TMI Blog2019 (6) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... al income - HELD THAT:- From perusal of the service agreement we note that appellant was under no obligation to provide any service, facility or amenity to M/s Reliance Industries Ltd for earning service charges. Moreover we find that both the agreements were co-terminus and ran concurrently. It was expressly provided that the service agreement will remain valid so long as license agreement was in force. We therefore agree with the Ld. AR s submissions that both rent service charges were having the same character and both were being charged on per square feet basis without incurring any corresponding expenditure. Therefore, Ground No. 1 is dismissed and Ground No. 2 is partly allowed. Addition on account of letting out of property to M/s. Organon India Ltd. - HELD THAT:- From Note No. 23.1 of the annual audited accounts of the appellant, we find that the assessee had made a disclosure about institution of legal case against M/s Organon India Ltd for vacating the club premises occupied by them. It was clarified that amount of ₹ 5,80,879/- received till 31.03.2011 from M/s Organon India Ltd was shown under Liability . We find that nowhere in the audited accounts Here w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts by way of sponsorship fees / advertisement fees in isolation and without allowing the benefit of set off of the department wise expenses accounted in the books of the appellant. We also note that in all the past assessments as well as in the subsequent assessments the Revenue had allowed the benefit of netting off of receipts against expenses and only the net amount was considered for taxation purposes without allowing the benefit of mutuality principle. It was only in AY 2009-10 when the AO did not allow the benefit of netting off but on appeal this Tribunal in [ 2016 (12) TMI 1718 - ITAT KOLKATA`] allowed the deduction. Following the same, we direct the AO to allow the deduction for department-wise expenses against the sum received by way of sponsorship fees / advertisement fees - Ground No. 7 is therefore allowed. - I.T.A. No. 2491/Kol/2017 - - - Dated:- 3-6-2019 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For the Appellant : Shri D. S. Damle, AR For the Respondent : Shri Rabin Choudhury, Addl. CIT, Sr. DR ORDER PER SHRI A.T.VARKEY, JM This appeal filed by assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he action of the AO in assessing a sum of ₹ 47,95,163/- on account of service fees received from M/s. Reliance Industries Ltd as appellant s income chargeable under the head Other Sources which did not qualify for application of principal of mutuality. 4. Brief facts of the case are that the assessee is a company registered under Section 25 of the Companies Act, 1956 and which claims that its income is not taxable on the basis of the principle of mutuality, since its members are the contributors as well as users of the services rendered by the appellant-club and is therefore not a profit making body. In the assessment order the AO had considered the sum of ₹ 67,84,258/- ₹ 47,95,163/- received on account of letting out of the property and service charges respectively from M/s. Reliance Industries Ltd. as income chargeable under the head Other Sources . The AO was of the opinion that even though the rent was received from the corporate member of the appellant club yet the principle of mutuality was not applicable in respect of such receipts because the premises let out to the corporate member were used by it exclusively for carrying out its comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to render any separate service or provide any specified amenities. The Ld. AR pointed out that under the agreement the gross rent of ₹ 60/- per sq.ft. was bifurcated between ₹ 36/- towards rent and ₹ 24/-towards service charges. The Ld. AR also pointed out that as per clause (3) of the service agreement, the same was co-terminus with the license agreement under which the premises were given on rent to M/s Reliance Industries Ltd. He therefore submitted that since service charges was also paid at specified rate on per sq ft basis and there being no obligation on the appellant to render any service there against, in substance the amount was chargeable by way of rent and assessed under the head House Property . He also drew our attention to the appellate orders of the coordinate Bench of this Tribunal in appellant s own case for AY 2008-09 in ITA No.1340/Kol/2012 in which this Tribunal had upheld the AO s order in which the combined receipts on account of rent service charges totaling ₹ 78,49,798/- were held to be assessable under the head House property . Per contra the Ld. DR strongly relied on the order of the lower authorities. He also drew our attenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the composite receipt by way of rent service charges was assessed under the head House Property . In the circumstances the AO is directed to assess both the receipts on account of rent and service charges under the head House Property in terms of Section 23 24 of the Act. Therefore, Ground No. 1 is dismissed and Ground No. 2 is partly allowed. 8. Coming to ground no. 3 which is against the action of the Ld. CIT(A) in confirming the action of AO in assessing ₹ 3,27,676/- on account of letting out of property to M/s. Organon India Ltd. 9. Brief facts of the case are that the assessee had given on rent a portion of the premises to M/s. Organon India Ltd. The assessee had terminated the tenancy in 2008 and the assessee filed eviction suit in 2010 to evict this company. Though the said company has deposited an amount of ₹ 5,80,879/- till 31.03.2011 under the legal advice, this amount was shown as Liability in the appellant s books. After 01.04.2011, the appellant did not accept any monies from M/s Organon India Limited as the appellant had instituted legal proceedings for its eviction. In the impugned order the AO noted that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had made a disclosure about institution of legal case against M/s Organon India Ltd for vacating the club premises occupied by them. It was clarified that amount of ₹ 5,80,879/- received till 31.03.2011 from M/s Organon India Ltd was shown under Liability . We find that nowhere in the audited accounts copies of which are available at Pages 1 to 31 of the paper book there was an admission that ₹ 3,27,676/- was received from M/s Organon India Ltd during FY 2011-12. We also note that even though the assessee had instituted eviction suit against the tenant it continued to retain possession and did not pay any rent. In the circumstances notional annual value of the property was also not assessable as the property was not capable of being let on the ground of adverse possession. We therefore hold that the authorities were not justified in assessing ₹ 3,27,676/- under the head House Property . Ground No. 3 therefore stands allowed. 12. Ground No. 4 was not pressed and is therefore dismissed. 13. Ground No. 5 is against the assessment of ₹ 3,03,324/- received from M/s. Sai Media Ventures P. Ltd. on account of ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts under two different heads of income, which in our opinion was not appropriate. Since even in the case of M/s. Sai Media Ventures P. Ltd the amount was received for letting out specified area for display of advertisements, there was no reason for the AO to assess the amount received from M/s. Sai Media Ventures P. Ltd under the head Business income when in the case of M/s Tapan Art Centre the identical receipt was assessed under the head House Property . For the reasons set out in the foregoing therefore, the AO is directed to assess the hoarding rent of ₹ 3,03,324/- received from M/s. Sai Media Ventures P. Ltd under the head House Property . Ground No. 5 therefore stands partly allowed. 16. Ground No. 6 of assessee s appeal is against the action of Ld. CIT(A) in confirming the action of AO in assessing commission of ₹ 13,76,606/- received from M/s Agarwal Merchandise on the ground that principle of mutuality was not applicable. 17. Brief facts of the issue are that the assessee has received ₹ 13,76,606/- from M/s Agarwal Merchandise Tie-up Pvt. Ltd. which runs a grocery shop within the club premises. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the benefit of mutuality principle. He submitted that since in the present case the commission received represented 5% of the sums collected by M/s. Agarwal Merchandise from the members of the club only, the principle of mutuality was satisfied and therefore the sum of ₹ 13,76,606/- was not chargeable as income of the appellant. Per contra the Ld. DR fully relied on the orders of the lower authorities and claimed that since the amount was paid as commission by M/s. Agarwal Merchandise who operated the club store on commercial basis, the amount was rightly assessed as business income of the appellant-club and principle of mutuality was rightly denied. 19. We have given our thoughtful consideration to the rival submissions and the facts involved in the present case. It is noted that in terms of the Memorandum of Association of the appellant-club, one of the objectives is to deal with the property of the company for selling distributing stores. It is in pursuance of this objective that the appellant-club entered into an agreement with M/s. Agarwal Merchandise Tie-up Pvt. Ltd permitting it to run a grocery store in the club solely for the benefit and use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriving profits not only from themselves but also from outsiders. It is the say of the assessee that the banquet hall/ground are given only to the members of the club and their families. Further, only the members of their families and guests are allowed to participate in the club activities. These facts have not been disputed by the Assessing Officer simply because some professionals/contractors are engaged in organising the club activities from whom the club derives royalty/commission at fixed rate 20 per cent. on total receipts, it cannot be said that the club is not eligible for exemption on the principles of mutuality. The hon'ble Supreme Court in the case of Bankipur Club Ltd. (supra) has held that (headnote) : in the light of the findings of fact the receipts for the various facilities extended by the clubs to its members, as part of the usual privileges, advantages and conveniences, attached to the membership of the club, could not be said to be 'a trading activity'. The surplus-excess of receipts over the expenditure as a result of mutual arrangement, could not be said to be 'income' for the purpose of the Act . 21. Keeping in view the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. Merely because in the books of accounts maintained the expenses were accounted department-wise, such manner of accounting presentation could not deny the appellant the benefit of deduction of the expenses incurred against the corresponding receipts. The Ld. AR submitted that in the appellant s own case for the AY 2009-10 the AO had similarly assessed the sponsorship fees / advertisement fees on gross basis and on appeal this Tribunal in its order dated 02.12.2016 in ITA No. 339/Kol/2013 for AY 2009-10 had directed the AO to allow all expenses permissible as deduction against the sponsorship fees / advertisement fees. The Ld. AR further submitted that even though similar sponsorship fees / advertisement fees were received in the earlier as well as subsequent years, the Revenue had never denied the benefit of netting off of these receipts against the department-wise expenses. The Ld. AR also drew our attention to the assessment proceedings recently concluded for the AY 2016-17 in which the AO had allowed the benefit of netting off the sponsorship fees / advertisement fees against department-wise expenses and thereafter assessed the total income. Per contra the Ld. DR supported t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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