The principle of mutuality applies to exempt from income tax the profits arising from the sale of drinks to regular members of a club, where there is complete identity between the contributors to the common fund and the participators in the surplus, and the club does not deal with any outsiders in relation to the sale of drinks.

S.K.Choudhuri, J.

1. These five tax cases arise out of a reference made under Sec.256(1) of the I.T. Act, 1961 ( " the Act" for brief), at the instance of the Commissioner of Income-tax, Bihar, Patna.

2. The following two questions of law have been referred to this court:

" (i) Whether, on the facts and in the circumstances of the case, the profits arising from the sales made to the regular members of the club is entitled to exemption on the doctrine of mutuality ? (ii) Whether, on the facts and in the circumstances of the case, the directions given by the Tribunal are valid in law ? "

3. The assessee-respondent is known as the Bankipur Club Ltd. (" the club " for short), having its registered office at Bankipur, Patna, incorporated under the Companies Act, 1956, the liability of its shareholders being limited by guarantee. The main object of the club, as the memorandum of association shows, is to afford to its members all the usual privileges, advantages, conveniences and accommodation of a club. Clause 5 of the memorandum of association makes a provision that upon a winding-up or dissolution of the company, if there remains any property left after the satisfaction of all debts and liabilities, the same shall be paid to and distributed amongst the members of the company in equal shares. Articles of association under Article 6 reads :

" Only permanent members shall be deemed to be members of the club."

4. Article 15 speaks of temporary members who may be elected for not exceeding three months in any calendar year. To become a temporary member the person would be a person not permanently residing at Patna or within ten miles of it. No entrance fee is payable by them, but they are to pay a fixed monthly subscription. Under Article 5, the Governor and the Chief Minister of the State may be invited by the committee to become honorary members of the club. Article 17 is a provision for giving to the temporary and the honorary members all the privileges of the club, subject to such restrictions and regulations as may be prescribed by the rules or bye-laws of the club; They have, however, no right to vote at a meeting or be elected on committees or bring any guest.

5. The ITO initiated proceedings under Sec.147 of the Act for the assessment years 1960-61, 1961-62, 1962-63, 1963-64 and 1964-65 against the club. The club filed returns of income-tax for all these years along with profit and loss accounts and the balance-sheet of the company. The return showed " nil" income from the house property as also " nil" income from the business or profession. The ITO assessed the club under various heads including sale of drinks at the bar. The receipt under this head, namely, " Sale of drinks at the bar ", is only disputed in all the aforesaid five years. The ITO held that profit on the sale proceeds of the drinks by the club is also income and, therefore, liable to be taxed. Five appeals were preferred before the AAC against the five assessment orders passed by the ITO for the aforesaid years in question. They were heard together and disposed of by the AAC. He agreed with the ITOs decision and held that the profit from the Bar was not exempted as the principle of mutuality was not applicable. It is not necessary to state about assessability of the other heads determined in appeal as they are not disputed nor any of them has been referred to this court for determination.

6. Then the matter went up before the Appellate Tribunal at the instance of the club and the five appeals preferred by the club were disposed of by a common judgment. It agreed with the submission put forward on behalf of the club that the principle of mutuality would apply in regard to the transaction of sale of drinks at the bar. The Tribunal, therefore, after discussion of the relevant facts and law, passed an elaborate judgment, the operative portion of which reads thus:

" 23. Finally, there is one issue and the facts are insufficient to come to a decision. It will b