TMI Blog2021 (1) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court, we set aside the orders of authorities below and direct the Assessing Officer to delete the addition made in both the assessment years. Addition under the head income from other sources being surplus income over expenditure as well as interest income - HELD THAT:- Respectfully following the above decision of the Hon ble Supreme Court in the case of Bangalore Club v. CIT [ 2013 (1) TMI 343 - SUPREME COURT] we dismiss the ground raised by the assessee towards the claim of exemption towards surplus income over expenditure as well as interest income for the assessment year 2013-14 as well as claim of loss being the expenditure over income under the head income from other sources for the assessment year 2015-16. - ITA Nos.2748 And 2749/Chny/2019 - - - Dated:- 6-1-2021 - Shri Duvvuru RL Reddy, Judicial Member And Shri G. Manjunatha, Accountant Member For the Appellant : Shri S. Sridhar, Advocate For the Respondent : Shri G. Chandrababu, Addl. CIT ORDER PER DUVVURU RL REDDY, JUDICIAL MEMBER: Both the appeals filed by the assessee are directed against the common order of the ld. Commissioner of Income Tax (Appeals)-8, Chennai dated 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DR strongly supported the orders of authorities below. 5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including the byelaws, Memorandum and Articles of Association, etc. filed in the form of paper book. It is the claim of the assessee that the assessee company is an association of persons coming together for the benefit of all the participants because of which the activities falls under the principle of mutuality and therefore the surplus if any earned by the company is not chargeable to tax. However, the Assessing Officer made the addition on the ground that the concept of mutuality does not involve between the non-members and the assessee company and the ld. CIT(A) confirmed the above addition by following the decision of the Hon ble Supreme Court in the case of Citizen Cooperative Limited v. ACIT (supra) by holding that the old decision i.e., in the case of CIT Vs. Bankipur Club Ltd., 226 ITR 97 (SC) is deemed to have been over-ruled by the decision in the case of Citizen Co-operative Limited v. ACIT (supra), which has redefined the principles of mutuality and taxation of revenue generated from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc. to the members of the first category. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Cooperative Societies Act. Moreover, it is a co-operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Act. 26) It is in this background, a specific finding is also rendered that the principle of mutuality is missing in the instant case. Though there is a detailed discussion in this behalf in the order of the Assessing Officer, our purpose would be served by taking note of the following portion of the discussion: As various courts have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em to participate in regattas at District, State, National and International levels ; to organize all related activities connected with the production of various types of boats such as rowing boats, as also motor boats needed by members for sports; to encourage research connected with boats; to organize and hold alone or jointly with any other Association, Club or person[s] sports activities connected with the use of boats; hold Meetings, Competitions, Tournaments and Regatta s connected with the proper use of boats both for economic as also sports activities; offer, give or contribute towards prizes, medals and awards in connection with all or any of the objects of the Club for the time being and to establish a separate development fund or any other fund for the purpose of research and development of boats and promotion and development of sports connected with boats as also any other objects of the club. 2) To affiliate with the Amateur Rowing Association of the East, Far Eastern Amateur Rowing Association and also such other Association(s) /clubs from time to time and Laws of boat racing adopted by the above association (s) may be adopted with or without modification(s). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities of the Club or by mortgage or charge upon all or any of the property of the Club both present and future. 7) To pay all costs, charges and other expenses pertaining and incidental to the formation, or registration of the club. 8) To open any kind of account (s) in any bank (s) and to draw, make accept, endorse, discount, negotiate, execute and issue bills of exchange, promissory notes, bills of lading, warrants, subject to the approval of the Committee of the Club. 9) To institute and to defend any suit, appeal, application for review or revision or, any other application of any nature whatsoever, to take out executions, to enter into agreements to refer to arbitration or to enforce and to contest any awards and for all such purposes to engage or retain counsels, attorneys and pay remuneration/ fees including reimbursement of actual expenses. Provided that the Company shall not support with its funds, or endeavour to impose on, or procure to be observed by its members or others, any regulations or restriction which, if an object of the company, would make it a Trade Union. (C) The other objects for which the Company is incorporated NIL IV. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty, credits and liabilities of the Club and subject to any reasonable restriction as to the time and manner of inspecting the same that may be imposed in accordance with the Regulations of the Club, for the time being, shall be open for inspection of the members. Once at least in every year the Accounts of the Club shall be examined and the correctness of the Balance Sheet ascertained by one or more property qualified Auditor or Auditors appointed by the members in the general meeting. X. If upon the winding-up or dissolution of the Club there remains after the satisfaction of all its debts and liabilities any property whatsoever the same shall not be paid to or distributed amongst the members of the Club but shall be given or transferred to some other institution or institutions having objects similar to the objects of the Club to be determined by the members of the Club, at or before the time of dissolution or in default thereof by the High Court of Judicature, Madras. It is clear from the main objects as well as Rule X clearly indicate that the assessee fulfill all the three conditions for the concept of mutuality. Thus, the case law relied on by the ld. CIT(A) in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f admission fees, periodical subscription, etc. from the members of the clubs and the same were only for/towards charges for the privileges, conveniences and amenities provided to the members, which they were entitled to, as per the rules and regulations of the respective clubs. It had also been found that different clubs realised various sums on the above counts only to afford to their members, the usual privileges, advantages, conveniences and accommodation. In other words, the services offered on the above counts were not with any profit motive, and were not tainted with commerciality. The facilities were offered only as a matter of convenience for the use of the members (and their friends, if any, availing of the facilities occasionally). Held, dismissing the appeals, that 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 from 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the members paid for all their expenses and were not entitled to any share in the profits. Surplus, if any, was used for maintenance and development of the club. The club house was owned by the assessee. The assessee claimed that it was a mutual concern and so the annual letting value of the club house was not assessable. The claim was rejected by the High Court. Held, reversing the decision of the High Court, that the assessee s business was governed by the doctrine of mutuality. It was an admitted fact that the business of the assessee did not come within the scope of business referred to S. 2(24)(vii). It was not only the surplus from the activities of the business of the club that was excluded from the levy of income-tax, even the annual value of the club house, as contemplated in S.22 of the Act, would be outside the purview of the levy of income-tax. 6.3 While considering similar issue on identical facts, in the case of DCIT v. Madras Cricket Club in I.T.A. No. 381/Chny/2017 I.T.A. Nos. 1752 1753/Chny/2017 for the assessment years 2012-13 to 2014-15 21.01.2020, the Coordinate Benches of the Tribunal has decided the issue in favour of the assessee by dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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