SPORTS CLUB OF GUJARAT LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee, the Sports Club of Gujarat Limited, Ahmedabad, a club incorporated as a limited company on 18th Jan., 1963, limited by guarantee, has the following as its main objects set out in the memorandum and articles of association :

(2.) THE other relevant clauses referred to in the course of proceedings before the tax authorities below are cls. (4), (6) (7) which read as under :

(3.) THE relevant assessment years are 1966 67 to 1969 70. During the said relevant years, the assessee club claimed that the income derived by it was exempt by virtue of S. 10(23) of the IT Act, 1961 (hereinafter called "the Act"). The ITO did not agree with this contention and relying on the decision of the Supreme Court in CIT vs. Kumbakonam Mutual Benefit Fund (1964) 53 ITR 241 (SC), held that there was no identity between the contributors and the participants and hence the principle of mutuality could not be invoked in the facts of the case. He accordingly brought to tax a sum of Rs. 34,391 for the asst. year 1966 67 and Rs. 78,620 for the asst. year 1967 68. However, for the asst. year 1968 69, the ITO determined the loss at Rs. 14,436 and allowed the same to be carried forward while for the asst. year 1969 70, he determined the taxable income at Rs. 12,470. Being aggrieved by this order, the assessee carried the matter in appeal before the AAC who rejected the claim of the assessee for exemption under S. 10(23) of the Act. The AAC next considered the question whether the income was exempt from tax on the general principle of mutuality as well as under ss. 28(iii) and 44A of the Act. The AAC came to the conclusion that the general principle of mutuality was clearly applicable to the assessee's case and consequently held that the surplus arising out of its activities would be outside the tax net. Except for a small part of the income derived from non members by way of subscriptions and charges, he held the rest of the income exempt from tax on the ground of mutuality. Thereupon, he directed the ITO to determine the income from non members and bring the same to tax. Next, the AAC examined the question of taxability of income from interest on fixed deposits and held that the income was taxable subject to deduction of deficiency from the interest income and computed the taxable income of the assessee. The result of this view taken by the AAC was that the assessments for the years 1968 69 and 1969 70 were required to be enhanced while the appeals in respect of the asst. yrs. 1966 67 and 1967 68 had to be partly allowed.