In a recent ruling, the Delhi bench of Income Tax Appellate Tribunal observed that the interest income and rental income received by a Club is taxable from the hands of such Club since the said income would fall within the ambit of mutuality under the relevant provisions of the Income Tax Act, 1961.
While confirming the assessment order imposing tax liability on the assessee the Tribunal placed reliance on the Apex Court decision in Bankipur Club Ltd.
The assessee, in the instant case is a sports and cultural club which is registered u/s 12A(a) of the Income Tax Act. The return filed by the assessee declaring loss for the relevant year was initially accepted by the Department. Subsequently, the Department initiated re-assessment proceedings and held that the assessee being a mutual benefit organization, was not entitled for exemption u/s 11 in respect of interest income and rental income.on appeal, the CIT(A) enhanced the addition by holding that that gross receipts as well as contribution to the corpus fund both are taxable.Being aggrieved, the assessee approached the Tribunal.
It was observed by the Tribunal that “It is undisputed that the receipt, other than the interest income and rental income, is from the members of the club and, therefore,would fall within the ambit of mutuality as defined by Hon’ble Apex Court in the case of Bankipur Club Ltd. (supra). The Assessing Officer had also accepted that the assessee club is entitled to benefit of mutuality. In our opinion, the view taken by the Assessing Officer is well –supported by the decision of Hon’ble Apex Court in the case of Bankipur Club Ltd. (supra), Chelmsford Club (supra) as well as Bangalore Club (supra). Therefore, on this point, we reverse the order of learned CIT(A) and restore that of the Assessing Officer i.e., all receipts of the assessee club except receipt from interest as well as rent is out of the purview of taxation on account of the doctrine of mutuality. Insofar as interest income and rental income are concerned, we, respectfully following the decision of Hon’ble Apex Court in the case of Bangalore Club (supra), hold that the same cannot be said to be governed by the concept of mutuality because the receipt is not from the members of the club. Accordingly, the assessment of these two incomes in the hands of the assessee is upheld.”
Read the full text of the order below.
