IMPORTANT POINTS
1. Under Section 22 of the Income Tax Act tax levied is on income from property concerned and not on the property itself.
2. It is not only the surplus from the activities of the business of the Club that is excluded from the levy of income-tax even the annual value of the Club House, as contemplated in Section 22 of the Act, will be outside the purview of the levy of income-tax.

Headnote:(i) Income Tax Act, 1961-Section 22-Income from house property-Nature of levy-Levy under Section 22 is not on property itself but on income from property.
       Held : The tax levied under Section 9 of the Act (Section 22 of the new Act) is not a tax on property, for more than one reason. Under the Act; be it the 1922 Act or the 1961 Act, the same does not permit the levy of tax on anything other than the income . (Para 8)
       The legislative competence to levy income-tax is traceable to Entry 82 of List I of Schedule VII to the Constitution which reads : "Taxes on income other than agricultural income". Therefore, any law made under this Legislative Entry can impose a tax only on income and not under any other head, there is also no dispute that the Income Tax Act of 1961 is a law made under this Entry. Hence, it is futile to contend that the levy of tax under Section 22 of the Act is a tax levied on property and not on income from property. This view of ours further finds support from a reading of Section 4 of the Act which is the charging Section. This Section unequivocally shows that the levy is on income. A conjoint reading of Sections 2(24), 14, 22 and 23 of the Act also makes it abundantly clear that what is being taxed under Section 22 is the `deemed income of an assessee from the property owned by him. At any rate, this question is no more res integra in view of the judgment of this Court in Bhagwan Das Jain v. Union of india & Ors., 128 ITR 315, where this Court had an occasion to deal with this question where the levy of tax on income from house property came to be challenged on the ground of want of legislative competence, negativing the contention raised therein and rejecting the challenge, the Court held that what is being taxed under Section 22 of the Act is, in fact, an income and not the property. (Para 9)
       (ii) Income Tax Act, 1961-Section 2(24) r/w Section 22-Income -Mutuality-Assessee club provides recreational and refreshment facilities exclusively to its members and their guests-Facilities not available to non-members-Club run on no profit no loss basis-Surplus used for maintenance and development of club-Club house owned by club used for providing facilities to its members-Club s business governed by doctrine of mutuality-Principles of mutuality applies to property income-Annual value of club house will be outside purview of levy of income tax.
       Held : A perusal of Section 2(24) shows that the Act recognises principle of mutuality and has excluded all businesses involving such principle from the purview of the Act, except those mentioned in Clause (vii) of that Section. It is also an admitted fact that the business of the appellant does not come within the scope of business referred to in Section 2(24)(vii). (Para 12)
       It is not only the surplus from the activities of the business of the Club that is excluded from the levy of income-tax even the annual value of the Club House, as contemplated in Section 22 of the Act, will be outside the purview of the levy of income-tax. (Para 17)
       Consequently the business of the appellant is governed by the principle of mutuality even the deemed income from its property is governed by the said principle of mutuality. Therefore the annual letting value of the club building is not assessable to income tax under the head income from property. (Para 20)

JUDGMENT

Santosh Hegde, J.-Two following two questions were referred to the High Court of Delhi by the Income Tax Appellate Tribunal (for short the tribunal ) in respect of assessment years 1977-78 and 1978-79:

"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?"

2. The High Court relying on Section 22 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) and following the judgment of Allahabad High Court in the case of C.I.T., U.P. v. Wheeler Club Limited1 and some observations of the Delhi High Court in the case of C.I.T., Delhi-II v. Delhi Gymkhana Club Ltd.2 answered the question in the negative and in favour of the Department. Against the said judgment of the High Court dated 11.11.1992, the appellant has preferred these appeals.

3. On behalf of the appellant, it is contended before us that the appellant though registered as a Company under the Companies Act, its business is governed by the principle of mutuality, therefore, the income, if any, earned by the appellant is outside the scope of the Income-tax Act. This is based on a principle that it is the only income which comes within the definition of Section 2(24) of the Act, that could be taxed and this definition generally excludes the income from business involving doctrine of mutuality, except the business that is included specifically in sub-clause (vii) of that Section. The appellant contends that its business admittedly does not come under that clause, hence, any income earned by the appellant is not exigible to income-tax. The appellant relied on a decision of this Court in C.I.T. v. Bankipur Club Limited3. It is further contended by the appellant that what is taxed under Section 22 of the Act is in reality an income, though in a deemed form and, therefore, this income is also outside the scope of income-tax in view of the principle of mutuality. For this proposition, the appellant relies on another judgment of this Court in the case of Bhagwan Dass Jain v. Union of India & Ors.4.

4. On the contrary on behalf of the Revenue, it is contended that the business of the appellant is not governed by principle of mutuality because the said business does not show that there is any identity between the contributors and the participators as is required for establishing the doctrine of mutuality. For this proposition, the respondent relies on a judgment of this Court in the case of C.I.T., Bombay City v. The Royal Western India Turf Club Ltd.5. The respondent also contends that the levy of tax under Section 22 of the Act is a tax on property and not on income, therefore, the principle of mutuality does not apply to such levy. For this argument, the respondent relies upon a judgment of the Allahabad High Court in the case of C.I.T. v. Wheeler Club Ltd. (supra).

5. Before we proceed to examine the rival contentions addressed before us, we should notice the undisputed facts necessary for disposal of these appeals which are as follows :-

The appellant provides recreational and refreshment facilities exclusively to its members and their guests. Its facilities are not available to non-members. The Club is run on no profit no loss basis in that the members pay for all their expenses and are not entitled to any share in the profits. Surplus, if any, is used for maintenance and development of the Club. The Club house which is the subject-matter of these appeals is owned by the appellant and is used for providing facilities to its members.

6. In the above factual matrix we will now examine the questions involved in these appeal

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