TMI Blog1987 (3) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... egally justified in holding that income derived by the assessee club from sale of liquor, etc., (in the bar account) to its members and their guests was not chargeable to tax under the Income-tax Act, 1961 ? (3) Whether, on the facts and circumstances of the case, the Tribunal was legally justified in holding that the income from letting out of rooms to its members and their guests would also be exempt from tax ? " The core question is whether the principle of mutuality is available to the assessee which is the subject-matter of the first question referred to us. The answer to the other two questions depends upon the answer to the first question. The assessee is a private limited company. The assessee returned an income of Rs. 7,510. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal expenses thereon. Further, in the event of winding-up, any surplus shall be paid to or distributed amongst the members of the club only in equal shares. In short, the liability to contribute in the event of winding-up or dissolution and the right to share in the surplus is confined to members. Clause 2 of the articles of association shows that only permanent members of the club shall be deemed to be members of the company. Members of the club may be resident members or non-resident members. There are, however, other categories of members. They are temporary members, honorary members and lady members. They have the right to the privileges of the club, but they have no right of attending or participating in the general meeting of the club ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the participators in the surplus being satisfied. [See Municipal Mutual Insurance Ltd. v. Hills [ 1932 16 TC 430 (HL)]. It is true that no one can make a profit out of himself, but the application of this principle has to be judiciously done. In the words of S. R. Das J. in CIT v. Royal Western India Turf Club Limited [1953] 24 ITR 551 (SC), there is nothing per se to prevent a company from making a profit out Of its own members. Thus a railway company which earns profits by carrying passengers may also make a profit by carrying its shareholders or a trading company may make a profit out of its trading with its members besides the profit it makes from the general public which deals with it but that profit belongs to the members as sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be utilised by non-members as well, who would pay for them. Thus, the contributors were not only members but non-members as well. Thus, on these facts, it is difficult to hold that there was mutuality among the members and the club. As observed by the Supreme Court in CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241, " the essence of mutuality lies in the return of what one has contributed to a common fund, and if profits are distributed to shareholders as shareholders, the principle of mutuality is not satisfied ". In that view of the matter, on the facts of this case, it is difficult to hold that there is any scope for inducting the principle of mutuality. Learned counsel for the assessee placed reliance upon CIT v. Bankipur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple of the absence of trade or profit motive. The only use to which this case can be put by the assessee is that income from non-members only may be treated as subject to tax leaving out the income from sales to members. I have some difficulty in accepting this proposition. Once there is want of complete identity between contributors and participators, the principle of mutuality is lost. Once that is lost, the claim for exemption must fail. It is not necessary for me to consider the various decisions cited at the Bar. In my view, upon the facts placed on record by the assessee and upon the facts found, it is difficult to hold that there was mutuality between the assessee and its members. For the reasons stated above, the answer to the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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