ACIT, Lucknow V. M/s. Mohd. Bagh Club, Lucknow

ITA 627/LKW/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78620 (ITAT-LUCKNOW)
• Duration Of Justice: 6 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-07-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 28-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTA VA
• Assessee Lawyers: D D CHOPRA
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 627/LKW/2007 ASSESSMENT YEAR S : 2004 - 05 ACIT RANGE II LUCKNOW V. M/S MOHD BAGH CLUB LTD . 2, M.G. MARG LUCKNOW PAN: AACCM2600B (APP ELL ANT) (RESPONDENT) ITA NO. 113/LKW/2007 ASSESSMENT YEAR S : 2003 - 04 ASSESSING OFFICER II(3) LUCKNOW V. M/S MOHD BAGH CLUB LTD. 2, M.G. MARG LUCKNOW PAN: AACCM2600B (APP ELL ANT) (RESPONDENT) ITA NO S . 77 0/LKW/2008 ASSESSMENT YEAR S : 2005 - 06 DCIT RANGE I LUCKNOW V. M/S MOHD BAGH CLUB LTD. 2, M.G. MARG LUCKNOW PAN: AACCM2600B (APP ELL ANT) (RESPONDENT) APP ELL ANT BY: SHRI. Y. P. SRIVASTAVA, D.R. RESPONDENT BY: SHRI. D.D. CHOPRA, ADVOCATE DATE OF H EARING: 11 0 7 2014 DATE OF PRONOUNCEMENT: 21 0 7 2014 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE RESPECTIVE ORDER OF THE LD. CIT(A) PERTAINING TO ASSESSMENT YEARS 2003 - 04, PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 2 - : 2004 - 05 AND 2005 - 06 ON COMMON GROU NDS. THOUGH VARIOUS GROUNDS ARE RAISED IN THESE APPEALS BY THE REVENUE, BUT THEY ALL RELATE MAINLY ON THREE ISSUES ONE IS WITH REGARD TO THE ADDITION MADE ON RECEIPTS FROM NON - MEMBERS OF THE CLUB FOR BOOKING OF LAWN, ETC. FOR FUNCTIONS; SECOND IS WITH R EGARD TO RECEIPT FROM CATER ER S , TENTWALLA H S AND DECORATORS, ETC. FOR EXECUTING THEIR WORK ON THE AFORESAID LAWN, ETC . AND THIRD IS WITH REGARD TO AN ADDITION ON ACCOUNT OF INTEREST RECEIVED ON FDRS/SURPLUS DEPOSIT WITH THE BANK. 2 . THESE ISSUES WERE EXAMINED IN DETAIL BY THE ASSESSING OFFICER AND HE HAS NOTED IN HIS ORDER THAT THE ASSESSEE IS A CLUB INCORPORATED UNDER THE COMPANIES ACT, 1833 AND FORMED FOR THE PURPOSES NOT FOR GAIN. AS PER THE MEMORANDUM OF ASSOCIATION , THE OBJECT OF THE ASSESSEE INCLUDES PRO MOTION OF GAMES, AMUSEMENTS, SOCIAL AND LITERARY ENJOYMENT OF MEMBERS AND ALSO TO UNDERTAKE SOCIAL, CHARITABLE AND H UMANITARIAN PURSUITS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS OBSERVED FROM THE INCOME AND EXPENDITURE ACCOU NT THAT RECEIPTS AND PROFIT OF THE C LUB WERE INCREASED. RECEIPTS INCLUDED CLUB SUBSCRIPTION, ROOM RESERVATION CHARGES, INTEREST EARNED AND OTHER RECEIPTS. FROM THE DETAILS FURNISHED BEFORE HIM IN RESPONSE TO HIS QUERIES, THE ASSESSING OFFICER HAS NOTED T HAT SUBSTANTIAL AMOUNT WAS RECEIVED FROM OUTSIDERS I.E. NON - MEMBERS SUCH AS C ATERERS AND T ENTWALLAHS, WHO ARE ON THE PANEL OF THE ASSESSEE CLUB. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF RECEIPTS, IT WAS EXPLAINED THAT TENTWALLAHS AND CATERERS PAID CERTAIN AMOUNT AGAINST MAINTENANCE AND CLEANLINESS WHICH WAS IMPERATIVE AFTER ANY PARTY WAS HELD IN THE LAWNS. THE ASSESSING OFFICER OBSERVED FROM THE STATEMENT THAT THE EXPENSES FOR CLEANING COULD NOT BE AS HIGH AS CLAIMED BY THE ASSESSEE AND THEREF ORE ELEMENT OF PROFIT CANNOT BE RULED OUT. ON FURTHER ENQUIRY, IT WAS REVEALED THAT THESE CHARGES ARE NOTHING BUT THE FEE CHARGED BY THE CLUB FOR KEEPING DIFFERENT SERVICE PROVIDERS ON THE PANEL OF THE CLUB. ANY PERSON PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 3 - : WHO BOOKS THE CLUB LAWNS CANNOT OBT AIN THESE SERVICES FROM A PERSON OTHER THAN THOSE ON THE PANEL OF THE CLUB. THEREFORE, SUCH CHARGES RECEIVED FROM VARIOUS SERVICE PROVIDERS ARE ESSENTIAL LY A KIND OF ROYALTY OR SHARE OUT OF THE RECEIPTS. THE ASSESSEE WAS ASKED TO FURNISH LIST OF ALL PERS ONS IN WHOSE NAME THE CLUB LAWN, ROOMS, ETC WERE BOOKED AND IN RESPONSE THERETO A LIST WAS SUBMITTED AND THE ASSESSING OFFICER HAS VERIFIED THE FACTS FROM SOME OF THE PERSONS. 3 . HAVING EXAMINED THE CLAIM OF THE ASSESSEE IN THIS REGARD, THE ASSESSING OFFICE R HAS CONCLUDED THAT THE RECEIPTS FROM NON - MEMBERS ARE EXIGIBLE TO TAX. IN THE ABSENCE OF DETAILS, HE ESTIMATED 80% OF THE RECEIPTS EXCLUDING RECEIPTS FROM CATERERS, CAME FROM OUTSIDERS AND NOT FROM THE MEMBERS. THE TOTAL AMOUNT OF RECEIPTS FROM THE CATE RERS, ETC WERE ALSO CONSIDERED TO BE RECEIPT FROM OUTSIDERS AND FINALLY ALLOWED ONLY 20% OF THE TOTAL AMOUNT AND REST WAS TREATED AS NET INCOME OF THE ASSESSEE AND IT WAS TAXED. 4 . SO FAR AS INTEREST ON FDRS AND SURPLUS FUNDS ARE CONCERNED, THE ASSESSING OF FICER HAS EXAMINED THE PRINCIPLE OF MUTUALITY AND WAS OF THE VIEW THAT PRINCIPLE OF MUTUALITY WILL NOT APPLY WHEN THE CLUB OR SOCIETY DEPOSIT MONEY WITH OUTSIDERS AND EARN INCOME/INTEREST . HE HAS EXAMINED THE ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNC EMENTS IN THE CASES OF WALKESHWAR TRIVENI CO - OPERATIVE HOUSING SOCIETY LTD. VS. INCOME TAX OFFICER, 267 ITR 86; CIT VS. NATIONAL SPORTS CLUB INDIA (DELHI), 230 ITR 777; CIT VS. ITI EMPLOYEES DEATH AND SUPERANNUATION RELIEF FUND, 234 ITR 308; NIRMA INDUSTRI ES LTD. VS. ACIT, 95 ITD 199 (AHD)(SB) AND RAJPATH CLUB LTD. VS. CIT, 211 ITR 379 AND CAME TO THE CONCLUSION THAT INTEREST RECEIVED ON SURPLUS/FDRS IS TAXABLE AS INCOME IN THE HANDS OF THE ASSESSEE. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 4 - : 5 . AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD . CIT(A). BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD. CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE AND DELETED THE ENTIRE ADDITION . 6 . NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. D.R. HAS INVITED OUR ATTENTION TO THE FACT THAT UNDISPUTEDLY ASSESSEE HAS RECEIVED SUBSCRIPTION OR DEPOSITS FROM OUTSIDERS WHILE BOOKING LAW N, ETC FOR THE FAMILY FUNCTIONS. B ESIDES , ASSESSEE HAS ALSO RECEIVED PARTICULAR AMOUNT FROM THE CATERERS, TENTWALLAHS, DECORATORS, ETC. SINCE THESE AMOUNTS WERE RECEIVED FROM OUTSIDERS I.E. NON - MEMBERS OF THE ASSESSEE CLUB, PRINCIPLE OF MUTUALITY WILL NOT APPLY AND THE RECEIPTS WOULD BE CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. THE LD. D.R. HAS FURTHER CONTENDED THAT WHATEVER EXPENSES HAVE BEEN CLAIMED BY THE ASSESSEE TO MAINTAIN LAWN, ETC AFTER FAMILY FUNCTIONS IS OVER, THESE EXPENSES WERE ALREADY DEBITED TO THE PROFIT AND LOSS ACCOUNT. THEREFORE, NO FURTHER ALLOWANCE OF THE SAME CAN BE MADE. THE LD. D.R. HAS FURTHER CONTENDED THAT THE ASSESSEE HAS N OT MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR THE PURPOSE OF MAINTENANCE OF LAWN, ETC. OUT OF RECEIPTS FROM THE NON - MEMBERS I.E. BOOKING AMOUNT OR CHARGES COLLECTED FROM THE DECORATORS, TENTWALLAHS AND CATERERS. THEREFORE, NO FURTHER EXPENSES CAN BE ALLOWED OUT OF RECEIPTS COLLECTED BY THE ASSESSEE ON ACCOUNT OF BOOK ING OF LAWN, ETC. FOR FAMILY FUNCTIONS OF THE MEMBERS. 7 . WITH REGARD TO THE CHARGEABILITY OF TAX ON THE INTEREST RECEIVED BY THE ASSESSEE ON FDRS AND SURPLUS DEPOSIT IN THE BANK, THE LD. D.R. HAS S UBMITTED THAT THIS ISSUE WAS EXAMINED BY VARIOUS JUDICIAL AUTHORITIES IN A LARGE NUMBER OF CASES WHICH WERE REFERRED TO BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. BUT THE LD. CIT(A) HAS IGNORED ALL THE JUDICIAL PRONOUNCEMENTS AND HELD THAT INTEREST INCOME RECEIVED FROM SURPLUS/FDRS IS ALSO EXEMPTED FROM TAX ON ACCOUNT OF MUTUALITY. THEREFORE, THE FINDINGS OF THE LD. CIT(A) ARE CONTRARY TO THE VARIOUS JUDICIAL PRONOUNCEMENTS. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 5 - : 8 . HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF RECORD , WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAS RECEIVED CERTAIN AMOUNTS/DEPOSITS ON BOOK ING OF LAWN, ETC FOR FAMILY FUNCTIONS, ETC. FROM THE MEMBERS WITH A CONDITION THAT THE CATERERS, DECORATORS OR TENTWALLAHS ARE TO BE HIRED FROM THE PANEL PREPARED BY THE ASSESSEE. MEMBERS ARE NOT ALLOWED TO HIRE SERVICES OF THE OTHER SERVICE PROVIDERS, WHO ARE NOT ON THE PANEL OF THE ASSESSEE. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS BEEN CHARGING CERTAIN AMOUNT FROM THESE SERVICES PRO VIDERS, THOUGH THE ASSESSEE HAS CLAIMED THAT THE CHARGES COLLECTED FROM THE AFORESAID SERVICE PROVIDERS ARE BEING UTILIZED TO MAINTAIN CLEANLINESS OF THE LAWN, ETC. THEREFORE, THE AMOUNT COLLECTED FROM THE AFORESAID SERVICE PROVIDERS CANNOT BE CALLED TO H AVE BE EN RECEIVED FROM MEMBERS AND IS EXIGIBLE TO TAX. 9 . DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF THE ACCOUNTS TO ESTABLISH THAT THE AMOUNTS COLLECTED FROM THE AFORESAID SERVICE PROVIDERS W ERE IN FACT UTILIZED FOR THE UPKEEP OR MAINTENANCE OF LAWN AND ITS CLEANLINESS, ETC. BUT TH E LD. COUNSEL FOR THE ASSESSEE COULD NOT PLACE RELEVANT RECORD OR ACCOUNT OR ANY EVIDEN C E TO JUSTIFY THAT THE RECEIPTS FROM THE SERVICE PROVIDERS WAS IN FACT USED FOR UPKEEP OF LAWN, ETC. AND ITS MAINTENANCE. WE CANNOT IGNORE THE CONTENTION OF THE LD. D.R. THAT WHATEVER EXPENSES ARE CLAIMED TO UPKEEP AND MAINTAIN LAWN, ETC WERE ALREADY DEBITED BY THE ASSESSEE TO ITS ACCOUNT WHILE COMPUTING THE NET PROFIT/INCOME OVE R EXPENDITURE. THEREFORE, THE SAME CANNOT BE ALLOWED AGAIN. THE RECEIPTS FROM SERVICE PROVIDERS ARE CERTAINLY RECEIPTS FROM NON - MEMBERS, THEREFORE, DOCTRINE OF MUTUALITY WILL NOT APPLY TO THE SE RECEIPTS. THE PRINCIPLE OF MUTUALITY MEANS WHEREVER CERTAIN GROUPS OF MEMBERS JOIN TOGETHER AND THEY CONTRIBUTE SOMETHING FOR THEIR OWN USE. IF SURPLUS IS LEFT OUT, THAT COULD NOT BE INCOME OF THE GROUP, AS IT WAS FURTHER USED BY THE MEMBERS. THE PRINCIPLE OF MUTUALITY IS BASED PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 6 - : ON A PROPOSITION THAT NO PERSON CA N TRADE FOR HIMSELF, BUT WHERE THE AMOUNTS ARE RECEIVED FROM TH E NON - MEMBERS, THE PRINCIPLE OF MUTUALITY WILL NOT APPLY. THE ASSESSING OFFICER HAS, HOWEVER, ALLOWED RECEIPT OF 20% OF THE SAME AS EXEMPTED FROM TAX. WE, THEREFORE, CANNOT INCREASE THE SAME AND WE HOLD THAT 80% OF THE RECEIPTS FROM SERVICE PROVIDERS IS EXIGIBLE TO TAX. 10 . SO FAR AS RECEIPTS FROM NON - MEMBERS FOR BOOKING OF THE LAWN, ETC ARE CONCERNED, WE ARE OF THE VIEW THAT IN THE CLUB , THE BOOKING IS ALWAYS MADE IN THE NAME OF THE MEMBERS ONL Y FOR THEIR FAMILY FUNCTIONS. IF THE CONTENTION OF THE DEPARTMENT THAT THE LAWN IS BOOKED FOR NON - MEMBERS IS TO BE EXAMINE D, WE WOULD FIND THAT THE LAWN IS ALWAYS BOOKED IN THE NAME OF THE MEMBERS AND NOT BY OUTSIDERS THOUGH IN SOME CASES IT MAY BE USED F OR THE FUNCTIONS OF ANY OTHER RELATI VE OR FRIENDS OF THE MEMBERS . THEREFORE, THE CONTENTION OF THE LD. D.R. CANNOT BE ACCEPTED T HAT RECEIPTS IN THE BOOKING OF LAWN FROM MEMBERS CAN ALSO BE TREATED AS RECEIPTS FROM THE OUTSIDERS. ACCORDINGLY, WE ARE OF TH E VIEW THAT RECEIPTS FROM MEMBERS FOR BOOKING OF LAWN, ETC IS NOT EXIGIBLE TO TAX, AS IT WAS USED FOR THE BENEFIT OF THE MEMBERS AND PRINCIPLE OF MUTUALITY WILL APPLY TO SUCH RECEIPTS. 11 . SO FAR AS INTEREST ON SURPLUS IS CONCERNED, WE FIND FORCE IN THE CONTEN TIONS OF THE REVENUE THAT INTEREST ON SURPLUS/FDRS IS RECEIVED FROM THE BANK. IT HAS NO DIRECT NEXUS WITH THE ACTIVITIES OF THE CLUB, THEREFORE, PRINCIPLE OF MUTUALITY CANNOT APPLY. THE LD. D.R. HAS INVITED OUR ATTENTION TO THE ASSESSMENT ORDER, IN WHICH THE ASSESSING OFFICER HAS PLACED RELIANCE ON VARIOUS JUDICIAL PRONOUNCEMENTS, IN WHICH IT HAS BEEN REPEATEDLY HELD THAT INTEREST OF SURPLUS O N FDRS IS TREATED TO BE THE INCOME OF THE CLUB AND IS EXIGIBLE TO TAX. 12 . IN THE CASE OF CIT VS. ITI EMPLOYEES DEATH AND SUPERANNUATION RELIEF FUND (SUPRA), THEIR LORDSHIPS OF THE KARNATAKA HIGH COURT HAVE HELD THAT DEPOSITS IN THE BANKS WERE MADE FOR EARNING INTEREST BY WAY OF PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 7 - : INCOME. THEREFORE PRINCIPLE THAT NO PERSON CAN TRADE WITH HIMSELF DOES NOT ARISE IN SUCH A CA SE, AS THE MONEY HAS BEEN INVESTED BY THE ASSESSEE WITH THE BANK. 13 . IN THE CASE OF NIRMA INDUSTRIES LTD. VS. ACIT (SUPRA), THE SPECIAL BENCH OF THE AHMEDABAD BENCH OF THE TRIBUNAL HELD THAT THERE SHOULD BE DIRECT NEXUS BETWEEN THE EARNING OF INTEREST ON FIXE D DEPOSIT AND THE INDUSTRIAL UNDERTAKING. INTEREST WAS EARNED BECAUSE THE ASSESSEE MADE FIXED DEPOSITS WITH BANK. THE DIRECT OR IMMEDIATE SOURCE FOR EAR N ING OF INTEREST WAS THE DEPOSITS MADE BY THE ASSESSEE AND NOT THE INDUSTRIAL UNDERTAKING. THEREFORE, NEXUS BETWEEN INTEREST INCOME AND THE INDUSTRIAL UNDERTAKING WAS NOT DIRECT OR IMMEDIATE. IN THE LIGHT OF THESE FACTS, INTEREST INCOME EARNED BY THE ASSESSEE IS NOT DERIVED BY MUTUAL ACTIVITY OF THE CLUB AND NOWHERE IN THE MEMORANDUM OF TH E CLUB, EARNING OF INTEREST INCOME FORMS PART OF ITS AIMS AND OBJECTIVES OR AN ACTIVITY OF MUTUAL CONCERN. 14 . SIMILARLY IN THE CASE OF RAJPATH CLUB LTD. VS. CIT (SUPRA), THE HON'BLE GUJARAT HIGH COURT HAS ALSO HELD THAT ASSESSEES INCOME FROM INTEREST WAS NO T FROM A MUTUAL ACTIVITY AND AS SUCH IT WAS ELIGIBLE TO TAX. 15 . SIMILARLY IN THE CASE OF SPORTS CLUB OF GUJARAT LTD. V CIT, 171 ITR 504, IT WAS HELD BY THE HON'BLE GUJARAT HIGH COURT THAT WHEN THE INCOME IS DERIVED FROM SUCH INVESTMENT WHETHER BY WAY OF INTEREST, DIVIDEND OR RENT, IT IS DERIVED FROM A THIRD PARTY AND NOT BY WAY OF CONTRIBUTION FROM MEMBERS OF THE CLUB. THEREFORE, INTEREST INCOME IS EXIGIBLE TO TAX. 16 . IN THE LIGHT OF AFORESAID JUDGMENTS, WE ARE OF THE CONSIDERED VIEW THAT INTEREST INCOME RECEIVED BY THE ASSE SSEE ON FDR OR SURPLUS IS EXIGIBLE TO TAX AS PRINCIPLE OF MUTUALITY WILL NOT APPLY TO THE SE RECEIPTS. ACCORDINGLY, WE DO NOT AGREE WITH THE FINDINGS OF THE LD. CIT(A) IN THIS PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 8 - : REGARD AND WE, THEREFORE, SET ASIDE HIS ORDER AND RESTORE THE ORDER OF THE ASSES SING OFFICER ON THIS ISSUE . 17 . ACCORDINGLY, THESE APPEALS OF THE REVENUE ARE DISPOSED OF IN TERMS INDICATED ABOVE. 18 . I N THE RESULT, APPEALS OF THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.7.2014. SD/ - SD/ - [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21 ST JU LY , 2014 JJ: 1107 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ )