1983 (10) TMI 110 - AT - Income Tax

Summary

Issues:
- Whether the income derived by a club from non-members is exempt from tax based on the principle of mutuality.
- Whether the receipts attributable to services rendered to non-member guests by a club are subject to tax.

Analysis:
1. The appeals were against the AAC's order for the assessment years 1978-79 and 1979-80. The assessee claimed its income as exempt from tax, arguing that even though it derived income from non-members, it was not taxable due to the mutual benefit of the club members. The ITO disagreed, stating that income from services to non-members had been taxed in previous years. The ITO relied on a Tribunal order directing tax on profits from business with outsiders. The AAC, following a Madras High Court decision, held that income from services to non-members is not taxable due to mutuality among club members.

2. The departmental representative argued that the AAC should have taxed income from services to non-members. The club, registered as a society, aimed to promote social interaction among members. The assessee contended that unless the club engaged in trade with profit motive, no income should be taxable. The Andhra Pradesh High Court held that club supplies to members were not for profit. The club argued that charges for guests were borne by members, maintaining the principle of mutuality.

3. The Madras High Court held that a members' club is not for profit-making and income from transactions with non-members may not be taxable if related to amenities for members. The Tribunal had not considered the contention that income from non-members should not be taxed in earlier years. Relying on the Madras High Court decision, the Tribunal upheld the AAC's order, exempting income from services to non-member guests based on the principle of mutuality.

4. The Tribunal dismissed the department's appeals, affirming the non-taxability of income from services to non-members.