- (1.) NORTHERN India Motion Pictures Association, the assessee, is a public limited company. It is an association and its members consist of film distributors and exhibitors carrying on business in the States of Punjab, Haryana, Himachal Pradesh, Jammu and Kashmir and Chandigarh. The members contributed to the association admission fee and periodical subscriptions and in return got service benefit from the association to protect their rights, besides rendering general service to all the members, and if a particular member wanted any specific service to be rendered, separate charges were collected for the same. For the assessment year 1977-78, the Income-tax Officer wanted to subject the assessee to tax on the income derived from the admission fee, periodical subscriptions and specific service charges received from the members. The assessee pleaded that the receipts were exempt from tax on the general principle of mutuality under the head "others" and it was neither "business" income nor income under the head "other sources". The Income-tax Officer did not agree with the plea on the ground that in Clause 7 of the memorandum of association, it was provided that, upon winding up or dissolution of the association, the remaining property, after the satisfaction of its debts and liabilities, shall not be paid or distributed amongst the members but shall be given or transferred to such other institution or institutions having similar objects to be determined by the members at or before the time of dissolution, or in default thereof by the Prime Minister of the East Punjab and if this cannot be done, then, to some charitable object and since the amount was not to go back to the members, it could not be held that the principle of mutuality was satisfied. The assessee remained unsuccessful before the Appellate Assistant Commissioner but, on further appeal, the Income-tax Appellate Tribunal, Amritsar, by its ably written order, after referring to the various decided cases, gave relief to the assessee. This is how the Tribunal has referred the following questions for opinion : " (1) Whether, on the facts and in the circumstances of the case, the principle of mutuality is applicable to the assessee's receipts under the head 'others' ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the receipts under the head 'others' were neither income liable to be taxed under the head 'business' nor under the head 'other sources' ?"
(2.) COUNSEL for the Revenue has relied upon the following two decisions for answering the questions in favour of the Revenue : CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241 (SC ). CIT v. Shree Jari Merchants Association [1977] 106 ITR 542 (Guj ).
(3.) AS against the above, counsel for the assessee has relied upon the following decisions : (1) CIT v. Merchant Navy Club [1974] 96 ITR 261 (AP) ; (2) CIT v. Madras Race Club [1976] 105 ITR 433 (Mad) ; (3) CIT v. West Godavari District Rice Millers Association [1984] 150 ITR 394 (AP) in which the Gujarat decision is dissented from ; (4) CIT v. Cochin Oil Merchants' Association [1987] 168 ITR 240 (Ker) ; and (5) CIT v. Nataraj Finance Corporation [1988] 169 ITR 732 (AP) ; 3. Kumbakonam Mutual Benefit Fund Ltd. 's case [1964] 53 ITR 241 (SC), is distinguishable on facts as there the assessee was a company limited by shares and carried on banking business restricted to its shareholders. It was concluded that the shareholder was entitled to participate in the profits as and when dividend was declared, even though he had not taken any loan from the respondent-assessee. On these facts, it was held that there was no complete identity between the contributors and the participators in a common fund as required by the principle of mutuality. This decision was referred to in the decisions relied upon on behalf of the assessee and yet it was held that even if there was a clause like 7, the absence of mutuality or a complete identity between the contributors and participators in a common fund was no less because the control over the disposal of the surplus remained with the contributors. The contributors, by incorporating Clause 7, did not deprive themselves of their control on the disposal of the surplus. Ultimately, they could agree to divide the surplus among themselves or to contribute the amount to a similar association or to a charitable trust. It is true that the Gujarat High Court decision in Shree Jari Merchants Association's case [1977] 106 ITR 542, does help the Revenue but we are of the opinion that the real import of "control over the disposal of the surplus" was not kept in view. In spite of Clause 7, it could not be said that the principle of mutuality in any way stood divided or was not satisfied. Therefore, agreeing with the view taken by the High Courts of Madras, Andhra Pradesh and Kerala in the cases mentioned above, we dissent from the view taken by the Gujarat High Court.;