ITO vs. Gymkhana Club (ITAT Chandigarh) - 15 Nov 2017
Question of law discussed - What is a concept of mutuality?
Some important discussions of the case (for easy reference):
1- The relevant part of the order dated 30.10.2015 passed in ITA No. 690 of 2005 for assessment year 1997-98 is reproduced...." Supreme Court and the High Court on the subject, it has been laid down that principle of mutuality relates to the notion that a person cannot make a profit from himself. The concept of mutuality has been extended to defined groups of people who contribute to a common fund, controlled by the group, for a common benefit. Any surplus amount to that needed to pursue the common purpose is said to be simply an increase of the common fund and as such neither considered income nor taxable...."..
Broadly, the following conditions have been laid down for the applicability of doctrine of mutuality:-
(i) The first condition to invoke the principle of mutuality requires that there must be a complete identity between the contributors and the participators;
(ii) the second feature demands that the action of the participants and the contributors must be in furtherance of the mandate of the association.
(iii) Further, there must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves and it is a difficult question of fact that at what point mutuality ends and commerciality begins.”
2-As held by the Hon'ble Supreme Court in the case of ‘Banglore Club’ (supra), the ‘principal of mutuality, relates to the notion that a person cannot make a profit from himself. An amount received from oneself is not regarded as income and is therefore, not subject to tax. The concept of Mutuality has been has been explained to define group of people who contribute to a common fund, controlled by the group, for a common benefit. Any amount surplus to that needed to pursue the common purposes is said to be simply an increase of common fund and as such neither considered income nor taxable,
3- in the case of ‘Thomas Vs. Richard Evans & Co Ltd (1927) 11 TC 790 wherein it has been held that if profits are distributed to shareholders, the principle of mutuality is not satisfied.
4- Hon'ble Supreme Court has referred to the decision of the ‘CIT, Bihar Vs. Bankipur Club Ltd’., (1997)., wherein it has been observed as under:- “at what point, does the relationship of mutually end and that of trading begin” is a difficult and vexed question. A host of factors may have to be considered to arrive at a conclusion. “Whether or not the persons dealing with each other, is a ‘mutual club’ or carrying on a trading activity or an adventure in the nature of trade” is largely a question of fact.
5- Hon’ble Supreme Court in Banglore Cliub’s case (supra), if the scheme or the mechanism of functioning of a mutual organization is so devised that a taint of commerciality is involved, the income of the organization can be subjected to tax
In view of the above discussion of the matter, it is held that for the assessment years under consideration, the assessee is entitled to the benefit of the doctrine of mutuality in respect of the surplus amount received as contributions or price for some of the facilities availed by its members. However the amount of interest earned by the assessee from the fixed deposits in the banks will not fall within the ambit of the mutuality principle and will therefore, be exigible to Income-Tax in the hands of the assessee-club.
For reading full text of the case please refer link - http://itatonline.org/archives/ito-vs-gymkhana-club-itat-chandigarh-principles-of-mutuality-entire-law-on-whether-a-club-whose-membership-is-also-open-to-the-persons-from-the-public-and-whose-management-is-looked-after-by-official/gymkhana-club-mutuality/
Question of law discussed - What is a concept of mutuality?
Some important discussions of the case (for easy reference):
1- The relevant part of the order dated 30.10.2015 passed in ITA No. 690 of 2005 for assessment year 1997-98 is reproduced...." Supreme Court and the High Court on the subject, it has been laid down that principle of mutuality relates to the notion that a person cannot make a profit from himself. The concept of mutuality has been extended to defined groups of people who contribute to a common fund, controlled by the group, for a common benefit. Any surplus amount to that needed to pursue the common purpose is said to be simply an increase of the common fund and as such neither considered income nor taxable...."..
Broadly, the following conditions have been laid down for the applicability of doctrine of mutuality:-
(i) The first condition to invoke the principle of mutuality requires that there must be a complete identity between the contributors and the participators;
(ii) the second feature demands that the action of the participants and the contributors must be in furtherance of the mandate of the association.
(iii) Further, there must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves and it is a difficult question of fact that at what point mutuality ends and commerciality begins.”
2-As held by the Hon'ble Supreme Court in the case of ‘Banglore Club’ (supra), the ‘principal of mutuality, relates to the notion that a person cannot make a profit from himself. An amount received from oneself is not regarded as income and is therefore, not subject to tax. The concept of Mutuality has been has been explained to define group of people who contribute to a common fund, controlled by the group, for a common benefit. Any amount surplus to that needed to pursue the common purposes is said to be simply an increase of common fund and as such neither considered income nor taxable,
3- in the case of ‘Thomas Vs. Richard Evans & Co Ltd (1927) 11 TC 790 wherein it has been held that if profits are distributed to shareholders, the principle of mutuality is not satisfied.
4- Hon'ble Supreme Court has referred to the decision of the ‘CIT, Bihar Vs. Bankipur Club Ltd’., (1997)., wherein it has been observed as under:- “at what point, does the relationship of mutually end and that of trading begin” is a difficult and vexed question. A host of factors may have to be considered to arrive at a conclusion. “Whether or not the persons dealing with each other, is a ‘mutual club’ or carrying on a trading activity or an adventure in the nature of trade” is largely a question of fact.
5- Hon’ble Supreme Court in Banglore Cliub’s case (supra), if the scheme or the mechanism of functioning of a mutual organization is so devised that a taint of commerciality is involved, the income of the organization can be subjected to tax
In view of the above discussion of the matter, it is held that for the assessment years under consideration, the assessee is entitled to the benefit of the doctrine of mutuality in respect of the surplus amount received as contributions or price for some of the facilities availed by its members. However the amount of interest earned by the assessee from the fixed deposits in the banks will not fall within the ambit of the mutuality principle and will therefore, be exigible to Income-Tax in the hands of the assessee-club.
For reading full text of the case please refer link - http://itatonline.org/archives/ito-vs-gymkhana-club-itat-chandigarh-principles-of-mutuality-entire-law-on-whether-a-club-whose-membership-is-also-open-to-the-persons-from-the-public-and-whose-management-is-looked-after-by-official/gymkhana-club-mutuality/
No comments:
Post a Comment