JUDGMENT :

Ujjal Bhuyan, J.

Heard Mr. Challa Gunaranjan, learned counsel for the appellant and Mr. J.V.Prasad, learned Standing Counsel, Income Tax Department for the respondent.

2. This appeal has been filed by the assessee under Section 260A of the Income Tax Act, 1961 (briefly ‘the Act’ hereinafter) against the order dated 09.08.2005 passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’, Hyderabad (briefly ‘the Tribunal’ hereinafter) in I.T.A.No.1135/Hyd/2004 for the assessment year 2001-2002.

3. We find that on 17.10.2005, this Court had admitted the appeal on the following substantial questions of law:

1. Whether the ITAT is justified in holding that the principal of mutuality does not apply with reference to transaction entered into by the assessee with the non-permanent and non-life members ?

2. Whether by virtue of the definition of member in the memorandum of association of the assessee read with Section 13 of A.P.(Telangana Area) Public Societies Registration Act, the non-permanent and non-life members are also members to whom the principal of mutuality applies ?

3. Whether on the facts and in the circumstances of the case, for the assessee to avail the benefit of exemption for its income under the doctrine of mutuality, is it required that the non-permanent or non-life members participate in the day to day affairs of management of the association ?

4. Whether the order of the ITAT is perverse in dismissing the appeal without any discussion with regard to the liability of tax for the interest amounts received from banks, receipts from sale of scrap ?

5. Whether the ITAT is justified in dismissing the appeal with regard to the amounts received as interest from banks and also receipts from sale of scraps when under the memorandum of association the said amounts are to be disposed of in the event of dissolution by the members ?

4. In the hearing today, learned counsel for the appellant submits that he would confine his submissions to question Nos.1 and 3 only.

5. Sum and substance of the above two questions is whether the principle or the doctrine of mutuality would apply with reference to transactions entered into by the assessee with the non-permanent and non-life members ?

6. We may mention that appellant/assessee before us is the Jubilee Hills International Center, which is a club, but, registered as a society under the Andhra Pradesh (Telangana Area) Societies Registration Act, 1350F. It is basically a recreational club, facilities of which are to be availed of by the members.

7. In the assessment proceedings for the assessment year 2001-2002, assessing officer held that appellant would be entitled to exemption from income tax on the principle of mutuality only in respect of transactions entered into by the appellant with the permanent and life members. As a result, amounts received by the appellant under five different heads related to non-permanent and non-life members were included in the income of the appellant and assessed accordingly.

8. On appeal, first appellate authority i.e., Commissioner of Income Tax (Appeals) confirmed the finding of the assessing officer.

9. Thereafter, appellant preferred further appeal before the Tribunal. Tribunal noticed that non-permanent and non-life members do not have any voting right; they are neither part of the general body nor can they participate as members of the governing council; they therefore, cannot participate in the management of the appellant and have no right of disposal over the surplus in case of dissolution of the appellant. Therefore, Tribunal held that principle of mutuality does not apply with reference to transactions entered into by the appellant with the non-permanent and non-life members. Thus, the order of the first appellate authority was confirmed. Hence, this appeal.

10. Learned counsel for the appellant submits that in the case of the appellant itself, Tribunal, for the preceding assessment year 2000-2001 and the subsequent assessment years 2002-2003