Case Law Details

Case Name : Commissioner Of Income Tax Vs Karnavati Club Ltd. (Gujarat High Court)
Appeal Number : Tax Appeal No. 198 of 2007
Date of Judgement/Order : 07/06/2017
Related Assessment Year :

This Tax Appeal is filed challenging the judgement of the Income Tax Appellate Tribunal dated 28.08.2006. The Tax Appeal has been taken up for consideration of following substantial questions of law:

[A] “Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the addition of Rs. 1,52,29,000/­ made by the Assessing Officer in respect of life membership and entrance fees and received by the assessee on the ground that mutuality was not applicable to the assessee company?”

[B] “Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the dis allowance of Rs. 2,37,387/­ made by the Assessing Officer in respect of interest on loan used for acquisition of capital assets, capitalized by the assessee?”

2 Question A came up for consideration before this Court earlier in Tax Appeal No. 839 of 2007 and connected appeals. The Division Bench by its judgement dated 01.08.2016, answered the question in favor of the Assessee, making following observations:

“3 Briefly stated, the facts are that the assessee is a limited company running a Club for its members. In this case, the assessment was completed vide order passed u/s.143(3) of the Income ­Tax Act, 1961 dated 26.03.2001 determining the total income at Rs.14,29,220/­ after making certain additions / dis allowances, as against the return of income of Rs.Nil. Being aggrieved by the said order, the assessee preferred appeal before the CIT(A), which came to be allowed, vide order dated 16.04.2002. Against the said order, the Department preferred appeal being ITA No. 2337/Ahd/2002 before the Income Tax Appellate Tribunal. The said appeal was dismissed by the Tribunal vide order dated 10.10.2006. Hence, these tax appeals.

4. At the outset, Mr. S.N. Soparkar, learned Senior Advocate submitted that the controversy raised in these Appeals stands cancelled by a judgement of this Court in the case of Junagadh Gumkhana Vs. Income- tax Officer, [2015] 56 281 (Gujarat) wherein, it has been held that principle of mutuality would apply to a transaction between a member and the Club and therefore, “guest charge” received by Club from its members would not be liable to tax.

5. Learned Senior Standing Counsel for the Revenue was not in a position to point out any distinguishing feature, which may warrant a different view.

6. In view of the above and for the reasons given in the afore­mentioned judgment, the question raised in these Tax Appeals are answered in favor of the assessee and against the Revenue. The appeals stands disposed of accordingly.”

3. This question is answered against the Revenue.

4. So far as question B is concerned, we notice that Tribunal has while rejecting Revenue’s Appeal against the order of the CIT(A), has made following observations:

“2.7 We have heard the rival submissions of both the parties and we find that the CIT(A)in his order has held that the interest income of  A.Y. 1993­- 94 should be treated as income from other sources and hence treated the same as income from other sources. But he has sent the matter in relation to the A.Y.1994­- 95 to the file of the AO for verification of the assessee’s contention that there is a net deficit in the interest account with the direction that if that be so, no interest income shall be taxed in assessment year  1994- 95. Therefore, in our opinion, the CIT (A) is justified in his action.”

5 It can thus be seen that the CIT(A) had sent the file back to the AO for verification of the assesse’s contention that there was a net deficit in the interest account. CIT(A) had further directed that if this be so, no interest income would be taxed during the said assessment year. The Tribunal merely confirmed this view and in the process, in our opinion, committed no error. This question is also, therefore, answered against the Revenue. Tax Appeal is disposed of.

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