Madras Race Club v. DCIT

Case snapshot

Sections / provisions: 4

Questions before the Court / Tribunal

• The Assessee club has different class of members viz., stand members who have voting rights and participate in the management of the club and club members who basically don’t have right to vote and can only utilize the resources of the club on non-racing days. The club collects entrance fee from all class/category of members. The Lower authorities brought to tax this entrance fee collected from non-voting members since it doesn’t fall under the web of mutuality. The CIT(A) relied on the decision of the Supreme court in the case of Citizen co-operative society (397 ITR 0001) to say that the privilege of…
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

PAN: AAACM7640R (अपीलाथ /Appellant) ( यथ /Respondent)

अपीलाथ क ओर से/Appellant by : Shri G. Baskar & Shri I. Dinesh, Advocates यथ क ओर से/Respondent by : Shri AR.V. Sreenivasan, Addl.CIT

These three appeals by the assessee are arising out of the

2. The first common issue in these three appeals of assessee is

the three appeals are identical. The ld.counsel for the assessee as

Appellant / assessee submissions

above arguments as made before CIT(A) argued that entire racing

12. Before us, the ld.counsel for the assessee argued that the

He argued that where member is called the club member, stand

In Chelmsford Club vs. CIT (supra) the Supreme Court observed that what is taxed is "income, profits or gains" earned or "arising", "accruing" to a "person". Where a number of persons come together and contribute to a common fund for the financing of some object and in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular form the association takes. Trading between persons associating together in this way does not give rise to profits which are chargeable to tax. The law recognises the principle of mutuality excluding the levy of income-tax from the income of such business to which the above principle is applicable. In that case the assessee was registered as company under the Companies Act. It was however, contended that the business was governed by the principles of mutuality and therefore, income, if any earned is outside the scope of the IT Act. This argument was based on the principles that it is only income which comes within the…

Revenue / respondent submissions

The packaged judgment does not separately label the respondent's submissions in an independently extractable passage. No contention is inferred; read the full order.

Court / Tribunal analysis and reasoning

7. We have heard rival contentions and gone through facts and

14. We have heard rival contentions and gone through the facts

The Tribunal as also the High Court had recorded a finding that these amounts received by way of admission fees, periodical subscriptions etc. from the members of the clubs were only towards the charges for the privileges, conveniences and amenities provided to the members, which they were entitled to as per the rules and regulations of the respective clubs. It was further recorded that the facilities were offered only as a matter of convenience for the use of the members and their friends, if any, availing of the facilities occasionally. The services offered were not done with any profit motive and were not tainted with commerciality. In view of these findings the Court held that the activity of the clubs cannot be considered to be trading activity and the surplus/excess of receipts over the expenditure as a result of mutual agreement cannot be said to be "income"

6. The Revenue it appears have based their submission on the judgment of this Court in W.I.A.A. Club Ltd. (supra). The membership of the club consisted of ordinary members and life members. The ordinary members were paying entrance fees and annual subscription. The life members were paying larger entrance fees without any liability to pay annual subscription. The club was extending similar facilities both to ordinary and life members. The issue of mutuality was neither argued nor raised or was in issue before the learned Bench of this Court. It is on the facts there and without considering the principle of mutuality that the learned Bench proceeded to hold that the amount paid by the members had two elements in it. The part of the amount paid as entrance fees which was paid to the club with a view to acquiring the right to avail of the services and facilities extended by the club. The other part was a consolidated commuted payment in lieu of annual subscription. The Court held that that part of the entrance fees which was a compounded payment for annual subscription would be income and the balance would be a capital receipt. In our opinion, considering the judgment of the Supreme…

18. We have heard rival contentions and gone through the facts

Tribunal held that the matter was restored back to the file of the AO

Operative decision and relief

Accordingly, we are of the view that the disallowance made by A.O. u/s 40(a)(ia) of the Act in respect of subsidy expenditure is not in accordance with law and the Ld. CIT(A) was not justified in confirming the said addition. Accordingly, we set aside the order passed by the Ld. CIT(A) on this issue and direct the A.O. to delete the disallowance.

8. For the aforesaid reasons, we are of the view that there is no infirmity in the judgment and consequently the questions as raised are devoid of merit and consequently appeal dismissed.”

assessee’s appeal is set aside to the file of the AO.

evidence. Hence, we set aside this issue back to the file of the AO.

Ratio and legal principle

• The packaged judgment addresses The Assessee club has different class of members viz., stand members who have voting rights and participate in the management of the club and club members who basically don’t have right to vote and can only utilize the resources of the club on non-racing days. The club collects entrance fee from all class/category of members. The Lower authorities brought to tax this entrance fee collected from non-voting members since it doesn’t fall under the web of mutuality. The CIT(A) relied on the decision of the Supreme court in the case of Citizen co-operative society (397 ITR 0001) to say that the privilege of…. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with the assessee club has different class of members viz., stand members who have voting rights and participate in the management of the club and club members who basically don’t have right to vote and can only utilize the resources of the club on non-racing days. the club collects entrance fee from all class/category of members. the lower authorities brought to tax this entrance fee collected from non-voting members since it doesn’t fall under the web of mutuality. the cit(a) relied on the decision of the supreme court in the case of citizen co-operative society (397 itr 0001) to say that the privilege of… Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

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Section / provision impact

• 4 - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• Pr. CIT v. Tata Power Company Ltd. - Bombay High Court
• Merchant Association v. ITO - ITAT Pune
• M D Sons & Ors. v. ITO (Special Bench) - ITAT Bangalore Special Bench

Different outcome / possible distinction

• Pr. CIT v. Persistent Systems Pvt. Ltd. - Dismissed
• CIT(E) v. Hyderabad Cricket Association - Operative order controls

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Source class: SANITIZED_LOCAL_FULL_JUDGMENT_COPY_PRIMARY_PENDING · Repository status: PUBLISH_READY