2023 (7) TMI 466 - HC - Income Tax

Taxability of rent receipts - Assessment of club revenue - Whether taxable under the head Income from house property ? - scope of principle of mutuality - HELD THAT - A club is an association of persons for certain objects and purposes. The concept of mutuality is that whenever money is being spent by a particular member is also being enjoyed by that person in the form of facilities. Members or a group of persons forming the association and the association are seen as a single identity. One cannot make an income out of any sum paid to oneself or spent on oneself. In charging a member for such utility the club should not make any profit. On that principle the income of the club involving contributors and participators is not taxable. Revenue contended that the space provided by the club was in the exclusive occupation of Reliance. It was not being used as a facility of the club. It was an independent transaction between the club and Reliance . Although Reliance may be a corporate member it had entered into a lease agreement with the club not in the capacity of a corporate member but an independent body. Now, these are questions of facts. These facts had to be established threadbare before any opinion on the substantial question of law could be expressed. On examination of the order of the Assessing Office, CIT (Appeal) and the tribunal we do not find any analysis of the facts, which would go to show whether the principle of mutuality was being maintained in the subject transaction between the club and Reliance. We find that in these orders that only conclusions are made with regard to the status and the transaction between the parties. For all these reasons, the part of the impugned order of the tribunal contained in paragraph 9 cannot stand and is hereby set aside. We remand the appeals to the tribunal to redecide the question taking into account all the disclosures of facts made before the adjudicating authorities. This remand is limited to the above issue only.

Summary

Issues involved:
The judgment involves the question of whether the sum received by the appellant/assessee on account of rent from Reliance Industries Limited is taxable under the head "Income from house property."

Summary:

Assessment Years 2008-09 to 2012-13:
The appellant, Saturday Club Limited, received rent from Reliance Industries Limited for occupying a portion of the club premises. The assessing officer taxed this rent under "Income from house property," but the Commissioner of Income Tax (Appeals) reversed this decision. However, the Income Tax Appellate Tribunal restored the decision of the assessing officer based on the principle of mutuality.

Principle of Mutuality:
The appellant argued that the club and Reliance should be treated as one entity, and any benefit enjoyed by Reliance should be considered as benefit enjoyed by all club members. On the other hand, the revenue contended that the space provided by the club was in the exclusive occupation of Reliance and not used as a facility of the club.

Decision and Remand:
The High Court found that the previous orders lacked a detailed analysis of facts regarding the maintenance of the principle of mutuality in the transaction between the club and Reliance. As a result, the part of the tribunal's order was set aside, and the appeals were remanded to redecide the issue considering all disclosed facts and relevant legal decisions within four months.

Conclusion:
The High Court remanded the appeals to the tribunal for a reevaluation of the taxability of the rent received from Reliance Industries Limited under the principle of mutuality, emphasizing the need for a detailed analysis of facts in reaching a reasoned decision.