2016 (12) TMI 1718 - AT - Income Tax

Nature of income - rental income - income under the head Income from house property or Income from other sources - Assessee received sum from M/s.Tapan Art Centre for allowing them to display their advertisement in the club premises of assessee - Held that - The income in question cannot be regarded as income from business. The income in question cannot be regarded as income from house property also because M/S.Tapan Art Centre was merely allowed to display advertisement board in and around the tennis court. U/s.22 what is chargeable to tax under the head Income from House Property is annual value of property consisting of any building or lands appurtenant thereto of which the Assessee is the owner. Since the right to display advertisement in the premises of the Assessee alone was given, the income in question has to be regarded only as income under the head Income from other sources . The AO is directed to tax the income in question accordingly and allow deductions permissible while computing deduction under the head Income from other sources . The ground of appeal of the Revenue is accordingly partly allowed. Rent from M/s.Reliance Industries Ltd., who was its member - income in question was claimed to be not taxable in the light of the principle of mutuality - Held that - Principle of mutuality will not apply in the circumstances of the case as explained by the Hon ble Supreme Court in the case of Bangalore Club (2013 (1) TMI 343 - SUPREME COURT). In view of the said decision, we are of the view that the income in question is taxable and under the head Income from House Property Interest on Fixed Deposit with Bank who also happens to be a member of the club - income in question was claimed to be not taxable in the light of the principle of mutuality - AO rejected the plea of the Assessee and taxed the income in question under the head Income from other sources - Held that - As already held that principle of mutuality will not apply in the circumstances of the case as explained by the Hon ble Supreme Court in the case of Bangalore Club (supra). In view of the said decision, we are of the view that the income in question is taxable and under the head Income from other sources . The AO is directed to tax the income in question accordingly and allow deductions permissible while computing deduction under the head Income from other sources . Gr.No.3 raised by the revenue is allowed. Sum received from various sponsors for various events that the club organizes on festivals and other occasions - Held that - The sum in question is taxable. However, as rightly submitted by the learned counsel for the Assessee, the sum in question has to be taxed under the head income from other sources and the Assessee should be allowed all expenses permissible as deduction while computing income under the said head of income. We hold and direct accordingly.

Summary

Issues involved:
1. Taxability of rental income under the head of business.
2. Taxability of rental income under the head of house property.
3. Taxability of interest income under the head of other sources based on the principle of mutuality.

Analysis:

Issue 1: Taxability of rental income under the head of business
The appellant, a company, received a sum for allowing advertisement boards in its club premises. The Assessing Officer (AO) treated this sum as taxable under "income from Business." However, the CIT(A) applied the principle of mutuality, stating that no profit can be made out of oneself. The Hon'ble Supreme Court in the case of Bangalore Club v/s. CIT held that interest earned on surplus funds invested in fixed deposits with corporate member banks is not exempt from Income Tax under mutuality. The Tribunal agreed that the income was not from business but from other sources, as the club was not engaged in systematic business activities. The income was directed to be taxed accordingly, allowing deductions under the head of "Income from other sources."

Issue 2: Taxability of rental income under the head of house property
The appellant received rent from a member and claimed it as exempt under mutuality. However, following the Bangalore Club case, the Tribunal held that the income was taxable under "Income from House Property" as the mutuality principle did not apply. The income was directed to be taxed under the appropriate head.

Issue 3: Taxability of interest income under the head of other sources based on the principle of mutuality
The appellant earned interest on fixed deposits with a bank, which was also a club member. The AO taxed this income under "Income from other sources," rejecting the mutuality claim. The CIT(A) supported the mutuality principle. However, following the Bangalore Club case, the Tribunal held the income as taxable under "Income from other sources," directing the AO to allow deductions while computing the tax liability.

The Tribunal partly allowed the Revenue's appeals for both assessment years, directing the AO to tax the incomes accordingly and allow deductions as permissible. The judgments were based on the application of the principle of mutuality and relevant legal precedents, ensuring the correct tax treatment of the incomes involved.