Tuesday, 31 March 2015

Whether if assessee-club sells complimentary liquor for a price, such activity is to be construed as commercial in nature - YES: ITAT


THE issue before the Bench is - Whether the value of complimentary liquors has to be assessed as income of the assessee, if the assessee has failed to furnish the details of persons who consumed the complimentary liquor and such liquor has been sold at a price. YES is the answer.
Facts of the case
The assessee is a mutual association. During assessment, the AO observed that the assessee had claimed certain receipts as exempt from taxation under mutuality principles. The AO noticed that some companies had contributed to certain events organized by the assessee and since the contributors were non-members, the AO took the view that the above said contributions were assessable as the income of the assessee. The AO further noted that the value of complimentary liquors was to be assessed as income of the assessee, since the assessee had failed to furnish the details of persons who consumed the complimentary liquor and accordingly assessed the sale value of complimentary liquor as income of the assessee. On appeal, the CIT(A) confirmed the same. Before the Tribunal, the counsel of the assessee had contended that in respect of sponsorship receipts, companies had only contributed to the conducting of events by way of sponsorship and which were used to reduce the cost of expenditure incurred in respect of those events. Accordingly he submitted that there was no income element involved in these receipts. Also, if the above said receipts were considered to the income then the corresponding expenditure should be allowed as deduction. However, in respect of complimentary liquor the counsel of submitted that the assessee had sold the complimentary liquors only to its members and that non-members were not allowed to utilize the services of the club.
On appeal, the Tribunal held that,
++ there is no dispute that the companies are non-members. However, we are of the view that one has to see the object behind the receipt of these contributions from the above said companies. There is no dispute that the assessee has been organizing various events for the mutual benefit of its members. The contributions, if any, received from the members were utilized for conducting the events and the surplus, if any, is accepted as exempt under the principles of mutuality. The above said companies have partly sponsored the events, apparently as a part of their respective sales promotion activities. Hence, the objective of the assessee in receiving these contributions, in our view, can only be considered to be to meet part of the expenditure incurred in organizing the events. Hence, in our view, there is no intention to earn any income out of the above said contributions, since it only goes to reduce the expenditure. Hence, we are of the view the above said contribution cannot be subjected to tax as income in the hands of the assessee. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete this addition;
++ we find merit in the view taken by tax authorities. It is an accepted fact that the complimentary liquor has been sold at a price, meaning thereby the intention of the assessee was to make profit out of sale of complimentary liquors. Thus, the action of the assessee was commercial in nature. It was not shown to that the liquor companies, who have given complimentary liquors, are members of the assessee. Hence, we do not find any infirmity in the decision of the CIT(A) on this issues;
++ in the appeal filed by the revenue, the only issue urged relates to the assessment of interest income of Rs.7,08,931/-. Both the parties agreed that this issue has since been decided against the assessee by Supreme Court in the case of Bangalore Club. Accordingly, we set aside the order of CIT(A) on this issue and confirm the assessment of interest income.

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