(a) Income-tax---

----House property---Members' club---No rent received from property---Not occupied by club for business or vocation--Annual value liable to tax---Indian Income Tax Act, 1961, S.22.

The assessee, a members' club, owned and occupied a club house. The assessee did not let out the premises to its members or to outsiders. Nor did it occupy the premises for any business or vocation. For the assessment years 1977-78 and 1978-79, the Income-tax Officer assessed the annual letting value of the club house to tax in the hands of the assessee under section 22 of the Income Tax Act, 1961. But, on appeal, the Appellate Tribunal held that the income from house property was not liable to tax. On a reference:

Held, reversing the decision of the Tribunal, (i) that since the assessee had not let out the premises and had not carried on any business or profession therein, and the club house was in self-occupation of the assessee, the provisions of section 22 applied and the assessee was liable to tax on the annual letting value of the club house.

(b) Income-tax---

----General principles---Mutuality---House property owned by members' club- No rent received---Principle of mutuality does not arise.

Principle of mutuality did not arise in this case because no money had arisen to the assessee by way of rent, the club house was in self-occupation, and the incidence of tax under section 22 was on the ownership of the building.

C.I.T. v. Wheeler Club Ltd. (1963) 49 ITR 52 (All.) fol.

C.I.T. v. Delhi Gymkhana Club Ltd. (1985) 155 ITR 373 (Delhi) ref.

B. Gupta and D.N. Malhotra for the Commissioner.

Nemo for the Assessee.

JUDGMENT

B.N. KIRPAL, J.---In respect of the assessment years 1977-78 and 1978-79, the Income-tax Appellate Tribunal has stated the case and referred the following two questions to this Court:

"(1)Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal was legally correct in holding that the annual letting value of the club building is not assessable to Income-tax under the head `Income from property'?

(2)Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal was legally correct in holding that the principle of mutuality applies to the property income and accordingly it is not taxable income of the assessee?"

Briefly stated, the facts as found by the Tribunal are that the club owns an immovable property, viz., a club house. No rent-is received by the club. The Income-tax Officer sought to invoke the provisions of section 22 of the Income Tax Act, 1961, and assessed the annual letting value of the club house to tax. An appeal was filed to the Commissioner of Income-tax (Appeals) but without success. A further appeal was filed to the Income-tax Appellate Tribunal. It appears that a similar question had arisen in respect of two earlier assessment years 1971-72 and 1973-74, wherein the Tribunal had come to the conclusion that no income was liable to tax in the hands of the assessee. For the present years also, the Income-tax Tribunal flowed its earlier decision and came to the conclusion that the income from house property was not liable to tax It is thereupon that, on an application from the Revenue, the aforesaid two questions have been referred to this Court.

Section 22 of the Income Tax Act, 1961, inter alia, provides that the annual value of the property of which the assessee is the owner, other than such portions of the property which he may occupy for purposes of business or profession, is to be charged to tax under the head "Income from house property". It is not in dispute that, in the instant case, the assessee has not occupied the club premises for any business or vocation, the profits of which are chargeable to income-tax. This being so, the provisions of section 22 of the Act will clearly apply.

The respondent club has not let out its premises either to its members or to outsiders. It is not carrying on any business or profession in the said premises. The club premises are, therefore, in self-occupation of the club itself. Under section 22 of the Act, it is the annual value of the property which is subjected to tax and which, at the relevant point of time, did not necessarily have a direct relation with the rent which was actually received or could be received. The incidence of tax under section 22 is on the ownership of the building and it is for this reason that the Allahabad High Court, in the case of CIT v. Wheeler Club Ltd, (1963) 49 ITR 52 came to the conclusion that the provisions of section 9 of the Indian Income Tax Act, 1922 (corresponding to section 22 of the 1961 Act), were applicable in the case of a club. Even this Court, in the case of CTT v. Delhi Gymkhana Club `Ltd. (1985) 155 ITR 373 at page 376, observed that:

"Letting out of the premises is merely a provision of a facility for members. The principle of mutuality clearly applies to the surplus earned as a result of such activities. It may be that if the income can be treated as rent derived from house property, the rent or the income derived from house property will be assessable under section 22. That may be so because of the statutory fiction contained in section 22 of hot and the scheme of the Income Tax Act that the income from the house property will be assessable on notional basis.-

Our attention has been drawn to some of the decisions of different Courts where conflicting views have been expressed in cases where rooms were let out by the club to its members. It is not necessary for us to advert to the said decisions because, in the present case, the club premises have not been let out by the assessee to its members and no rent has been charged from them. It is no doubt true that the club is charging subscription from its members but there is no rent relatable to the premises which is being realised.

We are in agreement with the conclusion of the Allahabad High Court in Wheeler Club's case (1963) 49 ITR 52 and, therefore, question No.l is answered in the negative and in favour of the Department.

Question No.2 is also answered in the negative because the principle of mutuality does not arise in the present case because no money had arisen by way of rent and the provisions of section 22 of the Act are being applied because the property in question is in self-occupation.

There will be no order as to costs.

M.BA,/2394/T Question answered.