2021 (1) TMI 677 - AT - Income Tax

Assessment of Club as an association of person - principles of mutuality and taxation of revenue generated from non-voting associate members - assessee has claimed that the entrance fee collected from non-members is exempt from taxation - As per revenue entrance fees collected from members having no voting rights will be under the head income from business - claim of the assessee that the assessee company is an association of persons coming together for the benefit of all the participants because of which the activities falls under the principle of mutuality and therefore the surplus if any earned by the company is not chargeable to tax - HELD THAT - As relying on CIT v. Willingdon Sports Club 2008 (3) TMI 134 - BOMBAY HIGH COURT in which the judgement of the Hon ble Supreme Court in the case of Chelmsford Club v. CIT 2000 (3) TMI 4 - SUPREME COURT has been applied and referred the decision in the case of CIT v. Bankipur Club Ltd. 1997 (5) TMI 392 - SUPREME COURT . Thus, respectfully following the above judgements of the Hon ble Supreme Court, we set aside the orders of authorities below and direct the Assessing Officer to delete the addition made in both the assessment years. Addition under the head income from other sources being surplus income over expenditure as well as interest income - HELD THAT - Respectfully following the above decision of the Hon ble Supreme Court in the case of Bangalore Club v. CIT 2013 (1) TMI 343 - SUPREME COURT we dismiss the ground raised by the assessee towards the claim of exemption towards surplus income over expenditure as well as interest income for the assessment year 2013-14 as well as claim of loss being the expenditure over income under the head income from other sources for the assessment year 2015-16.

Issues Involved:

1. Taxability of entrance fees collected from non-members.
2. Taxability of surplus income over expenditure.
3. Taxability of interest income.
4. Claim of loss being expenditure over income.

Detailed Analysis:

1. Taxability of Entrance Fees Collected from Non-Members:

The main issue was whether the entrance fees collected from non-members are taxable. The assessee, an association of persons classified as a company under Section 25 of the Companies Act, claimed that the entrance fees from non-members are exempt under the principle of mutuality. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, citing the Supreme Court's decision in Citizen Co-operative Limited v. ACIT, which redefined mutuality and taxation of revenue from non-voting associate members. However, the Tribunal found that the assessee fulfilled the conditions for mutuality as per the main objects and rules of its bye-laws, and thus, the principle of mutuality applied. The Tribunal set aside the additions made by the AO for both assessment years.

2. Taxability of Surplus Income Over Expenditure:

For the assessment year 2013-14, the assessee disputed the addition of ?2,30,727 being surplus income over expenditure. The Tribunal, assuming higher appellate jurisdiction, adjudicated the issue on merits. The Departmental Representative (DR) argued that the issue is covered against the assessee by the Supreme Court's decision in Bangalore Club v. CIT, which held that surplus income itself is exempt under mutuality but interest income from banks is taxable. The Tribunal dismissed the assessee's claim of exemption for surplus income over expenditure, following the Supreme Court's decision.

3. Taxability of Interest Income:

The assessee also disputed the addition of ?37,66,492 as interest income under the head "income from other sources" for the assessment year 2013-14. The Tribunal, referencing the Supreme Court's decision in Bangalore Club v. CIT, held that interest earned from banks does not fall within the principle of mutuality and is therefore taxable. The Tribunal dismissed the assessee's claim of exemption for interest income.

4. Claim of Loss Being Expenditure Over Income:

For the assessment year 2015-16, the assessee claimed a loss being expenditure over income under the head "income from other sources." The Tribunal, again referencing the Supreme Court's decision in Bangalore Club v. CIT, dismissed the assessee's claim, holding that the principle of mutuality does not apply to interest income from banks, and thus, the loss claimed under this head is not allowable.

Conclusion:

The Tribunal partly allowed the appeals filed by the assessee. It directed the AO to delete the addition of entrance fees collected from non-members, recognizing the principle of mutuality. However, it dismissed the claims related to surplus income over expenditure, interest income, and loss being expenditure over income, following the Supreme Court's decision in Bangalore Club v. CIT. The order was pronounced on January 6, 2021, at Chennai.

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