERED INTO TRANS ACTIONS WITH NON MEMBERS AND EARNED PROFITS OUT OF TRANSACTIONS HELD WITH THEM ITS RIGHT TO CLAIM EXEMPTION ON THE PRINCIPLE OF MUTUALITY IN RESPECT OF TRANSACTIONS HELD BY IT WITH ITS MEMBERS WAS NOT LOST . THE ASSESSEE WAS A MUTUAL CONCERN, THE INCOME DERIVED BY IT FROM ITS HOUSE PROPERTY LET TO ITS MEMBERS AND THEIR GUESTS AND FROM THE SALE O F LIQUOR ETC. TO ITS ITA NO.592 & 418/JP/2013 ITO VS. M/S JAIPUR CLUB LTD. 10 MEMBERS AND THEIR GUESTS WAS NOT TAXABLE IN ITS HAND S. THE ABOVE PRINCIPLE IS SQUARELY APPLICABLE IN THE CASE OF ASS ESSEE, THEREFORE, WE UPHOLD THE ORDER OF THE LD CIT(A) FOR BOTH THE ASSES SMENT YEARS. 6. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/01/2016. SD/- SD/- YFYR DQEKJ VH-VKJ-EHUK (LALIET KUMAR) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 01 ST JANUARY, 2016 RANJAN* VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ITO, WARD 2(3), JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- M/S JAIPUR CLUB LTD., JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 592 & 418/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR