2024 (11) TMI 1369 - AT - Income Tax

Principle of Mutuality - Assessment of Club - whether case of the assessee is covered by the principle of mutuality ? - HELD THAT - As assessee club was established for non-profit motive and the club and its members were distinct/ distinguishable and they do not have right in any surplus, if generated by the assessee club and none of the activities of the club could be tainted with commerciality. Any reserve held by the club are also used for the purpose of furtherance of the activities of the club and cannot be used by any member for its own benefit. It is clear that activities of the Assessee are covered by principle of mutuality. Accordingly, the appeal of the department is hereby dismissed.

Summary

Issues:
1. Condonation of delay in filing appeal.
2. Addition of income under sections 14A and 69C.
3. Application of principle of mutuality in club activities.

Condonation of Delay:
The appeal by the revenue was challenged for being time-barred by 260 days. The jurisdictional Pr. CIT certified that the appeal was filed within the limitation date. The A/R did not object to condoning the delay, stating no delay existed. The Tribunal accepted the appeal, ruling no delay occurred.

Addition of Income:
The assessee, a club, filed its income tax return for AY 2017-18. The AO added Rs. 12,10,620 under section 14A and Rs. 3,11,15,451 under section 69C. The CIT(A) partially allowed the appeal, deleting the larger addition but confirming the section 14A addition. The revenue appealed, arguing the CIT(A) erred in deleting the section 69C addition.

Principle of Mutuality:
The key issue was whether the club's activities were covered by the principle of mutuality. The club's bylaws restricted services to members but also allowed services to non-members for a fee. The Tribunal referenced a Calcutta High Court judgment on mutuality, emphasizing that a club's income involving contributors and participants is not taxable. The Tribunal found the club's activities aligned with the principle of mutuality, dismissing the revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal based on the application of the principle of mutuality to the club's activities.