Calcutta High Court: In a case related to taxation of club income and the application of the principle of mutuality, a Division bench consisting of I.P. Mukerji and Biswaroop Chowdhury, JJ., held that the income of the club involving contributors and participators is not taxable.
Brief Facts
In the instant matter, the appellant-assessee, Saturday Club Ltd., received Rs. 78,49,798/- rent from Reliance Industries Ltd. for assessment year 2008-09 for occupation of a portion of the club premises. In several cases where the said income was brought under scrutiny for taxation under “Income from house property” and the assessing officer ruled that this rent receipt was to be taxed under the “Income from house property”. The Commissioner of Income Tax (CIT) in the appeal reversed the assessing officer’s decision. On a further appeal to the Income Tax Appellate Tribunal, the decision of the assessing officer was upheld. Aggrieved by the impugned orders passed by the Income Tax Appellate Tribunal, the appellants preferred the present appeals before this court under Section 260-A of the Income Tax Act, 1961 (the Act).
Moot Point
Whether the Tribunal was justified in law in holding that the rent received from Reliance Industries Ltd. was not governed by the principle of mutuality and was taxable under the Act?
Contentions
While relying on CIT v. Darjeeling Club Ltd., 1984 SCC OnLine Cal 261, the appellant contended that an association and its members form a single entity and therefore any surplus generated within the said entity is not profit but an accumulation of shared resources. On the other hand, the respondents contended that the principle of mutuality is not applicable in the present matter, as the rented space was in the exclusive occupation of Reliance Industries Ltd. and was not used as a club facility.
Court’s Observation
Explaining the concept of mutuality, the Court observed that “members or a group of persons forming the association and the association are seen as a single identity. One cannot make an income out of any sum paid to oneself or spent on oneself. In charging a member for such utility the club should not make any profit. In other words it does not make any income in excess of its expenditure. The transactions ought to have been for the benefit of all the members and also resulted in common facilities for the club.”
The Court observed that the members of the club are considered as contributors and participators both and the income of the club involving contributors and participators is not taxable.
In the light of the facts of the present case, the Court observed that there is no sufficient factual analysis to apply the principle of mutuality in the said transaction between the club and Reliance and the only thing that can be made out is “the status and the transaction between the parties.”
Court’s Verdict
The Court set aside the impugned order passed by the Tribunal and remanded back the present matter limited to the above-mentioned issue only to the Tribunal. The Court directed the Tribunal to re-decide the question considering all the disclosures of facts made before the adjudicating authorities and the authorities cited.
[Saturday Club Ltd. v. CIT, 2023 SCC OnLine Cal 1931, order dated 07-07-2023]
Advocates who appeared in this case :
Mr. R K. Murarka, Sr. Advocate, Ms. Sutapa Roy Choudhury and Ms. Aratrika Roy, Counsel for the Appellant;
Mr. Prithu Dudhoria and Mr. Soumen Bhattacharya, Counsel for the Respondents.
