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TMI Blog2003 (8) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... does not amount to carrying on of any commercial activity and hence it is not taxable on the principle of mutuality. We, therefore, allow this ground of the assessee. In the result all these appeals of the assessee are allowed. - Member(s) : J. SUDHAKAR REDDY., N. R. S. GANESAN. JUDGMENT: All these appeals are filed by the assessee directed against the separate orders of the CIT(A)-I (I/c), Hyderabad. As the issues arising in all these appeals are common, for the sake of convenience, they are heard together and disposed of by way of this common order. 2. The common ground for all these years is as below: "Whether the interest received by the assessee-club on fixed deposits with banks is not exigible to tax or not on the principle of mutuality". The other grounds that are taken in these appeals are: (1) Whether reopening of the assessments under s. 147 in valid in law. (2) Whether receipts from the members of the affiliated clubs is taxable or not on the doctrine of mutuality. (3) Whether the assessee-club can be assessed in the status of AOP under the Act. 3. For some of these assessment years, the ground of reopening was taken as an additional ground. In all the appeals, the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT vs. Cawnpore Club Ltd. (order dt. 5th Feb., 1998). He submitted that in the judgment in the case of CIT vs. Bankipur Club Ltd. (1997) 140 CTR (SC) 102 : (1997) 226 ITR 97 (SC), a mention was made about the Cawnpore Club Ltd. at p. 109 which states as follows: "With regard to the seven cases/appeals falling in group E, the assessee is Cawnpore Club Ltd. It is seen that the income that was sought to be assessed in the case of the assessee was one derived from property let out and also interest received from FDR, NSC, etc." He submitted that the Civil Appeal Numbers of Group E cases were given at p. 100 and that these cases were reposted and the Supreme Court held that interest income from FDR and NSCs of the Cawnpore Club are exempted from principle of mutuality. To substantiate his claim he filed copies of orders of the Tribunal and the corresponding reference application for the asst. yr. 1982-83 in ITA Nos. 2433/All/1990 (order dt. 23rd Sept., 1992) the RA Nos. being 413/All/ 1992 (CIT vs. Cawnpore Club Ltd.) connected with those civil appeals. He also filed copies of the judgment of the Supreme Court of India in the case of CIT vs. Cawnpore Club Ltd. He further relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Nizam Club vs. ITO (ITA No. 2499/Hyd/1987, dt. 15th Feb., 1991) and the judgment of the Gujarat High Court in the case of Sports Club of Gujarat Ltd. vs. CIT (1988) 67 CTR (Guj) 233 : (1988) 171 ITR 504 (Guj) and in the case of Rajpath Club Ltd. vs. CIT (1995) 211 ITR 379 (Guj) and argued that the judgments directly on the issue of taxability of bank interest were not brought to the notice of this Bench and were not considered. He further distinguished the judgments on facts by relying on the memorandum of association of this club vis-a-vis the other cases. He submitted that there was a loss in the transactions having dealings with outsiders and that there was a profit in the transactions having dealings with only members and that the loss on transactions having dealings with outsiders have to be set off against excess of income over expenditure on transactions with members only and that when so set off the income arising is mutual income which cannot be brought to tax. In the paper book filed he drew our attention to the details of estimate at p. 38 to demonstrate that there was excess expenditure over income on transactions having dealings with outsiders. 8. Coming to the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow. He relied on the judgment of the Supreme Court in the case of Manji Dana vs. CIT (1987) 60 ITR 582 (SC) and submitted that the question of status cannot be raised for the first time before the Tribunal. He argued that the explanatory note to the Finance Bill relied upon by the learned counsel for the assessee does not further his case for the reason that introduction of explanation is only for clarification of the existing law and for this proposition he relied on the judgment reported in (1997) 224 ITR 669 (sic). While submitting that the assessee is not divested of any vested rights and thus assessable as AOP. He alternatively contended that the assessments can be made in the status of artificial juristic person. 12. On the issue of reopening under s. 148, he argued that all the reopenings are made after 1st April, 1989 i.e., after amendment and that most of the assessments were made under s. 143(1) and hence reopening is legally valid. He relied on the ratio of the judgment of the Delhi High Court in the case of MTNL vs. Chairman, CBDT (2000) 162 CTR (Del) 554 : (2000) 246 ITR 173 (Del) as well as a judgment of the Madras High Court in the case of Sri Krishna Mahal vs. Asstt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore Club Ltd. in Civil Appeal Nos. 4777-78 of 1989, dt. 5th Feb., 1998. The judgment of the Supreme Court reads as under: "One of the questions which the High Court has decided in other cases relating to the same assessee is that the doctrine of mutuality applies and, therefore, the income earned by the assessee from the rooms let out to its members cannot be subjected to tax. No appeal has been filed against the said decision and the matters stand concluded as far as this assessee is concerned. This being so, no useful purpose would be served in proceeding with these appeals on the other questions when the respondent cannot be taxed because of the principle of mutuality. The appeals are accordingly dismissed." 15. Admittedly the Revenue has not filed appeals against the findings of the Hon ble High Court on the question of taxability of income earned by the assessee from the rooms let out to its members. In its order dt. 23rd Sept., 1992, in ITA No. 2433/All/1990 for the asst. yr. 1982-83 in the case of Cawnpore Club Ltd. at pp. 3 and 4, the Tribunal held as follows: "We notice that both the issues raised in this case, namely, income from residential chambers and interest and divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guj), and the Department had not challenged the correctness of those two decisions of the Gujarat High Court, the Revenue was bound by the principle laid down therein." Similar is the judgment of the apex Court in the case of Union of India Ors. vs. Kaumudini Narayan Dalal Anr. (2001) 168 CTR (SC) 3 : (2001) 249 ITR 219 (SC) wherein it is held as follows: "In Pradip Ramanlal Sheth vs. Union of India (1993) 113 CTR (Guj) 75 : (1993) 204 ITR 866 (Guj) the Gujarat High Court had decided, inter alia, that the appropriate authority had no power, authority or jurisdiction, in ascertaining the discounted value of the apparent consideration under s. 269UD of the IT Act, 1961, to deduct from the total amount of the consideration, any sum on the supposition that if the sale had taken place the seller would have been out of pocket to the extent of 50 per cent of the total registration fees and stamp duty, because he had agreed that these expenses would be shared equally between the seller and buyer. In a subsequent case relating to other parties the Gujarat High Court followed its earlier decision. The Department preferred an appeal to the Supreme Court from the later decision of the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it confines its money-lending activity only to its members and to no outsiders, has to be accepted. If that be so, it follows automatically that the interest received by the assessee is distributed among the members forming the association and thus the principle of mutuality governs." The Bombay Bench of the Tribunal in the case of Maharaja Wine Merchants Association (ITA Nos. 1135 1136/Bom/1993) held that interest income from fixed deposits out of surplus funds is incidental and does not amount to carrying on of commercial activity and thus exempt on the principle of mutuality. 18. In our considered opinion, placing of surplus funds with bank as per memorandum of association and bye-laws of the club does not tantamount to mutual concern having indulged in trading activity or carrying on of business and thus the income by way of interest earned is not tainted with commerciality. Evidently, this Bench of the Tribunal had no occasion to consider the judgment of the jurisdictional High Court and that of the Supreme Court as they have not been brought to its notice. Thus, respectfully following the judgment of the Hon ble Supreme Court in the case of CIT vs. Cawnpore Club Ltd. as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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