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TMI Blog1987 (10) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... hts and privileges to subscribers ....... (m) To hire and employ secretaries, clerks, managers, coaches, professionals, umpires, scorers, referees, servants and workmen and pay them and other persons in return for services rendered to the club, Salaries, wages, bonus, gratuities and pensions. (o) To invest and deal with moneys of the club not immediately required in such manner as may from time to time be determined." The other relevant clauses referred to in the course of proceedings before the tax authorities below are clauses (4), (6) and (7) which read as under: " (4) The income and property of the club, wheresoever derived, shall be applied solely towards the promotion of the objects set forth herein and no portion thereof shall be paid by way of dividend, bonus or profits to any of the members, provided that nothing herein contained shall prevent the payment in good faith of remuneration or fees to members for services actually rendered to the club. (6) Every member of the club undertakes or guarantees to contribute to the assets of the club, in the event of the same being wound up during the time he is a member or within one year afterwards, for payment of the debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rest of the income exempt from tax on the ground of mutuality. Thereupon, he directed the Income-tax Officer to determine the income from non-members and bring the same to tax. Next, the Appellate Assistant Commissioner examined the question of taxability of income from interest on fixed deposits and held that the income was taxable subject to deduction of deficiency from the interest income and computed the taxable income of the assessee. The result of this view taken by the Appellate Assistant Commissioner was that the assessments for the years 1968-69 and 1969-70 were required to be enhanced while the appeals in respect of the assessment years 1966-67 and 1967-78 had to be partly allowed. Both the Revenue and the assessee were dissatisfied with the order passed by the Appellate Assistant Commissioner. Both approached the Income-tax Appellate Tribunal in appeal. The Tribunal, after formulating the points for determination, examined the question of mutuality in the light of certain decisions, namely, New York Life Insurance Company v. Styles [1889] 2 TC 460 (HL); CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 (SC); CIT v. Kumbakonam Mutual Benefit Fund [1964] 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m normal club activities and as such the expenditure incurred on the club activities was not deductible from interest income ? " Generally speaking, when a mutual concern has surplus income, it cannot be considered as income under the Act, for no man can make profit out of himself. One of the essentials of the concept of mutuality is that the contributors to the common fund are entitled to participate in the surplus thereby creating an identity between the participants and the contributors. Styles [1889] 2 TC 460(HL) is a leading case on the subject which shows that when there is complete identity between the participators and the contributors, the surplus cannot be regarded as profits. " The cardinal requirement is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund ; in other words, there must be complete identity between the contributors and the participators " observed Lord Macmillan in Municipal Mutual Insurance Ltd. v. Hills [1932] 16 TC 430, 448 (HL). The Andhra Pradesh High Court in the case of Merchant Navy Club [1974] 96 ITR 261 (AP) approved and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Tribunal which was seriously questioned before us by counsel for the assessee. The object of the Act is to tax " income ". Section 2(24) defines income ". It is an inclusive definition and not an exhaustive one. Clause (vii) thereof expressly includes profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society. It is in the nature of an exception to the general rule of mutuality. Next, under clause (v) of section 2(24), any sum chargeable under section 28(iii) is deemed to be income. Thus, income derived from a trade, professional or similar association from specific services performed for its members is chargeable under the head " Profits or gains ". The idea clearly is to tax the surplus arising from services rendered by such associations to its members which would otherwise have been outside the tax net. However, since a social club like the assessee is not a trade, professional or similar association referred to in section 28(iii), this clause can have no application. In fact, it was not argued by counsel for the assessee that the assessee answers the description of an association referred to in section 28( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot accept this submission made by the assessee's counsel. As pointed out earlier, section 44A which begins with a non obstante clause applies to any trade, professional or similar association and but for the use of the words " other than an association or institution referred to in clause (23A) of section 10 ", even the professional associations referred to in section 10(23A) would have derived the advantage of section 44A. It is, therefore, clear that the said expression is used so as to carve out the professional associations referred to in section 10(23A) from the term " professional association " employed in section 44A of the Act. In other words, the intention of the Legislature was to give the benefit of section 44A to all professional associations other than those referred to in section 10(23A) of the Act. We are, therefore, of the view that the said expression has the effect of merely limiting the body of professional associations to associations other than those mentioned in section 10(23A) of the Act. They are, therefore, clearly words of limitation not intended to enlarge the scope of the expression " similar association " beyond its meaning in section 28(iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of a plough back of their own contributions by way of fees, etc., to the club. An association which receives such income can be said to be indulging in both mutual activity as well as non-mutual activity. That is why in CIT v. Madras Race Club [1976] 105 ITR 433 (Mad), it was observed that the application of the principle of mutuality is not destroyed by the presence of transactions which are non-mutual in character. The principle of mutuality can in such cases be confined to transactions with members. The two activities can in appropriate cases be separated and the profits derived from non-members can be brought to tax. In Carlisle and Silloth Golf Club v. Smith [1912] 6 TC 48 (KB), the golf club in question which was admittedly a bona fide members' club was bound, under a clause in its lease, to admit non-members to play on its course on payment of green fees to be fixed by the lessors but not to be below a minimum fixed in the lease. It was held that the club, for the purpose of income-tax was carrying on a concern or business which was capable of being isolated and defined and in respect of which it received remuneration which was assessable. This view was affirmed by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt of the facts of the case. There a company was incorporated as a company limited by guarantee. Its main object was to promote social intercourse between gentlemen connected (directy or indirectly) with literature, art, music, drama, scientific and liberal professions, sports and commerce and with a view thereto to establish, maintain, and conduct a club of a non-political character for the accommodation of members of the club and their friends, and to provide a club house and other conveniences, and generally to afford to members and their friends all the usual privileges, advantages, convenience and accommodation of a club. Incidentally, certain other things which are usually done by social clubs, for example, buying, preparing and selling of provisions, was included in the memorandum. The income and property of the club were to be applied towards promotion of the objects of the club as set out above. All the members of the company were members of the club. No payment for provisions supplied in the club were taken from any person who was not a member thereof. In this background, the question arose whether the profits could be charged to tax and it is in this context that the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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