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TMI Blog2016 (11) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee did not press this ground of appeal, and therefore, this ground in all four years is rejected. 3. Next common issue which is involved in all these years is whether the assessee is entitled to compute its income on principle of mutuality or not. The facts on vital points are common in all these assessment years. The ld.representatives have addressed their arguments in the assessment year 2006-07. Therefore, for the facility of reference we are mainly taking up the facts from the Assstt.Year 2006-07, and if we find any changes, then we will make a reference to those facts in particular assessment year. 4. Brief facts of the case are that Gujarat Institute of Housing & Estate Developers ("GIHED") was established in 1980 under Non-Trading Corporation Act of Government of Gujarat. This NTC Act was repealed, therefore, on 1-9-2007, GIHED was registered as non-profit organization as per section 25 of the Companies Act, 1956. Thus, the assessee is a section 25 company. The AO has passed a regular assessment in the Asstt.Year 2010-11 under section 143(3) on 28.3.2013, there he formed an opinion that income of the assessee is taxable, and accordingly recorded reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. On the other hand, the ld.DR relied upon the decisions referred to by the ld.CIT(A) on page no.21 of the impugned order. 7. First judgment referred to by the ld.counsel for the assessee is that of the Hon'ble Supreme Court in the case of CIT Vs. Bankipur Club Ltd., has decided a batch of 16 appeals which have been categorized in different groups i.e. 'A' to 'D'. These clubs were registered under section 25 of the Companies Act, 1956 as non-profit companies. They have claimed exemption on their 'surplus receipts' on the ground that they are "clubs" - a species of mutual undertaking and did not carry on any trade or business. They did not earn any profit. The income received by the clubs by extending facilities to non-members was not in issue in this batch of 16 appeals before the Hon'ble Supreme Court. The stand of the Revenue before the Hon'ble Court was that even surplus receipts of the clubs by offering facilities to its members is an income and so taxable. In this background the Hon'ble Supreme Court has taken note of principle of mutuality, and in this connection made reference to commentary in Halsbury Laws of England, 4th Edn., Simon's Taxes, Vol. B, Third Edn. as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etary) club, the members of the company and of the club being identical, was not carrying on a trade or business or undertaking of a similar character for purposes of the former corporation profits tax. A members' club is assessable, however, in respect of profits derived from affording its facilities to non-members. Thus, in Carlisle and Silloth Golf Club v. Smith [1913(3) K. B. 75], where members' golf club admitted non members to play on payment of green fees it was held that it was carrying on 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 members." (emphasis supplied)" 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 with reference to Indian decision in "The Law and Practice of Income Tax" (8th edition vol. 1, 1990) by Kanga & Palkhivala at page 113, thus:- "...... The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue before the Hon'ble High Court was whether the Tribunal was justified in law in upholding the action of the AO of taxing 'card guest income' and 'general guest fee' which are charges paid by the members of the assessee. The Hon'ble Court has ultimately held that just because transactions which are non-mutual in character, would not destroy principle of mutuality. The Hon'ble Court has considered the judgment of the Hon'ble Supreme Court in the case of Bangalore Club Vs. CIT and upheld contentions of the assessee that concept of mutuality will be applicable to it. It is imperative upon us to take note of the finding recorded by the Hon'ble Court in this case. It reads as under: "7. Here, it would not be out of place to mention that there is not a finding of fact that the club receives any amount from non-members, all that the Tribunal has held is that the officer has brought the income from the costs, which is to be paid by the members on behalf of the guests. This itself goes contrary to the facts and the decision of the Apex Court in "BANGALORE CLUB VS. COMMISSIONER OF INCOME TAX & ANR.", 350 ITR 509(SC), on which reliance has been placed by Mr. Desai. In the said case, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are available, then the concept of mutuality will be applicable in such cases also. It has also been propounded that if segmental transactions are non-mutual in character that would not destroy the principle of mutuality. In this connection, we have taken note of the finding of the Hon'ble Gujarat High Court in the case of Junagadh Gymkhana. We would like to take note of finding of the Bombay High Court in the case of Air Cargo Agents Association. The findings of the Hon'ble High Court read as under: "7. We find that the contributions made by the members to the respondent -assessee cannot be a subject matter of tax merely because the part of its excess of income over expenditure is invested in mutual funds. It is also not the case of the Revenue that the dividend received from mutual funds have not been offered to tax by the respondentassessee. The concept of Mutual concerns not being subject to tax is based on the principle of no man can profit out of itself. Therefore the test to be satisfied before an association can be classified as a Mutual concern are complete identity between the members i.e. contributors and the participants, the action of the mutual concern must be in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent being charged to tax on the contribution received from its members. In fact: the decision of this Court in Common Effluent (supra) concludes the issue in favour of the respondent - assessee. 8. Accordingly the question as framed does not give rise to any substantial question of law. Thus not entertained." 11. In the light of the above, let us examine the facts of the present case. There is no change in the objects of the assessee when it was incorporated in 1980 as non-trading corporation under Non Trading Corporation Act as well as when it was registered as non-profit company as per section 25 of the Companies Act. The objects are contained in clause no.3 of the memorandum of association. We deem it appropriate to take note of clause nos.3 to 5 of its memorandum of association, because clause-5 of memorandum of association contemplates that its income and property whenever derived shall be applied solely for purpose of its objects as set forth in this memorandum and no portion of income or property shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise or by way of profit to a person who at any time or have been member of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or restrictions which if an object of the institution would make it a trade union." 4. The activity of the Institution shall be confined to the state of Gujarat only. 5. (i) The Income and property whenever derived, shall be applied solely for the promotion of its objects as set forth in this memorandum. (ii) No portion of income and property aforesaid shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to persons who at any time are/or have been member of the institution or to any one or more of them or to any person claiming through any one or more of them." 12. The ld.CIT(A) while concurring with the AO has basically assigned three reasons, viz. (a) object of the company trust does not spell out that principle of mutuality will be applicable, (b) income of the Trust is being mainly derived from properties show in India or abroad, and (c) the assessee has arranged cricket tournaments. It is very popular game and having huge marketing potential. Apart from this three reasons, the ld.CIT(A) has made reference to the decisions of the Hon'ble Supreme Court in the case of CIT Vs. Kumbakonam Mutual Benefit Fund Ltd., 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would get interaction and benefit of commercial exposure. The members would be appraised with latest technology in construction activities. Non-members contribution is of those entities who want to participate in this organization viz. (a) bank wants to erect its stall in a property show so that public could be appraised for availing loans on the projects of the members. The assessee has been offering taxes on non-member contribution. It is not claiming benefit of mutuality of nonmember receipts. It has been brought to our notice that the contributions are identifiable. Similarly, participants are identifiable. On the strength of the Hon'ble Gujarat High Court in the case of Junagadh Gymkhana (supra) as well as on the strength of Hon'ble Bombay High Court in the case of Air Cargo Agents Association of India, it was demonstrated before us that if a small part of the receipts are with respect to transactions which are nonmutual in character would not destroy the principle of mutuality. The assessee has pointed out that it has already segregated receipts which are nonmutual and has paid taxes. The next objections of the Revenue is that in the object clause nowhere it has been provided ..... X X X X Extracts X X X X X X X X Extracts X X X X
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