ITAT Bengaluru: Club Receipts Not Taxable in Lump Sum After Mutuality Is Accepted

Hennur Banaswadi Cosmopolitan Club Vs ITO (ITAT Bengaluru)

Once Mutuality Is Accepted, Miscellaneous Club Receipts Cannot Be Taxed in a Lump Sum Without Examining Their Individual Nature: ITAT Bengaluru

The assessee was a members’ club registered as an Association of Persons. It provided sports, recreation, gymnasium, cafeteria, bar and other facilities to its members. Its principal receipts consisted of membership charges and interest from bank deposits.

The assessee filed its return declaring an income of ₹1,35,970. During scrutiny assessment, the Assessing Officer noticed that the club was not registered under section 12A. On that basis, the AO treated various receipts of the club as taxable and made additions towards liquor sales, indirect income, rent and repairs and maintenance. The assessment was completed at ₹89,43,953, as against the returned income of ₹1,35,970.

Before the CIT(A), the assessee clarified that it was not a charitable trust and had never claimed exemption under section 11. Its claim was based on the principle of mutuality and not on registration under section 12A.

The assessee submitted that receipts from liquor sales, billiards, kitty, sports and other club activities arose exclusively from transactions with its members. It also explained that certain expenditure represented lease rent, bar licence renewal fees, property tax and pollution-control renewal fees. Payments to governmental authorities did not attract TDS. Similarly, expenditure on bar, sports and general maintenance did not result in the creation of any capital asset.