Indian Kanoon - Search engine for Indian Law

Karnataka High Court

The Commissioner Of Income Tax vs M/S Bhel-Ced Officers Club on 29 October, 2010

Bench: Manjula Chellur, S.N.Satyanarayana

-1-

IN THE HIGH COURT OF KARNATAKA. BANOA;I;ORE:.,

DATED THIS THE 29'?" DAY OF OCTOBER',    "

PRESENTIAAIV -

THE HONBLE MRS. JUSTICE-;MAI_$IJ ._

THE HONBLE MR.' JUS1fI.Cr%:' "S.N;S_ATYANvA.RA'IKANA

INCOME TAX APIURAI, I-I_oj;<I:&3/w CROSS
OBJECTIONNG} 2./20'Ob,._ 

INCOME:  AP':PEj_Xl;:..'NO';.iif3i?._"'2Q_Qf4 C/w CROSS
 fQ.BJE('fl"IQN No; ,5/2005,

V'INC'OM::I;  R§;2I2é:/2004 C/w CROSS
 V"1".V--«V.OE2qb:VC'1"I.Or~I NO. 7/2005,

INC_OMD"rAx1.AI%P£:AL"No.426/2004 c/w CROSS
= V. V C_)BJ_EC.,TION NO. 5/2005,

 1N'CQMET2'sX...AFPEAL No.423/2004 c/w CROSS
  " OBJECTION No.4/2005

 APPEAL I\Io.431/2004 c/w CROSS

 1.,  Commissioner Of II:1COmC--tax
  R. Buiiding



OEIJECTION. No. 2/2005,

" BETwE:_1§ia_\I;

Queens Road
Bangalore.

The Deputy Commissioner Of I1'1CO1T1€~t.'c'LX
TFUS1. Circle ~3{ 1.}
C. R. BL1iIding



Queens Road   
Bangalore  

[Respondents in ITA Cross objection} 

[By Sri. M. V. Seshachala & Sri. Aravind. AClVQCa1.eS}._"
AND: 2 8 0

BHEL-CED Officers Club
C /0 BHEL. Electronics
Division, Mysore Road   
Bangalore -26   _V ..".RESPONDENT
.  r,_[Cro.ss Object'o'r_in Cross"Objection)

(By Sri. G. Sarangan, Sr. for"Mr,li_;.S.Ramabhadran
81 Mrs. Vani.H. Advocates}. _   7  

I.T.A 'NCf_S.431/2QO4:f8l3_ filed Ivu/s. 280A of the Income
Tax Act,...1v96il.y_ari:e;ing outoll' order dated l8.2.2004 passed in
ITA Nos.33%/iB_ang[20.02AV..ior the assessment year 1995-96,
praying; that this 'l"Ior1'.ble.yC'ou'1"t' may be pleased to:

1}'-.Fo«rmu--laije_"the'<.substant1aI questions of law stated
therein ifiaallow the appeal and set aside the orders passed
by the Inc'orr1Ve.'I'ax Appellate Tribunal. Bangalore in [TA
Nos_§83'Z/Bang'/.2002 dated 18.2.2004 and confirm the order
pa.ssedE__yby.ve_i;he Deputy Commissioner of Income Tax. Trust

0' Circle--3(i]._ Bangalore etc.,

  OBJECTION No.2/2005 is arising out of
order  18.2.2004 in ITA Nos.337/Bang/2002 for the
assessment period 1995-1996 praying that this Hon'ble

 Court.nfi__:iy be pleased to:

Modify the order dated 18.2.2004 of the Tribunal in

 'No.33?/B/2002 to the extent impugned herein and hold
thatl the proceedings under Section. 148 oi' the Act are

invalid: and that the assessing authority has no jurisdiction

l '"to initiate the p1'oceedi1'1gs for assessment and continue the

same. as the Cross Objector had no liability to income tax in
respect of receipts received from the company.



INCOME TAX APPEAL No.432/2004 

OBJECTION No. 5/2005,

BETWEEN:

1. The Commissioner ofInccrne__~_t.ax  I
C. R. Building  
Queens Road
Bangalore.

2. The Deputy Coinmissionlerlo.filnco_rn'e€t.a§:-..
Trust Circle --3_[1]  _  V ' '~  --. *
C. R. Buflding  :1 V   

2       APPELLANTS
0' ' .[ ''eI_spo1'1'dengts in {TA Cross objection]

(By Sri.,--Mn  Sri'.----v.A:aVind, Advocates]

Bangal'?'r'e   V" 

AND: 

BleIEL~CElD.__4Office'rsClub'
C /o ABHEL, Electrionics- '
Div:7sion',~ Mysore--..RoadA.

 V'  . Bangaliore 426 """ " ...RESPONDENT

[Cross Objector in Cross Objection)

   Sr. Counsel for Mr.K.S.Ramabhadran

&'  Van'i--.:_H, Advocates]

 No.-432/2004 is filed u/s. 260A of the Income Tax

  Act,' 1961 arising out of order dated 18.2.2004 passed in ITA
 Nyo.3{36/Bang/2002 for the assessment year 1994435,
"praying that this Hor1'bIe Court may be pleased to:

I] Formulate the substantial questions of law stated

  -«therein ii) allow the appeals and set aside the orders passed

by the Income Tax Appellate Tribunal, Bangalore in ITA
I\Io.336/Bang/2002 dated 182.2004 and confirm the order
passed by the Deputy Coinmissioner of Income Tax, Trust
C1'rc:Ie~«3[l), i3a11gaIoi-e ete.



.4.

I.T.A.CR. OBJECTION No.5/2005 is a1'isirtg.9:'on"L«Vot'
order dated 18.2.2004 In ITA No.336/Bang/2.002_ior;~ the

block assessment period 19944995 praying ..pt'}1_i_s

Hon'b1e Court. may be pleased to:

Modify the order dated 18.2.2004 or'tn<§'1Trit§u:aarAn 

ITA No.336/Bang/2002 to the extent'im_p'ugned_"herei1'r' and
hold that the proceedings under Seei:t1i'o1ir--'148 of the g%r_:t"eaa'e

invalid, and that the assessing authority hasdvrjotgu_s=1sdi§.t.1on
to initiate the proceedings finrassessment and ee.n_tintie the ;
same, as the Cross Objector V-no 1ia1:a51.ityv..to_;in"eonie tax in

respect of receipts received fromfhe .eompan.y.

INCOME TAX. APP'EA.L "1.§ef.;;é'9Vz';2.oo4 C/w CROSS
OBJECTION No.7/2005."  J i   

BETWEEN:  

1. The Corn"nfi[i_ssione1'..of'VJ_ncon":e--ta>::
CQR. B:ui}dir1g"-~..pVd    9 '
Queens Road 9'   9'
Bangalore, 9 "

2...  Deputy" C.ornrnissioner of Incomemtax
"  Trust. Circle --3{1")"'

f .. R..B.afi~d;12g
V . Q=,ree_11s Road

 --..Veang:1_r1Qre."  APPEJLLANTS
 V. . "  ' (Respondents in ITA Cross objection)
{By Sri,'1V£'.'V. Seshachala & Sri. Aravind. Advocates)

 'BHt+:L--cED Officers Club
EC/o BHEL. E1ect.ronies
" Division, Mysore Road

Bangalore ~26 ...RESPONDENT

(Cross Ob_je(:.tor in Cross Objection)
[By Sm'. G. Sarangan, S1'. Counsel for M1'.K.S.Ramabhad.ran
81 Mrs. Vani.H, Advocates]



 

AND:

BHEL~CED Officers Club

C/ o BHEL, Electronics

Division. Mysore Road   
Bangalore W26 ...RES'POND_ENT 

(Cross Objector in Cross Objection}-t 1'

{By Sri. G. Sararigan, S1'. Counsel,for._lVEr.l.{..S;liar%iialb'l1adrai;1it 11

81 Mrs. Va1'1i.i-I, Advocates)

I.T.A No.426/2004 is filed [1 / s; ----2t5OA ofptlhe. ins'oms
Act, 1961 arising out of order .dated 18-.2.20_O4.vpass'ed in ITAM 1

No.335/Bang/2002 for the °*as'sessme'nt_ 'year 1993494,
praying that this Hon'b_le Couryt_._n':1'ay be pleased_to:_7

1] Formulate the 's.ubs_t"antiAal _¢ questions of law stated
therein ii} allow the aplpeiai..ai1disi:t  the orders passed
by the Income Tax Appe-llatéf'Tribsstn'al;~.Bangalore in ITA
No.335/Bang/20-{)2 dated -.l.:8.2'.'20,04 and":confirm the order
passed by the'flefa-uty:_CQrnrhis«sion_erV_o£flIncome Tax, Trust
Circle-3(1), Bangalllo.ife~vetc.;~_V   

 _I.T.AllCi-ll OE3JE'CTlbN Nos.6/2005 is arising out of
order dated 1822,2004 in ITA No.335/Bang/2002 for the

.1  block :,fa.sse.ssmentVll"period 1993-1994 praying that this
 . Ijionble Cpouprtrnay be pleased to:
1' Modify order dated 18.2.2004 of the Tribunal in ITA

No;335/'Ba--ng*[2lOO2 to the extent impugned herein and hold
tliaét the proceedings under Section 148 of the Act are
inValid:--- and that. the assessing authority has no jurisdiction

._  to initiatie the proceedings for assessment and continue the
"  same, as the Cross Objector had no liability to income tax in
 _ respect, of receipts received from the company.

lNCOMI£ TAX APPEAL No.42?)/2004 C/W CROSS

1' " "OBJECTION No. 4/2005

BETWEEN:

1. The Coinmissioner o1'Ir1c:on1e~t.aX



C. R. Building
Queens Road
Bangalore.

2. The Deputy Commissioner of lnC0me--taX_-  .- .. 
Trust Circle --3[.1]    '  B
C. R. Building
Queens Road
Bangalore

(By Sri. M. V. Seshachala &  Adyoe-atesl)

AND:
BHEL--CED offzeag C13;-:'15'"" ' 5';

C /o Brier; rVg1e'r:'t»roni¢ss  "
DiVisi0n;-'Mysore llll5:0ad'». _ 
Bangalore _~¥2€a[_..   " ...RESPONDENT

ll  V' Objector in Cross Objection]

[By Sri. Sa.1'angair, "Sr_l§..'s'CoL1nsel for Mr.K.S.Rama'ohadran
81 Mrs. Vani".Pl, Advocates)

 i;'T.A* No.499"/290904 is filed u/s. 260A of the income Tax

 »  1961 arising out of order dated 18.2.2004 passed in ITA
'  'N&o.338','».l3arig_/ 21002 for the assessment year 1996-97,
~prayingihat.'tg_his Horrble Court may be pleased to:

  Formulate the substantial questions of law stated
the'reinii}'va1low the appeal and set aside the orders passed
by the Zlricome Tax Appellate Tribunal, Bangalore in [TA

 *Nro_,338'/Bang/2002 dated 18.2.2004 and confirm the order
 passed by t.he Deputy Commissioner of Income Tax, Trust
'._Ci'rele~3(1}. Bangalore ete..

I.T.A.CR. OBJECTION No.4/2005 is arising out of

 " ---order dated 1.8.2.2004 in ITA No.338/Bang/2002 for the

assessment. period 1996-1997 praying that this Honble
Court may be pleased to:

Modify the order dated 18.2.2004 of the Tribunal in ITA
No.338/Bang/2002 to the extent impugned herein and hold

(Respondents in VITA Crvossvvobjeetion] "



9 ?*

.4,

5 

' ,. //-'

.3-

that E119 1.31-c')c*e2uc1i1'1g.:s 1.1r1der Secfiion 148 of the Act. are
invaxliclz amcl 1.11211 the assc3ssir1g aL1t:h0n't.y has no jurisdiction
to ini'1i2':t:e the p1~<m":(':cii11g's for assessment and Continue the
samc. as E1119 Cimss Ob_je(':'t'0r had no liability' to inC_on1é««..£a'x in
1'espc..-<'1. ()f1'e(~.ei;..)1.s 1'c:(?ci\-'c:d from the Company.  ' I' " 

'!"1'1ese Ir1<'0t'11e Tax appeals Coming  .t«"m.,?:_1"
RLRNJLHAA C1iELLLH2"J;=dehver¢d zhefi

I*iea1'it1;.____§. this ciely.
{'0l}()\\'it'1gI

JUDGMEmg_
The E.'(;)1ic)wi11_g__{ SL1bSiEZHiiivL'i" .qi1esti0ris.Qf"la§7v eirjise for our
C011si(_icf1'aEi01"1 in ti-A1e:sc;:cEzases_"AV
"(U Was U16' 'I'r1'.bunal'T~ r_ighi'Viii c--:ofici1'm',_it~Lg

 I.}1af. 2inf1I;z'a1io'r:..A<')_,'F moceedings under

 Se4_('£it'}z'; !.c)_f'.£Ii'e..AL;?;' is ualid?: and

{ii} W:,L_s" U1&2}'I.'I;fiifi1I"l(;if$=fight in not, dealing

' V _uaiL':'V1  A' Cross' Objectofs ground
.AregAar'c1ingA j'm"'tsdicu'or1 Qf the assessing
assess {he Cross

» _ (11.1 ':.I;1f)r{ {._1; I0

V " (flu? i,'i"I:;_=') "

" 'I"lr1csc= e.t;)])e;-'zls pertain 1.0 the assessment years

'*sv19§s-ss;1994»ss;1s97>9s;19934ma1sxM;97xespecuvegn

:3. T}'1<" a'2c.11:1i11ca<;1 i'e1C1.s in the above appeals are as

u1'1{.1t.r1':



 

.9-

The respondent assessee is a regist.ere.d'~._:s.oei_ety

comprising of the employees of M/ S. BHEL andtthe'  

registered under the Karnataka Societies5Regi.stration_Act."

According to the 1-espondent-assessjee.itefiiceptt"

received from M / s. BHEL w'-'111ich_ Wasa 1V'o1L111tai*.y.one,_}t:here1V

was no other income which coifld be terniedt as taxabie for

the assessment year.----.._if'1'herefore';~..qziestioii of filing the

returns did not arise. A.ccordi'n.g .to'1thern;I_the only source of
income was i.the}3inter:est§received" ffroin the banks on the
deposits 1'n_ad'1ef_-vby then} and it was aiso an income below the
taXable"hj1c'on1e.._ V

 ,4.  was {ll-'1€'T:StZ.'slI1C1 taken by the respondent»

 assesses When a Show cause notice under section 148 of the

    ~b_e_}.issued in the year 1999 when the assessing

a'u__thoriVt,y in_.ii;iat.ed proceedings having come to know that no

 returnsdof the assessee were fiied for good number of years

 ir_1e1't;1d1'ng the assessment year 1995-96. After receiving the

repiy frorn the assessee. the assessing au.thori.ty heid that it

was an income attracting tax and heid the respondent

assessee to pay tax on the contributions of Rs.1,€-32,000/--



._\f''

-10-

(Rs. one lakh eighty two thousand) received"*V.by_l'~i.§he

respondent--assessee from M/s. BHEL rigllt  

assessment years 1994435 to 19S3fZ--$_38.  by the' 

assessment. made by the assessing siiutliority'-.th'e lasf:es~31=Vee

approached the CIT (Appeallfanud   

Nos. 3 to 7 were taken up and4u'a.,:eornmo.n'   to be
made by the appellate  2.9»_.¢l:2tOO2.

5. The aPl3ella:t,e--»,g!i}ith0fi\fiY ll  detailed order

Confirmed  authority and held
that the   were not gifts as claimed by
the respondent/assesseegfand held they were liable to pay

Ag1grieved"i'3yVVthev orders of the appellate authority, ETA

~  to be filed and the same was disposed of

  order' dated 18.2.2004. The learned members of

tihe44"Tribt1nal after referring to several judgments of the Apex

  CtJ1.ll'l, and also different High Courts ultimately held that the
as'sessee's stand of no contractual or legal obligation on the

'"j5art of M/s. BHEL to pay any amount either as a

contribtition or gift to the respondent/assessee was justified

and therefore. whatever eontribtition received by the



 

4;-

assessee towards assessment year was a grant o_r»g:i'£tla,_11d

cannot. be brought" to tax. However, so far as  .

raised by the respor1dent/ assessee regarding its jurisdiction, '*

it: held that assessing officer had reco:-"deéi feastoriinglfor the

issuance of notice contemplated under" sect.~T.onfl_'.l4_8 of thepux

Act. Aggrieved by the above orders'  the a'p,pellate}Tribuna1,
both the revenue and respo§nd"e'nt»_/'assessee are before
us in the above apppealsvfi  ~V'cross--objectior1s

respectively.       

 Accordirig..:to»i,the_:"'Eearned counsel for the revenue,
when once ..t.heVass_essee,h_ad based its defence on the plea of

mtitigaiitgf, the'cont.ributor being an outsider to the

» r'espon_dent.--ua"ssessee club, the contribution made does not

  of mutuality. Therefore, the question of

exei'npti:ng"iihe said amount being taxed for the assessment

 jyeairs concerned would not arise. He also relies upon the

t_._/

7follo'wir1g decisions:

1. (1997) 226 ITR page 97' [SC]



   

-;2-

2. {£998} 234 ITR page 308 {Kan} COMMISSIONER OF
INCOME TAX vs. 1:31 EMPLOYEES Di3A'1ii:i%i-.iAND
SUPERANNUATION RELIEF FUND; andw  f   

3. (1992) 196 ITR 137 (Patna) {FB} -- 

OF INCOME TAX vs. RANCH': CL[_i'B"L'i'f')..  '

7. According to the Eearneti CoL111s.ei'-,for th.e=i*e.yen31e,

the facts in the present ease W'ot1'l'd inriiehatei t.hat 

Contribution made by M/S. B}'iVE"3.bv.raS nevfeijiiiiiiivtenhded to be a

gift a,n--d~»the,.'1*es3;:oIiC1er1t_iC'lu'bi...not being a Charitable or
religious 'assoeiation,»itvhe_§ueStion of exempting the amounts
received  the xresbondeiit assessee would not arise as the

aciiiyities Carriefhon. by the Club were not Charitable

» :a'e1;_iVi.t1ie'S., 'According to him, the initial Claim of the assessee

H ";:«"imti;'::1:1_iy Concept, that alone has to be taken into

CounSid'e1'ati'on and the explanation rendered by them

 "Subsee1L1ent1y, Cannot be the basis as it is only an

'"i.in1p'i*ove111e:1t: made by them from time to time trying to

i ii "escape ihe Iiabi.1i.ty.



 

8. As against this. the learned senior cQu.nsel7.1\/11'.

Sarangan arguing for the counsel on record i"o.r§V__the'

contends that the respondent society is neit"ner:'a charitabie",

nor religious association. the1*ef0re, cguestioen of V'seei§i'n.g'<ariy

exemption from payment ofiitax would not arise';v__Acc_ordingu>

to him in the absence of any regtiiaifity Voi"c.ont:1'ibt;;tion made
by M/s. BMEL to t,he;::4respo.E1dde'nt:'assessee the contribution
in question isponiy    fall under the
definition   of the Act. He
further  ioremosti aspect which has to
be gone 'i's"'to consider whether contribution

aIr1,ounts to income or not and if it amounts to income, then

 pitV"shoti.i1Ad I'ui'the1' consider whether it is exempted under any

  Viicfi".  In other words, whether tax is attracted on

such }f€€_',€dAif§)t7S or not'? For this purpose he relies on the

 ciretii1;1r3~ of the Board of Direct Taxes with reference to

 Vwitahdrawai of Sec. 10 of the Finance Act 2 amended by

Finarice Act of 1972. With reference to gift, according to the

learned cotmsel the depai't1i1enta1 circular dated 25.12.2007

was very ('tear indicating that receipts which are of casual



 

.14-

and nOI1wI'eC1II'1"iIIg r1at.LII'e will be liable IIO income if

they Can properly be Categorised as income-'ieitlieflfiil:'7l--tSg

general II1€E1l'1ll1g Or vvithin its exteI1de_d Inea.iIiI"IgTe'_g§VeI1"i0 me" » 

term by the income Tax Act. I~"Ie3fur;t"rIeI* Ccntefiildslll

gifts being purely personal  i1..rI..i.ur<-:2 will noilfieleeellargiible to. L'

income tax except when they Can be regarded aS% Option to
the salary or when they %;1*iSe_ fr;-m "a.lp~rO'fe.ssiOn OI' avoeation.

He also relies upon ihe.f3llO'WiIIg eit3.fiO11lS:1_" ll

  I Q35)  2'»I.l3-.;§alge'-«S95; [Mad] -- COMMISSIONER
   TAX v. RAJALAKSHMI
*  ;

; (}lQ98A)ll'TR2l32l1:)age 575 [Keralal » COMMISSIONER
  Off' lNC€)l\/iE TAX vs. KERALA LAND
 VyIJElVE_LOPMENT CORPORATION LTD;

3;ll-{";«9§a=:'} ITR I95 page 877 _ PADMARAJEZ R.
HKADAMBANDE vs. COMMISSIONER OF INCOME
7~"I'AX; and

4. {I996} ITR 221 page 234 H COMMISSIONER OF

INCOME TAX vs. S.R..M.'"F STAFF ASSOCIATION.



 

-.1

U1

9. Ac:eo1~ding to the iearned counsel _4.._fior_"i~.o_t-he

respondent/assessee the general aspect in thi_s§__case'Vfhas~_to_

be considered in the light of the above decisiunses itiis. Aa gilt ..

and there was no obligation to icon!'-ricbjuiieaae  n'io'neye.;by

M/ s. BHEL and it was pu're_l_.y av"iroii;nta1jy"V'b':;o'nvtrib_ii;1tio11_;""i,

According to him. once theuR°ab'o'veVV  attracts the
definition of a gift,  given by
the assessee, unless   show that the
said contribLit.ior;,attrat:ts€pajtrrrientof   has to be treated
as a  as it does not fall within
the definition  tax is ieviable.

 .,10. ._:Vfar~.as 'thew.cross--objections. according to the

 A1e*q;~nedi'AttQ-tinsel. 'the-hTribunaI was not justified in holding

  tilat assessing authority had issued show cause notice

after recording reasons. Therefore. according to him the

 crossiobgections have to be ailowed While dismissing the

 appeals of the revenue.

.="'\r\

11. The contention of the learned Counsel for the

appeliant is that when once the assessee admits the receipt



 

-15-

as revenue and claims exemption on the *'._.of

mutuality. it cannot turn back andnsay it vv'é1's"'r1:oity:i=.reveri.ue"' .

receipt and was something else  
of income. ' V 9 .9 9  it it 9

12. As against  _V ie.str1neVdC.oE§,1nsel for
respondent submits in  st.i;ract  definition of
income it has to be   one of the

categories of" 'Sec.i;ion;=._ Income Tax Act.

According 'toiiii\/1r:§¢ara'rigstn_, the""iearned Senior Counsel, it
shouidxflow regdir--.ire1y'ia.n'd--.it_:1eed not be found in exemption

category E:tttvi'act'__t.h'e bide-finition of income. According to the

 assessepe, the oont.r.ibutions or the money received by the

' :aVs'sesse'e*o_ver'a_ period of five years right from 1993-1994 to

"1.997~ 1999.98 only a contribution or a receipt given by the

man:ige.i1iei1i to encourage the activities of the I1I(31'I'1b€1'S of

 Aithepassessee. who are nothing but a group of officers

Abeiloriging to the managenient. In order to understand the

9' exact nature of the receipt of money by the assessee in the

above appeals. we have to see the definition clause of

income.



-13-

Section 12. When the argument of th.e iear11ed..«.C'outnseiVvfor

the reven'ue is that when once they claim the..urec:eipt as ''

revenue receipt and ask for exen'1§;5i,ion."they cannot go"back

on such statement and say that the definition of income is,

not attracted to the facts of th'ec'fn'esent, 'ease,  matter of V

fact, in the present. caseyno  Vdcaxflne tovbe filed for the
above said assessment  __:the"_'.V.a's*sessee and with
reference  Section 148, a
notice came  aslseyssee on the ground that

there. is a'n]"V_..escape-meagit of income from assessment.
According "to the assesge'e,"" the entire income received by

there... in a ._part'ieu'iarT assessment. year including the

 'contribution madvemdby the management of BHEL, it was

:n1rnchVV:"below~r.the taxable income. Therefore, there was no

oc_casio:1'ior'the1I1 to file the returns and they had to reply

 the show cause notice under Section 148 by filing the

 retiirns after obtaininu' necessa documents from the

rnarrageme1'1t..



W

.19-

14. Fro111 §l'l(::' origi1'1al records per'{.ai11ing to the"-above

said z"'1ssess:1':c'1'1t yea1's. we note that the 111a11ag_eme11ta. has

i11lo1"1m~:ci {he ('1e;');.11'11.o11e111 saying that the co11ti*i.bui1'_ons made 

by 1l1e1'11 were ;.>;iI'1.s or do11a1ion:'5; loll'th'e"-,e1ub..lVl" b«f'l"he1--'efor"e,

t11o=.:gl1 11110 assc.:.sse.e (rlain'1ecl exe11;ptl'0n on Lhe"I)oCnt;'i1*1.el'of

l\/Iuf1.1alit.y it \-W-5I.?.-.3 the duty ol"1.h"e..easseVssing- lo flrstl'

e11qL.1i1'e and ve1"ii"_v whellzer so"Lalled"'revenue'receipt said to

have been 1'eceivec.1 by lE.l1_:_--,-l'asse1sssee.lwoulti-fall under any of

the 1.1-:11crgo1*y_r1§f&li1v:r;<.>11;1e e1'1u:11era.1jed ungsler Section 2[24}{iia)

and V"Lf]71e1l'1*  \x'l5;el.l1e'r.'l'a11y' e"Xe111ptio11 is available to the
ass('tss§%;:,§e; ll'; '._l'1L;'.'«a'1ei1.1o'L=1.hiss-.1feg:eived by the assessee goes out of

the 1:)L.11*\-riew' of Vi1'1'c'j<')111e.'<aL1tomai':ically none of the provisions

__L1V1o1r.:o1'11e ;["a:%:...Arc1. would be applicable to the assessee.

' ;O11e i'=1.;1.s<t:o1. {.é11.c1e1~s1'21nd the receipt of money depending upon

lthel fe'1e1s7j;1:j1.1tl c7irc1u11s1.a11ees of each. case especially with

1'el'e:je1"'1A<;reV to 1'el221'£io11sl1ip between the Contributor and

AA Cont.ri%'1u1'.ee_ '1'§1et.'r: is no doubt. so far as forrr1atio'r1 of club
A":bel1A.\.u:c:.1'1 1,171.2': c'1fi'i<'e1"..<s of one particular w1'1'1g of BHEL. The

I11e1112;1g;;e111e111 is l'1t:.'.ill1€:'.1" :21 promoter nor a n1er11ber of the said

011.113. it l'12--Ls um ('V011 C1'ea[.ed any Corp1.1s for the assessee



 

-32-

clause (V) runs:w"A11y Capital sum receivedyti-n't~.

C01I'1l'1'}UiE1U'O1"1 of the whole or a portio.n~«.of,_a  , A'

pension, or in the nature of eonisotlldatevd

Con1pe1"1.sa1.ion For death _y0r.»_ir1}'uriVeS'"," 

payment of any insurancie poA1y1«Cjy,u}oi',Aas"the 

acc:un1uIated balance at I_t_he._ credit of' 

subscriber to any sz1ch.Proyiden't   
Their Lordships do""nbot.VVthi1ik'  any of
these sums, apa'rt_ t'roin'H Le'x.e.rnptiovn, Veould
be regarded in' any" taxation as
income. and they"ih--ih&kVt;hat_   must be

due t:o%_'the}:;m?et- an;><§tety of the Cir-eftsman to make

possihtitltty of doubt. They

"cannot as enlarging the word

"in'corhr1e" "asV'£o" .yinv:.1ude receipts of any kind

' "which arenot épecially exempted. They do not

it-heinkz thatthe"e1ause is of any assistance to the

  

 relies upon [1965] 56 {TR {Sh.N.) 31, page

532, 'in the case of Parimisetti Seethararnamma --vs--

"Co.n1n1i$.3sione1' of Income Tax. Andhra Pradesh.

E7. The iearneci Counsel for the assessee also relies

-"tlpflll YTR Voi.I9-it 1992 877 in the ease of Padmaraje R



 

.23..

Kadambande --vs-- Commissioner of Income Tax, whe_re_in-..1;l1e

controversy was to know whether the aniount involved'---wa:a_ai.V

capital or income. In the said casemtlieir Lortis--h:i'ps°hel*d 1;};1at" .

one has to see t.he nature and C-ual1t;ol'7. l'3al'm'en't::eto

understand whether the rec.eiip._t_'_ waslinclome c.)r"oth4e_rwi;§-3e. M In 4

the said case though there  obligation' on the part of
the Government to  .'allo1vanV'c:6'<:C'on the application of
applicant an allowance Vcaine  o'rdVer'e.fd compassionate

grounds a11d¥\,vh;e,n the inco"rne"TaX.'Authorities termed it as

income, ullttimla.telyl,t.he:matter  up to the Supreme Court
and theii: Lordsl1i«p"s. .the,_A;3eX Court held that as th.ere was

no conipulsion l'on'tl1"eillpart of the Government to make

payment. nor-. tl1'e'l Government was obliged to make the

 . 'po;.m'1o--':: and as tzliempaynient was purely a discretionary one,
 the'ipayignerit.tp_in.ade by the Government was only a Voluntary

'pay'n?1eni-ai=;d7i'tl11ad no origin in what could be called the real

sou7rce"'*lof' 'i'n.lcon1(-2. "ll1erel"ore, their Lordships held that even

.' .l;hOLEgfl"'l'l1Cl'E'. was an order for payment. of allowance. as

" 'i.l1er_f?;- was no obligation or compulsion on the part of the

J"

(?}ove1*11me.n1, to pay such allowance. such allowance cannot.



 

-24..

be bi'()l1gh[. undei' the definitioii of income at{.1"a(?1,it1g"i'fi'£'.Qn1e

tax.

18. In the Padmaraje's case there _a=.i*e{--'e'rence'"to.y 

H. H. Maharani Sh 1'! Vijaykuve rba  :,o'E'._Morv.i ' ' y 

Commissioner of h1CT0l11("3i3X,; Bon1h'ay;'49 ETPQ, fnhthatvoy

case there was a voluntary pé[yif1'G11t  ~theea-oiicof €X~Rl11€I"

on abdication of the c-ifow_"n and zqtiéstioll  Vtvhether the

voluntary payment an1oun_tshftio'iI1_e.ona.e~.attractiiig the tax.

U1timate}j,I,   th'at~":as the payments were
coninieiitted  4tLh;e"'1"uter had abdicated, they were not
made tii'"1d_'eh1'  "O1'fi_."'CO11t1'aCtuEl1 Obiigation and as the

pay;'11ei'it.s [allowances] were not also made under any

. 'cr.}._s1.o_11'1n o:jti-sage or as a maintenance allowance, they were

'~_paynients.__ei1tfii'e1y Without any consideration and were not

t'.ra'cea'--b1e"'£fo any source of income, therefore. they were not

V 'A taxabie.

19. "me. ieamed Counsel for the revenue relied upon

fseveral clecisions. which are enumerated above. In the first

case of Baiikiptu' Club, the concept of mutuality was the



 

. Rm

-25-

s'ubjeci. and it pertains to amounts received by  for

supply of drinks, 1'ei'reshment.s or other goodsm'asi.V_'a--Esor.-Vghe

ietting ofbiiilding for rent or the amounts-recveiyeri"hy'«way"oi? 

admission fee etc. U1t.imai'.e1'y th.eir heidhthié-.,_i__ th_vei'e

was no ac1.ivi1;y. which could  treated as afrading aj;otivit_y;

and the various faciiities euXievi1d_ed    to its
members were 1"lOJ{'.}Fi::'.1.fl'§f; Vflusizal vvoriyiieges and
conveniences ai,EaCheciW[o'  the Club. The
surplus or  of' riéoeipis ..e2>j€penditu1*e as a result
of  said to be income for the
purpose of  

_ y  h i i ' IT} Employees Death. and

 Soy  

Si,ipe;'a:111y11ai..i()ii'Relief Fund, it was a charitable trust and

V _ created for the benefit of a pubiio sector

'eo'i'Ii1Je11i1y':e:'Ii. was found that there was receipt of money apart

from {he vCO11TI"ibL1E'iOI'ES made by the members of the club.

x'.Ii'h..«ereI'ore. it was held that the money ctoming' from other
"isources of fuiidirig of the t:'L1st. which was deposited in the

banks eamed certain imeresi and said interest. has to be

i41'€'c1i€'}f.l as i:1<*(.)m.€.



\.:'x

-26..

21. The other club Case is Ranehi Club his

was a club havirig combination of receipts of_.:§T_fI1ottIii';-- Wifiiieiav

was part. of mutuality activity ancthaiso other'ae'_tiyities, Their-. L 

Lordships have held that so far 'as t:_he,inCo.me "c:of'r'ii:i"1g"i"i«forr1

the muttiality activity or the -a__rrangemxent, t.i*iis..y:ivneVoIr33e need'

not be considered as income toityvthe pufpose of  But the
other income in i*espe_ot'-- oi'~'tra;1sia'et_iofisy otherwise found on
the Doctrine of M-utua]_ity_  to b'e'vta'ii:en"' as income of the

Club and   to lire pa'i}:1 of:.,si'1e'h-rteceipts, unless it was

exen:1hpHteC1"uiifdver   pi-oyiision of the act.
.111  apparently the contributor is
the _me1I1ag&vn1'ent: "Vane? it not the member of the club of the

 "i'heVi*et'o--r--e',V the question of applying Doctrine of

V  claimed by the assessee would not arise in

'this ea.se'.ff_ It was the duty of the assessing officer to see

whetheij such claim was justified in this case. If only the

assessing ofi'ieer has proceeded from the aspect of
V'5COl1Sid€'l'il'}g the source of income, whether it would attract

the defiimiori oi"i11eo1ne as eo;'1ten1piai'.ed under the Act, he

would 1'12;-we (,:ii1'e(:t.e(.i himself in aCeo1'danee with the



 

-27.

procedure. He proceeded on the assumption thajl7i_twas a

club with ccrt2.1ir1 mutuality arrangement wh'erejfac'i.5.:ities

were given to the club members because Of~*.'.I"1C:fl'. _co;otr.i_buti"or1 

of membership fee and other sfbubscrip.tio_ns._"-.Tl'he.._linc;o1fr1e

received by the assessee is,r:either'* membership tee iiorhanyly

allowance made in lieu of eithe.r's.ala1y'or_ fjay'me:13ts liable to
be made by the riiariaggenieiiit  its officers. It was
purely a voluntary ttont',i*ihutioii. 

23.  a"._vo';u--rfta'ryA.'c*oi;iri1f.ution of this nature

would fall' «_u1t.iV::;'~- of income i.e. sub--rule [ii~a] of
Section i-1*ead'i-hhgddf the above said provision would
defi_11it,ely 'Wake _'awayV'"'the present assessee out of the

c_liarita'i;le i.ru's't,...§1syt.~é:he club is not formed for any of the

A'c.hai'i_tAahleWactivitiy and it is only for the benefit of the

 iT1e1fr1b.Cf'i:c§of;'i..he club. where no Charitable activity is carried

ooh byV.t;h_.e:'..--el:.:l3. ll" this contribution received by the club,

which is not indulged in any charitable activity, the question

it oi7-._apolyi11g3 S€(','.lIi()1'1 2{24](ii~«a) would not arise. in other

words, it would be out of the pun/iew of the said provision.

__7'l'hen what. would be the nature of the amourit or



 

-23-

contribution received by the assessee'? in the present case,
the records of the management would indicate that they had

contributed these amounts, which were not uniformfoxfer a

period of five years. would indicate that ,ti:1eregj'tt}as:."11o';

continuity or regularity in contributing these' am_:our1ts.u't.'

Therefore, we can only opine thatit 'dVcon~tri13_ttted

the members in good humottr, so" thatdVbt}'A1e~:y*~~».x,ro:ild be

discharging their duties with_.:11t'rn.ost_Vcomdmihjnent. In other

words, such contribution--cot1id-he tei1"rned as a good gesture

on the  "manuage1ne'nt" to encourage the officers of
its co.mf;any' . "do'i'..hette'aj_. performance. There was no
compuIsio:1 or Vol;_iiga_tio.n: on the part of the management to

c_o_r:.trjh'ut',e this'mo.ney and it is nothing short of a good

' ;.Vge-sture"to'wa1-ds its empioyees. Once it does not come under

"the p1!1I"t}:1§5'tZt.r;: of either salary or aiiowance compulsoriiy

payalfiie  the management to the members of the club, it

2 it takesfldthe nature of a voluntary act on the part of the

Aigrnanagenaerlt. If it is a voluntary payment not made to a

H charitable trust, it can only be termed as a gift or a donation

made by the management: to the assessee ctub and nothing



 

-29-

else. "I'hereiore._ the Tribunal was justified in ho1dj.ng._"{hat it

does noi; come w1'1hi.:'1 'she purview of inC0mjé'"'asf~diefinecl

under Section 2[24}{ii--a). There'fo1'e,_.~thé:':'r_ 

questions of law raised by the :appe1i~ant/ reve.m1_e ,_.a:r'e

answered in negative.

24. So far as mfoas c%bje_(:ti'ons,na1*.e concerned, having
regard to answering the sLibstaniia--I'~qLze's€';_ions of law agamst

the i'€V€l.'1L1€5"i,1'1'~?f~'ff:'ES no 1ii1e-ed to  the cross objections

having Ioee.of;"ne .»jf';::1VVE"1'Ll'C1fL.i"Ok,ES. _"V"}\VcCo1.'ding1y, appeals of the
revenue are d--ismifssed_. :2»: Lhe reasons mentioned above and
the gross 'o~hjeo1:1fonsA'aredismissed as infructuous.

 .....  

Tudsfi sai 1, 311539' "",*sgR/Na/-