- (1.) These are three references under section 256(1) of the Income-tax Act, 1961 (hereinafter called the Act). In these references we are concerned with the assessment years 1972-73 to 1974-75. The questions referred to us for our opinion are as follows : (1) Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that the assessee-club is a mutual concern (2) Whether, on the facts and circumstances of the casen the Tribunal was legally justified in holding that income derived by the assessee-club from sale of liquor etc., (in the bar account) to its members and their guests was not chargeable to tax under the income-tax, 1961 (3) Whether, on the facts and circumstances of the case, the Tribunal was legally justified in holding that the income from letting out of rooms to its members and their guests would also be exempt from tax The core question is whether the principle of mutuality is available to the assessee which is the subject-matter of the first question referred to us. The answer to the other two questions depends upon the answer to the first question.
(2.) The assessee is a private limited company. The assessee returned an income of Rs. 7,510. The club lets out its premises to Lions Club Rotary Club and individuals. In short the income from the club property alone was returned by the assessee. According to the Income-tax officer the assessee was not a mutual concern and therefore it was liable to pay Income-tax on its entire income. The Income-tax officer accordingly assessed all heads of income in the income in the assessment order and assessed tax accordingly on a total sum of Rs. 12,436 for the year 1972-73, a sum of Rs. 20,490 for the year 1973-74 and a sum of Rs. 16,530 for the assessment year 1974-75.
(3.) The assessee agitated the same questions before the Appellate Assistant Commissioner on appeal. The Appellate Assistant Commissioner also in agreement with the Income-tax officer rejected the claim of the assessee to its being mutual aid concern. The assessee then moved the Appellate Tribunal. The Appellate Tribunal accepted the stand of the assessee and held that the principle of mutuality was available between the assessee and its members and therefore the income of the club was not liable to tax.;