TMI Blog1997 (5) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... uv Mehra, Advocates, with him), for the department. Rajiv Tyagi, Sudhansu Tripathi, M.J.S. Rupal, D.P. Mukherjee, Sanjay Kumar Ghosh, Manoj Swarup Co.), S.K. Aggrawal, Vinay Vaish and Amarendra Sharan, Advocates, for other assessees. The judgment of the court was delivered by K. S. PARIPOORNAN J. --- Special leave granted in S. L. P. (C) Nos. 22644 of 1994 and 2811 of 1994. This batch of 23 cases was posted together. That was so done on the basis that the same and identical point arises for consideration in all of them. On further verification, it turned out that in seven appeals, the point that arises for consideration is a little different. On the question arising in those appeals no arguments were advanced. So, the said seven appeals are delinked, to be posted later for hearing. For convenience' sake, the 23 cases including the seven appeals which are delinked can be classified into five groups : Group A : C. A. Nos. 854-858 of 1984--CIT v. Banhipur Club Ltd. ; Group B : C. A. Nos. 505 of 1992 and 3974 of 1992--CIT v. Ranchi Club Ltd. ; Group C : C. A. No. 3382 of 1997 (arising out of S. L. P. (C) No. 22644 of 1994) and C. A. No. 10194 of 1995--CIT v. Cricket Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject and will in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular form the association takes. Trading between persons associating together in this way does not give rise to profits which 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. Members' clubs are an example of a mutual undertaking ; but, where a club extends facilities to non-members, to that extent the element of mutuality is wanting ...... (emphasis supplied). Simon's Taxes, Volume B, Third edition, paragraphs B1.218 and B1.222 formulate the law on the point, thus : ". . . . it is settled law that if the persons carrying on a trade do so in such a way that they and the customers are the same persons, no profits or gains are yielded by the trade for tax purposes and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors in the surplus are contributors, so that there is complete identity between contributors and participators. This means identity as a class, so that at any given moment of time the persons who are contributing are identical with the persons entitled to participate ; it does not matter that the class may be diminished by persons going out of the scheme or increased by others coming in. . . . The doctrine now has application in three areas. First, it applies to mutual insurance companies ; secondly, it applies to certain municipal undertakings and, thirdly, to members' clubs, and mutual associations generally, whether incorporated or unincorporated, except registered industrial and provident societies . . . . . . (emphasis supplied). It should be noticed that in the case of a " mutual society or concern " (including a " members' 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. The said principle which has been laid down in the leading decisions and emphasised in the leading English text books mentioned above, has been explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The receipt under the head " Sale of drinks at the bar " was alone disputed in all the aforesaid five years. The Income-tax Officer held that the profit on the sale proceeds of the drinks by the club is income and so, liable to be taxed. It is seen that the main object of the club, as per the memorandum of association, is to afford to its members all the usual privileges, advantages, conveniences and accommodations of a club. Clause 5 of the memorandum of association makes a provision that upon a winding-up or dissolution of the company, if there remains any property left after the satisfaction of all debts and liabilities, the same shall be paid to and distributed amongst the members of the company in equal shares. Article 6 of the articles of association reads thus : " Only permanent members shall be deemed to be members of the club." Article 15 speaks of temporary members who may be elected for not exceeding three months in any calendar year. To become a temporary member the person would be a person not permanently residing at Patna or within ten miles of it. No entrance fee is payable by them, but they are to pay a fixed monthly subscription. Under article 5, the Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub from its house property let to its members and their guests is not chargeable to tax ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the income derived by the assessee-club from sale of liquor, etc., to its members and their guests is not taxable in its hands ? In these cases, the assessee was a company formed with the main object of providing a club house and other conveniences for the use of its members and their friends. The memorandum of association provided for contribution by the members to the common fund of the club, guarantee towards debts and liabilities, and upon winding-up, their participation in the surplus. Apart from the concept of " member " envisaged in the memorandum, it had created one more class described as temporary members. The temporary members were not deemed to be members. For the assessment year 1977-78, the assessee had filed its return showing its income under the head " House property " representing the income arising out of gross rent and reservation charges received by it from persons other than members. But, the Income-tax Officer, while assessing the income, also included the amount rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w for this year as well. In fact, for both the years, the decision of the Appellate Tribunal to the effect that the income received from the aforesaid counts is exempt under the principle of mutuality, was not doubted by the High Court, holding that no referable question of law arose for its decision. We now come to Group D. C. A. Nos. 1635 of 1994, 1648-49 of 1994, 2380-82 of 1994 and C. A. No. 3383 of 1997 (at S. L. P. No. 2811 of 1994) come within this group. The assessee in this case is Northern India Motion Pictures Association. The details with regard to the above appeals are as follows : Sl. No. No. Assessment years Remarks 1. C. A. No. 1635 of 1994 1987-88 Application under section 256(2) rejected 2. C. A. Nos. 1648-49 of 1982-83 and 1994 1985-86 -do- 3. C. A. Nos. 2380-82 of 1974-75 to 1994 1976-77 Reference answered in favour of assessee 4. S. L. P. (C.) No. 2811 of 1994 1989-90 Application under section 256(2) rejected The assessee is an association consisting of film distributors and exhibitors incorporated as a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pages 160-161 : " The assessee was an association and its members were film distributors and exhibitors. The association protected the rights of its members in return for admission fees and periodical subscription and also rendered specific services in return for separate charges. The Income-tax Officer wanted to subject the assessee to tax on the income derived from the admission fee, periodical subscriptions and specific service charges received from the members. The assessee pleaded that the receipts were exempt from tax on the general principle of mutuality. The Income-tax Officer did not agree with the plea on the grounds that in clause 7 of the memorandum of association, it was provided that, upon winding-up or dissolution of the association, the remaining property, after the satisfaction of its debts and liabilities, shall not be paid or distributed amongst the members but shall be given or transferred to such other institution or institutions having similar objects to be determined by the members at or before the time of dissolution, or in default thereof by the Prime Minister of the East Punjab and if this could not be done, then, to some charitable object and hence th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vassed by the Revenue in the appeals coming under Groups-A to D, namely, whether the assessees-mutual clubs, are entitled to exemption for the receipts or surplus arising from the sales of drinks, refreshments, etc., or amounts received by way of rent for letting out the buildings or amounts received by way of admission fees, periodical subscriptions and receipts of similar nature, from its members ? In all these cases, the Appellate Tribunal as also the High Court have found that the amounts received by the clubs were for supply of drinks, refreshments or other goods as also the letting out of building for rent or the amounts received by way of admission fees, periodical subscription, etc., from the members of the clubs were only for/towards charges for the privileges, conveniences and amenities provided to the members, which they were entitled to as per the rules and regulations of the respective clubs. It has also been found that different clubs realised various sums on the above counts only to afford to their members the usual privileges, advantages, conveniences and accommodation. In other words, the services offered on the above counts were not done with any profit motive, an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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