Full Judgment Text
HVN
IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY
2008:BHC-OS:5163-DB
ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 121 OF 2005 INCOME TAX APPEAL NO. 121 OF 2005 INCOME TAX APPEAL NO. 121 OF 2005
The Commissioner of Income Tax -16
Mumbai. ... Appellant
Versus
M/s. Willingdon Sports Club,
Clark Road, Mahalaxmi,
Mumbai 400 034. ... Respondent
Mr. P.S. Sahadevan for the Appellant.
Mr.K.B. Bhujale for Respondent.
CORAM: F.I. CORAM: F.I. REBELLO CORAM: F.I. REBELLO & REBELLO
R.S. MOHITE, JJ. R.S. MOHITE, JJ. R.S. MOHITE, JJ.
DATED: MARCH 18, 2008 DATED: MARCH 18, 2008 DATED: MARCH 18, 2008
ORAL JUDGMENT (Per F.I. Rebello,J.):
. Revenue has preferred this appeal on the
following substantial questions of law:
"(a) Whether on the facts and in the
circumstances of the case and in law the
Hon’ble Tribunal was right in holding that
the entrance fees received by the Assessee
is capital receipt not chargeable to tax as
the principle of mutuality applies?
(b) Whether commuted value of subscription
for the life members has to be taxed or
treated as capital receipts in the light of
the decision of the Hon’ble Bombay High
Court in CIT Vs. WIAA Club reported in 136
ITR 569?
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(c) Whether the Hon’ble Tribunal was right
in holding that the Assessment orders for
Assessment Years 1992-93 and 193-94 are not
erroneous and not prejudicial to the
interest of the Revenue so as to call for
invocation of jurisdiction u/sec. 263 at
the hands of CIT?"
. A few facts may be set out :
. The relevant assessment year is 1992-1993. The
respondent is governed by its rules and bye laws.
Its members are described as Gymkhana Member,
Corporate member, short term member all of whom are
entitled to the advantages or privileges or
membership of the club except that of being present
or of voting at the General Meetings of the club or
of serving on the General Committee and of proposing
or seconding candidates for elections as members of
the club. Apart from these members, there are
life/founder/ordinary/super number members . The
Assessing Officer pursuant to the return filed by
the Assessee, assessed the total income at
Rs.15,75,900/-.
2. In an appeal preferred by the Assessee, the
Commissioner (Appeals) noting the two distinct kind
of members, held that the first category of members
who were not allowed to vote during the general body
meeting were also not eligible to participate or
share in the surplus of the club on its winding up
and relying on the judgment of this court in CIT Vs.
::: Downloaded on - 26/06/2024 07:32:37 :::
WIAA Club Ltd. Mumbai, 136 ITR 159 held that
entrance fees and commutation of fees both has to be
taken as revenue receipt dismissed the appeals. In
regard to income from house property held the
principle of mutality will not apply and that annual
letting value would be taxable.as such the principle
of mutuality does not apply and the surplus is
subject to income tax. The matter was referred to
the A.O. for fresh asesssment de novo.
3. The Assessee aggrieved by the order of
27.03.1997 of the Commissioner (Appeals) filed an
appeal before the I.T.A.T. I.T.A.T. by its order
dated 24.6.2004 partly allowed the appeal filed by
the Assesseee. In so far as income from house
property, I.T.A.T. relied on the judgment of the
Supreme Court in Chelmsford Club Vs. C.I.T. (2000)
243 ITR 89 holding that the annual letting value of
the club was not assessable to income tax under the
head "income from house property". The tribunal in
its order recorded a finding of fact that as per the
objective of the club, it was not formed for the
purpose of earning profit or for the purposes of
earning profit or for the purposes of trading with
the members and making a profit. In the matter of
entrance fees and commutation fees the learned
tribunal held that the entrance fees received by the
Assesses is capital receipt not chargeable to tax in
view of the decision in the case of CIT Vs. WIAA
Club Ltd. 136 ITR 569 which has been followed by
this court in CIT Vs. Diners Business Services Pvt.
Ltd. (2003) 263 ITR 139. The appeal preferred by
::: Downloaded on - 26/06/2024 07:32:37 :::
the Assessee was therefore, allowed and hence, the
question is framed.
4. It is in this background that we shall have to
answer the questions of law as set out in questions
(a) and (b). The principle question to be answered
is whether on the facts, the principle of mutuality
applies and considering the judgment of this court
in WIAA Club (Supra) whether the commuted value of
subscription for life members has to be taxed or
treated as capital receipt. In so far as issue of
house property is concerned, the Revenue has not
raised any question of law. The Learned tribunal
basically relied on various judgments. There is
however, a specific finding that the principle of
mutuality applies and the entrance fees received by
the Assessee is capital receipt not chargeable to
tax. The principle of mutuality has been accepted
in our jurisprudence. The principle can be summed
up from Halsbury’s Laws of England, Fourth edition,
Reissue Volume 23:
"Where a number of persons combine together
and contribute to a common fund for the
financing of some venture or object and will
in this respect have no dealings or
relations with any outside body, then any
surplus returned to those persons cannot be
regarded in any sense as profit. There must
be complete identity between the
contributors and the participators. If
these requirements are fulfilled, it is
::: Downloaded on - 26/06/2024 07:32:37 :::
immaterial what particular form the
association takes. Trading between persons
associating together in this way does not
give rise to profits which are chargeable to
tax.
. Where the trade or activity is mutual,
the fact that, as regards certain
activities, certain members only of the
association take advantage of the facilities
which it offers does not affect the
mutuality of the enterprise.
. Member’s clubs are an example of a mutual
undertaking; but, where a club extends
facilities to non-members, to that extent
the element of mutuality is wanting....."
. The principle of mutuality, when the receipt by
the club are exempt from taxation, based on a clause
of mutality has been succinctly stated by the
Judicial Committee of the Privy Council in Fletcher
Vs. Income Tax Commissioner (1971)3 ALL ER 1985 at
Page 1189 reads thus :
"... is the activity, on the one hand, a
trade, or an adventure in the nature of
trade, producing a profit, or is it, on the
other, a mutual arrangement which, at most,
gives rise to a surplus?"
5. A similar issue came up for consideration before
::: Downloaded on - 26/06/2024 07:32:37 :::
the Supreme Court in Commissioner of Income Tax Vs.
Bankipur Club Vol.226 ITR 97. The issue referred by
the High Court therein was whether the profits
arising from sales made to regular members of the
club are entitled to exemption on the doctrine of
mutuality. There also there were various kinds of
members like permanent, temporary as also Honorary
members. The temporary and Honorary members enjoyed
all the privileges of the club subject to such
restrictions and regulations as being prescribed by
the rules and bylaws of the club. They had however,
no right to vote at the meeting or bring any guest.
Another appeal was in respect of Ranchi Club where
the issue was whether the income derived by the
assessee club from house property let to its members
and their guests is not chargeable to tax. The High
Court therein had held that income derived by it
from its members or their guests and sale of liquor
to its members and guests was not taxable. There
were several other appeals also. The main issue
canvassed by the Revenue before the Supreme Court
was as under :
"Whether the assessee-mutual clubs, were
entitled to exemption for the receipts or
surplus arising from the sales of drinks,
refreshments. etc. or amounts received by
way of rent for letting out the buildings or
amounts received by way of admission fees,
periodical subscriptions and receipts of
similar nature from its members?"
::: Downloaded on - 26/06/2024 07:32:37 :::
. The appellate tribunal as also the High Court had
recorded a finding that these amounts received by
way of admission fees, periodical subscriptions etc.
from the members of the clubs were only towards the
charges for the privileges, conveniences and
amenities provided to the members, which they were
entitled to as per the rules and regulations of the
respective clubs. It was further recorded that the
facilities were offered only as a matter of
convenience for the use of the members and their
friends, if any, availing of the facilities
occasionally. The services offered were not done
with any profit motive and were not tainted with
commerciality. In view of these findings the court
held that the activity of the clubs cannot be
considered to be trading activity and the
surplus/excess of receipts over the expenditure as a
result of mutual agreement cannot be said to be
"income" for the purpose of the Act. The Supreme
Court thereafter relying on various English
decisions held as under :
"We understand these decisions to lay down
the broad proposition - that, if the object
of the assessee-company claiming to be a
"mutual concern" or "club" is to carry on a
particular business and money is realised
both from the members and from non-members,
for the same consideration by giving the
same or similar facilities to all alike in
respect of the one and the same business
carried on by it, the dealings as a whole
::: Downloaded on - 26/06/2024 07:32:37 :::
disclose the same profit-earning motive and
are alike tainted with commerciality. In
other words, the activity carried on by the
assessee, in such cases, claiming to be a
"mutual concern" or "members club" is a
trade or an adventure in the nature of trade
and transactions entered into with the
members or non members alike is a
trade/business/transaction and the resultant
surplus is certainly profit income liable to
tax..."
. The court went on to observe that :
""at what point, does the relationship of
mutuality end and that of trading begin" is
a difficult and vexed question."
. The court then proceeded to hold :
"Whether or not the persons dealing with
each other, are a "mutual club" or carrying
on a trading activity or an adventure in the
nature of trade", is largely a question of
fact."
. It is thus discernible that in those cases where
the facilities extended by the clubs to their
members are as a part of usual privileges,
advantages and conveniences attached to the members
of the club, said activity can not be said to be
trading activity. On the other hand, if the
::: Downloaded on - 26/06/2024 07:32:37 :::
activities has disclosed profit earning motive and
are tainted with commerciality, then it ceases to be
mutuality and the very claim that the assessee is
mutual concern of the members club wold be of no
consequences.
. Once a finding is recorded that there is no
commerciality and what is being offered are usual
privileges, advantages and conveniences that would
attract he principle of mutality. Such a finding
and consequent applicability of the principle can
not be interfered with unless Revenue from the
record points out that the findings are totally
perverse. In the instant case, as we have noted
earlier, the Revenue has not disputed that fact.
What is only disputed is whether the entrance fees
received by the assessee is capital receipt and the
commuted value of subscription for life members has
to be taxed or treated as capital receipt.
6. The Revenue it appears have based their
submission on the judgment of this court in
Commissioner Vs. W.I.A.A. Club Limited, 136 ITR
569. The Membership of the club consisted of
ordinary members and life members. The ordinary
members were paying entrance fees and annual
subscription. The Life members were paying larger
entrance fees without any liability to pay annual
subscription. The club was extending similar
facilities both to ordinary and life members. The
issue of mutuality was neither argued nor raised or
was in issue before the learned Bench of this Court.
::: Downloaded on - 26/06/2024 07:32:37 :::
It is on the facts there and without considering the
principle of mutuality that the learned Bench
proceeded to hold that the amount paid by the
members had two elements in it. The part of the
amount paid as entrance fees which were paid to the
club with a view to acquiring the right to avail of
the services and facilities extended by the club.
The other part was a consolidated commuted payment
in lieu of annual subscription. The court held that
that part of the entrance fees which was a
compounded payment for annual subscription would be
income and the balance would be a capital receipt.
In our opinion, considering the judgment of the
Supreme Court in Bankipur (supra) an the issue of
mutuality which has been raised in the present
appeal, the judgment in W.I.A.A. Club (supra) is
clearly distinguishable. Even otherwise, in our
opinion, it is doubtful whether it would be correct
law considering the judgement in Bankipur (supra).
. In Chelmsford Club Vs. Commissioner of Income
Tax, Vol. 243 I.T.R. 89, the Supreme court
observed that what is taxed is "income, profits or
gains" earned or "arising", "accruing" to a
"person". Where a number of persons come together
and contribute to a common fund for the financing of
some object and in this respect have no dealings or
relations with any outside body, then any surplus
returned to those persons can not be regarded in any
sense as profit. There must be complete identity
between the contributors and the participators. If
these requirements are fulfilled, it is immaterial
::: Downloaded on - 26/06/2024 07:32:37 :::
what particular form the association takes. Trading
between persons associating together in this way
does not give rise to profits which are chargeable
to tax. The law recognises the principle of
mutuality excluding the levy of income tax from the
income of such business to which the above principle
is applicable. In that case the assessee was
registered as company under the Companies Act. It
was however, contended that the business was
governed by the principles of mutuality and
therefore, income, if any earned is outside the
scope of the Income Tax Act. This argument was
based on the principles that it is only income which
comes within the definition of 2(24) of the Act that
can be taxed and this definition generally excludes
the income from business involving the doctrine of
mutuality, except the business that is included
specifically in sub clause (vii) of that section.
The issue there was whether the income from property
of the said assessee was exigible to income Tax.
The court there on facts found that the doctrine of
mutuality would apply and consequently that income
from house property would not be exigible to tax.
7. From the principles which have been set out
above and more so in the judgment in Bankipur
(supra), even if there be temporary or Honorary
members who are not entitled to vote, the assessee
would not cease to be governed by the principles of
mutuality. Once the assessee is governed by the
principles of mutuality, its income earned would not
be income which would be assessable to tax.
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8. For the aforesaid reasons, we are of the view
that there is no infirmity in the judgment and
consequently the questions as raised are devoid of
merit and consequently appeal dismissed.
(R.S. MOHITE, J.) (R.S. MOHITE, J.) (F.I.REBELLO, J.) (F.I.REBELLO, J.)
(R.S. MOHITE, J.) (F.I.REBELLO, J.)
::: Downloaded on - 26/06/2024 07:32:37 :::
IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY
2008:BHC-OS:5163-DB
ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 121 OF 2005 INCOME TAX APPEAL NO. 121 OF 2005 INCOME TAX APPEAL NO. 121 OF 2005
The Commissioner of Income Tax -16
Mumbai. ... Appellant
Versus
M/s. Willingdon Sports Club,
Clark Road, Mahalaxmi,
Mumbai 400 034. ... Respondent
Mr. P.S. Sahadevan for the Appellant.
Mr.K.B. Bhujale for Respondent.
CORAM: F.I. CORAM: F.I. REBELLO CORAM: F.I. REBELLO & REBELLO
R.S. MOHITE, JJ. R.S. MOHITE, JJ. R.S. MOHITE, JJ.
DATED: MARCH 18, 2008 DATED: MARCH 18, 2008 DATED: MARCH 18, 2008
ORAL JUDGMENT (Per F.I. Rebello,J.):
. Revenue has preferred this appeal on the
following substantial questions of law:
"(a) Whether on the facts and in the
circumstances of the case and in law the
Hon’ble Tribunal was right in holding that
the entrance fees received by the Assessee
is capital receipt not chargeable to tax as
the principle of mutuality applies?
(b) Whether commuted value of subscription
for the life members has to be taxed or
treated as capital receipts in the light of
the decision of the Hon’ble Bombay High
Court in CIT Vs. WIAA Club reported in 136
ITR 569?
::: Downloaded on - 26/06/2024 07:32:37 :::
(c) Whether the Hon’ble Tribunal was right
in holding that the Assessment orders for
Assessment Years 1992-93 and 193-94 are not
erroneous and not prejudicial to the
interest of the Revenue so as to call for
invocation of jurisdiction u/sec. 263 at
the hands of CIT?"
. A few facts may be set out :
. The relevant assessment year is 1992-1993. The
respondent is governed by its rules and bye laws.
Its members are described as Gymkhana Member,
Corporate member, short term member all of whom are
entitled to the advantages or privileges or
membership of the club except that of being present
or of voting at the General Meetings of the club or
of serving on the General Committee and of proposing
or seconding candidates for elections as members of
the club. Apart from these members, there are
life/founder/ordinary/super number members . The
Assessing Officer pursuant to the return filed by
the Assessee, assessed the total income at
Rs.15,75,900/-.
2. In an appeal preferred by the Assessee, the
Commissioner (Appeals) noting the two distinct kind
of members, held that the first category of members
who were not allowed to vote during the general body
meeting were also not eligible to participate or
share in the surplus of the club on its winding up
and relying on the judgment of this court in CIT Vs.
::: Downloaded on - 26/06/2024 07:32:37 :::
WIAA Club Ltd. Mumbai, 136 ITR 159 held that
entrance fees and commutation of fees both has to be
taken as revenue receipt dismissed the appeals. In
regard to income from house property held the
principle of mutality will not apply and that annual
letting value would be taxable.as such the principle
of mutuality does not apply and the surplus is
subject to income tax. The matter was referred to
the A.O. for fresh asesssment de novo.
3. The Assessee aggrieved by the order of
27.03.1997 of the Commissioner (Appeals) filed an
appeal before the I.T.A.T. I.T.A.T. by its order
dated 24.6.2004 partly allowed the appeal filed by
the Assesseee. In so far as income from house
property, I.T.A.T. relied on the judgment of the
Supreme Court in Chelmsford Club Vs. C.I.T. (2000)
243 ITR 89 holding that the annual letting value of
the club was not assessable to income tax under the
head "income from house property". The tribunal in
its order recorded a finding of fact that as per the
objective of the club, it was not formed for the
purpose of earning profit or for the purposes of
earning profit or for the purposes of trading with
the members and making a profit. In the matter of
entrance fees and commutation fees the learned
tribunal held that the entrance fees received by the
Assesses is capital receipt not chargeable to tax in
view of the decision in the case of CIT Vs. WIAA
Club Ltd. 136 ITR 569 which has been followed by
this court in CIT Vs. Diners Business Services Pvt.
Ltd. (2003) 263 ITR 139. The appeal preferred by
::: Downloaded on - 26/06/2024 07:32:37 :::
the Assessee was therefore, allowed and hence, the
question is framed.
4. It is in this background that we shall have to
answer the questions of law as set out in questions
(a) and (b). The principle question to be answered
is whether on the facts, the principle of mutuality
applies and considering the judgment of this court
in WIAA Club (Supra) whether the commuted value of
subscription for life members has to be taxed or
treated as capital receipt. In so far as issue of
house property is concerned, the Revenue has not
raised any question of law. The Learned tribunal
basically relied on various judgments. There is
however, a specific finding that the principle of
mutuality applies and the entrance fees received by
the Assessee is capital receipt not chargeable to
tax. The principle of mutuality has been accepted
in our jurisprudence. The principle can be summed
up from Halsbury’s Laws of England, Fourth edition,
Reissue Volume 23:
"Where a number of persons combine together
and contribute to a common fund for the
financing of some venture or object and will
in this respect have no dealings or
relations with any outside body, then any
surplus returned to those persons cannot be
regarded in any sense as profit. There must
be complete identity between the
contributors and the participators. If
these requirements are fulfilled, it is
::: Downloaded on - 26/06/2024 07:32:37 :::
immaterial what particular form the
association takes. Trading between persons
associating together in this way does not
give rise to profits which are chargeable to
tax.
. Where the trade or activity is mutual,
the fact that, as regards certain
activities, certain members only of the
association take advantage of the facilities
which it offers does not affect the
mutuality of the enterprise.
. Member’s clubs are an example of a mutual
undertaking; but, where a club extends
facilities to non-members, to that extent
the element of mutuality is wanting....."
. The principle of mutuality, when the receipt by
the club are exempt from taxation, based on a clause
of mutality has been succinctly stated by the
Judicial Committee of the Privy Council in Fletcher
Vs. Income Tax Commissioner (1971)3 ALL ER 1985 at
Page 1189 reads thus :
"... is the activity, on the one hand, a
trade, or an adventure in the nature of
trade, producing a profit, or is it, on the
other, a mutual arrangement which, at most,
gives rise to a surplus?"
5. A similar issue came up for consideration before
::: Downloaded on - 26/06/2024 07:32:37 :::
the Supreme Court in Commissioner of Income Tax Vs.
Bankipur Club Vol.226 ITR 97. The issue referred by
the High Court therein was whether the profits
arising from sales made to regular members of the
club are entitled to exemption on the doctrine of
mutuality. There also there were various kinds of
members like permanent, temporary as also Honorary
members. The temporary and Honorary members enjoyed
all the privileges of the club subject to such
restrictions and regulations as being prescribed by
the rules and bylaws of the club. They had however,
no right to vote at the meeting or bring any guest.
Another appeal was in respect of Ranchi Club where
the issue was whether the income derived by the
assessee club from house property let to its members
and their guests is not chargeable to tax. The High
Court therein had held that income derived by it
from its members or their guests and sale of liquor
to its members and guests was not taxable. There
were several other appeals also. The main issue
canvassed by the Revenue before the Supreme Court
was as under :
"Whether the assessee-mutual clubs, were
entitled to exemption for the receipts or
surplus arising from the sales of drinks,
refreshments. etc. or amounts received by
way of rent for letting out the buildings or
amounts received by way of admission fees,
periodical subscriptions and receipts of
similar nature from its members?"
::: Downloaded on - 26/06/2024 07:32:37 :::
. The appellate tribunal as also the High Court had
recorded a finding that these amounts received by
way of admission fees, periodical subscriptions etc.
from the members of the clubs were only towards the
charges for the privileges, conveniences and
amenities provided to the members, which they were
entitled to as per the rules and regulations of the
respective clubs. It was further recorded that the
facilities were offered only as a matter of
convenience for the use of the members and their
friends, if any, availing of the facilities
occasionally. The services offered were not done
with any profit motive and were not tainted with
commerciality. In view of these findings the court
held that the activity of the clubs cannot be
considered to be trading activity and the
surplus/excess of receipts over the expenditure as a
result of mutual agreement cannot be said to be
"income" for the purpose of the Act. The Supreme
Court thereafter relying on various English
decisions held as under :
"We understand these decisions to lay down
the broad proposition - that, if the object
of the assessee-company claiming to be a
"mutual concern" or "club" is to carry on a
particular business and money is realised
both from the members and from non-members,
for the same consideration by giving the
same or similar facilities to all alike in
respect of the one and the same business
carried on by it, the dealings as a whole
::: Downloaded on - 26/06/2024 07:32:37 :::
disclose the same profit-earning motive and
are alike tainted with commerciality. In
other words, the activity carried on by the
assessee, in such cases, claiming to be a
"mutual concern" or "members club" is a
trade or an adventure in the nature of trade
and transactions entered into with the
members or non members alike is a
trade/business/transaction and the resultant
surplus is certainly profit income liable to
tax..."
. The court went on to observe that :
""at what point, does the relationship of
mutuality end and that of trading begin" is
a difficult and vexed question."
. The court then proceeded to hold :
"Whether or not the persons dealing with
each other, are a "mutual club" or carrying
on a trading activity or an adventure in the
nature of trade", is largely a question of
fact."
. It is thus discernible that in those cases where
the facilities extended by the clubs to their
members are as a part of usual privileges,
advantages and conveniences attached to the members
of the club, said activity can not be said to be
trading activity. On the other hand, if the
::: Downloaded on - 26/06/2024 07:32:37 :::
activities has disclosed profit earning motive and
are tainted with commerciality, then it ceases to be
mutuality and the very claim that the assessee is
mutual concern of the members club wold be of no
consequences.
. Once a finding is recorded that there is no
commerciality and what is being offered are usual
privileges, advantages and conveniences that would
attract he principle of mutality. Such a finding
and consequent applicability of the principle can
not be interfered with unless Revenue from the
record points out that the findings are totally
perverse. In the instant case, as we have noted
earlier, the Revenue has not disputed that fact.
What is only disputed is whether the entrance fees
received by the assessee is capital receipt and the
commuted value of subscription for life members has
to be taxed or treated as capital receipt.
6. The Revenue it appears have based their
submission on the judgment of this court in
Commissioner Vs. W.I.A.A. Club Limited, 136 ITR
569. The Membership of the club consisted of
ordinary members and life members. The ordinary
members were paying entrance fees and annual
subscription. The Life members were paying larger
entrance fees without any liability to pay annual
subscription. The club was extending similar
facilities both to ordinary and life members. The
issue of mutuality was neither argued nor raised or
was in issue before the learned Bench of this Court.
::: Downloaded on - 26/06/2024 07:32:37 :::
It is on the facts there and without considering the
principle of mutuality that the learned Bench
proceeded to hold that the amount paid by the
members had two elements in it. The part of the
amount paid as entrance fees which were paid to the
club with a view to acquiring the right to avail of
the services and facilities extended by the club.
The other part was a consolidated commuted payment
in lieu of annual subscription. The court held that
that part of the entrance fees which was a
compounded payment for annual subscription would be
income and the balance would be a capital receipt.
In our opinion, considering the judgment of the
Supreme Court in Bankipur (supra) an the issue of
mutuality which has been raised in the present
appeal, the judgment in W.I.A.A. Club (supra) is
clearly distinguishable. Even otherwise, in our
opinion, it is doubtful whether it would be correct
law considering the judgement in Bankipur (supra).
. In Chelmsford Club Vs. Commissioner of Income
Tax, Vol. 243 I.T.R. 89, the Supreme court
observed that what is taxed is "income, profits or
gains" earned or "arising", "accruing" to a
"person". Where a number of persons come together
and contribute to a common fund for the financing of
some object and in this respect have no dealings or
relations with any outside body, then any surplus
returned to those persons can not be regarded in any
sense as profit. There must be complete identity
between the contributors and the participators. If
these requirements are fulfilled, it is immaterial
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what particular form the association takes. Trading
between persons associating together in this way
does not give rise to profits which are chargeable
to tax. The law recognises the principle of
mutuality excluding the levy of income tax from the
income of such business to which the above principle
is applicable. In that case the assessee was
registered as company under the Companies Act. It
was however, contended that the business was
governed by the principles of mutuality and
therefore, income, if any earned is outside the
scope of the Income Tax Act. This argument was
based on the principles that it is only income which
comes within the definition of 2(24) of the Act that
can be taxed and this definition generally excludes
the income from business involving the doctrine of
mutuality, except the business that is included
specifically in sub clause (vii) of that section.
The issue there was whether the income from property
of the said assessee was exigible to income Tax.
The court there on facts found that the doctrine of
mutuality would apply and consequently that income
from house property would not be exigible to tax.
7. From the principles which have been set out
above and more so in the judgment in Bankipur
(supra), even if there be temporary or Honorary
members who are not entitled to vote, the assessee
would not cease to be governed by the principles of
mutuality. Once the assessee is governed by the
principles of mutuality, its income earned would not
be income which would be assessable to tax.
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8. For the aforesaid reasons, we are of the view
that there is no infirmity in the judgment and
consequently the questions as raised are devoid of
merit and consequently appeal dismissed.
(R.S. MOHITE, J.) (R.S. MOHITE, J.) (F.I.REBELLO, J.) (F.I.REBELLO, J.)
(R.S. MOHITE, J.) (F.I.REBELLO, J.)
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