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2009 (9) TMI 682 - AT - Income TaxComputation of book profit - Excluding various income earned - profit on the sale of investments -"principle of mutuality" - HELD THAT:- The assessee-club is incorporated under the Companies Act and was granted certificate u/s 25 of the Companies Act. Under the provisions of section 25 of the Companies Act, where the Central Government found that an association was incorporated for promoting commerce, arts, science, religion, charity or any other useful objects and intends to apply its profit in promoting any object and to prohibit any payment to its members, direct that such association may be registered as a company with limited liability. Under the general law relating to mutual concerns, the surplus earned by the mutual concern cannot be regarded as profits and gains for the purpose of charging section 4 of the Income-tax Act insofar as the contributors are to receive back a part of their own contributions and there is complete identity between the contributors and recipients. Thus, a mutual concern can carry on the activity with its members, though the surplus arising from such activity is not its taxable income. Hon’ble Karnataka High Court in the case of Canara Bank Golden Jubilee Staff Welfare Fund v. Dy. CIT. When the dividend income on shares was held to be not liable to tax under the principle of mutuality in case of Canara Bank Golden Jubilee Staff Welfare Fund [2008 (7) TMI 239 - KARNATAKA HIGH COURT], there is no reason to exclude the gain arising on the sale of such shares, from the principle of mutuality. Once the income is found to be covered by principle of mutuality, the same cannot be brought to tax even under the provisions of section 115JB. Accordingly, there is no merit in the action of lower authorities for bringing the income exempt under principle of mutuality, within the purview of section 115JB. In the case of assessee-club, Hon’ble Delhi High Court in assessee’s own case - CIT v. Delhi Gymkhana Club Ltd.[1985 (4) TMI 51 - DELHI HIGH COURT] has observed that object of the assessee-club was mainly to provide recreation of its members by promoting various types of sports and pastime and refreshment for the members. The income from providing refreshment to its members was held exempt from income-tax on the basis of doctrine of mutuality. Even income earned as a room rent which were made available to the members on payment of fixed monthly charges and also income from providing various facilities, were held to be covered by principle of mutuality. In view of the above discussion, and respectfully following the proposition of law laid down by Jurisdictional High Court and Karnataka High Court as discussed hereinabove, the appeal of assessee is allowed in terms indicated hereinabove.
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