Calcutta High Court remands Saturday Club’s appeals to ITAT to reassess ‘principle of mutuality’ in transaction with Reliance Industries

Calcutta High Court remands Saturday Club’s appeals to ITAT to reassess ‘principle of mutuality’ in transaction with Reliance Industries

Cites lack of analysis and examination of facts

The Calcutta High Court has remanded the appeals filed by the Saturday Club Ltd. (assessee) to the Income Tax Appellate Tribunal (ITAT) for reconsidering the facts concerning the principle of mutuality in the transaction between the assessee and Reliance Industries Limited.

The Court stated it necessitated further review, as there was a lack of analysis and examination of facts.

The appeals were on whether the rent received by the assessee from Reliance for the occupation of a portion of its premises should be taxed under the category of ‘income from house property’.

The assessing officer (AO) had initially ruled in favor of taxing the rent under this category. However, on appeal, the Commissioner of Income Tax (Appeals) reversed the decision and deleted the disallowance made by the AO.

Later, ITAT restored the AO’s decision.

The division bench of Justice IP Mukerji and Justice Biswaroop Chowdhury acknowledged that the counsel representing the appellant made extensive arguments based on the principle of ‘mutuality’.

It noted that the principle entailed that when a member spends money, he enjoys the corresponding facilities provided by the club. The members and the association were considered as a single entity. It was not possible to generate income from funds paid by oneself or spent on oneself.

The Court maintained that the club cannot profit from charging members for utilities. The transactions should benefit all members and contribute to the common facilities of the club. Based on this principle, the income of the club, which involved contributions and participation from its members, was not subject to taxation.

The bench concluded that the matter involved questions of facts that needed to be thoroughly established before forming an opinion on the substantial question of law.

While examining the orders of the AO, the CIT (A), and ITAT, the bench found a lack of analysis of facts on whether the principle of mutuality was maintained in the transaction between the assessee and Reliance.

The Judges held that the orders primarily consisted of conclusions regarding the status and transaction between the parties, without delving into the case’s factual aspects.