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TMI Blog2009 (9) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... n of section 115JB are not applicable to its case. 2. Assuming that section 115JB of the Act is applicable, the income which is exempt from tax due to application of the principle of mutuality is to be excluded in the computation of book profit. 3. Without prejudice to the ground of appeal Nos. 2 and 3, the profit on the sale of investments is not includible in the computation of book profit." 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee-company is running a recreation club for its members and claimed exemption of income earned from the members on the basis of doctrine of mutuality. Return of income was filed on 2-12-2003 declaring income of Rs. 48,16,859 (including capital gains of Rs. 4,42,170) and computed book profit under section 115JB at Rs. 49,70,963 determined tax payable under the MAT provisions at Rs. 11,78,764. Since the tax under the normal provisions was less than the tax computed as per the MAT provisions, the assessee paid taxes under MAT, the return was processed under section 143(1) of the Income-tax Act. The assessee-company vide its submissions dated 6-1-2006 has filed revised computation, seeking exemption of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng within the purview of mutuality. 6. Aggrieved by the above order of the CIT(A), the assessee is in further appeal before us. The learned AR Shri Wadhwa drawn our attention to the certificate of incorporation of the club under the Companies Act, wherein club was incorporated as limited company by guarantee, has no share capital and no profit motive. He contended that the club cannot distribute any dividend and the specific requirements of section 25(1) of the Companies Act are satisfied which read as under :- "Where it is proved to the satisfaction of the Central Government that an association- (a )is about to be formed as a limited company for promoting commerce, art, science, religion, charity or any other useful object, and (b )intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Central Government may, by license, direct that the association may be registered as a company with limited liability, without the addition to its name of the word 'limited' or the words 'private limited'." 7. The learned AR further submitted that vide section 656 of the Companies Act, 1956, the companies i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Supreme Court in case of NTPC Ltd. (supra), we admit the additional grounds for decision. From the record, we found that assessee-company is running a recreational club for its members. In addition to its income on account of food sale, room sale to the members and their guests, it has also earned interest income on the FDRs put with the bank, dividends from investment in shares and Government securities. In respect of some of the shares which were sold during the year, the assessee has also earned capital gains therein. Contention of the Assessing Officer and CIT(A) was that interest, dividend, income from Government securities and profit on sale of investment does not fall within the parameter of doctrine of mutuality, accordingly, the same was held to be liable to tax, and on book profit tax was levied under section 115JB of Income-tax Act. The assessee-club is incorporated under the Companies Act and was granted certificate under section 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 object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht under the concept of mutuality, i.e., first, no person can earn from himself, second no profit motivation, third no share of profit. The first condition with regard to no person can earn from himself means, there should be complete identity between the contributors and participators. In the instant case before us, there is no finding by any of the lower authorities to the effect that there is no identity between the contributors and participators as far as the income earned by the assessee as interest on deposit, dividend on shares or profit on sale of shares are concerned. There is also no dispute to the fact that source of the fund invested in bank FDR or shares is only from the members of the club and the assessee-club has not received any donation or monetary grant from any outside source apart from the members. It is the members' contribution which has become the corpus fund and the same was deposited in the bank or invested in shares. Club was in receipt of the interest on deposit with the bank and dividend income on the shares and Government securities. It also earned profit on sale of some of shares. In the instant case, there is no dispute to the fact that assessee-club ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal held that income received by the assessee for the use of facilities by guests of the members is exempt from taxation. This being the position, we are of the view that deposits made as a result of this income received and the interest received thereon from the banks cannot be said to be outside the doctrine of mutuality. 6. Learned counsel for the assessee has relied upon Director of Income-tax v. All India Oriental Bank of Commerce Welfare Society [2003] 130 Taxman 575 (Delhi), in which this Court has relied upon in Chelmsford Club v. CIT [2000] 243 ITR 89 (SC). It was held, following the decision of the Supreme Court, that where a number of persons combine to contribute to a common fund and have no dealings or relations with any other body, then any surplus generated cannot, in any sense be regarded as profits chargeable of tax. On this basis, the doctrine of mutuality was applied to the facts of that case. We see no distinction in the decision rendered by this Court in All India Oriental Bank of Commerce Welfare Society and the present case. 7. Under the circumstances, we answer the question of law in the affirmative, in favour of the assessee and against the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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