TMI Blog2000 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ot assessable to income-tax under the head 'Income from property' ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the principle of mutuality applies to the property income and accordingly it is not taxable income of the assessee ?" The High Court relying on section 22 of the Income-tax Act, 1961 hereinafter referred to as "the Act"), and following the judgment of the Allahabad High Court in the case of CIT v. Wheeler Club Ltd. [1963] 49 ITR 52 and some observations of the Delhi High Court in the case of CIT v. Delhi Gymkhana Club Ltd. [1985] 155 ITR 373, answered the question in the negative and in favour of the Department. Against the said judgment of the High Court dated November 11, 1992 (see [1993] 200 ITR 493), the appellant has preferred these appeals. On behalf of the appellant, it is contended before us that though the appellant is registered as a company under the Companies Act, its business is governed by the principle of mutuality, therefore, the income, if any, earned by the appellant is outside the scope of the Income-tax Act. This is based on a principle that it is the only income which comes with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l matrix, we will now examine the questions involved in these appeals. We will first decide the question : whether under section 22 of the Act, tax levied is on income from property concerned or on the property itself ? Obviously, this argument of the Revenue that the tax under section 22 is being levied not on the income from the property but on the property is on the basis of the judgment of the Allahabad High Court in Wheeler Club's case [1963] 49 ITR 52 wherein a Division Bench of that court held with reference to the business of a club as follows : ". . . liability to pay income-tax arises from the mere fact of his owning the property having an annual letting value and not from his actually deriving any income from it. Even if he does not derive any income from it, as, for example, when he occupies it himself or lets it remain vacant, he is liable to pay tax.... Section 9 does not exempt any income from a house except income from a house occupied for carrying on a business or profession. The assessee is not carrying on any business or profession in the quarters ; therefore, the income from them is not exempted by anything contained in section 9. There is no provision, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the 1922 Act, in our opinion, the legal position remains to be the same under the 1961 Act also. Even if we examine this position independent of the High Court's decision referred to above, we find that the legislative competence to levy income-tax is traceable to entry 82 of List I of Schedule VII to the Constitution which reads : "Taxes on income other than agricultural income". Therefore, any law made under this legislative entry can impose a tax only on income and not under any other head. There is also no dispute that the Income-tax Act of 1961 is a law made under this entry. Hence, it is futile to contend that the levy of tax under section 22 of the Act is a tax levied on property and not on income from property. This view of ours further finds support from a reading of section 4 of the Act which is the charging section. This section unequivocally shows that the levy is on income, A conjoint reading of sections 2(24), 14, 22 and 23 of the Act also makes it abundantly clear that what is being taxed under section 22 is the "deemed income" of an assessee from the property owned by him. At any rate, this question is no more res integra in view of the judgment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its business. It is argued that unlike in the case of Royal Western India Turf Club Ltd. [1953] 24 ITR 551 (SC), in the business of the appellant, no outsider is allowed to take part and the facilities provided by the appellant are exclusively for its members and their guests. Therefore, there is a clear identity between the contributors and the participators to the fund and the recipients thereof respectively. Per contra, based on the decision of this court in the case of Royal Western India Turf Club Ltd. [1953] 24 ITR 551, the Revenue contends that for the doctrine of mutuality to be applicable, there should be a clear identity between the contributors and the participators to the fund and the recipients thereof respectively, which, according to the Revenue, is lacking in the case of the appellant. A perusal of section 2(24) shows that the Act recognises the principle of mutuality and has excluded all businesses involving such principle from the purview of the Act, except those mentioned in clause (vii) of that section. It is also an admitted fact that the business of the appellant does not come within the scope of business referred to in section 2(24)(vii). This court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd applies it for their benefit not as shareholders but as persons who put up the fund the company makes no profit. In such cases 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. But it cannot be said that incorporation which brings into being a legal entity separate from its constituent members is to be disregarded always and that the legal entity can never make a profit out of its own members. What kinds of business other than mutual insurance may claim exemption from tax liability under section 10(1) of the Act under the principles of Styles' case [18891 2 TC 460 (HL) need not be here considered ; it is clear to us that those principles cannot apply to an incorporated company which carries on the business of horse racing and realises money both from the members and from non-members for the same consideration, namely, by the giving of the same or similar facilities to all alike in course of one and the same busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng out of C. A. No. 10194 of 1995 and C. A. No. 3382 of 1997 (the facts of which cases are similar to the case with which we are concerned), it was held : "Amongst others, the Cricket Club of India was in receipt of income from property owned by it-Chambers in the building of the assessee let out to members, annual value of the club house and annual value of Patiala Pavilion. The above facilities were provided only to members of the association and that too temporary accommodation. The arrangement was essentially for the benefit of the members. Following the decision rendered by the Appellate Tribunal, Bombay Bench-A, for the assessment years 1974-75 and 1976-77 rendered in I. T. As Nos. 1730 and 1913/ (Bombay) of 1980, the Appellate Tribunal held that no portion of the club house, Patiala Pavilion, etc., is let out to strangers and that these portions are let out only to the members and so, even if any income had actually accrued due from the members on the above counts, it will not be taxable on the principle of mutuality. In the application filed under section 256(2) of the Act, the High Court declined to refer the question of law posed by the Revenue to the effect, 'whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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