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TMI Blog2019 (6) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... charges from M/s Reliance Industries Ltd. Taxability of service charges - part of rental income - HELD THAT:- From perusal of the service agreement we note that appellant was under no obligation to provide any service, facility or amenity to M/s Reliance Industries Ltd for earning service charges. Moreover we find that both the agreements were co-terminus and ran concurrently. It was expressly provided that the service agreement will remain valid so long as license agreement was in force. We therefore agree with the Ld. AR s submissions that both rent service charges were having the same character and both were being charged on per square feet basis without incurring any corresponding expenditure. Therefore, Ground No. 1 is dismissed and Ground No. 2 is partly allowed. Addition on account of letting out of property to M/s. Organon India Ltd. - HELD THAT:- From Note No. 23.1 of the annual audited accounts of the appellant, we find that the assessee had made a disclosure about institution of legal case against M/s Organon India Ltd for vacating the club premises occupied by them. It was clarified that amount of 5,80,879/- received till 31.03.2011 from M/s Organon India Ltd was shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er authorities were unjustified in considering the receipts by way of sponsorship fees / advertisement fees in isolation and without allowing the benefit of set off of the department wise expenses accounted in the books of the appellant. We also note that in all the past assessments as well as in the subsequent assessments the Revenue had allowed the benefit of netting off of receipts against expenses and only the net amount was considered for taxation purposes without allowing the benefit of mutuality principle. It was only in AY 2009-10 when the AO did not allow the benefit of netting off but on appeal this Tribunal in [ 2016 (12) TMI 1718 - ITAT KOLKATA`] allowed the deduction. Following the same, we direct the AO to allow the deduction for department-wise expenses against the sum received by way of sponsorship fees / advertisement fees - Ground No. 7 is therefore allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... l of mutuality. 4. Brief facts of the case are that the assessee is a company registered under Section 25 of the Companies Act, 1956 and which claims that its income is not taxable on the basis of the principle of mutuality, since its members are the contributors as well as users of the services rendered by the appellant-club and is therefore not a profit making body. In the assessment order the AO had considered the sum of ₹ 67,84,258/- & ₹ 47,95,163/- received on account of letting out of the property and service charges respectively from M/s. Reliance Industries Ltd. as income chargeable under the head 'Other Sources'. The AO was of the opinion that even though the rent was received from the corporate member of the appellant club yet the principle of mutuality was not applicable in respect of such receipts because the premises let out to the corporate member were used by it exclusively for carrying out its commercial operations and therefore the principle of mutuality could not be extended to use of the property by a corporate member for its business purposes. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the action of the AO. Aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (3) of the service agreement, the same was co-terminus with the license agreement under which the premises were given on rent to M/s Reliance Industries Ltd. He therefore submitted that since service charges was also paid at specified rate on per sq ft basis and there being no obligation on the appellant to render any service there against, in substance the amount was chargeable by way of rent and assessed under the head 'House Property'. He also drew our attention to the appellate orders of the coordinate Bench of this Tribunal in appellant's own case for AY 2008-09 in ITA No.1340/Kol/2012 in which this Tribunal had upheld the AO's order in which the combined receipts on account of rent & service charges totaling ₹ 78,49,798/- were held to be assessable under the head 'House property'. Per contra the Ld. DR strongly relied on the order of the lower authorities. He also drew our attention to the order of this Tribunal for the AY 2008-09 in which the coordinate bench of this Tribunal had rejected the appellant's claim for exclusion of rent and service charges income on the principle of mutuality. 6. Having considered the rival submissions of the parties, we note that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 2 is partly allowed. 8. Coming to ground no. 3 which is against the action of the Ld. CIT(A) in confirming the action of AO in assessing ₹ 3,27,676/- on account of letting out of property to M/s. Organon India Ltd. 9. Brief facts of the case are that the assessee had given on rent a portion of the premises to M/s. Organon India Ltd. The assessee had terminated the tenancy in 2008 and the assessee filed eviction suit in 2010 to evict this company. Though the said company has deposited an amount of ₹ 5,80,879/- till 31.03.2011 under the legal advice, this amount was shown as 'Liability' in the appellant's books. After 01.04.2011, the appellant did not accept any monies from M/s Organon India Limited as the appellant had instituted legal proceedings for its eviction. In the impugned order the AO noted that in the Notes on Account the assessee had received ₹ 5,80,879/- till 31.03.2011 which had been shown under the head 'Liability'. The receipt for the current year was not discussed in Notes on Accounts and therefore the AO opined that receipt of this amount was not disputed and no provision was created. Accordingly the AO made the addition of ₹ 3,27,676/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that ₹ 3,27,676/- was received from M/s Organon India Ltd during FY 2011-12. We also note that even though the assessee had instituted eviction suit against the tenant it continued to retain possession and did not pay any rent. In the circumstances notional annual value of the property was also not assessable as the property was not capable of being let on the ground of adverse possession. We therefore hold that the authorities were not justified in assessing ₹ 3,27,676/- under the head 'House Property'. Ground No. 3 therefore stands allowed. 12. Ground No. 4 was not pressed and is therefore dismissed. 13. Ground No. 5 is against the assessment of ₹ 3,03,324/- received from M/s. Sai Media Ventures P. Ltd. on account of hoarding rent under the head 'Business income'. Briefly stated facts are that according to AO, the assessee had received hoarding rent and assessee's claim for application of mutuality principle was rejected by the AO and he assessed the income under the head 'Business income'. On appeal, the Ld. CIT(A) upheld the AO's order. Aggrieved the appellant is now in appeal before us. 14. Assailing the order of the lower authorities, the Ld. AR subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oregoing therefore, the AO is directed to assess the hoarding rent of ₹ 3,03,324/- received from M/s. Sai Media Ventures P. Ltd under the head 'House Property'. Ground No. 5 therefore stands partly allowed. 16. Ground No. 6 of assessee's appeal is against the action of Ld. CIT(A) in confirming the action of AO in assessing commission of ₹ 13,76,606/- received from M/s Agarwal Merchandise on the ground that principle of mutuality was not applicable. 17. Brief facts of the issue are that the assessee has received ₹ 13,76,606/- from M/s Agarwal Merchandise Tie-up Pvt. Ltd. which runs a grocery shop within the club premises. According to AO, as per the agreement between assessee and M/s Agarwal Merchandise, the assessee received 5% out of the sale proceeds received by M/s Agarwal Merchandise. The assessee has claimed the said amount as exempt under the concept of mutuality. The AO did not accept the contention of the assessee and held that the concept of mutuality breaks down and since M/s. Agarwal Merchandise Tie-up Pvt. Ltd is operating with a profit motive and is pursuing an organized and systematic business activity in the premises of the assessee. The AO ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the appellant-club and principle of mutuality was rightly denied. 19. We have given our thoughtful consideration to the rival submissions and the facts involved in the present case. It is noted that in terms of the Memorandum of Association of the appellant-club, one of the objectives is to deal with the property of the company for selling & distributing stores. It is in pursuance of this objective that the appellant-club entered into an agreement with M/s. Agarwal Merchandise Tie-up Pvt. Ltd permitting it to run a grocery store in the club solely for the benefit and use of its members. Out of the total sale proceeds derived from the members, M/s. Agarwal Merchandise Tie-up Pvt. Ltd is required to pay 5% commission to the appellant-club which in turn is utilized by the appellant-club for the benefit of the members. One way to view this fact is that by this agreement the appellant enforces a discount of 5% on the sales made by M/s. Agarwal Merchandise Tie-up Pvt. Ltd to its members. This receipt of commission by the appellant is therefore an indirect receipt from the club members. It may be true that M/s. Agarwal Merchandise Tie-up Pvt. Ltd is operating the shop on commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the case of Bankipur Club Ltd. (supra) has held that (headnote) : "in the light of the findings of fact the receipts for the various facilities extended by the clubs to its members, as part of the usual privileges, advantages and conveniences, attached to the membership of the club, could not be said to be 'a trading activity'. The surplus-excess of receipts over the expenditure as a result of mutual arrangement, could not be said to be 'income' for the purpose of the Act"." 21. Keeping in view the facts as discussed in the foregoing and following the above cited decision of this Tribunal, we are therefore of the considered view that the commission received from M/s. Agarwal Merchandise Tie-up Pvt. Ltd out of the sales made by them to the club members was not chargeable to tax on the principle of mutuality. Accordingly the addition of ₹ 13,76,606/- is directed to be deleted. Ground No. 6 is therefore allowed. 22. Ground no. 7 of assessee's appeal is against the action of Ld. CIT(A) in confirming the action of AO in assessing gross receipts by way of sponsorship/advertisement of ₹ 77,90,076/- received from various parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar sponsorship fees / advertisement fees were received in the earlier as well as subsequent years, the Revenue had never denied the benefit of netting off of these receipts against the department-wise expenses. The Ld. AR also drew our attention to the assessment proceedings recently concluded for the AY 2016-17 in which the AO had allowed the benefit of netting off the sponsorship fees / advertisement fees against department-wise expenses and thereafter assessed the total income. Per contra the Ld. DR supported the orders of the lower authorities. 24. Having considered the submissions of the parties, we find merit in the submissions of the Ld. AR that the receipts by way of sponsorship fees / advertisement fees cannot be construed to be income in itself. What is chargeable to tax under the law is not gross receipt but the income embedded therein. In order to arrive at the income it is necessary to deduct the corresponding expenses incurred for earning the receipt. It is always the excess of receipt over corresponding expenditure which is considered as income for the purposes of levy of tax. In the case of the social organizations like clubs, events or festivals are organized ..... 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