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TMI Blog2022 (7) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... ers - Scope of principle of mutuality - HELD THAT:- In view of the recent decision of Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited, [ 2021 (1) TMI 488 - SUPREME COURT] and the decision of Hon ble Supreme Court in the case of Bankipur Club Ltd. [ 1997 (5) TMI 392 - SUPREME COURT] we are of the view that the assessee is entitled for claim of principle of mutuality in regard to entrance fee received from non-voting members. Hence, we allow this issue of assessee s appeal. TDS u/s 194J - telecast expenses as Host Club expenses - disallowance of reimbursement of expenses for non-deduction of TDS u/s.194J by invoking the provisions of section 40(a)(ia) - HELD THAT:- We noted that the AO as well as the CIT(A) was of the view that the explanation of reimbursement cannot be accepted and according to them, the full facts of the telecast charges incurred by Hyderabad Race Club not being on record and the profit element in the reimbursement made by Hyderabad Race Club cannot be ruled out. According to AO as well as the CIT(A), the assessee has to deduct TDS u/s.194J of the Act and therefore, the disallowance was made u/s.40(a)(ia) of the Act. We note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or DR admitted that the facts and circumstances are identical and the issue is exactly identical, hence, we are taking up ITA No.501/Chny/2018 for AY 2012-13 and will decide the issue. The relevant ground raised which are identical in all the three appeals and ground raised in AY 2012-13 read as under:- 1.1 The CIT(A) erred in confirming the disallowance of horse transportation charges of Rs.30,00,000/- 1.2 The CIT(A) erred in not considering that the charges were in effect reimbursement of expenses paid by the horse owners for the transportation and the subsidy for each horse which is an allowable business expenditure. 1.3 The CIT(A) erred in categorizing race horses as livestock and including them within the definition of Goods u/s.194C of the Act. 3. Brief facts are that the assessee company Madras Race Club is engaged in conducting horse racing and club activities. The AO during the course of assessment proceedings noted the horse transportation expenses claimed by assessee to the sum of Rs.30,00,000/- i.e., Rs.15,00,000/- on 01.04.2011 and another Rs.15,00,000/- on 30.04.2011 in two tranches of Rs.7.5 lakhs each. The AO noted that the assessee passed these entrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses are paid to the real horse owners as subsidy and for the genuine business purpose of the assessee and also payment made by cheque, which is proved by filing documentary evidences like journal entry giving cheque Nos. etc., The CIT(A) was convinced with the explanation of the assessee as far as genuineness of transactions as well as the nature of business expenses incurred and according to him, the charges is for business but he has not recorded this fact. But, for confirming the action of the AO, the CIT(A) changed the stand and according to him, since transportation of horses which is included in the activities covered in the section 194C of the Act and assessee is obliged to deduct TDS, which is pre-requisite for claim of expenses. Accordingly, by invoking the provisions of section 40(a)(ia) of the Act, he upheld the disallowance. Aggrieved, assessee is in appeal before the Tribunal. 5. Before us, the ld.counsel for the assessee apart from the above arguments as made before CIT(A) argued that entire racing activity has been offered to tax and the transport subsidy given to horse owners to promote horse racing activity is allowable as business expenditure and these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, we set aside the order passed by the Ld. CIT(A) on this issue and direct the A.O. to delete the disallowance. 6. On the other hand, the ld.Senior DR Shri AR. V. Sreenivasan relied on the assessment order and the order of CIT(A). He only made request that matter can be referred back to the file of the AO to examine whether the recipient have disclosed the income in their respective returns or not. 7. We have heard rival contentions and gone through facts and circumstance of the case. We noted that the CIT(A) has not doubted the genuineness of the business expenditure and that these expenses are for the purpose of business and that has become final. Even, Revenue has not challenged the same. Now, only dispute remains is whether this transport subsidy or horse transportation charges are liable to TDS u/s.194C or not. We noted that these payments in the name of horse transportation charges or transport subsidy provided to horse owners by the assessee is nothing but reimbursement on account of fodder charges, food of horse or to meet part of the transportation expenses. Once, this is the fact that these are reimbursement of expenses, the assessee is not liable to TDS u/s.194C o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the ambit of mutuality. For this, AO recorded his findings During the relevant year the assessee company has collected a, sum of Rs.2,81,50,000/- towards entry fee from stand members. It was explained by the assessee that the said receipt is capital in nature and the same is not taxable as the assessee's case is squarely covered by Delhi High Court Judgment in the case of CIT Vs Delhi Race club (1940) Ltd. [1970] 75 ITR 111 (Delhi). It can be noticed from the said judgment that the issue under examination was as to how the the subscriptions from the members who has got right to vote and participate in the management of the affairs of the club. Whereas in the case of the assessee it is the entry fee that is collected from the stand members who do not have a right to vote. In view of this the judgment of the case referred to be the assessee is not applicable to the case of the assessee, as the basic fact is different in both the cases. As the stand members do not have a right to vote or to participate in the management of the company, the entry fee collected can not be said to fall under the bracket of mutuality. It also can not be said to be capital receipt in view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such special privileges are given under the Act. In view of the same, the action of the Assessing Officer in bringing Rs.2,81,50,000/- AY 2012-13, Rs.2,10,00,000/- for AY 2013-14 Rs.1,33,50,000/- for AY 2014-15 for taxation is upheld. The grounds of appeal on this issue are rejected. Aggrieved, assessee came in appeal before the Tribunal. 12. Before us, the ld.counsel for the assessee argued that the different forms of members are club members, stand members and temporary members. He explained that the club and stand members are permanent members with different type of rights and temporary members are admitted as members for a short period. He argued that where member is called the club member, stand member, temporary member or non-voting member, etc., all are recognized as members and non-voting members contribute entrance fee. During the year, the entire entrance fee collected is from stand members only amounting to Rs.2,81,50,000/- He stated that as per Article of Association and Bye-laws of the club, there is no difference in usage of the club in any of the categories of members except non-voting members or stand members, by whatever name you call, they have no voti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to supra, when adjudicating the issue of the entrance fee collected from other members to be liable to be held deleted following the principles of mutuality and consequently deleted the addition. The Revenue has not been able to dislodge these findings either. This being so, we find no error in the findings of the learned CIT(A). Consequently, the order of the learned CIT(A) on this issue stands upheld. 12.1 Further, to counter the decision of Hon ble Supreme Court in the case of The Citizen Co-operative Society, supra, the ld.counsel stated that the Article of Association and Bye-laws permit admission of non-voting members or stand members and once bye-laws permits, the issue is covered by the Hon ble Supreme Court decision in the case of Mavilayi Service Co-operative Bank Limited vs. CIT, Calicut reported in [2021] 123 Taxmann.com 161. 13. On the other hand, the ld. Senior DR relied on the assessment order and that of the CIT(A). 14. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that there are difference forms of members that are group members, stand members or nonvoting members and temporary members. The stand memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... touchstone, it is clear that the impugned Full Bench Judgement is wholly incorrect in its reading of Citizen Co-operative Society Limited (supra). Clearly, therefore, once Section 80P(4) is out of harm s way, all the Assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to nonmembers, profits attributable to such loans obviously cannot be deducted. 46. It must also be mentioned here that unlike the Andhra Act that Citizen Co-operative Society Limited (supra) considered, nominal members are members as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions Federation Limited vs. Commissioner of Income Tax [1997] 11 SCC 287 referred to section 80P of the Income Tax Act and then held: 8. The expression members is not defined in the Act. Since a co-operative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression members in section 80P(2)(a)(i) must, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the income derived by the assessee club from house property let to its members and their guests is not chargeable to tax. The High Court therein had held that income derived by it from its members or their guests and sale of liquor to its members and guests was not taxable. There were several other appeals also. The main issue canvassed by the Revenue before the Supreme Court was as under : Whether the assessee-mutual clubs, were entitled to exemption for the receipts or surplus arising from the sales of drinks, refreshments, etc. or amounts received by way of rent for letting out the buildings or amounts received by way of admission fees, periodical subscriptions and receipts of similar nature from its members ? The Tribunal as also the High Court had recorded a finding that these amounts received by way of admission fees, periodical subscriptions etc. from the members of the clubs were only towards the charges for the privileges, conveniences and amenities provided to the members, which they were entitled to as per the rules and regulations of the respective clubs. It was further recorded that the facilities were offered only as a matter of convenience for the use of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eniences that would attract the principle of mutuality. Such a finding and consequent applicability of the principle cannot be interfered with unless Revenue from the record points out that the findings are totally perverse. In the instant case, as we have noted earlier, the Revenue has not disputed that fact. What is only disputed is whether the entrance fees received by the assessee is capital receipt and the commuted value of subscription for life members has to be taxed or treated as capital receipt. 6. The Revenue it appears have based their submission on the judgment of this Court in W.I.A.A. Club Ltd. (supra). The membership of the club consisted of ordinary members and life members. The ordinary members were paying entrance fees and annual subscription. The life members were paying larger entrance fees without any liability to pay annual subscription. The club was extending similar facilities both to ordinary and life members. The issue of mutuality was neither argued nor raised or was in issue before the learned Bench of this Court. It is on the facts there and without considering the principle of mutuality that the learned Bench proceeded to hold that the amount paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the doctrine of mutuality would apply and consequently that income from house property would not be exigible to tax. 7. From the principles which have been set out above and moreso in the judgment in Bankipur Club Ltd. (supra), even if there be temporary or honorary members who are not entitled to vote, the assessee would not cease to be governed by the principles of mutuality. Once the assessee is governed by the principles of mutuality, its income earned would not be income which would be assessable to tax. 8. For the aforesaid reasons, we are of the view that there is no infirmity in the judgment and consequently the questions as raised are devoid of merit and consequently appeal dismissed. 14.2 In view of the above, recent decision of Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited, supra, and the decision of Hon ble Supreme Court in the case of Bankipur Club Ltd., supra, we are of the view that the assessee is entitled for claim of principle of mutuality in regard to entrance fee received from non-voting members. Hence, we allow this issue of assessee s appeal. 15. Similar are the facts in other two assessment years, hence taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the AO. Aggrieved, assessee is in appeal before the Tribunal. 18. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the AO as well as the CIT(A) was of the view that the explanation of reimbursement cannot be accepted and according to them, the full facts of the telecast charges incurred by Hyderabad Race Club not being on record and the profit element in the reimbursement made by Hyderabad Race Club cannot be ruled out. According to AO as well as the CIT(A), the assessee has to deduct TDS u/s.194J of the Act and therefore, the disallowance was made u/s.40(a)(ia) of the Act. We noted that in the similar state of facts, the Bangalore Bench of ITAT in the case of M/s. Mysore Race Club Limited in ITA No.1232/Bang/2018, order dated 21.04.2022 has considered this issue of reimbursement of expenses given to Bangalore Turf Club by Mysore Race Club Ltd., and on these reimbursement of expenses, TDS was not deducted and Tribunal i.e., Bangalore Bench of the Tribunal held that the matter was restored back to the file of the AO by observing in para 9.7 an ..... 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