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TMI Blog1983 (12) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... operty'. He held section 22 of the Income-tax Act, 1961 ('the Act'), was applicable and since the assessee was the owner of the property, the income derived from outsiders by letting out the property was clearly taxable. He also stated that the plea of mutuality was unacceptable in any event because the rent was received from a third party, viz., Indian Airlines Corporation. After allowing, deduction of municipal taxes and statutory deduction on account of repairs, the ITO brought to tax net property income of Rs. 63,153. 3. Another amount brought to tax was Rs. 12,138 under the head 'guest fees'. So also, income attributable to guests from the canteen, bar, etc., taking the same at 8 per cent of overall income, was brought to tax. This came to Rs. 9,360. The aggregate of the amounts of Rs. 12,138 and Rs. 9,360, i.e., Rs. 21,498, was taxed under the head 'Profits and gains of business or profession'. 4. Apart from this, the ITO stated that the income and expenditure account showed receipts from furniture hire of Rs. 14,513. In the absence of a claim for depreciation and in the absence of details of the value of furniture, etc., hired out, the gross receipts from this source wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essable to tax. The AAC also stated that even in the case of Presidency Club Ltd., it was held that where a person carries on a business or commercial activity, there could be no exemption from tax even where the person carrying on such activity was a club. The AAC emphasized that the premises in the present case was let out to Indian Airlines Corporation not for any temporary user, and such letting out was to a third party and not to members or their guests, and the transaction clearly partook the nature of a commercial activity for which there was a regular lease agreement. In view of this and having regard to the ratio of the decision such as in the case of CIT v. Madras Race Club [1976] 105 ITR 433 (Mad.), Carlisle Silloth Golf Club v. Smith (Surveyor of Taxes) [1913] 6 TC 198 (CA) and National Association of Local Government Officers v. Watkins (Inspector of Taxes) [1934] 18 TC 499 (KB), the AAC was of the view that the rental income received in the present case was taxable. In particular he pointed out that the income was not referable to any amenity provided for the members by themselves, that the property was let out to a third party which was not connected in any way wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by a club, whether exclusively with its members or non-members, there could be no assessable income. 8. The learned departmental representative in his turn also sought to derive support from the decision of the Andhra Pradesh High Court in the case of Merchant Navy Club and submitted that the real test was to see whether there was a commercial venture and as long as there was surplus from the commercial venture, such surplus had to be taxed. Another contention put forth by him was that in the present case the club was the legal owner of the property and, therefore, in terms of section 22 the income derived by letting out the property was clearly taxable, since the assessee was the owner of the property. On this point alone, he submitted, the inclusion of the property income had to be upheld. 9. The learned counsel for the assessee in reply contended that it was the members of the club who were the owners of the property and he reiterated there was only return for investments and since the members were the owners, the question of assessing the club did not arise. 10. We have considered the rival submissions. The club was situated on a plot and the managing committee consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. What is required is that the members as a class should contribute to the common fund and participators as a class must be able to participate in the surplus. It is immaterial whether the surplus is paid back to the members in cash or is put to reserve with the club for its development and for providing better amenities to its members. When the body of individuals is incorporated into a company or formed into a registered society, what is essential is that it should not have dealings with an outside body which resulted in surplus. The participation of the members in the surplus must be in their character as contributors to the common fund or as consumers and not as shareholders getting dividends on their share amount or as debenture holders earning interest. In all cases of incorporation as a company or as a registered society, the proper mode of regarding the company or the registered society is that it is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial venture. We are of the view that there would be trade when the returns from such commercial venture is received from an outside body and the principle of mutuality would come to an end. 11. In the present case, the idea originally was to construct a number if shops. This idea no doubt was later abandoned and the learned counsel for the assessee emphasised that we should not decide the case on any hypothetical assumption, namely, as to what would have been the position had a shopping complex been constructed when in effect no such complex was constructed. We agree that our decision should not be influenced by any hypothetical consideration but how the object of constructing a building and leasing out it to Indian Airlines Corporation came to be evolved and eventually fructified is relevant for deciding whether the club had undertaken any commercial venture or not. The club had examined in detail how the land could be exploited in order to secure best returns to improve the resources of the club. The fact that eventually only one building was constructed instead of several cannot detract from the conclusion that the venture undertaken in the present case was purely a commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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