2025 PLP 650 (PTD)

SYED MUDASSER AMEER, J.

The present Reference under Section 133 of the Income Tax Ordinance, 2001 (hereinafter referred to as 'the Ordinance') has been preferred by Commissioner Inland Revenue against the order of Appellate Tribunal Inland Revenue dated 17.10.2012.

2. Arguments heard and record gone through.

3. The controversy pertains to the application of Section 153 of the Ordinance to payment of "membership fee" to Defence Housing Authority Country and Golf Club (hereinafter referred to as the 'DHA Club') by the respondent/taxpayer. It is averred that the taxpayer has failed to deduct tax under Section 153 of the Ordinance from the amount of Rs.2,730,000/- paid to the DHA Club as membership fee. The taxpayer maintains that since the nature of the payment of fee paid on account of acquiring the DHA Club membership does not fall under any category of payment specified in Section 153(1) of the Ordinance, therefore, it was not required to deduct any tax. The department, however, insists that such payment falls within the ambit of 153(1)(c) of the Ordinance being a payment made for/against services.

4. In understanding the issue at hand, we have immensely benefited from a recent judgment of Hon'ble Sindh High Court in the case of Karachi Golf Club (Pvt.) Ltd. v. Province of Sindh and others reported at 2021 PTD 558, wherein the doctrine of mutuality has been very elaborately dealt with. Relevant paragraphs thereof are reproduced herein below: -

24. The applicability of this doctrine in taxation matters is a prominent common law (and statutory in some jurisdictions) concept based on the maxim that a person's income consists of funds derived from external sources and taxability is impermissible if the funds are derived from internal sources or collected for the benefit and concern of the contributors of funds. This is often applied fully or in part to the activities of members' clubs, associations, sporting and pastime organizations, as well as cooperatives. The essence of this doctrine, in nexus with taxation matters, denotes that receipts that fall within the purview thereof are exempt from taxation since monies derived from oneself cannot be subjected to taxation. ..

26. The development of this facet of law in Pakistan remains fractional because of the intermittent nature of cases and unique factual situations, as is usual with common law development. The concepts that underlie the application of the mutuality principle have been addressed in isolation, based on the specific legal arguments raised in particular court cases. A pioneering pronouncement of Pakistan's jurisprudence in this arena was the Division Bench judgment of this Court in the Sindh Club case, wherein it was maintained, after sifting through a plethora of commonwealth authority, that nobody could make profit out of oneself, therefore, the doctrine of mutuality precluded the qualifying receipts of the club from the ambit of taxation. The pronouncement in the Chelmsford Club case was cited with approval.

27. It is, therefore, observed that the doctrine of mutuality is a judicially recognized set of principles applicable in taxation matters of members' clubs."

5. In the Sindh Club case (Sindh Club v. CIT, South Zone, Karachi (ITR 445 of 1990) judgment dated 02.03.2016, reported at 2021 PTD 658, it has been held by the Hon'ble Sindh High Court that the surplus accruing to a member's club from amounts received from its members in respect of activities/services provided to them could not be considered to be income as profit of the said Club, as due to doctrine of mutuality, no one could make a profit out of oneself, therefore, the amounts received by the members' club by providing temporary accommodation to its members were exempt from ambit of income tax under Section 10 of the Income Tax Act, 1922. Relevant paragraph of the same is reproduced below for ready reference: - "

14. It is an admitted position that the decision on the basis of which the ITAT had dismissed the appeals of WHEELER CLUB LIMITED was subsequently overruled by the Supreme Court of India by declaring the same to be not a good law, hence, in our view, the whole edifice built by the ITAT in rejecting the appeals filed by the club had crumbled to the ground. It could now be held safely, in view of the decisions cited above, that a surplus accruing to a members club from the amounts received from its members in respect of facilities /services provided to them could not be considered to be either income or profit of the said club liable to tax, in view of the principle of DOM, since it is a settled proposition of law that neither anybody could make profit out of oneself nor members could trade with themselves. In our view, the decisions given in the cases of CHELMSFORD and LYALLPUR CENTRAL CO-OPERATIVE BANK are the complete answer to the question referred in the present ITR. We, therefore, answer the question referred to us by the ITAT in affirmative i.e. in favour of the club and against the department. The amounts thus received by the club from its members for providing temporary accommodation is hereby replied to be exempt from the ambit of tax under section 10 of the Act on the basis of principle of "DOCTRINE OF MUTUALITY" being fully applicable in the instant reference."

6. The above being the settled legal position hardly leaves any room for further debate on the point. Thus, the decision of the Inland Revenue Appellate Tribunal is correct to which no exception could be taken and as such this petition is dismissed, while the questions of law formulated are answered in the negative.

7. A copy of this judgment be sent to the Appellate Tribunal under the seal of the Court in accordance with Section 133(5) of the Ordinance, 2001. MQ/49/P Petition dismissed.