LAWS(CAL)-1984-1-19

COMMISSIONER OF INCOME TAX Vs. DARJEELING CLUB LTD

Decided On January 19, 1984
COMMISSIONER OF INCOME-TAX Appellant
V/S
DARJEELING CLUB LTD. Respondents

JUDGEMENT

(1.) The two following questions of law have been referred to this court by the Tribunal under Section 256(1) of the I.T. Act:

(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income derived from rooms occupied by the members, permanent, temporary and honorary could not be assessed as income from property in the hands of the assessee ?"

(3.) Before the ITO, the case of the assessee was that the club was a mutual concern and the surplus accruing to it could not be regarded as income. It was further urged that there could not be any difference between the permanent and the temporary members as all the members enjoyed the same benefits and were contributors and participators. The ITO was of the view that if some of the contributors to the funds were not participators in the surplus or if some of the participators in the surplus were not contributors to the common fund, the profit of the association would be assessable to tax. He found that the tourists who were taken as temporary members were contributors, but they were not participators in the surplus. He held that the temporary members did not even participate in the surplus created on account of their own stay, not to speak of participating in the surplus of the club. Thus, he held that the income from the receipts from the temporary members was taxable. He found that there was no rational basis for allocating only small fraction of food and lodging charges received from the guests for stay to the dormitory account. The ITO allocated 60 per cent. of the charges both from the permanent and temporary members for messing and 40 per cent. for lodging. He further held that the profit attributable to the receipts from the temporary members should be taxed; The income from dormitory account was considered by him under the head "Income from house property". Thus, 40 per cent. of the charges from both the permanent and temporary members were taken as income from property and after allowing statutory deduction, he taxed the balance. He also taxed 60 per cent. of the charges received from the temporary members as business income.