“Whether The Tribunal Was Justified In Law Inholding That The Rent Received From Reliance Industrieslimited Was Not Governed By The Principle Of Mutualityand Wa v. Darjeeling Club Ltd. Reported In153 Itr 676. The Hon’ble Mr. Justice Suhas Chandra Sen Delivering Thejudgment Wrote –

IN THE HIGH COURT AT CALCUTTAIn appeal from itsSPECIAL JURISDICTION (INCOME TAX)CIVIL APPELLATE JURISDICTION ITA No. 127 of 2019The Saturday Club Ltd.VersusPrincipal Commissioner of Income Tax, Kolkata – 3 ITA No. 135 of 2019The Saturday Club Ltd.VersusPrincipal Commissioner of Income Tax, Kolkata – 3 ITA No. 138 of 2019The Saturday Club Ltd.VersusPrincipal Commissioner of Income Tax, Kolkata – 3 Before:The Hon’ble Justice I. P. MUKERJIAndThe Hon’ble Justice BISWAROOP CHOWDHURYDate: 7[th] July 2023 Appearance:Mr. R K. Murarka, Sr. AdvocateMs. Sutapa Roy Choudhury, AdvocateMs. Aratrika Roy, Advocatefor the appellantsMr. Prithu Dudhoria, Advocatefor respondents in ITA 127/2019& ITA 135/2019Mr. Soumen Bhattacharya, Advocatefor respondent in ITA 138/2019 The Court:These three appeals were heard together. The samepoints, in law and in facts, are involved in all the three appeals. Theassessment years involved are 2008-09 to 2012-13 concerning theappellant/assessee, the Saturday Club Limited. Saturday Club is arecreational club. In each of the assessment years, the appellant/assessee receivedon account of rent sums of money from Reliance Industries Limited foroccupation of a portion of the club premises. In the assessment year2008-09 this receipt was Rs.78,49,798/-. It may have been a little different in the other assessment years. Now, Reliance Industries Limitedis also a corporate member of the assessee club. The substantial question of law, which arises, is whether thissum received by the appellant/assessee on account of rent is taxableunder the head “Income from house property”? Section 22 of the Income Tax Act, 1961 provides that the annualvalue of a property of which the assessee is the owner shall bechargeable to income tax under the head “Income from house property”.Section 23 (2) clarifies that where the property consists of a house or partof a house which is in the occupation of the owner its valuation shall betaken to be nil. In each of these appeals the assessing officer ruled that this rentreceipt was to be taxed under the above heading. On appeal, the Commissioner of Income Tax (Appeals) reversedthis decision and directed that this disallowance made by the assessingofficer be deleted. On a further appeal to the Income Tax Appellate Tribunal(Tribunal), it restored the decision of the assessing officer by holding that“the income in question is taxable under the head “income from houseproperty”. The reasons in support of this decision were sought to beadvanced in paragraph 5 of the tribunal’s order which is set out below:- “5.The law in this regard has been recentlylaid down by the Hon’ble Supreme Court in the case ofBangalore Club v/s. CIT 350 ITR 509 (SC), where thequestion for determination before the Hon’ble SupremeCourt was as to whether or not the interest earned bythe assessee on the surplus funds invested in fixeddeposits with the corporate member banks is exemptfrom levy of Income Tax, based on the doctrine ofmutuality? The Hon’ble Supreme Court answered theaforesaid question in favour of the revenue by holdingthat interest earned from deposits with banks who are members of the club would not be exempt on theprinciple of mutuality because the tests for applicationof the principle of mutuality were not satisfied. TheApex Court held that no sooner any amount is investedby an association claiming to be mutual concern in afixed deposit with the banks the complete identitybetween the contributors and the participants in thefunds or the amounts invested in member banks isruptured. It held that till the surplus funds weregenerated and was used only amongst themembers/contributors, the complete identity betweencontributors and participants continued. However themoment the funds are invested in fixed deposits withthe banks and the funds are used for advancing loansetc. by the Bank to its customers, the identity ofparticipants and contributors is sapped. Thus theinterest earned on fixed deposits is to be brought totax.” Aggrieved by this order, the assessee the Saturday Club Limitedhas preferred these appeals in this court under Section 260A of theIncome Tax Act, 1961. On 9[th] September, 2019 the appeal was admitted on the followingsubstantial question of law: “Whether the Tribunal was justified in law inholding that the rent received from Reliance IndustriesLimited was not governed by the principle of mutualityand was taxable under the Income Tax Act, 1961”? Mr. Murarka, learned senior advocate appearing for theappellant has made very extensive submissions on a most interestingpoint of law based on the principle of “mutuality”. This principle was verysimply yet authoritatively laid down in a division bench judgment of ourcourt in Commissioner of Income Tax vs. Darjeeling Club Ltd. reported in153 ITR 676. The Hon’ble Mr. Justice Suhas Chandra Sen delivering thejudgment wrote – “The principles laid down in the decided casesmay be briefly stated. A group of persons can form aclub to provide some facilities to themselves and anyexcess payment for these facilities may be retained forfuture use. In this process, no profit is made. Whenthese persons form themselves into a company andarrange their affairs in such a way that the companymakes profit for and on behalf of the members, it hasgot a distinct and separate personality from themembers in the eye of law, but the members areusing the company and the corporate personality forobtaining goods and services. The surplus that thecompany gets is held on behalf of the members andfor future use of the members. The members may getit back either in the shape of reduction of price orextension of facilities that are to be provided to themembers in future. The important point is that thecompany is not acting as a business concern or atrading company on its own for the purpose ofmaking gain. The company is being used by themembers for the purpose of obtaining goods andservices as their agent. A company can make profitout of its members when members are treated ascustomers. Where, however, all that a company doesis to collect money from a certain number of peopleand retain the surplus fund for the benefit of thosepeople not as shareholders of the company but aspeople who subscribed to it or paid for it, then thereis no profit. If the people were to do the thing forthemselves, there would be no profit and the fact thatthey incorporate a legal entity to do it for them makesno difference. There is still no profit. This is notbecause the corporate entity of the company is to bedisregarded, but because there is no accrual of profit,the money is simply collected from the members andheld on their behalf, not in the character ofshareholders but in the character of those who havepaid for it. The excess that is realised from the members will be used for the benefit of the membersin some form or other.” Thereafter, Mr. Murarka took us through several other decisionson this point, namely, Commissioner of Income Tax v. Bankipur Club Ltd.reported in 226 ITR 97, Chelmsford Ford v. Commissioner of Income Taxreported in 289 ITR 89, Bangalore Club v. Commissioner of Income Taxreported in 350 ITR 509 and Saturday Club Ltd. v. AssistantCommissioner, Service Tax Cell reported in (2005) Cal LT 575. In reply, learned counsel for the revenue cited a very recentdecision in Yum! Resautrants (Marketing) Private Limited v. Commissionerof Income Tax, Delhi reported in (2021) 7 SCC 678. members will be used for the benefit of the membersin some form or other.” Thereafter, Mr. Murarka took us through several other decisionson this point, namely, Commissioner of Income Tax v. Bankipur Club Ltd.reported in 226 ITR 97, Chelmsford Ford v. Commissioner of Income Taxreported in 289 ITR 89, Bangalore Club v. Commissioner of Income Taxreported in 350 ITR 509 and Saturday Club Ltd. v. AssistantCommissioner, Service Tax Cell reported in (2005) Cal LT 575. In reply, learned counsel for the revenue cited a very recentdecision in Yum! Resautrants (Marketing) Private Limited v. Commissionerof Income Tax, Delhi reported in (2021) 7 SCC 678. This principle of law which was canvassed by Mr. Murarka andto be deduced from these cases is this : A club is an association ofpersons for certain objects and purposes. It may or may not be a bodycorporate but it has a distinct identity of its own. This identity is akin tothat of a body corporate. It is different from that of his members.However, there is a difference between the legal identity of a bodycorporate and that of a recreational club in certain matters. It is in thesematters that the principle of mutuality is involved. The members of theclub are seen both as contributors and participators. The club and itsmembers are seen as one person. Usually a member has to pay to avail ofthe services and facilities provided by the club. By way of subscription or contribution a member may contributea sum of money to the club in a particular month. Similarly othermembers may also contribute this amount or any lesser or greater sum.This sum may be utilised by the club to bring in stocks of food, drinks,sports gears and other items and also be utilised for the purpose ofproviding facilities to its members like maintaining a swimming pool or tennis court. The members may consume or enjoy the benefits ofwhatever they contribute. The concept of mutuality is that whenever money is being spentby a particular member is also being enjoyed by that person in the formof facilities. Members or a group of persons forming the association andthe association are seen as a single identity. One cannot make an incomeout of any sum paid to oneself or spent on oneself. In charging amember for such utility the club should not make any profit. In otherwords it does not make any income in excess of its expenditure. Thetransactions ought to have been for the benefit of all the members andalso resulted in common facilities for the club. On that principle the income of the club involving contributorsand participators is not taxable. In this case, Mr. Murarka submitted that the space given toReliance remained an asset of the club. The sum paid by Reliance wasenjoyed by each and every member of the club in the form of service orfacilities offered by the club. Reliance as a corporate member and theclub were to be treated as one entity and that any benefit enjoyed byReliance was to be treated as benefit enjoyed by all the members of theclub. To this both learned counsel appearing for the revenuecontended that the space provided by the club was in the exclusiveoccupation of Reliance. It was not being used as a facility of the club. Itwas an independent transaction between the club and Reliance.Although Reliance may be a corporate member it had entered into a leaseagreement with the club not in the capacity of a corporate member butan independent body. Now, these are questions of facts. These facts had to beestablished threadbare before any opinion on the substantial question of law could be expressed. On examination of the order of the AssessingOffice, CIT (Appeal) and the tribunal we do not find any analysis of thefacts, which would go to show whether the principle of mutuality wasbeing maintained in the subject transaction between the club andReliance. We find that in these orders that only conclusions are madewith regard to the status and the transaction between the parties. Now, these are questions of facts. These facts had to beestablished threadbare before any opinion on the substantial question of law could be expressed. On examination of the order of the AssessingOffice, CIT (Appeal) and the tribunal we do not find any analysis of thefacts, which would go to show whether the principle of mutuality wasbeing maintained in the subject transaction between the club andReliance. We find that in these orders that only conclusions are madewith regard to the status and the transaction between the parties. For all these reasons, the part of the impugned order of thetribunal contained in paragraph 9 cannot stand and is hereby set aside. We remand the appeals to the tribunal to redecide the questiontaking into account all the disclosures of facts made before theadjudicating authorities and the above decisions of the Supreme Courtand our Court discussed by us above and to pass a reasoned orderwithin four months of communication of this order. This remand islimited to the above issue only. The appeals are disposed of. (I. P. MUKERJI, J.) (BISWAROOP CHOWDHURY, J.)