ADIT, Trivandrum v. M/s Trivandraum Club, Trivandrum

IN THE INCOME TAX APPELLATE T RIBUNAL COCHIN BENCH COC HIN BEFORE SHRI N.VIJAYAKUMARAN AND SHRI SANJAY AROR A I.T.A. NO. 762 763 764 &765/COCH/200 8 ASSESSMENT YEARS : 1988-89 2002-03 2004-05 & 200 5-06 THE ASSISTANT DIRECTOR OF INCOME-TAX (EXEMPTION) RANGE- 1 TRIVANDRUM. VS. M/S. TRIVANDRUM CLUB VAZHUTHACAUD TRIVANDRUM [PAN: AABFT 4635P] (APPELLANT-REVENUE) (RESPONDENT-ASSESSEE ) C.O. NOS. 72 73 74 & 75/COCH/2008 (ARISING OUT OF I.T.A. NOS. 762 763 764 &765/COCH/2 008) ASSESSMENT YEARS : 1988-89 2002-03 2004-05 & 2005 -06 M/S. TRIVANDRUM CLUB VAZHUTHACAUD TRIVANDRUM [PAN: AABFT 4635P] VS. THE ASSISTANT DIRECTOR OF INCOME- TAX (EXEMPTION) RANGE-1 TRIVANDRUM. (APPELLANT-ASSESSEE) (RESPONDEN-REVENUE ) ASSESSEE BY SHRI T.M. SREEDHARAN ADV. REVENUE BY DR. BABU JOSEPH SR. DR. O R D E R PER BENCH: THESE ARE A SET OF FOUR APPEALS BY THE REVENUE AND CROSS OBJECTIONS (COS) BY THE ASSESSEE FOR THE CORRESPONDING YEARS BEING ASSESSM ENT YEARS (AYS) 1988-89 2002-03 2004-05 AND 2005-06. 2.1 WE SHALL FIRST TAKE UP THE CASE FOR A.Y. 1988-8 9 THE FACTS AND CIRCUMSTANCES OF WHICH ARE AT VARIANCE WITH THAT FOR THE OTHER THREE YEARS. IN THIS CASE THE MATTER STOOD CARRIED BY THE REVENUE UNDER REFERENCE U/S. 256(2) OF THE INCOME-TAX ACT 1961 ('THE ACT' HEREINAFTER) (ITR NO. 12/2001 DATED 27.2.2006) BEFO RE THE HONBLE JURISDICTIONAL HIGH COURT POSING THE FOLLOWING QUESTION FOR ITS OPINIO N: I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 2 WHETHER IN THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN HOLDING THE RENTAL INCOME RECEIVED BY THE ASSESSEE FROM THE NON- MEMBERS AS NOT TAXABLE? 2.2 THE HONBLE COURT VIDE ITS ABOVE DECISION (R EPORTED AT 282 ITR 505 (KER.)) ANSWERED THE QUESTION IN FAVOUR OF THE REVENUE SO THAT THE RENTAL INCOME RECEIVED FROM NON-MEMBERS INCLUDING TEMPORARY MEMBERS; THE COURT NOTICING THAT THE SAID MEMBERSHIP STOOD EXTENDED THERETO ONLY FOR THE PURP OSE OF RENTING OUT OF MARRIAGE HALL WAS HELD AS TAXABLE. THE ASSESSING OFFICER (AO) BEING ASSISTANT DIRECT OR OF INCOME-TAX (EXEMPTION) TRIVANDRUM VIDE HIS ORDER DATED 23.11.2007 GIVING E FFECT TO THE SAID JUDGMENT BY THE HON'BLE JURISDICTIONAL HIGH COURT HOWEVER RESTORE D THE ASSESSMENT AS ORIGINALLY MADE I.E. AT RS. 9 77 040/-. IN DOING SO HE ALLOWED A DEDUCTION OF 15% TOWARDS EXPENSES ON THE GROSS AMOUNT OF HALL RENT RECEIVED FROM NON-MEM BERS (RS.3 09 502/-) ASSESSING THE SAME AT RS. 2 63 077/- . FURTHER HE ALSO BROUGHT TO TAX OTHER RECEIPTS I NCLUDING ENTRANCE FEES AT RS. 4 67 500/- (OSTENSIBLY RECEIVED FROM NO N-MEMBERS FOR THE RELEVANT YEAR) IN THE SUM OF RS. 8 13 956/- ALLOWING ADHOC DEDUCTION OF RS. 1 LAKH TOWARDS ESTIMATED EXPENSES IN THE ABSENCE OF THE NECESSARY DETAILS I N THE BOOKS AND STATEMENTS HOLDING THAT THE SAME WOULD ONLY BE AT A FRACTION OF INCOME SO THAT THE INCOME THERE-FROM STOOD ASSESSED AT RS. 7 13 956/- . THE ASSESSEE AGGRIEVED BY THE SAID ORDER APPEA LED THEREAGAINST BEFORE THE FIRST APPELLATE AUTHORITY. IT WAS CONTENDED BEFORE IT THAT THE AO HAS FAILED TO APPRECIATE THAT AGAINST A TOTAL INCOM E OF RS. 6.56 LAKHS AS CREDITED TO ITS P&L ACCOUNT THE ASSESSEE HAD INCURRED A TOTAL EXPE NDITURE OF RS. 11.54 LAKHS SO THAT THERE WAS IN FACT AN EXCESS OF EXPENDITURE OVER INC OME AT RS. 4.98 LAKHS FOR THE YEAR. TRUE THE ASSESSEE HAD RECEIVED TEMPORARY MEMBERSHI P FEES DURING THE YEAR AT RS. 66 820/- BUT CONSIDERING THAT THE TOTAL EXPENDITUR E EXCEEDS THE TOTAL INCOME ALLOWING PROPORTIONATE EXPENDITURE WOULD RESULT IN A LOSS OF RS. 50 768/-. AS SUCH IF AT ALL THE ASSESSABLE INCOME FOR THE YEAR WOULD BE A LOSS. THE LD. CIT(A) ALLOWED THE ASSESSEES APPEAL HOLDING THAT THE AO HAD FAILED TO APPRECIAT E THAT THERE WAS NO NET SURPLUS I.E. ON THE WHOLE AS PROPORTIONATE EXPENDITURE I.E. AS R ELATABLE TO THE RECEIPTS FROM THE NON- MEMBERS FOR THE YEAR COULD ONLY BE BROUGHT TO TAX. HE THEREFORE SET ASIDE THE IMPUGNED I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 3 ORDER DIRECTING THE ASSESSMENT FOR THE YEAR AT NIL INCOME. AGGRIEVED THE REVENUE IS IN APPEAL IN SUPPORT OF THE ASSESSMENT ORDER. BEFORE U S LIKE CONTENTIONS STOOD RAISED BY EITHER SIDE. 3.1 WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE FIRSTLY OBSERVE THAT THE ORDER PASSED BY THE AO CANNOT BE SAID TO B E U/S. 154 OF THE ACT AS CLAIMED BY THE ASSESSEE VIDE ITS MEMORANDUM OF APPEAL BEFORE T HE LD. CIT(A) AND ACCEPTED BY HIM. IN FACT HE HIMSELF HAS CONSIDERED THE ISSUE ON ITS MERITS WHICH COULD ONLY BE SO AFTER CONSIDERING ITS ADMISSIBILITY U/S. 154. OUR SECOND OBSERVATION IS THAT THE TRIBUNAL HAVING ALREADY ADJUDICATED ON THE ASSESSMENT FOR THE YEAR ONLY MATTERS THAT SURVIVE THE SAME PER THE QUESTION OF LAW REFERRED TO THE HONBLE HIG H COURT WOULD BE OPEN TO CORRECTION I.E. IN LIGHT OF ITS DECISION. THE TRIBUNALS OR DER HAS NOT BEEN PLACED ON RECORD BY THE PARTIES. WE HAVE CAREFULLY PERUSED THE ENTIRE JUDGM ENT BY THE HONBLE HIGH COURT IN THE ASSESSEES CASE FOR THE YEAR. IN ANSWERING THE QUE STION POSED BEFORE IT THE HONBLE COURT HAS CLARIFIED THE LAW IN THE MATTER I.E OF THE AP PLICABILITY OF THE DOCTRINE OF MUTUALITY REFERRING TO A SERIES OF DECISIONS IN THE MATTER BY THE HONBLE APEX COURT OBSERVING NO INCONSISTENCY THEREIN OVER TIME. THE ISSUE ARISING IN ITS APPEALS BEING CENTRED AROUND THE APPLICATION OF CONCEPT OF MUTUALITY IT WOULD BE US EFUL TO REPRODUCE THE RELEVANT EXTRACTS THEREFROM: THE APPLICATION OF DOCTRINE OF MUTUALITY WAS CON SIDERED BY THE APEX COURT IN CIT VS. BANKIPUR CLUB LTD. (1997) 226 ITR 97. THE COURT HELD IN ORDER TO APPLY THE DOCTRINE OF MUTUALITY THERE MUST BE COMPL ETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. THE COURT QUOTE D WITH APPROVAL THE REASONING OF THE SUPREME COURT IN CIT VS. ROYAL WESTERN INDIA TURF CLUB LTD. (1953) 24 ITR 551 (SC) CIT VS. KUMBAKONAM MUTUAL BENEFIT FUND LTD. (1964) 53 ITR 241 (SC) AND FLETCHER (ON HIS OWN BEHALF AND ON BEHALF OF TRUSTEES AND COMMITTEE OF DOCTORS CAVE BATHING CLUB) VS. ITC (1971) 3 ALL ER 1185 (PC) AND HELD THAT IF THE OBJECT OF THE ASSESSEE-COMPANY CLAIMING TO BE A MUTUAL CONCERN OR CLUB IS TO CARRY ON A PARTICULAR BUSINESS AND MONEY IS R EALISED BOTH FROM THE MEMBERS AND FROM NON-MEMBERS FOR THE SAME CONSIDERATION BY GIVING THE SAME OR SIMILAR FACILITIES TO ALL ALIKE IN RESPECT OF THE ONE AND T HE SAME BUSINESS CARRIED ON BY IT THE DEALINGS AS A WHOLE DISCLOSE THE SAME PROFIT-EA RNING MOTIVE AND ARE ALIKE TAINTED WITH COMMERCIALITY. IN OTHER WORDS THE ACT IVITY CARRIED ON BY THE ASSESSEE IN SUCH CASES CLAIMING TO BE A MUTUAL CONCERN OR MEMBERS CLUB IS A TRADE OR AN ADVENTURE IN THE NATURE OF TRADE AND THE TRA NSACTIONS ENTERED INTO WITH THE MEMBERS OR NON-MEMBERS ALIKE IS A TRADE/BUSINESS/TR ANSACTION AND THE RESULTANT I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 4 SURPLUS IS PROFIT-INCOME LIABLE TO TAX. THE COURT H ELD THAT THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPA TORS. THE ABOVEMENTIONED DECISION WAS FOLLOWED BY THE APEX COURT IN CHELMSFORD CLUB VS. CIT (2000) 243 ITR 89. THE COURT HELD THAT UNDER THE INCOME-TAX A CT 1961 WHAT IS TAXED IS THE INCOME PROFITS OR GAINS EARNED OR ARSING ACCR UING TO A PERSON. WHERE A NUMBER OF PERSONS COMBINE TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OBJECT AND IN THIS RES PECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY THEN ANY SURPLUS R ETURNED TO THOSE PERSONS CANNOT BE REGARDED IN ANY SENSE AS PROFIT. THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. IF THESE REQUIR EMENTS ARE FULFILLED IT IS IMMATERIAL WHAT PARTICULAR FORM THE ASSOCIATION TAK ES. TRADING BETWEEN PERSONS ASSOCIATING TOGETHER IN THIS WAY DOES NOT GIVE RISE TO PROFITS WHICH ARE CHARGEABLE TO TAX. WHERE THE TRADE OR ACTIVITY IS MUTUAL THE FACT THAT AS REGARDS CERTAIN ACTIVITIES CERTAIN MEMBERS ONLY OF THE ASSOCIATION TAKE ADVANTAGE OF THE FACILITIES WHICH IT OFFERS DOES NOT AFFECT THE MUTUALITY OF T HE ENTERPRISE. THE LAW RECOGNISES THE PRINCIPLE OF MUTUALITY EXCLUDING THE LEVY OF IN COME-TAX FROM THE INCOME OF SUCH BUSINESS TO WHICH THE ABOVE PRINCIPLE IS APPLI CABLE. IN THAT CASE THE APEX COURT HELD THAT THE ASSESSEES BUSINESS WAS GOVERNE D BY THE DOCTRINE OF MUTUALITY. HELD THAT THE REAL CONTRIBUTORS OF INCOME BY AVA ILING OF THE FACILITIES OF THE MARRIAGE HALL WERE NOT THE MEMBERS BUT NON-MEMBERS . IN ORDER TO ENABLE THEM TO AVAIL OF THE FACILITIES OF THE CLUB NON-MEMBERS W ERE TO BE GIVEN TEMPORARY MEMBERSHIP ONLY FOR THE PURPOSE OF AVAILING OF THI S BENEFIT. THE TRIVANDRUM CLUBS CASE (1989) 177 ITR 550 (KER.) WAS DECIDED ON THE BASIS OF THE ADMITTED FACTUAL POSITION THAT NO NON-MEMBER WAS ENJOYING T HE FACILITIES OF THE CLUB. THE FACTS IN THIS CASE WERE DIFFERENT. THE MARRIAGE H ALL WAS ADMITTEDLY BEING RENTED OUT TO NON-MEMBERS MAKING THEM TEMPORARY MEMBERS O NLY FOR THE PURPOSE OF LETTING OUT THE MARRIAGE HALL FROM NON-MEMBERS. T HE PRINCIPLE OF MUTUALITY WOULD NOT APPLY. RENTAL INCOME RECEIVED FROM NON-MEMBERS WAS TAXABLE. 3.2 HAVING THUS HIGHLIGHTED THE STATEMENT OF LA W BY THE HONBLE SUPREME COURT AS WELL AS BY THE HONBLE JURISDICTIONAL HIGH COURT W E PROCEED TO DISCUSS THE ISSUES ARISING IN THE PRESENT SET OF APPEALS. COMING BACK TO THE DISPUTE FOR A.Y. 1988-89 WE RENDER OUR FINDING AS FOLLOWS: A). IT IS CLEAR THAT THE JUDGMENT BY THE HONBLE CO URT FOR THE YEAR WOULD COVER ALL RECEIPTS FROM THE NON-MEMBERS EVEN AS THE QUESTION POSED THERETO CARRIES REFERENCE ONLY TO THE RENTAL INCOME FROM NON-MEMBERS. THIS IS AS F IRSTLY THE ASSESSEE HAS ADMITTEDLY RECEIPTS FROM THE NON-MEMBERS FOR THE YEAR AND THE DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT WHICH WOULD GOVERN THE ASSESSMENT CLAR IFIES AND HOLDS ON THE LAW IN THE MATTER. OF COURSE THE POSITION WOULD BE DIFFERENT; THE TRIBUNAL ORDER BEING NOT BEFORE I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 5 US WHERE THE FACT OF A RECEIPT BEING FROM MEMBER O R NON-MEMBER IS IN DISPUTE AND WHICH CASE BEING A MATTER OF FACT THE DECISION BY THE TRIBUNAL WOULD BE FINAL. B). IN THIS REGARD WE OBSERVE THE BALANCE SHEET OF THE RELEVANT YEAR BEING THE CALENDAR YEAR 1987 ( PAPER BOOK (PB) PG. NOS. 45 TO 54 ) TH AT THE TOTAL RECEIPTS FROM THE HALL RENT IS AT RS. 3 09 502/- THE WHOLE OF WHICH HAS BEEN ADOPTED BY THE AO IN FRAMING THE ASSESSMENT. THE SAME WOULD OSTENSIBLY CONTAIN RENT RECEIPTS FROM MEMBERS AS WELL AND WHICH WOULD DEFINITELY NOT BE TAXABLE ON THE BASIS OF PRINCIPLE OF MUTUALITY. THE ORDER CONTAINS NO FINDING IN THE MATTER THE SAME AS IT WOULD APPEAR HAVING ESCAPED HIS ATTENTION EVEN AS THE SAME CONSTITUTED THE CENTREP IECE OF THE CONTROVERSY. C). THE SECOND COMPONENT OF RS. 8 13 956/- INCLUDES THREE INCOMES GENERATED FROM NON-MEMBERS BEING:- I) ENTRY FEES RS. 4 67 500/- II) TEMPORARY MEMBERSHIP FEES RS . 66 820/- III) MISCELLANEOUS INCOME RS. 27 940/- THIS IS AS THE OTHER INCOMES ARE ADMITTEDLY FROM ME MBERS AND NEITHER IS THERE ANY FINDING BY ANY AUTHORITY ON RECORD TO SHOW THAT IT IS NOT SO. AGAIN WE FIND NO FINDING BY THE LD. CIT(A) ON EACH OF THESE INCOMES WHICH STOO D BROUGHT TO TAX BY THE AO ON THE STRENGTH OF THE DECISION BY THE HONBLE JURISDICTIO NAL HIGH COURT IN ASSESSEE'S OWN CASE FOR THE YEAR CLEARLY DIRECTING THAT THE INCOMES FR OM THE NON-MEMBERS SHALL NOT BE SUBJECT TO EXEMPTION FROM TAX AS THE PRINCIPLE OF MUTUALIT Y IS NOT APPLICABLE THERETO. SAVE ANY FACTUAL FINDING BY THE TRIBUNAL WITH REGARD TO EACH OF THESE RECEIPTS EITHER IN WHOLE OR IN PART AS BEING FROM MEMBERS WE FIND NO BASIS IN TH E DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT TO HOLD IN ASSESSEES FAV OUR. THE ASSESSMENT ORDER AS PASSED WOULD STAND TO BE CONFIRMED IN RESPECT THEREOF AND CONCOMITANTLY FAIL IN RESPECT OF OTHER ITEMS AGGREGATING TO RS. 251696/-. 3.3 THE ASSESSEE WE FIND HAS BEFORE THE LD. CIT(A ) RAISED THE ISSUE OF COMPUTATION OF INCOME WITH THE AO HAVING ALLOWED AN EXPENDITURE O F ONLY RS. 1 LAKH AGAINST THE RELEVANT INCOMES. IN THIS REGARD WE REITERATE THAT THE ISSUE BEFORE US BEING THE SECOND ROUND BEFORE THE TRIBUNAL IS LIMITED ONLY TO THE D ETERMINATION OF THE ISSUES AS ARISING ON THE APPLICATION OF THE DECISION IN THE CASE BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSSSEES OWN CASE FOR THE YEAR. THE SAID ISSUE T HUS STANDS TO BE GOVERNED BY THE ORDER BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE YEAR AND THEREFORE IS TO BE DECIDED ON ITS BASIS. IT IS OPEN NEITHER TO THE ASSESSEE OR T HE REVENUE TO DEVIATE THEREFROM. WE I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 6 ACCORDINGLY RESTORE THIS ISSUE AS WELL AS THOSE S TATED AT PARA 3.2 (A) TO 3.2 (C) BACK TO THE FILE OF THE AO TO BE DECIDED FOLLOWING THE SAME. WE DECIDE ACCORDINGLY. 4. IN THE RESULT THE REVENUE APPEAL IS PARTLY ALLO WED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES WHILE THE ASSESSEES C.O. BEING ONLY SU PPORTIVE IN NATURE IS DISMISSED. 5. WE NEXT TAKE UP THE CASES FOR THE OTHER THREE YE ARS UNDER REFERENCE. THE ISSUES IS BEING COMMON WE SHALL DISCUS THE SAME WITH REFEREN CE TO THE FACTS FIGURES TO THE EXTENT NECESSARY FOR A.Y. 2002-03. HOWEVER AT THE VERY OUTSET IT MAY BE CLARIFIED THAT OUR OBSERVATIONS AND FINDINGS IN RELATION TO THE APPEAL FOR A.Y. 1988-89 BEING BASED ONLY ON THE LAW AS ENUNCIATED BY THE HONBLE HIGH COURT WO ULD APPLY PARI PASSU IN RELATION TO THE SAME ISSUES FOR THESE YEARS MUTATIS MUTANDIS . 5.1 THE ASSESSMENT FOR THE YEAR STANDS FRAMED AT RS . 82 22 030/- BY THE AO FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE JURISDICTIO NAL HIGH COURT IN THE ASSESSEES CASE FOR A.Y. 1988-89. THE LD. CIT(A) IN APPEAL HOWEVE R DETERMINES THE SAME AT RS. 8 67 744/- . IN DOING SO THERE IS PRESUMABLY NEITHER A BREACH NOR COULD POSSIBLY BE BY THE FIRST APPELLATE AUTHORITY BEING BINDING OF THE P RINCIPLES LAID DOWN BY THE HONBLE COURT SO THAT THE ISSUE INVOLVED IN THE PRESENT (SET OF ) CASES IS THE APPLICATION OF THE SAME IN THE FACTS AND CIRCUMSTANCES OF THE CASE. FURTHER THE SAID PRINCIPLES BIND US AS WELL SO THAT OUR ADJUDICATION IS AGAIN ONLY THE APPLICATION OF O UR UNDERSTANDING OF THE SAID DECISION EXCEPT IN RELATION TO MATTERS NOT COVERED THEREBY. THE ASSESSEES COS WE FIND AS ONLY SUPPORTIVE IN NATURE AND THUS WOULD NOT WARRANT A NY SEPARATE ADJUDICATION. 5.2 AS APPARENT THERE IS A WIDE DIFFERENCE BETWEEN THE INCOMES AS ASSESSED BY THE AUTHORITIES BELOW AND FOR EACH OF THE YEARS UNDER REFERENCE. WE THEREFORE PROCEED BY DISCUSSING EACH OF THE ITEMS COMPRISING THE INCOME ALONG WITH THE REASONS BY THE TWO AUTHORITIES IN SUPPORT OF THEIR RESPECTIVE DECISION S. I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 7 5.3 THE FIRST ITEM RELATES TO THE TEMPORARY MEMBERS HIP FEES WHICH AS PER AUDITED ACCOUNTS IS STATED AT RS. 30 80 214/- (SCH. IX). SO HOWEVER THE RELEVANT ACCOUNT TITLED TEMPORARY MEMBERSHIP FEES P.S.HALL STATES IT TO BE AT RS. 21 13 500/- THE ASSESSEE ON BEING CALLED UPON TO EXPLAIN THE SAID DIFFERENCE ISSUED CLARIFICATION VIDE LETTER DATED 30.11.2007 WHICH WAS FOUND AS NOT CONVINCING BY TH E AO AS THE TEMPORARY MEMBERSHIP FEES COLLECTED FROM THE MEMBERS ON BEHALF OF THE GU ESTS FOR ENTERTAINING THEM IS NOT GOVERNED BY THE PRINCIPLE OF MUTUALITY INASMUCH AS THE IDENTITY OF THE PARTICIPATORS AND THE CONTRIBUTORS DOES NOT EXIST. WE FIND THE AOS O BJECTION WHICH HAS NOT BEEN IMPUGNED ON ITS FACTUAL INTEGRITY AS VALID BEING IN CONFORMITY WITH THE LAW AS EXPLAINED BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSE ES OWN CASE FOR AY 1988-89 CLEARLY HOLDING IN THE FACTS OF THAT CASE THAT THE MEMBERS HIP HAVING BEEN EXTENDED ON A TEMPORARY BASIS ONLY TO ACCOMMODATE THE NON-MEMBERS FOR THE PURPOSE AND WITH A VIEW TO LETTING OUT THE MARRIAGE HALL WOULD NOT CHANGE HIS STATUS AS A NON-MEMBERS. IN FACT THE RECEIPT UNDER REFERENCE IS DIRECTLY COVERED BY THE SAID DECISION AS APPARENT FROM THE AUDITED ACCOUNTS AND THE AO OBSERVATION IS PERHAPS ONLY IN THE CONTEXT OF THE MODUS OPERANDI ADOPTED BY THE ASSESSEE BY BOOKING THE HALL BY A M EMBER IN HIS NAME ONLY TO ACCOMMODATE A NON-MEMBER WHICH WOULD ONLY BE A CAS E OF NAME-LENDING OR A MISUSE OF MEMBERSHIP RIGHTS CLEARLY DEALT WITH BY THE HON BLE COURT PER ITS DECISION (SUPRA) HOLDING THAT NO MUTUALITY EXISTS IN SUCH CASES EVE N IF SUCH A COURSE HAS THE SANCTION OF THE BYELAWS OF THE CLUB. 5.4 THE LD. CIT(A) WE FIND HAS NOT GIVEN ANY FIND ING IN THE MATTER. UNDER THE CIRCUMSTANCES THEREFORE THE MATTER WOULD REQUIRE TO BE RESTORED BACK TO HIS FILE FOR PASSING A SPEAKING ORDER IN THE LIGHT OF THE BINDIN G DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE AS WELL AS OU R OBSERVATIONS FOLLOWING THE SAME AND WITH REFERENCE TO THE MATERIAL ON RECORD AS F OR INSTANCE THE ASSESSEES EXPLANATION VIDE LETTER DATED 30/11/2007 AND AFTER ALLOWING PR OPER OPPORTUNITY OF BEING HEARD TO BOTH THE PARTIES. WE DECIDE ACCORDINGLY. I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 8 5.6 THE NEXT ITEM OF THE ASSESSEES INCOME BEING P. S. HALL RENT WHICH STANDS TAKEN BY THE AO AT RS. 34.04 LAKHS. THE BASIS FOR THE SAME I S THAT HE OBSERVED THE RELEVANT ACCOUNT TO CONTAIN A TOTAL RECEIPT OF RS. 3.99 LAKHS FROM 1 48 NON-MEMBERS/TEMPORARY MEMBERS THE RATE FROM WHOM WAS AT RS. 23 000/- I.E. AS AG AINST A MUCH LOWER AMOUNT FROM THE MEMBERS. FINDING NO SATISFACTORY EXPLANATION FROM T HE ASSESSEE HE COMPUTED THE HALL RENT AT RS. 34.04 LAKHS I.E. BY TAKING THE PRODUC T OUT OF 148 AND RS. 23 000/-. THE LD. CIT(A) ON THE OTHER HAND HAS ADOPTED THE FIGURE O F RS. 3 91 762/- I.E. BY APPLYING THE RATIO OF 155/200 TO THE TOTAL HALL RENT FOR THE YEA R I.E. RS. 5.05 LAKHS. IN THIS REGARD WE FIRSTLY FIND THAT THE LD. CIT(A) HAS GIVEN NO BASIS FOR THE REVERSAL OF THE FIGURE ADOPTED BY THE AO WHICH IS ONLY ON THE BASIS OF THE INFORMATI ON SUPPLIED BY THE ASSESSEE ITSELF VIDE ITS LETTER DATED 18.9.2007. SECONDLY THE ASSESSEE S ACCOUNTS ITSELF REVEALING RECEIPT OF RENT FROM NON-MEMBERS AT RS. 3.99 LAKHS (FROM 148 MEMBER S) THE RATIO OF NON-MEMBER TO TOTAL MEMBERS FOR ALLOCATION WHICH WE OTHERWISE A PPROVE OF WILL NOT BE APPLICABLE; THE INFORMATION BEING SPECIFIC AND COMPLETE IN ITSELF. FURTHER FOR THE SAME REASON I.E. AS QUA TEMPORARY MEMBERSHIP FEES ( REFER PARA # 5.4 ) WE RESTORE THIS MATTER BACK TO THE FILE OF THE LD. CIT(A) WITH LIKE DIRECTIONS. 5.6 THE THIRD ITEM IN THE COMPUTATION OF THE ASSE SSEES INCOME IS PANDAL INCOME (SCHEDULE X TO THE BALANCE-SHEET). WE FIND NO DIFFE RENCE THEREIN INASMUCH AS BOTH THE PARTIES HAVE APPLIED THE RATIO OF 155/200 (77.5%) I N DETERMINING THE TAXABLE COMPONENT OF THE FIGURE AS STATED IN THE BALANCE-SHEET. HOWEV ER WHILE THE ASSESSEE CLAIMS THE DIFFERENCE TO BE ON THE BASIS OF RATIO OF TEMPORARY MEMBERS TO REGULAR MEMBERS (155/45) THE RATIO ADOPTED BY THE AO IS ON THE BASIS OF THE DETAILS OF THE SAID INCOME I.E. THE NUMBER OF DAYS THE PANDAL STOOD LET OUT TO MEMBERS AND NON-MEMBERS DURING THE RELEVANT PREVIOUS YEAR AND WHICH WOULD ONLY BE DIF FERENT FOR EACH YEAR BEING AT A TOTAL OF 45 AND 155 DAYS FOR THE PREVIOUS YEAR RELEVANT T O AY 2002-03. CLEARLY THE ALLOCATION OF THE INCOME CANNOT BE BASED ON THE STRENGTH OF TH E MEMBERSHIP BUT ONLY ON THE DIRECT SOURCE OF INCOME I.E. MEMBERS OR NON-MEMBERS AS THE CASE MAY BE SO THAT THE AOS BASIS WILL HOLD. WE DECIDE ACCORDINGLY. I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 9 5.7 THE FOURTH ITEM OF THE ASSESSEES INCOME IS INT EREST AT RS. 178743/-. WHILE THE AO TAKES THE SAME AS TAXABLE THE ASSESSEE CLAIMS EXE MPTION FOR THE WHOLE OF IT. WE OBSERVE THAT THE LD. CIT(A) HAS ALLOWED RELIEF TO THE ASSES SEE FOLLOWING THE DECISION BY THE TRIBUNAL IN THE ASSESSEES CASE FOR PRECEDING YEARS . THE ISSUE NEVERTHELESS WOULD WARRANT BEING DECIDED IN LIGHT OF THE DECISION BY T HE HONBLE HIGH COURT (SUPRA) AS THE EXEMPTION BEING CLAIMED BY THE ASSESSEE IS ONLY ON THE PRINCIPLE OF MUTUALITY WHICH STANDS DWELLED WITH AT LENGTH PER THE SAID DECISION SO AS TO BE COVERED THEREBY. EVEN AS WE HAVE RENDERED OUR FINDINGS IN THE MATTER PER PAR A # 3.2 OF THIS ORDER WHICH WOULD DISQUALIFY THE ASSESSEES CLAIM INASMUCH AS THE INT EREST INCOME ARISES OUT A CONTRACTUAL OBLIGATION BY THE BANK THE PAYER OF INTEREST A NO N-MEMBER TO THE ASSESSEE A SOCIAL CLUB THE ASSSESSEE HAS BEFORE US PLACED THE DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT IN ITS CASE (IN ITA 57 OF 2008 (ARISING OUT OF 107/ COCH/2003) DATED 27/2/2009) AT PAGES 4 TO 6 OF ITS PAPER-BOOK (PB) WHEREIN THE HONBLE COURT HAS DISMISSED THE REVENUES APPEAL ON THIS GROUND HOLDING THE ASSESSEES CLAIM AS VALID IN TERMS OF THE DECISION BY THE APEX COURT IN CHELMSFORD CLUB V. CIT 243 ITR 89 (SC). THE SAID DECISION WE OBSERVE STANDS ALSO FOLLOWED BY THE HONBLE HIGH CO URT IN THE ASSESSEES CASE FOR AY 1988-89 [AT 282 ITR 505 (KER.)]. SO HOWEVER THE DE CISION PLACED BEFORE US BY THE ASSESSEE BEING THE LATEST WILL HOLD. THE REVENUE HAS NOT BEEN ABLE TO SUPPORT ITS CASE WITH ANY LATER DECISION BY THE HONBLE JURISDICTION AL HIGH COURT OR THE APEX COURT. AS SUCH FOLLOWING THE LATEST DECISION BY THE SAID COU RT AS BROUGHT TO OUR NOTICE THIS ISSUE GETS DECIDED IN THE ASSESSEES FAVOUR. WE DECIDE AC CORDINGLY. 5.8 THE FIFTH ITEM OF INCOME IS IN RESPECT OF VARIO US INCOMES ATTRIBUTABLE TO VARIOUS ASSETS/FACILITIES OFFERED BY THE CLUB VIZ. CONVENT ION HALL GENERATOR ARCH ETC. TREATING EACH OF THEM AS A SERVICE CENTRE. WHILE THE ASSESS EE CLAIMS THE ENTIRE OF IT TO BE EXEMPT OSTENSIBLY ON THE BASIS OF IT BEING FROM MEMBERS T HE AO FINDING THE SAID RECEIPTS TO REPRESENT EARNINGS FROM NON-MEMBERS AS WELL HAS AP PLIED THE RATIO OF TEMPORARY MEMBERS (NON-MEMBERS) TO THE TOTAL MEMBERS I.E. A T 155/200 EXCEPT IN THE CASE OF LPG COOKING RANGE FOR WHICH A RATIO OF 71.6% HAS BEEN APPLIED (WITHOUT STATING ANY REASON(S) IN SUPPORT) ASSESSING THE TOTAL INCOME THEREFROM F OR THE YEAR AT RS. 10511681/- . AGAIN I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 10 WE FIND NO FINDING BY THE CIT(A) IN THE MATTER EVE N AS HE DIRECTS DELETION OF THE SAID INCOMES. IN VIEW THEREOF WE RESTORE THIS MATTER BA CK TO THE FILE OF THE LD. CIT(A) WITH DIRECTIONS AS STATED VIDE PARA # 5.4 OF THIS ORDER. 5.9 THE NEXT ITEM OF THE ASSESSEES INCOME PERTAINS TO THE ALLOCATION OF EXPENDITURE I.E. DIRECT AND INDIRECT AS WELL AS DEPRECIATION. IN THIS REGARD WE FIND THAT THE FIGURES PER BOTH THE ORDERS NEED TO BE RECONCILED; THE EXPENDIT URE UNDER VARIOUS HEADS BEING REFLECTED THEREIN AT DIFFERENT AMOUNTS AND NEITHER MATCHING IN TOTALITY. FURTHER WE ALSO OBSERVE A DIFFERENCE IN THE ALLOCATION RATIO. THE ASSESSEES CLAIMS ALLOWANCE OF 10% OF COMMON EXPENSES AND TO THE EXTENT RATIO OF 77.5% ( 155/200) FOR INDIRECT EXPENSES. THE AO ON THE OTHER HAND HAS APPLIED THE SAID RATIO ( 155/200) TO 10% OF THE INDIRECT EXPENSES (RS. 478347/-) EVEN AS WE FIND THAT HE HA S ACTUALLY CALCULATED SOME OF THE ALLOCABLE EXPENDITURE (RS. 678223/-) BY APPLYING TH E RATIO OF 50% WITHOUT SPECIFYING THE REASON FOR THE SAME. AS SUCH THE MATTER NEEDS FURT HER CLARIFICATION. THE RATIO OF 10% HOWEVER APPEARS TO BE MUTUALLY AGREED BEING IN TE RMS OF THE ORDER BY THE FIRST APPELLATE AUTHORITY FOR THE PRECEDING YEARS (AY 2000-01) EVE N AS THE ASSESSEE HAS CONSIDERED THE CORRESPONDING RATIO OF 20% IN ITS ACCOUNTS BY PASS ING THE REQUIRED JOURNAL ENTRIES. THE EFFECT OF THOSE ENTRIES WOULD FIRST NEED TO BE NEUT RALIZED BEFORE APPLYING ANY RATIO WHICH HAS NOT BEEN DONE. AS REGARDS DIRECT EXPENSES WE F IND NO DIFFERENCE IN THE ALLOCATION RATIO; BOTH THE PARTIES ADOPTING THE SAME RATIO OF 155/200 EVEN AS WE OBSERVE A WIDE DIFFERENCE BETWEEN THE AMOUNTS BEING SO ALLOCATED SO THAT THERE IS A DIFFERENCE AS ALSO NOTED EARLIER IN THE CLASSIFICATION OF THE EXPENSE S AS WELL. WHILE THE ASSESSEE CLAIMS THE DIRECT EXPENSES AT RS. 11.77 LAKHS THE AO WORKS OU T THE SAME AT RS. 545614/-. AS REGARDS DEPRECIATION THE SAME WOULD BE REQUIRED TO BE ALLOCATED ON THE BASIS OF WHETHER IT REPRESENTS A DIRECT EXPENSE OR AN INDIRECT EXPEN SE OR BOTH (TO SOME EXTENT) SO THAT THE RATIO APPLICABLE TO THE RELEVANT CATEGORY WOULD APP LY. THE DEPRECIATION RELATABLE TO THE ASSETS DIRECTLY EMPLOYED IN EARNING THE RELEVANT IN COME AS (SAY) HALL GENERATING RENTAL INCOME GENERATOR ETC. CAN ONLY TO BE CONSIDERED AS DIRECT EXPENSES WHILE THAT ON THE OTHER GENERAL ASSETS AS INDIRECT EXPENSES. CLEARLY THE MATTER REQUIRES DELIBERATION AND VERIFICATION OF THE FACTS AND FIGURES WHICH IS NEI THER FEASIBLE NOR ADVISABLE AT THIS STAGE. I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 11 THE LD. CIT(A) OUGHT TO HAVE GIVE DETAILED FINDING IN THE MATTER IF NECESSARY BY REQUIRING REPORTING BY THE AO AFTER CONSIDERING THE ASSESSEES OBJECTIONS AND ITS VIEW TAKEN INTO ACCOUNT I.E. TO THE EXTENT IT HAS NOT BEEN. THIS AS WE FIND DIFFERENCE QUA THE BASIC FACTS AND FIGURES WHICH ORDINARILY SHOULD GE T RESOLVED AND NOT TRAVEL TO THE SECOND APPELLATE STAGE. IN ANY CASE EVEN IF THE DIFFERENC E SUSTAINS THE BASIS THEREOF TOGETHER WITH THE RELEVANT FINDING(S) BY THE FIRST APPELLATE AUTHORITY ONLY WOULD ENABLE PROPER ADJUDICATION BY THE TRIBUNAL. WE THEREFORE ARE CO NSTRAINED TO RESTORE THIS MATTER BACK TO THE FILE OF THE LD. CIT(A) TO DO LIKEWISE AND ADJUD ICATE THE MATTER PER A SPEAKING ORDER GIVING PROPER BASIS FOR ALLOCATION OF EACH OF THE E XPENSES INCLUDING THEIR CLASSIFICATION. WE DECIDE ACCORDINGLY. 6. IN THE RESULT THE REVENUE APPEALS FOR AY 2002 -03 2004-05 & 2005-06 ARE ALLOWED FOR STATISTICAL PURPOSES AND THE ASSESSEES COS BE ING ONLY SUPPORTIVE IN NATURE NOT WARRANTING ANY ADJUDICATION DISMISSED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 30 TH APRIL 2010 GJ COPY TO: 1. M/S. TRIVANDRUM CLUB VAZHUTHACAUD TRIVANDRUM. 2. THE ASSISTANT DIRECTOR OF INCOME-TAX (EXEMPTION ) RANGE-1 TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX TRIVANDRUM. 5. D.R./I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTR AR) I TA. NOS. 762 763 764 & 765/COCH./200 8 & C.O. NOS. 72 73 74 & 75/COCH/2008 12