1.
"Whether, on the facts and in the circumstances of the case, the entrance fees and subscription received from the members of the assessee club were includible in the computation of the total income ?"
2. This is the question referred to this court by the Income-tax Appellate Tribunal, Hyderabad, under Section 256(1) of the I.T. Act, 1961.
3. The answer to this question, in our opinion, should be a positive "no".
4. We will now proceed to state the facts and the reasons for the answer we have indicated above.
5. The assessee is the "Secnnderabad Club" in Hyderabad. The ITO computed the income of the club for the three years under appeal before the Tribunal, and under reference before us, after proportionately dividing the net surplus on the basis of receipts from non-members and the total receipts. It should be noticed that the club had all along been treated as a "mutual benefit concern" and, consequently, the entrance fees and the monthly subscriptions paid by the permanent members were not treated as "income" under the I.T. Act. For the first time, the ITO sought to bring these items under the head "Income" for the purpose of assessment. In appeal, the AAC held that once the assessee was treated as a mutual benefit concern, there was no case for taking into account the entrance fees and subscriptions paid by the permanent members, for purposes of computation of the taxable income of the club.
6. Feeling aggrieved by this, the Revenue preferred a further appeal to the Tribunal. Since the AAC restricted the relief he gave only to the entrance fees and the subscription fees paid by the permanent members, the assessee-club preferred cross-objections claiming that such fees paid by the other members also should be exempt from tax. The Tribunal dismissed the Revenue's appeal and allowed the club's cross-objections. Thereupon, at the instance of the Revenue, the question which we have stated above has been referred to this court for its opinion.
7. The assessee is a Members' Club. It is not registered as a society. Nor is it incorporated under the Companies Act. It is merely a body of individuals who have formed themselves into a club. The main objects of the club, as can be seen from its objects, are social activities, including sports and recreation. There are (i) Honorary Members, (ii) Permanent Members, (iii) Mess Members, (iv) Lady Members, and (v) Temporary Members of the club. The entrance and subscription fees paid by all these members go to the common fund of the club. In other words, all the permanent members of the club are entitled to the assets of the club. It is, therefore, a mutual benefit concern, and not a profit making concern. Its services are limited only to its members and, to some extent, to non-members also. As such, the entrance and subscription fees paid by not only the permanent members but also the other members go to the common fund of the club, which is the property of the permanent members. We fail to see how it could be an income of the club. These fees go to constitute the fund, with the aid of which amenities are provided to the members. So, these fees, whether received from permanent members or from other members of the club, are not "income" and are not, therefore, assessable to tax.
8. We are fortified in this view by two Bench decisions of this court, in Secunderabad Club v. CST [1957] 8 STC, 850, and CIT v. Merchant Navy Club [1974] 96 ITR 261. Even the Appellate Assistant Commissioner held that the fees received from the permanent members cannot constitute "income". By parity of reasoning, the same varieties of fees, received from other members also, cannot be "income". They go towards the common fund of the club.
9. For the foregoing reasons, we answer the question in the negative, i.e., against the Revenue and in favour of the assessee. The Revenue shall pay costs of this reference to the assessee.
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