ORDER
1. All these appeals are filed by the assessee directed against the separate orders of the CIT(A)-I (I/c), Hyderabad. As the issues arising in all these appeals are common, for the sake of convenience, they are heard together and disposed of by way of this common order.
2. The common ground for all these years is as below :
“Whether the interest received by the assessee-club on fixed deposits with banks is not exigible to tax or not on the principle of mutuality”.
The other grounds that are taken in these appeals are :
(1) Whether reopening of the assessments under Section 147 in valid in law,
(2) Whether receipts from the members of the affiliated clubs is taxable or not on the doctrine of mutuality.
(3) Whether the assessee-club can be assessed in the status of AOP under the Act.
3. For some of these assessment years, the ground of reopening was taken as an additional ground. In all the appeals, the ground of status is taken as an additional ground. The learned counsel for the assessee relied on the judgment of the Supreme Court in the case of NTPC Ltd. v. CIT (1998) 229 ITR 383 (SC) and submitted that the grounds are legal grounds and that they can be taken at any time. He further submitted that he has reasonable and sufficient cause for not taking these grounds and that non-admission of these grounds would cause irreparable loss and hardship to the assessee-club. The reasonable cause for taking these additional grounds is stated as wrong advice from the counsel. Admission and consideration of these grounds by the Tribunal, he argued, would result in correct assessment of tax liability of the club and hence it should be admitted.
4. The learned Departmental Representative, on the other hand, vehemently opposed the admission of these grounds. On the question of status, he submitted that the assessee has filed its returns of income for these assessment years in the status of AOP. He relied on the decision of the Supreme Court in the case of Manji Dana v. CIT (1966) 60 ITR 582 (SC) and submitted that the question of status cannot be raised before the Tribunal for the first time. He argued that the assessee itself had filed returns of income in the status of AOP and, therefore, there is no divesting of vested rights and thus the additional ground on this count cannot be entertained. He referred to the order of the CIT(A) for the asst. yrs. 1983-84 to 1988-89 wherein at p. 10 of his order, the CIT(A) had discussed the issue and relied on the same. He submitted that the explanatory note appended to the Finance Bill is clarificatory in nature and that it relates back to the date of insertion of Section 2(31). He also disputed the issue of raising additional ground disputing the reopening under Section 147 for the asst. yrs. 1993-94 to 1996-97 and submitted that the same cannot be entertained.
5. On a careful consideration of the rival contentions, we are of the considered opinion that the grounds raised are legal grounds and can be entertained by this Tribunal. Thus, we admit these additional grounds.
6. Arguing on his first ground of appeal i.e., his claim for non-taxability of interest received on fixed deposits on the principle of mutuality, the learned counsel for the assessee relied on the judgment of the Hon’ble Supreme Court in the case of CIT v. Cawnpore Club Ltd (order dt. 5th Feb., 1998). He submitted that in the judgment in the case of CIT v. Bankipur Club Ltd. (1997) 226 ITR 97 (SC), a mention was made about the Cawnpore Club Ltd. at p. 109 which states as follows :
“With regard to the seven cases/appeals falling in group E, the assessee is Cawnpore Club Ltd. It is seen that the income that was sought to be assessed in the case of the assessee was one derived from property let out and also interest received from FDR, NSC, etc.”
He submitted that the Civil Appeal Numbers of Group E cases were given at p. 100 and that these cases were reposted and the Supreme Court held that interest income from FDR and NSCs of the Cawnpore Club are exempted from principle of mutuality. To substantiate his claim he filed copies of orders of the Tribunal and the corresponding reference application for the asst. yr. 1982-83 in ITA Nos. 2433/All/1990 (order dt. 23rd Sept., 1992) the RA Nos. being 413/All/ 1992 (CIT v. Cawnpore Club Ltd.) connected with those civil appeals. He also filed copies of the judgment of the Supreme Court of India in the case of CIT v. Cawnpore Club Ltd. He further relied on the judgment of the Delhi High Court in the case of Director of IT v. All India Oriental Bank of Commerce Welfare Society (2003) 175 Taxation 147 (Del) wherein the Hon’ble Delhi High Court had followed the judgment of the Supreme Court in the case of Chelmsford Club v. CIT (2000) 109 Taxman 215 (SC). He submitted that the first question that was considered by the Hon’ble High Court is the same as the question before this Bench and that following the Hon’ble Supreme Court Judgment, the matter was decided in favour of the assessee.
7. The learned counsel for the assessee further relied on the jurisdictional High Court’s order in the case of CIT v. Nataraj Finance Corporation (1988) 169 ITR 732 (AP) and submitted that the interest received on outstanding dues from a former partner and also on moneys deposited in a savings account with Canara Bank are not taxable on the principle of mutuality. The jurisdictional High Court he argued, had taken support from the view of the same High Court in the case of Addl. CIT v. Secunderabad Club (1984) 150 ITR 401 (AP). He vehemently contended that the judgment of the Hon’ble Supreme Court as well as the jurisdictional High Court were not referred to in the judgments of this Tribunal in the case of Nizam Club and in the case of Secunderabad Club which are relied on by the learned counsel, for the Revenue. He argued that the Hon’ble Karnataka High Court had not distinguished the case of Nataraj Finance (supra) while referring to the same in the case of CIT v. ITI Employees Death & Superannuation Relief Fund (1998) 234 ITR 308 (Kar). He submitted that these judgments of the jurisdictional High Court as well as the Supreme Court are binding on the Tribunal and that interest accrued on deposits made with banks are exempt on the principle of mutuality. He further relied on the judgment of the Bombay Bench of the Tribunal in the case of Maharaja Wine Merchants Association in ITA Nos. 1135 & 1136/Bom/1983 and submitted that the Bombay Bench had held the issue in favour of the assessee holding that the interest on fixed deposits out of surplus from that income is incidental and does not amount to carrying on of commercial activity. He distinguished the judgments of this Tribunal relied upon by the first appellate authority i.e., the decision of the Tribunal in the case of Nizam Club v. 170 (ITA No. 2499/Hyd/1987, dt. 15th Feb., 1991) and the judgment of the Gujarat High Court in the case of Sports Club of Gujarat Ltd. v. CIT (1988) 171 ITR 504 (Guj) and in the case of Rajpath Club Ltd. v. CIT (1995) 211 ITR 379 (Guj) and argued that the judgments directly on the issue of taxability of bank interest were not brought to the notice of this Bench and were not considered. He further distinguished the judgments on facts by relying on the memorandum of association of this club vis-a-vis the other cases, He submitted that there was a loss in the transactions having dealings with outsiders and that there was a profit in the transactions having dealings with only members and that the loss on transactions having dealings with outsiders have to be set off against excess of income over expenditure on transactions with members only and that when so set off the income arising is mutual income which cannot be brought to tax. In the paper book filed he drew our attention to the details of estimate at p. 38 to demonstrate that there was excess expenditure over income on transactions having dealings with outsiders.
8. Coming to the issue of reopening, he contended that the reopening is done on mere change of opinion consequent to the decision of the Hyderabad Bench of the Tribunal in the case of Nizam Club (supra). He submitted that this is not permissible and for the same he relied on the judgment of the Gujarat High Court in Sarabhai M. Lakhani v. ITO (1998) 231 ITR 779 (Guj).
9. As regards the third ground of appeal i.e., taxability of receipts from members of affiliated clubs, he submitted that the issue is covered in favour of the assessee by the judgment of the Tribunal, Hyderabad Bench in the assessee’s own case which is ITO v. Fathe Maidan Club (1986) 17 ITD 1086 (Hyd).
10. On the issue of status, he submitted that as the persons are not associated themselves in an income-producing activity, they cannot become an AOP. For this proposition he relied on the judgment of the jurisdictional High Court in the case of Deccan Wine & General Stores v. CIT (1977) 106 ITR 111 (AP). He drew the attention of the Bench that the jurisdictional High Court had followed the judgment of the apex Court in CIT v. Indira Balakrishna (1960) 39 ITR 546 (SC). He submitted that for being assessed as an AOP, there must be a common design to produce income. He however, took this Bench through the memorandum and articles of association which is filed as part of his paper book and submitted that the members of the club do not have any right to the share in surplus and as they are not associated with any income-producing activity, the assessment of the club cannot be made under the status of AOP. He further relied on the judgment of the jurisdictional High Court in the case of CWT v. George Club (1991) 191 ITR 368 (AP) which has reiterated its earlier decision in the case of Deccan Wine & General Stores (supra). He further relied on the amendment made to Section 2(31) by the Finance Act, 2000 in the definition of “person” by insertion of Explanation in support of his argument that earlier to this insertion of Explanation it is well settled that income-producing activity is a prerequisite for being assessed in the status of AOP.
11. Learned Departmental Representative, on the other hand, vehemently controverted the argument of the learned counsel for the assessee and submitted that the assessee has been filing returns in the status of AOP for 16 years and that it is estopped from taking a contrary stand now. He relied on the judgment of the Supreme Court in the case of Manji Dana v. CIT (1987) 60 ITR 582 (SC) and submitted that the question of status cannot be raised for the first time before the Tribunal. He argued that the explanatory note to the Finance Bill relied upon by the learned counsel for the assessee does not further his case for the reason that introduction of explanation is only for clarification of the existing law and for this proposition he relied on the judgment reported in (1997) 224 ITR 669 (sic). While submitting that the assessee is not divested of any vested rights and thus assessable as AOP. He alternatively contended that the assessments can be made in the status of artificial juristic person.
12. On the issue of reopening under Section 148, he argued that all the reopenings are made after 1st April, 1989 i.e., after amendment and that most of the assessments were made under Section 143(1) and hence reopening is legally valid. He relied on the ratio of the judgment of the Delhi High Court in the case of MTNL, v. Chairman. CBDT (2000) 246 ITR 173 (Del) as well as a judgment of the Madras High Court in the case of Sri Krishna Mahal v. Asstt. CIT (2001) 250 ITR 333 (Mad) and submitted that all reopening of assessments are in accordance with law, and have to be upheld. On the issue of taxability of receipts from members of affiliated clubs he submitted that the issue is covered in favour of the assessee.
13. Coming to the issue of taxability of interest received of fixed deposits, he submitted a paper book consisting of six judgments. He first referred to the judgment of this Bench of the Tribunal in the case of Secunderabad Club v. Asstt. CIT in ITA No. 819/Hyd/1994 and 820/Hyd/1994 dt. 5th March, 2002, and submitted that interest income on investments is includible in the total income and cannot be exempted by the principle of mutuality, He submitted that the interest is governed by a separate contractual relationship between the assessee-club and the banking company. He relied on yet another judgment of this Bench of the Tribunal in the case of Secunderabad Club v. Asst. CIT in ITAs 1072 & 1073/Hyd/1993 and submitted that what can be exempted on the ground of mutuality is the income from the member and not interest on deposits of the club. He relied on yet another decision of this Tribunal in ITA No. 2499/Hyd/1987 in the case of Nizam Club v. ITO and argued that interest income is an income arising from an outsider by depositing the money with the bank and that it cannot be said that such income is exempt on the basis of principles of mutuality. He submitted that no profit could be said to have not arisen by having transactions with outsiders. He relied on yet another decision of this Tribunal in the case of Nizam Club v. ITO (1984) 8 ITD 780 (Hyd) for the proposition that income from leasing out the building to others will have to be subjected to tax as the principle of mutuality cannot be applied to such income. Reliance was also placed on the judgments in the case of Rajpath Club Ltd. v. CIT (supra) and in the case of Cuttack Club (P) Ltd. v. CIT (1992) 196 ITR 407 (Ori).
14. Heard both sides, read all the papers on record and the case law cited. On a careful consideration of the rival contentions, we are of the considered opinion that the issue of taxability of interest received on fixed deposits with banks is covered in favour of the assessee and against the Revenue by the judgment of the Hon’ble Supreme Court in the case of CIT v. Cawnpore Club Ltd. in Civil Appeal Nos. 4777-78 of 1989, dt. 5th Feb., 1998. The judgment of the Supreme Court reads as under :
“One of the questions which the High Court has decided in other cases relating to the same assessee is that the doctrine of mutuality applies and, therefore, the income earned by the assessee from the rooms let out to its members cannot be subjected to tax. No appeal has been filed against the said decision and the matters stand concluded as far as this assessee is concerned. This being so, no useful purpose would be served in proceeding with these appeals on the other questions when the respondent cannot be taxed because of the principle of mutuality.
The appeals are accordingly dismissed.”
15. Admittedly the Revenue has not filed appeals against the findings of the Hon’ble High Court on the question of taxability of income earned by the assessee from the rooms let out to its members. In its order dt. 23rd Sept., 1992, in ITA No. 2433/All/1990 for the asst. yr. 1982-83 in the case of Cawnpore Club Ltd. at pp. 3 and 4, the Tribunal held as follows :
“We notice that both the issues raised in this case, namely, income from residential chambers and interest and dividend income have to be exempt as there was concept of mutuality. The first appellate authority placed reliance on the orders of the Tribunal, Allahabad Bench in the asst. yrs. 1979-80 and 1980-81, copies of which were filed before the first appellate authority, The first appellate authority has followed the decision of the Tribunal. In this view of the matter and respectfully following the decision of the Tribunal, we find that the order of the CIT(A) calls for no interference from us. The facts and the reasons given by the Tribunal in the asst. yrs. 1978-79 and 1980-81 will apply mutatis mutandis for this year also, Therefore, they have not been repeated here, but the order of the first appellate authority stand upheld by us.”
In R.A. No. 413/All/1992 (in ITA No. 2433/All/1990) the questions referred to the High Court of Judicature at Allahabad are as follows :
(1) “Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the income of the club from letting out of the rooms was not assessable as income from house property and is exempt on principles of mutuality ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the income of interest from fixed deposits, NSC and dividends is exempt on principles of mutuality ?”
When the Supreme Court order is read along with these questions it is clear that the issue has been held in favour of the assessee. The argument of the Revenue is that the matter stood concluded only as far as this issue is concerned due to non-dispute of the jurisdictional High Court order in the case of Cawnpore Club Ltd. and that the ratio cannot be applied to other cases, does not appeal to us as the Hon’ble Supreme Court in the case of CIT v. Narendra Doshi (2002) 254 ITR 606 (SC) held as under :
“Held, that, since the Tribunal, whose decision the High Court had affirmed, had relied upon the decision of the Gujarat High Court in D.J. Works v. Dy. CIT (1992) 195 ITR 227 (Guj), to the effect that the Revenue was liable to pay interest on the amount of interest on advance tax which it should have paid to the assessee but has unjustifiably failed to do so, and that decision was followed by the Gujarat High Court in Chimanlal S. Patel v. CIT (1994) 210 ITR 419 (Guj), and the Department had not challenged the correctness of those two decisions of the Gujarat High Court, the Revenue was bound by the principle laid down therein.”
Similar is the judgment of the apex Court in the case of Union of India and Ors. v. Kaumudini Narayan Dalai and Anr. (2001) 249 ITR 219 (SC) wherein it is held as follows :
“In Pradip Ramanlal Sheth v. Union of India (1993) 204 ITR 866 (Guj) the Gujarat High Court had decided, inter alia, that the appropriate authority had no power, authority or jurisdiction, in ascertaining the discounted value of the apparent consideration under Section 269UD of the IT Act, 1961, to deduct from the total amount of the consideration, any sum on the supposition that if the sale had taken place the seller would have been out of pocket to the extent of 50 per cent of the total registration fees and stamp duty, because he had agreed that these expenses would be shared equally between the seller and buyer. In a subsequent case relating to other parties the Gujarat High Court followed its earlier decision. The Department preferred an appeal to the Supreme Court from the later decision of the High Court. The Department was unable to explain what was the fate of the appeal filed against the decision in Pradip Ramanlal Sheth v. Union of India, if filed, or why no appeal was filed against that decision. The Supreme Court dismissed this appeal holding that it was not open to the Revenue to accept the earlier judgment in the case of one assessee and challenge its correctness without just cause in the case of other assessees.”
To the same effect is the decision of the apex Court in the case of Union of India v. Satish Panalal Shah (2001) 249 ITR 221 (SC). Thus, it is not open for the Revenue to accept the judgment in the case of one assessee and challenge its correctness on the same issue in the case of other assessees. Even otherwise the Hon’ble High Court in the case of Director of IT v. All India Oriental Bank of Commerce Welfare Society (supra) had followed the apex Court’s judgment in the case of Chelmsford Club v. CIT (2000) 243 ITR 89 (SC) and held that interest income derived from the assessee cannot be taxed on principle of mutuality.
16. The learned Departmental Representative argued that there is no complete identity between the contributors and participators and that the interest was derived from an outsider i.e., the bank and hence the principle of mutuality does not apply.
17. Nevertheless, the jurisdictional High Court in the case of CIT v. Nataraj Finance Corporation (supra) held as follows :
“We have already referred to the relevant facts. There is nothing on record to show that the assessee has been carrying on the business activity of lending moneys to any persons other than its 19 members. The two other persons referred to, from whom interest was received, are not really persons to whom moneys were advanced. One person is a former partner who is paying interest on the moneys owed by him at the time of his retirement and the other person is the Canara Bank with which moneys are kept in safe deposit. It is not possible to say that any business transactions are carried on by the assessee with the former partner or the Canara Bank. There is also no indication from the record to the effect that in the past years, the assessee had carried on the activities of lending moneys to any person other than the members constituting the association, We, therefore, proceed on the assumption that the assessee’s claim that it confines its money-lending activity only to its members and to no outsiders, has to be accepted, If that be so, it follows automatically that the interest received by the assessee is distributed among the members forming the association and thus the principle of mutuality governs.”
The Bombay Bench of the Tribunal in the case of Maharaja Wine Merchants Association (ITA Nos. 1135 & 1136/Bom/1993) held that interest income from fixed deposits out of surplus funds is incidental and does not amount to carrying on of commercial activity and thus exempt on the principle of mutuality.
18. In our considered opinion, placing of surplus funds with bank as per memorandum of association and bye-laws of the club does not tantamount to mutual concern having indulged in trading activity or carrying on of business and thus the income by way of interest earned is not tainted with commerciality. Evidently, this Bench of the Tribunal had no occasion to consider the judgment of the jurisdictional High Court and that of the Supreme Court as they have not been brought to its notice. Thus, respectfully following the judgment of the Hon’ble Supreme Court in the case of CIT v. Cawnpore Club Ltd. (supra) as well as the judgment of the jurisdictional High Court in the case of Natraj Finance Corporation (supra) we hold that interest earned on fixed deposits is incidental and does not amount to carrying oh of any commercial activity and hence it is not taxable on the principle of mutuality. We, therefore, allow this ground of the assessee.
19. The learned counsel for the assessee had submitted that if the first ground of the assessee is allowed the grounds on the issue of reopening under Section 148 and on the issues of status taken by the assessee need not be gone into by this Tribunal. As we have allowed the first ground on taxability of interest received on fixed deposits in favour of the assessee, we do not go into the grounds of reopening of the assessment and assessability of the assessee as AOP.
20. The only other ground that remains is whether receipts from members of affiliated clubs is taxable or not on the doctrine or mutuality.
21. As both the parties have agreed that the issue is covered in favour of the assessee and against the Revenue by the decision of this Tribunal in the assessee’s own case ITO v. Fateh Maidan Club (supra), we allow this ground of the assessee.
22. In the result all these appeals of the assessee are allowed.