TMI Blog2005 (6) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... the income earned on surplus money kept in safe custody in bank which is the normal mode of keeping money by any concern and keeping money as deposit with a corporate member by way of separate contractual agreement and that the income so earned by the Club, from its corporate members was not from the corporate Member in its capacity as a Member. In other words, the stand of the revenue is that, there is a dual capacity for the corporate Members, and that the capacity in which they took the deposit and paid the money was not in their capacity of Members and, thus, principles of mutuality do not apply. 3.2 The other issue is that assessments were reopened and amounts were brought to tax. Thus, the re-opening is also challenged. The assessee also raised a ground stating that the CIT(A) has erred in rejecting the stand of the assessee that subscriptions received from the member should be excluded from the total income on the principle of mutuality and that a specific claim made by the assessee during re-assessment proceedings was not considered by the assessee. 4.1 Taking up the main issue in these appeals, viz., assessment of interest in the hands of the Club, the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets of the Club shall be deemed to include the obligation of sharing the liabilities, if any, of the Club." The learned counsel for the assessee Shri Y. Ratnakar further submitted that the character of the club is as a mutual benefit concern and not a profit-making concern was made clear by the Hon'ble AP High Court in its judgment in Addl. CIT v. Secunderabad Club [1984] 150 ITR 401. It is merely a body of individuals who have formed themselves into a club for sports and recreation of its members. This established that the assessee-club has no profit motive. The earlier rules that upon winding up the surplus would be shared by the permanent members of the club has been amended and for the years under consideration. Clause XXVII(3) provides that the surplus shall be shared by all the members of the club including corporate members who are existing as on date when the club goes into liquidation. It is not disputed that the members contribute to the club and members participate in the event of winding up, there is identity between contributors and participators. The test of mutuality is totally fulfilled by the assessee and this cannot be disputed by the revenue. 4.2 It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Maidan Club was strongly relied upon by the assessee the first appellate authority did not care to follow the orders of the Tribunal but instead went on re-examining whether the said order of the Tribunal was correct in law. The learned counsel submitted that the cases relied upon by the first appellate authority are all distinguishable. It was contended that in the case of mutual benefit concern, the contribution of the member is always as a member and there is no dual capacity. The assessee club deals with only its members and not with any general public. It is the members who are accountable to the Club. The Club does not deal with outsiders. In the case of Fateh Maidan Club interest was received from the banks which are non-members while in the assessee's case interest was received from institutions which are corporate members. On facts the assessee is on a stronger ground. The distinction sought to be made out by the learned Commissioner (Appeals) that members of Secunderabad Club has a dual capacity while members of Fateh Maidan Club has no such dual capacity is devoid of any merit and on the face of it fallacious. The Club deposited the moneys with the corporate members be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said objects. In other words, the receipt of Rs. 1,68,53,719 is governed by a separate contractual relationship between the assessee-club and the corporate members of the assessee, in their capacity as companies accepting deposits. 5.2 In the case of Sports Club of Gujarat Ltd. v. CIT [1988] 171 ITR 504 the Gujarat High Court held that interest income cannot be exempt. The revenue then referred to the decision of the Supreme Court in the case of Chelmsford Club v. CIT [2000] 243 ITR 89 and contended that members of an association who deal with the association may have a double role, one as a member and the other as members of general public and to claim exemption the ground of mutuality, the role of a member in a transaction has first to be ascertained that is, whether he is acting, the capacity of a member of the association or in the capacity of a member of the general public. Therefore in the present case, when the corporate members of the assessee-club have accepted the deposits from the assessee, they have not acted in their capacity as members of the club, but as members of the general public and in this role, their status is akin to that of a bank from which rest of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 255(3) read with regulation 98A. For this reliance was pleased on the following decisions: (a) CIT v. Travancore Titanium Products Ltd. [2003] 183 CTR (Ker.) 473 (b) CIT v. Goodlas Nerolac Paints Ltd. [1991] 188 ITR 1 (Bom.). The revenue sought reference of the following question to the Special Bench for its consideration: "Whether on the facts and in the circumstances of the case, the interest income earned by the club from investments made in corporate deposits etc. is assessable to tax and not exempt on principles of mutuality." 6.1 The assessee countered the contentions of the revenue as follows. The subject-matter in dispute relates to taxing of interest received from members by a club, which is mutual association. To strengthen its contention that the issue is fully covered in its favour it relied on the following decisions: (1) Order dated 13-8-2003 of ITAT, Hyderabad Bench 'A' in ITA No. 947/Hyd./95 for the assessment years 1983-84 to 1997-98 in the case of Fateh Maidan Club v. Asstt. CIT [2003] 81 TTJ (Hyd.) 831. (2) Order dated 7-1-1990 of ITAT Bangalore Bench in ITA No. 2440/Bang./91 for the assessment year 1989-90 in the case of Asstt. CIT v. Bangalo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot question it in other cases and this is one of the reasons given by the Tribunal while allowing the appeal in the case of Fateh Maidan Club. 6.4 It is now well-settled law that the revenue cannot pick up some cases for disputing and some cases for accepting in relation to any particular point. When it accepts in one case it cannot question the same in other cases. In this regard it placed reliance on the following cases: (1) Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 (SC) (2) Union of India v. Satish Panalal Shah [2001] 249 ITR 221 (SC) (3) CIT v. Narendra Doshi [2002] 254 ITR 606 (SC) (4) Berger Paints India Ltd. v. CIT [2004] 266 ITR 99 (SC) 6.5 The assessee submitted that even in the case of Bangalore Club it is not revenue's case that it has not accepted the position that interest received by the club from its members is not taxable on grounds of mutuality and the Department is silent in relation to the position of the Bangalore Club. Hence the treatment meted out to Secunderabad Club is unjust and discriminatory which is contrary to the law laid down by the Supreme Court. 6.6 Coming to the decision of the Tribunal dated 13-6-1994 in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction sought to be made does not merit consideration. 6.9 On the issue of reference under section 253(3) to the Special Bench in case the Department's pleas are not accepted by the Tribunal, the learned counsel states that the revenue has not made out any case for reference and such reference sought is not proper. Simply because the revenue feels aggrieved that the Tribunal decided the matter in other cases in favour of the assessee it cannot seek reference to a Special Bench. If this is accepted to, it would provoke the Department to request for reference to a Special Bench in all matters it feels aggrieved. The Department can file an appeal to the High Court in case it is aggrieved by the orders passed by the Tribunal. There is no case for reference to a Special Bench when the issue involved is covered by the decisions of this Tribunal. On the decisions relied on by the revenue for reference to Special Bench, he submitted that those cases in facts justify the assessee's plea that no reference is needed when the matter is covered in its favour. 6.10 Concluding his arguments on the issue, the learned counsel submitted that the decision of 'A' Bench of the Tribunal in Fateh Mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, to non-members also. As such, the entrance and subscription fees paid by not only the permanent members but also the other members go to the common fund of the club, which is the property of the permanent members. We fail to see how it could be an income of the club. These fees go to constitute the fund, with the aid of which amenities are provided to the members. So, these fees, whether received from permanent members or from other members of the club, are not "income" and are not, therefore, assessable to tax...." The Hon'ble Court had followed two decisions of the very same Court in the case of Secunderabad Club v. CST [1957] 8 STC 850 and CIT v. Merchant Navy Club [1974] 96 ITR 261. Thus, income of the Club earned from the members cannot be brought to tax on the principle of mutuality. Now; the question before us is whether the interest income earned by the assessee from deposit made with a member is liable to tax or not. The revenue argued that the interest was earned from a member known as corporate member is not governed by the principle of mutuality, and reliance was placed in this behalf on the decision of the Single Member Bench of this Tribunal in assessee's own ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessity for referring the issue to a larger Bench. 8.2 At this juncture, we also like to point out that the heavy reliance being placed by the revenue on the judgment of the Hon'ble Gujarat High Court in the case of Sports Club of Gujarat Ltd. We are of the opinion that this judgment is not at all applicable to the facts of the case. Moreover this judgment was delivered prior to the judgment of the Hon'ble Supreme Court in the case of Chelmsford Club and Bankipur Club Ltd. Applying these judgments, the Hon'ble Delhi High Court held that 'interest earned as deposits' is not exigible to tax on the ground of mutuality in the case of Director of Income-tax v. All India Oriental Bank of Commerce Welfare Society [2003] 175 Taxation 1473 (Delhi). Moreover in the case of Sports Club of Gujarat Ltd., the object of the Club amongst others, as noted at page 506 of the Reports (171 ITR), provide- "(o) To invest and deal with the monies of the Club not immediately required in such manner as may from time to time be determined;" Interpreting this object, the Hon'ble Gujarat High Court at page 512 of the Reports (171 ITR), observed as follows- "...However, as pointed out earlier, the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r friends all the usual privileges, advantages, convenience and accommodation of a club. Incidentally, certain other things which are usually done by social clubs, for example, buying, preparing and selling of provisions, was included in the memorandum. The income and property of the club were to be applied towards promotion of the objects of the club as set out above. All the members of the company were members of the club. No payment for provisions supplied in the club were taken from any person who was not a member thereof. In this background, the question arose whether the profits could be charged to tax and it is in this context that the above observations came to be made which only shows 1hat the objects of the club should be immune from every taint of commerciality and this also applied to the transactions of sale and purchase which were being incidentally undertaken for the attainment of the main object of the club. The buying, preparing and selling of provisions which were incidental to the main object of the club was limited to the members of the club and not extended to outsiders. This incidental activity was also, therefore, immune from the taint of commerciality. We ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the club to their members as stated herein above, as part of the usual privileges, advantages and conveniences, attached to the membership of the club, cannot be said to be "a trading activity". The surplus - excess of receipts over the expenditure - as a result of mutual arrangement, cannot be said to be 'income' for the purpose of the Act." The Hon'ble Supreme Court upheld the conclusion of the High Court and held that such receipts are not taxable. 8.6 The Delhi High Court in the case of Director of Income-tax v. All India Oriental Bank of Commerce Welfare Society [2003] 175 Taxation 147, applied the judgment of the Hon'ble Supreme Court in the case of Chelmsford Club and answered the following questions referred to it in favour of the assessee: "A. Whether ITAT was correct in excluding the interest income on deposits made out of contributions from members, deposits so made are not determined vis-a-vis member's contributions? B. Whether the principles of mutuality applies to the cases where interest earned on deposits made out of members contributions is not segregable from the interest earned from non-members contributions/donations. C. Whether ratio of Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the revenue in the case of All India Oriental Bank of Commerce Welfare Society is read along with the ratio of the judgments of the Hon'ble Supreme Court in the case of Berger Paints India v. CIT [2004] 266 ITR 99 and in the case of Union of India v. Satish Panalal Shah [2001] 249 ITR 221 and Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219, we have to hold that the revenue cannot agitate this issue. 8.7 Following these judgments, this Bench of the Tribunal in the case of Fateh Maidan Club has taken a view that money kept in the bank either in the S.B. Account or in a F.D. Account is for safe custody and in respect of income by way of interest which accrues suo geris, it can by no stretch of imagination be said to be for commercial purposes and was done with the sole motive of earning profit, nor can it be said to be tainted with commerciality. If keeping surplus funds for safe custody in a Bank is to be considered as business being done with a bank, then all of us who are Government servants and who keep our surplus money with Banks would be guilty of violation of our terms of employment. Such income is assessable under the head 'other sources' and not under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... club" or carrying on a trading activity; or an adventure in the nature of trade', is largely a question of fact. [Wilcock's case [1924] 9 TC 111, 132 (CA): [1925] 1 KB 30 at pages 44 and 45J." 8.9 The Hon'ble Supreme Court in the case of Chelmsford Club v. CIT [2000] 243 ITR 89 at page 95 explained the case of CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 (SC) as follows: "This Court in the case of Royal Western India Turf Club Ltd. [1953] 24 ITR 551, on the facts came to the conclusion that the club in that case had kept open its business not only to its members but also to outsiders who would participate in the club's business on payment which income from the outsiders would go to the same kitty as that of the members, consequently, the identity between the contributors and the recipients was lost. Therefore, this Court held that the doctrine of mutuality did not apply in the case of Royal Western India Turf Club Ltd. [1953] 24 ITR 551, otherwise this Court in that judgment had accepted that, in regarded to the businesses governed by the doctrine of mutuality, the levy of tax under the Income-tax Act did not arise." 8.10 Thus, going by the proposition laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax on principles of mutuality. When a High Court interpret and applies a judgment of Hon'ble Supreme Court on an issue, it is not open for this Tribunal to take a different view. In the case on hand, the jurisdictional High Court in the assessee's own case held that it is not a profit-making concern and that it is a mutual concern. On application of these principles discussed above this Bench of the Tribunal had in the case of Shriram Chits (P.) Ltd v. Dy. CIT [2002] 83 ITD 792 (Hyd.) held that the assessee doing business cannot claim that its income is exempt on ground of mutuality. 8.12 In fact, in the case of Fateh Maidan Club, we had mentioned at para 18 on page 11 that this Bench of the Tribunal, while deciding the cases involving similar issue earlier had not considered the judgment of the jurisdictional High Court in the case of CIT v. Natraj Finance Corpn. [1988] 169 ITR 732 (AP) and the judgment of Hon'ble Supreme Court in the case of Cawnpore Club Ltd. and it adopted the ratio laid down by the Supreme Court as interpreted and applied by the Hon'ble Delhi High Court in the case of All India Oriental Bank of Commerce Welfare Society, and decided the issue in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id funds of the club could be kept as deposit. No doubt such corporate members may be few in number compared to other corporate members, but ail the same they remain corporate members of the club. The activity of the club with such corporate members and vice versa are clearly activities of mutual consent and interest. It is similar to the club selling some of its produce or items to its members and receiving a price for the same. 7. In the instant case, the funds of the club are given in the form of deposits for earning income from the corporate members, namely, the banks here and, therefore, the earning of interest is clearly had risen out of the concept of mutuality only. The decisions relied upon by the DR have nowhere touched upon the fact as to whether it was with corporate members or not. Apparently they had dealt with the situation where the transactions of interest are from persons who are not the members of the club. During the argument, the DR had admitted that the assessee had shown interest from certain other banks as its income which also goes to show that wherever had offered the same...." 8.15 In our considered opinion, the case of the assessee is on a stronger f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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." 8.16 Special Bench of the Tribunal in Walkeshwar Triveni Co-op. Housing Society Ltd. v. ITO [2004] 88 ITD 159 (Mum.). In para 82 at page 183 of the Reports reiterated this position. Thus, even if we have to hold that these amounts are not kept for safe custody with the members, but for the purpose of earning profit, still the interest earned therefrom is nothing but income earned from the members, and the identity of the contributor to the fund and the recipient of the fund is established, and, thus, the income in question cannot be subject to tax, on the principles of mutuality as it is settled by the jurisdictional High Court that this assessee is not a profit-making enterprise and that it is a mutual concern. Thus, the interest income earned from deposits kept with the members is not liable to tax. 8.17 Had the assessee-club in pursuance of its objects, deposit monies or keeps the same by way of investments or fixed deposits wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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