2013 (6) TMI 552 - AT - Income Tax

Income from other sources - amount received for the permit room area - Held that - It is a fact that the there are two amounts ie Rs 4.8 lakhs and Rs 2.4 lakhs received by the Club from the same contractor of course for specified uses of the facilities/premises of the club. It is admitted fact that the assessee originally offered general compensation of Rs. 2.4 lacs, which is now being claimed as exempt. Of course, the sum of Rs 4.8 lakhs is always claimed as exempt in the Return of income and the same is rejected by the AO/CIT(A). In any case, after admission of the additional ground, the basis of conclusion given in the impugned order becomes non existant and therefore, both the receipts ie Rs 4.8 lakhs and Rs 2.4 lakhs are open for fresh adjudication by the CIT(A). Now he has to adjudicate giving reasons as to how these receipts does not fall in the scope of the principles of mutuality . He needs to adopt the judgment in the case of Bangalore Club (2013 (1) TMI 343 - SUPREME COURT) and make use of the guidelines set by the Apex court for determining the true nature of the impugned receipts under question. Therefore the issues relating to taxability of permit room compensation of Rs. 4.8 lacs as well as the general compensation of Rs. 2.4 lacs should be set aside to the files of the CIT (A) for fresh adjudication - appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues:
1. Taxability of compensation received from contractor under the principle of mutuality.
2. Whether the net amount or gross amount is taxable under section 56 of the Income Tax Act.

Issue 1: Taxability of Compensation under Principle of Mutuality

The appellant contested the taxability of Rs. 4.8 lakhs as income from other sources, arguing that it was covered by the principle of mutuality. The appellant claimed that the compensation received benefited club members by reducing operational costs and providing services at subsidized rates. The CIT (A) dismissed the appeal, stating that the contractor was not a club member, thus outside the scope of mutuality. The appellant also raised additional grounds related to the taxability of Rs. 2.4 lakhs, claiming it was exempt under mutuality. The Tribunal admitted the additional grounds for consideration. The Tribunal found that both amounts, Rs. 4.8 lakhs and Rs. 2.4 lakhs, required fresh adjudication by the CIT (A) based on the principles of mutuality, citing the Bangalore Club case and emphasizing the need for differential treatment in their taxability.

Issue 2: Taxation of Net or Gross Amount under Section 56

The appellant argued that only the net income should be taxable under section 56 of the Act, not the gross receipts. The Tribunal noted that the CIT (A) did not address this issue, as it was raised for the first time before them. Consequently, the Tribunal set aside both the taxability of the permit room compensation of Rs. 4.8 lakhs and the general compensation of Rs. 2.4 lakhs to be reconsidered by the CIT (A) for fresh adjudication, ensuring the principles of natural justice were followed. The Tribunal partially allowed the appeal for statistical purposes.

In conclusion, the judgment highlighted the complexities surrounding the taxability of compensation received under the principle of mutuality and the distinction between taxing net or gross amounts under the Income Tax Act. The Tribunal emphasized the need for a fresh adjudication by the CIT (A) based on legal principles and guidelines set by the Supreme Court, ensuring a fair and just decision-making process.