Madras H.C : investment of surplus funds and earning interest income from member bank by club is not with principle of mutuality

High Court Of Madras

Madras Cricket Club Vs. ITO

Assessment Year 2002-03

Section : 4

K. Raviraja Pandian And M.M. Sundresh, JJ.

TC(A) No. 1319 Of 2009

November  30, 2009


K. Raviraja Pandian, J. – The order of the Appellate Tribunal, Chennai “B” Bench dated May 13, 2008 in I.T.A. Nos. 42-46/Mds/2008 for the assessment year 1999-2000 2001-02, 2002-03, 2003-04 and 2004-05, is put in issue in this appeal by formulating the following substantial question of law :

“Whether the Income-tax Appellate Tribunal was right in law in holding that the principle of mutuality and `no man can trade with himself’, is not applicable to the interest income from fixed deposit earned by the appellant from bank out of the surplus funds raised from contribution of several members of the appellant-club even when the benefit of interest derived is utilised by several members of the appellant-club ?”

2. The appellant-company is incorporated under the Companies Act with the object to promote social interaction among the members of the club, their families and friends to provide club house facilities for sports/games both indoor and outdoor. The appellant claimed that the mutual association and the entire income of the appellant is not liable to tax since it is mutual in character. A part of the appellant’s income is in the form of interest income received from deposits with the bank. For the assessment year 2002-03 the appellant-company furnished its return of income on March 1, 2002, declaring a loss of Rs. 51,09,692. The appellant’s case was reopened under section 147 of the Act to assess the interest income earned from fixed deposits with the banks, and a notice under section 148 of the Act was issued on March 20, 2006. The appellant filed its return in response to the said notice on September 28, 2006. The Assessing Officer vide his order dated December 28, 2006 completed the assessment under section 143(3) of the Income-tax Act determining the total disclosed income at Rs. 17,70,194 and tax thereon at Rs. 7,24,895 by treating the interest income received by the assessee from the deposits with the bank as income received from non-members and hence will not be considered as mutual income. The Commissioner of Income-tax (Appeals) by a common order dated October 23, 2007 for the assessment years 1999-2000, 2001-02, 2002-03, 2003-04 and 2004-05 dismissed the appellant’s appeal by observing that the bank is not a member of the appellant’s club. Against that order, the assessee preferred an appeal before the Income-tax Appellate Tribunal. The Tribunal, by reason of the impugned order dated May 13, 2008, dismissed the appeal filed by the assessee. The correctness of the same is canvassed by the assessee by filing this appeal by formulating the question of law referred to above.

3. The very same common order of the Tribunal, which is the subject-matter of the present appeal has been considered by this court in respect of other assessment years in Tax Case Nos. 928, 1067 to 1069 of 2009, wherein this court dismissed the appeal by holding as follows :

“The very question came up for consideration before this court in a batch of cases rendered in Madras Gymkhana Club v. Deputy CIT reported in [2010] 328 ITR 348 (Mad.) ; [2009] 28 DTR Judgments page 9. (T.C. Nos. 397 to 404 of 2008 dated July 30, 2009). The Division Bench, after a detailed analysis of the question involved took the view that investment of surplus funds by such clubs with some of the member banks and institutions in the form of fixed deposits and securities not with a definite idea of using the same in any specific projects for further development of the infrastructural facilities of the clubs failed to satisfy the concept of mutuality and therefore the benefit of exemption cannot be extended to the interest income.”

4. Following the same, this appeal is liable to be dismissed as the question of law has been answered against the assessee and in favour of the Revenue. Accordingly, the appeal stands dismissed. No costs. The connected miscellaneous petition is dismissed.

[Citation : 334 ITR 238]

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