In ITA No. 127 of 2019 -CAL HC- Calcutta High Court remands appeals of Saturday Club Ltd. to ITAT for reconsideration on ‘Principle of Mutuality’ in transaction with Reliance Industries Limited
Justice I.P. Mukerji & Justice Biswaroop Chowdhury [07-07-2023]

Read Order: The Saturday Club Ltd v. Principal Commissioner of Income Tax, Kolkata – 3

Chahat Varma

New Delhi, July 18, 2023: The Calcutta High Court has remanded the appeals filed by Saturday Club Ltd. (assessee) to the Income Tax Tribunal (ITAT) for a reconsideration of the facts concerning the principle of mutuality in the transaction between the assessee and Reliance Industries Limited. The court found that there was a lack of analysis and examination of the facts in the previous orders, necessitating further review.

In the present case, the appeals involved the question of whether the rent received by the assessee from Reliance Industries Limited for the occupation of a portion of its premises should be taxed under the category of ‘Income from house property’. Initially, the Assessing Officer (AO) had ruled in favour of taxing the rent under this category. However, on appeal, the Commissioner of Income Tax (Appeals) [CIT (A)] reversed this decision and deleted the disallowance made by the AO. The ITAT later restored the AO’s decision.

The division bench of Justice I.P. Mukerji and Justice Biswaroop Chowdhury acknowledged that the counsel representing the appellant made extensive arguments based on the principle of ‘mutuality’. The bench noted that the principle of mutuality entailed that when a member spends money, they also enjoy the corresponding facilities provided by the club. The members and the association are considered as a single entity. It was not possible to generate income from funds paid by oneself or spent on oneself. The club should not make a profit from charging members for these 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 at hand involved questions of facts that needed to be thoroughly established before forming an opinion on the substantial question of law. Upon examining the orders of the AO, CIT (Appeal), and the ITAT, the bench found a lack of analysis of the facts regarding whether the principle of mutuality was being maintained in the subject transaction between the assessee and Reliance Industries. The bench held that the orders primarily consisted of conclusions regarding the status and transaction between the parties, without delving into the factual aspects of the case.