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TMI Blog2012 (12) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to ground No. 1, the ld. CIT(A) was unjustified in confirming the addition of Rs. 2,16,000/- on account of undisclosed rent. (3) Without prejudice to ground No. 1, the ld. CIT(A) was unjustified in confirming the addition of Rs. 3,50,000/- on account of transfer fee. (4) That the ld. CIT(A) was unjustified in holding, charging of interest u/s. 234A, 234B & 234C of the I.T. Act, 1961 by A.O. (5) That the order of the ld. CIT(A) is based on wrong appreciation of facts of the case and is bad in law. 2. The relevant material facts are like this. The assessee Institution was formed by the tenants of a building at 8/8, Alipur Road, Kolkata-700 027, owned by Belvedere Estate India Ltd. The assessee works for the common in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "income, profits or gains earned or "arising", "accruing" to a person". The question is whether in the case of Members' clubs - a species of mutual undertaking - in rendering various services to its members which result in a surplus, the club can be said to "have earned income or profits" In order to answer the question, it is necessary to have a background of the law relating to "Mutual trading" or "Mutual undertaking" and a "Members' Club". 7. In Halsbury Laws of England, 4th Edn. Reissue Vol. 23 paras 161 and 162 (pages 130 and 132), the relevant law is stated thus :- "Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and will in this respect have no dealings or rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of mutuality should exist it is essential that the profits should be capable of coming back at some time and in some form to the persons to whom the goods were sold or the services rendered..........." "It has been held that a company conducting a members' (and not a proprietary) club, the members of the company and of the club being identical, was not carrying on a trade or business or undertaking of a similar character for purposes of the former corporation profits tax. A members' club is assessable, however, in respect of profits derived from affording its facilities to non-members. Thus, in Carlisle and Silloth Golf Club v. Smith [1913 (3) K.B. 75], where a members' golf club admitted non-members to play on payment of green fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en moment of time the persons who are contributing are identical with the persons entitled to participate; it does not matter that the class may be diminished by persons going out of the scheme or increased by others coming in..... The doctrine now has application in three areas. First, it applies to mutual insurance companies; secondly, it applies to certain municipal undertakings and, thirdly, to members' clubs, and mutual associations generally, whether incorporated or unincorporated, except registered industrial and provident societies..........." (Emphasis, italicised in print, supplied) It should be noticed that in the case of "mutual society concern" (including a "Members' club"), there must be complete identity between the class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1185 at page 1189], thus : ".........Is the activity, on the one hand, a trade, or an adventure in the nature of trade, producing a profit, or is it, on the other, a mutual arrangement which, at most, gives rise to a surplus?" In substance, the arrangement or relationship between the club and its members should be of a non-trading character. 5. As far the references to section 28(iii), this can come into play only when there is an 'income' derived by the assessee, but as explained by Hon'ble Supreme Court, no income can arise in the case of mutuality. Section 28 deals with classification of an 'income', and not with the scope of expression 'income'. To decide the scope of 'income' in the light of section 28(iii) therefore will be putti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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