Law:

Section:

Section 4, read with section 22 of the Income-tax Act, 1961 - Mutual concern - Assessable as - Assessment year 1976-77 - Assessee club was incorporated with object to offer to its members all usual privileges, advantages, conveniences and accommodation of a Club - Memorandum of association of assessee club, provided for contribution of every member to assets of company and for distribution of surplus among existing members in equal shares - Whether assessee club was mutual concern and income thereof was not assessable - Held, yes - Whether, however, principle of mutuality was not applicable to income from property and that income was to be taxed in hands of assessee - Held, yes FACTS The assessee club was incorporated with the object, inter alia, to offer to its members all the usual privileges, advantages, conveniences and accommodation of a club. The memorandum of association provided for contribution by every member to the assets of the company in the event of winding up, of sums not exceeding Rs. 100, while clause 5 thereof provided for payment of surplus or distribution among the existing members in equal shares. The assessee filed its return of income for the relevant assessment year disclosing a loss. The loss was arrived at by setting off the loss incurred in various activities or amenities provided by the club against the gross house rent received. The Assessing Officer was of the view that the principle of mutuality applied to the assessee-club and any surplus was not to be treated as income from business as the transactions were limited to the members of the club only. However, he was of the view that the income from property was not covered by the principle of mutuality and, therefore, the same was to be assessed separately. The Commissioner (Appeals) and the Tribunal affirmed the view of the Assessing Officer. On reference : HELD If the contributors to mutual associations as well as the participants in the surplus arising out of the business carried on by the association happen to be the same, such an association is known as a mutual association and the income from the same will not fall within the ambit of the charging provisions of any taxing…

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