Per Shri K. B. Menon, Judicial Member - The appeal by the department and the cross-objection by the assessee relate to the assessment year 1974-75, for which the previous year ended on 31-12-1973.
2. The assessee is the Trivandrum, which was assessed as an AOP. The claim of the assessee for exemption of the income on the doctrine of mutuality was rejected by the ITO on the ground that the assessee has dealings with persons other than the members and has collection by way of charges. The claim of the assessee was, however, accepted by the Commissioner (Appeals) who held that the facilities available in the club have been used exclusively by its members and that the assessee is entiled to exemption on the doctrine of mutuality. Aggrieved by the same, the department has come up in appeal.
3. The only ground taken in the appeal is that the Commissioner (Appeals) erred in holding that the income of the assessee is entitled to exemption.
4. The learned departmental representative relied upon certain provisions of the rules and bye-laws of the assessee-club to show that the amenities and privileges offered by the club were extended to outsiders as distinct from the members, that the outsiders could be charged for the facilities so extended and that the assessee is not, therefore, entitled to invoke the doctrine of mutuality. With regard to the decision in CIT v. Bankipur Club Ltd.  129 ITR 787 (Pat.), which was relied upon by the Commissioner (Appeals) it was pointed out by the learned departmental representative that in that case the amenities and privileges were made available only to the members.
5. As against this, it was contended by the learned representative for the assessee that the amenities and facilities of the club were not made available to persons other than the members and that even though the rules provided for a person who is not a member of the club occupying a room in the club as an exceptional measure and with previous consent of the Honble Secretary, no such person was actually allowed to occupy a room during the relevant accounting period.
6. We have considered the matter. The learned departmental representative relied on certain rules to show that the facilities and amenities could be extended to non-members. Rule IX. 1(c) provides that the public rooms and general accommodation of the club shall be available to visitors introduced by members. Rule IX. 2(b) which lays down the priority in the matter of occupation of bedroom in the club lays down the priority of a non-member also. Rule IX. 2(d) provides that a person who is not a member of the club (other than the wife of a member accompanying him) shall not occupy a room unless as an exceptional measure and with the previous consent of the honorary secretary. With regard to the provision mentioned last, a statement was filed by the secretary of the assessee-club that the club had not allowed any person other than a member to occupy the bedroom of the club. In the absence of any material to indicate that the statement is false, we see no reason why it should not be accepted. The Commissioner (Appeals) was, therefore, perfectly justified in accepting this statement. It, has therefore, to be taken that during the relevant period no non-member was allowed to occupy the bedroom of the club. The learned departmental representative mainly relied upon the fact that the members can introduce visitors and guests. In this connection, it is pointed out that the income of the assessee included Rs. 1,64,847 from bar and liquor, Rs. 1,52,403 from stores and messing and Rs. 16,737 from residential fees. It was pointed out that the receipt from the bar and liquor and also the receipt from stores and messing would include receipts on account of the amenities provided to the guests of the members. On the other hand, it was pointed out by the learned representative for the assessee that the amenities are provided not to the guest but to the members and that the payment has been made by the members and not by the guests. In this connection, reliance was placed on rule IX. 1(c) (iv) which lays down that the member introducing a visitor shall be liable for all charges incurred in the club by or on behalf of the visitor.
7. It has been held, thus, in Presidency Club Ltd. v. CIT  127 ITR 264 (Mad.) : "The whole concept of a members club is alien to profit-making. It is a sharing of common amenities in a spirit of camaraderie. The separate payment for some of the amenities is only a mode of contribution and does not bring its case within the vortex of taxation. The question whether even in case of a members club, the profits arising from transactions with non-members could be subjected to tax, will have to be considered in the light of the decisions in Madras Race Club  105 ITR 433, Carlisle & Silloth Golf Club v. Smith  6 TC 198 (CA) and National Association of Local Government Officers v. Watkins  18 TC 499 (KB). So long as the occupation of the room is referable to the amenity provided for the members for themselves, no income can be said to be earned, so as to be brought to tax by the provisions of the Income-tax Act"....... (P. 272) It is, therefore, clear if the occupation of the room or the enjoyment of any other facility is referable to the amenity provided for the members for themselves, it cannot be said that the assessee-club had transactions with non-members.
8. We are unable to accept the contention of the learned departmental representative that when the members bring in guests who enjoy the amenities of the club and when the members themselves pay for the enjoyment of the amenities to non-members to bring in the members of their family or guests is an amenity provided to the members. As pointed out in the case of Presidency Club Ltd. (supra), the whole concept of the members club is a sharing of common amenities in a spirit of comradeship. It is consistent with this that the members are allowed to bring the members of the family and guests. Although the members of the family and the guests enjoy the amenities, it is referable to the members themselves. It is the members of the club who pay for the enjoyment of the amenities by their family and guests. In such cases, there is no dealing between the club and the non-members.
The dealing is only between the club and a member. In such cases, it cannot be said that the club is trading with non-members. It is well settled that no person can trade with himself and make an assessable profit. No trading element is, therefore, involved when the club charges a member for the amenities provided to him. It is not possible to accept the contention of the department that by catering to the guests brought by the members, the club had traded with non-members and had made an assessable profit. We, therefore, confirm the finding of the Commissioner (Appeals) that the income of the assessee is entitled to exemption under the doctrine if mutuality.
9. Before the Commissioner (Appeals) the assessee had raised alternative contentions that in case the income is found to be assessable, certain items are to be deducted like bad debts and receipts from members under the club amenity fund. Similarly the assessee had also contended that it is entitled to deduction under section 80L of the Act in respect of the interest income. The Commissioner (Appeals) did not consider these grounds as he accepted the main contention of the assessee that the income is totally exempt.
The cross-objection is filed only by way of abundant caution so that the alternative claims of the assessee could be considered in case the appeal by the department is allowed. As the appeal by the department is allowed. As the appeal by the department is being dismissed, the cross-objection has become infructuous and has only to be dismissed as such.