9911796707
TMI Blog2009 (9) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... es, for the respondent. JUDGMENT The judgment of the court was delivered by A. K. SIKRI, J. - This appeal was admitted on 20.08.2009 on the following substantial questions of law: i) Whether the assessee society is a mutual concern so as to claim exemption on principle of mutuality? ii) Whether the ITAT was correct in law in holding that only rental income received by the assessee from non-members is chargeable to tax? iii) Whether the ITAT was correct in law in holding that interest received by the assessee on FDRs/deposits was not chargeable to tax on principle of mutuality. 2. Since the counsel for both the parties were ready to address the arguments finally on the basis of records filed before us, we heard the arguments on that very day and reserved the judgment. We now proceed to answer the questions of law as framed. 3. Minimal factual matrix, that is required for this purpose is recapitulated in the first instance, as under: The respondent/assessee is a society registered under the Societies Registration Act, 1860. It has been formed at behest of the Government of India to improve the performance of public enterprises and to improve its total r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es; x) To do or to cause to be done Assessment Year or all such acts or things as shall be conductive to the welfare of the society, provided such acts or things shall not be contrary to nor inconsistent with the spirit of the laws under which the society has been organized and registered. The society shall have perpetual succession by its corporate name. But if in the course of time there should be dissolution of the society and if thereupon there shall remain after the satisfaction of Society's debts and liabilities and property whatsoever the same shall not be paid to or distributed among the members of the society but shall be given or transferred to some other institution or institutions having objects similar to the objects of the society to be determined by the members of the society at or before the time of the dissolution and in default thereof by a competent Court of law, as may have the jurisdiction in the matter." 4. The assessee has its building at Lodhi Road, New Delhi. Its income is mainly from interest from deposits with bank, rent from use of the convention centre and from letting out of the part of the premises of the aforesaid building as well as subscrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsequent judgment of Hon'ble Supreme Court in the case of Commissioner of Income-tax, Bihar v. M/s. Bankipur Club Ltd., 226 ITR 97 in which it was held that income from non-members could be brought to tax and the claim of mutuality would not apply to such transactions. 7. After rejecting the plea of mutual concern, the AO examined the various activities undertaken by the assessee. He found that it had three divisions, Scope Secretariat, Scope (MMO) and scope minar. In scope secretarial, the assessee society had income from subscription and interest etc. The receipts in Scope (MMO) were from rent from letting out of premises and the conventional centre as well as interest income. In scope minar, receipts were from interest from surplus funds deposited with banks. The total interest income form all the three divisions was Rs.38,355,413/-. In addition, the society had rental income of Rs.26,17,822/- form the use of convention centre and Rs.76,88,328/- from use of other premises which included a sum of Rs.2,05,200/- from a non-members, i.e., M/s. Lacisine Pvt. Ltd. to whom the premises had been let out for providing catering facilities to organizations availing of the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at large in India and abroad and to stimulate, encourage and provide knowledge and information pertaining to public enterprises in India by organizing lectures, study group etc. He was also influenced by the fact that the rental income even received from members had an aspect of commerciality, as members like State Bank of Hyderabad, Dena Bank and Balmer Lawrie had used this place only a business and not as members. Swayed by these reasons, the AO was of the opinion that the activities of the respondent/society were tainted with commerciality which destroyed the principle of mutuality and thus the judgment of the Supreme Court in Bankipur Club (supra) was clearly applicable. The Tribunal, while arriving at a contrary finding has held that the assessee had not done any business and allowing the premises to non-members when the same were lying idle, would not make the activities of the assessee as commercial activity. 10. Thought process of the Tribunal, in this behalf, is reflected in the following discussion contained in the impugned order, which follows as under: "So far as the present case is concerned, the assessee had not done any business. It had only allowed use of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in the form of rental or license fee collected from non members. Thus, all other incomes except income generated from non-members is treated as exempt from tax holding that the assessee would be liable to pay the tax in respect of receipts from non-members. Thus, there is no dispute that the other income, which is treated as exempt, are the receipts from the members or the interest earned from surplus funds deposited with the banks. Learned counsel for the parties agree that the issue as to whether these receipts were exigible to tax or not would depend upon the application of principle of mutuality, viz., if the principle is applicable, the aforesaid incomes would exempt from tax. 14. In Bankipur Club (supra), principle of mutuality was elaborately discussed. In this case, the Supreme Court explained that under the Income-tax Act, what is taxed is, the "income, profits or gains" earned or "arising, "accruing" to a "person". Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15. It was also held that where such member clubs or mutual associations extend facilities to non-members, to that extent, the element of mutuality is wanting. 16. The relevant para on which strong reliance was placed by the AO as well as the learned counsel for the Revenue before us is para 15, which reads as under: "15. Our attention was invited to a few decisions which have dealt with the subject matter in issue herein. The gist of the various English decisions has been succinctly summarised in the textbooks which we have adverted to herein above (Halsbury's Laws of England, Simon's Taxes, Wheatcroft etc.). Particular stress was laid on the decisions of the Supreme Court in Commissioner of Income-tax, Bombay City : [1953] 24 ITR 551(SC) ; Commissioner of Income-tax. Madras v. Kumbakonam Mutual Benefit Fund Ltd.: [1964] 53 ITR241(SC) , Fletcher (on his own behalf and on behalf of Trustees and Committee of Doctor's Cave Bathing Club v. Income Tax Commissioner [1971] 3 All ER 1185. We do not think it necessary to deal at length with the above decisions except to state the principle discernible from them. We understand these decisions to lay down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Vs. CIT where the Court held that the principle of mutuality is not destroyed by the presence of transaction, which are non mutual in character. This principle can, in such case, be confined to transactions with members. The two activities, in appropriate case be supported and the profits derived from non-members, can be brought to tax. 19. In the present case, as already noted above, the respondent is incorporated as a society and the main objective is to improve the purpose of public enterprises. The membership of the society is open to public sector enterprises of Central/State Governments. It is, thus, performed for the benefit of its members, which are public sector enterprises. It is not indulging in any "commercial activities" in traditional sense, but is catering to the needs of its members. In its building at Lodhi Road, New Delhi, it has convention centre which is normally given to its members for functions. Likewise, other part of the premises are available to the members for their use. Of course, for using convention centre as well as other parts of the building, these members pay some charges which becomes additional source of income. That by itself cannot be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndap' facilities were provided by the club to its members and the question of service tax had arisen, the Calcutta High Court applied the principle of mutuality holding that the aforesaid facilities provided by the club to its members for such functions cannot be termed as commercial activity. Following observations are to be noted in this behalf: "The principle of mutuality in this case is also squarely applicable, as going by the definitions of mandap, mandap keeper and the taxable service, in this case the facility of use of the premises to the members by its club cannot be termed to be a letting out nor the members of the club using the facility of any portion of the premises for any function can be termed to be a client. The services rendered by any person to his client presupposes the element of commerciality and obviously this transaction must be involved with the third parties, as opposed to the members of the club." Similar question was answered in the case of Saturday Club Ltd. Vs. Asstt. Commissioner, Service Tax Cell, (2006) 3 STR 305 in the following manner: "So far as the merit is concerned, law is well settled by now that in between the principal and age ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
