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TMI Blog2000 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... he Allahabad High Court in the case of CIT v. Wheeler Club Ltd. [1963] 49 ITR 52 and some observations of the Delhi High Court in the case of CIT v. Delhi Gymkhana Club Ltd. [1985] 155 ITR 373, answered the question in the negative and in favour of the Department. Against the said judgment of the High Court dated November 11, 1992 (see [1993] 200 ITR 493), the appellant has preferred these appeals. On behalf of the appellant, it is contended before us that though the appellant is registered as a company under the Companies Act, its business is governed by the principle of mutuality, therefore, the income, if any, earned by the appellant is outside the scope of the Income-tax Act. This is based on a principle that it is the only income which comes within the definition of section 2(24) of the Act, that could be taxed and this definition generally excludes the income from business involving the doctrine of mutuality, except the business that is included specifically in sub-clause (vii) of that section. The appellant contends that its business admittedly does not come under that clause, hence, any income earned by the appellant is not exigible to income-tax. The appellant relies on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase [1963] 49 ITR 52 wherein a Division Bench of that court held with reference to the business of a club as follows : ". . . liability to pay income-tax arises from the mere fact of his owning the property having an annual letting value and not from his actually deriving any income from it. Even if he does not derive any income from it, as, for example, when he occupies it himself or lets it remain vacant, he is liable to pay tax.... Section 9 does not exempt any income from a house except income from a house occupied for carrying on a business or profession. The assessee is not carrying on any business or profession in the quarters ; therefore, the income from them is not exempted by anything contained in section 9. There is no provision, and there is no law, which exempts from assessment income from house property on the sole ground that the contributor of the income and the recipient are one and the same person. On the other hand, the fact that under the law an owner is liable to pay income-tax on the annual letting value even if he himself occupies the house, shows that the principle of mutuality does not apply in a case governed by section 9. Naturally, when the basis for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry can impose a tax only on income and not under any other head. There is also no dispute that the Income-tax Act of 1961 is a law made under this entry. Hence, it is futile to contend that the levy of tax under section 22 of the Act is a tax levied on property and not on income from property. This view of ours further finds support from a reading of section 4 of the Act which is the charging section. This section unequivocally shows that the levy is on income, A conjoint reading of sections 2(24), 14, 22 and 23 of the Act also makes it abundantly clear that what is being taxed under section 22 is the "deemed income" of an assessee from the property owned by him. At any rate, this question is no more res integra in view of the judgment of this court in Bhagwan Dass Jain's case [1981] 128 ITR 315, where this court had an occasion to deal with this question where the levy of tax on income from house property came to be challenged on the ground of want of legislative competence. Negativing the contention raised therein and rejecting the challenge, the court held that what is being taxed under section 22 of the Act is, in fact, income and not the property. This court after elaboratel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of this court in the case of Royal Western India Turf Club Ltd. [1953] 24 ITR 551, the Revenue contends that for the doctrine of mutuality to be applicable, there should be a clear identity between the contributors and the participators to the fund and the recipients thereof respectively, which, according to the Revenue, is lacking in the case of the appellant. A perusal of section 2(24) shows that the Act recognises the principle of mutuality and has excluded all businesses involving such principle from the purview of the Act, except those mentioned in clause (vii) of that section. It is also an admitted fact that the business of the appellant does not come within the scope of business referred to in section 2(24)(vii). This court in the case of Royal Western India Turf Club Ltd. [1953] 24 ITR 551, on the facts came to the conclusion that the club in that case had kept open its business not only to its members but also to outsiders who would participate in the club's business on payment which income from the outsiders would go to the same kitty as that of the members, consequently, the identity between the contributors and the recipients was lost. Therefore, this court held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot be said that incorporation which brings into being a legal entity separate from its constituent members is to be disregarded always and that the legal entity can never make a profit out of its own members. What kinds of business other than mutual insurance may claim exemption from tax liability under section 10(1) of the Act under the principles of Styles' case [18891 2 TC 460 (HL) need not be here considered ; it is clear to us that those principles cannot apply to an incorporated company which carries on the business of horse racing and realises money both from the members and from non-members for the same consideration, namely, by the giving of the same or similar facilities to all alike in course of one and the same business carried on by it." From the above extract of the judgment, it is crystal clear that the law recognises the principle of mutuality excluding the levy of income-tax from the income of such business to- which the above principle is applicable. In the above case, this court quoted with approval the three conditions stipulated by the judicial Committee in the case of English and Scottish Joint Co-operative Wholesale Society Ltd. v. Commr. of Agrl. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oo temporary accommodation. The arrangement was essentially for the benefit of the members. Following the decision rendered by the Appellate Tribunal, Bombay Bench-A, for the assessment years 1974-75 and 1976-77 rendered in I. T. As Nos. 1730 and 1913/ (Bombay) of 1980, the Appellate Tribunal held that no portion of the club house, Patiala Pavilion, etc., is let out to strangers and that these portions are let out only to the members and so, even if any income had actually accrued due from the members on the above counts, it will not be taxable on the principle of mutuality. In the application filed under section 256(2) of the Act, the High Court declined to refer the question of law posed by the Revenue to the effect, 'whether the Appellate Tribunal was justified in law in holding that the income from the property held by the assessee could not be brought to charge under the provisions of sections 22 to 26 of the Act ?'The decision was followed for the assessment year 1978-79-C. A. No. 10194 of 1995 and the High Court declined to refer any question of law for this year as well. In fact, for both the years, the decision of the Appellate Tribunal to the effect that the income receiv ..... 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