TMI Blog1992 (2) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... t off against the losses incurred by the club ?" The background facts as depicted in the statement of the case drawn .up by the Tribunal are to the following effect. Cuttack Club Pvt. Limited (hereinafter referred to as "the assessee"), a limited company, was incorporated to take over the assets and liabilities of the erstwhile unincorporated association known as the Cuttack Club, with the object, inter alia, to offer to its members all the usual privileges, advantages, conveniences and accommodation of a club. The memorandum of association in clause 4 provides for contribution by every member to the assets of the company in the event of winding up, of sums not exceeding Rs. 100, while clause 5 thereof provides for payment of surplus or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principle of mutuality is applied, the income from house property should also be exempted. In this regard, it was submitted that letting out of the property of the club was not business, but was incidental to the carrying out of the activities of the club. The Revenue's stand, on the contrary, was that the principle of mutuality applied to the case of the assessee against surplus having arisen therefrom does not constitute income under sub-section (2) of section 24 of the Act (sic). It was also pleaded that, as regards the income from house property, the principle of mutuality was lost as the contributors were not members of the society. The Tribunal did not accept the contentions raised on behalf of the assessee and affirmed the conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessability is not there. Strong reliance is placed on a decision of the Supreme Court in the case of CIT v. Bar Council of Maharashtra [1981] 130 ITR 28. It is also submitted that this submission is being made by accepting, for the sake of argument, that the principle of mutuality applied. Learned counsel for the Department, however, submitted that the principle of mutuality having applied only so far as the activity of the club is concerned and the surplus having constituted income under section 24(2) of the Act, so far as the income of the house property is concerned, the principle of mutuality was lost as the contributors were not members of the club. We shall first deal with the question so far as the assessee's plea that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a company or formed into registered society, what is essential is that it should not have dealings with an outside body which results in a surplus. The participation of the members in the surplus must be in their character as contributors to the common fund or as consumers, and not as shareholders getting dividends on their share amount of as debenture-holders earning interest. The apex court in CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 (SC) and in English and Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural Income-tax [1948] 16 ITR 270 (PC) recognised the basis of exemption in case of mutual concerns as highlighted in Styles' case [1889] 2 TC 460 (HL). The basis for exemption as indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf, but with a different entity. In Royal Western India Turf Club Ltd.'s case [1953] 24 ITR 551, the Supreme Court held that where a company collects money from its members and applies it for their benefit not as shareholders but as persons who put up the fund, the company makes no profit. It cannot, however, 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. In the above premises, the conclusions of the Tribunal that the assessee is a mutual concern are irreversible. The first question is answered accordingly. So far as the second question is concerned, the income from the house prope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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