TMI Blog2008 (3) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... ommuted value of subscription for the life members has to be taxed or treated as capital receipts in the light of the decision of the Hon'ble Bombay High Court in CIT Vs. WIAA Club reported in 136 ITR 569? (c) Whether the Hon'ble Tribunal was right in holding that the Assessment orders for Assessment Years 1992-93 and 193-94 are not erroneous and not prejudicial to the interest of the Revenue so as to call for invocation of jurisdiction u/sec. 263 at the hands 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty is concerned, the Revenue has not raised any question of law. The Learned tribunal basically relied on various judgments. There is however, a specific finding that the principle of mutuality applies and the entrance fees received by the Assessee is capital receipt not chargeable to tax. The principle of mutuality has been accepted in our jurisprudence. The principle can be summed up from Halsbury's Laws of England , Fourth edition, Reissue Volume 23: "Where a number of persons combine 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the 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 was further recorded that 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. The services offered were not done with any profit motive and were not tainted with commerciality. In view of these findings the court held that the activity 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay annual subscription. The club was extending similar facilities both to ordinary and life members. The issue of mutuality was neither argued nor raised or was in issue before the learned Bench of this Court. It is on the facts there and without considering the principle of mutuality that the learned Bench proceeded to hold that the amount paid by the members had two elements in it. The part of the amount paid as entrance fees which were paid to the club with a view to acquiring the right to avail of the services and facilities 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 Che ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
