Case Law Details
Simply because some incidental activity of the assessee is revenue generating, does not provide any justification to hold that it is tainted with “commerciality” and reaches a point where relationship of mutuality ends and that of trading begins.
RELEVANT PARAGRAPH
19. In the present case, as already noted above, the respondent is incorporated as a society and the main objective is to improve the purpose of public enterprises. The membership of the society is open to public sector enterprises of Central/State Governments. It is, thus, performed for the benefit of its members, which are public sector. Enterprises it is not including in any “commercial activities” in traditional sense, but is catering to the needs of its members. In its building at Lodhi Road, New Delhi, it has convention centre which is normally given to its members for functions. Likewise, other part of the premises are available to the members for their use. Of course, for using convention centre as well as other parts of the building, these members pay some charges which becomes additional source of income. That by itself cannot be treated as commercial activity of the assessee. In Bankipur Club (supra), the Supreme Court held that if the dealings as a whole disclose the profit earning motives and are alike tainted with commerciality, only then principle of mutuality would cease to apply. The principle in this behalf was discerned as under:
“We understand these decisions to lay down the broad, proposition that, if the object of the assessee company claiming to he a “mutual concern” or “club”, is to carry on a particular business and money is realised 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 the same business carried on by it, the dealings as a whole disclose the same profit earning motive and are alike tainted with commerciality. In other words, the activity carried on by t-v»r. 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 transactions entered into with the members or non-members alike is a trade/business/ transaction and the resultant surplus is certainly profit – income liable to tax.”
20. This, such company claiming to be mutual concern or club whose object is to carry on particular business or where income is general from members and non members through the business carried on by it, then only it would be treated as tainted with commerciality. Profit earning has to be the prime motive behind. Such activities, which are business like activities. Obviously in the present case, this cannot be attributed to the assessee. The AO got influenced by the fact that the assessee had let out part of the premises to its members and was receiving rents and also giving the convention centre to non-members. That is not sufficient to clothe the activity of the assessee as commercial activity, which is* not the object with which the assessee society is formed. Pre-dominant object is to render appropriate assistance and help to its members for improving their performance and role. Thus, all the three ingredients laid down by the Supreme Court in Chelmsford Club would be applicable in the present case.
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