2013 (2) TMI 500 - AT - Income Tax

Principles of mutuality Whether member will include guests and relatives of the members and members of the affiliated clubs - Held that - Principles of mutuality are available to the assessee on the aspect of treating the income derived by the assessee as exempt from tax. For the purpose that the term member includes guests and relatives of the members and members of the affiliated clubs etc As decided in Bhubaneswar Club Limited 2006 (8) TMI 237 - ITAT CUTTACK concept of member is spacious enough to include guests and relatives of the members and members of affiliated clubs and if it is so, then in the case of the assessee the income derived by letting out its premises or by allowing the guests and relatives of the members and members of affiliated clubs will not be subjected to tax The services offered to the guests, relatives and affiliated clubs cannot be treated as trading activity and cannot be tainted with commerciality Against the revenue. Interest on deposits and investments - Whether interest on deposits and investments will form part of the taxable income - Held that - Interest earned by the assessee out of the bank deposits and investments made by the assessee out of out of surplus contributions made by its members, is also covered under the principles of mutuality and as such - Mutuality offers a tax exemption as long as its mutual association is retained and its income is not tainted by commerciality - As held in Chelmsford Club vs. CIT 2000 (3) TMI 4 - SUPREME COURT principles of mutuality applies to interest income derived by the assessee-co-operative society from the deposits made by it out of the contributions made by the members of society Therefore, Once the income is found to be covered by principle of mutuality, the same cannot be brought to tax even under the provisions of s. 115JB In favour of assessee.

Issues:
- Department's appeal on exemption to the assessee based on mutuality
- Department's appeal on the concept of "member" including guests and relatives
- Department's appeal on rejection of accounts shown by the assessee
- Assessee's appeal against the order of the Commissioner of Income Tax
- Taxability of interest on deposits and investments made by the assessee Club

Department's Appeal on Mutuality:
The Department challenged the CIT(A)'s decision to allow exemption to the assessee based on the principle of mutuality. The ITAT, Cuttack Bench referred to previous orders and held that the concept of "member" includes guests, relatives, and members of affiliated clubs. The Tribunal concluded that income derived by the assessee through various activities was not taxable, as they were not commercial in nature and fell under the principle of mutuality. The Department's appeal on this issue was dismissed.

Department's Appeal on Rejection of Accounts:
The Department also contested the CIT(A)'s ruling that defects in the accounts pointed out by the Assessing Officer were not sufficient to reject the assessee's books of accounts. The ITAT upheld the CIT(A)'s decision, noting that previous orders and principles of mutuality supported the assessee's position. The Department's appeal on this issue was deemed devoid of merits.

Assessee's Appeal on Taxability of Interest:
The assessee raised concerns regarding the taxability of interest earned on deposits and investments made by the club. The ITAT considered decisions by the Delhi High Court and ITAT, Delhi Bench, which supported the assessee's argument that such income falls under the principle of mutuality. The Tribunal ruled in favor of the assessee, directing the Assessing Officer accordingly. As a result, the Department's appeal was dismissed, and the assessee's appeal was allowed.

In conclusion, the ITAT, Cuttack Bench dismissed the Department's appeals on mutuality and rejection of accounts, while allowing the assessee's appeal on the taxability of interest on deposits and investments. The judgment emphasized the application of the principle of mutuality in determining the tax treatment of income derived by the assessee club, based on previous orders and legal precedents cited during the proceedings.

← Previous Next →