Case Law Details
ACIT Vs Poona Club Ltd. (ITAT Pune)
The cross appeals by the Revenue and the assessee arose from the order of the CIT(A)-3, Pune dated 01.04.2016 for Assessment Year 2010-11 passed under section 143(3) of the Income-tax Act, 1961. The Tribunal heard both appeals together and disposed of them by a consolidated order.
In the assessee’s appeal, only Grounds Nos. 1 to 4 were pressed. The dispute related to interest income of ₹86,20,216 earned on bank deposits. The assessee had initially claimed that the interest was exempt on the principle of mutuality and, alternatively, sought deduction of 7.5% of the interest income as expenditure. The Assessing Officer, relying on Bangalore Club v. Commissioner of Income Tax (350 ITR 509) (SC), held that the interest income was taxable and did not allow any deduction. The CIT(A) upheld the taxability of the interest income and held that only expenditure directly incurred for earning such income was allowable under section 57(iii).
Before the Tribunal, the assessee contended that both issues stood covered by earlier Tribunal orders in its own case. The Tribunal observed that the issue of taxability of interest income had already been settled against the assessee in earlier years. On the issue of deduction, it referred to its earlier orders, including its latest order for Assessment Years 2008-09 and 2009-10, wherein it had held that the assessee was entitled to deduction at 7.5% of the interest income and was not entitled to any deduction under section 57(iii) over and above that amount. Following those earlier decisions, the Tribunal partly allowed Grounds Nos. 1 to 4 by restricting the deduction to 7.5% of the interest income. The remaining grounds in the assessee’s appeal were not pressed and were dismissed accordingly.
In the Revenue’s appeal, the dispute was whether receipts from members’ guests were covered by the principle of mutuality. The CIT(A) had held that such receipts were covered by the principle of mutuality. The assessee submitted that the issue was fully covered by earlier Tribunal orders in its own case and by the decisions of the Supreme Court in CIT v. Bankipur Club and Chelmsford Club v. CIT. The Revenue relied on the assessment order.
The Tribunal noted that, in the assessee’s own case for Assessment Year 1994-95, it had extensively examined the issue and held that charges received from members’ guests were exempt on the principle of mutuality. The same view had been followed in Assessment Year 1995-96. Following those earlier decisions, the Tribunal found no merit in the Revenue’s grounds and upheld the CIT(A)’s finding that receipts from members’ guests were covered by the principle of mutuality.
Accordingly, the Tribunal partly allowed the assessee’s appeal by allowing deduction at 7.5% of the taxable interest income while holding that the interest itself remained taxable, dismissed the other grounds as not pressed, and dismissed the Revenue’s appeal by holding that receipts from members’ guests were covered by the principle of mutuality.
FULL TEXT OF THE ORDER OF ITAT PUNE
The cross appeals filed by Revenue and assessee are against order of CIT(A)-3, Pune, dated 01.04.2016 relating to assessment year 2010-11 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
2. The cross appeals filed by assessee and Revenue were heard together and are being disposed of by this consolidated order for the sake of convenience.
3. The Revenue in ITA No.1481/PUN/2016 has raised the following grounds of appeal:-
1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that the receipts from the guest of the members also falls under the principle of mutuality.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in appreciating the fact that the definition of guests accepted in the ITAT in its order No. 625/IT/98 for the A.Y 1994-95 in assessee’s own case, is in different context as the role of clubs has changed the character over the period of time.
3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in appreciating that if the definition of guests is applied as accepted by ITAT in above said order, that even assessee was not required to maintain two accounts that is member and their guests.
4. On the facts and circumstances of the case, the Ld. CIT(A) has erred in appreciating that meaning of the term guest used in social purpose and that used in business of hospitality and entertainment is different, as in these industries, customers / consumers are being addressed as guest.
4. The assessee in ITA No.1512/PUN/2016 has raised the following grounds of appeal:-
1. The learned Commissioner of Income Tax (Appeals- 3){CIT-(A)} has erred in confirming the assessment on the issue of income from interest of Rs. 86,20,216/- by incorrectly applying the judgment of BANGLORE CLUB Vs COMMISSIONER OF INCOME TAX (350 ITR 509) (SC).
2. The CIT (A) has erred in not considering a claim on the point of computation of income from interest as prayed by the appellant before AO and in suppression of it declared in the return of income.
3. The learned CIT(A) has erred in not appreciating that the appellant had withdrawn their contention that income from interest is not covered by the Principle of Mutuality but had contested that expenditure for the purpose of earning receipts from interest be allowed u/s 57(ii) of the Income Tax Act, 1961 (ITA) as computed afresh in the assessment having regard to the facts, circumstances and judicial pronouncements, even- after ITAT’s order on this issue in ITA No 476/PN/99 for earlier years.
4. Without prejudice to the above the learned CIT (A) has erred in not following ITAT, Pune Bench decision in ITA No 476/PN/99 restricting appellants claim of expenses u/s 57(ii) to 7.5% of interest receipts, as alternatively prayed by the appellant.
5. The learned CIT (A) has erred in rejecting appellants claim on the point of income from Venue Charges received from member’s guest as made by the appellant in the assessment in suppression of the sum declared in the return of income by relying on ITAT order no. 625/PN/98.
6. The learned CIT (A) has erred in not accepting the claim that the receipts on venue from guests were assessable as income from business made by the appellant in the additional ground of appeal before her.
7. The learned CIT (A) has erred in rejecting appellants claim on the point of income from receipts from Cricket Ground booking by non members as made by appellant in the assessment in suppression of the sum declared in the return of income, by relying on ITAT order no. 625/PN/98.
8. The learned CIT (A) has erred in not accepting the claim that the receipts from Cricket Ground booking by non members as income from business, made by the appellant in the additional ground of appeal before her.
9. The learned CIT (A) has erred in rejecting appellants claim on the point of income from Dinner Receipts from member’s guest as made by the appellant in the assessment in suppression of the sum declared in the return of income by relying on ITAT order no.625/PN/98.
10. The learned CIT (A) has erred in not accepting the claim that the Dinner Receipts from members guests were assessable as income from business, made by the appellant in the additional ground of appeal before her.
11. The appellant prays that the income from interest, income from venue charges received from guests, income from Cricket Ground booking by non members and income from Dinner receipts from members guests be directed to be computed as claimed in the assessment. The appellant craves that the order of learned CIT (A) be set aside and AO be directed to follow as prayed.
5. The learned Authorized Representative for the assessee at the outset pointed out that the issues raised in cross appeals are squarely covered by the order of Tribunal in assessee’s own case in earlier years.
6. First, we take up the appeal of assessee, wherein the learned Authorized Representative for the assessee has only pressed grounds of appeal No.1 to 4.
7. Brief facts relating to the issue are that the assessee had received interest income of ₹ 86,20,216/- on deposits with banks. The assessee claimed that the said interest was not taxable in its hands on the principle of mutuality. Alternatively, the assessee claimed deduction of 7.5% as expenditure out of interest earned. The Assessing Officer relying on decision of Apex Court in the case of Bangalore Club reported in 350 ITR 509 (SC) held that interest is taxable in the hands of assessee and also no deduction was allowed out of said interest income.
8. The CIT(A) upheld the taxability of interest income in the hands of assessee and further held that only relevant expenditure which is directly expended to earn the said income was allowable under section 57(iii) of the Act.
9. The assessee is in appeal against the order of CIT(A) on both the counts.
10. The first issue raised by the assessee i.e. taxability of interest income in the hands of assessee stands settled against the assessee by earlier orders of Tribunal in assessee’s own case. The second aspect is the claim of deduction against the said interest income which has been allowed @ 7.5% of interest earned. In this regard, he placed reliance on the following orders of Tribunal:-
a. Poona Club Ltd. Vs ACIT in ITA Nos.1068 & 1069/PUN/2014, relating to assessment years 2008-09 & 2009-10, order dated 23.01.2018
b. Poona Club Ltd. Vs. ACIT in ITA No.625/PN/1998, relating to assessment year 1994-95, order dated 17.05.2000
c. Poona Club Ltd. Vs. ACIT in ITA No.476/PN/1999, relating to assessment year 1995-96, order dated 05.09.2005
d. ACIT Vs. Poona Club Ltd. in ITA No.509/PN/1999, relating to assessment year 1995-96, order dated 11.11.2009
11. The Tribunal in the latest order relating to assessment year 2008-09 (supra) had considered the claim of assessee over and above the deduction claimed out of interest expenditure and held that the assessee was not eligible for claiming any deduction under section 57(iii) of the Act over and above the deduction earlier allowed by the Tribunal in assessee’s own case to the extent of 7.5%. Following the same parity of reasoning, grounds of appeal No.1 to 4 raised by the assessee are thus, partly allowed. All the other grounds of appeal are not pressed, hence the same are dismissed as not pressed.
12. Now, coming to the appeal of Revenue, wherein the CIT(A) had held that the receipts from guest of members also falls under the ‘principle of mutuality’.
13. The learned Authorized Representative for the assessee pointed out that the issue stands covered by the orders Hon’ble Supreme Court which have been applied by the Tribunal in assessee’s own case and hence, there is no merit in the grounds of appeal raised by the Revenue. He placed reliance on the following decisions:-
a. Poona Club Ltd. Vs. ACIT in ITA No.625/PN/1998, relating to assessment year 1994-95, order dated 17.05.2000
b. Poona Club Ltd. Vs. ACIT in ITA No.476/PN/1999, relating to assessment year 1995-96, order dated 05.09.2005
c. ACIT Vs. Poona Club Ltd. in ITA No.509/PN/1999, relating to assessment year 1995-96, order dated 11.11.2009
d. CIT Vs. Bankipur Club reported in 226 ITR 97 (SC)
e. Chelmsford Club Vs. CIT (2000) 243 ITR 89 (SC)
14. The Revenue placed reliance on the order of Assessing Officer.
15. We have heard the rival contentions and perused the record. The issue raised in the grounds of appeal filed by the Revenue is in respect of charges received from guest of members and whether the same fall within the ‘principle of mutuality’, hence not taxable in the hands of assessee.
16. Tribunal in assessment year 1994-95 (supra) had elaborately considered the plea of assessee in this regard and held that the said charges received from guest of members were exempt on the ‘principle of mutuality’. The said principle has been applied in later years by the Tribunal i.e. assessment year 1995-96 (supra). Following the same parity of reasoning, we find no merit in the grounds of appeal raised by the Revenue.
17. In the result, appeal of assessee is partly allowed and appeal of Revenue is dismissed.
Order pronounced on this 26th day of September, 2018.
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