The surplus from clubs' member activities is exempt from tax under the mutuality principle since services provided carry no profit motive.

1. Special leave granted in SLP (C) Nos. 22644 of 1994 and 2811 of 1994.

2. This batch of 23 cases was posted together. That was so done on the basis that the same and identical point arises for consideration in all of them. On further verification, it turned out that in 7 appeals, the point that arises for consideration is little different. On the question arising in those appeals no arguments were advanced. So, the said seven appeals are delinked, to be posted later for hearing.

3. For convenience sake, the 23 cases including seven appeals which are delinked can be classified into 5 groups. Group-A : CA Nos. 854-858 of 1996 Commissioner of Income Tax, Bihar v. M/s. Bankipur Club Ltd. Group-B: C.A. Nos. 505/92 and 3974/92, Commissioner of Income Tax, Bihar-II v. Ranchi Club Ltd.: Group-C : CA No. 3382 of 1997 (arising out of SLP (C) No. 22644 of 1994 and C.A. No. 10194/95 - Commissioner of Income Tax, Bombay v. Cricket Club of India; Group-D: CA Nos. 1635 of 1994, 1648-49 of 1994, 2380-82 of 1994 and CA No. 3383 of 1997 (arising out of SLP (C) No. 2811 of 1994) - Commissioner of Income Tax, Jalandhar v. Northern India Motion Pictures Association; Group-E: CA Nos. 4777-78 of 1989, 4534 of 1991, 8046 of 1995, 1773(NT) of 1992, 4303 of 1995 and 3840 of 1996 - Commissioner of Income Tax, Kanpur v. Cawnpore Club Ltd.

4. As stated earlier, the appeals coming within Group-E CIT, Kanpur v. Cawnpore Club Ltd. (seven appeals) are delinked and they will be posted separately to be heard on merits. We shall indicate the reason for this a little later.

5. We hard counsel. The following vital aspects should be borne in mind in adjudicating the question that arises for consideration in this batch of 16 appeals (covered by Groups A to D). The Revenue is the appellant in all the appeals. The respondents in all the appeals are "Members Clubs". They are also called "social action groups". They are all companies, registered under S.25 of the Companies Act, 1956 - "non profit companies". The respondents are assessees to Income Tax. They claimed exemption on their
"surplus receipts" on the ground that they are "clubs" a species of mutual undertaking, and do not carry on any "trade or business". They do not earn any profit. The income received by the clubs by extending facilities to non members is not in issue in this batch of appeals. According to Revenue even the surplus receipts of the clubs by affording facilities to its members, is "income" and so, taxable. That is the sole question arising for consideration in this batch of appeals.

6. Under the Income Tax Act (hereinafter referred to as 'the Act') what is taxed is, the "income, profits or gains earned or "arising", "accruing" to a person". The question is whether in the case of Members' Club - a species of mutual undertaking - in rendering various services to its members which result in a surplus, the club can be said to "have earned income or profits". In order to answer the question, it is necessary to have a background of the law relating to "Mutual trading" or "Mutual undertaking" and a "Members Club".

7. In Halsbury Laws of England, 4th Edition Reissue Volume 23 paras 161 and 162 (pages 130 and 132), the relevant law is stated thus :
"Where a number of persons coming together and contribute to a common fund for the financing of some venture or object and will in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete