Skip to content


Commissioner of Income-tax, Delhi Ii Vs. Delhi Gymkhana Club Ltd. - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference Nos. 85 to 88 of 1977
Judge
Reported in(1985)48CTR(Del)208; [1985]155ITR373(Delhi)
ActsIncome Tax Act - Sections 22
AppellantCommissioner of Income-tax, Delhi Ii
RespondentDelhi Gymkhana Club Ltd.
Excerpt:
- - however, the club had a number of rooms and these rooms were made available to members as well as non-members on payment of a fixed monthly charge. a dispute arose between the department and the assessed as to whether receipts derived by the club by allowing its rooms to be occupied by its members as well as non-members would be assessable to tax or not. 3. we have heard the learned counsel for the commissioner as well as the learned counsel for the assessed. we find that there is a strong consensus of judicial opinion in favor of the view taken by the tribunal. the principle of mutuality clearly applies to the surplus earned as a result of such activities. ' case [1964]51itr353(sc) .in view of this as well as in consonance with the unanimous view taken by several high courts on..........concerned, the receipts were not taxable. the tribunal pointed out that the charge levied by the club from members was not by way of rent for the rooms occupied by them but was a composite charge in respect of various facilities provided by the club. applying the principle laid down by the supreme court in sultan bros. pvt. ltd. v. cit : [1964]51itr353(sc) , the tribunal came to the conclusion that the income received by the club by letting out the rooms would be assessable, if at all, under the head 'other sources' and not an 'income from house property'. the tribunal then proceeded to discuss the doctrine of mutuality as enunciated in english and indian decisions and came to the conclusion that whether treated as income from other sources or as income from business, the surplus could.....
Judgment:

Ranganathan, J.

1. These are four income-tax references. They arise out of the assessments of M/s. Delhi Gymkhana Club Ltd. for the assessment years 1964-65, 1969-70 and 1970-71. The questions referred are common questions relating to all the three assessment years. There are, however, four references before us because there were cross-appeals before the Tribunal in relation to one of the assessment years by both the Department and the assessed. The common question that has been referred to this court reads as follows :

'Whether, on the facts and circumstances of the case, the Tribunal was legally correct in holding that the rent receipts from the members to whom the rooms were let out by the assesses-club along with other facilities were not assessable to income-tax on the doctrine of mutuality ?'

2. The undisputed facts are as follows : The assesses-club was formed in 1973, and was registered as a company limited by guarantee. The objects of the club were mainly to provide recreation to its members by promoting various types of sports and pastimes. Provision was also made for refreshments for the members in the premises of the club. It is common ground that the receipts derived by the club by providing refreshments to its members is exempt from income-tax on the basis of the doctrine of mutuality. However, the club had a number of rooms and these rooms were made available to members as well as non-members on payment of a fixed monthly charge. A dispute arose between the Department and the assessed as to whether receipts derived by the club by allowing its rooms to be occupied by its members as well as non-members would be assessable to tax or not. In earlier years, the receipts so derived by the club had been declared for the purpose of assessment as 'Income from house property' and also assessed as such. However, for the assessment years 1969-70 and 1970-71, and in the course of reassessment proceedings for the assessment year 1964-65, the assessed claimed that this income was exempt in its hands on the doctrine of mutuality. The contention was that the income from residential quarters owned by the club was to be treated on par along with other income of the club from other club activities. It was pointed out that the charge was levied from the person so occupying the residential quarters not merely by way of room rent but also for the provision of various other facilities such as furniture, fixtures, hot and cold water facilities, maintenance of lawn, supply of electricity, room service, supply of linen, scavenging and sweeper facilities, watch and ward facilities and dining, bar and recreation facilities available in the club house. It was pointed out that the tariff for some of the quarters was on bed and breakfast basis also. The ITO rejected the assessed's claim that the receipts in question did not constitute income. On appeal, the AAC confirmed the assessment order. The assessed, however, appealed to the Tribunal. After considering the facts and circumstances of the case, the Tribunal held that the amounts received by the club from non-members from letting out rooms was liable to be assessed and, so far as this conclusion is concerned, there is no further controversy before us. However, the Tribunal took the view that so far as the income derived by the club by letting out rooms to its members was concerned, the receipts were not taxable. The Tribunal pointed out that the charge levied by the club from members was not by way of rent for the rooms occupied by them but was a composite charge in respect of various facilities provided by the club. Applying the principle laid down by the Supreme Court in Sultan Bros. Pvt. Ltd. v. CIT : [1964]51ITR353(SC) , the Tribunal came to the conclusion that the income received by the club by letting out the rooms would be assessable, if at all, under the head 'Other sources' and not an 'Income from house property'. The Tribunal then proceeded to discuss the doctrine of mutuality as enunciated in English and Indian decisions and came to the conclusion that whether treated as income from other sources or as income from business, the surplus could not be assessed to tax because of the principle of mutuality. The Commissioner of Income-tax is aggrieved by the order of the Tribunal and hence this reference.

3. We have heard the learned counsel for the Commissioner as well as the learned counsel for the assessed. We find that there is a strong consensus of judicial opinion in favor of the view taken by the Tribunal. The Andhra Pradesh High Court in CIT v. Merchant Navy Club : [1974]96ITR261(AP) , the Madras High Court in Presidency Club Ltd. v. CIT [1981] 127 ITR 264, the Patna High Court in CIT v. Bankipur Club Ltd. : [1981]129ITR787(Patna) , the Allahabad High Court in CIT v. Cawnpore Club Ltd. : [1984]146ITR181(All) and the Calcutta High Court in CIT v. Darjeeling Club Ltd. : [1985]153ITR676(Cal) , have all taken the view that income derived by clubs, organized more or less on the same lines as the assessed presently in question, will not be assessable to tax. The principle is this. The club does not derive any income by letting out premises to its members. Letting out of the premises is merely a provision of a facility for members. The principle of mutuality clearly applies to the surplus earned as a result of such activities. It may be that if the income can be treated as rent derived from house property, the rent or the income derived from house property will be assessable under s. 22. That may be so because of the statutory fiction contained in s. 22 of the Act and the scheme of the I.T. Act, that the income from house property will be assessable on notional basis. This was the principle of the decision of the Allahabad High Court in CIT v. Wheeler's Club Ltd. : [1963]49ITR52(All) , but as has been pointed out by the Tribunal (it is now a finding of fact which is not in challenge before us) in the present case, the receipts of the club are not for the mere use of the rooms by way of rent. The receipts of the club are in the nature of payments made to the club for various kinds of facilities and services provided by it. The levy of a composite charge for such provision of facilities of residence and other incidentals cannot be equated to the charging of a house rent or a rent for occupation of a residential building. This is settled by the decision of the Supreme Court in Sultan Bros.' case : [1964]51ITR353(SC) . In view of this as well as in consonance with the unanimous view taken by several High Courts on the point with which we are inclined to agree, we answer the question referred to us in the affirmative and in favor of the assessed.

4. The reference is disposed of accordingly. Having regard to the fact that most of the decisions referred to above are recent ones, we direct the parties to bear their own costs.

5. Question answered in the affirmative.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //