In the High Court of Judicature at Madras Dated : 21.07.2008 Coram :- The Honourable Mr.Justice K.RAVIRAJA PANDIAN and The Honourable Mr.Justice P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.493 of 2008 The Commissioner of Income Tax Tamil Nadu I, Madras. .. Appellant /Appellant Vs. The Presidency Club 51, Ethiraj Salai Chennai 600 008 .. Respondent /Respondent TAX CASE (APPEAL) filed under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal Madras 'C' Bench dated 16.11.2007 in I.T.A.No.2253/Mds/2006 for the assessment year 2003-2004 and against the order of the Commissioner of Income Tax (Appeals) in ITA No.559/05-06 dated 7.8.06 and against the order of the Asst. Commissioner of Income Tax Company Circle III(2) Chennai-34, in P.A. No/GIR.No. AABCT10001G, dated 6.1.06. For Appellant : Mrs.Pushya Sitaraman JUDGMENT JUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J This appeal is filed by the revenue against the order of the Income Tax Appellate Tribunal Madras 'C' Bench dated 16.11.2007 in I.T.A.No.2253/Mds/2006 for the assessment year 2003-2004 by formulating the following substantial question of law:- "Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that, a sum of Rs.1,21,72,000/- non refundable entrance fee and Rs.4,30,000/- collected from its new member is not taxable, even though the above fees collected by the assessee being a revenue receipt?" https://hcservices.ecourts.gov.in/hcservices/ 2. The material facts culled out from the statement of facts in the memorandum of grounds go as follows:- The assessee is a Recreation Club. The assessee company filed its return of income for the assessment year 2003-2004 on 26.09.2004 showing total loss of Rs.58,49,698/-,which was processed under Section 143(1)(a) of the Act on 15.11.2004. The case was selected for scrutiny and notice under Section 143(2)/142(1) was issued. The Assessing Officer treated the non refundable entrance fee of Rs.1,21,72,000/- and Rs.4,30,000/- collected from his new Members as revenue receipts. Aggrieved bythe order of the assessing officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who by his order dated 07.08.2006 held in favour of the assessee by holding that the assessing officer has not brought on record any evidence to prove that the assessee has violated any principle of mutuality. The Commissioner of Income Tax (Appeals) further held that even if it is presumed that the entrance fee are revenue in nature, even then, the excess over expenditure club will not be taxable under the Act as long as they have not violated the principle of mutuality, following the decision in the case of Commissioner of Income Tax vs. Bankipur Club Ltd., reported in 226 ITR 97. The revenue filed an appeal against the order passed by the Commissioner of Income Tax (Appeals) to the Income Tax Appellate Tribunal and the Tribunal dismissed the appeal and decided the appeal in favour of the assessee following the decision reported in 226 ITR 97. The correctness of the said the order of the Income- tax Appellate Tribunal is challenged by the appellant in this appeal. 3. Learned counsel appearing for the revenue has submitted that the issue involved in this appeal is covered by the judgement of the Supreme Court in the case of Commissioner of Income Tax vs. Bankipur Club Ltd., reported in 226 ITR 97. 4. The Commissioner of Income Tax (Appeals) as well as the ultimate fact finding authority have come to the conclusion that the assessee club has not violated the guidelines prescribed for the mutual concerns and the revenue has not brought on record any evidence to establish that the assessee has violated the prnciples of mutuality. 5. In the case of Commissioner of Income Tax vs. Bankipur Club Ltd., reported in 226 ITR 97 , the Supreme Court has held as follows:- "In the light of the findings of fact the receipts for the various facilities extended by the clubs to its members, as part of the usual https://hcservices.ecourts.gov.in/hcservices/ privileges, advantages and conveniences, attached to the membership of the club, could not be said to be "a trading activity". The surplus-excess of receipts over the expenditure as a result of mutual arrangement, could not be said to be 'income' for the purpose of the Act". 6. In the light of the above decision, the appeal is dismissed. Sd/- Asst. Registrar /true copy/ Sub Asst. Registrar rg To 1)The Asst. Registrar of Income Tax, Appellate Tribunal, Rajaji Bhavan, II Floor, Besant Nagar, Madras-90 2.The Secretary, Central Board of Revenue, New Delhi. 3.The Assistant Registrar, Income-Tax Appellate Tribunal, III 'C' Bench, Madras. 4.The Commissioner of Income Tax (Appeals)-III, Chennai 5.The Asst. Commissioner of Income Tax Company Circle III(2), Chennai-34. +1 cc to Mrs.Pushya Sitaraman, Senior Standing Counsel for IT, SR.No.38928 Tax Case (A)No.493 of 2008 SGL (CO) SMK/31.7.08 https://hcservices.ecourts.gov.in/hcservices/