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TMI Blog2008 (3) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of CIT?" 2. A few facts may be set out : 3. The relevant assessment year is 1992-1993. The respondent is governed by its rules and bye laws. Its members are described as Gymkhana Member, Corporate member, short term member all of whom are entitled to the advantages or privileges or membership of the club except that of being present or of voting at the General Meetings of the club or of serving on the General Committee and of proposing or seconding candidates for elections as members of the club. Apart from these members, there are life/founder/ordinary/super number members. The Assessing Officer pursuant to the return filed by the Assessee, assessed the total income at Rs.15,75,900/-. 4. In an appeal preferred by the Assessee, the Commissioner (Appeals) noting the two distinct kind of members, held that the first category of members who were not allowed to vote during the general body meeting were also not eligible to participate or share in the surplus of the club on its winding up and relying on the judgment of this court in CIT Vs. W.I.A.A Club Ltd. Mumbai, [1982]136 ITR 569 held that entrance fees and commutation of fees both has to be taken as revenue receipt dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine together and contribute to a common fund for the financing of some venture or object and will 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. Member's clubs are an example of a mutual undertaking; but, where a club extends facilities to non-members, to that extent the element of mutuality is wanting....." 7. The principle of mutuality, when the receipt by the club are exempt from taxation, based on a clause of mutuality has been succinctly stated by the Judicial Committee of the Privy Council in Fletcher Vs. Income Tax Commissioner (1971) 3 ALL ER 1985 at Page 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the clubs cannot be considered to be trading activity and the surplus/excess of receipts over the expenditure as a result of mutual agreement cannot be said to be "income" for the purpose of the Act. The Supreme Court thereafter relying on various English decisions held as under : "We understand these decisions to lay down the broad proposition - that, if the object of the assessee-company claiming to be a "mutual concern" or "club" is to carry on a particular business and money is realised both from the members and from non-members, for the same consideration by giving the same or similar facilities to all alike in respect of the one and the same business carried on by it, the dealings as a whole disclose the same profit-earning motive and are alike tainted with commerciality. In other words, the activity carried on by the assessee, in such cases, claiming to be a "mutual concern" or "members club" is a trade or an adventure in the nature of trade and transactions entered into with the members or non members alike is a trade/business/transaction and the resultant surplus is certainly profit income liable to tax..." 10. The court went on to observe that (page111): "" at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s extended by the club. The other part was a consolidated commuted payment in lieu of annual subscription. The court held that that part of the entrance fees which was a compounded payment for annual subscription would be income and the balance would be a capital receipt. In our opinion, considering the judgment of the Supreme Court in Bankipur [1997] 226 ITR 97 (supra) and the issue of mutuality which has been raised in the present appeal, the judgment in W.I.A.A. Club (supra) is clearly distinguishable. Even otherwise, in our opinion, it is doubtful whether it would be correct law considering the judgment in Bankipur (supra). 15. In Chelmsford Club Vs. Commissioner of Income Tax, [2000] 243 I.T.R. 89, the Supreme court observed that what is taxed is "income, profits or gains" earned or "arising", "accruing" to a "person". Where a number of persons come together and contribute to a common fund for the financing of some object and in this respect have no dealings or relations with any outside body, then any surplus returned to those persons can not be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these req ..... X X X X Extracts X X X X X X X X Extracts X X X X
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