Factual Background 

In the case of Saturday Club Ltd. v. CIT For the assessment year 2008–09, Reliance Industries Ltd. paid the appellant–assessee, Saturday Club Ltd., Rs. 78,49,798/– rent for the use of a section of the club premises. In a number of situations where the aforementioned income was investigated for possible taxation under the heading of Income from House Property, the assessing officer determined that this rent receipt should be taxed under the heading of Income from House Property. In the appeal, the Commissioner of Income Tax overturned the assessing officer’s judgement. The verdict of the assessing officer was confirmed after a second appeal to the Income Tax Appellate Tribunal. The appellants filed the current appeals before this court under Section 260-A of the Income Tax Act, 1961, expressing their displeasure with the impugned rulings made by the Income Tax Appellate Tribunal.

Issue 

Whether the Tribunal’s decision that the rent paid from Reliance Industries Ltd. was not subject to the mutuality principle and was thus taxable under the Act was supported by the law.

Argument Advance 

The appellant argued that because a group of people who belong to an organisation together make up a single legal entity, any surplus that is produced inside that unit is not profit but rather an accumulation of resources that are shared. However, the respondents argued that the concept of mutuality was not relevant in this case because Reliance Industries Ltd. was the sole tenant of the rental space and it was not being utilised as a club facility.

Analysis of Court Order 

Justice P. Mukerji and Justice Biswaroop Chowdhury, who made up the division bench of the Calcutta High Court, ruled that the club’s income from contributions and participants is not taxable.

The Court made clear that individuals or groups establishing an organisation are treated as a single identity and that the group should not profit from any money that is paid for or spent on itself. All members should gain from transactions, and the club should acquire shared facilities as a consequence. Members are regarded as contributors and participators, and the club’s revenue from contributors and participators is not subject to taxation. The Court determined that there was insufficient factual analysis to apply the mutuality principle to the club and Reliance’s transaction, leaving only the parties’ status and transaction.

The Tribunal received the current action, which was restricted to the aforementioned issue alone, and was remanded back to it after the Court reversed the challenged ruling made by the Tribunal. The Court instructed the Tribunal to reevaluate the issue in light of all the factual disclosures made to the adjudicating bodies as well as the authorities referenced.

CASE NAME- Saturday Club Ltd. v. CIT, ITA No. 127 of 2019…