TMI Blog2010 (12) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, which is not the object with which the assessee society is formed. - Therefore in view of SATURDAY CLUB LTD. versus ASSTT. COMMR., SERVICE TAX CELL, CALCUTTA (2004 -TMI - 206 - HIGH COURT CALCUTTA) and Dalhousie Institute Vs. Asstt. Commissioner, Service Tax Cell (2004 -TMI - 204 - HIGH COURT CALCUTTA) Decided in favor of assessee. - ITA No.1288 of 2010 - - - Dated:- 9-12-2010 - MR. JUSTICE A.K. SIKRI, MS. JUSTICE INDERMEET KAUR, JJ. For Appellant : Mr. N.P. Sahini, Standing Counsel. For Respondent : Mr. P.K. Sahu, Advocate with Mr. Prashant Shukla, Advocate. A.K. SIKRI, J. (ORAL) 1. Admitted facts are that the assessee company is running a recreation club for its members. It has been claiming exemption of income earned from their members on the basis of doctrine of mutuality and by accepting this doctrine, the assessee has been given exemption from paying income tax on the income from their members. In the assessment year which is in question, i.e., 2003-04, a question arose as to whether the assessee would be entitled to claim exemption even in respect of income generated by investing the surplus funds. The case of the assessee was that the income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. It has been observed that what is required to be seen is whether there is complete identity between the contributors and participators. Once the identity of the contributor to the fund of the recipients of the funds; the treatment of the company, though incorporated as a mere entity for the convenience of the members, in other words as an instruments obtained to their mandate; and the impossibility that the contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves is established, the doctrine of mutuality is established. There are three conditions for applicability of the principle of mutuality, which are discerned from the aforesaid are as follows: a) Where a number of persons combine together contribute to a common fund for the financing of some venture or object; b) They have no dealings or relation with any outside body; and c) Surplus generated are not spent for any other purpose accepting for the welfare of the principles. On this basis, the Court clearly held that even if there was an income earned by the society in the form of interest by keeping the funds generated from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged from house of convention centre or from letting out on part of the premises. In the process, this Court relied upon the judgment of the Supreme Court in the case of Chemsford Club (supra) and All India Oriental Bank of Commerce Welfare Society (supra). In addition, number of other judgments were referred to and the principle of mutuality was discussed and explained in depth. Following discussion from that judgment is quoted herein: 17. In Chelmsford Club [2000] 243 ITR 89, the Supreme Court clarified that even if such a association is an incorporated company, that would be immaterial if there is identity in character of those who contribute and those who participate in surplus. The can be traced out from the following observations: where there is identity in the character of those who contribute and of those who participate in the surplus, the fact of incorporation may be immaterial and the incorporated company may well be regarded as a mere instrument, a convenient agent for carrying out what the members might more laboriously do for themselves. Their Lordships have laid down the three test before the principle of mutuality can be applied. In a nutshell, these test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity carried on by the assessee in such cases, claiming to be a "mutual concern" or Members' club" is a trade or an adventure in the nature of trade and the transactions entered into with the members or non-members alike is a trade/business/transaction and the resultant surplus is certainly profit - income liable to tax. 20. Thus, such company claiming to be mutual concern or club whose object is to carry on particular business or where the income is generated from members and non-members through the business carried on by it, then only it would be treated as tainted with commerciality. Profit earning has to be the prime motive behind such activities, which are business like activities. Obviously in the present case, this cannot be attributed to the assessee. The AO got influenced by the fact that the assessee had let out part of the premises to its members and was receiving rents and also giving the convention centre to non-members. That is not sufficient to clothe the activity of the assessee as commercial activity, which is not the object with which the assessee society is formed. Pre-dominant object is to render appropriate assistance and help to its members for improving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice tax twice once upon the people carrying out the business of 'mandap keeper' as well as the members' club for the purpose of using the space for constructing or using it as 'mandap'. Therefore, apart from any other question possibility of double taxation cannot be ruled out. If I explain my first query as above it will be crystal clear that if a person being an owner of the house allows another to occupy the house for the purpose of carrying out any function in that house it will not be construed as transfer of property. But if such person calls upon a third party 'mandap keeper' to construct a 'mandap' in such house then in that case such 'mandap keeper' can be able to raise bill upon the user of the premises along with the service tax. Therefore, I cannot hold it good that members' club is covered by the Finance Act, 1994 for imposition of service tax to use its space as 'mandap'. So far as the other point is concerned whether the ratio of the judgments can be acceptable herein or not I like to say 'yes it is applicable'. Income-tax is applicable if there is an income. Sales tax is applicable if there is a sale. Service tax is applicable if there is a service. All three will b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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