Panchkula Golf Club, Panchkula vs Assessee

Panchkula Golf Club, Vs. The ITO(TDS), Sector 3 Ward 2, Panchkula Panchkula

PAN No. AAAAP5757C

(Appellant) (Respondent)

Appellant By : Sh. Rakesh Gupta Respondent By : Sh. S.K. Mittal

Date of hearing : 27/04/2015 Date of Pronouncement : 06/05/2015

ORDER

PER T.R.SOOD, A.M.

The appeal by the Assessee is directed against the order dated 20/05/2013

passed by the CIT(A) Panchkula.

2. In this appeal assessee has raised the following grounds:-

1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 81,94,632/-

by treating the one time entrance fee i.e. contribution from members as revenue receipt and refuting the concept of mutuality (alternative plea) whereas as per the assessee the issue was examined by this Hon'ble Tribunal and issued specific directors to the A.O. which were not adhered to by the A.O. and the same has also not been appreciated by the CIT(A), therefore the orders of the authorities below needs to be set aside.

2. That the Ld. CIT(A) has erred in not adhering to the directions given by this Hon'ble Tribunal wherein the issue pertaining to issue of mutuality and one 2

time entrance fees was to be examined whereas as per the assessee the authorities below goes beyond the scope and denied the benefit to the assessee by applying the provisions of section 12A, therefore, the conclusions drawn by the authorities below needs to be set aside.

3. The brief facts of the case are that originall y the assessment was

completed u/s 143(3) on 20/12/2010 determining the income of the assessee at

Rs. 33,93,740/-. The matter travelled to the Tribunal and ultimatel y the order of

CIT(A) was set aside and matter was restored to the file of Assessing Officer.

The findings of the Tribunal are recorded in para 7 of ITA No. 1179/Chd/2011

and reads as under:-

"7. Having regard to the above legal and factual discussions and the rival submissions, we are of the considered opinion that the issue of mutuality and one time contribution, received as entrance fee from its members, be restored to the file of the AO, for fresh adjudication, in terms of the decisions cited by the ld. 'AR' and also according to the relevant provisions of the Act. AO is directed to afford proper and reasonable opportunity of being heard to the assessee."

Thereafter, the Assessing Officer issued fresh notice. During the fresh

assessment proceedings on behalf of the assessee a reference was made to the

decision of Hon'ble Supreme Court in the case of CIT v Bankipur Club Ltd 226

ITR 097 (SC). However, Assessing Officer after examining this judgement was

of the opinion that the assessee Club was being controlled by the Government of

Haryana because only Senior officials were there in the Governing Council.

Therefore, the claim of the mutualit y could not be accepted. Further, the receipt

of Rs. 81,94,632 on account of one time Entrance fee was of Revenue nature

and ultimatel y assessed the income of the assessee at Rs. 33,93,740/- as under:-

Contribution from the Members Rs. 81,94,632/-

Less: Deficit for the year being excess Of expenditure over income Rs. 48,00,892/-

Taxable Income Rs. 33,93,740/- 3

4. On appeal before CIT(A), the decision in the case of CIT v Bankipur

Club Ltd. (supra) was cited in respect of mutualit y. In respect of one time

Entrance fee it was contended that same was of capital nature and in this regard

he relied on the decision of Hon'ble Bombay High Court in the case of C IT Vs.

Diners Business Services Pvt Ltd 263 ITR 1 (Bom.). However, Ld. CIT(A)

observed that for claiming exemption u/s 11(1)(a) registration u/s 12A was

necessary which has not been granted to the assessee, therefore, income was

taxable.

5. Before us Ld. Counsel for the assessee submitted the mutualit y was

denied to the assessee by observing that club is controlled by senior officers of

the Government and further on dissolution of assets of the assessee were to be

transferred to some other institution and for mutualit y there should be complete

identit y between the contributors and beneficiaries. Further, assessee has not

contested the findings of the Assessing Officer in the earlier years.

6. The Ld. Counsel submitted that in the earlier years the assessee Club had

incurred more expenditure then income resulting into deficit, therefore, there

was not tax implication i.e. why assessment was not challenged. As far as the

issue regarding distribution of the assets is concerned, he submitted that it is

decided by the Hon'ble Supreme Court in the case of CIT v Bankipur Club Ltd

(supra) where one of the issue was whether exemption can be denied simpl y

because dissolution of assets were to be distributed to the other societies. The

Court held that if other societies had similar objects then exemption could not

be denied and in this regard he referred to various observations made in the

judgment. He also referred to the object of clause 5(d) of the Memorandum of

Association of Golf Club where the manner of distribution of assets on winding

up has been provided. He further submitted that in similar circumstances the

Hon'ble Supreme Court held that exemption cannot be denied. 4

7. In respect of the entrance fee he strongl y relied on the decision of

Bombay High Court in the case of C IT Vs. Diners Business Services Pvt Ltd

(supra) wherein it is clearl y held that entrance fee is of capital nature.

8. On the other hand Ld. DR strongl y supported the orde of CIT(A).

9. After considering the rival submissions we find that Ld. CIT(A) has

upheld the order of Assessing Officer denying exemption to the assessee on the

basis of mutualit y because assessee is not registered u/s 12A. In our opinion,

12A registration is not required in a case where exemption is claimed primaril y

on the basis of mutualit y. The concept of mutualit y is based on the fact that

nobody can earn profit from himself and in the case of clubs or certain t ypes of

Associations where members make contribution for providing services to the

members and if some surplus is left then such surplus is not taxable on the basis

of mutualit y. The Hon'ble Supreme Court in the case of CIT v Bankipur Club

Ltd (supra) has confirmed this position. One more issue arose in that case which

has been dealt as under:-

"In an earlier assessment year 1977-78 an identical question relating to the same assessee arose before the High Court of Punjab and Haryana in I.T.R. No. 69 of 1981. The decision thereon dated April 27, 1989 is reported in CIT v. Northern India Motion Pictures Association [1989] 180 ITR 160. The following questions were referred to the High Court (page 162):

"(1) Whether, on the facts and in the circumstances of the case, the principle of mutuality is applicable to the assessee's receipts under the head 'Others' ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the receipts under the head 'Others' were neither income liable to be taxed under the head 'Business' nor under the head 'Other sources' ?"

The facts in the said case and the decision by the High Court are neatly summarised in the headnote of the reports at pages 160-161: 5

"The assessee was an association and its members were film distributors and exhibitors. The association protected the rights of its members in return for admission fees and periodical subscription and also rendered specific services in return for separate charges. The Income- tax Officer wanted to subject the assessee to tax on the income derived from the admission fee, periodical subscriptions and specific service charges received from the members. The assessee pleaded that the receipts were exempt from tax on the general principle of mutuality. The Income-tax Officer did not agree with the plea on the grounds that in clause 7 of the memorandum of association, it was provided that, upon winding-up or dissolution of the association, the remaining property, after the satisfaction of its debts and liabilities, shall not be paid or distributed amongst the members but shall be given or transferred to such other institution or institutions having similar objects to be determined by the members at or before the time of dissolution, or in default thereof by the Prime Minister of the East Punjab and if this could not be done, then, to some charitable object and hence the amount was not to go back to the members. The Tribunal, however, held that the income of the assessee was not taxable. On a reference:

Held, that the contributors by incorporating clause 7 did not deprive themselves of the control on the disposal of the surplus. Ultimately, they could agree to divide the surplus among themselves or to contribute the amount to a similar association or to a charitable trust. The assessee was a mutual benefit association and its income was not taxable."

The said judgment was followed subsequently in all matters arising under sections 256(1) and 256(2) of the Act. So, for the assessment years which are the subject-matter of cases falling under Group-D stated hereinabove, the above decision in CIT v. Northern India Motion Pictures Association [1989] 180 ITR 160 was followed and the income received by the assessee under the head "Others"-admission fees, readmission fee, periodical subscription from the members, etc., was held to be exempt or non-taxable on the principle of mutuality."

10. From the above and particularl y from the highlighted portion it is very

clear that even if surplus remaining with the club or an organization at the time

of winding up are distributed to the other organization having similar objects

even then the exemption is allowable. The Court has clearl y confirmed the

decision of Hon'ble Punjab & Haryana High Court in the case of C IT Vs. 6

Northern India Motion Picture Association 180 ITR 100 (P&H) 226 ITR (supra).

In the case before us, clause 5(d) reads as under:-

(d) If upon the winding up or dissolution of the society there remains, after satisfaction of all its debts and liabilities, any 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 having objects similar to the objects of the society to be determined by members of the society at or before the time of dissolution. "

11. Clearl y, the above clause is almost identical as observed by Hon'ble

Supreme Court was the case before the Supreme Court. Therefore, in our

opinion, merel y because assets left at the time of winding up are required to be

distributed to other Organizations will not bar particular club or organization

for claiming exemption. Secondl y, the assessee has not filed any appeal in the

earlier years because there was no taxable income even after denying mutualit y.

When there is no tax implication it is not necessary that appeal should be filed.

Therefore, in our opinion the assessee is clearl y entitled to exemption on the

basis of mutualit y.

12. We further find force in the contention that entrance fee has to be treated

as capital receipt. The Hon'ble Bombay High Court was cornered with this

question in C IT Vs. Diners Business Services Pvt Ltd (supra) and it was held as

under:-

"Held, (i) that the Commissioner (Appeals) found that the entrance fees were charged by the assessee for enrolment of its customers as members of the "executive centre". The entrance fees were a one-time fee and only members were eligible to avail of the facilities available in the "executive centre". The Commissioner (Appeals) found that the entrance fees were non-refundable. The Tribunal was right in ordering deletion of Rs. 4,08,950 made by the Assessing Officer on account of non-refundable entrance fees."

From the above it becomes clear that entrance fee has to be treated as capital

receipt. Therefore, on this account also the assessee deserves to succeed. 7

13. Though we have clearl y held above that assessee is entitled to exemption

under the concept of mutualit y and the entrance fee has to be treated as capital

fee but at the same time we find that it is not clear from record the nature of

receipts received by the assessee whether the same is from members or not and

these facts have not been examined by the Assessing Officer or the C IT(A),

therefore, we set aside the order of Ld. CIT(A) and remit the matter back to the

file of Assessing Officer with a direction to verify the nature of receipt and if

same is from the members then allow the exemption under the concept of

mutualit y otherwise the case be decided in accordance with law.

14. In the result, assessee's appeal is allowed for statistical purposes.

Order pronounced in the Open Court on 06/05/2015

Sd/- Sd/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 6 t h May, 2015 Rkk

Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR 8