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TMI Blog2021 (1) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2013-14, and the claim of loss being the expenditure over income under the head income from other sources for the assessment year 2015-16, which was not raised before the ld. CIT(A). 2. Brief facts of the case are that the assessee Madras Boat Club is an association of person which is classified as a company in terms of section 25 of the Companies Act. As such the assessee is assessed under the status the 'company' under Income Tax Act, 1961["Act" in short]. The assessee has claimed that the entrance fee collected from non-members is exempt from taxation. The company has been claiming that it is an association of person coming together for the benefit of all the participants because of which the activities falls under the "principles of mutuality" and therefore, the surplus, if any, earned by the company is not chargeable to tax. However, after considering the submissions of the assessee, the Assessing Officer has observed that the entrance fee collected from the non-members by whatever name called and howsoever it may be treated in the books of account of the assessee company in view of its own policies, is chargeable to tax and accordingly, the entrance fee collected was bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act. 24) Undoubtedly, if one has to go by the aforesaid definition of co-operative bank, the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P. 25) So far so good. However, it is significant to point out that the main reason for disentitling the appellant from getting the deduction provided under Section 80P of the Act is not sub-section (4) thereof. What has been noticed by the Assessing Officer, after discussing in detail the activities of the appellant, is that the activities of the appellant are in violations of the provisions of the MACSA under which it is formed. It is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gredients of mutuality are also found to be missing as discussed in further paragraphs]. In the present case both the parties to the transaction are the contributors towards surplus, however, there are no participators in the surpluses. There is no common consent of whatsoever for participators as their identity is not established. Hence, the assessee fails to satisfy the test of mutuality at the time of making the payments the number in referred as members may not be the member of the society as such the AOP body by the society is not covered by concept of mutuality at all. 27) These are the findings of fact which have remained unshaken till the stage of the High Court. Once we keep the aforesaid aspects in mind, the conclusion is obvious, namely, the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members. We are afraid such a society cannot claim the benefit of Section 80P of the Act. 28) This appeal, therefore, fails and is hereby dismissed with costs. 5.2 From the above, it is clear that the assessee in the above case is AOP, which is engaged in finance business and not entitled to claim deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction facilities. (B) Objects incidental or ancillary to the attainment of the main objects: 1). To purchase, acquire, take on lease or mortgage in exchange or otherwise acquire land and movable as also immoveable property including boats of all kinds, furniture and fixtures, electrical and electronics, furniture, fixtures, equipment, instruments, appliances, instruments, vehicles, boat construction facilities could be useful to achieve any one or more of the objects of the club. 2) To operate club facilities for the use of members, their families and dependants and guests, and to procure provisions, other items of food and drinks. 3) To buy, prepare, make, supply, sell and deal in all kinds of apparatus and appliances as also manufacturing facilities in connection with all or any of the objects of the club. 4) To hire and employ Secretaries, Stewards, Clerks, Managers, Professionals, Servants and Workmen and to pay them and other persons for the services rendered to the Club by way of Salaries, Wages, Gratuities and Pensions and to establish funds to pay gratuity/pension to the employees in accordance with the rules of the club subject to any provisions of the Act, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses, reasonable and proper interest on money lent or reasonable or proper rent on premises let out to the Company. (3) Except with the previous approval of the Central Government, no member shall be appointed to any office under the Company, which is remunerated by salary, fees or in any other manner not excepted by sub-clause (2). (4) Nothing in this clause shall prevent payment by the Company in good faith of reasonable remuneration to any of its officers or servants (not being members) or to any other person (not being a member), in return for any services actually rendered to the Company. VI. No alteration shall be made to the Memorandum of Association nor to the Articles of Association of the club which are for the time being in force unless the alteration has been submitted to and previously approved by the Regional Director, Southern Region, Ministry of Corporate affairs at Chennai. VII. The liability of the members is limited. VIII. Every member of the Club undertakes to contribute [such amount as may be required but not exceeding Rs. 100/- each] to the Assets of the Club in the event of the same being wound-up during the time that he is member or within one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing', 'accruing' to a 'person'. Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and 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." [ Head Note p.97 of the Report] The main question canvassed by the Revenue in the appeals coming under groups A to D, the assessees being Bankipur Club Ltd., Ranchi Club Ltd., Cricket Club of India and Northern India Motion Pictures Association. The main issue in all these appeals was, whether the assessee-mutual clubs, were entitled to exemption for the receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. The law recognizes the principle of mutuality excluding the levy of income-tax from the income of such business to which the above principle is applicable. A perusal of S. 2(24) of the Income-tax Act, 1961, shows that the Act recognizes 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. The three conditions, the existence of which establishes the doctrine of mutuality are (1) the identify of the contributors to the fund and the recipients from the fund, (2) the treatment of the company, though incorporated as a mere entity for the convenience of the members, in other words, as an instrument obed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as Rs..37,66,492/- being the interest income, which was not raised before the ld. CIT(A). Assuming higher appellate jurisdiction, we proceeded to adjudicate the issue on merits after hearing both the parties. 8. We have considered the rival contentions. It was the submission of the ld. DR that the claim of exemption towards surplus income over expenditure as well as interest income for the assessment year 2013-14 and the claim of loss being the expenditure over income under the head income from other sources for the assessment year 2015-16, the issues are squarely covered against the assessee by the decision of the Hon'ble Supreme Court in the case of Bangalore Club v. CIT [2013] 29 Taxmann.com 29(SC). However, the ld. Counsel for the assessee could not controvert the above submissions of the ld. DR. We have perused the decision in the case of Bangalore Club v. CIT (supra), wherein, while emphasizing the decision of the Hon'ble Supreme Court in the case of CIT v. Bankipur Club Ltd. (supra), the Hon'ble Supreme Court has held as under: "33. In our opinion, unlike the aforesaid surplus amount itself, which is exempt from tax under the doctrine of mutuality, the amount of in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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