Law:

Section:

Section 4 of the Income-tax Act, 1961 - Mutual concern - Assessable as Even if there be temporary or honorary members who are not entitled to vote, assessee-club would not cease to be governed by principles of mutuality [AY 1992-93] Where the facilities extended by the clubs to their members are as a part of usual privileges, advantages and conveniences attached to the members of the club, the said activity cannot be said to be trading activity. On the other hand, if the activities disclose profit-earning motive and are tainted with commerciality, then it would cease to be mutuality and the very claim that the assessee is mutual concern of the members club would be of no consequence. Once a finding is recorded that there is no commerciality and what is being offered are usual privileges, advantages and conveniences that would attract the principle of mutuality. Such a finding and consequent applicability of the principle cannot be interfered with unless the revenue from the record points out that the findings are totally perverse. The assessee-club's members were described as gymkhana member, corporate member, short-term member all of whom were entitled to the advantages or privileges or membership of the club except that of being present or of voting at the general meetings of the club or of serving on the general committee and of proposing or seconding candidates for elections as members of the club. Apart from these members, there were life/founder/ordinary/super number members. The Assessing Officer pursuant to the return filed by the assessee, assessed the total income at Rs. 15,75,900. On appeal preferred by the assessee, the Commissioner (Appeals) noting the two distinct kind of members, held that the first category of members who were not allowed to vote during the general body meeting were also not eligible to participate or share in the surplus of the club on its winding up and held that entrance fees and commutation fees both had to be taken as revenue receipts and dismissed the appeals. In regard to income from house property he held that the principle of mutuality would not apply and that annual letting value would be taxable as such. The matter…

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