COMMISSIONER OF INCOME TAX, BIHAR versus BANKIPUR CLUB LTD.

Citation: [1997] SUPP. 1 S.C.R. 263 · Decided: 08-05-1997 · Supreme Court of India · Bench: K.S. PARIPOORNAN · Disposal: Dismissed

Judgment (excerpt)

COMMISSIONER OF INCOME TAX, BIHAR 
v. 
BANKIPUR CLUB LTD. 
MAY 8, 1997 
[KS. PARIPOORNAN ANDS. SAGHIR AHMAD, JJ.] 
Income Tax Act, 1961: Section 28(i). 
A 
B 
Income tax-AYs. 1960-61 to 1964-65, 1974-75 to 1976-77, 1982-83, 
1985-86 to 1989-90-Member's clubs/social action groups-Registered as non-
C 
profit companies under S.25 of Companies Act-Such clubs received from 
their members amounts for supply of drinks, refreshments etc. as part of usual 
privileges, advantages and conveniences available to members or by way of 
admission fees and periodical subscriptions-Memoranda of Association 
provided for distribution amongst members, or transfer to· a similar associa- D 
tion as detennined by members, of the surplus amount, if any, on winding up 
or dissolution of clubs-Profits-Surplus receipts of-Taxability of-Held: 
Under such circumstances, the said receipts from members, not a "trading 
activity''-Theref ore, the excess of such receipts over expenditure, not a taxable 
income. 
Section 2~Income tax-Income from house property-Ays. 1977-78 
and 1978-79-Member's clubs/social action groups-Registered as non-profit 
companies under S.25 of Companies Act-Accommodation in the buildings 
E 
of clubs provided to members as part of usual privileges, advantages and 
conveniences on payment of rent-Memoranda of Association provided for 
participation of members in surplus on winding up or dissolution of F 
clubs-Held: Under such circumstances, the excess of the rent received over 
expenditure, not a taxable income-Companies Act, 1956, S.25. 
Income tax-Business income-Member's club or mutual con-
cern-Held: At what point, does the relationship of mutuality end and that of G 
trading begin, is a difficult and vexed question-A host off actors may have 
to be considered to arrive at a conclusion. 
Income tax-Business income-Mutual club-Held: Whether or not 
persons dealing with each other, is a "mutual club" or carrying on a trading 
activity or an adventure in the nature of trade, is largely a question of fact. 
H 
263 
264 
SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R. 
A 
Words and phrases: 
B 
"Trading activity"---Meaning of-f.n the context of S.28 (i) of the Income 
Tax Act 1961. 
The respondents were "Members' Clubs"/ "social action groups" and 
were companies registered under Section 25 of the Companies Act, 1956 
as "non-profit companies". The respondents were assessees to income tax 
and the assessment years involved were 1960-61 to 1964-65, 1974-75 to 
1976-77, 1982-83, and 1985-86 to 1989-90. The respondents received from 
their members amounts for supply of drinks refreshment etc. as part of 
C usual privileges, advantages and conveniences available to members as 
such or by way of admission fees and periodical subscriptions. The respon-
dents also received rent for providing accommodation in their buildings 
to their members as part of usual privileges, advantages and conveniences. 
The Memoranda of Association provided for distribution amongst the 
D members, or transfer to a similar association as determined by the mem-
bers, of the surplus amount, if any, on winding up or dissolution. The 
respondents claimed exemption from income tax on their "surplus 
receipts" on the grounds that they were "mutual clubs" - a species of mutual 
undertaking, and did not carry on any "trading or business" - and that they 
did not earn any profit. 
E 
The High Court held that the aforesaid amounts received by the 
respondents were only for/towards charges for the privileges, conveniences 
and amenities provided to the members, which they were entitled to as per 
the rules and regulations of the respective clubs without any profit motive 
p 
and, therefore, the respondents were entitled to exemption from income 
tax in respect of the "surplus receipts". Being aggrieved the appellant-
Revenue preferred the present appeal. 
G 
Dismissing the appeal, this Court 
HELD : 1. The receipts for the various facilities extended by the clubs 
to its members, as part of the usual privileges, advantages and convenien-
ces, attached to the membership of the club, cannot be said to be "a trading 
activity". The surplus - excess of receipts over the expenditure - as a result 
of mutual arrangement, cannot be said to be "income" for the purpose of 
H the Income Tax Act, 1961. [277-E-F] 
C.l.T., BIHAR v. BANKIPUR CLUB LTD. [PARIPOORNAN,J.) 
265 
CIT v. Bankipur Club Ltd., 129 ITR 787 (Pat.); CIT v. Ranchi Club A 
Ltd., 196 ITR 137 (Pat.) (FB) and CIT v

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