9911796707
TMI Blog2023 (1) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 'the Act' hereinafter) against the order dated 09.08.2005 passed by the Income Tax Appellate Tribunal, Hyderabad Bench 'A', Hyderabad (briefly 'the Tribunal' hereinafter) in I.T.A.No.1135/Hyd/2004 for the assessment year 2001-2002. 3. We find that on 17.10.2005, this Court had admitted the appeal on the following substantial questions of law: 1. Whether the ITAT is justified in holding that the principal of mutuality does not apply with reference to transaction entered into by the assessee with the non-permanent and non-life members ? 2. Whether by virtue of the definition of member in the memorandum of association of the assessee read with Section 13 of A.P.(Telangana Area) Public Societies Registration Act, the non-permanent and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be availed of by the members. 7. In the assessment proceedings for the assessment year 2001-2002, assessing officer held that appellant would be entitled to exemption from income tax on the principle of mutuality only in respect of transactions entered into by the appellant with the permanent and life members. As a result, amounts received by the appellant under five different heads related to non-permanent and non-life members were included in the income of the appellant and assessed accordingly. 8. On appeal, first appellate authority i.e., Commissioner of Income Tax (Appeals) confirmed the finding of the assessing officer. 9. Thereafter, appellant preferred further appeal before the Tribunal. Tribunal noticed that non-permanent and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the appellant has also placed reliance on a decision of the Bombay High Court in CIT v. Willingdon Sports Club (2008) 302 ITR 279. 12. Learned Standing Counsel, Income Tax Department, however, has supported the order of the Tribunal. 13. As already noted above, question for consideration in this appeal is as to whether principle of mutuality would apply with reference to transactions entered into by an assessee with non-permanent and non-life members in the context of a club, facilities of which are availed of by all members. 14. Before we deal with this issue, we may first advert to the doctrine or principle of mutuality. 15. In CIT v. Bankipur Club Limited (1997) 5 SCC 394, the question considered by the Supreme Court was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utors and the participants in this sense. The principle postulates that what is contributed by a member. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities. A common feature of mutual organizations in general can be stated to be that the participants usually do not have property rights to their share in the common fund, nor can they sell their share. Cessation from membership would result in the loss of right to participate without receiving a financial benefit from the cessation of the membership. 17. Thus, it has been held that the doctrine of mutuality based on common law principles is premised on the theory that a person cannot make a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes that what is returned is contributed by a member. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities. A common feature of mutual organizations in general can be stated to be that the participants usually do not have property rights to their share in the common fund, nor can they sell their share. Cessation from membership would result in the loss of right to participate without receiving a financial benefit from the cessation of the membership. 19. As a matter of fact, we find that in the case of the appellant itself, in three assessment years one preceding the present assessment year and two succeeding the present assessment year, Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the asst. years are therefore, allowed. 20. In the aforesaid decision, Tribunal has held that even if there are non-permanent members, non-life members, temporary or honorary members, they are not entitled to vote or offer themselves as candidates for any elective office, or have no right of disposal over the surplus in case of dissolution of the club, the assessee would not cease to be governed by the principle of mutuality. Once an assessee is governed by the principle of mutuality, its income would not be construed to be an income within the meaning of the Act and liable to be taxed. 21. Following the above discussion, we are of the view that Tribunal was not justified in taking the view that the principle of mutuality would not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
