TMI Blog2000 (4) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration is Rs. 10,64,000, but according to the Assessing Officer, the assessee has not spent any amount towards charitable activities during the year under consideration. Thus, according to the Assessing Officer, the income of the assessee is not to be exempt. 3. The Assessing Officer in his order has stated that the exemption is available only to the Charitable Institution. In the case of the assessee, the income is earned from activities like playing Cards, letting out guest house and halls, therefore such income is not exempt unless the assessee is notified by the Central Board of Direct Taxes. The Assessing Officer has also stated that there is neither charitable activities nor genuine sports activities as notified by the Board, therefore, the assessee is not entitled for exemptions The Assessing Officer has further explained that the assessee has got income from Guest fees, sales of Cards, Guest house room charges and Community Hall Compound rent which amount to Rs. 2,92,000. It is also stated that the assessee is having income of Rs. 14,600 from temporary members as fees. This membership is given for the purpose of only letting out gardens and guest houses. The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. Therefore, according to the learned CIT (Appeals), they cannot be treated as members. He further stated that only life members and ordinary members can be treated as proper members. Non-resident members also become ordinary members. Therefore, all the ether members as per the constitution of the club itself are only temporary members in its nature. Thus, according to the learned CIT (Appeals), the income arising out of activity of life members, ordinary members and non-resident members are to be treated as exempt on the principle of mutuality. But the income derived from its activities with outsiders on account of guest charges, renting out of the premises to non-members and temporary members is to be taxed. Regarding the earning of interest out of the deposits of surplus funds, the learned CIT (Appeals) has stated that the same is incidental to the mutual activities of the club among members and the same should be treated as exempt. Regarding the employees working in the club, the learned CIT (Appeals) has stated that it is for the club to decide how many employees it should engage, the Assessing Officer is only empowered to find out how much expenditure has been incur-red on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint for consideration is whether the principle of mutuality is also applicable to non-resident, temporary and casual members. According to the Assessing Officer and the learned CIT (Appeals), the principle of mutuality is not applicable to temporary, non-resident and casual members. In the case of CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964) 53 ITR 241 wherein the Apex Court held that 'the essence of mutuality lies in the return of what one has contributed to a common fund. All participants must be contributors to the common fund. There must be complete identity between the contributors and the participators'. It is a settled law that in the case of 'mutual society or concern (including a member's club), there must be complete identity between the class of contributors and the class of participators. The particular label or form by which the mutual association is known, is of no consequence. In substance, the assessment or relationship between the club and its members should be of a non-trading character. In the case of Bankipur Club Ltd. (supra), relied upon by the learned counsels the Hon'ble Supreme Court has laid down that 'if the object of the assessee company claiming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Golf Club admitted non-members to play on payment of green fees, it was held that it was carrying en a business which could be isolated and defined, and the profit of which was assessable to income-tax. But there is no liability in respect of profits made from members who avail themselves of the facilities provided for the members". In several early eases, there were dicta to the effect that a man could not make a profit by trading with himself, this developed into the proposition that when persons contribute to a common fund in pursuance of a scheme for a mutual benefit, having no dealings or relations with any outside body, they cannot be said to have made the profit when they find they have overcharged themselves and that some portions of their contributions may be safely refunded. It has also been established that the same principle applies although the contributors incorporate themselves into a separate entity to carry out the mutual scheme and the surplus contributions are put to reserve and not immediately returned. For this doctrine to apply, it is essential that all the contributors to the common f und are entitled to participate in the surplus and that all the participato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y members, (5) non-resident members, (6) temporary members, and (7) casual members. A non-resident member has to pay entrance fee as prescribed and an annual subscription of Rs. 5 in advancer if the period of such a member in Rajkot exceed one month in the case of a playing member and three months in the case of a non-playing member; he shall be treated as an ordinary member and shall have to pay subscription accordingly. A non-resident person coming to Rajkot can become a member for period not exceeding six months in a year and shall be styled as a temporary member. He shall have to pay an entrance fee of Rs. 15 only and a monthly fee of Rs. 12 only. Such a member can play all games. In case of Billiards, he shall have to pay usual fees for extra games. But such a member is not entitled to vote in any meeting. Any student below 21 years of age studying in any college affiliated to a University shall be admitted as a casual member during college vacation on a monthly subscription in force from time to time for tennis, badminton and table tennis playing members with a minimum fee paid by a tennis playing member. Such a student shall be exempt from any entrance fee. Such a student ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Mutuality would apply only if all the contributors to the common fund are entitled to participate in the surplus and that all the participators in the surplus are contributors so that there is a complete identity between the contributors and participators. But in the present case, this principle of mutuality is completely missing because the non-resident, temporary and casual members are there only for short period and thereafter, the membership automatically gets cancelled. Therefore, such members are only contributors, but not participators in the surplus. They also do not enjoy the status of the permanent members in the club. Such members do not have the right to vote at the annual general meeting. They can neither send nominations for ejection of the office bearers nor they can stand as a candidate for any office. Therefore, they do not here any identity as a class with other permanent members. In case of a 'mutual society or concern'(including a members' club), there must, be complete identity between the class of contributors and class of participators. It has also been laid down by the various High Courts that the test of mutuality does not require that the contributors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated and the profits derived from non-members can be brought to tax'. In the present case, the income arising out of contributions of non-resident, temporary and casual members can be separated. Similarly, income arising out of transactions with persons other than members can also be separated. Therefore, income arising out of such non-mutual activities can be brought to tax. So far as, the income received by the assessee club by way of interest, we do not agree with the findings of the learned CIT (Appeals) that the same is incidental to the mutual activity of the club and the same should be treated as exempt. This issue is furl covered with the decision of the Hon'ble Gujarat High Court in the case of Raipath Club Ltd. (supra) wherein it has been laid down that the interest income is taxable. After going through the facts of this case and the principle laid down for Mutuality by the various Courts discussed above, we are of the considered opinion that the learned CIT (Appeals) has correctly set aside the assessment with direction to the Assessing Officer for re-computation of the taxable income after finding out the income and expenditure between mutual and non-mutual acidities o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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