2018 (10) TMI 1877 - HC - Income Tax

Assessment of club - Interest income from fixed deposit earned by the appellant from bank out of the surplus funds raised from contribution of several members of the appellants club - principle of mutuality and No Man can trade with himself - benefit of interest derived is utilised by several members of the appellant s club - HELD THAT - Appellant/assessee fairly submits that the above Substantial Question of Law has been decided against the assessee in the assessee s own case. Further in the case of Madras Gymkhana Club vs. Deputy Commissioner of Income Tax 2009 (7) TMI 68 - MADRAS HIGH COURT an identical question came for consideration and the same has been decided against the assessee. In Bangalore Club vs. Commissioner of Income Tax. 2013 (1) TMI 343 - SUPREME COURT held 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 realized 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 disclose the same profit earning motive and are alike tainted with commerciality - Decided against the assessee

Summary

Issues:
1. Applicability of the principle of mutuality to interest income from fixed deposits.

Analysis:
The judgment pertains to an appeal against an order passed by the Income Tax Appellate Tribunal concerning the assessment year 2000-01. The substantial question of law raised was whether the principle of mutuality and the concept of "No Man can trade with himself" apply to interest income from fixed deposits earned by the appellant from funds raised by club members. The appellant's counsel argued in favor of the applicability of the principle of mutuality. However, it was noted that previous decisions, including one involving the Madras Cricket Club and another concerning the Madras Gymkhana Club, had ruled against the assessee on similar grounds.

The judgment referred to the decision of the Hon'ble Supreme Court in the case of Bangalore Club vs. Commissioner of Income Tax, where it was held that if an organization claiming to be a mutual concern or club engages in commercial activities by raising funds from both members and non-members for the same business purpose, it cannot be considered purely mutual. The Supreme Court emphasized that when money is realized from members and non-members for the same consideration, with similar facilities provided to all, the transactions exhibit a profit motive and commercial nature.

Based on the precedents and the Supreme Court's ruling, the High Court concluded that the appeal filed by the assessee had to be dismissed. The judgment highlighted that when an organization's dealings demonstrate a profit-earning motive and commercial aspects, the principle of mutuality cannot be invoked to exempt income from taxation. Consequently, the tax case appeal was dismissed, and the substantial question of law was answered against the assessee. No costs were awarded in this matter.